The Very Essence of the Market Economy Is the SPECIFICITY of Capital Goods (Some Are More Specific in Use Than Others)

What kind of conclusions can we make about the general nature of capitalistic production? Certainly, all goods are transformed into final consumption through multi-stage development, but not all are multi-staged in terms of final use. Many capital goods are highly specific in their use, especially in the earlier stages of output (raw materials, producers’ goods, etc.). Their distance from final consumption can generally be identified. 

It is a different matter for nonspecific goods, such as paper products, electricity, telephones, trucks, and other goods used in a wide variety up and down the industrial sectors. Actually, all goods vary in their degree of specificity. Some goods are extremely specific, others are very non-specific and are used in virtually all sectors of the economy. But rather than abandon the idea of stages entirely, it is better to try to identify in a general way where along the time-structure hierarchy these nonspecific goods belong.

The very essence of the market economy is the specificity of capital goods. Suppose, for the sake of argument, that all capital goods were completely nonspecific and totally versatile. This would mean that they could be transferred from one project to another at no cost. If this were the case, there would be no structure to the economy, and therefore no lags, no structural unemployment of resources or labor—in short, no business cycle. In short, capital goods are specific in nature, although some are more specific in use than others. This is the crux of macroeconomic analysis, and the reason that Lachmann and others stress the importance of the heterogeneity of capital goods (and, I might add, the labor market, although to a lesser extent). But the degree to which producer’s goods and machinery are nonspecific—that is, useable in more than one stage—is the degree to which the economy will be flexible in adjusting to monetary disequilibrium.

—Mark Skousen, The Structure of Production, new rev. ed. (New York: New York University Press, 2015), 148-149.