January 19, 2021

Foundations of Political Economy: (Economic) Good and Economics

We present to your attention the first part of a new series of articles, in which the author tried to summarize the outstanding work of Karl Menger "Foundationspolitical economy ". The goal is to make this important work a little more understandable and easy to read for the category of people who, perhaps, do not have much free time, nevertheless, there is a desire to get acquainted with the basics of economic theory. The first part of this essay covers the first two chapters of the book and forms the theoretical basis economic and non-economic goods, needs, property and wealth.

Chapter I - General Doctrine of Good

1. About the essence of goods

Menger begins by listing four prerequisites that must be met simultaneously for an item to take on character. benefits, or, in other words, something that can be directly used to meet human needs:

1. A person must feel a certain need. Example: satisfying intense hunger.

2. It is necessary to have some special properties, thanks to which the object becomes suitable for creating a casual connection with the satisfaction of this need. Example: contain nutrients.

3. Human knowledge of this causal relationship. Example: a view of nutrition based directly on traditional or more scientific approaches.

4.The ability to dispose of an item sufficiently and in such a way as to really use it to meet this need. Example: Possession of a food containing nutrients.

An object only becomes a good whenall four conditions coincide, but if at least one of them is missing, then the object can never become a good. Let's see what role a piece of meat will play in the above example. (1) Naturally, it will be relevant if the person has not eaten anything for some time. (2) also applies to meat, as it contains various nutrients that the human digestive system can use to satisfy hunger. (3) is acceptable if the person knows that meat actually satisfies hunger. (4) is valid if the person has a piece of meat at his disposal.

It's not hard to guess where this list ispreconditions can be violated, and in which case the meat product becomes, in this particular scenario, just a thing or object. The need to satisfy hunger could disappear after an abundant intake of food. A piece of meat can be so tainted that no nutrients left in it will have any beneficial effect. Perhaps no one yet knows that this particular type of meat can be eaten, first of all. Finally, a piece of meat may still be part of an animal that has not yet been caught.

2. About causal relationships between goods

Benefits vary somewhat depending ontheir inherent characteristics. Some of them may meet needs directly and directly, which is the reason Menger calls them. benefits of the first order... The piece of meat undoubtedly belongs to thiscategories of goods, since it is able to satisfy hunger - the most urgent need. However, there are a large number of things in the world that are not in a direct causal relationship with the satisfaction of human needs, but which in any case should be considered good. The pear tree, for example, by itself is not capable of satisfying hunger, but, in the first place, is a necessary prerequisite for pears to become available for such a causal relationship. Therefore, it is obvious that the pear tree is a boon second order, while the pear fruit in this scenario is a first order boon. And, a piece of land on which a pear tree grows can be considered a blessing third order. As you can see, both the plot of land and the pear tree, as well as the pears themselves, all refer to a causal relationship with the satisfaction of needs.

It is important to understand that the nature of the good is notsomething inherent in the very good by default. For example, a couple of centuries ago, oil had no market price at all, although today it is of significant value. Despite the fact that in its chemical composition it is exactly the same as before, only thanks to changes in the understanding of oil and the ways it is used by humans, it has acquired the character of a good. Since knowledge can be not only lost, but also acquired, it becomes even easier to understand that the nature of the good is never something inherent in any thing. It should also be noted that a good can take a different order or place in the causal relationship of goods if it is considered taking into account the unequal satisfaction of needs. The pear can be both a first-order good for a hungry child, and at the same time, a second-order good for a pear jam producer. At the same time, the pear can lose a certain place in the causal relationship of benefits, if the skill of making pear jam is ever lost.

3. Laws governing the nature of goods

A. Goods of a higher order in their character of goods are due to the presence at our disposal of the corresponding complementary goods.

In the case of first-order goods, they canbe used directly to meet needs. So, for example, to satisfy hunger, you can eat a pear or an apple. In order to receive the goods of the first order, it is necessary to have a full set of goods of the second order, which can be transformed into the goods of the first order. Taking bread as another example of a widespread first-order good, it can be made with flour, water, yeast, salt, and energy - all of which are second-order goods in this case. Flour is made from wheat, which in this case is a good of the third order. The fields on which wheat grows, in this example, can be considered fourth order goods. It follows from this that the satisfaction of needs can be carried out only if we have a specific good of the first order, or if we own all the goods of the second order and turn them into the good of the first order, or if we have all the necessary goods of the third order, which we can turn into goods of the second order, and then turn the received goods of the second order into goods of the first order, etc. In order for any of them to acquire this specific character of good, we must have at our disposal all complementary goods of a higher order. For example, in the absence of flour, water, yeast, salt and energy are useless for making bread in an effort to satisfy a particular need.

However, it should be added that the absence of flour inthe above example does not necessarily deprive the secondary goods of the second order of the whole character of goods. Water, which at the moment does not have the character of a good for making bread from wheat flour, can still have a character of a good, due to the fact that it is part of a causal relationship with other goods. As an illustrative example, we can cite the fact that water is a first order good for quenching thirst. In the absence of wheat flour, the baker may also have flour from other types of grain, as a result of which the water acquires the property of a second-order good in the case of other causal relationships.

The nature of the good for the goods of a higher orderdepends not only on the possession of the corresponding complementary goods of the same order. Moreover, if we do not have at our disposal all the complementary goods of a lower order, then the specific character of goods of a higher order is lost. For example, in order to satisfy the need for bread as food, the plot of land, the good of the fourth order, on which we grow wheat, the good of the third order, will lose its character of good if we do not have yeast, the good of the second order. In custody:

B. The nature of the goods of a higher order is derived from the nature of the corresponding goods of a lower order.

4. Time and error

In this section, Menger introduces the concept of time asa relevant factor in the transformation of goods of a higher order into goods of a lower order. He emphasizes that if the required time between transformations of goods into goods of a lower order can decrease, for example, due to technological progress, the time component may not disappear completely. To illustrate this phenomenon, Menger cites an example of an oak forest. All higher-order goods can be used extremely effectively, but there is no way around the fact that some lower-order goods sometimes require decades of waiting after planting (fully grown trees, timber) before they are available to their owner.

From this it follows that the equation is addedhuman foresight, since the temporal component often makes it impossible to satisfy an urgent need. This points to Menger's second observation that the time component introduces uncertainty or error. A person who disposes of any good of the first order can be sure of its quality and quantity, while the owner of all goods of the second order cannot be so sure of the quality and quantity of the good of the first order, which will come at his disposal only later. A good example is owning a certain number of bushels of wheat, as opposed to owning all the higher-order goods such as seeds, water, land, fertilizer, and labor. As is the case with time, uncertainty can be reduced with a deeper knowledge of the nature of causation, or in other words, the production process.

5. On the causes of progressive human well-being

In this section, Menger begins by sayingmakes an important distinction between his economic theory and the theory of Adam Smith. Smith considers the division of labor to be central to human economic progress. Which at first glance seems quite logical, but the aspect of time that was raised quite recently is overlooked. To emphasize his point of view, Menger describes a certain primitive society in which the division of labor completely dominates labor (hunters, gatherers, cooks, etc.). Although such an organization is very effective, it is short-sighted and focuses on short-term consumption, leading to the fact that all members of such a society find themselves in relative poverty. Therefore, there must also be another factor that helps differentiate poor societies with a division of labor from wealthy societies that practice the same form of labor organization.

This second factor, of course, is the transformation of higher-order goods into lower-order goods - time-consuming process... A lower-income society canto engage in the collection of first-order goods to meet basic needs, while the goods of a higher order remain unclaimed. A wealthier society can convert higher-order goods into first-order goods and thus achieve greater cumulative results. In an economy of primitive gathering, of course, the volume of production is lower than in an economy that uses goods of a higher order to create even more goods of the first order. A good example is the fisherman, who instead of fishing with his hands, uses higher-order goods to make boats and fishing nets. The ultimate goal of course remains the same - to catch as many fish as possible. It should now be perfectly clear that the time factor, or to be more precise, the transformation of goods from a higher to a lower order in a causal relationship plays a decisive role in the progress of human well-being. There is a trade-off between immediate but relatively low consumption and delayed but relatively high consumption.

Consumer goods (goods of the first order),emerging as a result of a random confluence of natural conditions, now become the product of human will, within the limits established by the laws of nature. Over time, picking wild pears directly will naturally yield lower pear yields than growing pear trees on fertile land and taking care of them carefully under your control. Delayed gratification, combined with the division of labor, is, according to Menger, precisely what brought man out of barbarism and suffering into a state of civilization. This can only be possible if people have mastered the knowledge necessary to transform higher goods into lower goods, and if they also have the foresight to plan ahead for causation.

6. Property

In concluding the general theory of the good, Menger describes own as: the entire set of benefits at the disposal of an economic entity to meet its needs. It should not be confused with the concept wealthwhich we will discuss later.In conclusion, Menger notes that a person should try to satisfy his needs for housing, as well as for food, and that even the most complete satisfaction of only one need cannot support life and well-being. It is understood that the property of an economic individual always includes a number of benefits that are useful to him.

Chapter II - Economy and Economic Benefits

The amount of consumer goods that a person must have to meet his needs can be called it need... Therefore, people's concern for maintaining their livesand their well-being is a concern for providing the amount of goods they need. Since humans have a certain amount of foresight, it is natural that attempts are made to ensure that such needs are met in the future in advance. As an example, Menger cites the making of winter clothing well in advance of winter. As a prerequisite, Menger lists two types of knowledge that people must possess in order to provide themselves with everything they need in advance. They should (a) know their needs, i.e. the amount of goods they will need to satisfy their needs over a period of time over which their foresight extends, and (b) know the amount of goods available to meet those needs.

1. Human needs

A. The need for first-order goods (consumer goods).

Menger notes that a person experiencesimmediate and immediate need only for the goods of the first order - that is, for the goods that can be used directly to satisfy his needs. In the absence of any need for this category of goods, there could be no needs for goods of a higher order. In other words, the needs for goods of a higher order are due to the presence of needs for goods of the first order. If, for example, the need for firewood for a fire disappears due to migration to a warmer climate, then trees are no longer necessary for the specific purpose of satisfying the need to stay warm.

In this case, uncertainty also plays a role,because people should strive to receive the appropriate amount of consumer goods that they need for the entire period of time over which their plans apply.

B. The need for higher goods (means of production)

If the needs for goods of the first order are onthe coming period of time has already been satisfied with existing stocks, then there is no need to satisfy these same needs at the expense of goods of a higher order. However, with an insufficient number of first-order goods, there is a need for higher-order goods as a means of producing consumer goods needed in the future.

Menger defines general need as an unfulfilled amount required for a future period. Real need, on the other hand, is part of a general need that can be transformed from goods of a higher order. The difference between the general need and the actual is called latent need, and it can only become valid ifin the event that the goods of a higher order, which are absent at the present time, suddenly appear at our disposal. Thus, for a certain period of time in the future, our actual needs for specific higher-order goods depend on the availability of complementary quantities of corresponding higher-order goods. An excellent illustration of this phenomenon, according to Menger, is the American Civil War. Exports of raw cotton to Europe declined significantly, while the overall demand for manufactured goods made from cotton fabrics remained flat due to cold weather. This led to the fact that the need for complementary second-order goods, such as machines and labor, suddenly became latent, that is, the actual need for second-order goods was lower than the general need for second-order goods. If the situation does not improve, latent need always becomes a problem over time, leading to unmet needs due to lack of first-order goods.

B. The time frame within which human needs are manifested.

Here Menger discusses the question of howthe needs of future periods of time correlate with the existing transformation of goods of a higher order into goods of a lower order. Since this process has an integral temporal component, it is, for example, too late to plant wheat in autumn to meet the food needs for bread that will arise during the winter of the same year. In accordance with the laws of nature, wheat simply will not have the necessary conditions for growth until the onset of the disastrous snowfalls.

2. Available quantities

Knowledge of the required amount of goods for subsequenttime periods is the first prerequisite for planning all human activities aimed at meeting needs. Therefore, it is essential to predict these quantities accurately. As long as there is no significant trade between people, knowing how much others are handling is not of great importance, but as soon as trade appears (mainly as a result of the division of labor), this information naturally becomes very promising for planning goals. A professional class will emerge to act as an intermediary in exchange transactions to facilitate trade, and one of the most important roles of this class is also to collect stock data. Periodically published inventory reports are a good example of the information that comes from the need for advance planning coupled with available trading activity.

3. About the origin of the human economy and economic (economic) benefits

A. Household goods.

The study of the needs and available quantities of any good allows you to establish the existence of any of the three following relationships:

a) that the requirements exceed the available quantity.

b) that the needs are less than the available quantity.

c) that the needs and the available quantity are the same.

The first state is what we're basically aboutused to when we consider various goods. Whenever people realize that the need for any good exceeds the amount at their disposal, they come to a deeper understanding that no part of the available quantity can lose its useful properties or be taken out of human control, not leading to the fact that now this need will be satisfied less fully than before. A good example is a variety of food products, in a place where their availability is limited. The first consequence of realizing this fact is that people must (1) ensure at their disposal all units of the good related to this quantitative ratio, and (2) ensure the safety of their useful properties. If there is a threat of hunger, it is critical to retain ownership of food and keep it safe from spoilage.

Accordingly, in connection with the above, peoplestrive (3) to make a choice between their more important needs and the needs that they should leave unmet, and (4) to obtain the greatest possible result with a given quantity of goods or a given result with as little quantity as possible - or, in other words, direct the amount of available they have consumer goods and, in particular, the available means of production, to satisfy their needs in the most appropriate way. The totality of human activity aimed at achieving these four goals is called management, and the benefits in question are economic benefits... It is important to understand that economic activitydiffers between individuals, as each person has their own subjective needs, which may not coincide with the needs of other people. This undoubtedly complicates the aggregate assessment of economic entities.

In the struggle for economic benefits with suchnatural state, when human needs often far exceed the available amount of consumer goods, each of the individuals will achieve completely different degrees of success. Whatever the gap, it is clear that some members of society will not be able to fully meet their needs by creating conflict of interests between the owners of economic goods and those whoneeds such benefits. In this regard, there is a need for society to protect individual economic entities that own economic benefits. This is the economic origin of our current legal order, and it is called protection of ownership, being the foundation of the property.Therefore, property is not an accidental invention, but rather the only feasible solution to the problem of mismatch between need and availability.

B. Non-economic goods.

Menger gives a wonderful example of a certaina community living near a mountain river with sufficient water, both during rains and droughts, to meet the water needs of all members of that community. Since all current and future needs are guaranteed to be met, water will not represent an object of the human economy, and for this reason Menger calls it, in this particular example, non-economic good... For non-economic goods, by definition, there can be no economic struggle or competition.

B. Relationship between economic and non-economic benefits.

It is important to understand that the economic or non-economic nature of any good is neither its essence nor its property... Benefit can acquire economic ornon-economic in nature, depending on the quantitative relationship between need and availability. A good can be an economic good at one point in time and non-economic at another point in time. The good can be economic in one part of the world and non-economic in another. Firewood is one example of what can often be a non-economic good in small forest communities, while firewood can naturally take on an economic nature in a society far from forests. While acquiring an economic character in summer, ice may not be so in winter.

There are only two possible reasonsby which a non-economic good becomes an economic good: an increase in human needs or a decrease in the available quantity. An increase in need can result from (1) population growth, (2) human needs growth, and (3) advances in knowledge about the causal relationship between things and human well-being.

D. Laws governing the economic nature of goods

Based on the previous reasoning, Menger concludes that the presence of needs for goods of a higher order depends on the corresponding goods of a lower order that are of an economic nature... The same way, the economic nature of the goods of a higher order depends on the economic nature of the goods of a lower order, for the production of which the former serve.

4. Wealth

The entire amount of goods at the disposal of a person can be called his property... On the other hand, the entire set of economic benefits at the disposal of an economic entity can be called it wealth... This difference arises from the fact thatnon-economic benefits at the disposal of a person are not objects of his economic activity, since they are in abundance. Thus, wealth can also be defined as the whole amount of goods at the disposal of an economic entity, the amount of which is less than the need for them... Menger points out that if there werea society in which all benefits would be available in quantities exceeding the needs for them, then there would be no wealth, just as there would be no economic benefits themselves.

You can always thank the translator for the work done:
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