I am not sure about a few of these answers… I’m not saying that they’re wrong or that there isn’t some bit of truth to them, but I don’t think there is an international conspiracy to cheat users of dimensional lumber.
In reality, the 2×4’s, 4×6’s and other dimensional lumber “sticks” you buy at the lumberyard still come from the same size full sawn members. These full sawn shapes start out with the same nominal and actual dimensions (i.e. a full sawn 2×4 is actually 2“x4”). And these members are still available to purchase from many lumberyards if you want that old-timey rustic feel. Then the mill rips them down to the rough sawn size, which is 1/8 smaller that the nominal—this is done to remove inconsistencies in the outer surface and make a better finished product. The problem is that these members have some disadvantages that were recognized early on. For one, they make bad finish material on anything but those rustic house because the grain is still exposed and can seem unsightly in certain applications. Also, because the grain is exposed, it is much harder to get good paint coverage with a thick exterior grade paint (more likely with full sawn than rough sawn), so there is more likelihood of rot. Even in interior (or interior wall cavity) application, these rough sawn members are more susceptible to rot or mold due to the fact that the pores are all open and therefore more able to harbor moisture and fungus. Finally, by planing the rough members down into the dimensional members we are used to today, lumberyards and mills are able to more accurately guage the quality of the wood and rate it appropriately. There is a significant difference between, say, DF-1 and SS members of the same species.
Therefore, the mills take those initial sticks cut from the logs and saw them down to the rough size. This is what is referred to as S4S, or “sawn four sides”. It is not possible to get a 2×4 dimensional lumber piece without starting with the bigger piece, so there is not savings at this point by the mill. However, most wood these days is some form of engineered lumber anyway. You don’t see as much of this at your local Home Depot, but if you were to observe the construction of many larger homes and smaller commercial buildings, you would see that most of the “plywood” is actually OSB (you can see the strands of wood chips in the material as opposed to continuous plies of wood), many of the floor and roof joists are i-joists with dimensional lumber top and bottom chords and OSB webs (the vertical part of an “i-beam”), and even studs are being made out of OSB type processes. All of this material in the engineered wood products comes from the waste that is cut down from the original full sawn and rough sawn members to make the nominal sized dimensional lumber.
Here is a link to Google that describes the different types of members:
http://bit.ly/v4eHu