Reply To: MES Questions



To add to what Professor Herbener has said in answer to your questions:

Question 1:
It is vital to keep in mind that the entire production structure/ stages of production construct employed by Rothbard is essentially prospective or forward looking in nature. It is an analytical tool to emphasize and analyze the fact that the available stocks of the factors of production (higher order goods) can be allocated in different temporal patterns, i.e., they can be allocated to produce a stream of consumer goods in the near future (say, two years hence) or they can be allocated to yield such a stream of consumer goods in the remoter future (say, six years later).

In Rothbard’s use of it in MES he makes the simplifying assumption that the factors available for allocation consist only of stocks of “original factors,” i.e., land and labor. This pool of factors is allocated in a certain temporal pattern, producing capital goods along the way, to finally yield a stream of consumer goods. It therefore follows that the highest stage involves the use of only land and labor and the payment of only wages and rent.

In the real world, as you correctly note, the available pool of factors includes not only land and labor but also durable capital goods produced in the past. Not only the available labor and land but also the available durable capital goods “carried over” from production activities in the past are allocated in a certain temporal pattern by the decisions of the various entrepreneurs. It thus follows that in this real world the highest stages of production would involve the use of such factors as well. Making this change to the analysis, however, does not invalidate any of the conclusions derived by Rothbard. His assumption is merely a simplifying one that keeps the analysis tractable.

Question 2:

This question could be best answered by considering the imaginary case of Robinson Crusoe, who finds himself shipwrecked on an island. He needs food and therefore decides to fish. The shortest/ quickest way for him to acquire fish would be to fish with his bare hands. Constructing a raft and a net and thereby increasing his productivity in catching fish involves an inter-temporal trade off – he needs to give up fish in the present (or nearer future) so as to obtain fish in the future (or remoter future). To avail of this productivity increase he needs to overcome his time preference and save and invest. Let’s assume he does that, so that he now has a raft and a net to fish. Now the shortest way to acquire fish is to use the raft and the net, given that these capital goods have been produced in the past and are available.

Now assume that Robinson decides to produce another raft and another net; he wants to ensure that he has these goods to fish when his current raft and net become unusable due to the inevitable depreciation that they will undergo. The production of this new raft and net represents that same inter-temporal choice that the production of he first set involved. Robinson now has to allocate some of his labor time that he could have used to fish with the raft and the net that he already owns (or that he could have enjoyed in the form of leisure) to the production of a raft and a net that will be available for use only in the remoter future.

The case in an economy practicing the division of labor is similar. If one firm in the fishing industry is using a raft and a net whereas the other fishermen are fishing with their bare hands, the use of resources to produce more rafts and nets involves a lengthening of the existing production structure.