All valuation begins in the minds of individuals. We are accus- tomed to saying that market value is determined by supply and demand, and this is as true of money as of other commodities. But we should be careful not to interpret either supply or demand in purely physical terms, but rather in psychological terms. Demand rises when people want something more than they did before. It falls when they want it less. Supply is more often thought of in a purely physical sense, but as an economic term it also refers to psychic factors. It may vary with price. At a higher price producers may make more of a commodity, or be ready to offer more of the existing stock for sale.
Yes, it's Hazlitt once again.
So he's saying that Supply= willingness to supply and Demand = Willingness to buy, right?
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I don't know that I'd go that far, just that humans need to evaluate both. A given supply of X commodity may be plenty for you, extremely scarce for me. An inventory that looks bloated to you might look horribly wanting to someone else. Say the amount of siver in the Earth's crust is a given physical quantity, whether it's scarce or plentiful depends on the judgements of the people looking at it.
I hear ya, xahrx, but I doubt someone going to Walmart to buy a bag of potatos gives any thought whatsoever to what the supply of potatoes is. Of course, in certain cases, say rumor goes out that there will be a huge shortage of potatoes, or that there is one, like Katrina residents, then you'd be right.
Smiling Dave:I hear ya, xahrx, but I doubt someone going to Walmart to buy a bag of potatos gives any thought whatsoever to what the supply of potatoes is.
They care about the supply of potatoes at Walmart.
Its odd! There are so many subsets of supply and demand in any transaction. There's demand for the product which is less than their demand for money which is more than their demand for their labor hours. There is supply of a product that stems from demand for mone, etc, etc
I can see why trying to untangle it would get confusing
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LS,
I don't see that. All they care about is are there enough for today's purchase. Have you ever seen someone ask a store manager, "Say, how many reserves of potatoes have you got in the back? Not that I want any, I bought all I want, but I just care about how much you got back there."
Not happening.
"I hear ya, xahrx, but I doubt someone going to Walmart to buy a bag of potatos gives any thought whatsoever to what the supply of potatoes is. Of course, in certain cases, say rumor goes out that there will be a huge shortage of potatoes, or that there is one, like Katrina residents, then you'd be right."
I'm still right. Not giving any thought whatsoever is their judgement; they see no major scarcity. Judgement doesn't mean they have to whip out a calculator and do some in depth analysis, it just means judgement. And "I don't give a damn as there seems to be plenty on the shelf" fits that fine.
Smiling Dave:I don't see that. All they care about is are there enough for today's purchase.
Which is a supply issue. They don't go to Payless Shoes looking for potatoes.
Smiling Dave:Have you ever seen someone ask a store manager, "Say, how many reserves of potatoes have you got in the back? Not that I want any, I bought all I want, but I just care about how much you got back there." Not happening.
I work as a marketer, and there is an enormous effect on buyers when scarcity is perceived. So Walmart having 500 bags of potatoes, but only 20 on the shelf does indeed communicate things to buyers and influence their decision to purchase. Your point about the buyer not asking what the reserves are, doesn't mean he isn't affected by his perception of what the supply on the store shelf is.
Not to mention, the shopper has to concern himself with the demand for his money and his supply of that money. Remember, every buyer is a seller and every seller is a buyer.
xahrx,
Thinking it over, you are right about that.
But Hazlitt was talking about the sellers. not the buyers. And he was saying, "Make no mistake, supply is also a subjective thing. Of course it is influenced by physical considerations, but it's ultimately exactly as subjective as demand."
And thinking about it, of course he's right. It's the very heart of AE. I mean, when reading about how value is subjective in Mises and Rothbard etc, you don't see a proviso "But we are talking about the buyer. The seller is a robot, whose value scale can be determined with a mathematical formaula and a chart."
my last post to xarhx should clear up this issue