Structures of Production
In a series of previous posts I talked about the structure of production. But isn’t there, in fact, a separate and unique structure of production for every consumer good or service? By what right do we agglomerate all of these into something called “the” structure of production?
The answer to that important question is that what we are concerned with is not so much the structure itself, but (1) the fact that advancing capital goods of higher order into capital goods of lower orders and finally into consumer goods takes time; and (2) that that time costs money, an income called interest paid by the demanders of present goods (and suppliers of future goods = borrowers) to the suppliers of present goods (and the demanders of future goods = lenders). Thus, if interest is paid once a year, and a particular production process takes 5 years, then we can consider that process’s structure to have 5 layers, each layer representing payments to the higher-order capitalists and being shorter than the previous one as we move up towards earlier stages, because of payments to factors and interest. If interest is paid once a month, then the structure will have 60 stages. That the real particular structure of any process involves numerous transformations of intermediate goods each taking various amounts of time is true but irrelevant for our analysis. There thus comes into consideration a general production structure reflecting the timing of interest payments and summarizing the payments to factors in between.