Thursday, February 19, 2009

Menger on Economic vs. Non-Economic Goods

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Property

If a good is scarce (that is, if requirements for it exceed its available quantities), then it is an economic good, which is to say it is economized.

If a good is not scarce (that is, available quantities exceed requirements for it), then it is a non-economic good, which is to say it is not economized.

For Hesiod, in Works and Days, grain is an example of an economic good. He warns Perses to:

  1. try not to lose it ("measure it and store it in jars. And so soon as you have safely stored all your stuff indoors...")
  2. try not to break it ("if you plough the good ground at the solstice, you will reap sitting, grasping a thin crop in your hand")
  3. try to prioritize what he uses it for ("Let a brisk fellow of forty years follow them, with a loaf (of bread) of four quarters and eight slices for his dinner")
  4. try to use it as efficiently as possible ("No younger man will be better than he at scattering the seed and avoiding double-sowing")

And for Hesiod, good wood during the autumn is a non-economic good ("There are lots of bent timbers: search for one on the mountains or through the fields").

He does NOT bother instructing Perses to:

  1. try not to lose it by gathering a bunch of it for future use
  2. try not to break it by storing it away safely in a shed
  3. try to prioritize what he uses it for by only limiting a certain wood to a certain use
  4. try to use it as efficiently as possible by taking care to not waste any of the forest's wood

A thing's economic character (its status as an economic good) is not intrinsic to the thing--just as its goods character (its status as a good) is not intrinsic either. Both are determined by the changeable relationship between the thing and rational actors who may or may not use it. Any given thing may be an economic good in one situation and a non-economic good in another.

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.

In the example of Hesiod's Works and Days, the woods of Mount Helicon would change from non-economic to economic goods if

  • A. a technological revolution occurred which made the trees highly useful as fuel (an increase in requirements, and an example of what Menger calls, "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.") or
  • B. there was a great forest fire (a diminution of the available quantity).

Conversely, there can only be two kinds of reasons why an economic good becomes a non-economic good: a diminution of human requirements or an increase in the available quantity.

For Hesiod, grain would change from an economic to a non-economic good if

  • A. men became gods who needed no bread for sustenance (an diminution of requirements) or
  • B. the blessed Golden Age were to return to men, and once again the fruitful earth, unforced, bore "fruit abundantly and without stint" (an increase in available quantity).

My examples above of non-economic goods becoming economic goods were quite realistic, and my examples of the reverse happening were quite fanciful. It actually makes sense that this would be the case. As Menger claimed, in real life, as civilization advances, the trend will be that of non-economic goods becoming economic goods...

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.

There are some goods, Menger notes, which are of special classes regarding whether they are economic or non-economic. Firstly, there are goods which would naturally be economic, but are artificially made non-economic by governments taking them over and offering them for free. He gives the example of water transported by the government from wet to dry areas. To my mind however, the general scarcity of the water still gives it economic character. In this case, the government has appropriated it as its effective (though not rightful) property. And due to its scarcity the government

  1. tries not to lose it
  2. tries not to spoil it
  3. tries to prioritize what they use it for (by transporting it to its favored constituents)
  4. try to use it as efficiently as possible (although they are limited in this endeavor by their lack of price signals)

Menger also gives the example of public education. Again, even in this case, there is still a scarcity of teaching services, and the government economizes (however incompetently) the teaching services in its command.

The second special class for Menger are goods which are naturally non-economic, but which are commandeered by a powerful party and made economic. He gives an example of a forest which reminds me of an ancient story.

In the Mesopotamian Epic of Gilgamesh, the Sumerian king Gilgamesh travels to the "cedar mountain" (Lebanon) to cut down trees for use in construction in his city of Uruk. He is confronted by the monster Humbaba who has an asserted claim on the trees. Humbaba couldn't possibly use all of these trees himself, so he hardly meets the Lockean criteria of property rights. But again, Menger seems to only consider effective property, and not rights. Since the available quantity of cedar trees exceeds the requirements of the entire near east at the time, they would naturally be non-economic goods. But since Humbaba has acquired a forceful monopoly on them, they are treated as economic goods.

Next in this series: Menger on Natural Communism

No comments: