What Is the Purpose of the Economy? Carl Menger Explains.
This second part of the series about the Principles of Economics treats Menger’s exposition of the economy. In continuation of the first part, which covered the general concept of goods, the part on the economy treats the role of economic goods in relation to human wants. Based on the original version in German, published in 1871 as Grundsätze der Volkswirthschaftslehre, the following exposition tries to capture the spirit of the work, with all direct quotes in the text freshly translated for this article.
Purpose of the Economy
Fulfilling needs and desires means living and thriving. Caring for the satisfaction of our desires means taking care of our lives and our prosperity. This concern is the most important of all human efforts, because it is the basis of all other aspirations. The more the economy evolves, the greater will the provision for the satisfaction of desires. Accumulating reserves to provide for our future needs, to have goods and services present when we need them, is the purpose of the economy.
Precaution and provision in relation to wants and needs represent the core of the economy. People are concerned for the satisfaction of their needs and thus also about providing for their future needs and wants. The “provision for future needs” represents the essence of the economy (p. 34). This concern drives the human being toward economic activity. In this endeavor, the individual must gain knowledge about the amount of goods needed to provision himself for the time under consideration and about the amount available for this purpose. In order to fulfill the precautionary activity, the economic agent must have insight into the quantity of goods that he needs and about the availability of the means to obtain these goods.
This consideration leads to the distinction between the need for goods which can be used directly to satisfy human needs—first-order goods—and the need for goods which is conditioned by our need for goods of the first order (p. 35). Uncertainty shrouds both aspects. With the concern for provisioning ourselves, we neither can be certain about our future needs nor about the future availability of the resources to fill them. Our needs change over time along with the conditions of the availability of their satisfaction. Nevertheless, the degrees of uncertainty are different. While at least for practical purposes we know pretty well our future needs in terms of first-order or consumption goods—although not for certain—much more uncertain is the availability of the means to satisfy these needs, that is the availability of higher-order goods. This moves the human concern to the demand for production goods and thus for having an economy.
As the transformation of higher-order goods into lower-order
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