Stages of Production means the parts of a process that together lead to a good or service for someone to use. In Austrian economics, this perspective helps trace how indirectly a resource’s particular use contributes to final consumption. The number of named stages alone does not tell us how long production takes or whether it is worthwhile.
Carl Menger explains the connection through grain, flour and bread. A person can eat the bread; someone must first process the flour. “Higher order” here means a less direct relationship to satisfying a need, not higher quality or importance. An item’s place also depends on its use. It is not a permanent number attached to a machine regardless of what a business produces with it. [1]
Eva may receive flour on time, but without energy and a baker there will be no bread. The oven, one of the Capital Goods or productive resources, must also be ready. Ludwig Lachmann distinguishes coordination within a plan from compatibility between separate plans. For Eva, that means coordinating her own operation and her suppliers. One completed delivery does not prove everything else will be ready. [4]
Kneading is work; letting the dough rise also requires waiting. Ludwig von Mises distinguishes working time from the time needed for a result to mature. Eva can divide kneading into many written operations without shortening the wait for the dough. Customers care when their bread arrives. Counting boxes in a procedure must therefore not replace an actual schedule. [3]
Eva considers slower preparation that she expects to produce tastier bread. She must decide whether the result warrants waiting and tying up equipment. Mises connects choosing a longer method with its expected benefit, not length as a virtue in itself. Opportunity Cost, the value of the best forgone option, reminds us what committed resources can no longer provide elsewhere. An extra step is not automatic profit. [3]
The oven already stands in the bakery. Planning tomorrow’s baking does not require Eva to wait again for its past manufacture. For Mises, a new decision starts with the resources available now. The time once spent making the oven is a different question from the time Eva still needs to prepare the bread she now plans to bake. If it is broken and needs repair, however, that future delay belongs in the plan. What matters is where we start the clock. [3]
A stock of flour becomes a particular batch of bread. The same oven can bake more batches later. Mises therefore distinguishes time until a result is produced from the duration of equipment’s services. Eva faces different questions: when today’s bread will be ready, and how long the oven will keep serving her. A simple chain must not imply that all equipment disappears into one product. [3]
Eva can bake exactly as planned and still leave bread unsold. Menger links productive resources’ value to the expected value of their future output. The bakery must therefore consider what people will want when the bread goes on sale. Today’s success of similar bread offers guidance, not certainty about tomorrow’s demand. Technical completion and economic success are different things. [2]
A Bitcoin-related service can similarly involve making a computer, installing it and subsequently providing the service. Electricity, connectivity, software and people are needed alongside these activities. This illustrates economic connections, not a rule of the protocol that governs how the Bitcoin network works. Counting Bitcoin transactions does not reveal how many production stages a business has. It is more useful to identify the service’s dependencies, what is still missing and when a customer can actually use it. [1] [4]
For the clearest picture, read this entry together with Capital Goods, Roundabout Production, Heterogeneous Capital, Economic Calculation, Time Preference, Bitcoin. The reverse links also lead from Capital Goods, Roundabout Production, Heterogeneous Capital.