CHAPTER II. ECONOMY AND ECONOMIC GOODS
NEEDS ARISE FROM OUR drives and the drives are imbedded in our nature. An imperfect satisfaction of needs leads to the stunting of our nature. Failure to satisfy them brings about our destruction. But to satisfy our needs is to live and prosper. Thus the attempt to provide for the satisfaction of our needs is synonymous with the attempt to provide for our lives and well-being. It is the most important of all human endeavors, since it is the prerequisite and foundation of all others.
In practice, the concern of men for the satisfaction of their needs is expressed as an attempt to attain command of all the things on which the satisfaction of their needs depends. If a person has command of all the consumption goods necessary to satisfy his needs, their actual satisfaction depends only on his will. We may thus consider his objective as having been attained when he is in possession of these goods, since his life and well-being are then in his own hands. The quantities of consumption goods a person must have to satisfy his needs may be termed his requirements. The concern of men for the maintenance of their lives and well-being becomes, therefore, an attempt to provide themselves with their requirements.
But if men were concerned about providing themselves with their requirements for goods only when they experienced an immediate need of them, the satisfaction of their needs, and hence their lives and well-being, would be very inadequately assured.
If we suppose the inhabitants of a country to be entirely without stocks of foodstuffs and clothing at the beginning of winter, there can be no doubt that the majority of them would be unable to save themselves from destruction, even by the most desperate efforts directed to the satisfaction of their needs. But the further civilization advances, and the more men come to depend upon procuring the goods necessary for the satisfaction of their needs by a long process of production (pp. 67ff.), the more compelling becomes the necessity of arranging in advance for the satisfaction of their needs—that is, of providing their requirements for future time periods.
Even an Australian savage does not postpone hunting until he actually experiences hunger. Nor does he postpone building his shelter until inclement weather has begun and he is already exposed to its harmful effects. But men in civilized societies alone among economizing individuals plan for the satisfaction of their needs, not for a short period only, but for much longer periods of time. Civilized men strive to ensure the satisfaction of their needs for many years to come. Indeed, they not only plan for their entire lives, but as a rule, extend their plans still further in their concern that even their descendants shall not lack means for the satisfaction of their needs.
Wherever we turn among civilized peoples we find a system of large-scale advance provision for the satisfaction of human needs. When we are still wearing our heavy clothes for protection against the cold of winter, not only are ready-made spring clothes already on the way to retail stores, but in factories light cloths are being woven which we will wear next summer, while yarns are being spun for the heavy clothing we will use the following winter. When we fall ill we need the services of a physician. In legal disputes we require the advice of a lawyer. But it would be much too late, for a person in either contingency to meet his need, if he should only then attempt to acquire the medical or legal knowledge and skills himself, or attempt to arrange the special training of other persons for his service, even though he might possess the necessary means. In civilized countries, the needs of society for these and similar services are provided for in good time, since experienced and proven men, having prepared themselves for their professions many years ago, and having since collected rich experiences from their practices, place their services at the disposal of society. And while we enjoy the fruits of the foresight of past times in this way, many men are being trained in our universities to meet the needs of society for similar services in the future.
The concern of men for the satisfaction of theirs needs thus becomes an attempt to provide in advance for meeting their requirements in the future, and we shall therefore call a person’s requirements those quantities of goods that are necessary to satisfy his needs within the time period covered by his plans.
There are two kinds of knowledge that men must possess as a prerequisite for any successful attempt to provide in advance for the satisfaction of their needs. They must become clear: (a) about their requirements—that is, about the quantities of goods they will need to satisfy their needs during the time period over which their plans extend, and (b) about the quantities of goods at their disposal for the purpose of meeting these requirements.
All provident activity directed to the satisfaction of human needs is based on knowledge of these two classes of quantities. Lacking knowledge of the first, the activity of men would be conducted blindly, for they would be ignorant of their objective. Lacking knowledge of the second, their activity would be planless, for they would have no conception of the available means.
In what follows, it will first be shown how men arrive at a knowledge of their requirements for future time periods; it will then be shown how they estimate the quantities of goods that will be at their disposal during these time periods; and finally a description will be given of the activity by which men endeavor to direct the quantities of goods (consumption goods and means of production) at their disposal to the most effective satisfaction of their needs.
1. Human Requirements
A. Requirements for goods of first order (consumption goods).
Human beings experience directly and immediately only needs for goods of first order—that is, for goods that can be used directly for the satisfaction of their needs (p. 56). If no requirements for these goods existed, none for goods of higher order could arise. Requirements for goods of higher order are thus dependent upon requirements for goods of first order, and an investigation of the latter constitutes the necessary foundation for the investigation of human requirements in general. We shall first, accordingly, be occupied with human requirements for goods of first order, and then with an exposition of the principles according to which human requirements for goods of higher order are regulated.
The quantity of a good of first order necessary to satisfy a concrete human need (and hence also the quantity necessary to satisfy all the needs for a good of first order arising in a certain period of time) is determined directly by the need itself (by the needs themselves) and bears a direct quantitative relationship to it (them). If, therefore, men were always correctly and completely informed, as a result of previous experience, about the concrete needs they will have, and about the intensity with which these needs will be experienced during the time period for which they plan, they could never be in doubt about the quantities of goods necessary for the satisfaction of their needs—that is, about the magnitude of their requirements for goods of first order.
But experience tells us that we are often more or less in doubt whether certain needs will be felt in the future at all. We are aware, of course, that we will need food, drink, clothing, shelter, etc., during a given time period. But the same certainty does not exist with respect to many other goods, such as medical services, medicines, etc., since whether we shall experience a need for these goods or not often depends upon influences that we cannot foresee with certainty.
Even with needs that we know in advance will be experienced in the time period for which we plan, we may be uncertain about the quantities involved. We are well aware that these needs will make themselves felt, but we do not know beforehand in exactly what degree—that is, we do not know the exact quantities of goods that will be necessary for their satisfaction. But these are the very quantities here in question.
In the case of needs about which there is uncertainty as to whether they will arise at all in the time periods for which men make their plans, experience teaches us that, in spite of their deficient foresight, men by no means fail to provide for their eventual satisfaction. Even healthy persons living in the country are, to the extent permitted by their means, in possession of a medicine chest, or at least of a few drugs for unforeseen emergencies. Careful householders have fire extinguishers to preserve their property in case of fire, weapons to protect it if necessary, probably also fire- and burglar-proof safes, and many similar goods. Indeed, even among the goods of the poorest people I believe that some goods will be found that are expected to be utilized only in unforeseen contingencies.
The circumstance that it is uncertain whether a need for a good will be felt during the period of our plans does not, therefore, exclude the possibility that we will provide for its eventual satisfaction, and hence does not cause the reality of our requirements for goods necessary to satisfy such needs to be in question. On the contrary, men provide in advance, and as far as their means permit, for the eventual satisfaction of these needs also, and include the goods necessary for their satisfaction in their calculations whenever they determine their requirements as a whole.
But what has been said here of needs whose appearance is altogether uncertain is fully as true where there is no doubt that a need for a good will arise but only uncertainty as to the intensity with which it will be felt, since in this case also men correctly consider their requirements to be fully met when they are able to have at their disposal quantities of goods sufficient for all anticipated eventualities.
A further point that must be taken into consideration here is the capacity of human needs to grow. If human needs are capable of growth and, as is sometimes maintained, capable of infinite growth, it could appear as if this growth would extend the limits of the quantities of goods necessary for the satisfaction of human needs continually, indeed even to complete infinitely, and that therefore any advance provision by men with respect to their requirements would be made utterly impossible.
On this subject of the capacity of human needs for infinite growth, it appears to me, first of all, that the concept of infinity is applicable only to unlimited progress in the development of human needs, but not to the quantities of goods necessary for the satisfaction of these needs during a given period of time. Although it is granted that the series is infinite, each individual element of the series is nevertheless finite. Even if human needs can be considered unlimited in their development into the most distant periods of the future, they are nevertheless capable of quantitative determination for all given, and especially for all economically significant, time periods. Thus, even under the assumption of uninterrupted progress in the development of human needs, we have to deal with finite and never with infinite, and thus completely indeterminate, magnitudes if we concern ourselves only with definite time periods.
If we observe people in provident activity directed to the satisfaction of their future needs, we can easily see that they are far from letting the capacity of their needs to grow escape their attention. On the contrary, they are most diligently concerned to take account of it. A person expecting an increase in his family or a higher social position will pay due attention to his increased future needs in the construction and furnishing of dwellings and in the purchase of carriages and similar durable goods. As a rule, and as far as his means will permit, he will attempt to take account of the higher claims of the future, not in a single connection only, but with respect to his holdings of goods as a whole. We can observe an analogous phenomenon in the activities of municipal governments. We see municipalities constructing waterworks, public buildings (schools, hospitals, etc.), parks, streets, and so on, with attention not only to the needs of the present, but with due consideration to the increased needs of the future. Naturally this tendency to give attention to future needs is even more distinctly evident in the activities of national governments.
To summarize what has been said, it appears that human requirements for consumption goods are magnitudes whose quantitative determination with respect to future time periods poses no fundamental difficulties. They are magnitudes about which, in activities directed to the satisfaction of their needs, men actually endeavor to attain clarity within feasible limits and insofar as a practical necessity compels them—that is, their attempts to determine these magnitudes are limited, on the one hand, to those time periods for which, at any time, they plan to make provision and, on the other hand, to a degree of exactness that is sufficient for the practical success of their activity.
B. Requirements for goods of higher order (means of production).
If our requirements for goods of first order for a coming time period are already directly met by existing quantities of these goods, there can be no question of a further provision for these same requirements by means of goods of higher order. But if these requirements are not met, or are not completely met, by existing goods of first order (that is, if they are not met directly), requirements for goods of higher order for the time period in question do arise. These requirements are the quantities of goods of higher order that are necessary, in the existing state of technology of the relevant branches of production, for supplying our full requirements for goods of first order.
The simple relationship just presented with respect to our requirements for the means of production is to be observed, however, as we shall see in what follows, only in rare cases. An important modification of this principle arises from the causal interrelationships between goods.
It was demonstrated earlier (pp. 58ff.) that it is impossible for men to employ any one good of higher order for the production of corresponding goods of lower order unless they are able, at the same time, to have the complementary goods at their disposal. Now what was said earlier of goods in general becomes more sharply precise here when we take into account the available quantities of goods. It was shown earlier that we can change goods of higher order into goods of lower order, and thus use them for the satisfaction of human needs, only if we have the complementary goods simultaneously at our disposal. This principle can now be restated in the following terms: We can bring quantities of goods of higher order to the production of given quantities of goods of lower order, and thus finally to the meeting of our requirements, only if we are in the position of having the complementary quantities of the other goods of higher order simultaneously at our disposal. Thus, for instance, even the largest quantity of land cannot be employed for the production of a quantity of grain, however small, unless we have at our disposal the (complementary) quantities of seed, labor services, etc., that are necessary for the production of this small quantity of grain.
Hence requirements for a single good of higher order are never encountered. On the contrary, we often observe that, whenever the requirements for a good of lower order are not at all or are only incompletely met, requirements for each of the corresponding goods of higher order are experienced only jointly with quantitatively corresponding requirements for the other complementary goods of higher order.
Suppose, for example, that with still unfilled requirements for 10,000 pairs of shoes for a given time period, we can command the quantities of tools, labor services, etc., necessary for the production of this quantity of shoes but only enough leather for the production of 5,000 pairs. Or else suppose that we are in a position to command all the other goods of higher order necessary for the production of 10,000 pairs of shoes but only enough labor services for the production of 5,000 pairs. In both instances, there can be no doubt that our full requirements, with respect to the given time period, would extend to such quantities of the various goods of higher order necessary for the production of shoes as would suffice for the production of 10,000 pairs. Our effective requirements, however, with respect to the other complementary goods, would, in each case, extend to such quantities only as are needed for the production of 5,000 pairs. The remaining requirements would be latent, and would only become effective if the other, lacking, complementary quantities should also become available.
From what has been said, we derive the principle that, with respect to given future time periods, our effective requirements for particular goods of higher order are dependent upon the availability of complementary quantities of the corresponding goods of higher order.
When cotton imports to Europe declined considerably because of the American Civil War, requirements for cotton piece goods remained evidently quite unaffected since that war could not change the needs for these goods significantly. To the extent to which there were future requirements for cotton piece goods that were not already met by finished manufactured products, there were also, as a result, requirements for the corresponding quantities of goods of higher order necessary for the production of cotton cloth. Hence these requirements also could not, on the whole, be altered significantly in any way by the civil war. But since the available quantity of one of the necessary goods of higher order, namely raw cotton, declined considerably, the natural consequence was that a part of the previous requirements for goods complementary to raw cotton with respect to the production of cotton cloth (labor services, machines, etc.) became latent, and the effective requirements for them diminished to such quantities as were necessary for processing the available quantities of raw cotton. As soon, however, as imports of raw cotton revived again, the effective requirements for these goods also experienced an increase—to the exact extent, of course, that the latent requirements diminished.
Immigrants, bringing with them viewpoints acquired in highly developed mother countries, often fall into the error of striving from the outset for an extended landed property to the neglect of more important considerations, and even without regard to whether the corresponding quantities of the other goods, complementary to the land, are available in their settlements. Yet nothing is more certain than that they can progress in using the land for the satisfaction of their needs only to the extent that they are able to acquire the corresponding complementary quantities of seed grain, cattle, agricultural instruments, etc. Their course of action betrays an ignorance of the above principle, which makes itself so inexorably felt that men must either submit to its validity or bear the injurious consequences of its neglect.
The further civilization progresses with a highly developed division of labor, the more accustomed do people in various lines become to producing quantities of goods of higher order under the implicit and as a rule correct assumption that other persons will produce the corresponding quantities of the complementary goods. Manufacturers of opera glasses very seldom produce the glass lenses, the ivory or tortoise-shell cases, and the bronze parts, used in assembling the opera glasses. On the contrary, it is known that the producers of these glasses generally obtain the separate parts from specialized manufacturers or artisans and only assemble these parts, adding perhaps a few finishing touches. The glass-cutter who makes the lenses, the fancy-goods worker who makes the ivory or tortoise-shell cases, and the bronze-worker who makes the bronze castings, all operate under the implicit assumption that requirements for their products do exist. And yet nothing is more certain than that the effective requirements for the products of each one of them are dependent upon the production of the complementary quantities in such a fashion that, if the production of glass lenses were to suffer an interruption, the effective requirements for the other goods of higher order necessary for the production of telescopes, opera-glasses, and similar goods, would become latent. At this point, economic disturbances would appear that laymen usually consider completely abnormal, but which are, in reality, entirely in accordance with economic laws.
C. The time limits within which human needs are felt.
In our present investigation, the only topic still remaining to be taken into consideration is the problem of time, and we must demonstrate for what time periods men actually plan their requirements.
On this question, it is clear, in the first place, that our requirements for goods of first order appear to be met, with reference to a given future time period, if, within this time period, we will be in the position of having directly at our disposal the quantities of goods of first order that we require. It is different if we must meet our requirements for goods of first or, in general, of lower order indirectly (that is, by means of quantities of the corresponding goods of higher order), because of the lapse of time that is inevitable in any production process. Let us designate as Period I the time period that begins now and extends to the point in time when a good of first order can be produced from the corresponding goods of second order now at our disposal. Let us call Period II the time period following Period I and extending to the point in time when a good of first order can be produced from the goods of third order now available to us. And similarly, let us designate the following time periods III, IV, and so on. A sequence of time periods is thus defined for each particular kind of good. For each of these time periods we have immediate and direct requirements for the good of first order, and these requirements are actually met since, during these time periods, we come to have direct command of the necessary quantities of the good of first order.
Suppose, however, that we should try to meet our requirements for a good of first order during Period II by means of goods of fourth order. It is clear that this would be physically impossible, and that an actual provision of our requirements for the good of first order within the posited time period could result only from the use of goods of first or second order.
The same observation can be made not only with respect to our requirements for goods of first order, but with respect to our requirements for all goods of lower order in relation to the available goods of higher order. We cannot, for example, provide our requirements for goods of third order during Period V by obtaining command, during that time period, of the corresponding quantities of goods of sixth order. On the contrary, it is clear that for this purpose we would already have had to obtain command of the latter goods during Period II.
If the requirements of a people for grain for the current year were not directly covered in late autumn by the then existing stocks of grain, it would be much too late to attempt to employ the available land, agricultural implements, labor services, etc., for that purpose. But autumn would be the proper time to provide for the grain requirements of the following year by utilizing the above-mentioned goods of higher order. Similarly, to meet our requirements for the labor services of competent teachers a decade from now, we must already, at the present time, educate capable persons for this purpose.
Human requirements for goods of higher order, like those for goods of lower order, are not only magnitudes that are quantitatively determined in strict accordance with definite laws, and that can be estimated beforehand by men where a practical necessity exists, but they are magnitudes also which, within certain time limits, men do calculate with an exactness sufficient for their practical affairs. Moreover, the record of the past demonstrates that, on the basis of previous experience as to their needs and as to the processes of production, men continually improve their ability to estimate more exactly the quantities of the various goods that will be needed to satisfy their needs, as well as the particular time periods within which these requirements for the various goods will arise.
2. The Available Quantities
If it is generally correct that clarity about the objective of their endeavors is an essential factor in the success of every activity of men, it is also certain that knowledge of requirements for goods in future time periods is the first prerequisite for the planning of all human activity directed to the satisfaction of needs. Whatever may be the external conditions, therefore, under which this activity of men develops, its success will be dependent principally upon correct foresight of the quantities of goods they will find necessary in future time periods—that is, upon correct advance formulation of their requirements. It is clear also that a complete lack of foresight would make any planning of activity directed to the satisfaction of human needs completely impossible.
The second factor that determines the success of human activity is the knowledge gained by men of the means available to them for the attainment of the desired ends. Wherever, therefore, men may be observed in activities directed to the satisfaction of their needs, they are seen to be seriously concerned to obtain as exact a knowledge as possible of the quantities of goods available to them for this purpose. How they proceed to do so is the subject that will occupy us in this section.
The quantities of goods available, at any time, to the various members of a society are set by existing circumstances, and in determining these quantities the only problems they have are to measure and take inventory of the goods at their disposal. The ideal result of these two varieties of provident human activity is the complete enumeration of the goods available to them at a given point in time, their classification into perfectly homogeneous categories, and the exact determination of the number of items in each category. In practical life, however, far from pursuing this ideal, men customarily do not even attempt to obtain results as fully exact as is possible in the existing state of the arts of measuring and taking inventory, but are satisfied with just the degree of exactness that is necessary for practical purposes. Yet it is significant evidence of the great practical importance that exact knowledge of the existing quantities of goods available to them has for many people that we find a quite exceptional degree of exactness of this knowledge among merchants, industrialists, and such persons generally as have developed a high degree of provident activity. But even at the lowest levels of civilization we encounter a certain amount of knowledge of the available quantities of goods, since it is evident that a complete lack of this knowledge would make impossible any provident activity of men directed to the satisfaction of their needs.
To the degree to which men engage in planning activity directed to the satisfaction of their needs, they endeavor to attain clarity as to the quantities of goods available to them at any time. Wherever a considerable trade in goods already exists, therefore, we will find men attempting to form a judgment about the quantities of goods currently available to the other members of the society with whom they maintain trading connections.
As long as men have no considerable trade with one another, each man obviously has but a small interest in knowing what quantities of goods are in the hands of other persons. As soon, however, as an extensive trade develops, chiefly as a result of division of labor, and men find themselves dependent in large part upon exchange in meeting their requirements, they naturally acquire a very obvious interest in being informed not only about all the goods in their own possession but also about the goods of all the other persons with whom they maintain trading relations, since part of the possessions of these other persons is then accessible to them, if not directly, yet indirectly (by way of trade).
As soon as a society reaches a certain level of civilization, the growing division of labor causes the development of a special professional class which operates as an intermediary in exchanges and performs for the other members of society not only the mechanical part of trading operations (shipping, distribution, the storing of goods, etc.), but also the task of keeping records of the available quantities. Thus we observe that a specific class of people has a special professional interest in compiling data about the quantities of goods, so-called stocks in the widest sense of the word, currently at the disposal of the various peoples and nations whose trade they mediate. The data they compile cover trading regions that are smaller or larger (single counties, provinces, or even entire countries or continents) according to the position the intermediaries in question occupy in commercial life. They have, moreover, an interest in many other general kinds of information, but we will have occasion to discuss this at a later point.
The keeping of such statistical records, insofar as they relate to the quantities of goods currently at the disposal of sizeable groups of individuals, or even at the disposal of whole nations or groups of nations, meets, however, with not inconsiderable difficulties, since the exact determination of these stocks can be made only by means of a census. The procedure of a census presupposes a complicated apparatus of public officials, covering an entire trading area and equipped with the necessary powers. Such an apparatus can be supplied only by national governments, and by these only within their own territories. Moreover, a census fails to be efficient even within these limits, as is known to every expert, when it deals with goods whose available quantities are not easily accessible to official enumeration.
Censuses, too, can be undertaken conveniently only from time to time. Indeed, it is ordinarily possible to undertake them only at considerable intervals of time. Hence the data obtained at a certain point in time for all goods whose available quantities are subject to severe fluctuations will not infrequently already have lost practical value, even though the figures may lay claim to reliability.
Government activity directed to the determination of the quantities of goods available at any time to a given people or nation is, therefore, naturally confined: (1) to goods whose quantities are subject only to slight changes, as is the case with land, buildings, domestic animals, transportation facilities, etc., since a census of such items, taken at a particular point in time, maintains its validity for later points in time as well, and (2) to goods whose available quantities are subject to such a degree of public control that the correctness of the figures obtained is thereby guaranteed, at least in some degree.
With the signal interest that the business world, under the circumstances just described, has in as exact a knowledge as possible of the quantities of goods available in certain trading areas, it is understandable that it is not satisfied with the incomplete results of this activity of governments, performed, as it is for the most part, with little commercial understanding and always covering only particular countries or parts of countries rather than entire trading areas. On the contrary, the business world itself attempts to provide independently, and not infrequently at considerable financial sacrifice, as inclusive and as exact information as is possible of the quantities in question. This need has produced many organs serving the special interests of the business world, whose task consists, in considerable part, of informing the members of each branch of production about the current state of stocks in the various trading areas.
Among these organs are the correspondents who are maintained by large business houses at the major markets for each of their commodities. One of the chief duties of these correspondents is to keep their employers continuously informed about the condition of commodity stocks. For every important commodity there is also a considerable number of periodically published business reports that serve the same purpose. Anyone who carefully follows the grain reports of Bell in London or Meyer in Berlin, the sugar reports of Licht in Magdeburg, the cotton reports of Ellison and Haywood in Liverpool, etc., will find reliable information in them about the current state of commodity stocks (and many other data of importance to the business world, which I will discuss later) based on investigations of various kinds and on ingenious calculation where investigation is not feasible. These estimates of commodity stocks have a very definite influence, as we shall see, on economic phenomena, notably price formation. The cotton reports of Ellison and Haywood, for example, contain periodical information about current stocks of the different grades of cotton in Liverpool, in England in general, on the continent, and in America, India, Egypt and the other producing regions; they inform us regularly about the quantities of cotton in process of shipment on the high seas (floating cargo), about the ports to which they are consigned, and whether the quantities in England are still in the hands of the wholesalers, already in the warehouses of spinners or other buyers, or assigned for export, etc.
These reports are based on public censuses of all kinds, which the business world immediately strives to make serviceable if they prove at all trustworthy, on information gathered by expert correspondents in various places, and in part also on the estimates of experienced businessmen of proven reliability. They cover not only the stocks available at any given time but also the quantities of goods expected to be at the disposal of men in future time periods. In the above-mentioned reports of Licht, for example, one finds not only news of the fluctuations of sugar stocks in all the trading areas in contact with Germany, but also a comprehensive collection of facts concerning raw material and manufacturing production. In particular, one finds current reports on the area of land planted in sugar cane and sugar beets, on the present condition of the cane and beet crops, on the expected influence of the weather on the time and quantitative and qualitative results of the harvest, on the harvest itself, on the capacities of sugar factories and refineries, on the number of these plants that are active and the number that are idle, on the amount of foreign and domestic output that is expected to reach the German market and the times of expected arrival, on technical progress in methods of sugar production, on disturbances in the distributive apparatus, etc. Similar data on other commodities are contained in the other business reports mentioned in the previous paragraph.
Such reports are usually sufficient to inform the business world about the available quantities of certain commodities in the more or less extensive trading areas relevant to each commodity, and to provide it with a basis for judging prospective changes in stocks. Where actual uncertainties exist, the reports serve to draw attention to this circumstance, so that, in all cases where the outcome of a particular transaction depends upon the larger or smaller available quantity of a good, its risky character is brought to the attention of the business world.
3. The Origin of Human Economy and Economic Goods
A. Economic goods.
In the two preceding sections we have seen how separate individuals, as well as the inhabitants of whole countries and groups of countries united by trade, attempt to form a judgment on the one hand about their requirements for future time periods and, on the other, about the quantities of goods available to them for meeting these requirements, in order to gain in this way the indispensable foundation for activity directed to the satisfaction of their needs. The task to which we now turn is to show how men, on the basis of this knowledge, direct the available quantities of goods (consumption goods and means of production) to the greatest possible satisfaction of their needs.
An investigation of the requirements for, and available quantities of, a good may establish the existence of any one of the three following relationships:
(a) that requirements are larger than the available quantity.
(b) that requirements are smaller than the available quantity.
(c) that requirements and the available quantity are equal.
We can regularly observe the first of these relationships—where a part of the needs for a good must necessarily remain unsatisfied—with by far the greater number of goods. I do not refer here to articles of luxury since, with them, this relationship seems self-evident. But even the coarsest pieces of clothing, the most ordinary living accommodations and furnishings, the most common foods, etc., are goods of this kind. Even earth, stones, and the most insignificant kinds of scrap are, as a rule, not available to us in such great quantities that we could not employ still greater quantities of them.
Wherever this relationship appears with respect to a given time period—that is, wherever men recognize that the requirements for a good are greater than its available quantity—they achieve the further insight that no part of the available quantity, in any way practically significant, may lose its useful properties or be removed from human control without causing some concrete human needs, previously provided for, to remain unsatisfied, or without causing these needs now to be satisfied less completely than before.
The first effects of this insight upon the activity of men intent to satisfy their needs as completely as possible are that they strive: (1) to maintain at their disposal every unit of a good standing in this quantitative relationship, and (2) to conserve its useful properties.
A further effect of knowledge of this relationship between requirements and available quantities is that men become aware, on the one hand, that under all circumstances a part of their needs for the good in question will remain unsatisfied and, on the other hand, that any inappropriate employment of partial quantities of this good must necessarily result in part of the needs that would be provided for by appropriate employment of the available quantity remaining unsatisfied.
Accordingly, with respect to a good subject to the relationship under discussion, men endeavor, in provident activity directed to the satisfaction of their needs: (3) to make a choice between their more important needs, which they will satisfy with the available quantity of the good in question, and needs that they must leave unsatisfied, and (4) to obtain the greatest possible result with a given quantity of the good or a given result with the smallest possible quantity—or in other words, to direct the quantities of consumers’ goods available to them, and particularly the available quantities of the means of production, to the satisfaction of their needs in the most appropriate manner.
The complex of human activities directed to these four objectives is called economizing, and goods standing in the quantitative relationship involved in the preceding discussion are the exclusive objects of it. These goods are economic goods in contrast to such goods as men find no practical necessity of economizing—for reasons which, as we shall see later, can be traced to quantitative relationships accessible to exact measurement, just as this has been shown to be possible in the case of economic goods.
But before we proceed to demonstrate these relationships and the phenomena of life ultimately determined by them, we will consider a phenomenon of social life which has assumed immeasurable significance for human welfare and which, in its ultimate causes, springs from the same quantitative relationship that we became acquainted with earlier in this section.
So far we have presented the phenomena of life that result from the fact that the requirements of men for many goods are greater than the quantities available to them in a very general way, and without special regard to the social organization of men. What has been said to this point therefore applies equally to an isolated individual and to a whole society, however it may be organized. But the social life of men, pursuing their individual interests even as members of society, brings to view a special phenomenon in the case of all goods whose available quantities are less than the requirements for them. An account of this phenomenon may find its place here.
If the quantitative relationship under discussion occurs in a society (that is, if the requirements of a society for a good are larger than its available quantity), it is impossible, in accordance with what was said earlier, for the respective needs of all individuals composing the society to be completely satisfied. On the contrary, nothing is more certain than that the needs of some members of this society will be satisfied either not at all or, at any rate, only in an incomplete fashion. Here human self-interest finds an incentive to make itself felt, and where the available quantity does not suffice for all, every individual will attempt to secure his own requirements as completely as possible to the exclusion of others.
In this struggle, the various individuals will attain very different degrees of success. But whatever the manner in which goods subject to this quantitative relationship are divided, the requirements of some members of the society will not be met at all, or will be met only incompletely. These persons will therefore have interests opposed to those of the present possessors with respect to each portion of the available quantity of goods. But with this Opposition of interest, it becomes necessary for society to protect the various individuals in the possession of goods subject to this relationship against all possible acts of force. In this way, then, we arrive at the economic origin of our present legal order, and especially of the so-called protection of ownership, the basis of property.
Thus human economy and property have a joint economic origin since both have, as the ultimate reason for their existence, the fact that goods exist whose available quantities are smaller than the requirements of men. Property, therefore, like human economy, is not an arbitrary invention but rather the only practically possible solution of the problem that is, in the nature of things, imposed upon us by the disparity between requirements for, and available quantities of, all economic goods.
As a result, it is impossible to abolish the institution of property without removing the causes that of necessity bring it about—that is, without simultaneously increasing the available quantities of all economic goods to such an extent that the requirements of all members of society can be met completely, or without reducing the needs of men far enough to make the available goods suffice for the complete satisfaction of their needs. Without establishing such an equilibrium between requirements and available amounts, a new social order could indeed ensure that the available quantities of economic goods would be used for the satisfaction of the needs of different persons than at present. But by such a redistribution it could never surmount the fact that there would be persons whose requirements for economic goods would either not be met at all, or met only incompletely, and against whose potential acts of force, the possessors of economic goods would have to be protected. Property, in this sense, is therefore inseparable from human economy in its social form, and all plans of social reform can reasonably be directed only toward an appropriate distribution of economic goods but never to the abolition of the institution of property itself.
B. Non-economic goods.
In the preceding section I have described the every-day phenomena that result from the fact that requirements for certain goods are larger than their available quantities. I shall now demonstrate the phenomena arising from the opposite relationship—that is, as a consequence of a relationship in which the requirements of men for a good are smaller than the quantity of it available to them.
The first result of this relationship is that men not only know that the satisfaction of all their needs for such goods is completely assured, but know also that they will be incapable of exhausting the whole available quantity of such goods for the satisfaction of these needs.
Suppose that a village is dependent for water on a mountain stream with a normal flow of 200,000 pails of water a day. When there are rainstorms, however, and in the spring, when the snow melts on the mountains, the flow rises to 300,000 pails. In times of greatest drought it falls to but 100,000 pails of water daily. Suppose further that the inhabitants of the village, for drinking and other uses, usually need 200, and at the most 300, pails daily for the complete satisfaction of their needs. Their highest requirement of 300 pails is in contrast with an available minimum of at least 100,000 pails per day. In this and in every other case where a quantitative relationship of this kind is found, it is clear not only that the satisfaction of all needs for the good in question is assured, but also that the economizing individuals will be able to utilize the available quantity only partially for the satisfaction of their needs. It is evident also that partial quantities of these goods may be removed from their disposal, or may lose their useful properties, without any resultant diminution in the satisfaction of their needs, provided only that the aforementioned quantitative relationship is not thereby reversed. As a result, economizing men are under no practical necessity of either preserving every unit of such goods at their command or conserving its useful properties.
Nor can the third and fourth of the above-described phenomena of human economic activity be observed in the case of goods whose available quantities exceed requirements for them. If such a relationship should exist, what sense would there be in any attempt to make a choice between needs that men should satisfy with the available quantity and needs that they will resign themselves to leaving unsatisfied, when they are unable to exhaust the whole quantity available to them even with the most complete satisfaction of all their needs? And what could move men to achieve the greatest possible result with each quantity of such goods, and any given result with the least possible quantity?
It is clear, accordingly, that all the various forms in which human economic activity expresses itself are absent in the case of goods whose available quantities are larger than the requirements for them, just as naturally as they will necessarily be present in the case of goods subject to the opposite quantitative relationship. Hence they are not objects of human economy, and for this reason we call them non-economic goods.
To this point we have considered the relationship underlying the non-economic character of goods in a general way—that is, without regard to the present social organization of men. There remains only the task of indicating the special social phenomena that result from this quantitative relationship.
As we have seen, the effort of individual members of a society to attain command of quantities of goods adequate for their needs to the exclusion of all other members has its origin in the fact that the quantity of certain goods available to society is smaller than the requirements for them. Since it is therefore impossible, when such a relationship exists, to meet the requirements of all individuals completely, each individual feels prompted to meet his own requirements to the exclusion of all other economizing individuals. Thus, when all the members of a society compete for a given quantity of goods that is insufficient, under any circumstances, to satisfy completely all the needs of the various individuals, a practical solution to this conflict of interests is, as we have seen, only conceivable if the various portions of the whole amount at the disposal of society pass into the possession of some of the economizing individuals, and if these individuals are protected by society in their possession to the exclusion of all other individuals in the economy.
The situation with respect to goods that do not have economic character is profoundly different. Here the quantities of goods at the disposal of society are larger than its requirements, with the result that all individuals are able to satisfy their respective needs completely, and portions of the available amount of goods remain unused because they are useless for the satisfaction of human needs. Under such circumstances, there is no practical necessity for any individual to secure a part of the whole sufficient to meet his requirements, since the mere recognition of the quantitative relationship responsible for the non-economic character of the goods in question gives him sufficient assurance that, even if all other members of society completely meet their requirements for these goods, more than sufficient quantities will still remain for him to satisfy his needs.
As experience teaches, the efforts of single individuals in society are therefore not directed to securing possession of quantities of non-economic goods for the satisfaction of their own individual needs to the exclusion of other individuals. These goods are therefore neither objects of economy nor objects of the human desire for property. On the contrary, we can actually observe a picture of communism with respect to all goods standing in the relationship causing non-economic character; for men are communists whenever possible under existing natural conditions. In towns situated on rivers with more water than is wanted by the inhabitants for the satisfaction of their needs, everyone goes to the river to draw any desired quantity of water. In virgin forests, everyone fetches unhindered the quantity of timber he needs. And everyone admits as much light and air into his house as he thinks proper. This communism is as naturally founded upon a non-economic relationship as property is founded upon one that is economic.
C. The relationship between economic and non-economic goods.
In the two preceding sections we examined the nature and origin of human economy, and demonstrated that the difference between economic and non-economic goods is ultimately founded on a difference, capable of exact determination, in the relationship between requirements for and available quantities of these goods.
But if this has been established, it is also evident that the economic or non-economic character of goods is nothing inherent in them nor any property of them, and that therefore every good, without regard to its internal properties or its external attributes, attains economic character when it enters into the quantitative relationship explained above, and loses it when this relationship is reversed.
Economic character is by no means restricted to goods that are the objects of human economy in a social context. If an isolated individual’s requirements for a good are greater than the quantity of the good available to him, we will observe him retaining possession of every unit at his command, conserving it for employment in the manner best suited to the satisfaction of his needs, and making a choice between needs that he will satisfy with the quantity available to him and needs that he will leave unsatisfied. We will also find that the same individual has no reason to engage in this activity with respect to goods that are available to him in quantities exceeding his requirements. Hence economic and non-economic goods also exist for an isolated individual. The cause of the economic character of a good cannot therefore be the fact that it is either an “object of exchange” or an “object of property.” Nor can the fact that some goods are products of labor while others are given us by nature without labor be represented with any greater justice as the criterion for distinguishing economic from non-economic character, in spite of the fact that a great deal of clever reasoning has been devoted to attempting to interpret actual phenomena that contradict this view in a sense that does not. For experience tells us that many goods on which no labor was expended (alluvial land, water power, etc.) display economic character whenever they are available in quantities that do not meet our requirements. Nor does the fact that a thing is a product of labor by itself necessarily result in its having goods-character, let alone economic character. Hence the labor expended in the production of a good cannot be the criterion of economic character. On the contrary, it is evident that this criterion must be sought exclusively in the relationship between requirements for and available quantities of goods.
Experience, moreover, teaches us that goods of the same kind do not show economic character in some places but are economic goods in other places, and that goods of the same kind and in the same place attain and lose their economic character with changing circumstances.
While quantities of fresh drinking water in regions abounding in springs, raw timber in virgin forests, and in some countries even land, do not have economic character, these same goods exhibit economic character in other places at the same time. Examples are no less numerous of goods that do not have economic character at a particular time and place but which, at this same place, attain economic character at another time. These differences between goods and their changeability cannot, therefore, be based on the properties of the goods. On the contrary, one can, if in doubt, convince oneself in all cases, by an exact and careful examination of these relationships, that when goods of the same kind have a different character in two different places at the same time, the relationship between requirements and available quantities is different in these two places, and that wherever, in one place, goods that originally had non-economic character become economic goods, or where the opposite takes place, a change has occurred in this quantitative relationship.
According to our analysis, there can be only two kinds of reasons why a non-economic good becomes an economic good: an increase in human requirements or a diminution of the available quantity.
The chief causes of an increase in requirements are: (1) growth of population, especially if it occurs in a limited area, (2) growth of human needs, as the result of which the requirements of any given population increase, and (3) advances in the knowledge men have of the causal connection between things and their welfare, as the result of which new useful purposes for goods arise.
I need hardly point out that all these phenomena accompany the transition of mankind from lower to higher levels of civilization. From this it follows, as a natural consequence, that with advancing civilization non-economic goods show a tendency to take on economic character, chiefly because one of the factors involved is the magnitude of human requirements, which increase with the progressive development of civilization. If to this is added a diminution of the available quantities of goods that previously did not exhibit economic character (timber, for instance, through the clearance or devastation of forests associated with certain phases of cultural development), nothing is more natural than that goods, whose available quantities on an earlier level of civilization by far outstripped requirements, and which therefore did not show economic character, should become economic goods with the passage of time. In many places, especially in the new world, this transition from non-economic to economic character can be proven historically for many goods, especially timber and land. Indeed the transition can be observed even at the present time. Despite the fact that information in this field is only fragmentary, I believe that in Germany, once so densely forested, but few places are to be found where the inhabitants have not, at some time, experienced this transition—in the case of firewood, for example.
From what has been said, it is clear that all changes by which economic goods become non-economic goods, and conversely, by which the latter become economic goods can be reduced simply to a change in the relationship between requirements and available quantities.
Goods that occupy an intermediate position between economic and non-economic goods with respect to the characteristics they exhibit may lay claim to a special scientific interest.
In this class must be counted, above all, such goods in highly civilized countries as are produced by the government and offered for public use in such large quantities that any desired amount of them is at the disposal of even the poorest member of society, with the result that they do not attain economic character for the consumers.
Public school education, for instance, in a highly developed society is usually such a good. Pure healthy drinking water also is considered a good of such importance by the inhabitants of many cities that, wherever nature does not make it abundantly available, it is brought by aqueducts to the public fountains in such large quantities that not only are the requirements of the inhabitants for drinking water completely met but also, as a rule, considerable quantities above these requirements are available. While instruction by a teacher is an economic good for those in need of such instruction in societies at a low level of civilization, this same good becomes a non-economic good in more highly developed societies, since it is provided by the state. Similarly, in many large cities pure and healthy drinking water, which previously had economic character for consumers, becomes a non-economic good.
Conversely, goods that are naturally available in quantities exceeding requirements may attain economic character for their consumers if a powerful individual excludes the other members of the economy from freely acquiring and using them. In densely wooded countries, there are many villages surrounded by natural forests abounding in timber. In such places, the available quantity of timber by far exceeds the requirements of the inhabitants, and uncut wood would not have economic character in the natural course of events. But when a powerful person seizes the whole forest, or the greater part of it, he can regulate the quantities of timber actually available to the inhabitants of his village in such a way that timber nevertheless acquires economic character for them. In the heavily wooded Carpathians, for instance, there are numerous places where peasants (the former villains) must buy the timber they need from large landholders, even while the latter let many thousands of logs rot every year in the forest because the quantities available to them far exceed their present requirements. This, however, is a case in which goods that would not possess economic character in the natural course of events artificially become economic goods for the consumers. In such circumstances, these goods actually manifest all the phenomena of economic life that are characteristic of economic goods.
Finally, goods belong in this category that do not exhibit economic character at the present time but which, in view of future developments, are already considered by economizing men as economic goods in many respects. More precisely, if the available quantity of a non-economic good is continually diminishing, or if the requirements for it are continually increasing, and the relationship between requirements and available quantity is such that the final transition of the good in question from non-economic to economic status can be foreseen, economizing individuals will usually make portions of the available quantity objects of their economic activity. They will do this even when the quantitative relationship responsible for the non-economic character of the good still actually prevails, and will, when living as members of a society, usually guarantee themselves their individual requirements by taking possession of quantities corresponding to these requirements. The same reasoning applies to non-economic goods whose available quantities are subject to such violent fluctuations that only command of a certain surplus in normal times assures command of requirements in times of scarcity. It applies also to all non-economic goods with respect to which the boundary between requirements and available quantities is already so close (the third case mentioned on p. 94, above all, belongs in this category) that any misuse or ignorance on the part of some members of the economy may easily become injurious to the others, or when special considerations (considerations of comfort or cleanliness for example) apparently make expedient the seizure of partial quantities of the non-economic goods. For these and similar reasons the phenomenon of property can also be observed in the case of goods that appear to us still, with respect to other aspects of economic life, as non-economic goods.
Finally, I would like to direct the attention of my readers to a circumstance that is of great importance in judging the economic character of goods. I refer to differences in the quality of goods. If the total available quantity of a good is not sufficient to meet the requirements for it, every appreciable part of the total quantity becomes an object of human economy and thus an economic good whatever its quality. And if the available quantities of a good are greater than the requirements for it, and there are therefore portions of the total stock that are utilized for the satisfaction of no need whatever, all units of the good must, in accordance with what has already been said about the nature of non-economic goods, have non-economic character if they are all of exactly the same quality. But if some portions of the available stock of a good have certain advantages over the other portions, and these advantages are of such a kind that various human needs can be better satisfied or, in general, more completely satisfied by using these rather than the other, less useful, portions, it may happen that the goods of better quality will attain economic character while the other (inferior) goods still exhibit non-economic character. Thus, in a country with a superabundance of land, for instance, land that is preferable because of the composition of the soil or by reason of its location may already have attained economic character while poorer lands still exhibit non-economic character. And in a city situated on a river with drinking water of inferior quality, quantities of spring water may already be objects of individual economy when the river water does not, as yet, show economic character.
Thus, if we sometimes find that different portions of the whole supply of a good differ in character at the same time, the reason, in this case too, always lies solely in the fact that the available quantities of the goods of better grade are smaller than requirements while the poorer goods are available in quantities exceeding requirements (requirements not covered by the goods of better grade). Such instances do not, therefore, constitute exceptions, but are, on the contrary, a confirmation of the principles stated in this chapter.
D. The laws governing the economic character of goods.
In our investigation of the laws governing human requirements, we have reached the result that the existence of requirements for goods of higher order is dependent: (1) on our having requirements for the corresponding goods of lower order, and also (2) on these requirements for goods of lower order being not already provided for, or at least not completely provided for. We have defined an economic good as a good whose available quantity does not meet requirements completely, and thus we have the principle that the existence of requirements for goods of higher order is dependent upon the corresponding goods of lower order having economic character.
In places where pure and healthy drinking water is present in quantities exceeding the requirements of the population, and where this good therefore does not exhibit economic character, requirements for the various implements or means of transportation serving exclusively for carrying or piping and filtering drinking water cannot arise. And in regions in which there is a natural superabundance of firewood (trees, to be exact), and in which, as a result, this good has non-economic character, obviously all requirements for goods of higher order suitable exclusively for the production of firewood are absent from the very beginning. In regions, on the other hand, where firewood or drinking water have economic character, requirements for the corresponding goods of higher order will certainly exist.
But if it has now been established that human requirements for goods of higher order are determined by the economic character of the corresponding goods of lower order, and that requirements for goods of higher order cannot arise at all if they are not applicable to the production of economic goods, it follows that requirements for goods of higher order can never, in this event, become larger than their available quantities, however small, and hence that it is impossible from the very beginning for them to attain economic character.
From this we derive the general principle that the economic character of goods of higher order depends upon the economic character of the goods of lower order for whose production they serve. In other words, no good of higher order can attain economic character or maintain it unless it is suitable for the production of some economic good of lower order.
If, therefore, goods of lower order displaying economic character are under consideration, and if the question arises as to the ultimate causes of their economic character, it would be a complete reversal of the true relationship, if one were to assume that they are economic goods because the goods employed in producing them displayed economic character before the production process was undertaken. Such a supposition would contradict, in the first place, all experience, which teaches us that, from goods of higher order whose economic character is beyond all doubt, completely useless things may be produced, and in consequence of economic ignorance, actually are produced—things that do not even have goods-character let alone economic character. Moreover, cases can be conceived where, from economic goods of higher order, things can be produced that have goods-character but not economic character. By way of illustration, one need only imagine persons using costly economic goods to produce timber in virgin forests, to store up drinking water in regions abounding in freshwater springs, or to make air, etc.!
The economic character of a good thus cannot be a consequence of the circumstance that it has been produced from economic goods of higher order, and this explanation would have to be rejected in any case, even if it were not involved in a further internal contradiction. The explanation of the economic character of goods of lower order by that of goods of higher order is only a pseudo-explanation, and apart from being incorrect and in contradiction with all experience, it does not even fulfill the formal conditions for the explanation of a phenomenon. If we explain the economic character of goods of first order by that of goods of second order, the latter by the economic character of goods of third order, this again by the economic character of goods of fourth order, and so on, the solution of the problem is not advanced fundamentally by a single step, since the question as to the last and true cause of the economic character of goods always still remains unanswered.
Our previous explanation, however, demonstrates that man, with his needs and his command of the means to satisfy them, is himself the point at which human economic life both begins and ends. Initially, man experiences needs for goods of first order, and makes those whose available quantities are smaller than his requirements the objects of his economic activity (that is, he treats them as economic goods) while he finds no practical inducement to bring the other goods into the sphere of his economic activity.
Later, thought and experience lead men to ever deeper insights into the causal connections between things, and especially into the relations between things and their welfare. They learn to use goods of second, third, and higher orders. But with these goods, as with goods of first order, they find that some are available in quantities exceeding their requirements while the opposite relationship prevails with others. Hence they divide goods of higher order also into one group that they include in the sphere of their economic activity, and another group that they do not feel any practical necessity to treat in this way. This is the origin of the economic character of goods of higher order.
Earlier (p. 76) we called “the entire sum of goods at a person’s command” his property. The entire sum of economic goods at an economizing individual’s command we will, on the other hand, call his wealth. The non-economic goods at an economizing individual’s command are not objects of his economy, and hence must not be regarded as parts of his wealth. We saw that economic goods are goods whose available quantities are smaller than the requirements for them. Wealth can therefore also be defined as the entire sum of goods at an economizing individual’s command, the quantities of which are smaller than the requirements for them. Hence, if there were a society where all goods were available in amounts exceeding the requirements for them, there would be no economic goods nor any “wealth.” Although wealth is thus a measure of the degree of completeness with which one person can satisfy his needs in comparison with other persons who engage in economic activity under the same conditions, it is never an absolute measure of his welfare, for the highest welfare of all individuals and of society would be attained if the quantities of goods at the disposal of society were so large that no one would be in need of wealth.
These remarks are intended to introduce the solution of a problem which, because of the apparent contradictions to which it leads, is capable of creating distrust as to the accuracy of the principles of our science. The problem arises from the fact that a continuous increase in the amounts of economic goods available to economizing individuals would necessarily cause these goods eventually to lose their economic character, and in this way cause the components of wealth to suffer a diminution. Hence we have the queer contradiction that a continuous increase of the objects of wealth would have, as a necessary final consequence, a diminution of wealth.
Suppose that the quantity of a certain mineral water available to a people is smaller than requirements for it. The various portions of this good at the command of the several economizing persons, as well as the mineral springs themselves, are therefore economic goods, and hence constituent parts of wealth. Suppose now that this medicinal water should suddenly begin to flow in several brooks in such abundant measure as to lose its previous economic character. Nothing is more certain, than that the quantities of mineral water that were at the command of economizing individuals before this event, as well as the mineral springs themselves, would now cease to be components of wealth. Thus it would indeed be the case that a progressive increase in the component parts of wealth would finally have caused a diminution of wealth.
This paradox is exceedingly impressive at first sight, but upon more exact consideration, it proves to be only an apparent one. As we saw earlier, economic goods are goods whose available quantities are smaller than the requirements for them. They are goods of which there is a partial deficiency, and the wealth of economizing individuals is nothing but the sum of these goods. If their available quantities are progressively increased until they finally lose their economic character, a deficiency no longer exists, and they move out of the category of goods constituting the wealth of economizing individuals—that is, they leave the class of goods of which there is a partial deficiency. There is certainly no contradiction in the fact that the progressive increase of a good of which there was previously a deficiency finally brings about the result that the good ceases to be in short supply.
On the contrary, that the progressive increase of economic goods must finally lead to a reduction in the number of goods of which there was previously a deficiency is a proposition that is as immediately evident to everyone as the contrary proposition that a long continued diminution of abundantly available (non-economic) goods must finally make them scarce in some degree—and thus components of wealth, which is thereby increased.
The above paradox, which was raised not only with regard to the extent of objects of wealth but in an analogous manner also with regard to the value and price of economic goods, is therefore only an apparent one, and is founded upon a misinterpretation of the nature of wealth and its components.
We have defined wealth as the entire sum of economic goods at the command of an economizing individual. The existence of any item of wealth presupposes, therefore, an economizing individual, or at any rate one in whose behalf acts of economizing are performed. Quantities of economic goods destined for a specific purpose are therefore not wealth in the economic sense of the word. The fiction of a legal person may be valid for purposes of legal practice or even for purposes of juridical constructions but not for our science which decidedly rejects all fictions. So-called “trust funds” are therefore quantities of economic goods devoted to specific purposes, but they are not wealth in the economic sense of the word.
This leads to the question of the nature of public wealth. States, provinces, communities, and associations generally have quantities of economic goods at their disposal in order to satisfy their needs, to realize their ends. Here the fiction of a legal person is not necessary for the political economist. Without calling upon any fiction, he can observe an economizing unit, a social organization, whose personnel administer certain economic goods that are available to it for the purpose of satisfying its needs, and direct them to this objective. Hence no-one will hesitate to admit the existence of governmental, provincial, municipal and corporate wealth.
The situation is different with what is designated by the term “national wealth.” Here we have to deal not with the entire sum of economic goods available to a nation for the satisfaction of its needs, administered by government employees, and devoted by them to its purposes, but with the totality of goods at the disposal of the separate economizing individuals and associations of a society for their individual purposes. Thus we have to deal with a concept that deviates in several important respects from what we term wealth.
If we employ the fiction of conceiving of the totality of economizing persons in a society, each striving for the satisfaction of his special needs, and driven not infrequently by interests opposed to the interests of others, as one great economizing unit, and if we further assume that the quantities of economic goods at the disposal of the separate economizing individuals are not applied to the satisfaction of their special needs but to the satisfaction of the needs of the totality of individuals composing the economy, then we do, of course, arrive at the concept of a sum of economic goods at the disposal of an economizing unit (here, at the disposal of society) that are available for the purpose of satisfying its collective needs. Such a concept could correctly be designated by the term national wealth. But under our present social arrangements, the sum of economic goods at the disposal of the individual economizing members of society for the purpose of satisfying their special individual needs obviously does not constitute wealth in the economic sense of the term but rather a complex of wealths linked together by human intercourse and trade.
The need for a scientific designation for the sum of goods just mentioned is, however, so just, and the term “national wealth” for that concept is so generally accepted and sanctioned by usage, that we would serve this need badly if we were to drop the existing term as we become clearer about the correct nature of the so-called national wealth.
It is, then, only necessary that we guard against the error that must arise if we pay no attention to the distinction discussed here. In all questions where the issue is merely the quantitative determination of the so-called national wealth, the sum of the wealths of the individuals of the nation may be designated as national wealth. But when inferences running from the magnitude of the national wealth to the welfare of a people, or when phenomena resulting from contacts between the various economizing individuals, are involved, the concept of national wealth in the literal sense of the term must necessarily lead to frequent errors. In all these cases, the national wealth must be regarded rather as a complex composite of the wealths of the members of society, and we must direct our attention to the different sizes of these individual wealths.
“Bedarf.” The reader is first referred to Menger’s own note on this term (note 3 of this Chapter). Since Menger uses the term Bedarf in both of the senses mentioned in his note, and since he uses the term “Nachfrage” (demand) at several points, even if infrequently, we feel it best to translate “Bedarf” as “requirements” throughout to preserve as exactly as possible Menger’s own terminology.—TR.
Even some animals lay by stores and thus ensure in advance that they will not lack food and a warm abode in winter.
The word “requirements” (Bedarf) has a double meaning in our language. It is used on the one hand to designate the quantities of goods that are necessary to satisfy a person’s needs completely, and on the other to designate the quantities that a person intends to consume. In the latter meaning, a man receiving a rent of 20,000 Thalers and accustomed to using it all for consumption has very great requirements, whereas a rural laborer whose income amounts to 100 Thalers has very small requirements, and a beggar in the depths of extreme poverty no requirements whatsoever. In the former meaning, the requirements of men also differ greatly due to differences in their education and habits. But even a person devoid of all means has requirements equal to the quantities of goods that would be necessary to satisfy his needs. Merchants and industrialists generally employ the term “requirements” in the narrower sense of the word, and often mean by it the “expected demand” for a good. In this sense also, one says that there are requirements for a commodity “at a given price” but not at another price, etc.
The term “concrete human need” recurs from time to time in the text. Menger uses the term to refer to a need (or rather a portion of a need) that is satisfied by consumption of a single unit of a good. When an individual consumes successive units of a good, Menger pictures him as satisfying successive “concrete needs” of diminishing psychological importance. At some points he adopts a different terminology, and speaks of the consumption of successive units of a commodity as successive “acts of satisfaction.” See also note 3 of Chapter III and Appendix D for some suggestions regarding the meaning of “concrete.”—TR.
See E.B. de Condillac, Le commerce et le gouvernement, in E. Daire (ed.), Mélanges d’economie politique, Paris, 1847, p. 248.
In this paragraph Menger implicitly assumes his time periods to be of equal duration. Reference to the definitions of the second paragraph preceding will confirm that this need not be the case.—TR.
The next paragraph appears here as a footnote in the original.—TR.
The remainder of this paragraph appears here as a footnote in the original.—TR.
See the first five paragraphs of Appendix B (p. 288) for the material originally appearing here as a footnote.—TR.
The next paragraph originally appears here as a footnote.—TR.
Using a mode of expression already current in our science, we could, by analogy, call the latter quasi-economic goods (as opposed to true economic goods), and the former quasi-non-economic goods.
A good is at a person’s “command” in the economic sense of the term if he is in a position to employ it for the satisfaction of his needs. Either physical or legal obstacles can prevent a good from being at one’s command. A minor’s wealth, for example, is not at his guardian’s command in this sense of the word.
F.B.W. von Hermann, Staatswirthschaftliche Untersuchungen, München, 1874, p. 21.
See the last two paragraphs of Appendix B (p. 291) for the material originally appearing here as a footnote.—TR.
Since wealth provides only a relative measure of the degree of completeness with which an individual can satisfy his needs, some writers have defined wealth as a sum of economic goods, when applying the term to the economy of a single individual, and as the sum of all goods when applying it to the social economy. The main reason for doing this was that they had in mind the relative welfare of the different individuals in the first definition and the absolute welfare of society in the second. See especially, James Maitland, Earl of Lauderdale, An Inquiry into the Nature and Origin of Public Wealth, Edinburgh, 1804, pp. 39ff., esp. pp. 56ff. The question recently raised by Wilhelm Roscher (System der Volkswirthschaft, Twentieth edition, Stuttgart, 1892, I, 16ff.), about whether or not social wealth is to be estimated by its use value and private wealth by its exchange value can be traced to the same distinction.
See already Lauderdale, op. cit., p. 43.
Pierre-Joseph Proudhon, Système des contradictions économiques, Third edition, Paris, 1867, I, 59ff.
See Carl Dietzel, Die Volkswirthschaft und ihr Verhältniss zu Gesellschaft und Staat, Frankfurt am Main, 1864, pp. 106ff.