Austrian Economics Wiki

Action is realized by means to achieve certain ends. Means are necessarily always limited, i.e., scarce with regard to the services for which man wants to use them. The means to satisfy man’s wants are called goods.[1][2]

(A good should not to be confused with the adjective "good", as used in a moral or ethical sense.)

Consumer and producer goods[]

Goods may be classified in either of two categories: (a) they can immediately and directly satisfy human wants, or (b) they may be transformed into directly serviceable goods only at some point in the future - i.e., they can satisfy human wants indirectly. The former are called consumption goods or consumers’ goods or goods of the first order. The latter are called producers’ goods or factors of production or goods of a higher order.[3][2]

A producers' good may be, by the cooperation of complementary producers' goods, transformed into a product. This product may be a consumers' good; it may be a producers' good which when combined with other producers' goods will finally bring about a consumers' good.

Capital Goods[]

Main article: Capital

Capital goods are producer goods, that were produced by previous stages of production, but do not directly satisfy consumer's needs; they are used in production to eventually produce consumer goods.[2]

Free Goods[]

Economists often differentiated between free goods and economic goods. They called free goods those things which, being available in superfluous abundance, do not need to be economized. But such goods are not the object of any action. They are general conditions of human welfare; they are parts of the natural environment in which man lives and acts.

Only the economic goods are the substratum of action. They alone are dealt with in economics.[1]

See also: Scarcity

Public Goods[]

The public goods theory claims, that some goods cannot be produced in a sufficient amount, or at all, and therefore they should be produced by the government. One typical example is national defense. "To the extent one person in a geographic area is defended from foreign attack or invasion, other people in that same area are likely defended also. This makes it hard to charge people for defense, which means that defense faces the classic free-rider problem. Indeed, almost all economists are convinced that the only way to provide a sufficient level of defense is to have government do it and fund defense with taxes."[4]

There are several arguments against the public goods theory:

  • there is no way of knowing what is the "optimal" amount of the good produced
  • many other goods can be to some degree considered public with the imprecise definition
  • the presence of the state changes the incentive structure. Companies may declare their product for a public good to receive taxpayer funding.[5]
  • many of the 'public goods' are successfully produced in the private sector
  • the theory does not at all prove that the government should produce these goods
  • many of the goods government actually does produce do not correspond to the economist's definition of public goods, so the theory poorly explains the government's actual role in the economy[6]
Main article: Public goods


Goods are often divided into goods in the narrower sense - physical goods - and services, that are in turn intangible.[1] In practice, the distinction is not so clear and many, if not most goods fall somewhere between the two.[citation needed]

In another interpretation, the function of a consumers’ good is called its service in ministering to human wants. So for example, the material bread is valued not for itself, but for its service in satisfying wants; just as an immaterial thing, such as music or medical care, is obviously valued for such service. All these services are "con­sumed" to satisfy wants. "Economic" is by no means equivalent to "material." The end of the production process — the consumers’ good — is valued because it is a direct means of satisfy­ing man’s ends. The consumers’ good is consumed, and this act of consumption constitutes the satisfying of human wants. This consumers’ good may be a material object like bread or an im­material one like friendship.[7]


  1. 1.0 1.1 1.2 Ludwig von Mises. "Human Action", Ends and Means, online edition, referenced 2009-05-13.
  2. 2.0 2.1 2.2 Murray N. Rothbard. "Further Implications: The Means", Man, Economy and State, online edition, referenced 2009-05-13.
  3. Ludwig von Mises. "1. Ends and Means", Chapter IV. A First Analysis of the Category of Action, Human Action, referenced 2009-04-27.
  4. Tyler Cowen. "Public Goods", The Concise Encyclopedia of Economics, referenced 2009-05-22.
  5. Art Carden. "A Few Notes on Public Goods", Mises Institute Blog, posted 2004-04-13, referenced 2009-05-22.
  6. Randall G. Holcombe. "A Theory of the Theory of Public Goods", Review of Austrian Economics 10, No. 1 (1997), Mises Institute, referenced 2009-05-22.
  7. Murray N. Rothbard. "Chapter 1—Fundamentals of Human Action", Man, Economy and State, online edition, referenced 2010-06-22.

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