Requirements for goods of higher order - Carl Menger

Human Requirements

If our requirements for goods of first order for a coming time period are already directly met by existing quantities of these goods, there can be no question of a further provision for these same requirements by means of goods of higher order. But if these requirements are not met, or are not completely met, by existing goods of first order (that is, if they are not met directly), requirements for goods of higher order for the time period in question do arise. These requirements are the quantities of goods of higher order that are necessary, in the existing state of technology of the relevant branches of production, for supplying our full requirements for goods of first order.
The simple relationship just presented with respect to our requirements for the means of production is to be observed, however, as we shall see in what follows, only in rare cases. An important modification of this principle arises from the causal interrelationships between goods.
It was demonstrated earlier (pp. 58 ff.) that it is impossible for men to employ any one good of higher order for the production of corresponding goods of lower order unless they are able, at the same time, to have the complementary goods at their disposal. Now what was said earlier of goods in general becomes more sharply precise here when we take into account the available quantities of goods. It was shown earlier that we can change goods of higher order into goods of lower order, and thus use them for the satisfaction of human needs, only if we have the complementary goods simultaneously at our disposal. This principle can now be restated in the following terms: We can bring quantities of goods of higher order to the production of given quantities of goods of lower order, and thus finally to the meeting of our requirements, only if we are in the position of having the complementary quantities of the other goods of higher order simultaneously at our disposal. Thus, for instance, even the largest quantity of land cannot be employed for the production of a quantity of grain, however small, unless we have at our disposal the (complementary) quantities of seed, labor services, etc., that are necessary for the production of this small quantity of grain.
Hence requirements for a single good of higher order are never encountered. On the contrary, we often observe that, whenever the requirements for a good of lower order are not at all or are only incompletely met, requirements for each of the corresponding goods of higher order are experienced only jointly with quantitatively corresponding requirements for the other complementary goods of higher order.
Suppose, for example, that with still unfilled requirements for 10,000 pairs of shoes for a given time period, we can command the quantities of tools, labor services, etc., necessary for the production of this quantity of shoes but only enough leather for the production of 5,000 pairs. Or else suppose that we are in a position to command all the other goods of higher order necessary for the production of 10,000 pairs of shoes but only enough labor services for the production of 5,000 pairs. In both instances, there can be no doubt that our full requirements, with respect to the given time period, would extend to such quantities of the various goods of higher order necessary for the production of shoes as would suffice for the production of 10,000 pairs. Our effective requirements, however, with respect to the other complementary goods, would, in each case, extend to such quantities only as are needed for the production of 5,000 pairs. The remaining requirements would be latent, and would only become effective if the other, lacking, complementary quantities should also become available.
From what has been said, we derive the principle that, with respect to given future time periods, our effective requirements for particular goods of higher order are dependent upon the availability of complementary quantities of the corresponding goods of higher order.
When cotton imports to Europe declined considerably because of the American Civil War, requirements for cotton piece goods remained evidently quite unaffected since that war could not change the needs for these goods significantly. To the extent to which there were future requirements for cotton piece goods that were not already met by finished manufactured products, there were also, as a result, requirements for the corresponding quantities of goods of higher order necessary for the production of cotton cloth. Hence these requirements also could not, on the whole, be altered significantly in any way by the civil war. But since the available quantity of one of the necessary goods of higher order, namely raw cotton, declined considerably, the natural consequence was that a part of the previous requirements for goods complementary to raw cotton with respect to the production of cotton cloth (labor services, machines, etc.) became latent, and the effective requirements for them diminished to such quantities as were necessary for processing the available quantities of raw cotton. As soon, however, as imports of raw cotton revived again, the effective requirements for these goods also experienced an increase—to the exact extent, of course, that the latent requirements diminished.
Immigrants, bringing with them viewpoints acquired in highly developed mother countries, often fall into the error of striving from the outset for an extended landed property to the neglect of more important considerations, and even without regard to whether the corresponding quantities of the other goods, complementary to the land, are available in their settlements. Yet nothing is more certain than that they can progress in using the land for the satisfaction of their needs only to the extent that they are able to acquire the corresponding complementary quantities of seed grain, cattle, agricultural instruments, etc. Their course of action betrays an ignorance of the above principle, which makes itself so inexorably felt that men must either submit to its validity or bear the injurious consequences of its neglect.
The further civilization progresses with a highly developed division of labor, the more accustomed do people in various lines become to producing quantities of goods of higher order under the implicit and as a rule correct assumption that other persons will produce the corresponding quantities of the complementary goods. Manufacturers of opera glasses very seldom produce the glass lenses, the ivory or tortoise-shell cases, and the bronze parts, used in assembling the opera glasses. On the contrary, it is known that the producers of these glasses generally obtain the separate parts from specialized manufacturers or artisans and only assemble these parts, adding perhaps a few finishing touches. The glass-cutter who makes the lenses, the fancy-goods worker who makes the ivory or tortoise-shell cases, and the bronze-worker who makes the bronze castings, all operate under the implicit assumption that requirements for their products do exist. And yet nothing is more certain than that the effective requirements for the products of each one of them are dependent upon the production of the complementary quantities in such a fashion that, if the production of glass lenses were to suffer an interruption, the effective requirements for the other goods of higher order necessary for the production of telescopes, opera-glasses, and similar goods, would become latent. At this point, economic disturbances would appear that laymen usually consider completely abnormal, but which are, in reality, entirely in accordance with economic laws.

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