Saturday, August 11, 2012

Consumer Goods versus Producer Goods - Robert P. Murphy

Consumer Goods versus Producer Goods

Now that we understand what goods are in general, we can begin to make some distinctions. On the one hand, Crusoe recognizes that there are scarce items that can help him to directly achieve his goals. For example, the running water in the stream can directly quench his thirst, and the coconuts can directly satisfy Crusoe’s hunger. Economists call these consumer goods.
On the other hand, there are items that are certainly useful, and which would allow Crusoe to achieve more of his goals if he had more of such items—hence they are goods—but they are not directly useful to him. They are only indirectly useful because they help Crusoe to obtain more consumer goods. For example, a long stick, in and of itself, doesn’t do anything for Crusoe, and if it were the only object on the island, Crusoe would not consider it a good at all. But because there are coconuts hanging on trees—some of which are out of Crusoe’s reach—suddenly the stick acquires value indirectly. Crusoe now considers the stick to be a good, even though it doesn’t directly satisfy hunger, because it indirectly helps him to achieve his goal. Economists call items such as the hypothetical stick producer goods or factors of production or means of production.
As with goods in general, the distinction between consumer versus producer goods is in the mind of the acting individual. For example, if the Incredible Hulk should wash up on Crusoe’s island, he might consider the stick a great device for scratching that hard-to-reach spot between his shoulder blades. To the Hulk, the same physical stick would be a consumer good.

Land, Labor, and Capital Goods

Even within the class of producer goods, we can make more distinctions. Those producer goods that are the direct gifts of nature are typically called land or natural resources. These include somewhat permanent items such as a flowing stream, or a tree that will yield a flow of coconuts indefinitely; but also included are depletable resources such as a small deposit of tin that Crusoe can use to make cooking pans and fish hooks.
The single most important and versatile producer good is Crusoe’s own labor, which is the flow of productive services Crusoe performs with his body. In terms of the logic of economic principles, it would be perfectly sensible to group labor along with other natural resources that provided an indefinite flow of services (with adequate maintenance). However, economists have historically accorded labor special treatment, because labor is the one factor of production that every individual possesses, and also because labor is the one producer good that is required for every production process. When Crusoe devotes his physical efforts toward the indirect satisfaction of goals, he is engaged in labor. On the other hand, if he achieves direct satisfaction of goals through control of his hands, brain, etc., then economists call this leisure. Crusoe will allocate his “body power” among labor and leisure activities, in order to satisfy the goals he considers most important. Historically, economists have referred to the disutility of labor to underscore the fact that individuals directly enjoy leisure, and will only devote some of their scarce time to labor if it allows the achievement (indirectly) of more important ends than the leisure being sacrificed.3
Finally, capital goods are those factors of production that were created by people.4 Every capital good is produced from the combination of (at least one) natural resource and labor. Most capital goods are also produced with the help of (pre-existing) capital goods.5 For Crusoe on his island, examples of capital goods would be a fishing net that he constructs out of vines and his labor, and a shelter that he creates out of rocks, branches, mud, leaves, and his labor.

Lessons for the Young Economist

No comments:

Post a Comment

Your Comments