Shelter is one of the foremost human needs. At first, shelter was appropriated in its natural form, without human alteration. Cave dwellings are the classic example. Like food, shelter was provided directly by nature. The only form of economizing at the dawn of civilization concerned the juxtaposition of satisfactory shelter and areas where food could be gathered in sufficient quantity.

The advent of animal husbandry and nomadic wandering in search of better pasture introduced a need for temporary shelter for both people and animals. The art of building has its roots in these rudimentary structures. Protection from a predominantly hostile environment probably first took the form of fenced enclosures; enclosure from above gradually followed. Economizing the use of scarce resources could already be divided into two components: economizing the use of time available for various activities, including building; and economizing the use of other resources that could be used for various purposes, again including building. When, where, with what means, and how to build required rational and purposeful decisions even in the case of these temporary structures.

With the development of agriculture, the first permanent buildings started taking shape. The land needed for buildings was appropriated directly from nature, as was the land needed for agricultural production. Buildings were intended to shelter not only people and animals, but also agricultural produce. While a portion of the produce was consumed, a portion had to be saved for another season. The buildings were needed to protect the seed, representing prospective food, over at least one season. The needs for food and shelter were at first intertwined. Gradually, buildings were differentiated in terms of the needs they were intended to serve: some directly served the need for human shelter, while others served the need to preserve the food, animals, and the emerging agricultural implements, which in turn directly or indirectly satisfied human needs.

We should note in passing that no individual or single group of people invented buildings or human settlements formed by clusters of buildings. They arose through spontaneous human activity and evolved over extended periods of time. As economies progressed from production for direct consumption, to production on order, to production for the market, clusters of buildings and communication links between them evolved into an increasingly complex physical infrastructure underlying the economic process. However, it is worth emphasizing that human settlements were formed as a result of building decisions made by individuals, who more or less independently decided on the best way to satisfy their needs for shelter.

Now, all goods can be classified in a conceptually useful way into orders according to the distance, in terms of production stages, from the direct satisfaction of human needs.[1] As human shelter, buildings are first order goods, just like foodstuffs. As shelter for these foodstuffs, buildings are second order goods. They satisfy human needs indirectly. Furthermore, as shelter for draft animals and agricultural implements needed for the production of food, buildings are third order goods. They are even farther removed from the satisfaction of primary human needs. In the course of civilization, as the number of production stages has increased, this progression has been extended to buildings as ever-higher order goods.

Consequently, buildings serve purposes ranging from the satisfaction of the most immediate needs to those progressively removed in time and space. Buildings that fall in the former category are consumption goods, while those that fall in the latter are production goods. In this context it should be noted that building materials and tools are goods one order higher than the buildings they are used to construct. The order of building materials and tools thus depends on the order of buildings themselves. Of course, the classification of goods into orders does not concern their technical characteristics, but rather the economic purposes associated with these goods. This classification is obviously not intended to classify goods as objects of economic activity, but to relate them to the purposes of human beings, the subjects of economic activity.

Compared to other goods, buildings became objects of exchange rather late in human development. This is true primarily because buildings are difficult or impossible to move from place to place, and because they are connected to land, a resource which itself entered the sphere of economic exchange late in the development of civilization. Buildings and land are considerably less marketable, that is, less readily exchangeable, than numerous other goods, the most marketable of which gradually took the role of money—the medium of exchange. However, building services most likely started being exchanged for other services and ultimately for money much earlier than buildings themselves. Together with the gradual division of labor, building activity was progressively differentiated from other useful activities performed singly or collectively. The art of building became specialized as did many other useful activities that required skill and special knowledge acquired through experience.

This endeavor was also gradually differentiated as an ever-larger number of building types evolved. Each building type was associated with a specialized building technique, requiring a particular quantity and quality of building resources. The first elements of building design probably arose with the need to combine the basic building types already mastered in previous stages of development. If a larger building were needed, a particular building type was repeated several times. If a multifunctional building were required, several existing building types were combined to form a single structure. A rudimentary form of designing arose as it became necessary to merge and join the building types already tested by previous experience.

As more complex buildings were needed, designing gradually emerged as an art separate from building itself and entered the sphere of exchange as a distinct activity. Because buildings and land are immobile, and as long as the level of demand for building services remained low, builders and designers moved from site to site as itinerant craftsmen covering wide territories in search of clients.

As markets for buildings and building-related services developed, these goods and services began to be exchanged for money, the universal exchange medium. In this way, their value became increasingly intertwined with the value of all other goods and services. The value of buildings and building-related services ultimately derives from the value people attach to the satisfaction of their immediate needs. In other words, the value of higher order goods is determined by the value of lower order goods, whose value is ultimately determined by that of first order goods.[2]

From Ranko Bon’s Building as an Economic Process: An Introduction to Building Economics, Englewood Cliffs, New Jersey: Prentice-Hall, 1989, p. 26-28.

Footnotes

1. The classification of goods into first order goods (or consumption goods) and higher order goods (or production goods) was introduced by Carl Menger in his Principles of Economics, New York and London: New York University Press, 1981 (first published in 1871).

2. This is one of the central ideas introduced by Menger, op. cit. Menger’s Law—as this insight has been called—concerns the propensity to attach the value of ends to the means needed in their achievement.