Prices, and Production: Lecture III, Part II
Once again, as done in previous
lectures, we shall analyze the results of a scenario where consumers
decide to save, and accordingly invest a larger portion of their
income than before; however, here we shall see the effects the price
of goods will have on the entire structure of production. As in the
earlier elucidation, there will be an increased demand for producers'
goods, and a decreased for consumers' goods that will result in a
relative rise in the prices of the former compared with the latter.
Nevertheless, the prices of producers' goods will not rise equally,
nor even without exception; instead, they will be effected by their
position in the structure of production.
The prices of producers' goods will be
greatly effected by the prices of the goods in the next stage of
production, and when the demand for consumers' goods decreases there
will be a narrowing in the price margins between the stages resulting
from a shift in the funds used in each stage. In addition, the stages
of production that are closer to the finished goods will be effected
by the falling prices for consumers' goods with greater influence
than the stages of production closer to the original means of
production. As the prices fetched for consumer goods decrease, those
for the producers' products adjacent to them will similarly, and some
of the funds used there will be shifted to earlier stages, which are
now more profitable than the later ones, resulting in the narrowing
of the price margins between the different stages. This shift will
overcome the tendency towards a fall in the prices for the producers'
goods in earlier stages as the funds arriving from the later stages
creates a tendency for a rise in prices. Generalizing the above, the
rise in the price of a product in any stage of production will result
in a greater bounty of profits to be made in the preceding stage, and
hence boost its production, and as funds are sent to earlier stages
of production, entrepreneurs there will begin purchasing more
producers' goods from the earlier stage, resulting in an increased
price there. In the end, through the fall of the prices in later
stages, and the rise of those in earlier, the price margins
throughout the entire structure of production will have decreased.
Other results will be that nonspecific
producers' goods will be attracted towards the earlier stages, which
will continue until the diminution of returns there has equaled the
profits to be made in all stages, and the general narrowing of price
margins will make it possible to start production in new, and more
distant stages that have hitherto been unprofitable. With specific
producers' goods though, the effects are not as straight forward as
they are with nonspecific ones, because they will be effected by the
alteration in the entire structure of production, since they can be
used only in specific roes. If a specific producers' good is adapted
to a later stage, then its return will diminish as their supply
remains constant as the demand diminishes, and its production will be
curtailed, and the entire process is logically vice versa for those
adapted to the earlier states. Further, the additional stages created
as a result of increased investment will most likely require new
specific goods, including natural resources unprofitable to utilize
prior. Not only will the transition of the structure of production
into a more capitalistic process effect the price margins between the
stages, but it will also effect the types of producers' goods
demanded, and used.
.Overall, the prices that goods in any
stage of production are able to demand are important factors in
determining the structure of production for if one stage is booming,
then it will then require a greater supply of goods for antecedent
stages, thus making business good for those as well. Furthermore,
when the prices of consumer goods decline, then the finances used in
the later stages will be reinvested in the structure of production
thus stimulating earlier stages, rising the prices of the producers'
goods manufactured there, and therefore lowering the price margins
throughout the entire structure of production, which will accordingly
effect the markets for both nonspecific, and specific producers'
goods. Finally, we have arrived to the point at which the title
Prices, and Production
finally makes sense.