Praxeology and Consumer/Producer Goods

Austrian economists, particularly those of the Rothbardian tradition, rely greatly on the logical categories that the deductive framework of praxeology provides. Whatever one thinks of the whole approach, however, the validity of many of the concepts that arise from it come from the fact that the system claims to interrogate the internal structure of the concept of human action or purposeful behavior, not any particular instance of action. The outcome of such deductions includes logically necessary categories that are required to make sense of or are necessarily implied by the concept of action, not just any abstraction or category we use whenever we observe a particular example of action.

This is not true of all categories and abstractions used when we talk about action, however. The fact that we use examples as part of the discovery of concepts does not mean that any of these concepts are deductively justified or rationalized by praxeology. The concept of “sandwich” is not necessarily implied by the concept of action, even if we can still posit and use such a concept to talk in everyday language, or maybe even independently justify it. We wouldn’t be able to make deductively valid conclusions about such an abstraction, at least within praxeology alone. Contrast this with purpose, or means and ends, concepts that are necessarily required to make the concept of action meaningful. The difference here has strong implications downstream when praxeology is applied to both economics and other disciplines.

The aim of this article is to establish that the categories of consumption and production, and related distinctions like consumer goods and producer goods, do not have a primarily or purely praxeological basis, and must rely on other postulates to have substance. These categories are superimposed as a strict dichotomy onto a praxeological framework that does not demand this conclusion. Because of this, there may be confusions when deductions are drawn from these categories and treated as if they have a comparable epistemological justification to praxeological categories. This is particularly problematic when praxeology is applied both to economics and to other disciplines like morality, as I will illustrate in subsequent articles. I will start by outlining what I believe praxeology implies with respect to these concepts, and illustrate that the consumption/production dichotomy is not so much a dichotomy of two distinct concepts as a heuristic device to talk about one concept of indirection that is more broadly applicable. I will then point to what these categories can be derived from. I will then point to two examples of where the implications of this view matters.

Let’s start with where this would otherwise come from in the context of praxeology. You have the concept of action, and the means-ends framework that implies. But what do we get the distinction between consumer and producer goods from? Rothbard in Man, Economy, and State, chapter 1 section 3, provides us with a working definition for goods, but also the classification of consumer and producer goods.

The means to satisfy man’s wants are called goods. These goods are all the objects of economizing action. Such goods may all be classified in either of two categories: (a) they are immediately and directly serviceable in the satisfaction of the actor’s wants, or (b) they may be transformable into directly serviceable goods only at some point in the future — i.e., are indirectly serviceable means. The former are called consumption goods or consumers’ goods or goods of the first order. The latter are called producers’ goods or factors of production or goods of higher order.

The problem is with the treatment of direct and indirect as clearly distinguishable categories, as implied by the concept of action. But suppose we relax the notion that these categories are necessarily so distinct in a binary sense. Why not think of it as a graduated scale of indirection? That’s what the whole of producers’ goods implies, but where does this consumers’ goods category come from? How does one classify a good as “directly serviceable”, rather than “more directly serviceable than some other specified good”? How does one even make reference to any particular good on that scale without specifying particular means for a particular action? We’d stop interrogating the structure of the action concept to do that, and lose the particular epistemic basis of praxeology.

Think of the concept of color. One can accept that, for any object that can reflect light, we could employ the concept of color. We can use it to refer to the perception of frequencies of light which that object reflects. But does the concept of reflective objects imply a specific taxonomy of color? Does it imply the concept of “red” or “orange”? How about “mauve” or “violet”? The answer would be that no such classification is required, that all that is necessarily required is that light reflects off the object, and there are varying properties of objects that make them reflect light differently. We need not specify or categorize these, nor can we without introducing the particulars of reflective objects. We must leave the realm of interrogating the concept of reflective objects, and start talking about specific objects. From there, we have some reason to classify or describe differences in the reflections, but the classification of color would be heuristic, helpful, not necessary or necessarily implied by the concept. We separate the logical categories we get from deductive theory from the need to talk about the application of the concepts in cognizable ways.

Apply this reasoning to the concept of indirection. See that we don’t have any necessary hard or objective dividing line between direct and indirect. Note that Rothbard, uncharacteristically for him in this chapter, offers no derivation of the categories of consumer and producer good from any concept of indirection or means-ends. It’s just posited as a category we “may” use. Unlike elsewhere in the chapter for other concepts, he does not offer us a reason why the categories are necessarily implied by the structure of action, because they are not. What makes it necessary to reason around any given means or action as being “directly serviceable in the satisfaction of wants” absent a baseline? Why would this be necessary, as opposed to “more directly serviceable than some alternative good”? Why would there be any need to identify something that is distinctly and clearly demarcated as direct, when the concept of indirection itself doesn’t require that? Note that the conception of consumer good requires this “direct” quality to have a stricter basis, not merely an ordinal ranking of indirection, since it invokes “immediate and direct serviceability”. We will see later that others have hinged on this conception and drawn meaningful but flawed implications from this. One could employ a more graduated conception of indirection to the concept of means and not be in conflict with praxeology at all. (This argument is not contingent on a continuous spectrum either, even if there was a discrete basis for indirection, it would not change the potentially arbitrary nature of the categorization of the discrete steps.) The line that separates a consumer good from a producer good would not merely be unspecified, but unspecifiable without some arbitrary or external standard of demarcation. It would be arbitrary so long as we work within praxeology alone.

I hasten to add that this would not mean that we reject the words “consumer” and “producer” or the concepts of consumer and producer goods as heuristics, if we are outside the realm of praxeology. The issue is here not with the concepts themselves, but simply that they are not derived from the praxeological framework, and that they do not have the same epistemological foundation or justified status as more valid deductions such as the distinction between uncertainty and time preference, which in application give stronger foundations for the concepts of profit or interest. Recall that Rothbard himself says that this first chapter is focus on just the implications of praxeology. It is later that he introduces other postulates, by his own words. It’s important for these particular concepts that they come from praxeology.

What are the implications of this then? Where do these concepts have applicability? After all, there is no self-evident problem using them, as both Austrian and non-Austrian economists (and as you’ll see later, even non-economists) see no issue using the categories of consumer and producer goods.

Let’s use his own example of the ham sandwich.

Let us trace the relations among these goods by considering a typical human end: the eating of a ham sandwich. Having a desire for a ham sandwich, a man decides that this is a want that should be satisfied and proceeds to act upon his judgment of the methods by which a ham sandwich can be assembled. The consumers’ good is the ham sandwich at the point of being eaten… [M]an must rearrange various elements of his environment in order to produce the ham sandwich at the desired place — the consumers’ good. In other words, man must use various indirect means as co-operating factors of production to arrive at the direct means. This necessary process involved in all action is called production; it is the use by man of available elements of his environment as indirect means — as co-operating factors — to arrive eventually at a consumers’ good that he can use directly to arrive at his end.

There is a minor confusion here. Rothbard’s own distinction of ends when defined in terms of purpose, distinguished from means employed, would mean that it is more specific to say that the end in this example is the satisfaction brought by eating the ham sandwich, or as otherwise stated alleviating unease. Eating it is the behavior, the employment of means that sates the end, not the end itself. With that in mind, how exactly does Rothbard conclude that the ham sandwich itself, at the point of being eaten, is the directly serviceable means? What makes this more direct than the hands that lift it, or the employment of the digestive system? It may seem to you (and to me) as implausible or unintuitive to say my stomach lining or taste buds are the most directly serviceable means. But does that distinction come from praxeology? I suggest that the distinction we draw is necessarily contextualized by making thymological inferences about the relationship between particular means and particular ends. We don’t emphasize our stomach lining because it’s simply not particular specific or relevant to the specific end, relative to a baseline of knowledge about common ends and situations humans face. It’s based on perhaps reasonable but nonetheless thymological assumptions about now-specified ends, thus leaving the realm of the purely praxeological. But the distinction, in order to distinguish the “most direct” means here is contingent on how we construct the abstractions we use to talk about the means, and what the specific end is. There is no substance to or necessity for the consumer/producer distinction, either in terms of the particulars of behavior or particular goods, until we introduce thymology or other postulates.

I do not reject these categories as such for that reason. It is perfectly acceptable to introduce such categories for normal discourse. Clearly, it would not necessarily be helpful in many contexts to demand that we detail and enumerate all the disaggregated steps required to ingest, digest, and defecate a ham sandwich. I only point out that these categories are imposed ex post facto. Like red or blue with respect to color, we use these categories to help reason, not because they have any necessary implications for how we taxonomize or classify action using praxeology itself. Any such classification would need to be independently justified.