Principles of Economics
Carl Menger
Chapter 2. Economy and Economic Goods
Requirements - quantities of goods that will satisfy needs over a planning period
Men must have knowledge of requirements and availability of goods to satisfy requirements
(2.2) The quantities of consumption goods a person must have to satisfy his needs may be termed his requirements.
(2.5) [M]en in civilized societies alone among economizing individuals plan for the satisfaction of their needs, not for a short period only, but for much longer periods of time...Indeed, they not only plan for their entire lives, but as a rule, extend their plans still further in their concern that even their descendants shall not lack means for the satisfaction of their needs.
(2.7) There are two kinds of knowledge that men must possess as a prerequisite for any successful attempt to provide in advance for the satisfaction of their needs. They must become clear: (a) about their requirementsthat is, about the quantities of goods they will need to satisfy their needs during the time period over which their plans extend, and (b) about the quantities of goods at their disposal for the purpose of meeting these requirements.
(2.i.a.2) The quantity of a good of first order necessary to satisfy a concrete human need...is determined directly by the need itself...and bears a direct quantitative relationship to it...If, therefore, men were always correctly and completely informed, as a result of previous experience, about the concrete needs they will have, and about the intensity with which these needs will be experienced during the time period for which they plan, they could never be in doubt about the quantities of goods necessary for the satisfaction of their needsthat is, about the magnitude of their requirements for goods of first order.
(2.i.a.3) But experience tells us that we are often more or less in doubt whether certain needs will be felt in the future at all.
(2.i.a.4) Even with needs that we know in advance will be experienced in the time period for which we plan, we may be uncertain about the quantities involved.
(2.i.a.5) In the case of needs about which there is uncertainty as to whether they will arise at all in the time periods for which men make their plans, experience teaches us that, in spite of their deficient foresight, men by no means fail to provide for their eventual satisfaction.
(2.i.a.7) But what has been said here of needs whose appearance is altogether uncertain is fully as true where there is no doubt that a need for a good will arise but only uncertainty as to the intensity with which it will be felt.
(2.i.b.6) [W]ith 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.
(2.i.b.9) 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.
(2.ii.2) The second factor that determines the success of human activity is the knowledge...of the means available to them for the attainment of the desired ends.
(2.ii.4) To the degree to which men engage in planning activity directed to the satisfaction of their needs, they endeavor to attain clarity as to the quantities of goods available to them at any time. Wherever a considerable trade in goods already exists, therefore, we will find men attempting to form a judgment about the quantities of goods currently available to the other members of the society with whom they maintain trading connections.
(2.iiii.a.2) An investigation of the requirements for, and available quantities of, a good may establish the existence of any one of the three following relationships:
(2.iiii.a.3) We can regularly observe the first of these relationships where a part of the needs for a good must necessarily remain unsatisfiedwith by far the greater number of goods
(2.iiii.a.4) Wherever this relationship appears with respect to a given time periodthat is, wherever men recognize that the requirements for a good are greater than its available quantity they achieve the further insight that no part of the available quantity, in any way practically significant, may lose its useful properties or be removed from human control without causing some concrete human needs, previously provided for, to remain unsatisfied, or without causing these needs now to be satisfied less completely than before.
(2.iiii.a.5) The first effects of this insight upon the activity of men intent to satisfy their needs as completely as possible are that they strive: (1) to maintain at their disposal every unit of a good standing in this quantitative relationship, and (2) to conserve its useful properties.
(2.iiii.a.6) A further effect of knowledge of this relationship between requirements and available quantities is that men become aware, on the one hand, that under all circumstances a part of their needs for the good in question will remain unsatisfied and, on the other hand, that any inappropriate employment of partial quantities of this good must necessarily result in part of the needs that would be provided for by appropriate employment of the available quantity remaining unsatisfied.
(2.iiii.a.7) Accordingly, with respect to a good subject to the relationship under discussion, men endeavor...: (3) to make a choice between their more important needs, which they will satisfy with the available quantity of the good in question, and needs that they must leave unsatisfied, and (4) to obtain the greatest possible result with a given quantity of the good or a given result with the smallest possible quantityor in other words, to direct the quantities of consumers' goods available to them, and particularly the available quantities of the means of production, to the satisfaction of their needs in the most appropriate manner.
(2.iiii.a.8) The complex of human activities directed to these four objectives is called economizing...These goods are economic goods in contrast to such goods as men find no practical necessity of economizing.
Implication of scarcity - protection of private property rights is required.
(2.iiii.a.11) [I]f the requirements of a society for a good are larger than its available quantity, it is impossible...for the respective needs of all individuals composing the society to be completely satisfied...Here human self interest finds an incentive to make itself felt, and where the available quantity does not suffice for all, every individual will attempt to secure his own requirements as completely as possible to the exclusion of others.
(2.iiii.a.12) In this struggle, the various individuals will attain very different degrees of success...[T]he requirements of some members of the society will not be met at all, or will be met only incompletely. These persons will therefore have interests opposed to those of the present possessors with respect to each portion of the available quantity of goods. But with this opposition of interest, it becomes necessary for society to protect the various individuals in the possession of goods subject to this relationship against all possible acts of force. In this way, then, we arrive at the economic origin of our present legal order, and especially of the so-called protection of ownership, the basis of property.
(2.iiii.b.3) [E]conomizing men are under no practical necessity of either preserving every unit of such goods at their command or conserving its useful properties.
(2.iiii.b.4) Nor can the third and fourth of the above-described phenomena of human economic activity be observed in the case of goods whose available quantities exceed requirements for them.
(2.iiii.b.5) It is clear, accordingly, that all the various forms in which human economic activity expresses itself are absent in the case of goods whose available quantities are larger than the requirements for them, just as naturally as they will necessarily be present in the case of goods subject to the opposite quantitative relationship. Hence they are not objects of human economy, and for this reason we call them non-economic goods.
Menger's conclusion that economic goods are defined by needs (requirements) and scarcity (available quantities) is conventional, but his approach to this conclusion is not. His approach, establishing the definition for consumer (first order) goods and then extending that to higher goods carries through to his theory of value.
(2.iiii.c.2) [I]t 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.
(2.iiii.c.3) 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...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.
Goods may change economic character through changes in population, change in needs, of changes in knowledge. The relationship between requirements and available quantities changes.
(2.iiii.c.6) 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.
(2.iii.c.7) 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.
Public goods may be economic goods to society but non-economic goods to individuals.
(2.iii.c.11) 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.
You don't buy raw materials or hire labor (goods of higher order) to produce something that is not needed (goods of lower order that aren't economic goods)
A necessary, but not sufficient, condition for goods of higher order to be economic goods is that the corresponding goods of lower order are economic goods. Not a sufficient condition because goods of higher order may not be non-economic goods.
(2.iiii.d.1) In our investigation of the laws governing human requirements, we have reached the result that the existence of requirements for goods of higher order is dependent: (1) on our having requirements for the corresponding goods of lower order, and also (2) on these requirements for goods of lower order being not already provided for, or at least not completely provided for. We have defined an economic good as a good whose available quantity does not meet requirements completely, and thus we have the principle that the existence of requirements for goods of higher order is dependent upon the corresponding goods of lower order having economic character.
(2.iiii.d.4) [T]he general principle [is] that the economic character of goods of higher order depends upon the economic character of the goods of lower order for whose production they serve. In other words, no good of higher order can attain economic character or maintain it unless it is suitable for the production of some economic good of lower order.
(2.iiii.d.8) Later, thought and experience lead men to ever deeper insights into the causal connections between things, and especially into the relations between things and their welfare. They learn to use goods of second, third, and higher orders. But with these goods, as with goods of first order, they find that some are available in quantities exceeding their requirements while the opposite relationship prevails with others. Hence they divide goods of higher order also into one group that they include in the sphere of their economic activity, and another group that they do not feel any practical necessity to treat in this way. This is the origin of the economic character of goods of higher order.
This leads to several interesting paradoxes:
No solution to these paradoxes is (or can) be offered, except the caution "when inferences running from the magnitude of the national wealth to the welfare of a people...are involved, the concept of national wealth in the literal sense of the term must necessarily lead to frequent errors."
(2.iv.1) Earlier we called "the entire sum of goods at a person's command" his property [a good is at a person's "command"...if he is in a position to employ it for the satisfaction of his needs]. The entire sum of economic goods at an economizing individual's command we will, on the other hand, call his wealth. The non-economic goods at an economizing individual's command are not objects of his economy, and hence must not be regarded as parts of his wealth...Hence, if there were a society where all goods were available in amounts exceeding the requirements for them, there would be no economic goods nor any "wealth." Although wealth is thus a measure of the degree of completeness with which one person can satisfy his needs in comparison with other persons who engage in economic activity under the same conditions, it is never an absolute measure of his welfare, for the highest welfare of all individuals and of society would be attained if the quantities of goods at the disposal of society were so large that no one would be in need of wealth.
(2.iv.2) These remarks are intended to introduce the solution of a problem which, because of the apparent contradictions to which it leads, is capable of creating distrust as to the accuracy of the principles of our science. The problem arises from the fact that a continuous increase in the amounts of economic goods available to economizing individuals would necessarily cause these goods eventually to lose their economic character, and in this way cause the components of wealth to suffer a diminution. Hence we have the queer contradiction that a continuous increase of the objects of wealth would have, as a necessary final consequence, a diminution of wealth.
(2.iv.9) The situation is different with what is designated by the term "national wealth." Here we have to deal not with the entire sum of economic goods available to a nation for the satisfaction of its needs, administered by government employees, and devoted by them to its purposes, but with the totality of goods at the disposal of the separate economizing individuals and associations of a society for their individual purposes. Thus we have to deal with a concept that deviates in several important respects from what we term wealth.
(2.iv.10) [U]nder our present social arrangements, the sum of economic goods at the disposal of the individual economizing members of society for the purpose of satisfying their special individual needs obviously does not constitute wealth in the economic sense of the term but rather a complex of wealths linked together by human intercourse and trade.
(2.iv.12) It is, then, only necessary that we guard against the error that must arise if we pay no attention to the distinction discussed here. In all questions where the issue is merely the quantitative determination of the so-called national wealth, the sum of the wealths of the individuals of the nation may be designated as national wealth. But when inferences running from the magnitude of the national wealth to the welfare of a people, or when phenomena resulting from contacts between the various economizing individuals, are involved, the concept of national wealth in the literal sense of the term must necessarily lead to frequent errors. In all these cases, the national wealth must be regarded rather as a complex composite of the wealths of the members of society, and we must direct our attention to the different sizes of these individual wealths.
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