The latest daily blog gives a brief summary of the progression of the Austrian school, and mentions that Menger bleieved that the demand for higher order goods stems directly from the demand for lowest order goods. It seems that the idea's of Menger conflict with the theories later put forth by Hayek. Hayek explains that this holds true primarily for the lower phases of production, that an increased demand solely for the lowest order goods will cause a consolidation in the structure of production. Market actors will see relative price changes in favor of consumption goods and will begin allocating factors towards the production of such goods, and thus, will benefit the lower phases relative to the higher phases. If Hayek is right, at least as I understand him (maybe I don't), it would seem that the demand for lowest order goods necessarily diminishes the demand for the highest order goods, either relatively or absolutely. Is this well-known? Do Austrians still accept Menger's observation? Or is it an ancient relic of the past?
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Esuric:Hayek explains that this holds true primarily for the lower phases of production, that an increased demand solely for the lowest order goods will cause a consolidation in the structure of production.
Remeber that here Hayek assumes that there is no growth in the amount of resources available in the economy; hence, when there is an increased demand for the products in the lower stages of production, resources are reallocated there, and that reallocation, not the increased demand per se, that results in a shorter structure of production. In fact, I believe that your question can be resolved by the fact that Hayek's analysis of the structure of production (at least in Prices, and Production) assumed that the resources available to the economy was constant; however, if this does not answer your question, do say so with a detail of why you don't think it does for I must admit that it seems to straighten out the matter, alas I can be wrong.
Abstract liberty, like other mere abstractions, is not to be found.
- Edmund Burke
laminustacitus:Remeber that here Hayek assumes that there is no growth in the amount of resources available in the economy; hence, when there is an increased demand for the products in the lower stages of production, resources are reallocated there, and that reallocation, not the increased demand per se, that results in a shorter structure of production. In fact, I believe that your question can be resolved by the fact that Hayek's analysis of the structure of production (at least in Prices, and Production) assumed that the resources available to the economy was constant; however, if this does not answer your question, do say so with a detail of why you don't think it does for I must admit that it seems to straighten out the matter, alas I can be wrong.
I may be confusing the causal process; but I’ve understood the reallocation of the original means of production to the lower phases as a result of an increased demand (therefore higher prices), of consumer’s goods relative to producer’s goods. An increased demand for consumption implies an increase in time-preference, meaning a lower savings rate and a higher rate of interest. This overconsumption condition translates into higher marginal costs for the entire economy and a consolidation of the structure of production, as there is a relative price decrease in producer's goods. If the opposite condition holds true, namely when the demand for producer’s goods rises relative to consumer’s goods, there will be a relative price increase in intermediary products, and a lower rate of interest (increased time preferences), allowing for this lengthening, more roundabout capital intensive process. So I do think it’s a demand issue, and that recessions are caused by over-consumption and a lack of investment. There has to be a trade-off between demand for lower order goods and demand for higher order goods, or between consumption and savings. This seems to be contradicting Menger. I may have entirely missed your point though. Also, when you say resources, are you talking about the original means of production? Because I do believe that’s relatively fixed.