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Indirect Production - Economic Fundamental Concepts

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INDIRECT PRODUCTION - ECONOMIC FUNDAMENTAL CONCEPTS by Eugen von Bohm-Bawerk The Nature of Capital The end and aim of all production is the making of things with which to satisfy our wants; that is to say, the making of goods for immediate consumption, or Consumption Goods. . . . We combine our own natural powers and natural powers of the external world in such a way that, under natural law, the desired material good must come into existence. But this is a very general description indeed of the matter, and looking at it closer there comes in sight an important distinction which we have not as yet considered. It has reference to the distance which lies between the expenditure of human labour in the combined production and the appearance of the desired good. We either put forth our labour just before the goal is reached, or we, intentionally, take a roundabout way. That is to say, we may put forth our labour in such a way that it at once completes the circle of conditions necessary for the emergence of the desired good, and thus the existence of the good immediately follows the expenditure of the labour; or we may associate our labour first with the more remote causes of the good, with the object of obtaining, not the desired good itself, but a proximate cause of the good; which cause, again, must be associated with other suitable materials and powers, till, finally,—perhaps through a considerable number of intermediate members,—the finished good, the instrument of human satisfaction, is obtained.

The nature and importance of this distinction will be best seen from a few examples; and, as these will, to a considerable extent, form a demonstration of what is really one of the most fundamental propositions in our theory, I must risk being tedious.

A peasant requires drinking water. The spring is some distance from his house. There are various ways in which he may supply his daily wants. First, he may go to the spring each time he is thirsty, and drink out of his hollowed hand. This is the most direct way; satisfaction follows immediately on exertion. But it is an inconvenient way, for our peasant has to take his way to the well as often as he is thirsty. And it is an in

sufficient way, for he can never collect and store any great quantity such as he requires for various other purposes. Second, he may take a log of wood, hollow it out into a kind of pail, and carry his day's supply from the spring to his cottage. The advantage is obvious, but it necessitates a roundabout way of considerable length. The man must spend, perhaps, a day in cutting out the pail; before doing so he must have felled a tree in the forest; to do this, again, he must have made an axe, and so on. But there is still a third way; instead of felling one tree he fells a number of trees, splits and hollows them, lays them end for end, and so constructs a runnel or rhone which brings a full head of water to his cottage. Here, obviously, between the expenditure of the labour and the obtaining of the water we have a very roundabout way, but, then, the result is ever so much greater. Our peasant needs no longer take his weary way from house to well with the heavy pail on his shoulder, and yet he has a constant and full supply of the freshest water at his very door.

Another example. I require stone for building a house. There is a rich vein of excellent sandstone in a neighbouring hill. How is it to be got out? First, I may work the loose stones back and forward with my bare fingers, and break off what can be broken off. This is the most direct, but also the least productive way. Second, I may take a piece of iron, make a hammer and chisel out of it, and use them on the hard stone—a roundabout way, which, of course, leads to a very much better result than the former. Third method— Having a hammer and chisel I use them to drill a hole in the rock; next I turn my attention to procuring charcoal, sulphur, and nitre, and mixing them in a powder, then I pour the powder into the hole, and the explosion that follows splits the stone into convenient pieces—still more of a roundabout way, but one which, as experience shows, is as much superior to the second way in result as the second was to the first.

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