Economics Dictionary of ArgumentsHome
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| Production structure: In economics, production structure refers to the organization and arrangement of factors of production (land, labor, capital, and entrepreneurship) and processes used to produce goods and services. It encompasses input-output relationships, supply chains, and the hierarchy of production stages, shaping efficiency, costs, and overall economic output. See also Production, Production Factors._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Production Structure - Dictionary of Arguments
Rothbard III 392 Production structure/Rothbard: the capitalists who are producing consumers’ goods, whom we might call “first-stage capitalists,” engage in time transactions in making their investments. >Production/Rothbard, >Capital goods, >Consumer goods, >Interest rates/Rothbard. The components of this particular subdivision of the time market, then, are: Supply of Present Goods: Capitalists1 Supply of Future Goods: Landowners, Laborers, Capitalists2 (Demand for Present Goods) Capitalists1 are the first-stage capitalists who produce consumers’ goods. They purchase capital goods from the producer-owners - the second-stage capitalists, or Capitalists2. Rothbard III 393 At the next stage, the Capitalists2 have to purchase services of factors of production. They supply present goods and purchase future goods, goods which are even more distantly in the future than the product that they will produce.(1) These future goods are supplied by landowners, laborers, and Capitalists3. To sum up, at the second stage: Supply of Present Goods: Capitalists2 Supply of Future Goods: Landowners, Laborers, Capitalists3. >Time/Rothbard, >Time preference/Rothbard. Rothbard III 400 Interest rats/time: The aggregate time-market schedules (determined by time preferences) determine the aggregate social proportions between (gross) savings and consumption. It is clear that the higher the time-preference schedules are, the greater will be the proportion of consumption to savings, while lower time-preference schedules will lower this proportion. At the same time (…) higher time-preference schedules in the economy lead to higher rates of interest, and lower schedules lead to lower rates of interest. >Saving, >Loans. From this it becomes clear that the time preferences of the individuals on the market determine simultaneously and by themselves both the market equilibrium interest rate and the proportions between consumption and savings (individual and aggregate). >Interest rates/Rothbard, >Consumption/Rothbard. Rothbard III 403 It is this rate of interest that induces capitalists to save and invest present goods in productive factors. The rate of interest (…) is set by the configurations of the time preferences of individuals in the society. It is not the total quantity of money spent on consumption that is relevant to capitalists’ returns, but the margins, the spreads, between the product prices and the sum of factor prices at the various stages - spreads which tend to be proportionately equal throughout the economy. There is, in fact, never any need to worry about the maintenance of consumer spending. The proportion spent on capital in its various stages and in toto gives a clue to the important consideration - the real output of consumers’ goods in the economy. >Production/Rothbard, >Investments/Rothbard, >Capital/Rothbard, >Capitalism/Rothbard. Money: The total amount of money spent, however, gives no clue at all. Rothbard III 404 The important consideration, therefore, is time preferences and the resultant proportion between expenditure on consumers’ and producers’ goods (investment). >Time preference/Rothbard. Rothbard III 407 Every capitalist at every stage (…) demands goods that are more distantly future than the product that he supplies, and he supplies present goods for the duration of the production stage until this product is formed. He is therefore a net supplier of present goods, and a net demander of future goods. Rothbard III 518 Structure of production/saving/Rothbard: (…) it is clear that the volume of money incomes to Capitalists1 will be drastically reduced. Capitalists1 will receive a total of 80 instead of 100 ounces. The amount that they have to apportion to original factors and to Capitalists2 is therefore also considerably decreased. Thus, from the side of final consumers’ spending, an impetus toward declining money incomes and prices is sent along the production structure. In the meanwhile, however, another force has concurrently come into play. The 20 ounces have not been lost to the system. They are in the process of being invested in the economy, their owners ranging throughout the economy looking for maximum interest returns on their investment. The new savings have changed the ratio of gross investment to consumption (…). A „narrower“ consumption base must support a larger amount of producers’ spending. How can this happen, especially since the lower-rank capitalists must also receive a lower aggregate income? The answer is: in only one way - by shifting investment further up the ladder to the higher-order production stages. (…) the only way that so much investment can be shifted from the lower to the higher stages, while preserving uniform (lowered) interest differentials (cumulative price spreads) at each stage, is to increase the number of productive stages in the economy, i.e., to lengthen the structure of production. >Saving/Rothbard, >Saving/Hayek, >Production/Hayek, cf. >Natural rate of interest. Rothbard III 512 Prices/production/Hayek/Rothbard: The increased investment expenditure in the higher levels raises the prices of the factors in these stages. It is as if the impact of lower consumer demand tends to die out in the higher stages and is more and more counteracted by the increase and shift in investment funds. The process of readjustment to lower price spreads caused by increased gross saving has been lucidly described by Hayek. As he states: „The final effect will be that, through the fall of prices in the later stages of production and the rise of prices in the earlier stages of production, price margins between the different stages of production will have decreased all round.“(2) Rothbard III 995 Production structure/inflation/Rothbard: The owners of the original factors, with their increased money income, naturally hasten to spend their new money. They allocate this spending between consumption and investment in accordance with their time preferences. Let us assume that the time-preference schedules of the people remain unchanged. This is a proper assumption, since there is no reason to assume that they have changed because of the inflation. Production now no longer reflects voluntary time preferences. Business has been led by credit expansion to invest in higher stages, as ifmore savings were available. Since they are not, business has overinvested in the higher stages and underinvested in the Iower. Consumers act promptly to re-establish their time preferences – their preferred investment/consumption proportions and price differentials. The differentials will be re-established at the old, higher amount, i.e., the rate of interest will return to its free-market magnitude. As a result, the prices at the higher stages of production will fall drastically, the prices at the Iower stages will rise again, and the entire new investment at the higher stages will have to be abandoned or sacrificed. >Inflation/Rothbard. 1. No important complication arises from the greater degree of futurity of the higher-order factors. (…) a more distantly future good will simply be discounted by the market by a greater amount, though at the same rate per annum. The interest rate, i.e., the discount rate of future goods per unit of time, remains the same regardless of the degree of futurity of the good. This fact serves to resolve one problem (…) [the] vertical integration by firms over one or more stages. If the equilibrium rate of interest is 5 percent per year, then a one-stage producer will earn 5 percent on his investment, while a producer who advances present goods over three stages or three years - will earn 15 percent, i.e., 5 percent per annum. 2. F. A. Hayek, Prices and Production. 2nd ed. London: Routledge and Kegan Paul, 1935. Reprinted by Augustus M. Kelley, 1967. pp. 75-76._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Rothbard
> Counter arguments in relation to Production Structure
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