Thursday, September 20, 2012

The relationship between economic and non-economic goods.

Principles of Economics

In the two preceding sections we examined the nature and origin of human economy, and demonstrated that the difference between economic and non-economic goods is ultimately founded on a difference, capable of exact determination, in the relationship between requirements for and available quantities of these goods.
But if this has been established, it is also evident that the economic or non-economic character of goods is nothing inherent in them nor any property of them, and that therefore every good, without regard to its internal properties or its external attributes, attains economic character when it enters into the quantitative relationship explained above, and loses it when this relationship is reversed.10
Economic character is by no means restricted to goods that are the objects of human economy in a social context. If an isolated individual’s requirements for a good are greater than the quantity of the good available to him, we will observe him retaining possession of every unit at his command, conserving it for employment in the manner best suited to the satisfaction of his needs, and making a choice between needs that he will satisfy with the quantity available to him and needs that he will leave unsatisfied. We will also find that the same individual has no reason to engage in this activity with respect to goods that are available to him in quantities exceeding his requirements. Hence economic and non-economic goods also exist for an isolated individual. The cause of the economic character of a good cannot therefore be the fact that it is either an “object of exchange” or an “object of property.” Nor can the fact that some goods are products of labor while others are given us by nature without labor be represented with any greater justice as the criterion for distinguishing economic from non-economic character, in spite of the fact that a great deal of clever reasoning has been devoted to attempting to interpret actual phenomena that contradict this view in a sense that does not. For experience tells us that many goods on which no labor was expended (alluvial land, water power, etc.) display economic character whenever they are available in quantities that do not meet our requirements. Nor does the fact that a thing is a product of labor by itself necessarily result in its having goods-character, let alone economic character. Hence the labor expended in the production of a good cannot be the criterion of economic character. On the contrary, it is evident that this criterion must be sought exclusively in the relationship between requirements for and available quantities of goods.
Experience, moreover, teaches us that goods of the same kind do not show economic character in some places but are economic goods in other places, and that goods of the same kind and in the same place attain and lose their economic character with changing circumstances.
While quantities of fresh drinking water in regions abounding in springs, raw timber in virgin forests, and in some countries even land, do not have economic character, these same goods exhibit economic character in other places at the same time. Examples are no less numerous of goods that do not have economic character at a particular time and place but which, at this same place, attain economic character at another time. These differences between goods and their changeability cannot, therefore, be based on the properties of the goods. On the contrary, one can, if in doubt, convince oneself in all cases, by an exact and careful examination of these relationships, that when goods of the same kind have a different character in two different places at the same time, the relationship between requirements and available quantities is different in these two places, and that wherever, in one place, goods that originally had non-economic character become economic goods, or where the opposite takes place, a change has occurred in this quantitative relationship.
According to our analysis, there can be only two kinds of reasons why a non-economic good becomes an economic good: an increase in human requirements or a diminution of the available quantity.
The chief causes of an increase in requirements are: (1) growth of population, especially if it occurs in a limited area, (2) growth of human needs, as the result of which the requirements of any given population increase, and (3) advances in the knowledge men have of the causal connection between things and their welfare, as the result of which new useful purposes for goods arise.
I need hardly point out that all these phenomena accompany the transition of mankind from lower to higher levels of civilization. From this it follows, as a natural consequence, that with advancing civilization non-economic goods show a tendency to take on economic character, chiefly because one of the factors involved is the magnitude of human requirements, which increase with the progressive development of civilization. If to this is added a diminution of the available quantities of goods that previously did not exhibit economic character (timber, for instance, through the clearance or devastation of forests associated with certain phases of cultural development), nothing is more natural than that goods, whose available quantities on an earlier level of civilization by far outstripped requirements, and which therefore did not show economic character, should become economic goods with the passage of time. In many places, especially in the new world, this transition from non-economic to economic character can be proven historically for many goods, especially timber and land. Indeed the transition can be observed even at the present time. Despite the fact that information in this field is only fragmentary, I believe that in Germany, once so densely forested, but few places are to be found where the inhabitants have not, at some time, experienced this transition—in the case of firewood, for example.
From what has been said, it is clear that all changes by which economic goods become non-economic goods, and conversely, by which the latter become economic goods can be reduced simply to a change in the relationship between requirements and available quantities.
Goods that occupy an intermediate position between economic and non-economic goods with respect to the characteristics they exhibit may lay claim to a special scientific interest.
In this class must be counted, above all, such goods in highly civilized countries as are produced by the government and offered for public use in such large quantities that any desired amount of them is at the disposal of even the poorest member of society, with the result that they do not attain economic character for the consumers.
Public school education, for instance, in a highly developed society is usually such a good. Pure healthy drinking water also is considered a good of such importance by the inhabitants of many cities that, wherever nature does not make it abundantly available, it is brought by aqueducts to the public fountains in such large quantities that not only are the requirements of the inhabitants for drinking water completely met but also, as a rule, considerable quantities above these requirements are available. While instruction by a teacher is an economic good for those in need of such instruction in societies at a low level of civilization, this same good becomes a non-economic good in more highly developed societies, since it is provided by the state. Similarly, in many large cities pure and healthy drinking water, which previously had economic character for consumers, becomes a non-economic good.
Conversely, goods that are naturally available in quantities exceeding requirements may attain economic character for their consumers if a powerful individual excludes the other members of the economy from freely acquiring and using them. In densely wooded countries, there are many villages surrounded by natural forests abounding in timber. In such places, the available quantity of timber by far exceeds the requirements of the inhabitants, and uncut wood would not have economic character in the natural course of events. But when a powerful person seizes the whole forest, or the greater part of it, he can regulate the quantities of timber actually available to the inhabitants of his village in such a way that timber nevertheless acquires economic character for them. In the heavily wooded Carpathians, for instance, there are numerous places where peasants (the former villains) must buy the timber they need from large landholders, even while the latter let many thousands of logs rot every year in the forest because the quantities available to them far exceed their present requirements. This, however, is a case in which goods that would not possess economic character in the natural course of events artificially become economic goods for the consumers. In such circumstances, these goods actually manifest all the phenomena of economic life that are characteristic of economic goods.11
Finally, goods belong in this category that do not exhibit economic character at the present time but which, in view of future developments, are already considered by economizing men as economic goods in many respects. More precisely, if the available quantity of a non-economic good is continually diminishing, or if the requirements for it are continually increasing, and the relationship between requirements and available quantity is such that the final transition of the good in question from non-economic to economic status can be foreseen, economizing individuals will usually make portions of the available quantity objects of their economic activity. They will do this even when the quantitative relationship responsible for the non-economic character of the good still actually prevails, and will, when living as members of a society, usually guarantee themselves their individual requirements by taking possession of quantities corresponding to these requirements. The same reasoning applies to non-economic goods whose available quantities are subject to such violent fluctuations that only command of a certain surplus in normal times assures command of requirements in times of scarcity. It applies also to all non-economic goods with respect to which the boundary between requirements and available quantities is already so close (the third case mentioned on p. 94, above all, belongs in this category) that any misuse or ignorance on the part of some members of the economy may easily become injurious to the others, or when special considerations (considerations of comfort or cleanliness for example) apparently make expedient the seizure of partial quantities of the non-economic goods. For these and similar reasons the phenomenon of property can also be observed in the case of goods that appear to us still, with respect to other aspects of economic life, as non-economic goods.
Finally, I would like to direct the attention of my readers to a circumstance that is of great importance in judging the economic character of goods. I refer to differences in the quality of goods. If the total available quantity of a good is not sufficient to meet the requirements for it, every appreciable part of the total quantity becomes an object of human economy and thus an economic good whatever its quality. And if the available quantities of a good are greater than the requirements for it, and there are therefore portions of the total stock that are utilized for the satisfaction of no need whatever, all units of the good must, in accordance with what has already been said about the nature of non-economic goods, have non-economic character if they are all of exactly the same quality. But if some portions of the available stock of a good have certain advantages over the other portions, and these advantages are of such a kind that various human needs can be better satisfied or, in general, more completely satisfied by using these rather than the other, less useful, portions, it may happen that the goods of better quality will attain economic character while the other (inferior) goods still exhibit non-economic character. Thus, in a country with a superabundance of land, for instance, land that is preferable because of the composition of the soil or by reason of its location may already have attained economic character while poorer lands still exhibit non-economic character. And in a city situated on a river with drinking water of inferior quality, quantities of spring water may already be objects of individual economy when the river water does not, as yet, show economic character.
Thus, if we sometimes find that different portions of the whole supply of a good differ in character at the same time, the reason, in this case too, always lies solely in the fact that the available quantities of the goods of better grade are smaller than requirements while the poorer goods are available in quantities exceeding requirements (requirements not covered by the goods of better grade). Such instances do not, therefore, constitute exceptions, but are, on the contrary, a confirmation of the principles stated in this chapter.

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