Optimum Quantity for an Intermediate Output: How Many Trucks?

A transport truck, when used for its intended purpose, is an example of an intermediate output. Such outputs are distinguished from final outputs in that they are not consumed as end products, but are instead used in the production (including transportation) of other outputs — either intermediate or final.

Because an intermediate output cannot directly affect human health in consumption, it does not have potential value and cannot achieve effectual value. Anything that is necessary for production, but does not possess value itself, must be counted as a cost. Transport trucks and other intermediate outputs are therefore part of the life-cycle input costs of the final outputs with which they are associated.

The optimization procedure for final outputs requires both effectual value and input cost. The fact that an intermediate output cannot achieve effectual value means that its optimum quantity must be indirectly determined.

Because an intermediate output is part of the input cost for each of the final outputs with which it is associated, the optimum quantity for an intermediate output is the quantity that will minimize these input costs. In most cases this means that the optimum quantity is the minimum quantity required in the current production process.

For example, if we are using transport trucks to move the optimum quantity of bread from a central bakery to various stores, and transportation costs are minimized when eight transport trucks are used, this is the optimum number of such trucks our society should have on the road.

However, the optimizing principle should be more broadly construed: we are not actually seeking the optimum number of transport trucks, but the means of bread transportation with the lowest input cost. Thus if input cost is lower for trains than for trucks, we should switch to trains.

Still more broadly, we should consider decentralizing bread production to further reduce the input cost of transportation. An economy based on ENL's principles should be as ruthless in cutting input costs to increase aggregate health as a capitalist CEO is in cutting monetary costs to increase the financial wealth of corporate shareholders.

Properly speaking, the term "optimum quantity" cannot be applied to intermediate outputs because such outputs have no effectual value and cannot themselves be optimized. This is also true for the concept of "target quantity".

However, there are advantages in being able to lump all outputs together and to ascribe the same objectives to them. This economy of expression outweighs the slight technical inaccuracy, so the terms “optimum” and “target” are applied to both types of outputs.

Careful analysts will presumably understand that for a final output the optimum and target quantities are directly determined, while for an intermediate output they are indirectly determined — or, in the words of standard economics, that they are derived quantities.

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