Time: Our Most Scarce Resource

The recent passing of Nobel Laureate Gary Becker had me reflecting on some of his work. Specifically, his thought on how time is our most scarce resource. In his Nobel lecture he begins by explaining that economics impacts more than just the financial decisions that people make. Economics, when properly applied, allows the student to study the outcomes of almost all areas of our lives. He continues to expound that no matter how efficient production methods may become, how many new stocks of resources we discover or how much technology enables mankind to prolong his life, our time on this planet is always limited. There are always only 24 hours in any given day and only so many years for any individual to realize the outcomes of his decisions. Becker concludes that there will never be Utopia, for time will always be scarce.

In his book, Human Action, Mises explains in Chapter 1, Section 5 that the theory of acting man and the temporal state of his action are inseparable. The person who takes on an action distinguishes the time before the action, the time the action has absorbed and the time after the action has been finished. All action is temporal and changes the current state in which the actor finds himself in at each stage of the action. With each step in action, through time, the acting man is changing his condition from disutility towards a state of utility. He strides to make himself better off. All of this costs resources and that requires the economizing of time.

Economizing Time: Rationality and Irrationality

Before Gary Becker postulated his discovery of time’s scarcity, Mises stated in Human Action,

Even in the land of Cockaigne man would be forced to economize time, provided he were not immortal and not endowed with eternal youth and indestructible health and vigor. Although all his appetites could be satisfied immediately without any expenditure of labor, he would have to arrange his time schedule, as there are states of satisfaction which are incompatible and cannot be consummated at the same time. For this man, too, time would be scarce and subject to the aspect of sooner and later.

Praxeology is the economic study of human action. It assumes certain a priori truths of acting man and employs them into a causal-reality based theory. People choose action to improve their current condition in exchange for a better state of affairs. This, in turn, requires the expenditure of scarce resources. People are subject to the passing of time. We are born, mature, grow old and die. Unlike other scarce resources, time is always temporal. Once time has passed, you cannot get it back. If an individual chooses wrongly and looses money in an investment, he can always attempt to earn more money. He cannot earn more time. Once the now is in the past it remains there. It is imperative, therefore, that acting man economize his time.

Many economists attempt to impute logical rationality into human action. This is where praxeological rationality should be implemented. They make the attempt to describe irrational choices by stating, if a is preferable to b, and b to c, then logically a is preferred to c. So, if the actor chooses c over a then he is acting irrationally. As Mises pointed out, no two actions are synchronous. One action may effect future actions and thus change valuations. The mistake is by relying on logical rationality which determines consistency by the principles of non-contradiction. This should be reserved for the thinking man. Praxeological logic determines constancy of action. The subjective value scale may change with each subsequent action. Someone decides to build a house on a hill, overlooking the valley rather than in the valley where it may flood or in the city where it’s noisy. As the construction begins it is discovered that the ground isn’t stable enough for that type of structure on the hill. The actor may choose to move the house to another location or build a different type of structure. The econometric positivist equation would yield an irrational outcome if the builder moved the location. The positivist couldn’t capture the variable of changing conditions. Praxeology tells us that actions change as conditions change because of it’s causal-reality foundation. It may be rational to prefer c to a and build the house in the city where the fear of collapse and flood are avoided. Praxeologically, he remained constant by rearranging his resources and building the house. As simple as this example may be, remember that the government is full of such “economists.” After Hurricane Katrina, brand new mobile homes were left to rot in muddy fields because the government couldn’t calculate changing conditions in Louisiana during the aftermath. Or, look at Solyndra. Although it wasted some $535 million, the government is still headlong on its nonsensical quest to subsidize solar energy, regardless of market or technological conditions. The list is almost endless.

Rationality and constancy are two different things. Human action constantly prefers the more valuable to the less valuable. Action is also temporal. Each action may bring about a change in valuations and thus different subsequent action. The time required to bring about each action may be short or long term. Fleeting or over the length of years. Scarce means are valued accordingly and are employed to bring about desired ends.

Valuing Time: Time Preference

The condition of scarce resources to meet unlimited wants leaves us in the situation of which we must constantly choose which of our wants we will seek to satisfy. The scarcity of time forces us to choose whether we will take the day off or go to work. We cannot do both at the same time. We cannot spend the same dollar on two different items. As stated previously, praxeology tells us we cannot perform two actions at the same time. Either I sleep in or I go to school.

Economists call this type of choice an opportunity cost. Following along the line of marginal utility, the actor will choose the most valued action first at the cost of the second action. In our example, we chose to go to work at the cost of taking the day off. Because action is not synchronous, we couldn’t perform both actions at the same time. We had to choose, according to our value scale, which action was the most valued and postpone the second.

Each individual value scale considers the actor’s time preference. The actor can place present as well as future goods on his value scale. For example, he may prefer two shirts next month as opposed to one shirt this month. Because of time preference, an individual will always prefer the same quantity of a good sooner rather than later. Another person may find more utility in having two shirts this month and only one shirt next month. Here, an opportunity arises for an exchange, where the first individual can sell one shirt with the other’s promise to provide two shirts in the future. The exchange rate between present and future goods is known as the pure rate of interest. It is determined by the actors’ time preferences just as any other price is determined.

We find the pure rate of interest throughout the so-called “time markets.” Usually in the form of loans, but also in the price spread of producing a good and then selling the good in the market. The capitalist provides a service by advancing time to those who own the factors of production. He restricts his consumption of money (savings) and provides money (present goods) in exchange for future goods. Because present goods exchange for future goods at a premium, the capitalist who invests in a particular process ends up with more capital funds than he started with. The capitalist’s return is not due to the productivity of the inputs, but instead to the fact that present goods are subjectively preferred to future goods demonstrated by the owners of factors paying him interest on his investment.

Time and Money

We often hear the adage, “You either have money or time. You can’t have both.” This is true, in a sense, when it comes to the wage earner in the labor market. When a worker “sells” his labor to an employer he is really selling his time. He promises to perform a certain amount of labor in a determined amount of time or to perform a certain skill in a determined time. Even if the worker is paid in accordance with units produced (piece work) he must expend his time to produce the units. Salaried employees must also expend their time to perform their duties. In exchange for the the time the employer agrees to pay money wages or salaries. We run up against the individual’s value scale yet again in determining just how much time (present goods) will be spent in return for a paycheck (future goods). Everyone who participates in the market is a capitalist in his or her own right. Albeit, the time differential between the entrepreneur and the laborer may be different, essentially, they both are investing their present goods for future goods. Both goods are scarce. Each one must give up something scarce in exchange for something more valued. For the worker it’s time, and for the entrepreneur it’s both time and money. Undeniably, time preference plays a role as well.

Where they differ is that the capital investor can actually use his money to “work” for him, thus freeing up his time. The worker must use his time in exchange for money, the investor can use his money, which earns him a return, in exchange for time. The key is that the investor must have the savings required to allow the time for a return on investment in the distant future. The risk assumed by the entrepreneur is a loss on investment which includes the loss of time. The wage earner gets paid whether the finished product sells or not. The auto workers at Ford still got paid to produce the Edsel. Labor is time paid, not risk taken.

Conclusion

Time is, in fact, our most scarce resource. What we choose to do with our time fully depends on our individual value scales. Texas University Professor Daniel Hamermesh has studied the scarcity of time for almost twenty years and says that prosperity has come at the ever growing expense of time. As societies become more prosperous, time decreases. He suggests that perhaps people should consider trading in some prosperity for more free time.

One glaring issue is that for many people, time is a substitute for capital. They only have their time to exchange for money in order to maintain a desired standard of living. You’d be hard-pressed to find a worker who wouldn’t gladly shorten their work week in exchange for the same amount of wages. But, as the central bankers continue with the delusion of economic growth through inflation, more time will be spent to maintain current living standards. Since the 1970s, families have been employing the time of both spouses to keep up with diminishing purchasing power and increasing tax burdens. There is still only 24 hours in a day, 7 days in a week and so on. The time of two people is certainly limited and not keeping up with inflation to maintain that middle class dream. Families are having to rely on consumer debt to keep their heads above water. This isn’t how capitalism is supposed to work. As innovative production methods are introduced, workers are supposed to become wealthier and have more free time (leisure). Through increased productivity, producer goods are supposed to become less and less expensive (deflation). Central banking and central planning is interfering with individual time preferences. We must conclude that a debt based fiat currency system is not compatible with free market capitalism.

Time, like all scarce resources in this economic system, is becoming harder to come by for the average citizen. Many have thrown in the towel and have gone on the government dole. Others are struggling with two or three part-time jobs, family life and maybe some sleep. Retirement has become a lost dream. The choice between money or time is ever slipping away. The solution is simple, free people making free choices in a free market. Freedom is the solution. Freedom will bring more free time. But, like time, freedom is also a scarce resource.