WEBVTT NOTE XVIII. Action in the Passing of Time 1 00:00:00.000 --> 00:00:11.000 Chapter 18. Action in the Passing of Time 1. Perspective in the Valuation of Time Periods 2 00:00:11.000 --> 00:00:21.000 Acting man distinguishes the time before satisfaction of a want is attained and the time for which the satisfaction continues. 3 00:00:21.000 --> 00:00:29.000 Action always aims at the removal of future uneasiness, be it only the future of the impending instant. 4 00:00:29.000 --> 00:00:44.000 Between the setting in of action and the attainment of the end sought, there always elapses a fraction of time, namely the maturing time, in which the seed sown by the action grows to maturity. 5 00:00:44.000 --> 00:00:55.000 The most obvious example is provided by agriculture. Between the tilling of the soil and the ripening of the fruit, there passes a considerable period of time. 6 00:00:55.000 --> 00:01:01.720 Another example is the improvement of the quality of wine by aging. 7 00:01:01.720 --> 00:01:07.380 In some cases, however, the maturing time is so short that ordinary speech may assert 8 00:01:07.380 --> 00:01:11.320 that the success appears instantly. 9 00:01:11.320 --> 00:01:18.320 As far as action requires the employment of labor, it is concerned with the working time. 10 00:01:18.320 --> 00:01:22.840 The performance of every kind of labor absorbs time. 11 00:01:22.840 --> 00:01:28.080 In some cases, the working time is so short that people say the performance requires no 12 00:01:28.080 --> 00:01:30.820 time at all. 13 00:01:30.820 --> 00:01:37.260 Only in rare cases does a simple, indivisible and non-repeated act suffice to attain the 14 00:01:37.260 --> 00:01:39.500 end aimed at. 15 00:01:39.500 --> 00:01:45.220 As a rule, what separates the actor from the goal of his endeavors is more than one step 16 00:01:45.220 --> 00:01:46.640 only. 17 00:01:46.640 --> 00:01:53.120 He must make many steps, and every further step to be added to those previously made 18 00:01:53.120 --> 00:01:58.720 raises anew the question whether or not he should continue marching toward the goal once 19 00:01:58.720 --> 00:02:00.620 chosen. 20 00:02:00.620 --> 00:02:07.000 Most goals are so far away that only determined persistence leads to them. 21 00:02:07.000 --> 00:02:14.000 Persevering action, unflinchingly directed to the end sought, is needed in order to succeed. 22 00:02:14.000 --> 00:02:20.740 The total expenditure of time required, that is, working time plus maturing time, may be 23 00:02:20.740 --> 00:02:24.020 called the period of production. 24 00:02:24.020 --> 00:02:29.500 The period of production is long in some cases, and short in other cases. 25 00:02:29.500 --> 00:02:35.720 It is sometimes so short that it can be entirely neglected in practice. 26 00:02:35.720 --> 00:02:41.560 The increment-in-want satisfaction which the attainment of the end brings about is temporarily 27 00:02:41.560 --> 00:02:43.160 limited. 28 00:02:43.160 --> 00:02:49.120 The result produced extends services only over a period of time which we may call the 29 00:02:49.120 --> 00:02:52.320 duration of serviceableness. 30 00:02:52.320 --> 00:02:58.240 The duration of serviceableness is shorter with some products and longer with other goods, 31 00:02:58.240 --> 00:03:01.800 which are commonly called durable goods. 32 00:03:01.800 --> 00:03:07.800 Hence acting man must always take into account the period of production and the duration 33 00:03:07.800 --> 00:03:11.200 of serviceableness of the product. 34 00:03:11.200 --> 00:03:17.000 In estimating the disutility of a project considered, he is not only concerned with 35 00:03:17.000 --> 00:03:24.820 the expenditure of material factors and labor required, but also with the period of production. 36 00:03:24.820 --> 00:03:30.000 In estimating the utility of the expected product, he is concerned with the duration 37 00:03:30.000 --> 00:03:32.360 of its serviceableness. 38 00:03:32.360 --> 00:03:39.080 Of course, the more durable a product is, the greater is the amount of services it renders. 39 00:03:39.080 --> 00:03:45.160 But if these services are not cumulatively available on the same date, but extended piecemeal 40 00:03:45.160 --> 00:03:52.040 over a certain period of time, the time element, as will be shown, plays a particular role 41 00:03:52.040 --> 00:03:54.520 in their evaluation. 42 00:03:54.520 --> 00:04:00.000 It makes a difference whether n units of service are rendered on the same date, or whether 43 00:04:00.000 --> 00:04:06.240 they are stretched over a period of n days, in such a way that only one unit is available 44 00:04:06.240 --> 00:04:08.280 daily. 45 00:04:08.280 --> 00:04:14.560 It is important to realize that the period of production as well as the duration of serviceableness 46 00:04:14.560 --> 00:04:21.400 are categories of human action and not concepts constructed by philosophers, economists and 47 00:04:21.400 --> 00:04:26.800 historians as mental tools for their interpretation of events. 48 00:04:26.800 --> 00:04:33.400 They are essential elements present in every act of reasoning that precedes and directs 49 00:04:33.400 --> 00:04:34.400 action. 50 00:04:34.400 --> 00:04:40.840 It is necessary to stress this point because Boehm-Bawerk, to whom economics owes the discovery 51 00:04:40.840 --> 00:04:47.560 of the role played by the period of production, failed to comprehend the difference. 52 00:04:47.560 --> 00:04:52.620 Acting man does not look at his condition with the eyes of a historian. 53 00:04:52.620 --> 00:04:57.160 He is not concerned with how the present situation originated. 54 00:04:57.160 --> 00:05:03.280 His only concern is to make the best use of the means available today for the best possible 55 00:05:03.280 --> 00:05:09.260 The Past does not count for him. 56 00:05:09.260 --> 00:05:15.160 He has at his disposal a definite quantity of material factors of production. 57 00:05:15.160 --> 00:05:20.080 He does not ask whether these factors are nature-given or the product of production 58 00:05:20.080 --> 00:05:23.200 processes accomplished in the past. 59 00:05:23.200 --> 00:05:29.400 It does not matter for him how great a quantity of nature-given, that is, original material 60 00:05:29.400 --> 00:05:44.760 He values the available means exclusively from the aspect of the services they can render 61 00:05:44.760 --> 00:05:51.120 him in his endeavors to make future conditions more satisfactory. 62 00:05:51.120 --> 00:05:57.000 The period of production and the duration of serviceableness are for him categories 63 00:05:57.000 --> 00:06:04.940 is in planning future action, not concepts of academic retrospection and historical research. 64 00:06:04.940 --> 00:06:11.040 They play a role insofar as the actor has to choose between periods of production of 65 00:06:11.040 --> 00:06:18.720 different length, and between the production of more durable and less durable goods. 66 00:06:18.720 --> 00:06:24.520 Action is not concerned with the future in general, but always with a definite and limited 67 00:06:24.520 --> 00:06:27.240 Fraction of the Future. 68 00:06:27.240 --> 00:06:32.160 This fraction is limited on the one side by the instant in which the action must take 69 00:06:32.160 --> 00:06:33.880 place. 70 00:06:33.880 --> 00:06:39.340 Where its other end lies depends on the actor's decision and choice. 71 00:06:39.340 --> 00:06:44.060 There are people who are concerned with only the impending instant. 72 00:06:44.060 --> 00:06:49.220 There are other people whose provident care stretches far beyond the prospective length 73 00:06:49.220 --> 00:06:51.440 of their own life. 74 00:06:51.440 --> 00:06:57.080 He may call the fraction of future time for which the actor in a definite action wants 75 00:06:57.080 --> 00:07:03.600 to provide in some way and to some extent the period of provision. 76 00:07:03.600 --> 00:07:09.820 In the same way in which acting man chooses among various kinds of want satisfaction within 77 00:07:09.820 --> 00:07:16.920 the same fraction of future time, he chooses also between want satisfaction in the nearer 78 00:07:16.920 --> 00:07:20.200 and in the remoter future. 79 00:07:20.200 --> 00:07:25.600 Every choice implies also a choice of a period of provision. 80 00:07:25.600 --> 00:07:32.600 In making up his mind how to employ the various means available for the removal of uneasiness, 81 00:07:32.600 --> 00:07:37.600 man also determines implicitly the period of provision. 82 00:07:37.600 --> 00:07:43.420 In the market economy, the demand of the consumers also determines the length of the period of 83 00:07:43.420 --> 00:07:45.960 provision. 84 00:07:45.960 --> 00:07:52.400 There are various methods available for a lengthening of the period of provision 1. 85 00:07:52.400 --> 00:07:59.920 The accumulation of larger stocks of consumers' goods destined for later consumption 2. 86 00:07:59.920 --> 00:08:04.480 The production of goods which are more durable 3. 87 00:08:04.480 --> 00:08:10.740 The production of goods requiring a longer period of production 4. 88 00:08:10.740 --> 00:08:16.380 The choice of methods of production consuming more time for the production of goods which 89 00:08:16.380 --> 00:08:22.040 could also be produced within a shorter period of production. 90 00:08:22.040 --> 00:08:26.180 The first two methods do not require any further comment. 91 00:08:26.180 --> 00:08:31.540 The third and the fourth methods must be scrutinized more closely. 92 00:08:31.540 --> 00:08:37.040 It is one of the fundamental data of human life and action that the shortest processes 93 00:08:37.040 --> 00:08:42.560 Processes of production, that is, those with the shortest period of production, do not 94 00:08:42.560 --> 00:08:46.360 remove felt uneasiness entirely. 95 00:08:46.360 --> 00:08:53.380 If all those goods which these shortest processes can provide are produced, unsatisfied wants 96 00:08:53.380 --> 00:08:58.760 remain and incentive to further action is still present. 97 00:08:58.760 --> 00:09:05.140 As acting man prefers those processes which, other things being equal, produce the products 98 00:09:05.140 --> 00:09:11.340 In the shortest time, only such processes are left for further action which consume 99 00:09:11.340 --> 00:09:13.580 more time. 100 00:09:13.580 --> 00:09:19.220 People embark upon these more time-consuming processes because they value the increment 101 00:09:19.220 --> 00:09:25.620 in satisfaction expected more highly than the disadvantage of waiting longer for their 102 00:09:25.620 --> 00:09:26.620 fruits. 103 00:09:26.620 --> 00:09:33.300 Boehm-Bawerk speaks of the higher productivity of roundabout ways of production requiring 104 00:09:33.300 --> 00:09:37.540 Requiring More Time It is more appropriate to speak of the higher 105 00:09:37.540 --> 00:09:43.700 physical productivity of production processes requiring more time. 106 00:09:43.700 --> 00:09:49.140 The higher productivity of these processes does not always consist in the fact that they 107 00:09:49.140 --> 00:09:55.020 produce, with the same quantity of factors of production expended, a greater quantity 108 00:09:55.020 --> 00:09:57.060 of products. 109 00:09:57.060 --> 00:10:02.300 More often it consists in the fact that they produce products which could not be produced 110 00:10:02.300 --> 00:10:06.460 at all in shorter periods of production. 111 00:10:06.460 --> 00:10:09.980 These processes are not roundabout processes. 112 00:10:09.980 --> 00:10:14.600 They are the shortest and quickest way to the goal chosen. 113 00:10:14.600 --> 00:10:20.540 If one wants to catch more fish, there is no other method available than the substitution 114 00:10:20.540 --> 00:10:27.300 of fishing with the aid of nets and canoes, for fishing without the aid of this equipment. 115 00:10:27.300 --> 00:10:33.560 There is no better, shorter and cheaper method for the production of aspirin known than that 116 00:10:33.560 --> 00:10:36.540 adopted by the chemical plants. 117 00:10:36.540 --> 00:10:43.000 If one disregards error and ignorance, there cannot be any doubt about the highest productivity 118 00:10:43.000 --> 00:10:47.080 and expediency of the processes chosen. 119 00:10:47.080 --> 00:10:52.720 If people had not considered them the most direct processes, namely those leading by 120 00:10:52.720 --> 00:10:58.440 by the shortest way to the end sought, they would not have adopted them. 121 00:10:58.440 --> 00:11:03.360 The lengthening of the period of provision through the mere accumulation of stocks of 122 00:11:03.360 --> 00:11:09.600 consumers' goods is the outcome of the desire to provide in advance for a longer period 123 00:11:09.600 --> 00:11:11.360 of time. 124 00:11:11.360 --> 00:11:17.380 The same is valid for the production of goods, the durability of which is greater in proportion 125 00:11:17.380 --> 00:11:22.580 to the greater expenditure of factors of production required. 126 00:11:22.580 --> 00:11:27.540 If the lengthening of durability were not at least proportionate to the increment in 127 00:11:27.540 --> 00:11:33.820 expenditure needed, it would be more advantageous to increase the quantity of units of a shorter 128 00:11:33.820 --> 00:11:35.740 durability. 129 00:11:35.740 --> 00:11:41.340 But if temporally remoter goals are aimed at, lengthening of the period of production 130 00:11:41.340 --> 00:11:45.020 is a necessary corollary of the venture. 131 00:11:45.020 --> 00:11:51.340 The end sought cannot be attained in a shorter period of production. 132 00:11:51.340 --> 00:11:57.500 The postponement of an act of consumption means that the individual prefers the satisfaction 133 00:11:57.500 --> 00:12:03.540 which later consumption will provide to the satisfaction which immediate consumption could 134 00:12:03.540 --> 00:12:05.220 provide. 135 00:12:05.220 --> 00:12:10.780 The choice of a longer period of production means that the actor values the product of 136 00:12:10.780 --> 00:12:16.400 the process bearing fruit only at a later date more highly than the products which a 137 00:12:16.400 --> 00:12:20.680 process consuming less time could provide. 138 00:12:20.680 --> 00:12:26.840 In such deliberations and the resulting choices, the period of production appears as waiting 139 00:12:26.840 --> 00:12:28.600 time. 140 00:12:28.600 --> 00:12:34.200 It was the great contribution of Jevons and Boehm-Bawerk to have shown the role played 141 00:12:34.200 --> 00:12:37.920 by taking account of waiting time. 142 00:12:37.920 --> 00:12:43.220 If acting men were not to pay heed to the length of the waiting time, they would never 143 00:12:43.220 --> 00:12:50.480 say that a goal is temporally so distant that one cannot consider aiming at it. 144 00:12:50.480 --> 00:12:56.120 with the alternative of choosing between two processes of production which render different 145 00:12:56.120 --> 00:13:02.700 output with the same input, they would always prefer that process which renders the greater 146 00:13:02.700 --> 00:13:09.460 quantity of the same products or better products in the same quantity, even if this result 147 00:13:09.460 --> 00:13:15.360 could be attained only by lengthening the period of production. 148 00:13:15.360 --> 00:13:20.080 Preference in input, which result in a more than proportionate increase in the product's 149 00:13:20.080 --> 00:13:26.600 duration of serviceableness, would unconditionally be deemed advantageous. 150 00:13:26.600 --> 00:13:33.440 The fact that men do not act in this way evidences that they value fractions of time of the same 151 00:13:33.440 --> 00:13:39.480 length in a different way, according as they are nearer or remoter from the instant of 152 00:13:39.480 --> 00:13:41.980 the actor's decision. 153 00:13:41.980 --> 00:13:47.540 Other things being equal, satisfaction in a nearer period of the future is preferred 154 00:13:47.540 --> 00:13:51.100 to satisfaction in a more distant period. 155 00:13:51.100 --> 00:13:55.100 Disutility is seen in waiting. 156 00:13:55.100 --> 00:14:00.420 This fact is already implied in the statement stressed in the opening of this chapter that 157 00:14:00.420 --> 00:14:06.660 man distinguishes the time before satisfaction is attained and the time for the duration 158 00:14:06.660 --> 00:14:10.120 of which there is satisfaction. 159 00:14:10.120 --> 00:14:16.920 If any role at all is played by the time element in human life, there cannot be any question 160 00:14:16.920 --> 00:14:23.000 of equal valuation of nearer and remoter periods of the same length. 161 00:14:23.000 --> 00:14:29.040 Such an equal valuation would mean that people do not care whether success is attained sooner 162 00:14:29.040 --> 00:14:30.640 or later. 163 00:14:30.640 --> 00:14:38.380 It would be tantamount to a complete elimination of the time element from the process of valuation. 164 00:14:38.380 --> 00:14:44.580 The mere fact that goods with a longer duration of serviceableness are valued more highly 165 00:14:44.580 --> 00:14:51.860 than those with a shorter duration does not yet in itself imply a consideration of time. 166 00:14:51.860 --> 00:14:57.580 A roof that can protect a house against the weather during a period of ten years is more 167 00:14:57.580 --> 00:15:03.540 valuable than a roof which renders this service only for a period of five years. 168 00:15:03.540 --> 00:15:09.660 The quantity of service rendered is different in both cases, but the question which we have 169 00:15:09.660 --> 00:15:15.740 to deal with is whether or not an actor, in making his choices, attaches to a service 170 00:15:15.740 --> 00:15:22.580 to be available in a later period of the future the same value he attaches to a service available 171 00:15:22.580 --> 00:15:25.540 at an earlier period. 172 00:15:25.540 --> 00:15:27.420 2. 173 00:15:27.420 --> 00:15:31.960 Time preference as an essential requisite of action. 174 00:15:31.960 --> 00:15:37.780 The answer to this question is that acting man does not appraise time periods merely 175 00:15:37.780 --> 00:15:40.720 with regard to their dimension. 176 00:15:40.720 --> 00:15:46.160 His choices regarding the removal of future uneasiness are directed by the categories 177 00:15:46.160 --> 00:15:49.200 sooner and later. 178 00:15:49.200 --> 00:15:55.300 Time for man is not a homogeneous substance of which only length counts. 179 00:15:55.300 --> 00:15:59.260 It is not a more or a less in dimension. 180 00:15:59.260 --> 00:16:05.540 It is an irreversible flux, the fractions of which appear in different perspective according 181 00:16:05.540 --> 00:16:13.860 to whether they are nearer to or remoter from the instant of valuation and decision. 182 00:16:13.860 --> 00:16:19.100 Satisfaction of a want in the nearer future is, other things being equal, preferred to 183 00:16:19.100 --> 00:16:22.460 that in the farther distant future. 184 00:16:22.460 --> 00:16:27.020 Present goods are more valuable than future goods. 185 00:16:27.020 --> 00:16:31.860 Time preference is a categorical requisite of human action. 186 00:16:31.860 --> 00:16:37.420 No mode of action can be thought of in which satisfaction within a nearer period of the 187 00:16:37.420 --> 00:16:44.220 future is not, other things being equal, preferred to that in a later period. 188 00:16:44.220 --> 00:16:50.460 The very act of gratifying a desire implies that gratification at the present instant 189 00:16:50.460 --> 00:16:54.220 is preferred to that at a later instant. 190 00:16:54.220 --> 00:17:00.580 He who consumes a non-perishable good instead of postponing consumption for an indefinite 191 00:17:00.580 --> 00:17:07.900 later moment thereby reveals a higher valuation of present satisfaction as compared with later 192 00:17:07.900 --> 00:17:10.020 satisfaction. 193 00:17:10.020 --> 00:17:15.700 If he were not to prefer satisfaction in a nearer period of the future to that in a remoter 194 00:17:15.700 --> 00:17:20.620 period he would never consume and so satisfy once. 195 00:17:20.620 --> 00:17:22.700 He would always accumulate. 196 00:17:22.700 --> 00:17:25.580 He would never consume and enjoy. 197 00:17:25.580 --> 00:17:31.380 He would not consume today, but he would not consume tomorrow either, as the morrow would 198 00:17:31.380 --> 00:17:35.140 confront him with the same alternative. 199 00:17:35.140 --> 00:17:41.780 Not only the first step toward want satisfaction, but also any further step is guided by time 200 00:17:41.780 --> 00:17:43.540 preference. 201 00:17:43.540 --> 00:17:50.860 Once the desire A, to which the scale of values assigns the rank 1, is satisfied, one must 202 00:17:50.860 --> 00:17:57.940 choose between the desire B, to which the rank 2 is assigned, and C, that desire of 203 00:17:57.940 --> 00:18:05.140 tomorrow, to which, in the absence of time preference, the rank 1 would have been assigned. 204 00:18:05.140 --> 00:18:11.620 If B is preferred to C, the choice clearly involves time preference. 205 00:18:11.620 --> 00:18:17.760 Proposive striving after want satisfaction must needs be guided by a preference for satisfaction 206 00:18:17.760 --> 00:18:22.640 in the Nearer Future over that in a Remoter Future. 207 00:18:22.640 --> 00:18:28.320 The conditions under which modern man of the capitalist West must act are different from 208 00:18:28.320 --> 00:18:33.040 those under which his primitive ancestors lived and acted. 209 00:18:33.040 --> 00:18:38.900 As a result of the providential care of our forebears, we have at our disposal an ample 210 00:18:38.900 --> 00:18:45.740 stock of intermediate products, capital goods or produced factors of production, and of 211 00:18:45.740 --> 00:18:47.940 of Consumers' Goods. 212 00:18:47.940 --> 00:18:53.880 Our activities are designed for a longer period of provision, because we are the lucky heirs 213 00:18:53.880 --> 00:19:00.500 of a past which has lengthened, step by step, the period of provision, and has bequeathed 214 00:19:00.500 --> 00:19:04.760 to us the means to expand the waiting period. 215 00:19:04.760 --> 00:19:10.940 In acting, we are concerned with longer periods, and are aiming at an even satisfaction in 216 00:19:10.940 --> 00:19:15.980 in all parts of the period chosen as the period of provision. 217 00:19:15.980 --> 00:19:22.220 We are in a position to rely upon a continuing influx of consumers' goods, and have at our 218 00:19:22.220 --> 00:19:28.580 disposal not only stocks of goods ready for consumption, but also stocks of producers' 219 00:19:28.580 --> 00:19:35.140 goods, out of which our continuous efforts again and again make new consumers' goods 220 00:19:35.140 --> 00:19:36.900 mature. 221 00:19:36.900 --> 00:19:42.900 In our dealing with this increasing stream of income, says the superficial observer, 222 00:19:42.900 --> 00:19:49.100 there is no heed paid to any considerations related to a different valuation of present 223 00:19:49.100 --> 00:19:51.380 and of future goods. 224 00:19:51.380 --> 00:19:57.660 We synchronize, he asserts, and thus the time element loses any importance for the conduct 225 00:19:57.660 --> 00:19:59.500 of affairs. 226 00:19:59.500 --> 00:20:05.300 It is therefore pointless, he continues, in the interpretation of modern conditions to 227 00:20:05.300 --> 00:20:08.460 to resort to time preference. 228 00:20:08.460 --> 00:20:14.980 The fundamental error involved in this popular objection is caused, like so many other errors, 229 00:20:14.980 --> 00:20:22.580 by a lamentable misapprehension of the imaginary construction of the evenly rotating economy. 230 00:20:22.580 --> 00:20:27.640 In the frame of this imaginary construction, no change occurs. 231 00:20:27.640 --> 00:20:32.100 There prevails an unvarying course of all affairs. 232 00:20:32.100 --> 00:20:38.200 In the evenly rotating economy, consequently, nothing is altered in the allocation of goods 233 00:20:38.200 --> 00:20:44.460 for the satisfaction of wants in nearer and in remoter periods of the future. 234 00:20:44.460 --> 00:20:50.840 No one plans any change, because, according to our assumptions, the prevailing allocation 235 00:20:50.840 --> 00:20:57.320 best serves him, and because he does not believe that any possible rearrangement could improve 236 00:20:57.320 --> 00:20:59.420 his condition. 237 00:20:59.420 --> 00:21:05.140 So one wants to increase his consumption in a nearer period of the future, at the expense 238 00:21:05.140 --> 00:21:11.260 of his consumption in a more distant period, or vice versa, because the existing mode of 239 00:21:11.260 --> 00:21:18.120 allocation pleases him better than any other thinkable and feasible mode. 240 00:21:18.120 --> 00:21:24.220 The praxeological distinction between capital and income is a category of thought based 241 00:21:24.220 --> 00:21:31.180 on a Different Valuation of Want Satisfaction in Various Periods of the Future. 242 00:21:31.180 --> 00:21:37.180 In the imaginary construction of the evenly rotating economy, it is implied that the whole 243 00:21:37.180 --> 00:21:45.980 income, but not more than the income, is consumed, and that therefore the capital remains unchanged. 244 00:21:45.980 --> 00:21:51.380 An equilibrium is reached in the allocation of goods for want satisfaction in different 245 00:21:51.380 --> 00:21:53.980 periods of the future. 246 00:21:53.980 --> 00:21:59.120 It is permissible to describe this state of affairs by asserting that nobody wants to 247 00:21:59.120 --> 00:22:02.940 consume tomorrow's income today. 248 00:22:02.940 --> 00:22:09.780 We have precisely designed the imaginary construction of the evenly rotating economy in such a way 249 00:22:09.780 --> 00:22:13.580 as to make it fit just this condition. 250 00:22:13.580 --> 00:22:19.380 But it is necessary to realize that we can assert with the same apodictic assurance that 251 00:22:19.380 --> 00:22:25.560 And in the evenly rotating economy, nobody wants to have more of any commodity than he 252 00:22:25.560 --> 00:22:27.920 really has. 253 00:22:27.920 --> 00:22:33.960 These statements are true with regard to the evenly rotating economy because they are implied 254 00:22:33.960 --> 00:22:38.000 in our definition of this imaginary construction. 255 00:22:38.000 --> 00:22:45.160 They are nonsensical when asserted with regard to a changing economy, which alone is real. 256 00:22:45.160 --> 00:22:50.900 As soon as a change in the data occurs, the individuals are faced anew with the necessity 257 00:22:50.900 --> 00:22:58.160 of choosing both between various modes of want satisfaction in the same period and between 258 00:22:58.160 --> 00:23:02.100 want satisfaction in different periods. 259 00:23:02.100 --> 00:23:10.020 An increment can be either employed for immediate consumption or invested for further production. 260 00:23:10.020 --> 00:23:15.900 No matter how the actors employ it, their choice must needs be the result of a weighing 261 00:23:15.900 --> 00:23:22.900 of the advantages expected from one's satisfaction in different periods of the future. 262 00:23:22.900 --> 00:23:28.960 In the world of reality, in the living and changing universe, each individual in each 263 00:23:28.960 --> 00:23:36.180 of his actions is forced to choose between satisfaction in various periods of time. 264 00:23:36.180 --> 00:23:43.400 Some people consume all that they earn, others consume a part of their capital, others save 265 00:23:43.400 --> 00:23:46.400 a part of their income. 266 00:23:46.400 --> 00:23:52.400 Those contesting the universal validity of time preference fail to explain why a man 267 00:23:52.400 --> 00:24:00.680 does not always invest a sum of $100 available today, although these $100 would increase 268 00:24:00.680 --> 00:24:04.680 to $104 within a year's time. 269 00:24:04.680 --> 00:24:11.720 It is obvious that this man in consuming this sum today is determined by a judgment of value 270 00:24:11.720 --> 00:24:19.880 which values 100 present dollars higher than 104 dollars available a year later. 271 00:24:19.880 --> 00:24:26.360 But even in case he chooses to invest these 100 dollars, the meaning is not that he prefers 272 00:24:26.360 --> 00:24:30.800 satisfaction in a later period to that of today. 273 00:24:30.800 --> 00:24:39.080 It means that he values $100 today less than $104 a year later. 274 00:24:39.080 --> 00:24:45.680 Every penny spent today is precisely under the conditions of a capitalist economy in which 275 00:24:45.680 --> 00:24:52.740 institutions make it possible to invest even the smallest sums, a proof of the higher valuation 276 00:24:52.740 --> 00:24:58.920 of present satisfaction as compared with later satisfaction. 277 00:24:58.920 --> 00:25:03.920 The theorem of time preference must be demonstrated in a double way. 278 00:25:03.920 --> 00:25:10.600 First, for the case of plain saving, in which people must choose between the immediate consumption 279 00:25:10.600 --> 00:25:15.880 of a quantity of goods and the later consumption of the same quantity. 280 00:25:15.880 --> 00:25:21.800 Second, for the case of capitalist saving, in which the choice is to be made between 281 00:25:21.800 --> 00:25:27.480 the immediate consumption of a quantity of goods and the later consumption either of 282 00:25:27.480 --> 00:25:33.840 of a greater quantity or of goods which are fit to provide a satisfaction which, except 283 00:25:33.840 --> 00:25:38.320 for the difference in time, is valued more highly. 284 00:25:38.320 --> 00:25:41.780 The proof has been given for both cases. 285 00:25:41.780 --> 00:25:45.080 No other case is thinkable. 286 00:25:45.080 --> 00:25:52.040 It is possible to search for a psychological understanding of the problem of time preference. 287 00:25:52.040 --> 00:25:57.800 Existence and the pains caused by waiting are certainly psychological phenomena. 288 00:25:57.800 --> 00:26:03.860 One may approach their elucidation by referring to the temporal limitations of human life, 289 00:26:03.860 --> 00:26:09.480 to the individuals coming into existence, his growth and maturing, and his inevitable 290 00:26:09.480 --> 00:26:12.700 decay and passing away. 291 00:26:12.700 --> 00:26:18.800 There is in the course of man's life a right moment for everything, as well as a too early 292 00:26:18.800 --> 00:26:20.600 and a too late. 293 00:26:20.600 --> 00:26:27.560 However, the praxeological problem is in no way related to psychological issues. 294 00:26:27.560 --> 00:26:31.700 We must conceive, not merely understand. 295 00:26:31.700 --> 00:26:37.720 We must conceive that a man who does not prefer satisfaction within a nearer period of the 296 00:26:37.720 --> 00:26:45.680 future to that in a remoter period would never achieve consumption and enjoyment at all. 297 00:26:45.680 --> 00:26:51.160 Neither must the praxeological problem be confused with the physiological. 298 00:26:51.160 --> 00:26:56.920 He who wants to live to see the later day must first of all care for the preservation 299 00:26:56.920 --> 00:27:01.080 of his life in the intermediate period. 300 00:27:01.080 --> 00:27:06.200 Survival and appeasement of vital needs are thus requirements for the satisfaction of 301 00:27:06.200 --> 00:27:09.740 any wants in the remote or future. 302 00:27:09.740 --> 00:27:15.700 This makes us understand why, in all those situations in which bare life, in the strict 303 00:27:15.700 --> 00:27:21.660 sense of the term, is at stake, satisfaction in the nearer future is preferred to that 304 00:27:21.660 --> 00:27:23.940 in later periods. 305 00:27:23.940 --> 00:27:30.360 But we are dealing with action as such, not with the motives directing its course. 306 00:27:30.360 --> 00:27:37.020 In the same way in which, as economists, we do not ask why albumin, carbohydrates and 307 00:27:37.020 --> 00:27:43.940 and FAT are demanded by man, we do not inquire why the satisfaction of vital needs appears 308 00:27:43.940 --> 00:27:48.020 imperative and does not brook any delay. 309 00:27:48.020 --> 00:27:54.900 We must conceive that consumption and enjoyment of any kind presuppose a preference for present 310 00:27:54.900 --> 00:27:58.460 satisfaction to later satisfaction. 311 00:27:58.460 --> 00:28:04.260 The knowledge provided by this insight far exceeds the orbit for which the psychological 312 00:28:04.260 --> 00:28:11.620 All facts concerned provide explanation. It refers to every kind of want-satisfaction, 313 00:28:11.620 --> 00:28:17.840 not only to the satisfaction of the vital necessities of mere survival. It is important 314 00:28:17.840 --> 00:28:25.340 to stress this point because the term supply of subsistence available for advances of subsistence, 315 00:28:25.340 --> 00:28:32.600 as used by Boehm-Bawerk, can easily be misinterpreted. It is certainly one of the tasks of this 316 00:28:32.600 --> 00:28:38.260 is stocked to provide the means for a satisfaction of the bare necessities of life, and thus 317 00:28:38.260 --> 00:28:40.640 to secure survival. 318 00:28:40.640 --> 00:28:46.880 But besides, it must be large enough to satisfy, beyond the requirements of necessary maintenance 319 00:28:46.880 --> 00:28:53.520 for the waiting time, all those wants and desires which, apart from mere survival, are 320 00:28:53.520 --> 00:28:58.480 considered more urgent than the harvesting of the physically more abundant fruits of 321 00:28:58.480 --> 00:29:02.860 of Production Processes, Consuming More Time. 322 00:29:02.860 --> 00:29:08.680 Boehm-Bawerk declared that every lengthening of the period of production depends on the 323 00:29:08.680 --> 00:29:14.460 condition that a sufficient quantity of present goods is available to make it possible to 324 00:29:14.460 --> 00:29:20.620 over-bridge the lengthened average interval between the starting of preparatory work and 325 00:29:20.620 --> 00:29:23.420 the harvesting of its product. 326 00:29:23.420 --> 00:29:28.260 The expression sufficient quantity needs elucidation. 327 00:29:28.260 --> 00:29:33.280 It does not mean a quantity sufficient for necessary sustenance. 328 00:29:33.280 --> 00:29:39.740 The quantity in question must be large enough to secure the satisfaction of all those wants, 329 00:29:39.740 --> 00:29:46.060 the satisfaction of which, during the waiting time, is considered more urgent than the advantages 330 00:29:46.060 --> 00:29:51.900 which a still greater lengthening of the period of production would provide. 331 00:29:51.900 --> 00:29:57.260 If the quantity in question were smaller, a shortening of the period of production would 332 00:29:57.260 --> 00:30:04.160 appear advantageous. The increase in the quantity of products, or the improvement of their quality 333 00:30:04.160 --> 00:30:09.580 to be expected from the preservation of the longer period of production, would no longer 334 00:30:09.580 --> 00:30:15.480 be considered a sufficient remuneration for the restriction of consumption enjoined during 335 00:30:15.480 --> 00:30:22.540 the waiting time. Whether or not the supply of subsistence is sufficient does not depend 336 00:30:22.540 --> 00:30:28.780 and on any physiological or other facts open to objective determination by the methods 337 00:30:28.780 --> 00:30:32.180 of technology and physiology. 338 00:30:32.180 --> 00:30:38.940 The metaphorical term over-bridge, suggesting a body of water, the breadth of which poses 339 00:30:38.940 --> 00:30:44.660 to the bridge-builder an objectively determined task, is misleading. 340 00:30:44.660 --> 00:30:51.100 The quantity in question is valued by men, and their subjective judgments decide whether 341 00:30:51.100 --> 00:30:54.300 or not it is sufficient. 342 00:30:54.300 --> 00:30:59.580 Even in a hypothetical world in which nature provides every man with the means for the 343 00:30:59.580 --> 00:31:05.620 preservation of biological survival in the strict sense of the term, in which the most 344 00:31:05.620 --> 00:31:11.700 important foodstuffs are not scarce and action is not concerned with the provision for bare 345 00:31:11.700 --> 00:31:19.740 life, the phenomenon of time preference would be present and direct all actions. 346 00:31:19.740 --> 00:31:22.980 Time preference is not specifically human. 347 00:31:22.980 --> 00:31:27.780 It is an inherent feature of the behavior of all living things. 348 00:31:27.780 --> 00:31:33.660 The distinction of man consists in the very fact that with him, time preference is not 349 00:31:33.660 --> 00:31:40.060 inexorable, and the lengthening of the period of provision not merely instinctive, as with 350 00:31:40.060 --> 00:31:49.260 certain animals that store food, but the result of a process of valuation. 351 00:31:49.260 --> 00:31:59.300 It seems plausible to assume that the mere fact that interest is graduated in reference 352 00:31:59.300 --> 00:32:05.820 to periods of time should have directed the attention of the economists intent upon developing 353 00:32:05.820 --> 00:32:10.220 a theory of interest upon the role played by time. 354 00:32:10.220 --> 00:32:16.200 However, the classical economists were prevented by their faulty theory of value and their 355 00:32:16.200 --> 00:32:24.000 Their Misconstruction of the Cost Concept from Recognizing the Importance of the Time Element 356 00:32:24.000 --> 00:32:29.960 Economics owes the time preference theory to William Stanley Jevons and its elaboration, 357 00:32:29.960 --> 00:32:37.080 most of all, to Eugen von Boehm-Bawerk. Boehm-Bawerk was the first to formulate correctly the problem 358 00:32:37.080 --> 00:32:43.640 to be solved, the first to unmask the fallacies implied in the productivity theories, and 359 00:32:43.640 --> 00:32:49.920 is the first to stress the role played by the period of production, but he did not entirely 360 00:32:49.920 --> 00:32:55.720 succeed in avoiding the pitfalls in the elucidation of the interest problem. 361 00:32:55.720 --> 00:33:01.160 His demonstration of the universal validity of time preference is inadequate because it 362 00:33:01.160 --> 00:33:04.400 is based on psychological considerations. 363 00:33:04.400 --> 00:33:11.240 However, psychology can never demonstrate the validity of a praxeological theorem. 364 00:33:11.240 --> 00:33:18.600 It may show that some people or many people let themselves be influenced by certain motives. 365 00:33:18.600 --> 00:33:25.800 It can never make evident that all human action is necessarily dominated by a definite categorical 366 00:33:25.800 --> 00:33:32.900 element which, without any exception, is operative in every instance of action. 367 00:33:32.900 --> 00:33:38.360 The second shortcoming of Boehm-Bawerk's reasoning was his misconstruction of the concept 368 00:33:38.360 --> 00:33:41.200 of the period of production. 369 00:33:41.200 --> 00:33:47.800 He was not fully aware of the fact that the period of production is a praxeological category, 370 00:33:47.800 --> 00:33:54.720 and that the role it plays in action consists entirely in the choices acting man makes between 371 00:33:54.720 --> 00:33:58.480 periods of production of different length. 372 00:33:58.480 --> 00:34:03.800 The length of time expended in the past for the production of capital goods available 373 00:34:03.800 --> 00:34:07.280 today does not count at all. 374 00:34:07.280 --> 00:34:14.600 These capital goods are valued only with regard to their usefulness for future want satisfaction. 375 00:34:14.600 --> 00:34:19.200 The average period of production is an empty concept. 376 00:34:19.200 --> 00:34:25.000 What determines action is the fact that in choosing among various ways which can remove 377 00:34:25.000 --> 00:34:32.920 future uneasiness, the length of the waiting time in each case is a necessary element. 378 00:34:32.920 --> 00:34:38.480 It was an outcome of these two errors that Boehm-Bawerk in the elaboration of his theory 379 00:34:38.480 --> 00:34:45.620 did not entirely avoid the productivity approach which he himself had so brilliantly refuted 380 00:34:45.620 --> 00:34:50.640 in his critical history of the doctrines of capital and interest. 381 00:34:50.640 --> 00:34:56.480 These observations do not detract at all from the imperishable merits of Boehm-Bawerk's 382 00:34:56.480 --> 00:34:58.200 contributions. 383 00:34:58.200 --> 00:35:04.480 It was on the foundation laid by him that later economists, foremost among them Newt 384 00:35:04.480 --> 00:35:11.320 Wicksell, Frank Albert Fetter and Irving Fisher, were successful in perfecting the time preference 385 00:35:11.320 --> 00:35:13.460 theory. 386 00:35:13.460 --> 00:35:18.560 It is customary to express the essence of the time preference theory by saying that 387 00:35:18.560 --> 00:35:23.700 there prevails a preference for present over future goods. 388 00:35:23.700 --> 00:35:28.940 In dealing with this mode of expression, some economists have been puzzled by the fact that 389 00:35:28.940 --> 00:35:34.220 in some cases present uses are worth less than future uses. 390 00:35:34.220 --> 00:35:41.220 However, the problem raised by these apparent exceptions is caused merely by a misapprehension 391 00:35:41.220 --> 00:35:44.380 of the true state of affairs. 392 00:35:44.380 --> 00:35:48.980 There are enjoyments which cannot be had at the same time. 393 00:35:48.980 --> 00:35:55.440 A man cannot, on the same evening, attend performances of Carmen and of Hamlet. 394 00:35:55.440 --> 00:36:00.440 In buying a ticket, he must choose between the two performances. 395 00:36:00.440 --> 00:36:06.540 If tickets to both theatres for the same evening are presented to him as a gift, he must likewise 396 00:36:06.540 --> 00:36:08.140 choose. 397 00:36:08.140 --> 00:36:13.980 He may think, with regard to the ticket which he refuses, I don't care for it just now, 398 00:36:13.980 --> 00:36:16.540 or if only it had been later. 399 00:36:16.540 --> 00:36:22.220 However, this does not mean that he prefers future goods to present goods. 400 00:36:22.220 --> 00:36:27.140 He does not have to choose between future goods and present goods. 401 00:36:27.140 --> 00:36:33.780 He must choose between two enjoyments, both of which he cannot have together. 402 00:36:33.780 --> 00:36:37.740 This is the dilemma in every instance of choosing. 403 00:36:37.740 --> 00:36:42.800 In the present state of his affairs he may prefer Hamlet to Carmen. 404 00:36:42.800 --> 00:36:49.100 The different conditions of a later date may possibly result in another decision. 405 00:36:49.100 --> 00:36:54.480 The second seeming exception is presented by the case of perishable goods. 406 00:36:54.480 --> 00:37:00.200 They may be available in abundance in one season of the year and may be scarce in other 407 00:37:00.200 --> 00:37:01.200 seasons. 408 00:37:01.200 --> 00:37:08.160 However, the difference between ice in winter and ice in summer is not that between a present 409 00:37:08.160 --> 00:37:10.520 good and a future good. 410 00:37:10.520 --> 00:37:17.240 It is the difference between a good that loses its specific usefulness even if not consumed, 411 00:37:17.240 --> 00:37:22.500 and another good which requires a different process of production. 412 00:37:22.500 --> 00:37:28.280 Ice available in winter can only be used in summer when subjected to a special process 413 00:37:28.280 --> 00:37:30.540 of conservation. 414 00:37:30.540 --> 00:37:37.540 It is, in respect to ice utilizable in summer, at best one of the complementary factors required 415 00:37:37.540 --> 00:37:39.580 for production. 416 00:37:39.580 --> 00:37:45.540 It is impossible to increase the quantity of ice available in summer simply by restricting 417 00:37:45.540 --> 00:37:48.500 the consumption of ice in winter. 418 00:37:48.500 --> 00:37:54.340 The two things are, for all practical purposes, different commodities. 419 00:37:54.340 --> 00:38:00.420 The case of the miser does not contradict the universal validity of time preference. 420 00:38:00.420 --> 00:38:07.000 The miser, too, in spending some of his means for a scanty livelihood, prefers some amount 421 00:38:37.000 --> 00:38:43.000 The Trade of Undetermined Accidents Which Could Befall Him While Asleep 422 00:38:43.000 --> 00:38:47.000 3. Capital Goods 423 00:38:47.000 --> 00:38:56.000 As soon as those present wants are sated, the satisfaction of which is considered more urgent than any provision for the morrow, 424 00:38:56.000 --> 00:39:03.000 people begin to save a part of the available supply of consumers' goods for later use. 425 00:39:03.000 --> 00:39:08.320 This postponement of consumption makes it possible to direct action toward temporally 426 00:39:08.320 --> 00:39:10.680 remoter ends. 427 00:39:10.680 --> 00:39:16.120 It is now feasible to aim at goals which could not be thought of before on account of the 428 00:39:16.120 --> 00:39:19.960 length of the period of production required. 429 00:39:19.960 --> 00:39:25.400 It is furthermore feasible to choose methods of production in which the output of products 430 00:39:25.400 --> 00:39:32.880 is greater per unit of input than in other methods requiring a shorter period of production. 431 00:39:32.880 --> 00:39:39.480 The sine qua non of any lengthening of the processes of production adopted is saving, 432 00:39:39.480 --> 00:39:45.280 that is, an excess of current production over current consumption. 433 00:39:45.280 --> 00:39:50.880 Saving is the first step on the way toward improvement of material well-being and toward 434 00:39:50.880 --> 00:39:54.720 every further progress on this way. 435 00:39:54.720 --> 00:40:00.720 The postponement of consumption and the accumulation of stocks of consumers' goods destined for 436 00:40:00.720 --> 00:40:06.240 or later consumption would be practiced even in the absence of the stimulus offered by 437 00:40:06.240 --> 00:40:12.920 the technological superiority of processes with a longer period of production. 438 00:40:12.920 --> 00:40:19.340 The higher productivity of such processes, consuming more time, strengthens considerably 439 00:40:19.340 --> 00:40:22.100 the propensity to save. 440 00:40:22.100 --> 00:40:28.520 The sacrifice made by restricting consumption in nearer periods of the future is henceforth 441 00:40:28.520 --> 00:40:35.760 not only counterbalanced by the expectation of consuming the saved goods in remoter periods, 442 00:40:35.760 --> 00:40:42.120 it also opens the way to a more ample supply in the remoter future, and to the attainment 443 00:40:42.120 --> 00:40:47.520 of goods which could not be procured at all without this sacrifice. 444 00:40:47.520 --> 00:40:54.280 If acting man, other conditions being equal, were not to prefer, without exception, consumption 445 00:40:54.280 --> 00:41:14.880 People eager to embark upon processes with a longer period of production must first accumulate, 446 00:41:14.880 --> 00:41:21.200 by means of saving, that quantity of consumers' goods which is needed to satisfy, during the 447 00:41:21.200 --> 00:41:27.360 and the Waiting Time, all those wants the satisfaction of which they consider more urgent 448 00:41:27.360 --> 00:41:34.560 than the increment in well-being expected from the more time-consuming process. 449 00:41:34.560 --> 00:41:40.380 Accumulation of capital begins with the formation of stocks of consumers' goods, the consumption 450 00:41:40.380 --> 00:41:44.100 of which is postponed for later days. 451 00:41:44.100 --> 00:41:50.540 If these surpluses are merely stored and kept for later consumption, they are simply wealth, 452 00:41:50.540 --> 00:41:55.720 or, more precisely, a reserve for rainy days and emergencies. 453 00:41:55.720 --> 00:41:59.360 They remain outside the orbit of production. 454 00:41:59.360 --> 00:42:06.560 They become integrated economically, not physically, into production activities only when employed 455 00:42:06.560 --> 00:42:13.520 as means of subsistence of workers engaged in more time-consuming processes. 456 00:42:13.520 --> 00:42:17.800 If expended in this way, they are physically consumed. 457 00:42:17.800 --> 00:42:24.140 But economically, they do not disappear. They are replaced first by the intermediary products 458 00:42:24.140 --> 00:42:30.860 of a process with a longer period of production, and then, later, by the consumer's goods which 459 00:42:30.860 --> 00:42:38.020 are the final product of these processes. All these ventures and processes are intellectually 460 00:42:38.020 --> 00:42:45.020 controlled by capital accounting, the acme of economic calculation in monetary terms. 461 00:42:45.020 --> 00:42:58.020 Without the aid of monetary calculation, men could not even learn whether, apart from the length of the period of production, a definite process promises a higher productivity than another. 462 00:42:58.020 --> 00:43:07.020 The expenditures required by various processes cannot be weighed against one another without the aid of monetary terms. 463 00:43:07.020 --> 00:43:14.020 Capital accounting starts with the market prices of the capital goods available for further production. 464 00:43:14.020 --> 00:43:18.620 Production, the sum of which it calls capital. 465 00:43:18.620 --> 00:43:24.980 It records every expenditure from this fund and the price of all incoming items induced 466 00:43:24.980 --> 00:43:27.180 by such expenditure. 467 00:43:27.180 --> 00:43:32.980 It establishes finally the ultimate outcome of all these transformations in the composition 468 00:43:32.980 --> 00:43:39.500 of the capital, and thereby the success or the failure of the whole process. 469 00:43:39.500 --> 00:43:47.240 It shows not only the final result, it mirrors also every one of its intermediary stages. 470 00:43:47.240 --> 00:43:53.380 It produces interim balances for every day such a balance may be required, and statements 471 00:43:53.380 --> 00:43:58.700 of profit and loss for every part or stage of the process. 472 00:43:58.700 --> 00:44:04.580 It is the indispensable compass of production in the market economy. 473 00:44:04.580 --> 00:44:11.220 In the market economy, production is a continuous, never-ending pursuit, split up into an immense 474 00:44:11.220 --> 00:44:14.880 variety of partial processes. 475 00:44:14.880 --> 00:44:22.500 Innumerable processes of production with different periods of production are in progress simultaneously. 476 00:44:22.500 --> 00:44:28.580 They complement one another, and at the same time are in rivalry with one another in competing 477 00:44:28.580 --> 00:44:31.540 for scarce factors of production. 478 00:44:31.540 --> 00:44:41.540 Continuously, either new capital is accumulated by saving, or previously accumulated capital is eaten up by overconsumption. 479 00:44:41.540 --> 00:44:52.540 Production is distributed among numerous individual plants, farms, workshops and enterprises, each of which serves only limited purposes. 480 00:44:52.540 --> 00:45:02.040 The intermediary products or capital goods, the produced factors of further production, change hands in the course of events. 481 00:45:02.040 --> 00:45:10.040 They pass from one plant to another until finally the consumer's goods reach those who use and enjoy them. 482 00:45:10.040 --> 00:45:14.540 The social process of production never stops. 483 00:45:14.540 --> 00:45:19.040 At each instant, numberless processes are in progress, 484 00:45:19.040 --> 00:45:31.980 Every single performance in this ceaseless pursuit of wealth production is based upon 485 00:45:31.980 --> 00:45:37.060 the saving and the preparatory work of earlier generations. 486 00:45:37.060 --> 00:45:42.380 We are the lucky heirs of our fathers and forefathers, whose saving has accumulated 487 00:45:42.380 --> 00:45:47.400 the capital goods with the aid of which we are working today. 488 00:45:47.400 --> 00:45:53.800 We favorite children of the age of electricity still derive advantage from the original saving 489 00:45:53.800 --> 00:46:00.100 of the primitive fishermen, who, in producing the first nets and canoes, devoted a part 490 00:46:00.100 --> 00:46:05.040 of their working time to provision for a remoter future. 491 00:46:05.040 --> 00:46:11.140 If the sons of these legendary fishermen had worn out these intermediary products, nets 492 00:46:11.140 --> 00:46:17.280 and canoes, without replacing them by new ones, they would have consumed capital, and 493 00:46:17.280 --> 00:46:23.360 and the process of saving and capital accumulation would have had to start afresh. 494 00:46:23.360 --> 00:46:28.760 We are better off than earlier generations because we are equipped with the capital goods 495 00:46:28.760 --> 00:46:32.120 they have accumulated for us. 496 00:46:32.120 --> 00:46:40.020 The businessman, the acting man, is entirely absorbed in one task only, to take best advantage 497 00:46:40.020 --> 00:46:45.220 of all the means available for the improvement of future conditions. 498 00:46:45.220 --> 00:46:50.660 He does not look at the present state of affairs with the aim of analyzing and comprehending 499 00:46:50.660 --> 00:46:51.740 it. 500 00:46:51.740 --> 00:46:57.500 In classifying the means for further production and appraising their importance, he adopts 501 00:46:57.500 --> 00:47:00.300 superficial rules of thumb. 502 00:47:00.300 --> 00:47:07.460 He distinguishes three classes of factors of production, the nature-given material factors, 503 00:47:07.460 --> 00:47:14.940 the human factor, labor and capital goods, the intermediary factors produced in the past. 504 00:47:14.940 --> 00:47:18.900 He does not analyze the nature of the capital goods. 505 00:47:18.900 --> 00:47:24.300 They are, in his eyes, means of increasing the productivity of labor. 506 00:47:24.300 --> 00:47:29.300 Quite naively, he ascribes to them productive power of their own. 507 00:47:29.300 --> 00:47:33.980 He does not trace their instrumentality back to nature and labor. 508 00:47:33.980 --> 00:47:37.340 He does not ask how they came into existence. 509 00:47:37.340 --> 00:47:43.700 They count only as far as they may contribute to the success of his efforts. 510 00:47:43.700 --> 00:47:48.740 This mode of reasoning is all right for the businessman, but it was a serious mistake 511 00:47:48.740 --> 00:47:54.040 for the economists to agree with the businessman's superficial view. 512 00:47:54.040 --> 00:48:00.780 They erred in classifying capital as an independent factor of production along with the nature-given 513 00:48:00.780 --> 00:48:04.300 material resources and labor. 514 00:48:04.300 --> 00:48:10.360 The capital goods, the factors of further production produced in the past, are not an 515 00:48:10.360 --> 00:48:12.400 independent factor. 516 00:48:12.400 --> 00:48:19.520 They are the joint products of the cooperation of the two original factors, nature and labor, 517 00:48:19.520 --> 00:48:21.360 expended in the past. 518 00:48:21.360 --> 00:48:25.520 They have no productive power of their own. 519 00:48:25.520 --> 00:48:31.380 Neither is it correct to call the capital goods labor and nature stored up. 520 00:48:31.380 --> 00:48:36.960 They are rather labor, nature and time stored up. 521 00:48:36.960 --> 00:48:42.120 The difference between production without the aid of capital goods and that assisted 522 00:48:42.120 --> 00:48:47.280 by the employment of capital goods consists in time. 523 00:48:47.280 --> 00:48:52.180 Capital goods are intermediary stations on the way leading from the very beginning of 524 00:48:52.180 --> 00:48:58.180 production to its final goal, the turning out of consumers' goods. 525 00:48:58.180 --> 00:49:04.340 He who produces with the aid of capital goods enjoys one great advantage over the man who 526 00:49:04.340 --> 00:49:07.000 starts without capital goods. 527 00:49:07.000 --> 00:49:12.180 He is nearer in time to the ultimate goal of his endeavors. 528 00:49:12.180 --> 00:49:17.380 There is no question of an alleged productivity of capital goods. 529 00:49:17.380 --> 00:49:22.820 The difference between the price of a capital good, for example, a machine, and the sum 530 00:49:22.820 --> 00:49:29.420 of the prices of the complementary original factors of production required for its reproduction 531 00:49:29.420 --> 00:49:33.520 is entirely due to the time difference. 532 00:49:33.520 --> 00:49:38.240 He who employs the machine is nearer the goal of production. 533 00:49:38.240 --> 00:49:43.320 The period of production is shorter for him than for a competitor who must start from 534 00:49:43.320 --> 00:49:45.160 the beginning. 535 00:49:45.160 --> 00:49:51.000 In buying a machine, he buys the original factors of production to be expended in its 536 00:49:51.000 --> 00:49:59.640 reproduction plus time, that is, the time by which his period of production is shortened. 537 00:49:59.640 --> 00:50:06.880 The value of time, that is, time preference or the higher valuation of want satisfaction 538 00:50:06.880 --> 00:50:13.620 in nearer periods of the future as against that in remoter periods, is an essential element 539 00:50:13.620 --> 00:50:15.560 in human action. 540 00:50:15.560 --> 00:50:19.660 It determines every choice and every action. 541 00:50:19.660 --> 00:50:25.980 There is no man for whom the difference between sooner and later does not count. 542 00:50:25.980 --> 00:50:33.180 The time element is instrumental in the formation of all prices of all commodities and services.