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NOTE 1.03. Further Implications: The Means

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3. Further Implications, The Means

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The means to satisfy man's wants are called goods. These goods are all the objects of

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economizing action. The common distinction between economic goods and free goods, such

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as air, is erroneous. As explained above, air is not a means, but a general condition

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of Human Welfare and is not the object of action.

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Such goods may all be classified in either of two categories.

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A. They are immediately and directly serviceable in the satisfaction of the actor's wants,

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or B. They may be transformable into directly serviceable goods only at some point in the

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future.

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That is, are indirectly serviceable means.

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The former are called consumption goods or consumers goods or goods of the first order.

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The latter are called producers goods or factors of production or goods of higher order.

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Let us trace the relations among these goods by considering a typical human end, the eating

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of a ham sandwich.

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Having a desire for a ham sandwich, a man decides that this is a want that should be

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satisfied, and proceeds to act upon his judgment of the methods by which a ham sandwich can

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be assembled.

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The consumer's good is the ham sandwich at the point of being eaten.

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It is obvious that there is a scarcity of this consumer's good, as there is for all

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direct means, otherwise it would always be available, like air, and would not be the

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the Object of Action.

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But if the consumer's good is scarce and not obviously available, how can it be made available?

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The answer is that man must rearrange various elements of his environment in order to produce

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the ham sandwich at the desired place, the consumer's good.

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In other words, man must use various indirect means as cooperating factors of production

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to arrive at the direct means. This necessary process involved in all action is called production.

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It is the use by man of available elements of his environment as indirect means, as cooperating

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factors to arrive eventually at a consumer's good that he can use directly to arrive at his end.

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Let us consider the pattern of some of the numerous cooperating factors that are involved

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in a modern developed economy to produce one ham sandwich as a consumer's good for the

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use of one consumer.

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Typically, in order to produce a ham sandwich for Jones in his armchair, it is necessary

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for his wife to expand energy in unwrapping the bread, slicing the ham, placing the ham

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Furthermore, this process must, of course, take time, which is another indispensable cooperating factor.

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The above factors may be called first-order producers' goods, since in this case, these

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cooperate in the production of the consumer's good.

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Many of the first-order producers' goods, however, are also unavailable in nature and

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must be produced themselves with the help of other producers' goods.

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Thus, bread in the kitchen must be produced with the cooperation of the following factors,

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bread in retail shop and housewife's labor in carrying it, plus the ever-present land-as-standing

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room and time. In this procedure, these factors are second-order producers' goods, since they

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Higher order factors are those cooperating in the production of factors of lower order.

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Thus any process or structure of production may be analyzed as occurring in different stages.

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In the earlier or higher stages, producer's goods must be produced that will later cooperate in producing other producer's goods

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that will finally cooperate in producing the desired consumer's good.

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Hence, in a developed economy, the structure of production of a given consumer's good

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might be a very complex one and involve numerous stages.

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Important general conclusions can, however, be drawn that apply to all processes of production.

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In the first place, each stage of production takes time.

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Secondly, the factors of production may all be divided into two classes, those that are

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themselves produced and those that are found already available in nature, in man's environment.

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The latter may be used as indirect means without having been previously produced.

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The former must first be produced with the aid of factors in order to aid in the later

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or lower stages of production. The former are the produced factors of production.

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The latter are the original factors of production. The original factors may in turn be divided into

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two classes, the expenditure of human energy and the use of non-human elements provided by nature.

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The first is called labor. The latter is nature or land. The term land is likely to be misleading

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in this connection because it is not used in the popular sense of the word. It includes such natural

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resources as water, oil and minerals. Thus, the classes of factors of production are labor,

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Labor, Land, and the Produced Factors, which are termed Capital Goods

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Labor and land in one form or another enter into each stage of production.

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Labor helps to transform seeds into wheat, wheat into flour, pigs into ham, flour into

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bread, etc.

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Not only is labor present at every stage of production, but so also is nature.

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must be available to provide room at every stage of the process, and time, as has been stated above,

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is required for each stage. Furthermore, if we wish to trace each stage of production far enough

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back to original sources, we must arrive at a point where only labor and nature existed,

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and there were no capital goods. This must be true by logical implication,

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Since all capital goods must have been produced at earlier stages with the aid of labor.

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If we could trace each production process far enough back in time, we must be able to arrive

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at the point, the earliest stage, where man combined his forces with nature unaided by

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produced factors of production. Fortunately, it is not necessary for human actors to perform

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from this task, since action uses materials available in the present to arrive at desired

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goals in the future, and there is no need to be concerned with developments in the past.

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There is another unique type of factor of production that is indispensable in every

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stage of every production process.

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This is the technological idea of how to proceed from one stage to another, and finally to

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to arrive at the desired consumer's good.

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This is but an application of the analysis above, namely that for any action there must

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be some plan or idea of the actor about how to use things as means, as definite pathways

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to desired ends.

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Without such plans or ideas, there would be no action.

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These plans may be called recipes.

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They are ideas or recipes that the actor uses to arrive at his goal.

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A recipe must be present at each stage of each production process from which the actor

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proceeds to a later stage.

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The actor must have a recipe for transforming iron into steel, wheat into flour, bread and

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ham into sandwiches, etc.

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The distinguishing feature of a recipe is that, once learned, it generally does not

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have to be learned again.

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It can be noted and remembered.

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Remembered, it no longer has to be produced.

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It remains with the actor as an unlimited factor of production that never wears out

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or needs to be economized by human action.

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It becomes a general condition of human welfare, in the same way as air.

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We shall not deal at this point with the complications involved in the original learning of any recipe

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by the actor, which is the object of human action.

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It should be clear that the end of the production process, the consumer's good, is valued because

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it is a direct means of satisfying man's ends.

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The consumer's good is consumed, and this act of consumption constitutes the satisfying

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of human wants.

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This consumer's good may be a material object like bread, or an immaterial one like friendship.

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Its important quality is not whether it is material or not, but whether it is valued

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by man as a means of satisfying his wants.

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This function of a consumer's good is called its service in ministering to human wants.

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Thus the material bread is valued not for itself, but for its service in satisfying wants, just as an immaterial thing, such as music or medical care, is obviously valued for such service.

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All these services are consumed to satisfy wants. Economic is by no means equivalent to material.

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It is also clear that the factors of production, the various higher-order producers' goods, are valued solely because of their anticipated usefulness in helping to produce future consumers' goods, or to produce lower-order producers' goods that will help to bring about consumers' goods.

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The valuation of factors of production is derived from actors' evaluation of their products, lower stages, all of which eventually derive their valuation from the end result, the consumer's good.

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Furthermore, the omnipresent fact of the scarcity of consumer's goods must be reflected back in the sphere of the factors of production.

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The scarcity of consumers' goods must imply a scarcity of their factors.

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If the factors were unlimited, then the consumers' goods would also be unlimited, which cannot be the case.

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This does not exclude the possibility that some factors, such as recipes, may be unlimited,

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and therefore general conditions of welfare rather than scarce indirect means.

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But other factors at each stage of production must be in scarce supply, and this must account

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for the scarcity of the end product. Man's endless search for ways to satisfy his wants,

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that is, to increase his production of consumers' goods, takes two forms, increasing his available

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supply of factors of production and improving his recipes. Although it has seemed evident that there

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There are several cooperating factors at each stage of production.

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It is important to realize that for each consumer's good, there must always be more than one scarce

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factor of production.

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This is implied in the very existence of human action.

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It is impossible to conceive of a situation where only one factor of production produces

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The Theory of Money and Credit

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Sandwich already is prepared and in the kitchen. Then, to produce a consumer's good from this stage forward requires the following factors.

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1. The sandwich.

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2. Carrying it to the armchair.

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3. Time.

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4. The land available.

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If we assume that it required only one factor, the sandwich, then we would have to assume that the sandwich was magically and instantaneously moved from kitchen to armchair without effort.

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But in this case, the consumer's good would not have to be produced at all, and we would be in the impossible assumption of paradise.

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Similarly, at each stage of the productive process, the good must have been produced by at least more than one higher-order scarce cooperating factor, otherwise this stage of production could not exist at all.