4. Joint Ownership of the Product by the Owners of the Factors
Let us first consider the case of joint ownership by the owners of all the final cooperating factors.
It must be understood that factors of production include every service that advances the product toward the stage of consumption.
Thus, such services as marketing costs, advertising, etc., are just as legitimately productive
services as any other factors.
The fallacy in the spurious distinction between production costs and selling costs has been
definitely demonstrated by Mises in Human Action.
It is clear that the 100 ounces of gold accrue to the owners jointly.
Let us now be purely arbitrary and state that a total of 80 ounces accrues to the owners
of capital goods and a total of 20 ounces to the owners of labor and nature-given factors.
It is obvious that whatever the allocation it will be on the unhampered market in accordance
with the voluntary contractual agreement of each and every factor owner concerned.
Now it is clear that there is an important difference between what happens to the monetary
income of the laborer and the landowner on the one hand and of the owner of capital goods
on the other.
For the capital goods must in turn be produced by labor, nature and other capital goods.
Therefore, while the contributor of personal labor energy, and this of course includes
Since the energy of direction, as well as what are called laborers in popular parlance,
has earned a pure return, the owner of capital goods has previously spent some money for
the production or the purchase of his owned factors.
Now it is clear that since only factors of production may obtain income from the consumer,
The price of the consumer's good, that is, the income from the consumer's good, equals
the sum of the prices accruing to the producing factors, that is, the income accruing to the
factors.
In the case of joint ownership, this is a truism, since only a factor can receive income
from the sale of a good.
It is the same as saying that 100 ounces equals 100 ounces.
But what of the 80 ounces that we have arbitrarily allocated to the owners of capital goods?
To whom do they finally accrue?
Since we are assuming in this example of joint ownership that all products are owned by their
factor owners, it also follows that capital goods, which are also products, are themselves
jointly owned by the factors on the second rank of production.
Let us say that each of the three first-order capital goods was produced by five cooperating
factors.
Two types of labor, one type of land, two types of capital goods.
All these factor owners jointly owned the 80 ounces.
Let us say that each of the first-order capital goods had obtained the following.
Capital Good A, 30 ounces.
Capital Good B, 30 ounces.
Capital Good C, 20 oz. The income to each capital good will then be owned by five factor
owners on the second rank of production. It is clear that conceptually no one in the last
analysis receives a return as the owner of a capital good. Since every capital good analytically
When money actually resolves itself into original nature-given and labor factors, it is evident
that no money could accrue to the owner of a capital good.
All 100 ounces must eventually be allocated to labor and owners of nature-given factors
exclusively.
Thus, the 30 ounces accruing to the owners of capital good A will be allocated to the
of the Five Factor Owners, while the, say, four ounces accruing to one of the capital
goods of third rank helping to produce good A will in turn be allocated to land, labor
and capital goods factors of the fourth rank, etc.
Eventually, all the money is allocated to labor and nature-given factors only.
To the truism that the income from sale of the consumer's good equals the consumer's
expenditure on the good, we may add a corresponding truism for each stage of production, namely,
that the income from sale of a capital good equals the income accruing to the factors
of its production.
In the world that we have been examining, where all products at whatever stage are owned
Jointly by the owners of their factors, it is clear that first work is done on the highest
stage. Owners of land and of labor invest their land and labor to produce the highest order,
in this case, the fifth, capital good. Then these owners turn the good over to the owners of labor
and land at the next lower stage. These produce the fourth order capital good, which in turn
The first stage of the production cooperates with labor and land factors on that stage to produce the lower order good, etc.
Finally, the lowest stage is reached and the final factors cooperate to produce the consumer's good.
The consumer's good is then sold to consumers.
In the case of joint ownership, then, there does not arise any separate class of owners of capital goods.
All the capital goods produced are jointly owned by the owners of the producing land and labor factors.
The capital goods of the next lower order are owned by the owners of the land and labor factors at the next lower stage, along with the previously cooperating owners, etc.
In sum, the entire capital goods structure engaged in any line of production is jointly owned by the owners of land and labor, and the income gained from the final sale of the product to the consumers accrues only to the owners of land and labor.
There is no separate group of owners of capital goods to whom income accrues.
In practice, one or more persons can be the owners of any of the factors.
Thus, the original factors might also be jointly owned by several persons.
This would not affect our analysis.
The only change would be that the joint owners of a factor would have to allocate the factor's income according to voluntary contract,
but the type of allocation would remain the same.
It is obvious that the production process takes time, and the more complex the production process, the more time must be taken.
During this time, all the factors have had to work without earning any remuneration.
They have had to work only in expectation of future income. Their income is received only at a much later date.
The income that would be earned by the factors in a world of purely specific factors depends entirely on consumer demand for the particular final product.
If consumers spend 100 ounces on the good, then the factors will jointly earn 100 ounces.
If they spend 500 ounces, the factors will earn that amount.
If they spend nothing on the product and the producers have made the enormous entrepreneurial error of working on a product that the consumers do not buy, the factors earn precisely zero.
The joint monetary income earned by the owners of the factors fluctuates pari passu with consumer demand for the product.
At this point, a question naturally arises. What happens to owners of factors who earn a zero return? Must they starve?
Fundamentally, we cannot answer this question for concrete individual persons, since economics demonstrates truths about functional earnings in production, and not about the entire earnings of a given person.
A particular person, in other words, may experience a zero return on this good, while at the same
time earning a substantial return on ownership of another piece of land.
In cases where there is no such ownership in another area, the individual may pursue
isolated production that does not yield a monetary return, or if he has an accumulated
monetary cash balance, he may purchase goods by reducing the balance. Furthermore, if he
has such a balance, he may invest in land or capital goods, or in a production organization
owning them, in some other line of production. His labor, on our assumptions, may be a specific
factor, but his money is usable in every line of production.
Suppose we assume the worst possible case, a man with no cash balance, with no assets
of capital, and whose labor is a specific factor, the product of which has little or
no consumer demand.
Actually, this case cannot occur, since labor, as we shall see, is always a non-specific
factor.
Is he not truly an example of an individual led astray by the existence of the market
and the specialization prevalent on it?
By subjecting himself to the consumer, has he not placed his happiness and existence
in jeopardy?
Even granting that people chose a market, could not the choice turn out to be tragic
for many people?
The answer is that there is no basis whatever for such strictures on the market process.
For even in this impossible case, the individual is no worse off than he would have been in
isolation or barter.
He can always revert to isolation if he finds he cannot attain his ends via the market process.
The very fact that we consider such a possibility ludicrous is evidence of the enormous advantages
that the market confers upon everyone.
Indeed, empirically, we can certainly state that without the modern developed market and thrown back into isolation, the overwhelming majority of individuals could not obtain enough exchangeable goods to exist at all.
Yet this choice always remains open to anyone who, for any reason, voluntarily prefers isolation to the vast benefits obtainable from the market system.
Certainly, therefore, complaints against the market system by disgruntled persons are misplaced and erroneous.
Any person or group on the unhampered market is free to abandon the social market at any time
and to withdraw into any other desired form of cooperative arrangement.
People may withdraw into individual isolation, or establish some sort of group isolation,
or start from the beginning to recreate their own market.
In any case, on the free market, their choice is entirely their own, and they decide according
to their preferences, unhampered by the use or threat of violence.
It is therefore our contention that the term consumer's sovereignty is highly inapt, and
that individual sovereignty would be a more appropriate term for describing the free market
System.
Our example of the worst possible case enables us to analyze one of the most popular objections
to the free society, that it leaves people free to starve.
First, from the fact that this objection is so widespread, we can easily conclude that
there will be enough charitable people in the society to present these unfortunates
with gifts.
There is, however, a more fundamental refutation.
It is that the freedom to starve argument rests on a basic confusion of freedom with abundance
of exchangeable goods.
The two must be kept conceptually distinct.
Freedom is meaningfully definable only as absence of interpersonal restrictions.
Robinson Crusoe on the desert island is absolutely free, since there is no other person to hinder
him.
not necessarily living an abundant life. Indeed, he is likely to be constantly on the verge of
starvation. Whether or not man lives at the level of poverty or abundance depends upon the success
that he and his ancestors have had in grappling with nature and in transforming naturally given
resources into capital goods and consumers' goods. The two problems therefore are logically separate.
Crusoe is absolutely free, yet starving, while it is certainly possible, though not likely, for a given person at a given instant to be a slave while being kept in riches by his master.
Yet there is an important connection between the two, for we have seen that a free market tends to lead to abundance for all of its participants,
And we shall see that violent intervention in the market and a hegemonic society tend to lead to general poverty.
That a person is free to starve is therefore not a condemnation of the free market, but a simple fact of nature.
Every child comes into the world without capital or resources of his own.
On the contrary, as we shall see further, it is the free market, in a free society, that furnishes the only instrument to reduce or eliminate poverty and provide abundance.