I didn’t read through all the comments to a recent post on Free Advice, but a substantial number of them focus on a disagreement on whether public investment in infrastructure falls under investment or consumption. Blogger “Lord Keynes” (LK; his blog) defends infrastructure spending as investment, and a number of other people have taken the opposite stance. The title of this post is meant to be a joke, but I really can’t believe that some Austrians are arguing that infrastructure spending can’t be investment.
“Investment” is one of those words that’s used in different ways. Holding cash can be considered an investment, just like exchanging cash for a financial asset with a higher return is also called investment. When economists use the word, outside of the finance world, oftentimes what they have in mind is spending directly on the production of capital goods — that is, the purchase of inputs that will go towards manufacturing certain output. This second definition, I think, is how everyone is using the word in the above-linked comments thread. To make it more Austrian we can say that investment is the use of a good for something other than direct satisfaction.
Based on the criteria of that last definition, I’m not sure how public spending on infrastructure can be considered consumption. The inputs used to build roads, bridges, lighting, et cetera, are all capital goods. The final product — the roads, bridges, et cetera — can either be used as consumer goods or capital goods, but that’s just the nature of something that can be used by multiple people. But, we wouldn’t call the construction of a WalMart consumption; likewise, we wouldn’t call the production of bottled orange juice consumption, either.
But, that final product isn’t always used to directly satisfy an end. Oftentimes roads and bridges are used by transportation companies to export their goods to other locations. People use roads and bridges to get to work. The private road built by the farmer to access his farm land isn’t a consumption good when used by him for that reason, but a capital good. The purpose of these uses is to indirectly satisfy an end — they’re means towards an end.
Just because the government can target investment doesn’t mean that the resources were used towards the highest priority end; i.e. it doesn’t mean they were allocated for their best use. A government can redistribute all of its resources towards investment, and the economy can still suffer a net loss (opportunity cost). But, this isn’t a reason to argue that public spending on infrastructure must be consumption — I completely agree with LK, it isn’t.