The Austrian Economics Wiki - User contributions [en]

Period of production

2011-07-31T03:30:28Z

114.44.2.115: Created page with "Murray Rothbard defines the period of production as <blockquote>...the period from the beginning of the action to the time when the consumers’ good is available.<ref>Murray N. ..."

Murray Rothbard defines the period of production as
<blockquote>...the period from the beginning of the action to the time when the consumers’ good is available.<ref>Murray N. Rothbard, Man, Economy, and State, [http://mises.org/rothbard/mes/chap1b.asp Ch. 1].</ref></blockquote>
<references/>

Capital

2011-07-31T03:28:07Z

114.44.2.115: /* Capital in Production */

{{RightTOC}}

'''Capital''' are the [[good]]s that were produced by previous stages of production but do not directly satisfy [[Consumption|consumer's needs]]; they are used in [[production]] to eventually produce consumer goods.<ref name="Rothbard_Means">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1c.asp#9._The_Formation "9. The Formation of Capital"], ''[[Man, Economy and State]]'', referenced 2009-05-19.</ref>

==The Formation of Capital==
In the simplest example of an economy (the "[[Robinson Crusoe economy]]"), a person can spend [[time]] producing consumer goods and consuming them. In order to produce capital goods, he must [[Saving|save]], i.e. ''consume less'' than his means allow in the present. With capital, he can produce more and so ''consume more'' in the future.

The creation of capital goods is called [[investment]].<ref name="Rothbard_Means" />

==Capital in Production==
Capital makes the [[production]] process more "roundabout"; in general are these methods are more productive than shorter, more direct methods. An actor will opt for longer, more roundabout methods so long as the enhanced output more than offsets the increased waiting time, which in itself is a disadvantage because of [[Time#Time preference|time preferences]].

Without the aid of capital, only goods with the shortest [[period of production]] are available. Goods with longer periods of production are not available unless capital goods are acquired.

There are two ways in which longer processes of production through the use of capital may increase productivity:
# by making possible a greater production of the same good per unit of time; or
# by making possible the production of consumer goods that were not available ''at all'' with a shorter process of production<ref name="Rothbard_Means" />

==The perishable nature of capital==
All capital goods are '''perishable'''. The few products that are not perishable but permanent become, to all intents and purposes, part of the [[land]]. Otherwise, all capital goods are perishable, used up during the processes of production. It can be said that capital goods are transformed into their products during production.

Some capital goods are used up in each production-event. Other capital goods are also used up, but not as suddenly; they may last many years. Each particular capital good has a different useful life and therefore a different rate of ''depreciation'', of being used up.<ref name="Rothbard_Saving_Capital">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1d.asp "9. The Formation of Capital"], [[Man, Economy and State]], online edition, referenced 2009-07-09.</ref>

==Reallocation of capital and capital as sunk costs==
The prevailing view assumes that capital is simply one of many factors used in equations, functions, and models. Capital is homogenous, so the greater the amount of capital, the better off society is. And it does not even matter how capital has taken shape in the past, since, once formed, it can be reformed wherever and whenever needed. It could be likened to clay, ready for the potter to reshape it in a moment's time.

But, in reality, capital is always a historic relic, a product of previous efforts and most of the time a '''sunk cost'''. It is not some mass that can be modified free form to fit the needs of today and tomorrow. As an example, note an old abandoned factory. It may be evidence to the massive investment of resources - but now it is evidence of the unyielding nature of most capital, a sunk cost with little to no alternative use.

If a company has (say) $100 million invested in technology, and the cost of a new system is $110 million, it does not mean that the effective cost is just an additional $10 million ($110 million minus the current capital of $100 million). The $100 million cannot be simply dipped into the new system. Some components of the current system may be portable to the new system, and reduce the total expenditure. But capital is, for the most part, fixed and sunk. This is especially true when it is mature and integrated into other systems.

In the Austrian view, the current structure of capital is a given, something that the entrepreneur must take into consideration when formulating his plans. If an entrepreneur wants to change the current structure of capital, he will wield dynamite and dozer, not water and wheel.

If the capital was malleable, there would be no real concern of credit expansion (see [[Inflation]]) leading to a [[Malinvestment|misallocation]] of capital, it would be just a minor inconvenience. In reality, misallocations are wasted resources, including precious and scarce [[time]]. Misallocated capital is of no use to anyone. It is a loss to the entrepreneur, the investor, and the consumer.<ref name="Fedako_potter">Jim Fedako. [http://mises.org/daily/3812 "The Austrians versus the Mainstream Potter and His Wheel"], Mises Daily, November 02 2009, referenced 2010-01-10.</ref>

===Reallocation of capital===
If one believes that prices work to allocate resources, there is always the possibility that a misguided, bankruptcy-inducing investment by one entrepreneur will represent a profit opportunity for another. If there's a market for used cement trucks, why should a cement truck purchased under incorrect price signals lie idle
when its original owner has gone under?<ref name="Machlachan_Hayek">Machlachan, Fiona. Correspondence on a Hayek Related Research email list. See [http://web.archive.org/web/20031117173425/http://maelstrom.stjohns.edu/CGI/wa.exe?A2=ind0112&L=hayek-l&P=R9559 archived copy]. 14 December 2001, referenced 2010-01-10.</ref>

Let’s imagine that a construction company in [[Silicon Valley]], at the height of the [[Dot-com bubble|dot-com building spree]], purchased a cement truck. When the bust came, construction work in the Valley dried up, and the company went bankrupt. Whither now the truck?

It is very unlikely that another construction company in Silicon Valley would want it. They had all over-expanded as well, and now they may be looking to sell some of their own equipment. But let’s assume that somewhere—say, Texas—there is a company that can use the truck. The first thing that has to happen is that the buyer and seller must find each other. Rather than occurring on the very day the Silicon Valley company goes bust, such a process may take weeks or months. The courts will have their say about which creditors are entitled to what portion of the remaining assets of the bankrupt company. Then the truck is likely to move to a reseller of used construction equipment. It will advertise the truck’s availability. The downturn probably will necessitate a drop in the price of cement trucks, but by how much? Unlike in mathematical models, where supply and demand curves shift and a new price simply appears, in a market process view, buyers and sellers must undertake a process of price discovery. The seller will be reluctant to lower the price too rapidly, and so he may be overly optimistic for a time, delaying a sale. Eventually, when a potential buyer hears of the availability of the truck, he may want to inspect it before putting out the money to buy it. Once the transaction is complete, the truck will have to travel from California to Texas.

All of the above actions take time, and all of them have associated costs. Furthermore, note that none of them involve employing any cement workers. Eventually, a worker laid off in Santa Clara may find work in Dallas, but his change of residence will also involve time and expense.<ref name="Callahan_Dot">Gene Callahan and Roger W. Garrison. [http://mises.org/journals/qjae/pdf/qjae6_2_3.pdf "Does Austrian Business Cycle Theory Help Explain the Dot-Com Boom and Bust?"], ''The Quarterly Journal of Austrian Economics'', Vol. 6, No. 2 (Summer 2003). Referenced 2010-01-10.</ref>

===Capital and new technology===
Not every technological improvement is immediately applied - but then, not everybody throws away his old car or his old clothes as soon as a better car is on the market or a new fashion trend. In these considerations are people are motivated by the [[scarcity]] of available goods.

Let's say a new machine is constructed, more efficient than currently used machines. Should the plants replace the old machines, while they are still usable, and replace them with the new model? Only if the additional expenses are compensated for, is the scrapping of the old equipment economically sound. The same considerations apply for the moving of an existing plant to a location with more favorable conditions.<ref name="Mises_technology">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec6.asp XVIII. Action in the passing of Time], 6. The Influence of the Past Upon Action, [[Human Action]], online version, referenced 2010-02-05.</ref>

==Maintenance of capital==
A large part of [[investment]] must be spent simply to offset wear and tear and obsolescence of the existing capital stock.

In a country such as the United States, with an enormous fixed capital stock built up over the centuries, a great amount of funds must be allocated simply to maintain that stock. According to an estimate, in 2006, gross private domestic investment reached its most recent peak, at $2.33 trillion (in constant 2005 dollars). After remaining almost at this level in 2007, this measure of investment fell substantially during each of the next two years, reaching $1.59 trillion, in 2009. The "private capital consumption allowance" that attempts to measure these maintenance costs, has ranged from $1.29 trillion in 2005 to $1.46 trillion (in constant 2005 dollars) in 2009. Thus, even in the boom year 2006, about 60 percent of gross private domestic investment was required merely to maintain the economy’s productive capacity, leaving just 40 percent, or $889 billion in net private domestic investment, to increase that capacity.

From that level, net private domestic investment plunged during each of the following three years, it fell in 2009 to only $54 billion (in constant 2005 dollars), having declined altogether by 94 percent from its 2006 peak! In 2009 only 3.5 percent of all private investment spending went toward building up the capital stock. Thus, net private investment did not simply fall during the [[The Great Recession|recession]]; it virtually disappeared - while the '''maintenance costs''' kept increasing.<ref name="Higgs_Divergence">Robert Higgs. [http://www.independent.org/blog/index.php?p=7882 "The Great Divergence: Private Investment and Government Power in the Present Crisis"], ''The Independent Institute '', on Sep 18, 2010. Data taken or derived from the National Economic Accounts prepared by the Commerce Department’s ''Bureau of Economic Analysis'' (Tables 1.1.5, 1.1.6, and 5.2.6 - see a [http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=N list of tables] for information. Referenced 2010-09-20.</ref>

==Capital consumption==
Because [[capital]] is perishable, it must be renewed, if man wishes to enjoy the fruits of higher production. Saving must be repeated over and over, capital could break down and be replaced in whole or be repaired and kept in shape.

Man can avoid the trouble of saving and enjoy a higher consumption now. But if the capital is not replaced, [[production]] will later drop. Instead of saving and maintaining capital structure, capital is '''consumed'''. In this case, [[time preference]] has led man to prefer more present consumption, in exchange for greater losses in future consumption.<ref name="Rothbard_Saving_Capital">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1d.asp "9. The Formation of Capital"], [[Man, Economy and State]], online edition, referenced 2009-07-09.</ref>

Workers use capital goods to augment their labor to create consumption goods. Because of the [[time]] structure of [[production]], it is possible to temporarily boost everyone's consumption, but only at the expense of maintaining the capital goods, which are so "consumed." At some point, reality sets in, and no "stimulus" policies can prevent a sharp drop in consumption.

In the boom period of the [[business cycle]], people consume more - even while new, unsustainable investment projects are started. Sustainable projects initially require, that investors reduce their consumption and channel their savings into new projects. But during a boom induced by a [[central bank]], there hasn't been real savings to fund the new investments. That's why the boom is unsustainable, but also explains why consumption increases at the same time as investment in new projects. This is impossible in the long run, but possible in the short run. What happens is neglect of maintenance on critical intermediate goods. A modern economy is very complex, and it can take years for an unsustainable structure to become recognized as such.

During the [[recession]] following the artificial boom period, resources need to get rearranged; certain projects need to be abandoned; and critical intermediate goods need to be replenished since they were ignored during the boom. It takes time for all the different types of materials, tools, and equipment to be furnished to resume normal growth. During that transition, the contribution of the labor of some people is so low that it's not worth it to hire them (especially with [[Minimum wage|minimum-wage]] laws and other regulations). The result is [[unemployment]].<ref name="Murphy_Capital">Robert P. Murphy. [http://mises.org/story/3155 "The Importance of Capital Theory"], posted in Mises Daily on Monday, October 20, 2008, referenced 2009-10-02.</ref>
{{See also|Austrian Business Cycle Theory}}

==References==
{{Reflist}}

== Related ==
[[Producers' Good]]
==Links==
* [[Wikipedia:Capital (economics)|Capital]] on Wikipedia
* [http://www.auburn.edu/~garriro/b4mismac.htm Austrian Capital Theory And The Future of Macroeconomics] by Roger W. Garrison, 1991
* [http://mises.org/daily/4788 Thinking Clearly about Capital, Interest, and Income] by Robert P. Murphy, November 2010
[[Category:Economic concepts]]

Imputation (economics)

2011-07-31T03:26:51Z

114.44.2.115:

According to Austrian value theory, the value of higher order goods is derived from the value of the lower order goods they produce. In other words, value is imputed from lower orders to higher orders. Ultimately the value of all goods are imputed from the value of consumers' goods.

{{stub}}

Imputation (economics)

2011-07-31T03:26:22Z

114.44.2.115: Created page with "According to Austrian value theory, the value of higher order goods is derived from the value of the lower order goods they produce. In other words, value is imputed from lower ..."

Producers' Good

2011-07-31T03:20:19Z

114.44.2.115:

Daniel Sanchez writes:
<blockquote>Indirectly serviceable means are called factors of production or producers' goods. Producers' goods that directly produce consumers' goods (goods of the first order) are called goods of the second order. Producers' goods that directly produce goods of the second order are called goods of the third order, and so on. As we progress in this manner, we move from lower-order goods to higher-order goods.<ref>Daniel James Sanchez, [http://mises.org/daily/5285/Mises-on-Action Mises on Action]</ref></blockquote>
<references/>
{{stub}}

Producers' Good

2011-07-31T03:19:09Z

114.44.2.115: Created page with "Daniel Sanchez: <blockquote>Indirectly serviceable means are called factors of production or producers' goods. Producers' goods that directly produce consumers' goods (goods of t..."

Daniel Sanchez:
<blockquote>Indirectly serviceable means are called factors of production or producers' goods. Producers' goods that directly produce consumers' goods (goods of the first order) are called goods of the second order. Producers' goods that directly produce goods of the second order are called goods of the third order, and so on. As we progress in this manner, we move from lower-order goods to higher-order goods.<ref>Daniel James Sanchez, [http://mises.org/daily/5285/Mises-on-Action Mises on Action]</ref></blockquote>
<references/>
{{stub}}

Capital

2011-07-31T03:17:12Z

114.44.2.115:

{{RightTOC}}

'''Capital''' are the [[good]]s that were produced by previous stages of production but do not directly satisfy [[Consumption|consumer's needs]]; they are used in [[production]] to eventually produce consumer goods.<ref name="Rothbard_Means">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1c.asp#9._The_Formation "9. The Formation of Capital"], ''[[Man, Economy and State]]'', referenced 2009-05-19.</ref>

==The Formation of Capital==
In the simplest example of an economy (the "[[Robinson Crusoe economy]]"), a person can spend [[time]] producing consumer goods and consuming them. In order to produce capital goods, he must [[Saving|save]], i.e. ''consume less'' than his means allow in the present. With capital, he can produce more and so ''consume more'' in the future.

The creation of capital goods is called [[investment]].<ref name="Rothbard_Means" />

==Capital in Production==
Capital makes the [[production]] process more "roundabout"; in general are these methods are more productive than shorter, more direct methods. An actor will opt for longer, more roundabout methods so long as the enhanced output more than offsets the increased waiting time, which in itself is a disadvantage because of [[Time#Time preference|time preferences]].

Without the aid of capital, only goods with the shortest period of production are available. Goods with longer periods of production are not available unless capital goods are acquired.

There are two ways in which longer processes of production through the use of capital may increase productivity:
# by making possible a greater production of the same good per unit of time; or
# by making possible the production of consumer goods that were not available ''at all'' with a shorter process of production<ref name="Rothbard_Means" />

==The perishable nature of capital==
All capital goods are '''perishable'''. The few products that are not perishable but permanent become, to all intents and purposes, part of the [[land]]. Otherwise, all capital goods are perishable, used up during the processes of production. It can be said that capital goods are transformed into their products during production.

Some capital goods are used up in each production-event. Other capital goods are also used up, but not as suddenly; they may last many years. Each particular capital good has a different useful life and therefore a different rate of ''depreciation'', of being used up.<ref name="Rothbard_Saving_Capital">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1d.asp "9. The Formation of Capital"], [[Man, Economy and State]], online edition, referenced 2009-07-09.</ref>

==Reallocation of capital and capital as sunk costs==
The prevailing view assumes that capital is simply one of many factors used in equations, functions, and models. Capital is homogenous, so the greater the amount of capital, the better off society is. And it does not even matter how capital has taken shape in the past, since, once formed, it can be reformed wherever and whenever needed. It could be likened to clay, ready for the potter to reshape it in a moment's time.

But, in reality, capital is always a historic relic, a product of previous efforts and most of the time a '''sunk cost'''. It is not some mass that can be modified free form to fit the needs of today and tomorrow. As an example, note an old abandoned factory. It may be evidence to the massive investment of resources - but now it is evidence of the unyielding nature of most capital, a sunk cost with little to no alternative use.

If a company has (say) $100 million invested in technology, and the cost of a new system is $110 million, it does not mean that the effective cost is just an additional $10 million ($110 million minus the current capital of $100 million). The $100 million cannot be simply dipped into the new system. Some components of the current system may be portable to the new system, and reduce the total expenditure. But capital is, for the most part, fixed and sunk. This is especially true when it is mature and integrated into other systems.

In the Austrian view, the current structure of capital is a given, something that the entrepreneur must take into consideration when formulating his plans. If an entrepreneur wants to change the current structure of capital, he will wield dynamite and dozer, not water and wheel.

If the capital was malleable, there would be no real concern of credit expansion (see [[Inflation]]) leading to a [[Malinvestment|misallocation]] of capital, it would be just a minor inconvenience. In reality, misallocations are wasted resources, including precious and scarce [[time]]. Misallocated capital is of no use to anyone. It is a loss to the entrepreneur, the investor, and the consumer.<ref name="Fedako_potter">Jim Fedako. [http://mises.org/daily/3812 "The Austrians versus the Mainstream Potter and His Wheel"], Mises Daily, November 02 2009, referenced 2010-01-10.</ref>

===Reallocation of capital===
If one believes that prices work to allocate resources, there is always the possibility that a misguided, bankruptcy-inducing investment by one entrepreneur will represent a profit opportunity for another. If there's a market for used cement trucks, why should a cement truck purchased under incorrect price signals lie idle
when its original owner has gone under?<ref name="Machlachan_Hayek">Machlachan, Fiona. Correspondence on a Hayek Related Research email list. See [http://web.archive.org/web/20031117173425/http://maelstrom.stjohns.edu/CGI/wa.exe?A2=ind0112&L=hayek-l&P=R9559 archived copy]. 14 December 2001, referenced 2010-01-10.</ref>

Let’s imagine that a construction company in [[Silicon Valley]], at the height of the [[Dot-com bubble|dot-com building spree]], purchased a cement truck. When the bust came, construction work in the Valley dried up, and the company went bankrupt. Whither now the truck?

It is very unlikely that another construction company in Silicon Valley would want it. They had all over-expanded as well, and now they may be looking to sell some of their own equipment. But let’s assume that somewhere—say, Texas—there is a company that can use the truck. The first thing that has to happen is that the buyer and seller must find each other. Rather than occurring on the very day the Silicon Valley company goes bust, such a process may take weeks or months. The courts will have their say about which creditors are entitled to what portion of the remaining assets of the bankrupt company. Then the truck is likely to move to a reseller of used construction equipment. It will advertise the truck’s availability. The downturn probably will necessitate a drop in the price of cement trucks, but by how much? Unlike in mathematical models, where supply and demand curves shift and a new price simply appears, in a market process view, buyers and sellers must undertake a process of price discovery. The seller will be reluctant to lower the price too rapidly, and so he may be overly optimistic for a time, delaying a sale. Eventually, when a potential buyer hears of the availability of the truck, he may want to inspect it before putting out the money to buy it. Once the transaction is complete, the truck will have to travel from California to Texas.

All of the above actions take time, and all of them have associated costs. Furthermore, note that none of them involve employing any cement workers. Eventually, a worker laid off in Santa Clara may find work in Dallas, but his change of residence will also involve time and expense.<ref name="Callahan_Dot">Gene Callahan and Roger W. Garrison. [http://mises.org/journals/qjae/pdf/qjae6_2_3.pdf "Does Austrian Business Cycle Theory Help Explain the Dot-Com Boom and Bust?"], ''The Quarterly Journal of Austrian Economics'', Vol. 6, No. 2 (Summer 2003). Referenced 2010-01-10.</ref>

===Capital and new technology===
Not every technological improvement is immediately applied - but then, not everybody throws away his old car or his old clothes as soon as a better car is on the market or a new fashion trend. In these considerations are people are motivated by the [[scarcity]] of available goods.

Let's say a new machine is constructed, more efficient than currently used machines. Should the plants replace the old machines, while they are still usable, and replace them with the new model? Only if the additional expenses are compensated for, is the scrapping of the old equipment economically sound. The same considerations apply for the moving of an existing plant to a location with more favorable conditions.<ref name="Mises_technology">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec6.asp XVIII. Action in the passing of Time], 6. The Influence of the Past Upon Action, [[Human Action]], online version, referenced 2010-02-05.</ref>

==Maintenance of capital==
A large part of [[investment]] must be spent simply to offset wear and tear and obsolescence of the existing capital stock.

In a country such as the United States, with an enormous fixed capital stock built up over the centuries, a great amount of funds must be allocated simply to maintain that stock. According to an estimate, in 2006, gross private domestic investment reached its most recent peak, at $2.33 trillion (in constant 2005 dollars). After remaining almost at this level in 2007, this measure of investment fell substantially during each of the next two years, reaching $1.59 trillion, in 2009. The "private capital consumption allowance" that attempts to measure these maintenance costs, has ranged from $1.29 trillion in 2005 to $1.46 trillion (in constant 2005 dollars) in 2009. Thus, even in the boom year 2006, about 60 percent of gross private domestic investment was required merely to maintain the economy’s productive capacity, leaving just 40 percent, or $889 billion in net private domestic investment, to increase that capacity.

From that level, net private domestic investment plunged during each of the following three years, it fell in 2009 to only $54 billion (in constant 2005 dollars), having declined altogether by 94 percent from its 2006 peak! In 2009 only 3.5 percent of all private investment spending went toward building up the capital stock. Thus, net private investment did not simply fall during the [[The Great Recession|recession]]; it virtually disappeared - while the '''maintenance costs''' kept increasing.<ref name="Higgs_Divergence">Robert Higgs. [http://www.independent.org/blog/index.php?p=7882 "The Great Divergence: Private Investment and Government Power in the Present Crisis"], ''The Independent Institute '', on Sep 18, 2010. Data taken or derived from the National Economic Accounts prepared by the Commerce Department’s ''Bureau of Economic Analysis'' (Tables 1.1.5, 1.1.6, and 5.2.6 - see a [http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=N list of tables] for information. Referenced 2010-09-20.</ref>

==Capital consumption==
Because [[capital]] is perishable, it must be renewed, if man wishes to enjoy the fruits of higher production. Saving must be repeated over and over, capital could break down and be replaced in whole or be repaired and kept in shape.

Man can avoid the trouble of saving and enjoy a higher consumption now. But if the capital is not replaced, [[production]] will later drop. Instead of saving and maintaining capital structure, capital is '''consumed'''. In this case, [[time preference]] has led man to prefer more present consumption, in exchange for greater losses in future consumption.<ref name="Rothbard_Saving_Capital">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1d.asp "9. The Formation of Capital"], [[Man, Economy and State]], online edition, referenced 2009-07-09.</ref>

Workers use capital goods to augment their labor to create consumption goods. Because of the [[time]] structure of [[production]], it is possible to temporarily boost everyone's consumption, but only at the expense of maintaining the capital goods, which are so "consumed." At some point, reality sets in, and no "stimulus" policies can prevent a sharp drop in consumption.

In the boom period of the [[business cycle]], people consume more - even while new, unsustainable investment projects are started. Sustainable projects initially require, that investors reduce their consumption and channel their savings into new projects. But during a boom induced by a [[central bank]], there hasn't been real savings to fund the new investments. That's why the boom is unsustainable, but also explains why consumption increases at the same time as investment in new projects. This is impossible in the long run, but possible in the short run. What happens is neglect of maintenance on critical intermediate goods. A modern economy is very complex, and it can take years for an unsustainable structure to become recognized as such.

During the [[recession]] following the artificial boom period, resources need to get rearranged; certain projects need to be abandoned; and critical intermediate goods need to be replenished since they were ignored during the boom. It takes time for all the different types of materials, tools, and equipment to be furnished to resume normal growth. During that transition, the contribution of the labor of some people is so low that it's not worth it to hire them (especially with [[Minimum wage|minimum-wage]] laws and other regulations). The result is [[unemployment]].<ref name="Murphy_Capital">Robert P. Murphy. [http://mises.org/story/3155 "The Importance of Capital Theory"], posted in Mises Daily on Monday, October 20, 2008, referenced 2009-10-02.</ref>
{{See also|Austrian Business Cycle Theory}}

==References==
{{Reflist}}

== Related ==
[[Producers' Good]]
==Links==
* [[Wikipedia:Capital (economics)|Capital]] on Wikipedia
* [http://www.auburn.edu/~garriro/b4mismac.htm Austrian Capital Theory And The Future of Macroeconomics] by Roger W. Garrison, 1991
* [http://mises.org/daily/4788 Thinking Clearly about Capital, Interest, and Income] by Robert P. Murphy, November 2010
[[Category:Economic concepts]]

Autistic Exchange

2011-07-31T03:13:39Z

114.44.2.115:

Ludwig von Mises:

<blockquote>Action always is essentially the exchange of one state of affairs for another state of affairs. If the action is performed by an individual without any reference to cooperation with other individuals, we may call it autistic exchange.<ref>Ludwig von Mises, Human Action, [http://mises.org/humanaction/chap10sec1.asp Ch. 10, Sec. 1.]</ref>
</blockquote>
<references/>
{{stub}}

Autistic Exchange

2011-07-31T03:13:05Z

114.44.2.115: Created page with "Ludwig von Mises: <blockquote>Action always is essentially the exchange of one state of affairs for another state of affairs. If the action is performed by an individual without..."

Exchange

2011-07-31T03:10:38Z

114.44.2.115:

{{stub}}

'''Exchange''' is a voluntary interaction between two individuals in which both forfeit ownership of an object to the other, to the benefit of both. A common misconception about exchange is that it occurs when the value of the two objects being traded are equal. However, were the values equal in the eyes of ''either'' party, no exchange would take place, as they would be just as well off without it. Thus, when an exchange takes place, both parties gain from the transaction: they are better off with the object they have attained than with the one given up. This is a fundamental source of [[wealth]], and illustrates the value of the [[Labor#Division of Labor|division of labor]].

[[Murray N. Rothbard]] imagines a state of affairs where exchange is nonexistent to illustrate its importance:

:"If anyone wishes to grasp how much we owe to the processes of exchange, let him consider what would happen in the modern world if every man were suddenly prohibited from exchanging anything with anyone else. Each person would be forced to produce all of his own goods and services himself. The utter chaos, the total starvation of the great bulk of the human race, and the reversion to primitive subsistence by the remaining handful of people, can readily be imagined."<ref>''The Ethics of Liberty'', p.35</ref>

== Related Articles ==

[[Autistic Exchange]]

<references/>

[[Category:Concepts]]

Scale of values

2011-07-31T03:06:26Z

114.44.2.115: Created page with "A scale of values is a scale of an acting man's choices in a given situation, ranked according to subjective priority. Ludwig von Mises wrote: <blockquote>...one must not forge..."

A scale of values is a scale of an acting man's choices in a given situation, ranked according to subjective priority.

Ludwig von Mises wrote:

<blockquote>...one must not forget that the scale of values or wants manifests itself only in the reality of action. These scales have no independent existence apart from the actual behavior of individuals. … Every action is always in perfect agreement with the scale of values or wants because these scales are nothing but an instrument for the interpretation of a man's acting.<ref>Ludwig von Mises, Human Action, [http://mises.org/humanaction/chap4sec2.asp Ch. 4, Sec. 2].</ref></blockquote>

<references/>
{{stub}}

Uneasiness

2011-07-31T03:00:53Z

114.44.2.115:

The alleviation of felt uneasiness is the end of every [[action]]. The concept of uneasiness can be considered as follows.<ref>Excerpt from [http://mises.org/daily/5285/Mises-on-Action Mises on Action] by Daniel James Sanchez.</ref>

<blockquote>Let us say Crusoe awakens, stranded on an island after having floated unconscious onto the shore on a piece of flotsam. The first thing that enters his consciousness is a sharp pain in his hand, which is being caused by a large splinter. He wants to alleviate the pain, and prevent any infection the splinter might cause. The matter is especially urgent, because he feels he is about to pass out in a few moments, and he is worried that infection could set in while he is unconscious.
 
Ludwig von Mises wrote:
<blockquote>"The incentive that impels a man to act is always some uneasiness."</blockquote>
In this case, Crusoe has an uneasiness concerning the pain that he feels and the damage his body might suffer.
 

An important distinction is that the praxeological uneasiness is not the pain itself. Praxeology is not psychology, and economics does not posit acting man as necessarily a purely hedonistic (pleasure-pursuing and pain-avoiding) creature. It is conceivable that a person with a splinter in his hand is a masochist and that he feels pain but no uneasiness about the presence of that pain and thus no desire to remove the splinter.
 
By assumption, Crusoe happens not to be a masochist, and the pain involved happens to be one of the factors (along with the possible damage involved) that causes him to be uneasy about the splinter. But, whatever the cause may be, what is important for praxeology is that Crusoe regards the state of affairs involving the splinter in his hand as imperfect.
 
It is easy to imagine action without pain, but is it even possible to coherently imagine action without prior uneasiness? No, argued Mises:
 
A man perfectly content with the state of his affairs would have no incentive to change things. He would have neither wishes nor desires; he would be perfectly happy. He would not act; he would simply live free from care.
It is inconceivable for a being to intervene in a state of affairs that he already regards as perfect. Intervention implies perceived imperfection. Uneasiness, therefore, is a necessary prerequisite of action. The presence of an uneasiness can also be referred to as a want or desire, and the removal of an uneasiness can be referred to as the satisfaction of a want or desire.</blockquote>

<references />

{{stub}}