Who Decides What’s A Necessity?

Question: Who makes the decisions concerning what is a necessity and what is a luxury?

Answer: The nature of a non-POM does not require that any particular group or individual make such decisions. Also, these designations can change from time to time. But I think it most likely that the Payers would be the most likely group to make such decisions. They have a vested interest in getting it right.

If the Payers designate too few things as necessities, they cannot survive. Also, there won’t be enough persons volunteering to be Payers to do the job well and people will blame the Payers. On the other hand, if the Payers designate too many things as necessities then there will be too many Payers and the individual Payer will lose power and importance. Besides, the power and influence of the Payers depends on how much people value the money they can pay. If one doesn’t need money to get most things which are really luxuries, then that reduces the desirability of money and the Payers’ power. Therefore the Payers want to have enough things be necessities to make their life tolerable yet not so many as to reduce their power and prestige. It is a good balance that the Payers would notice early and value.

Also, you will note that the principles which speak of luxuries and necessities speak of things designated as luxuries or necessities, not things which actually are luxuries or necessities. It’s just that things people can consume must be identified as one or the other. No doubt some things (like coffee, perhaps) might be designated as necessities when they are actually not necessary to life at all.

So that gives us a good idea of consumer goods and how they are divided. What about capital goods? They are everything else.

Wait, what about something that can be both a capital good and a consumer good? Let’s say, handicraft tools. Some people refinish furniture as a hobby. Other people do that same work as their job to earn money. How do we tell the difference?

There isn’t any difference in the tool itself. The difference is in how the producer of the tool treats it. If he puts the tool up for sale as a luxury item, the Payers will assign it a price (if they haven’t already) and it will be available for sale. The person who buys the tool owns it, even if he loans it to a neighbor. The producer gets paid shortly after the sale for providing the luxury. He has now gotten his full reward as have those who provided help in producing the tool.

If the producer gives the tool to someone with the understanding that they will use it to produce benefits for others, there is no pay for the tool until those benefits are realized. That pay continues so long as the tool is used to produce benefits. If the owner of the tool gives it to someone else to use, that person now owns the tool.

So those capital goods which can be both luxuries and production equipment are controlled by their owners and their fate as luxuries or capital goods is decided by those owners. A tool can even switch back and forth as each new owner has the same decision to make. Thus, one can actually "invest," in a sense, one’s money in capital goods if one can find a willing owner of capital goods. (Remember that the owner of the capital does not get the money the buyer pays and the owner doesn’t set the price so his decision will depend on how much he thinks someone he gives the capital to would earn for him over the life of the capital versus the probable amount the Payers would give him for the sale of the capital as a luxury. That is a faster payoff but could be far less.)

Finally, some things might be a necessity in one place and a luxury someplace else. Since it is the "dead" of winter as I type this, let’s consider skis. If one lives in a city and goes to the slopes in winter to ski, the skis are going to be luxury items. But if one lives in Alaska in the wilderness then the skis may be necessary to get around. They may be an essential part of one’s survival gear. Thus, the same pair of skis might be designated a necessity in one place and a luxury in another.

(Nobody said life was going to be simple. What I am describing as "rules" here all depend upon decisions made by the people involved. None of this is explicitly required by the definition of non-POM money. This is what I would expect to happen in any non-POM society, not what is "legislated" by any legislature or by any Payer organization. One would expect practices to change and evolve as the needs and circumstances of the society change. Whatever seems to work best is what they will try to do because that maximizes everyone’s rewards, monetary and social.)

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