XVIII. Action in the Passing of Time

0:00Chapter 18. Action in the Passing of Time 1. Perspective in the Valuation of Time Periods Acting man distinguishes the time before satisfaction of a want is attained and the time for which the satisfaction continues. Action always aims at the removal of future uneasiness, be it only the future of the impending instant. Between the setting in of action and the attainment of the end sought, there always elapses a fraction of time, namely the maturing time, in which the seed sown by the action grows to maturity. The most obvious example is provided by agriculture. Between the tilling of the soil and the ripening of the fruit, there passes a considerable period of time.

0:55Another example is the improvement of the quality of wine by aging. In some cases, however, the maturing time is so short that ordinary speech may assert that the success appears instantly. As far as action requires the employment of labor, it is concerned with the working time. The performance of every kind of labor absorbs time. In some cases, the working time is so short that people say the performance requires no time at all. Only in rare cases does a simple, indivisible and non-repeated act suffice to attain the end aimed at. As a rule, what separates the actor from the goal of his endeavors is more than one step only.

1:46He must make many steps, and every further step to be added to those previously made raises anew the question whether or not he should continue marching toward the goal once chosen. Most goals are so far away that only determined persistence leads to them. Persevering action, unflinchingly directed to the end sought, is needed in order to succeed. The total expenditure of time required, that is, working time plus maturing time, may be called the period of production. The period of production is long in some cases, and short in other cases. It is sometimes so short that it can be entirely neglected in practice.

2:35The increment-in-want satisfaction which the attainment of the end brings about is temporarily limited. The result produced extends services only over a period of time which we may call the duration of serviceableness. The duration of serviceableness is shorter with some products and longer with other goods, which are commonly called durable goods. Hence acting man must always take into account the period of production and the duration of serviceableness of the product. In estimating the disutility of a project considered, he is not only concerned with the expenditure of material factors and labor required, but also with the period of production.

3:24In estimating the utility of the expected product, he is concerned with the duration of its serviceableness. Of course, the more durable a product is, the greater is the amount of services it renders. But if these services are not cumulatively available on the same date, but extended piecemeal over a certain period of time, the time element, as will be shown, plays a particular role in their evaluation. It makes a difference whether n units of service are rendered on the same date, or whether they are stretched over a period of n days, in such a way that only one unit is available daily. It is important to realize that the period of production as well as the duration of serviceableness are categories of human action and not concepts constructed by philosophers, economists and historians as mental tools for their interpretation of events.

4:26They are essential elements present in every act of reasoning that precedes and directs action. It is necessary to stress this point because Boehm-Bawerk, to whom economics owes the discovery of the role played by the period of production, failed to comprehend the difference. Acting man does not look at his condition with the eyes of a historian. He is not concerned with how the present situation originated. His only concern is to make the best use of the means available today for the best possible The Past does not count for him. He has at his disposal a definite quantity of material factors of production.

5:15He does not ask whether these factors are nature-given or the product of production processes accomplished in the past. It does not matter for him how great a quantity of nature-given, that is, original material He values the available means exclusively from the aspect of the services they can render him in his endeavors to make future conditions more satisfactory. The period of production and the duration of serviceableness are for him categories is in planning future action, not concepts of academic retrospection and historical research.

6:04They play a role insofar as the actor has to choose between periods of production of different length, and between the production of more durable and less durable goods. Action is not concerned with the future in general, but always with a definite and limited Fraction of the Future. This fraction is limited on the one side by the instant in which the action must take place. Where its other end lies depends on the actor's decision and choice. There are people who are concerned with only the impending instant. There are other people whose provident care stretches far beyond the prospective length of their own life.

6:51He may call the fraction of future time for which the actor in a definite action wants to provide in some way and to some extent the period of provision. In the same way in which acting man chooses among various kinds of want satisfaction within the same fraction of future time, he chooses also between want satisfaction in the nearer and in the remoter future. Every choice implies also a choice of a period of provision. In making up his mind how to employ the various means available for the removal of uneasiness, man also determines implicitly the period of provision.

7:37In the market economy, the demand of the consumers also determines the length of the period of provision. There are various methods available for a lengthening of the period of provision 1. The accumulation of larger stocks of consumers' goods destined for later consumption 2. The production of goods which are more durable 3. The production of goods requiring a longer period of production 4. The choice of methods of production consuming more time for the production of goods which could also be produced within a shorter period of production. The first two methods do not require any further comment.

8:26The third and the fourth methods must be scrutinized more closely. It is one of the fundamental data of human life and action that the shortest processes Processes of production, that is, those with the shortest period of production, do not remove felt uneasiness entirely. If all those goods which these shortest processes can provide are produced, unsatisfied wants remain and incentive to further action is still present. As acting man prefers those processes which, other things being equal, produce the products In the shortest time, only such processes are left for further action which consume more time.

9:13People embark upon these more time-consuming processes because they value the increment in satisfaction expected more highly than the disadvantage of waiting longer for their fruits. Boehm-Bawerk speaks of the higher productivity of roundabout ways of production requiring Requiring More Time It is more appropriate to speak of the higher physical productivity of production processes requiring more time. The higher productivity of these processes does not always consist in the fact that they produce, with the same quantity of factors of production expended, a greater quantity of products. More often it consists in the fact that they produce products which could not be produced at all in shorter periods of production.

10:06These processes are not roundabout processes. They are the shortest and quickest way to the goal chosen. If one wants to catch more fish, there is no other method available than the substitution of fishing with the aid of nets and canoes, for fishing without the aid of this equipment. There is no better, shorter and cheaper method for the production of aspirin known than that adopted by the chemical plants. If one disregards error and ignorance, there cannot be any doubt about the highest productivity and expediency of the processes chosen. If people had not considered them the most direct processes, namely those leading by by the shortest way to the end sought, they would not have adopted them.

10:58The lengthening of the period of provision through the mere accumulation of stocks of consumers' goods is the outcome of the desire to provide in advance for a longer period of time. The same is valid for the production of goods, the durability of which is greater in proportion to the greater expenditure of factors of production required. If the lengthening of durability were not at least proportionate to the increment in expenditure needed, it would be more advantageous to increase the quantity of units of a shorter durability. But if temporally remoter goals are aimed at, lengthening of the period of production is a necessary corollary of the venture.

11:45The end sought cannot be attained in a shorter period of production. The postponement of an act of consumption means that the individual prefers the satisfaction which later consumption will provide to the satisfaction which immediate consumption could provide. The choice of a longer period of production means that the actor values the product of the process bearing fruit only at a later date more highly than the products which a process consuming less time could provide. In such deliberations and the resulting choices, the period of production appears as waiting time. It was the great contribution of Jevons and Boehm-Bawerk to have shown the role played by taking account of waiting time.

12:37If acting men were not to pay heed to the length of the waiting time, they would never say that a goal is temporally so distant that one cannot consider aiming at it. with the alternative of choosing between two processes of production which render different output with the same input, they would always prefer that process which renders the greater quantity of the same products or better products in the same quantity, even if this result could be attained only by lengthening the period of production. Preference in input, which result in a more than proportionate increase in the product's duration of serviceableness, would unconditionally be deemed advantageous.

13:26The fact that men do not act in this way evidences that they value fractions of time of the same length in a different way, according as they are nearer or remoter from the instant of the actor's decision. Other things being equal, satisfaction in a nearer period of the future is preferred to satisfaction in a more distant period. Disutility is seen in waiting. This fact is already implied in the statement stressed in the opening of this chapter that man distinguishes the time before satisfaction is attained and the time for the duration of which there is satisfaction. If any role at all is played by the time element in human life, there cannot be any question of equal valuation of nearer and remoter periods of the same length.

14:23Such an equal valuation would mean that people do not care whether success is attained sooner or later. It would be tantamount to a complete elimination of the time element from the process of valuation. The mere fact that goods with a longer duration of serviceableness are valued more highly than those with a shorter duration does not yet in itself imply a consideration of time. A roof that can protect a house against the weather during a period of ten years is more valuable than a roof which renders this service only for a period of five years. The quantity of service rendered is different in both cases, but the question which we have to deal with is whether or not an actor, in making his choices, attaches to a service to be available in a later period of the future the same value he attaches to a service available at an earlier period.

15:252. Time preference as an essential requisite of action. The answer to this question is that acting man does not appraise time periods merely with regard to their dimension. His choices regarding the removal of future uneasiness are directed by the categories sooner and later. Time for man is not a homogeneous substance of which only length counts. It is not a more or a less in dimension. It is an irreversible flux, the fractions of which appear in different perspective according to whether they are nearer to or remoter from the instant of valuation and decision.

16:13Satisfaction of a want in the nearer future is, other things being equal, preferred to that in the farther distant future. Present goods are more valuable than future goods. Time preference is a categorical requisite of human action. No mode of action can be thought of in which satisfaction within a nearer period of the future is not, other things being equal, preferred to that in a later period. The very act of gratifying a desire implies that gratification at the present instant is preferred to that at a later instant. He who consumes a non-perishable good instead of postponing consumption for an indefinite later moment thereby reveals a higher valuation of present satisfaction as compared with later satisfaction.

17:10If he were not to prefer satisfaction in a nearer period of the future to that in a remoter period he would never consume and so satisfy once. He would always accumulate. He would never consume and enjoy. He would not consume today, but he would not consume tomorrow either, as the morrow would confront him with the same alternative. Not only the first step toward want satisfaction, but also any further step is guided by time preference. Once the desire A, to which the scale of values assigns the rank 1, is satisfied, one must choose between the desire B, to which the rank 2 is assigned, and C, that desire of tomorrow, to which, in the absence of time preference, the rank 1 would have been assigned.

18:05If B is preferred to C, the choice clearly involves time preference. Proposive striving after want satisfaction must needs be guided by a preference for satisfaction in the Nearer Future over that in a Remoter Future. The conditions under which modern man of the capitalist West must act are different from those under which his primitive ancestors lived and acted. As a result of the providential care of our forebears, we have at our disposal an ample stock of intermediate products, capital goods or produced factors of production, and of of Consumers' Goods. Our activities are designed for a longer period of provision, because we are the lucky heirs of a past which has lengthened, step by step, the period of provision, and has bequeathed to us the means to expand the waiting period.

19:04In acting, we are concerned with longer periods, and are aiming at an even satisfaction in in all parts of the period chosen as the period of provision. We are in a position to rely upon a continuing influx of consumers' goods, and have at our disposal not only stocks of goods ready for consumption, but also stocks of producers' goods, out of which our continuous efforts again and again make new consumers' goods mature. In our dealing with this increasing stream of income, says the superficial observer, there is no heed paid to any considerations related to a different valuation of present and of future goods.

19:51We synchronize, he asserts, and thus the time element loses any importance for the conduct of affairs. It is therefore pointless, he continues, in the interpretation of modern conditions to to resort to time preference. The fundamental error involved in this popular objection is caused, like so many other errors, by a lamentable misapprehension of the imaginary construction of the evenly rotating economy. In the frame of this imaginary construction, no change occurs. There prevails an unvarying course of all affairs. In the evenly rotating economy, consequently, nothing is altered in the allocation of goods for the satisfaction of wants in nearer and in remoter periods of the future.

20:44No one plans any change, because, according to our assumptions, the prevailing allocation best serves him, and because he does not believe that any possible rearrangement could improve his condition. So one wants to increase his consumption in a nearer period of the future, at the expense of his consumption in a more distant period, or vice versa, because the existing mode of allocation pleases him better than any other thinkable and feasible mode. The praxeological distinction between capital and income is a category of thought based on a Different Valuation of Want Satisfaction in Various Periods of the Future.

21:31In the imaginary construction of the evenly rotating economy, it is implied that the whole income, but not more than the income, is consumed, and that therefore the capital remains unchanged. An equilibrium is reached in the allocation of goods for want satisfaction in different periods of the future. It is permissible to describe this state of affairs by asserting that nobody wants to consume tomorrow's income today. We have precisely designed the imaginary construction of the evenly rotating economy in such a way as to make it fit just this condition. But it is necessary to realize that we can assert with the same apodictic assurance that And in the evenly rotating economy, nobody wants to have more of any commodity than he really has.

22:27These statements are true with regard to the evenly rotating economy because they are implied in our definition of this imaginary construction. They are nonsensical when asserted with regard to a changing economy, which alone is real. As soon as a change in the data occurs, the individuals are faced anew with the necessity of choosing both between various modes of want satisfaction in the same period and between want satisfaction in different periods. An increment can be either employed for immediate consumption or invested for further production. No matter how the actors employ it, their choice must needs be the result of a weighing of the advantages expected from one's satisfaction in different periods of the future.

23:22In the world of reality, in the living and changing universe, each individual in each of his actions is forced to choose between satisfaction in various periods of time. Some people consume all that they earn, others consume a part of their capital, others save a part of their income. Those contesting the universal validity of time preference fail to explain why a man does not always invest a sum of $100 available today, although these $100 would increase to $104 within a year's time. It is obvious that this man in consuming this sum today is determined by a judgment of value which values 100 present dollars higher than 104 dollars available a year later.

24:19But even in case he chooses to invest these 100 dollars, the meaning is not that he prefers satisfaction in a later period to that of today. It means that he values $100 today less than $104 a year later. Every penny spent today is precisely under the conditions of a capitalist economy in which institutions make it possible to invest even the smallest sums, a proof of the higher valuation of present satisfaction as compared with later satisfaction. The theorem of time preference must be demonstrated in a double way. First, for the case of plain saving, in which people must choose between the immediate consumption of a quantity of goods and the later consumption of the same quantity.

25:15Second, for the case of capitalist saving, in which the choice is to be made between the immediate consumption of a quantity of goods and the later consumption either of of a greater quantity or of goods which are fit to provide a satisfaction which, except for the difference in time, is valued more highly. The proof has been given for both cases. No other case is thinkable. It is possible to search for a psychological understanding of the problem of time preference. Existence and the pains caused by waiting are certainly psychological phenomena. One may approach their elucidation by referring to the temporal limitations of human life, to the individuals coming into existence, his growth and maturing, and his inevitable decay and passing away.

26:12There is in the course of man's life a right moment for everything, as well as a too early and a too late. However, the praxeological problem is in no way related to psychological issues. We must conceive, not merely understand. We must conceive that a man who does not prefer satisfaction within a nearer period of the future to that in a remoter period would never achieve consumption and enjoyment at all. Neither must the praxeological problem be confused with the physiological. He who wants to live to see the later day must first of all care for the preservation of his life in the intermediate period.

27:01Survival and appeasement of vital needs are thus requirements for the satisfaction of any wants in the remote or future. This makes us understand why, in all those situations in which bare life, in the strict sense of the term, is at stake, satisfaction in the nearer future is preferred to that in later periods. But we are dealing with action as such, not with the motives directing its course. In the same way in which, as economists, we do not ask why albumin, carbohydrates and and FAT are demanded by man, we do not inquire why the satisfaction of vital needs appears imperative and does not brook any delay.

27:48We must conceive that consumption and enjoyment of any kind presuppose a preference for present satisfaction to later satisfaction. The knowledge provided by this insight far exceeds the orbit for which the psychological All facts concerned provide explanation. It refers to every kind of want-satisfaction, not only to the satisfaction of the vital necessities of mere survival. It is important to stress this point because the term supply of subsistence available for advances of subsistence, as used by Boehm-Bawerk, can easily be misinterpreted. It is certainly one of the tasks of this is stocked to provide the means for a satisfaction of the bare necessities of life, and thus to secure survival.

28:40But besides, it must be large enough to satisfy, beyond the requirements of necessary maintenance for the waiting time, all those wants and desires which, apart from mere survival, are considered more urgent than the harvesting of the physically more abundant fruits of of Production Processes, Consuming More Time. Boehm-Bawerk declared that every lengthening of the period of production depends on the condition that a sufficient quantity of present goods is available to make it possible to over-bridge the lengthened average interval between the starting of preparatory work and the harvesting of its product. The expression sufficient quantity needs elucidation.

29:28It does not mean a quantity sufficient for necessary sustenance. The quantity in question must be large enough to secure the satisfaction of all those wants, the satisfaction of which, during the waiting time, is considered more urgent than the advantages which a still greater lengthening of the period of production would provide. If the quantity in question were smaller, a shortening of the period of production would appear advantageous. The increase in the quantity of products, or the improvement of their quality to be expected from the preservation of the longer period of production, would no longer be considered a sufficient remuneration for the restriction of consumption enjoined during the waiting time. Whether or not the supply of subsistence is sufficient does not depend and on any physiological or other facts open to objective determination by the methods of technology and physiology.

30:32The metaphorical term over-bridge, suggesting a body of water, the breadth of which poses to the bridge-builder an objectively determined task, is misleading. The quantity in question is valued by men, and their subjective judgments decide whether or not it is sufficient. Even in a hypothetical world in which nature provides every man with the means for the preservation of biological survival in the strict sense of the term, in which the most important foodstuffs are not scarce and action is not concerned with the provision for bare life, the phenomenon of time preference would be present and direct all actions.

31:19Time preference is not specifically human. It is an inherent feature of the behavior of all living things. The distinction of man consists in the very fact that with him, time preference is not inexorable, and the lengthening of the period of provision not merely instinctive, as with certain animals that store food, but the result of a process of valuation. It seems plausible to assume that the mere fact that interest is graduated in reference to periods of time should have directed the attention of the economists intent upon developing a theory of interest upon the role played by time.

32:10However, the classical economists were prevented by their faulty theory of value and their Their Misconstruction of the Cost Concept from Recognizing the Importance of the Time Element Economics owes the time preference theory to William Stanley Jevons and its elaboration, most of all, to Eugen von Boehm-Bawerk. Boehm-Bawerk was the first to formulate correctly the problem to be solved, the first to unmask the fallacies implied in the productivity theories, and is the first to stress the role played by the period of production, but he did not entirely succeed in avoiding the pitfalls in the elucidation of the interest problem.

32:55His demonstration of the universal validity of time preference is inadequate because it is based on psychological considerations. However, psychology can never demonstrate the validity of a praxeological theorem. It may show that some people or many people let themselves be influenced by certain motives. It can never make evident that all human action is necessarily dominated by a definite categorical element which, without any exception, is operative in every instance of action. The second shortcoming of Boehm-Bawerk's reasoning was his misconstruction of the concept of the period of production.

33:41He was not fully aware of the fact that the period of production is a praxeological category, and that the role it plays in action consists entirely in the choices acting man makes between periods of production of different length. The length of time expended in the past for the production of capital goods available today does not count at all. These capital goods are valued only with regard to their usefulness for future want satisfaction. The average period of production is an empty concept. What determines action is the fact that in choosing among various ways which can remove future uneasiness, the length of the waiting time in each case is a necessary element.

34:32It was an outcome of these two errors that Boehm-Bawerk in the elaboration of his theory did not entirely avoid the productivity approach which he himself had so brilliantly refuted in his critical history of the doctrines of capital and interest. These observations do not detract at all from the imperishable merits of Boehm-Bawerk's contributions. It was on the foundation laid by him that later economists, foremost among them Newt Wicksell, Frank Albert Fetter and Irving Fisher, were successful in perfecting the time preference theory. It is customary to express the essence of the time preference theory by saying that there prevails a preference for present over future goods.

35:23In dealing with this mode of expression, some economists have been puzzled by the fact that in some cases present uses are worth less than future uses. However, the problem raised by these apparent exceptions is caused merely by a misapprehension of the true state of affairs. There are enjoyments which cannot be had at the same time. A man cannot, on the same evening, attend performances of Carmen and of Hamlet. In buying a ticket, he must choose between the two performances. If tickets to both theatres for the same evening are presented to him as a gift, he must likewise choose. He may think, with regard to the ticket which he refuses, I don't care for it just now, or if only it had been later.

36:16However, this does not mean that he prefers future goods to present goods. He does not have to choose between future goods and present goods. He must choose between two enjoyments, both of which he cannot have together. This is the dilemma in every instance of choosing. In the present state of his affairs he may prefer Hamlet to Carmen. The different conditions of a later date may possibly result in another decision. The second seeming exception is presented by the case of perishable goods. They may be available in abundance in one season of the year and may be scarce in other seasons. However, the difference between ice in winter and ice in summer is not that between a present good and a future good.

37:10It is the difference between a good that loses its specific usefulness even if not consumed, and another good which requires a different process of production. Ice available in winter can only be used in summer when subjected to a special process of conservation. It is, in respect to ice utilizable in summer, at best one of the complementary factors required for production. It is impossible to increase the quantity of ice available in summer simply by restricting the consumption of ice in winter. The two things are, for all practical purposes, different commodities. The case of the miser does not contradict the universal validity of time preference.

38:00The miser, too, in spending some of his means for a scanty livelihood, prefers some amount

38:37The Trade of Undetermined Accidents Which Could Befall Him While Asleep 3. Capital Goods As soon as those present wants are sated, the satisfaction of which is considered more urgent than any provision for the morrow, people begin to save a part of the available supply of consumers' goods for later use. This postponement of consumption makes it possible to direct action toward temporally remoter ends. It is now feasible to aim at goals which could not be thought of before on account of the length of the period of production required. It is furthermore feasible to choose methods of production in which the output of products is greater per unit of input than in other methods requiring a shorter period of production.

39:32The sine qua non of any lengthening of the processes of production adopted is saving, that is, an excess of current production over current consumption. Saving is the first step on the way toward improvement of material well-being and toward every further progress on this way. The postponement of consumption and the accumulation of stocks of consumers' goods destined for or later consumption would be practiced even in the absence of the stimulus offered by the technological superiority of processes with a longer period of production. The higher productivity of such processes, consuming more time, strengthens considerably the propensity to save.

40:22The sacrifice made by restricting consumption in nearer periods of the future is henceforth not only counterbalanced by the expectation of consuming the saved goods in remoter periods, it also opens the way to a more ample supply in the remoter future, and to the attainment of goods which could not be procured at all without this sacrifice. If acting man, other conditions being equal, were not to prefer, without exception, consumption People eager to embark upon processes with a longer period of production must first accumulate, by means of saving, that quantity of consumers' goods which is needed to satisfy, during the and the Waiting Time, all those wants the satisfaction of which they consider more urgent than the increment in well-being expected from the more time-consuming process.

41:34Accumulation of capital begins with the formation of stocks of consumers' goods, the consumption of which is postponed for later days. If these surpluses are merely stored and kept for later consumption, they are simply wealth, or, more precisely, a reserve for rainy days and emergencies. They remain outside the orbit of production. They become integrated economically, not physically, into production activities only when employed as means of subsistence of workers engaged in more time-consuming processes. If expended in this way, they are physically consumed. But economically, they do not disappear. They are replaced first by the intermediary products of a process with a longer period of production, and then, later, by the consumer's goods which are the final product of these processes. All these ventures and processes are intellectually controlled by capital accounting, the acme of economic calculation in monetary terms.

42:45Without the aid of monetary calculation, men could not even learn whether, apart from the length of the period of production, a definite process promises a higher productivity than another. The expenditures required by various processes cannot be weighed against one another without the aid of monetary terms. Capital accounting starts with the market prices of the capital goods available for further production. Production, the sum of which it calls capital. It records every expenditure from this fund and the price of all incoming items induced by such expenditure. It establishes finally the ultimate outcome of all these transformations in the composition of the capital, and thereby the success or the failure of the whole process.

43:39It shows not only the final result, it mirrors also every one of its intermediary stages. It produces interim balances for every day such a balance may be required, and statements of profit and loss for every part or stage of the process. It is the indispensable compass of production in the market economy. In the market economy, production is a continuous, never-ending pursuit, split up into an immense variety of partial processes. Innumerable processes of production with different periods of production are in progress simultaneously. They complement one another, and at the same time are in rivalry with one another in competing for scarce factors of production.

44:31Continuously, either new capital is accumulated by saving, or previously accumulated capital is eaten up by overconsumption. Production is distributed among numerous individual plants, farms, workshops and enterprises, each of which serves only limited purposes. The intermediary products or capital goods, the produced factors of further production, change hands in the course of events. They pass from one plant to another until finally the consumer's goods reach those who use and enjoy them. The social process of production never stops. At each instant, numberless processes are in progress, Every single performance in this ceaseless pursuit of wealth production is based upon the saving and the preparatory work of earlier generations.

45:37We are the lucky heirs of our fathers and forefathers, whose saving has accumulated the capital goods with the aid of which we are working today. We favorite children of the age of electricity still derive advantage from the original saving of the primitive fishermen, who, in producing the first nets and canoes, devoted a part of their working time to provision for a remoter future. If the sons of these legendary fishermen had worn out these intermediary products, nets and canoes, without replacing them by new ones, they would have consumed capital, and and the process of saving and capital accumulation would have had to start afresh.

46:23We are better off than earlier generations because we are equipped with the capital goods they have accumulated for us. The businessman, the acting man, is entirely absorbed in one task only, to take best advantage of all the means available for the improvement of future conditions. He does not look at the present state of affairs with the aim of analyzing and comprehending it. In classifying the means for further production and appraising their importance, he adopts superficial rules of thumb. He distinguishes three classes of factors of production, the nature-given material factors, the human factor, labor and capital goods, the intermediary factors produced in the past.

47:14He does not analyze the nature of the capital goods. They are, in his eyes, means of increasing the productivity of labor. Quite naively, he ascribes to them productive power of their own. He does not trace their instrumentality back to nature and labor. He does not ask how they came into existence. They count only as far as they may contribute to the success of his efforts. This mode of reasoning is all right for the businessman, but it was a serious mistake for the economists to agree with the businessman's superficial view. They erred in classifying capital as an independent factor of production along with the nature-given material resources and labor.

48:04The capital goods, the factors of further production produced in the past, are not an independent factor. They are the joint products of the cooperation of the two original factors, nature and labor, expended in the past. They have no productive power of their own. Neither is it correct to call the capital goods labor and nature stored up. They are rather labor, nature and time stored up. The difference between production without the aid of capital goods and that assisted by the employment of capital goods consists in time. Capital goods are intermediary stations on the way leading from the very beginning of production to its final goal, the turning out of consumers' goods.

48:58He who produces with the aid of capital goods enjoys one great advantage over the man who starts without capital goods. He is nearer in time to the ultimate goal of his endeavors. There is no question of an alleged productivity of capital goods. The difference between the price of a capital good, for example, a machine, and the sum of the prices of the complementary original factors of production required for its reproduction is entirely due to the time difference. He who employs the machine is nearer the goal of production. The period of production is shorter for him than for a competitor who must start from the beginning.

49:45In buying a machine, he buys the original factors of production to be expended in its reproduction plus time, that is, the time by which his period of production is shortened. The value of time, that is, time preference or the higher valuation of want satisfaction in nearer periods of the future as against that in remoter periods, is an essential element in human action. It determines every choice and every action. There is no man for whom the difference between sooner and later does not count. The time element is instrumental in the formation of all prices of all commodities and services.