Notes on The Laws Governing Goods-Character

1.The goods-character of goods of higher order depends on the command of corresponding complementary goods

When we have first order goods it is in our power to use them to satisfy our direct needs. Second order can also satisfy our needs should we have the power to transform them. Similarly should we have third order goods at our disposal we would have the power to transform them into corresponding goods of second order and these in turn into corresponding goods of first order. Hence we can transform goods of third and higher order to the satisfaction of our needs if we have the power to transform them.

The last statement is a key. For us to command power to transform a higher order good, we need to command power on the corresponding complementary goods of higher order.

Lets assume an economizing individual doesn't have direct bread but has all the second order goods necessary to produce it. There can be no doubt that he will have the power to satisfy his needs to make bread.

Suppose this individual has salt, flour, yeast, labour service and even tools and machinery but lacks fuel and water. In this case he has no longer the power to utilize the second order goods to produce bread (first order good) to satisfy his needs.
This will result in second order goods loosing their goods-character with respect to bread.

It is possible for the higher order goods which their good character have been lost due to the lack of control over other complimentary higher order goods to maintain their good character should we have power to utilize them for satisfying other needs.

From the above we observe that the goods-character of second order goods depend on complimentary goods of same order being available with respect to production of at least one first order good.

The goods-character of goods is directly dependant upon complementary goods of the same order being available with respect to the production of at least one higher order good of the next lower order

The additional complexity of higher order goods establishing their goods-character lies in the fact men has to have control over their complementary goods.

Assume that someone has control over the complementary third order goods to produce a second order good, but doesn't have command over complementary second order goods. Then he can't transform third order goods to second order goods for the satisfaction of his needs. And because the loss of power the third order goods loose their goods-character immediately.

Goods-character of higher order goods depends on being able to command their complementary goods to transform them into lower order goods

Conversely goods loose their goods-character because men don't have command over the necessary labor services complementary to them.

  • Principles of Economics by Carl Menger