The Subsistence Market

Hennings slices up Böhm-Bawerk’s “subsistence market” in chapter 9 of The Austrian Theory of Value and Capital. Subsistence, apparently, is everything.

But Böhm conceived of the general subsistence market on an even broader scale; for he argued that supply on such a market is constituted by the total stock of capital goods in an economy which on his reckoning included the stock of consumer goods not yet sold. Demand comes from all those who demand ‘subsistence’, but also from producers who demand capital goods. Thus the general subsistence market includes virtually all the goods traded in an economy.

Such a broadly conceived concept is difficult to handle.

No joke. Hennings handles it by breaking down the subsistence market into a market for land and labor, a market for consumable present output, a market for capital goods, and a market for loanable funds. He also divides the capitalist-entrepreneur into two people: a capitalist and an entrepreneur.Screen Shot 2015-04-28 at 10.16.02 AM

Starting with the bottom-right corner,

  • Consumers buy present output in the output market, which is revenue for the producers.
  • The producers use this revenue and any advances from the loanable funds market to produce the real goods and services offered in the output market.
  • The producers purchase factors and repay capitalists.
  • The owners of the factors take their wages and rent and allocate some to consumption and some to savings/investment.
  • Capitalists use savings, profit, and the repaid advances to reinvest or consume.
  • The circle is completed when consumers use loans, profit, wages, and rent to buy present output.

Hennings has another diagram based on a different role for the capitalists and a different form of payment to the factor owners (claims to future output instead of present output). Look for that tomorrow.

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