Currently I'm reading extensively Roger Garrison's "Time and Money" in preparation for my upcoming Macroeconomics class (I'm sure all of you would agree its always best to argue against mainstream graphs with your own graphs). However, while I understand fully the sequence of events in the ABCT, I keep having trouble comprehending what constitutes a "higher order good" that entrepreneurs would invest in due to low interest rates from a "lower order good" that constitutes what consumers demand (and the subsequent tug of war with F.O.P). I believe my confusion (and hopefully others) can be best illustrated by a quote from Time and Money (p. 47)
The time dimension that makes an explicit appearance on the horizontal leg of the Hayekian triangle has a double interpretation. First, it can depict goods in process moving through time from the inception to the completion of the production process. Second, it can represent the separate stages of production, all of which exist in the present, each of which aims at consumption at different points in the future.
By the first bolded statement, I assume Garrison means the process of a good being constructed throughout time (such as the building of a new mall or the development of a new toothbrush), and by the second he means the stages of production (he lists examples such as mining, refining, and manufacturing being in the earlier stages, while distributing and retailing are in the later stages). In terms of the second interpretation (which Garrison says is easiest to best understand the business cycle), a boom into higher order goods would be in industries such as mining, refining, and manufacturing, due to their time discount (lower interest rates increase their value) and not distributing and retailing.The boom occurs in those stages because they are most far removed from consumption, as we all know.
However, (and this is where my confusion starts), if we were to use the first interpretation of the triangle, then it seems as though the areas where malinvestment can occur (once the "smokestack" industries of mining, refining, and manufacturing plants) is now different. By concentrating on the construction of a new mall in its rudimentary forms, which due to low interest rates now becomes heavily profitable, i get confused because some construction like this clearly belongs in the "retailing" aspect of the second interpretation. Same with the research and development behind a new toothbrush. Clearly these are very remote from the consumer, the mall will not be built for 5-10 years and the toothbrush is still in the drawing board with scientists working on it. But they are still projects in consumer goods industries, which are in the later stages (as opposed to the "smokestack" capital goods industries)
In short, if I'm understanding the two interpretations (please critique if I don't), which one is it? In the first interpretation, construction of a new mall and toothbrush R&D are temporally remote from the consumer, where in the second interpretation, their construction is clearly in the consumer goods industries of the later stages of production. This confusion over capital has frustrated me for the longest time. Sometimes my mind will wonder over what constitutes a higher order good and I always run into dead ends because interpretations seem to contradict each other.
My only solution to the problem is that a good, development of something, etc, etc is a higher order good and in the earlier stages of the Hayekian triangle subject to malinvestment when the time discount effect (when a lowering of the interest rate increases the profitability of the project) is greater than the derived demand of a good (when a decrease in consumption will reduce the profitability of a project).I understand that a higher order good can praxeologically be described as a capital good, or one which is indirectly serviceable to the economic actor (see Rothbards MES chapter 1 for his classification of goods into consumer goods and FOP), but when describing the business cycle more explanation is nessary because we are dealing with different goods in different stages of production.
Hopefully I'm articulating my points clearly (and the two interpretations correctly). What are your thoughts?
BlackNumero: where in the second interpretation, their construction is clearly in the consumer goods industries of the later stages of production.
I think there are some good reasons to stumble over this because a mall can be both considered an intermidiary (capital) good, and a consumer good. It is used as a physical facility to house different retailers for the purpose of selling consumer goods, and it is used as a general recreational area to just hang out.
DD5: BlackNumero: where in the second interpretation, their construction is clearly in the consumer goods industries of the later stages of production. I think there are some good reasons to stumble over this because a mall can be both considered an intermidiary (capital) good, and a consumer good. It is used as a physical facility to house different retailers for the purpose of selling consumer goods, and it is used as a general recreational area to just hang out. I guess those distinctions can be drawn depending on who the economic agent is, but that is all just praxeological (For consumers it is a good which directly satisfies, we "hang out with friends"; for the owners it is a capital good because they built it for an indirect purpose-to make other goods, i.e money). At least to my understanding of the ABCT, the investment into the "capital goods" industries does not simply mean any capital good, but those of a "higher order" (and my original question goes to my definition of one where the time discount or interest rate effect dominates over representative investment or derived demand). A Capital good can range from an industrial power plant to a shopping cart constructed for a grocery store. Based on my understanding of a general ABC only one of those would constitute a higher order good of malinvestment. So if, during a period of decreased consumption, construction of a mall seems more profitable (the lower interest rates beat out the derived demand of less people spending at the malls-for now), the mall is a higher order good. However, if higher interest rates despite increased consumption the construction seems less profitable, then the construction in fact belongs in the later/lower stages of production. Therefore, it seems that during a boom of artificially low interest rates (interest rates that during periods of actual saving beat out derived demand), then the construction of a mall will in fact be a malinvestment that is unsustainable as resources are fought between temporal stages of production. Hopefully I'm doing the analysis of goods right. It seems that the distinction between higher order goods and lower order goods (T.D >D.D) changes depending on the increase/decrease in interest rates. In the past decade or so, with mega low interest rates, many goods fell into this distinction as the T.D effect became much greater than the derived demand effect. Thoughts? | Post Points: 20
I guess those distinctions can be drawn depending on who the economic agent is, but that is all just praxeological (For consumers it is a good which directly satisfies, we "hang out with friends"; for the owners it is a capital good because they built it for an indirect purpose-to make other goods, i.e money).
At least to my understanding of the ABCT, the investment into the "capital goods" industries does not simply mean any capital good, but those of a "higher order" (and my original question goes to my definition of one where the time discount or interest rate effect dominates over representative investment or derived demand). A Capital good can range from an industrial power plant to a shopping cart constructed for a grocery store. Based on my understanding of a general ABC only one of those would constitute a higher order good of malinvestment. So if, during a period of decreased consumption, construction of a mall seems more profitable (the lower interest rates beat out the derived demand of less people spending at the malls-for now), the mall is a higher order good. However, if higher interest rates despite increased consumption the construction seems less profitable, then the construction in fact belongs in the later/lower stages of production. Therefore, it seems that during a boom of artificially low interest rates (interest rates that during periods of actual saving beat out derived demand), then the construction of a mall will in fact be a malinvestment that is unsustainable as resources are fought between temporal stages of production.
Hopefully I'm doing the analysis of goods right. It seems that the distinction between higher order goods and lower order goods (T.D >D.D) changes depending on the increase/decrease in interest rates. In the past decade or so, with mega low interest rates, many goods fell into this distinction as the T.D effect became much greater than the derived demand effect. Thoughts?
BlackNumero:However, if higher interest rates despite increased consumption the construction seems less profitable, then the construction in fact belongs in the later/lower stages of production.
No, I don't see why interest rate would affect what you would constitute as higher order or lower order.
Assume the economy is its final ERE state, where time preference is held constant and the ratio between consumption and saving is constant. In such an economy, the amount of savings is just enough to maintain the current structure of production. No new malls will be built, for there is no net savings which can finance any such project.
When net social time preference decreases and interest rate drops, the construction of a new mall appear to be profitable again. This agrees with the notion that a mall is a higher order good.
Now consider the reverse. Time preference increases and the rate of interest increases. Savings have been diverted to consumption and a portion of the previous existing capital goods will not be able to continue to be maintained/renewed. A new mall not only appears to be unprofitable, but existing malls which earned interest in the ERE now may seem to be unprofitable for the future. So this also seems to agree with the mall being higher order good.
The mall is affected by lower and higher interest rates like any other higher order good. Profitable when interest rates drop. New malls will be built. Not profitable when interest rates rise. New malls will not be built and existing malls may liquidate.
After rereading your post and my reply I believe that I was incorrect in stating interest rates determine whether a good is of a higher order or not. Although specific interest rates do not determine whether a good is of higher order or not, I think that they do determine where the malinvestment will occur. Although the profitability of malls increase with lower interest rates (or so we think, just for the sake of example), a injection of federal reserve credit that reduces the interest rate to 5% would not encourage the construction of malls which require a 3% interest rate to be profitable. I guess what I was trying to say was that the lower the interest rate, the more possible malinvestments there are too make as the profitability of more goods increases with a lower interest rate.
To summarize:
When the Time Discount effect is greater than the Derived Demand effect, a good is of the higher order (and subject to malinvestment).
When the Derived Demand effect is greater than the Time Discount effect, a good is of the lower order (and not subject to malinvestment)
Hopefully these definitions and specifications are not things I'm contriving, but different ways of saying what Austrians describe somewhere in their writings. I feel as though this is a major source of confusion for people as there seems to be alot of talk about consumer durables, durability of capital, stages of production, and other complexities of malinvestment goods that get people into arguments as to what goods can experience an Austrian bubble. Whenever I read explanations of the business cycle, I frequently hear about businessmen investing in higher order goods, but with no explanation as to what actually characterizes a higher order good
Anyone?
"By the first bolded statement, I assume Garrison means the process of a good being constructed throughout time (such as the building of a new mall or the development of a new toothbrush), and by the second he means the stages of production (he lists examples such as mining, refining, and manufacturing being in the earlier stages, while distributing and retailing are in the later stages)."
I just finished watching his power point presentation on macroeconomics and got the impression he was just depicting the Hayakian (sp?) triangle differently. He just erased the vertical lines depicting the various stages and continued on, but added them back in later when they aided the presentation.
But I could be wrong as I'm new at all this.
JeffB: "By the first bolded statement, I assume Garrison means the process of a good being constructed throughout time (such as the building of a new mall or the development of a new toothbrush), and by the second he means the stages of production (he lists examples such as mining, refining, and manufacturing being in the earlier stages, while distributing and retailing are in the later stages)." I just finished watching his power point presentation on macroeconomics and got the impression he was just depicting the Hayakian (sp?) triangle differently. He just erased the vertical lines depicting the various stages and continued on, but added them back in later when they aided the presentation. But I could be wrong as I'm new at all this.
I'm not necessarily saying Garrison is contradicting himself when he writes those, I know Garrison explicitly states the triangles are heuristic devices used to illustrate a theory more clearly. Its impossible to include all of the complexities of the structure of production-durability of capital goods, durable consumer goods, goods jumping across stages and then back, etc etc all in one diagram (or any amount of diagrams, because the stages of production and inter-temporal production/consumption are so immense and change constantly with people everyday that it becomes an impossible task. Garrison's main point is that the triangles depict the essential time element-the element that characterizes both depictions of the triangle (production of a good and the stages of production that characterize the macroeconomy) .
I think this is something particularly intriguing and important because these two depictions of the "structure of production" that Austrians use so much in their writings force us to specify and define exactly what constitutes a higher order good from a lower order good. Too often when I hear people describing the business cycle I hear repeatedly about "higher order goods", "capital goods industries", and some "consumer durables" experiencing malinvestment as opposed to the "consumer goods industries" and other activities "temporally close to providing consumption in the near future" which consumers continue to demand which initiates the tug of war for resources and loanable funds without actually describing what differentiates capital goods and consumer durables in the "early stages" from capital goods and consumer durables in the "late stages".
BlackNumero: I think this is something particularly intriguing and important because these two depictions of the "structure of production" that Austrians use so much in their writings force us to specify and define exactly what constitutes a higher order good from a lower order good. Too often when I hear people describing the business cycle I hear repeatedly about "higher order goods", "capital goods industries", and some "consumer durables" experiencing malinvestment as opposed to the "consumer goods industries" and other activities "temporally close to providing consumption in the near future" which consumers continue to demand which initiates the tug of war for resources and loanable funds without actually describing what differentiates capital goods and consumer durables in the "early stages" from capital goods and consumer durables in the "late stages".
I think I may have given a bad link for the power point presentation Garrison gave as posted on YouTube. If interested try: www.youtube.com/watch?v=zhoFOyy7rbo
As I said earlier, I'm a real newbie and haven't heard the terms "higher order good" or "lower order good" in this context, but if it is the same as "capital goods and consumer durables in the 'early stages' from capital goods and consumer durables in the 'late stages'" I think the aformentioned YouTube segment will be beneficial for you. It certainly made things clear to me very quickly. He doesn't give any specific definitions on those terms, so it may not be exactly what you are looking for, but from my standpoint exact definitions didn't really matter. The point he was making about them came out loud and clear.
My apologies in advance if I'm misunderstanding what you are looking for, but it might be worth your while to check out that video.
Key to understanding Austrian capital theory is the notion that a particular "good" does not have some well defined objective order (by order, I mean higher order versus lower order), but rather, a good’s order is defined by its intended use by an individual. As a simple example, consider a truck. I might think that a truck is a good of the first order (i.e. a good of the lowest order or a consumption good) since I simply enjoying driving it around (the fact that this truck is a durable first order good does not change anything in principle). However, a firm would likely consider a truck a second or third order good, as the truck could be used to transport goods from one location to another, the final "goal" being the sale of those goods once they reach their desired destination. In this case the truck is an extra couple of steps away from the firm's final goal, and thus, it is a higher order good. Consequently, one needs to bear in mind that a goods "objective" characteristics do not determine whether it is a higher or lower order good; only its intended use can.Now, as far as capital theory and the Austrian business cycle is concerned, it would perhaps be best to think of "investment into higher order goods" (particularly within a Hayekian triangle framework) as "investment into lines of production that will take, on the whole, longer to complete." When one chooses to produce higher order goods, as opposed to lower order goods, one chooses a more "roundabout" means towards one's end (as the sole purpose of production is the creation of goods of the first order, i.e. consumption goods). In the Hayekian triangle framework, this means that one is deciding to produce consumption goods in a more roundabout way, or put differently, one is forgoing some possible consumption now, to get more consumption later.I usually find that concrete examples help me understand general ideas, so let's imagine a simple economy where consumers only demand haircuts. Some given stock of higher order goods (chairs, scissors, combs etc.), already exist. We also have ten units of labour to use in production. What should we do? Well, we could commit all ten units of labour to current production of haircuts. However, note that at some future point the scissors would begin to become dull, which means that in the future we may have to forego consumption to repair them. If we want to make sure that we have a constant supply of haircut output, then that means we need to invest at least one unit of labour now in the production of scissors, so that when those scissors begin to dull, we have new scissors to replace them. The choice to make new scissors now would be an investment in a higher order good.Now, the aforementioned allocation might allow for a constant output of haircuts, but we might also want to reallocate this labour stock in such a way so that the output of haircuts increases in the future (or becomes of better quality). So, perhaps one labourer could go to barber school (thereby leaving us with only 8 workers to give current haircuts), but when he returns from barber school, he would be able to give more haircuts per unit of time (he knows how to cut hair more efficiently). In the future, there would be more output per period, but to get there we have to give up some current consumption while the worker goes to school. Of course, there are other options available to improve on future output as well. For example, we might have two units of labour start building a curling iron, while another worker would start working on hair dye, and another would begin designing fancy razor blades for shaving. If we invest in this manner, only five workers would be left for providing current haircuts, while 5 workers would be working on equipment that, when finished, will give better quality haircuts. Again, we would be better off in the future (if we value these improvements), but are worse off (than we otherwise could have been) now, since only five workes are giving current haircuts. However, malinvestment may occur when the above is pursued, if, say, consumers do not actually enjoy hair dye, or more likely, they would have rather had more low quality haircuts now, as opposed to better quality haircuts later. The actual form that the malinvested goods will take will vary, of course, but the generally theme is that there will be intertemporal discoordination of production. Some labourers should have continued making current haircuts, as opposed to making improvements to future haircuts.
Hope that helps. If you're looking for some other aids on understanding Austrian Capital Theory, I'd recommend taking a look at either Mark Skousen's The Structure of Production (very good, and straightforward, read) or Ludwig Lachman's Capital and its Structure (not so straightforward, but also makes Hayek's capital theory make more sense).
Sam Silverspring: Key to understanding Austrian capital theory is the notion that a particular "good" does not have some well defined objective order (by order, I mean higher order versus lower order), but rather, a good’s order is defined by its intended use by an individual. As a simple example, consider a truck. I might think that a truck is a good of the first order (i.e. a good of the lowest order or a consumption good) since I simply enjoying driving it around (the fact that this truck is a durable first order good does not change anything in principle). However, a firm would likely consider a truck a second or third order good, as the truck could be used to transport goods from one location to another, the final "goal" being the sale of those goods once they reach their desired destination. In this case the truck is an extra couple of steps away from the firm's final goal, and thus, it is a higher order good. Consequently, one needs to bear in mind that a goods "objective" characteristics do not determine whether it is a higher or lower order good; only its intended use can.
Key to understanding Austrian capital theory is the notion that a particular "good" does not have some well defined objective order (by order, I mean higher order versus lower order), but rather, a good’s order is defined by its intended use by an individual. As a simple example, consider a truck. I might think that a truck is a good of the first order (i.e. a good of the lowest order or a consumption good) since I simply enjoying driving it around (the fact that this truck is a durable first order good does not change anything in principle). However, a firm would likely consider a truck a second or third order good, as the truck could be used to transport goods from one location to another, the final "goal" being the sale of those goods once they reach their desired destination. In this case the truck is an extra couple of steps away from the firm's final goal, and thus, it is a higher order good. Consequently, one needs to bear in mind that a goods "objective" characteristics do not determine whether it is a higher or lower order good; only its intended use can.
I understand the subjectivity of a good, like I illustrated with the case of a mall (consumer good for spending leisure time for shoppers, capital good for owners). Even using my definition as a higher order good as one where the T.D effect is greater than the D.D effect is completely subjective, because someone could build a mining plant for pure enjoyment (highly unlikely) and the D.D effect would dominate, or build it to produce raw resources, refine minerals, etc etc, in which case the time discount effect would dominate.
Sam Silverspring:Now, as far as capital theory and the Austrian business cycle is concerned, it would perhaps be best to think of "investment into higher order goods" (particularly within a Hayekian triangle framework) as "investment into lines of production that will take, on the whole, longer to complete." When one chooses to produce higher order goods, as opposed to lower order goods, one chooses a more "roundabout" means towards one's end (as the sole purpose of production is the creation of goods of the first order, i.e. consumption goods). In the Hayekian triangle framework, this means that one is deciding to produce consumption goods in a more roundabout way, or put differently, one is forgoing some possible consumption now, to get more consumption later.
Even with this type of description of the ABC (temporally remote to current consumption, temporally close, etc etc), the type of distinction between higher order/lower and "longer" and "shorter" does not particularly satisfy me because those terms are extremely arbitrary and not scientific when looking at the economy from a macro point of view. Using those terms, especially when factoring in consumer durables as opportunities for malinvestment, seems to muddle down the matter and make things hard to understand when dissecting certain goods and industries. Not to mention when you take in Garrison's first listed interpretation of the triangles the issue is compounded greatly. Its because of this that I looked to the D.D and T.D effects Roger Garrison illustrates in his power points, book, and lectures (thank you JeffB for the presentation). When Garrison is talking about capital restructuring and labor market adjustments, he makes my points the most clear (p. 64).
"The increased saving can be seen as having two separate effects on labor demand. The two concepts at play here, already discussed in the context of the Hayekian triangle itself, are derived demand and time discount. (1) Labor demand is a derived demand...For stages of production sufficiently close to final output, this effect dominates...(2) Like all factors of production in a time-consuming production process, labor is valued at a discount...in the late stages of production, this effect is negligible; in the earliest stages of production, it dominates. Two two effects, then, work in opposite directions - with the maginitude of the time-discount effect increasing with temporal remoteness from the final stage of production. Together, they change the shape of the Hayekian triangle. The intersection of the two hypotenuses (that characterize the capital structure before and after the intertemporal preference change) marks the point where the two effects just offset one another.'
I'm not trying to make this an obsession with Garrison's interpretation of the triangles, similar phenomena in terms of intertemporal restructuring is shown in Mark Skousen's book (APS) and in Rothbard's interpretation of the production structure (as seen in the Structure of Production and in MES). So, according to this then, expansion in the "earlier stages farther from consumption" includes goods and industries where the Time Discount effect dominates and the earlier stages is the opposite.
It may not be possible, but is it possible to write your question out in a 4 or 5 sentence paragraph.
my gut is telling me you have a pretty good grasp of things, and if anything you may just be finding yourself frustrated at an inability to make (falsely) precise judgements like econometricians, and more positivist economists like to make.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
nirgrahamUK: It may not be possible, but is it possible to write your question out in a 4 or 5 sentence paragraph. my gut is telling me you have a pretty good grasp of things, and if anything you may just be finding yourself frustrated at an inability to make (falsely) precise judgements like econometricians, and more positivist economists like to make.
Sure thing, thanks for helping. Hopefully this is short enough.
Basically my confusion/questioning comes from (in my opinion), the imprecise and hard to apply definitions of Overinvestment in "higher order goods", "capital goods industries", "earlier stages" and Overconsumption in "lower order goods", "consumer goods industries", and "later stages" etc etc because they are not really specific enough and don't take in all the complexities of things like consumer durables. In terms of the ABCT, what is the dividing line between "capital goods industries" and "consumer goods industries"? What "consumer durables", which many Austrians say are "higher order investment goods" are actually "higher order" instead of "lower order" like most consumer goods? Since every consumer good has some sort of durability for that matter, we can't say all consumer durables are higher order investments, or else that would include all consumer goods! (MES p. 16, footnote 16 on the consumer durable). When taking in both definitions, from my understanding of the Hayekian triangle:
A Higher order good is one where the Time Discount effect (decrease in interest rate increases profitability) is greater than the Derived Demand effect (decrease in consumption reduces investment in those areas). This is where the Overinvestment and its expansion of stages occurs.
And a lower order good is the opposite. This is where the Overconsumption and its expansion of stages occurs.
My question is, although for linguistic purposes in an essay aren't appealing terms, are these the correct ways to precisely (even then, its hard for that matter) define the distinction between the two lines of production across time?
Anyone? Hopefully I made my argument clear enough
I think it would be wrong to categorise goods as higher order and lower order based on what effects bear on them to whatever degrees under certain conditions.
goods are higher order and lower order based on the subjective considerations of those who utilise them in their plans.
Menger: But we have not yet exhausted the list of things whose goods-character we recognize. For in addition to goods that serve our needs directly (and which will, for the sake of brevity, henceforth be called “goods of first order”) we find a large number of other things in our economy that cannot be put in any direct causal connection with the satisfaction of our needs, but which possess goods-character no less certainly than goods of first order. In our markets, next to bread and other goods capable of satisfying human needs directly, we also see quantities of flour, fuel, and salt. We find that implements and tools for the production of bread, and the skilled labor services necessary for their use, are regularly traded. All these things, or at any rate by far the greater number of them, are incapable of satisfying human needs in any direct way—for what human need could be satisfied by a specific labor service of a journeyman baker, by a baking utensil, or even by a quantity of ordinary flour? That these things are nevertheless treated as goods in human economy, just like goods of first order, is due to the fact that they serve to produce bread and other goods of first order, and hence are indirectly, even if not directly, capable of satisfying human needs. The same is true of thousands of other things that do not have the capacity to satisfy human needs directly, but which are nevertheless used for the production of goods of first order, and can thus be put in an indirect causal connection with the satisfaction of human needs. These considerations prove that the relationship responsible for the goods-character of these things, which we will call goods of second order, is fundamentally the same as that of goods of first order. The fact that goods of first order have a direct and goods of second order an indirect causal relation with the satisfaction of our needs gives rise to no difference in the essence of that relationship, since the requirement for the acquisition of goods-character is the existence of some causal connection, but not necessarily one that is direct, between things and the satisfaction of human needs.
But we have not yet exhausted the list of things whose goods-character we recognize. For in addition to goods that serve our needs directly (and which will, for the sake of brevity, henceforth be called “goods of first order”) we find a large number of other things in our economy that cannot be put in any direct causal connection with the satisfaction of our needs, but which possess goods-character no less certainly than goods of first order. In our markets, next to bread and other goods capable of satisfying human needs directly, we also see quantities of flour, fuel, and salt. We find that implements and tools for the production of bread, and the skilled labor services necessary for their use, are regularly traded. All these things, or at any rate by far the greater number of them, are incapable of satisfying human needs in any direct way—for what human need could be satisfied by a specific labor service of a journeyman baker, by a baking utensil, or even by a quantity of ordinary flour? That these things are nevertheless treated as goods in human economy, just like goods of first order, is due to the fact that they serve to produce bread and other goods of first order, and hence are indirectly, even if not directly, capable of satisfying human needs. The same is true of thousands of other things that do not have the capacity to satisfy human needs directly, but which are nevertheless used for the production of goods of first order, and can thus be put in an indirect causal connection with the satisfaction of human needs. These considerations prove that the relationship responsible for the goods-character of these things, which we will call goods of second order, is fundamentally the same as that of goods of first order. The fact that goods of first order have a direct and goods of second order an indirect causal relation with the satisfaction of our needs gives rise to no difference in the essence of that relationship, since the requirement for the acquisition of goods-character is the existence of some causal connection, but not necessarily one that is direct, between things and the satisfaction of human needs.
Menger: In the previous section, we saw that a causal relationship between a thing and the satisfaction of human needs is one of the prerequisites of its goods-character. The thought developed in this section may be summarized in the proposition that it is not a requirement of the goods-character of a thing that it be capable of being placed in direct causal connection with the satisfaction of human needs. It has been shown that goods having an indirect causal relationship with the satisfaction of human needs differ in the closeness of this relationship. But it has also been shown that this difference does not affect the essence of goods-character in any way. In this connection, a distinction was made between goods of first, second, third, fourth, and higher orders.