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Monday, March 21, 2005
  Answers to Menger's Principles of Economics (Ch. 1)

Chapter 1: The General Theory of the Good

Sec. 1 The General Theory of the Good

  1. Why does Menger make the distinction between "useful things" and "goods"? What is an example of something that is a "useful thing" but not a "good"? (pg. 52)

  2. Menger defines "useful things" as "Things that can be placed in a causal connection with the satisfaction
    of human needs." So for Menger a "useful thing" is literally any thing which has some demonstrably beneficial effect upon human life - air, sunlight, water, food, clothing, etc. But a "good" is much more specialized type of "useful thing"; according to Menger, a good differs from a "useful thing" in that "we both recognize this causal connection, and have the power actually to direct the useful things to the satisfaction of our needs".

    So for Menger, classifying something as a "useful thing" is really a metaphysical statement - it applies to things whose nature benefits human life. For a "useful thing" to become a "good", we not only have to be aware of its beneficial properties, we must also be able to control the thing in question, and thereby use it to satisfy our needs.

    An example of something which would be a "useful thing" but not a "good" would be the weather. Depending on one's plans (and hence needs), whether it rains, snows or is overcast can have varying effects upon those needs. For a farmer, too much rain or snow can destroy his crops. But just the right amount of rain and sunshine (depending upon his specific crop) leads to success and the satisfaction of his needs. Since science has not yet progressed to the level of controlling the weather, this qualifies as a "useful thing", but not a "good" since it violates Menger's 2nd attribute of a "good" - "the power to direct the useful things to the satisfaction of our needs".

  3. What four prerequisites does Menger list for a thing to "acquire goods-character"? (pg. 52)

  4. 1. A human need.
    2. Such properties as render the thing capable of being brought into a causal connection with the satisfaction of this need.
    3. Human knowledge of this causal connection.
    4. Command of the thing sufficient to direct it to the satisfaction of the need.

  5. If you had an automobile, but no gasoline, would that the automobile still be a good, according to Menger? Why not?

  6. No it would not, because it would violate prerequisite 2 (and to some extent prerequisite 4); without gasoline, one is incapable of using the car to satisfy any of one's needs, since it is incapable of running without gasoline.

  7. What makes something an imaginary good? List some examples of imaginary goods. (pg. 53)

  8. Menger gives two causes of the phenomenon of "imaginary goods": "(1) when attributes, and therefore capacities, are erroneously ascribed to things that do not really possess them, or (2) when non-existent human needs are mistakenly assumed to exist." In today's world there are a vast number of imaginary goods - charms, "alternative" medicinal treatments, all religious paraphernalia.

Sec. 2 The Causal Connections Between Goods

  1. What distinguishes a "good of the first order" from a "good of the second order"? Give some examples of both, and of higher "order" goods.

  2. A "good of the first order" is a good which *directly* satisfies a human need - simple examples include food, water, shelter, medicine. "Goods of the second order" are those goods which are used in the *production* of goods of the first order - an oven, fire, a water purifier. Goods of each subsequent order are used in producing still lower level goods - so 4th produces 3rd, 3rd produces 2nd, and 2nd produces 1st; each subsequent "order" acquires its "goods-character" from its relationship with goods of the first order, and thus from its ability *ultimately*
    to satisfy human needs. Examples of "higher order" goods would include factories, research facilities, universities, computer programs, nuclear power plants, etc.

  3. Are some goods inherently "higher" order than others? Why or why not? Can some goods function at multiple levels in the "causal nexus" of goods? Give an example.

  4. No, because the "order" a good has is based upon its ability to satisfy human needs, and this is not inherently fixed but dependent on the nature of the productive process. For example, in one context water is a good of the first order - without drinking it we wouldn't last more than a few days. But in another context, water is a "higher-order" good - for instance, in a hydroelectric power plant, water plays an essential role in generating electricity. The production of electricity does not *directly* satisfy a human need; it does so indirectly, by powering devices which themselves have varying degrees of closeness to our specific needs. So many goods can and do function at multiple levels in the "causal nexus" of goods.

Sec. 3 The Laws Governing Goods-Character

Part A

  1. Menger writes, "it is never in our power to make use of any particular good of higher order for the satisfaction of our needs unless we also have command of the other (complementary) goods of higher order." Why not? (pg. 59)

  2. Higher level goods generally require multiple "ingredients" or complementary goods which when processed will yield goods of successive orders, which eventually will yield goods of the first order which directly satisfy our needs. If a complementary good in a process of production is missing, it destroys the ability to utilize the other complementary goods (assuming of course that there is no alternate use they could be separately put to). A dramatic example would be the loss of electricity in an automobile assembly plant. Without electricity to power the machines which make assembly possible, one is left with a great deal of parts, but no way to make use of them.

  3. If one possesses some higher order goods for the production of an automobile, but not all, do the higher order goods necessarily lose their goods-character? If not, why?

  4. No they would not *necessarily* lose their goods-character, provided they could *suffice* to produce another good instead. But if there were no alternative use for these higher-order goods, then they would become useless.

  5. Menger writes, "The question of the dependence of the goods-character of goods of higher order than the second upon the availability of complementary
    goods is more complex." This would imply that possession of a good of the fifth order, and its complementary goods of the fifth order needed to produce a good of the fourth order, would not by itself establish their goods-character. Why is this so? (pg. 60)

  6. Because in order to have "goods-character", each subsequent level in the order of goods down to the direct satisfaction of our needs must also be accounted for. If the chain is cut anywhere prior to the first order goods which do satisfy our needs, by that fact alone the entire process is incapable of supplying our needs, assuming again that there is no alternative uses for the higher-order goods in question.

Part B

  1. If a human need disappears, a good of the first order which could only satisfy that need would lose its goods-character; is such a loss necessarily applicable to goods of second, third and nth order? Why or why not?

  2. Again, not *necessarily* applicable; this relates precisely to the indefinite nature of many higher-order goods. Most are capable of *multiple* applications to satisfying human needs, and hence do not lose their goods-character simply because *one* such use disappears.

Sec. 4 Time and Error

  1. What three factors does Menger stress in relation to uncertainty (and the possibility of error) in production?

    1. The ineradicable span of time which accompanies the transformation of higher-order goods into first order goods. This span of time means that the user of higher-order goods must attempt to judge the needs not for *present* first-order goods, but for *future* consumption of first order goods - and this is not a given.

    2. The indefiniteness of higher order goods - the fact that higher-order goods do not always produce an absolute or fixed number of other goods. As Menger himself notes, there is always the possibility of yielding less than expected from production, or even nothing at all.

    3. Non-goods - those elements which affect the production of lower-order goods from higher, which are either unknown to man or out of his control, and which can thus harm or help his production. An instance of this, as was mentioned earlier, is the weather.

Sec. 5 The Causes of Progress In Human Welfare

  1. Why does Menger contrast the division of labor in a primitive collecting economy with the division of labor in a more advanced economy? If both economies are arranged around the division of labor, what explains the superior productive powers of the advanced economy?

  2. He contrasts the two because he finds deficiency in Adam Smith's praise of the division of labor *by itself* as the most important factor in the "improvement in the productive powers of labour." As Menger points out, the true benefits from the division of labor are only realized when goods of ever higher orders are employed in production. And this itself is a direct result of the increase of knowledge, and the subsequent control over nature that such knowledge provides. So the superiority of the advanced economy over the primitive one is a result of the continually increasing knowledge of and control over nature that characterize more advanced societies.

Sec. 6 Property

  1. What does Menger mean when he states that, "all the goods an economizing
    individual has at his command are mutually interdependent
    with respect to their goods-character..."? (pg. 75)

  2. I take this to mean that Menger essentially understand that a human being is an integrated entity - he has multiple needs, no one of which alone sustains his life. Life has multiple requirements; as just three simple examples, every man must have food, water and air to breathe. Lacking any *one* of these things would prove fatal, albeit after different lengths of time. So having a healthy stock of food and water couldn't *really* be a "good" for you, without any air to breathe - they would be superfluous qua goods.

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