In Economics for Real People, Callahan refers to “Carl Menger termed goods that directly relieve some dissatisfaction, such as water or food, goods of the first order. They can also be called consumer goods. Goodw whose value comes from their aid in producing goods of the first order, such as traps and barrels, are called goods of a higher order, producer goods, or capital goods. Note that this distinction does not exist in the goods themselves, but in human thought and planning. If I collect barrels as an object of art, then they are for me consumer goods. If I own a grocery store, then the food items I stock are for me producer goods.”
A couple of questions.
When he talks about the food he stores in his grocery store as being a “capital good for him”, does he mean that it is a capital good because people will buy the food which will give him money that he can spend on something else, so the food in his mind isn’t for his immediate satisfaction? If so, does that make anything someone sells a capital good in his mind for that scenario by default?
He says consumer goods are something that directly relieve some dissatisfaction, so couldn’t that make it a wide variety of goods? Like a book is a consumer good because you read it and feel satisfied, but could it be a capital good in that you read it to learn about how to build soemthing for you, or that you sell the book, making it a capital good for you?
I just seem confused about some differences between the two, and would be happy if someone could explain. When I read this definition a million little “exceptions” pop into my mind. Is a pencil a consumer good because it gives me satisfaction in writing with it, or a capital good because it only aids to make something else. Do Austrians use the term durable consumer goods? Or can their “consumer good” be anything ranging from something consumed and that is it, to something that can be used forever but still gives satisfaction? If I take a car to go to work and drive around in it, is it a capital good because I go to work to make something to make money to spend it elsewhere? Things like this perplex me.
If capital goods are completely subjective, then how do we know that the ABCT creates a boom in the capital goods industry? Are we only perceiving the goods that experience the boom “capital goods”?
When I read this definition a million little “exceptions” pop into my mind. Is a pencil a consumer good because it gives me satisfaction in writing with it, or a capital good because it only aids to make something else.
dont be frightened away by its simplicity. Austrian economics embraced a philosophy of methadological individualism,. that means as you say, for a consumer of pencil services a pencil is a consuemr good. for a manufacturer/producer of pencils its a capital good.
your car to go to work is probably not a capital good as you are a wage earner so not engaged in earning entrepenuerual profit. hence your outlay/spending is consumptive , they are not costs of production. now if its a car your boss subsidises or what have you, to the extend that its a deduction from the companies salesrevenue its a capital good
About the pencil…so if I buy the pencil to write a book, is the pencil now a capital good? Likewise if I write with a pencil some essay, does that make it a capital good? We can’t really consume pencils, unless I were to use a pencil for drawing or writing something of my own imagination.
Some goods enter the structure of production at multiple points. Fuel for example can be directly consumed to drive around for fun, but it can also be consumed to deliver goods to markets, and it can be consumed to deliver parts to industries making consumer goods, and it can be used to make capital goods, and it can be used to make the capital goods for these capital goods.
Knowing that this is a good that is all over the structure of production we know that the demand for it will increase over and over again as the inflationary boom progresses, (stage 1 will increase demand, then stage 2 will increase demand to meet the increased demand from stage 1, and so on) and we know that it will crash down hard when the boom turns into a bust, benefitting the lower stages in the structure of production.
What I’ve noticed lately is that the crash unfolds in the same order as the boom, that is to say stage 1 crashes first, followed by stage 2, and stage 3, all the way down the structure of production. So even though the production of houses has slowed, the production of construction gear slows down next, and the production of machine parts slows down next, and the production of metals slows down next, etc. If you have a good that is all over the structure of production it will keep crashing and crashing.
It’s easy - Callahan is quoting Menger as creating, out of thin air, a distinction between two arbitrary types of property. This serves the purpose of making Economics more occult and mystifying than it needs to be, justifying his publishing a book to mystify while claiming to try to explain to the common man , who often believes that Economics is too abstruse for easy understanding.
In serving the purpose of a first-order good, by making Callahan satisfied with himself, and concurrently serving as a higher-order good, giving him something to write about for cash, he disproves Menger’s (and his, apparently) assertion that there is a distinction there.
He’s trying to baffle the reader with the end product of bovine digestion. It’s intended to perplex you. Mostly, it’s irrelevant nonsense.
Danno, wishing for some brilliance to be dazzled by.
Arbitrary because, with the proper frame of mind, all goods go into producing other goods. The breakfast I consume tomorrow morning will produce the energy I put into turning basic materials into salable goods. The hide I cut up and the dye I use are consumed; the tools with which I spread the dye and cut the leather are either consumed or not, depending on how worn they become. There is no clear and obvious dividing line. Is the piece of leather I mis-cut, and must discard, a consumer good or a good of a higher order? Can I tell my supplier that I’ll pay extra if they only ship leather that’ll be higher-order to me?
It’s like that pat on the fanny. When X patted me on the fanny, it was sexual harassment. When Y patted me on the fanny, it was honest admiration and fondness, entirely welcome (and I know of workplaces that use that exact rule about invitations to social situations outside of work).
Not with my digestion. But if I ride said helicoptor to Joe’s Beanery to get breakfast, is it a consumer good or a producer good? Does it make a difference if I use it to fetch breakfast for my work crew?
On a more realistic note, I’ve got a leatherworking tool in my tool kit - usually, considered capital. However, I’ve never used this tool to make goods for sale - I’ve only used it to produce goods for my own personal use. Is it a consumer good or a producer good? Just to make things more interesting, I had a belt, tooled with that tool, stolen a few years back. If it was then resold by the thief, does that turn it back into a producer good?
Arbitrary. Not always, mind you - but often enough to be something of a distinction. And, when you get right down to it, why does it matter? The folks who sold me the tool made the same profit either way, and the purchase of that tool hasn’t changed my price to my customers. How does it affect the economy one way or another if the tool is a producer good or a consumer good - as long as I continue to consume and produce?
Danno, thinking of turning that capital into a good by selling it - and finding out, after I sell it, if I’m selling to a pro or an amateur, to see if I’m making it a producer good or a consumer good. 'Cause it’s important, somehow.
Nope, subjective but not arbitrary. A good can be viewed either as a consumer or capital good depending on how it is used and viewed. So what? Where does Menger disagree as opposed to affirm this? Still doesn’t make it “arbitrary”, since he isn’t coming up with a catalogue of goods that are intrinsically capital or consumer goods. That’d go counter to his subjectivist approach.
So building off of that, since everything is subjective, when we talk of a capital goods boom, then that means that the goods that people bought/invested in are capital in their mind, and we just know that the goods are capital because the theory says so?
Nope, the theory maintains that goods that are sensitive to interest rates are ones likely to be malinvested in. Capital goods tend to be synonymous, but then so are durable consumers’ goods.