The Futility of Utility – Producers

How rational is it to divide economic agents into consumers and producers? Is there any noticeable divide between the process of consumption and production? I believe and will try to prove that the answer to the first question should be – it is not rational and to the second question – no. Of course, the final stage of any production process is consumption and consumption is always the initial stage of production. Consumption and production are inseparable; one would not exist without the other. Every person is a producer. It does not matter at all whether that person works independently or within a firm carrying out the orders of a manager. In the latter case the person will receive their share of the product in the form of a salary. The person agrees to become a hired worker if remuneration for their labour is higher than in the case of independent activity. In other words, when working in a firm, the person generates more products and their productivity is higher. Having completed the production process, the person consumes the product made or exchanges it for other goods. It is not rational to see the firm as a kind of isolated mechanism or a black box that is exclusively engaged in the production process. The firm not only produces, but also consumes, resources for example. Becker believes that the distinguishing feature of a firm is the lack of freedom of the hired worker; firms have control over the worker and his or her time. And what does this change?

The worker agrees to this not at gunpoint, but because it is beneficial to him or her also. A firm is a voluntary association of free producers who agree to fulfill the commands of a manager. The aim of this association is to increase the consumption of each worker. Bohm-Bawerk insists that the distinguishing feature of a firm is the presence of capital and a long process (roundabout, Produktionsumwege (Ger.)) of production. However, in his very own words, capital is nothing more than an intermediate product, the value of which is included in the value of the end product. Capital is an intermediate product, which has to be processed or used in some way to obtain the end product. Why might a firm be interested in lengthening the production process? In real life firms try to shorten the time needed to manufacture a product and they remove all unnecessary operations from the production process. Firms seek to reduce costs and increase profit. Rational consumers pursue the same objective. Every consumer in their everyday lives uses a great deal of capital goods in order to obtain a certain product or consume it. A spoon, a fork, a spade, a lawnmower, a car and everything else we have at home or gathering dust in a dark corner of the garage – these things are all our capital. We can go to the shop and buy a fish and then cook it and eat it. Or we can use the “roundabout” path: put a fishing rod and a fishing boat in the car, take a friend or neighbour with us and set off on a 300 km journey to the lake to catch a fish. A day later we come back home tired and satisfied, cook the fish and eat it.
Very often it is useful to look back to the past. A journey in time can give a lot of results. The difficulty of modern economic life does not allow us to see the obvious, even simple things end up shrouded in a film of an infinite number of exchanges using an infinite number of financial instruments. But if we go back to the times of the simple goods exchange, then many things that are hidden are revealed. For example, we can easily discover that in any relatively closed economy, the profit of all producers is equal to the profit of all consumers and they are both equal to economic growth. In fact, in an economy such as this, the profit of a producer may only be materialized in the form of an additionally issued product and the profit of a consumer is the additionally consumed product. Naturally they are both equal. The additionally issued product represents economic growth. Therefore, adding together the profits and losses of all consumers or producers, we obtain the value of economic growth. In the Middle Ages a peasant and members of his family worked a land plot in the summer and in the winter they worked on crafts. This was all done to one aim: to consume more or, in other words, to earn a greater profit. The family included expenses for clothing, food, a shovel and a plough as part of the production costs. If, at the end of the year, the family earned more than at the beginning, this meant that it had profit. Consequently, next year the family would consume more clothing, food, shovels and ploughs. A person could spin and weave, be involved in textile, hardware or forging production, manufacture coarse linen, furniture, harnesses, lime bark ropes or wicker baskets. But the person always was and always would be a producer and a consumer. What changed after the arrival of money, inflation, spacecraft and computers? Nothing. People only started producing and consuming more.
Many people would argue that a person seeks to not only maximize their profit, he or she knows how to love, to do things on a whim, to go the theatre and to listen to music. But neither do firms only receive profit, they also organize parties, care for their employees, build and maintain museums and get involved in charity events. As rightly noted by Machlup, firms are managed by people, therefore they have all the same characteristics as a normal person. Others would again argue that every day a person eats food, gets dressed, goes to the shops and does sport in order to simply live a normal life. But for its normal activities a firm also requires water, electricity, petrol and metal on a daily basis. And if the next day new material arrives capable of earning profit for the manufacturer, then he or she will substitute metal, for example, with plastic. A person behaves in the same way substituting margarine for butter.