Needs vs. Wants in Capital Theory

Although Richard von Strigl never mentioned Taussig in the text of his Capital & Production, the two economists present notably different conceptions of capital, roundabout production, and the wages/subsistence fund. Strigl did mention Taussig in a “Literature” appendix, but only as a part of a list of other authors who have discussed the wages fund doctrine, capital, and production. Taussig’s Wages and Capital is not explicitly mentioned, but we can assume Strigl was referring to the title when he said, “The literature on the wage fund theory shall only be mentioned in general. The authors cited […] link the theory of capital more or less closely with the wage fund theory”.

The root of their differences is one of needs versus wants. Taussig maintains want-satisfaction as the end for laborers in roundabout production. Wages are the real goods and services paid in exchange for labor services that the laborer prefers over alternatives, including other employments or not working (no wage and no disutility of labor). Money wages may be paid by the direct employer, but these money wages are simply the “key” to real wages. Taussig makes this clear in his first chapter: “[the laborer’s] wages for present exertion are what he buys with the cash which, under a money regime, he receives for the day’s or week’s work” (emphasis mine). Although Taussig does not emphasize the point or discuss it separately, the language of his book maintains that wages are the consumable goods that laborers prefer and accept in exchange for labor services rendered.

Strigl’s focus, on the other hand, is in the biological needs of the laborer. Wages, or the subsistence fund, are what laborers need to survive the production period. Strigl makes this clear from the start in a thought experiment involving a country that must “start from scratch” regarding production:

Let us assume that in some country production must be completely rebuilt. […] Now, if production is to be carried out by a roundabout method, let us assume of one year’s duration, then it is self-evident that production can only begin if, in addition to these originary factors of production [land and labor], a subsistence fund is available to the population which will secure their nourishment and any other needs for a period of one year. [emphasis mine]

This language and conception of remuneration to labor dominates the rest of Capital & Production. We can hardly call it a wage, in the economic sense of the term, because it is no different than the grease applied to a machine in a factory, or the fuel pumped into a shipping truck. There is no consideration of the laborer’s choice to accept or reject a wage offer. It is assumed that all production is geared toward the biological needs of the laborers.

This line of reasoning leads Strigl to conclude that finished consumer goods are capital when they are used to sustain, or “support”, laborers involved in any part of a roundabout production process. Consider the development of his conclusion here:

Thus, the production of consumer goods must also “support” (alimentieren) the creation of durable factors of production and the appropriation of raw materials, i.e., it must supply these production processes, which themselves produce nothing that can be directly considered consumer goods, with those consumer goods necessary for the subsistence of those employed in these production processes. Naturally, the form which this support assumes depends on the organization of the economic system.

Strigl maintains that the “form” in which the wages or subsistence get to the laborer is the only part of this discussion that is related to “the organization of the economic system.” This is in contrast to the bulk of other Austrian capital theorists’ method of building theory on preset assumptions of private property, unhampered markets, and exchange. Mises especially stressed the importance of calculation and markets in capital theory, but I’ll save that for tomorrow.

Advertisements

Leave a comment

Filed under economics

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s