2.2 Sources of Revenue
If the liberty of man is respected, it must also be accepted that any product or revenue generated by trade of that product is the material representation of the activity itself. The act of production is undertaken for the sake of having a product. To deprive a producer of his product by force or fraud is to nullify the consequences of a past choice and inhibit his will to undertake an action in future. Argument to the contrary is founded on the predicate that the act of production is a benefit unto itself. Were this true, anyone who produces a thing would destroy it immediately. This is not generally witnessed in practice, and if it were, it would be rightly regarded as insanity.
For most products, value is created by action upon substance, and the transformation of the object that results from action makes the substance more valuable. A piece of wood that is by labor shaped into a chair is of greater value that a piece of wood that has not been acted upon. For immaterial goods, the action along creates value, and there is no substance to sustain that value. An orchestral performance delivers pleasure, but there is nothing afterward to show it had been undertaken or to carry its value forward.
For material goods, the act of production consumes the raw material in the act of transformation. Certain components of production are carried forward in the product (the thread becomes the cloth), certain components remain and can be used for further production (the cloth is sold but the loom is kept). So long as production consumes only what it produces, it is sustainable as a perpetual source of value. So long as it consumes less, it is a profitable undertaking. In instances where production consumes more value than it produces, it is a waste and unsustainable.
Demand of a product does not exist merely because the product exists to be demanded. Demand exists for the fulfillment of a need or a want, and a product is demanded only to the degree to which it promises to fill the want or need whose existence precedes it. That is, a man does not produce food and then discovers upon seeing it that he is hungry; he is hungry to begin with and so decides to undertake the effort to produce food.
In terms of production, the existence of materials and the potential to undertake a course of action that will render them more useful are existent before any product is created. There is a productive potential, which is directed to a productive action, which results in a product. It's noted that the productive potential of things is not specific - land that has the potential to produce one crop may also produce another, or may be the place where cattle are grazed, or where a factory is constructed. The decision to act determines how a given resource can be put to use.
Where product is produced, each factor plays a part in its production: a piece of arable land may be capable of producing 300 bushels of wheat if farmed. Some part of the product is due to the land, and some part to the labor upon it. When the wheat is produced, some portion of the revenue derived covers the expenses of the supplies, some of the labor, and some of the land. If the total revenue covers the total cost, the farm is sustainable.
For the individuals involved, some portion of the revenue is apportioned to each who contributed: to the farmer, to his laborers, to his suppliers, and to his landlord. Some may gain more than others. In the aggregate view, the whole revenue of the farm is affected by the act of farming. So to, in the national view, the aggregate product of all citizens exists as positive sum regardless of the way in which it is apportioned.
In any society "elevated above barbarism," an individual trades his own product for those of other people. If he applies himself competently to trade, he receives for his own work value that is equal to that which he gives in exchange, and not less. The example is given of a famer who cultivates saffron: he will consume very little of his own product and exchange the majority of it to others for the goods he wishes to consume. Nearly the entire product of his operation will increase the national wealth, by being traded to others, and encouraging their production of goods to trade for his. There is some decrease in the value of saffron in general when a new supplier increases the quantity in supply, but the net result is generally positive in the aggregate.
Every savings in the cost of production is reckoned to be an increase in the revenue of a community to an equal extent. If a farm produces twice as much produce as before, the net consequence is the same as if a second farm had been started: more goods are delivered to the market, the growth in supply decreases the unit price of the good, but the net result is positive for the community.
Some mention is made of the removal of value by its consumption, where consumption destroys the physical manifestation of value. When the good is consumed, its value is deducted from the aggregate wealth of the market. Any coin given in exchange for a good that is consumed may still exist, so it may be said that the seller of the consumed good has retained its value, but this is relative to the individual: for the market, the good as been destroyed by consumption; for the farmer, he has received and maintains value created by a separate act of production.
In any market, some portion of the revenue generated by producers (generally the majority of it) is later destroyed and removed from the wealth of the society. But some portion of the revenue is converted to capital, the means of production, and permanently increases the wealth of society as well as increasing its future revenue. That is, the revenue spent on food that is eaten is gone, but a similar amount spent to cultivate a field remains as a capital resource capable of generating revenue in future.
Any act undertaken in pursuit of revenue is at risk of failing to achieve its intended results. To plow and sow seeds in a drought is to waste effort; to lend money to an adventurer whose business fails is likewise to waste capital - though in the case of the farmer, his expenses are lost but his capital remains to be put to use the following year when the drought has lifted.
Each person has productive potential according to the skills he can apply to production as well as the capital resources at his disposal to furnish the tools and materials of his trade. These things are not equal among men, such that a more skilled individual or one who has more capital to bring to bear will produce more revenue than another who has less.
It is likewise true that each person has a destructive potential according to his appetites and the capital resources at his disposal to purchase things that he may destroy. All will exercise destructive capabilities by necessity (all consume food), some will exercise even more out of ignorance or vice. This, too, creates disparities of capital resources among men.
In aggregate, the productive and destructive powers of a nation are estimable, and so long as the nation like any individual is capable of producing as much as it destroys, it is sustainable. The society that produces more than it consumes will become wealthy; the one that consumes more than it produces will be impoverished.