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"A priori quiz"

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Andris Birkmanis Posted: Tue, Oct 30 2012 3:38 PM

Which of the following do you consider true a priori?

  1. Whenever two people A and B engage in a voluntary exchange, they must both expect to profit from it.
  2. Whenever an exchange is not voluntary but coerced, one party profits at the expense of the other.
  3. Whenever the supply of a good increases by one additional unit, provided each unit is regarded as of equal serviceability by a person, the value attached to this unit must decrease.
  4. Of two producers, if A is more productive in the production of two types of goods than is B, they can still engage in a mutually beneficial division of labor.
  5. Whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result.
  6. Whenever the quantity of money is increased while the demand for money to be held as cash reserve on hand is unchanged, the purchasing power of money will fall.

I have some reservations about a couple, curious to see how many people will accept all 6.

PS: statements are from "Economic Science and the Austrian Method", by Hans-Hermann Hoppe.

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gotlucky replied on Tue, Oct 30 2012 3:54 PM

They look right to me. What issues did you have?

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1

though all of them are real close

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Andris Birkmanis:
1. Whenever two people A and B engage in a voluntary exchange, they must both expect to profit from it.

A priori true.

Whenever an exchange is not voluntary but coerced, one party profits at the expense of the other.

Not a priori true.  It would be a priori true to say that "When an exchange is coerced, one party (the coercer) expects to profit and the other party (the coerced) does not expect to profit".

Whenever the supply of a good increases by one additional unit, provided each unit is regarded as of equal serviceability by a person, the value attached to this unit must decrease.

A priori true.  (The proviso between the commas is unnecessary, because that is the definition of "a good".)

Of two producers, if A is more productive in the production of two types of goods than is B, they can still engage in a mutually beneficial division of labor.

Awkward wording and too vague.  It would be a priori true to say that "Even if A is more productive than B at producing both X and Y, they can still engage in a mutually beneficial division of labor, with A producing X and B producing Y, provided A has a higher comparative advantage over B at producing X than he does at producing Y."

Whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result.

A priori true.  As long as the statement is not taken to be a prediction in the teleological sense, but one that is true whenever all other things are equal (i.e. it is a ceteris paribus statement).

Whenever the quantity of money is increased while the demand for money to be held as cash reserve on hand is unchanged, the purchasing power of money will fall.

A priori true, ceteris paribus.  This is just the law of supply and demand applied to money.

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cheater.  you cant change the sentences up to make them a priori true

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gotlucky replied on Tue, Oct 30 2012 4:26 PM

Graham Wright:

 

Whenever an exchange is not voluntary but coerced, one party profits at the expense of the other.

 

Not a priori true.  It would be a priori true to say that "When an exchange is coerced, one party (the coercer) expects to profit and the other party (the coerced) does not expect to profit".

Wouldn't you say that is what Hoppe meant? That it is implied in the statement that the coercer expects to profit at the expense of the coerced?

Awkward wording and too vague.  It would be a priori true to say that "Even if A is more productive than B at producing both X and Y, they can still engage in a mutually beneficial division of labor, with A producing X and B producing Y, provided A has a higher comparative advantage over B at producing X than he does at producing Y."

I don't see how Hoppe's wording is awkward and vague. You are both saying the same thing.

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Wheylous replied on Tue, Oct 30 2012 4:29 PM

Whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result.

Tehnically not always true.

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Neodoxy replied on Tue, Oct 30 2012 4:58 PM

1. Is true

2. Is true so long as we ignore the outcome in the future

3, 4, 5, and 6 depend upon other factors which are not specified within the premise, but they are all likely be true.

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i dont think 2 is true because someone can force A and B to trade something meaningful to them and worthless to the other.

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Neodoxy replied on Tue, Oct 30 2012 5:06 PM

^

Then one would be forced and the other would be voluntary.

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meant to say each other.

a doctor is forced to trade his xray machine and a farmer is forced to trade farm equipment.

*edit

better yet, trade wives or childs.

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Neodoxy replied on Tue, Oct 30 2012 5:15 PM

... Well does person A want to trade his wife for person B's? Is person B's wife hotter or something? If not then person C is benefiting from the expense of A and B. It deals with who is being coercing and who is coerced rather than who is generally involved.

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1. Whenever two people A and B engage in a voluntary exchange, they must both expect to profit from it.

True a priori, as by definition one would not engage in the exchnage voluntarily unless one valued the good gained more than the good lost.

2. Whenever an exchange is not voluntary but coerced, one party profits at the expense of the other.

True a priori, as if the victim had valued the good he obtained more than he valued the good he lost, that would have been a voluntary exchange by definition, not a coerced exchange. Therefore, in a coerced exchange, it must be the case that the victim did not value the good obtained more than the good lost.

3. Whenever [one person's] supply of a good increases by one additional unit, provided each unit is regarded as of equal serviceability by a person, the value attached to this unit must decrease.

Not true a priori, as it depends on the value scale of the person in question. For example, a person could have nothing on their value scale but chickens. Hence, no matter how many chickens he accumulates, getting another chicken never drops below anything else on his value scale, because there is nothing else on his value scale. That said, in all normal circumstances, the law of diminishing marginal utiity is a highly probable a posteriori claim, as typically (I want to say always, but it's still a posteriori) people do have several things on their value scales, such that when the top value is satisfied, what had been the second highest value moves into the first rank, and so another unit of the item that had been in the first rank become less valuable than it had been.

4. Of two producers, if A is more productive in the production of two types of goods than is B, they can still engage in a mutually beneficial division of labor.

Add "provided that A is not equally good at producing both goods, and B is not equally good at producing both goods," and that's true a priori, since the only case in which there cannot be mutually benefical exchange is if neither party is better at producing any one thing than they are at producing anything else, as then neither party can outsource production of what they're worst at to focus on what they're best at.

5. Whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result.

Add "provided demand is elastic from the market price to the fix" and this is true a priori (understanding that it need not be an absolute increase in unemployment, but only higher unemployment than otherwise would have existed), as fixing the price of X above the market price decreases quantity demanded and (eventually) increases quantity supplied, resulting in an unsold surplus.

6. Whenever the quantity of money is increased while the demand for money to be held as cash reserve on hand is unchanged, the purchasing power of money will fall.

You can say a priori that if the supply of a goods increases, and quantity demanded remains unchanged, either the price will fall or there will be an unsold surplus, but I suppose the claim that the former will occur rather than the latter rests on the a posteriori knowledge that unfettered markets will tend to clear (i.e. unsold surplus won't last long and the price will fall).

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touche.  i dont know why i was not including that C was the beneficiary of the transaction.  

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gotlucky:
Wouldn't you say that is what Hoppe meant? That it is implied in the statement that the coercer expects to profit at the expense of the coerced?

I'm sure that's what he meant, but that's not what he said.  Just adding the words "ex ante" after the word profit would be sufficient to make his statement true, but my rewording is clearer.

I don't see how Hoppe's wording is awkward and vague. You are both saying the same thing.

His point is that absolute advantage is not necessary, merely comparative advantage.  My adding the word "even" makes it clearer.  His word "still" is headless without the word "even", and hence awkward.  Also, Hoppe's statement itself does not say there is any comparative advantage... If I am exactly 3 times better than you at producing X and exactly 3 times better than you at producing Y, neither of us can benefit through trade, and we might as well both produce our own X's and Y's. 

This is nitpicking, but I'm guessing that's what the OP wanted - a thorough dissection of the statements as they are.

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Jargon replied on Tue, Oct 30 2012 5:43 PM

Minarchist:

3. Whenever [one person's] supply of a good increases by one additional unit, provided each unit is regarded as of equal serviceability by a person, the value attached to this unit must decrease.

Not true a priori, as it depends on the value scale of the person in question. For example, a person could have nothing on their value scale but chickens. Hence, no matter how many chickens he accumulates, getting another chicken never drops below anything else on his value scale, because there is nothing else on his value scale. That said, in all normal circumstances, the law of diminishing marginal utiity is a highly probable a posteriori claim, as typically (I want to say always, but it's still a posteriori) people do have several things on their value scales, such that when the top value is satisfied, what had been the second highest value moves into the first rank, and so another unit of the item that had been in the first rank become less valuable than it had been.

The Law of Diminishing Marginal Utility is derived from the Action Axiom and a priori true. Man acts to alleviate felt uneasiness, using given means to achieve a desired end. If man acts to alleviate one felt uneasiness before he acts to alleviate another one, it is because he values the alleviation of the former uneasiness higher than that of the latter. So, granting a stock of homogenous goods, if a person uses one of said good, it is toward an end, whose successor end must be of relatively less importance to the actor. It follows then, that the 6th unit of a homogeneous stock of goods would be put towards a more highly valued end than that of the 7th unit of said stock of goods.

http://mises.org/daily/5014/What-Can-the-Law-of-Diminishing-Marginal-Utility-Teach-Us

6. Whenever the quantity of money is increased while the demand for money to be held as cash reserve on hand is unchanged, the purchasing power of money will fall.

You can say a priori that if the supply of a goods increases, and quantity demanded remains unchanged, either the price will fall or there will be an unsold surplus, but I suppose the claim that the former will occur rather than the latter rests on the a posteriori knowledge that unfettered markets will tend to clear (i.e. unsold surplus won't last long and the price will fall).

 

Say's Law - basically that without price controls, the aggregate production of goods signifies the adequate aggregate demand to consume said goods, because man produces because he wants to consume.

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gotlucky replied on Tue, Oct 30 2012 10:31 PM

I'm sure that's what he meant, but that's not what he said.  Just adding the words "ex ante" after the word profit would be sufficient to make his statement true, but my rewording is clearer.

I agree that yours is clearer, but I'm still reading his as the same meaning as yours. I mean, it's possible someone could read it that the coerced expects to profit at the expense of the coercer, but I think that would be a fault of the reader and not a fault of Hoppe.

His point is that absolute advantage is not necessary, merely comparative advantage.  My adding the word "even" makes it clearer.  His word "still" is headless without the word "even", and hence awkward.  Also, Hoppe's statement itself does not say there is any comparative advantage... If I am exactly 3 times better than you at producing X and exactly 3 times better than you at producing Y, neither of us can benefit through trade, and we might as well both produce our own X's and Y's. 

If a doctor is 3 times better at typing and at diagnosing patients than his secretary, he still benefits from hiring her and engaging in trade. I might be missing something in what you are saying.

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gotlucky:
I agree that yours is clearer, but I'm still reading his as the same meaning as yours. I mean, it's possible someone could read it that the coerced expects to profit at the expense of the coercer, but I think that would be a fault of the reader and not a fault of Hoppe.

No, that was only a secondary point.  My main point is that the statement is false without the addition of the words "expects to".  He says these words in his first statement, but in the second statement they are absent.  It is easy to think of examples where Hoppe's statement as it is is wrong.  Suppose I use coercion to steal your TV.  We can say a priori that I expect to profit (because otherwise I wouldn't have bothered), and that you do not expect to profit (otherwise, you would have just given me the TV). 

But suppose I get the TV home and then due to an electrical fault, the TV catches fire and burns my house down.  Now I regret making the exchange.  I did not profit from making the exchange, despite my expectation that I would.  And you breath a sigh of relief, because due to the theft, it wasn't your house that burnt down.  You profited from me stealing your TV, despite your expectation that you would make a loss.

This is what I mean by "profits ex ante".  I (the coercer) profited ex ante and you (the coerced) had a loss ex ante.  But you profited ex post, while I had a loss ex post.  When it is not specified whether someone is talking about ex ante profits or ex post profits, the statement becomes ambiguous, and in fact usually when people say profits they mean profits ex post, which makes it even more important to specify when you mean ex ante.

Is that clearer?

If a doctor is 3 times better at typing and at diagnosing patients than his secretary, he still benefits from hiring her and engaging in trade. I might be missing something in what you are saying.

No that is incorrect.  The whole point of the classic doctor-secretary example is that the doctor is a lot better at diagnosing patients than the secretary, while the doctor is only a bit better at typing than the secretary.  This difference is what gives rise to the possibility of gains from trade.

If you do the math, you can see there is one circumstance when there is no possibility of a gain from trade.  Suppose you can produce fish at 3 fish per hour and apples at 12 apples per hour.  Like the secretary, I am less productive at both: I can only produce fish at 1 fish per hour and apples at 4 apples per hour.  3/1=12/4=3, so there is no comparative advantage here, unlike the doctor-secretary example.  If we both spend 5 hours producing fish and 5 hours producing apples, between us we will have produced (15+5)=20 fish and (60+20)=80 apples.  Usually by dividing labor, we would be capable of producing between us >20 fish and >80 apples, but the way this example is constructed, there is no way we can do that.  If I spend the full 10 hours producing fish and you spend 3 hours 20 minutes producing fish and 6 hours 40 minutes producing apples, we will have (10+10)=20 fish and (80+0)=80 apples.  There is no overall gain to be had from engaging in trade and a division of labor.

An excellent video explaining the law of comparative advantage is here:

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Thank you, everyone!

The point of the exercise was to demonstrate how Austrians use models to prove their a priori statements.

Unlike most other economists, no numerical simulations were run, but I would say that something that can be called abstract simulation happened in mind of everyone who tried to reply. You probably tried to envision what choices all the persons involved had, and how they would rationalize their choice. It's a simulation that compresses all possible (probably infinite) specific executions into a few classes of executions - e.g., instead of all possible exchanges for use case 1, you probably considered just 3 classes - when both persons expected to benefit, when only one expected to benefit, when none expected to benefit. Do you agree?

Oh, and my objections to the items in OP:

1. Whenever two people A and B engage in a voluntary exchange, they must both expect to profit from it.

No complaints.

2. Whenever an exchange is not voluntary but coerced, one party profits at the expense of the other.

"Expects" is missing (though as some of you said, it's probably implied).

3. Whenever the supply of a good increases by one additional unit, provided each unit is regarded as of equal serviceability by a person, the value attached to this unit must decrease.

What if the supply increased to some threshold, which now enables some new action? E.g., with one box I couldn't get out of the hole, so my best use for it was as a chair to sit on. With the second, though, I can stack them, and get out.

4. Of two producers, if A is more productive in the production of two types of goods than is B, they can still engage in a mutually beneficial division of labor.

If their productivity in two types is exactly proportional, they cannot gain anything by trade. If you say that in real life nothing ever is exactly proportional, I will say that in real life transactional costs are never exactly zero.

5. Whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result.

I think I can come up with a counter-example, when the wages will rise without anyone getting fired. The basic idea is to have initial state with high enough price/cost margin for all producers or low enough elasticity for their products, so that they will prefer to raise wages rather than reduce production (which will result from firing workers).

6. Whenever the quantity of money is increased while the demand for money to be held as cash reserve on hand is unchanged, the purchasing power of money will fall.

No complaints.

 

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Minarchist,

3. Whenever [one person's] supply of a good increases by one additional unit, provided each unit is regarded as of equal serviceability by a person, the value attached to this unit must decrease.

Not true a priori, as it depends on the value scale of the person in question. For example, a person could have nothing on their value scale but chickens. Hence, no matter how many chickens he accumulates, getting another chicken never drops below anything else on his value scale, because there is nothing else on his value scale. That said, in all normal circumstances, the law of diminishing marginal utiity is a highly probable a posteriori claim, as typically (I want to say always, but it's still a posteriori) people do have several things on their value scales, such that when the top value is satisfied, what had been the second highest value moves into the first rank, and so another unit of the item that had been in the first rank become less valuable than it had been.

This is incorrect.  The law is indeed a priori.  It doesn't require the person to have more than one good on their value scale.  (And even if it did, this would not mean it is no longer a priori... it would just mean that an extra assumption needs to be made to make it true).  Other goods are not relevant at all.  The law is that he will value an (n)th unit less than he values the (n-1)th unit.  This is because the goal he will achieve by having the (n-1)th unit is higher on his value-scale than the goal he will use the (n)th unit to achieve.

5. Whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result.

Add "provided demand is elastic from the market price to the fix" and this is true a priori (understanding that it need not be an absolute increase in unemployment, but only higher unemployment than otherwise would have existed), as fixing the price of X above the market price decreases quantity demanded and (eventually) increases quantity supplied, resulting in an unsold surplus.

While this is true, I think it is covered by the ceteris paribus assumption and doesn't need to be stated as an additional proviso.  If demand is indeed elastic between the market price and the fix, then that tells us that all other things won't be equal when the fix is introduced.  Employers cannot employ the same number of people at a higher price, unless they devote a higher proportion of their outgoings to labor than they are now, and hence spend less on non-labor.  This violates ceteris paribus, because employers would be changing their spending habits at the same time as the fix is introduced.  In other words, it is part of ceteris paribus that the total amount spent by all employers on labor won't change when the fix is brought in, and hence if they are paying each person more, they must be employing fewer people. 

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Zlatko replied on Wed, Oct 31 2012 4:35 PM

More nitpicking: 2. implies but doesn't specify that one of the parties is doing the coercion. If a third party is doing the coercing, they can both become worse off and even a priori expect to become worse off by the exchange.

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#6 question: "cash reserves on hand" -  is that saying cash in my pocket? or does it include cash in the bank (or anywhere i have 24/7 instant access to it)?  im assuming its the latter

other question: so is it a priori true that if my demand for money to be held as cash reserve on hand is unchanged then my cash reserves remain unchanged?

Meaning my demand for cash is the same, but now my demand for TVs is higher than my demand for cash so now i have less cash reserves

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zlatko - the coercer is the benefactor and the coerced (A and B) are worse off.  

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My main question resulting from this quiz would be not analysis of any of the specific statements (whether they are indeed true or false), but rather a more general problem: why do we have any differences of opinon over them? Aren't they supposed to be really obvious? Why do we arrive at different answers? Is it because the statements were imprecise? Is because we used a natural language instead of logic? Do we have different understanding of logic? For sure, these differences in opinions cannot be explained by differences in experience - these are supposed to be a priori solveable problems :)

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If all goods and services were able to be accurately measured in human energy . . .

Potato represents x units of human energy.

Gold coin represents x units of human energy.

. . . I don't think the notion all sides gain would hold up.  However, I suspect civilization will be using the abstract concept of money until it can be accurately measured

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Andris:

"My main question resulting from this quiz would be not analysis of any of the specific statements (whether they are indeed true or false), but rather a more general problem: why do we have any differences of opinon over them? Aren't they supposed to be really obvious? Why do we arrive at different answers? Is it because the statements were imprecise? Is because we used a natural language instead of logic? Do we have different understanding of logic? For sure, these differences in opinions cannot be explained by differences in experience - these are supposed to be a priori solveable problems :)"

Because there is no agreement on the nature and source of a priori knowledge.

 

"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)

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gotlucky replied on Thu, Nov 1 2012 12:27 PM

Graham Wright:

No, that was only a secondary point.  My main point is that the statement is false without the addition of the words "expects to".  He says these words in his first statement, but in the second statement they are absent.  It is easy to think of examples where Hoppe's statement as it is is wrong.  Suppose I use coercion to steal your TV.  We can say a priori that I expect to profit (because otherwise I wouldn't have bothered), and that you do not expect to profit (otherwise, you would have just given me the TV). 

I think I see our disagreement better now. I still don't think it's necessary to say "expect to". If I steal your TV, I have profited at the time of stealing your TV. I view myself as better off having stolen it rather than leaving your stuff alone. This isn't monetary profit, it's psychic profit.

Graham Wright:

But suppose I get the TV home and then due to an electrical fault, the TV catches fire and burns my house down.  Now I regret making the exchange.  I did not profit from making the exchange, despite my expectation that I would.  And you breath a sigh of relief, because due to the theft, it wasn't your house that burnt down.  You profited from me stealing your TV, despite your expectation that you would make a loss.

This is just a different kind of profit and loss. I had psychic profit at the time of stealing the TV, and instead of being able to make a monetary profit by selling the TV, I incurred several losses, which incidentally probably also includes psychic losses.

Graham Wright:

This is what I mean by "profits ex ante".  I (the coercer) profited ex ante and you (the coerced) had a loss ex ante.  But you profited ex post, while I had a loss ex post.  When it is not specified whether someone is talking about ex ante profits or ex post profits, the statement becomes ambiguous, and in fact usually when people say profits they mean profits ex post, which makes it even more important to specify when you mean ex ante.

I think the issue you have with Hoppe is that you are focusing on the monetary profits. I think Hoppe was just talking about profit in general.

Graham Wright:

No that is incorrect.  The whole point of the classic doctor-secretary example is that the doctor is a lot better at diagnosing patients than the secretary, while the doctor is only a bit better at typing than the secretary.  This difference is what gives rise to the possibility of gains from trade.

If you do the math, you can see there is one circumstance when there is no possibility of a gain from trade.  Suppose you can produce fish at 3 fish per hour and apples at 12 apples per hour.  Like the secretary, I am less productive at both: I can only produce fish at 1 fish per hour and apples at 4 apples per hour.  3/1=12/4=3, so there is no comparative advantage here, unlike the doctor-secretary example.  If we both spend 5 hours producing fish and 5 hours producing apples, between us we will have produced (15+5)=20 fish and (60+20)=80 apples.  Usually by dividing labor, we would be capable of producing between us >20 fish and >80 apples, but the way this example is constructed, there is no way we can do that.  If I spend the full 10 hours producing fish and you spend 3 hours 20 minutes producing fish and 6 hours 40 minutes producing apples, we will have (10+10)=20 fish and (80+0)=80 apples.  There is no overall gain to be had from engaging in trade and a division of labor.

I see what you are saying, but I don't think it's necessarily the case that we need to have more of both goods in order to profit. We might prefer one vastly over the other. Suppose the doctor is a 10:1 ratio better than the secretary at everything. He can still benefit from trade because he needs to spend his time where the real money maker is, being a doctor. He may only require 10 documents to be typed up a day, or 10 documents to be photocopied or faxed, etc. Even if he could type and photocopy more documents than the secretary, he would be overproducing if he split his time. And even if he were to spend one hour accomplishing all his secretary's tasks, that's still one hour spent not being with a patient.

The example of the pPod and apps is very good, but the difference is that people value the pPod because of the apps - the apps are what makes the pPod useful. But in the case of a doctor and secretary, or a lawyer and secretary, etc., people don't value the doctor because of the secretary. They value the doctor because of his skillset. The clerical work does help the doctor be more productive in terms of keeping track of patients and stuff like that, but it's not why people value the doctor. Any time the doctor spends doing clerical work is time that patients can't see him.

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AJ replied on Thu, Nov 1 2012 1:22 PM
It appears that the different answers were due primarily to unclear wording in the original statements, except perhaps for #3, where it is additionally unclear whether a set of two boxes used for climbing out of a hole is a different good than a single box used for storage.
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Graham Wright:
And even if it did, this would not mean it is no longer a priori... it would just mean that an extra assumption needs to be made to make it true

Yes, you could rescue its aprioricity by adding another condition.

It doesn't require the person to have more than one good on their value scale...Other goods are not relevant at all.  The law is that he will value an (n)th unit less than he values the (n-1)th unit.  This is because the goal he will achieve by having the (n-1)th unit is higher on his value-scale than the goal he will use the (n)th unit to achieve.

But, again, that's assuming that this chicken-maniac has different goals. But if chickens for him are a consumer good, and all he has in his value scale are chickens....well then we can say two things, (1) he's insane (lol), and (2) he's not subject to the law of diminishing marginal utility. The law will apply only to persons who have different goods on their value scales, or to persons who have the same goods, but with these goods as producer goods, and with different products in mind for different units of the good. For example, if the chicken-maniac wanted to to produce a bed out of chickens, and also a house out of chickens, those two ends would be located at different places in his value scale. Suppose the (N-1)th chicken is going to the house, which he values more highly than the bed. Then, indeed, the Nth chicken would be valued less than the (N-1)th chicken, and the law applies. But not so if chickens are consumer goods, or if they're producer goods but all for the same product (e.g. just beds).

Jargon:
The Law of Diminishing Marginal Utility is derived from the Action Axiom and a priori true. Man acts to alleviate felt uneasiness, using given means to achieve a desired end. If man acts to alleviate one felt uneasiness before he acts to alleviate another one, it is because he values the alleviation of the former uneasiness higher than that of the latter. So, granting a stock of homogenous goods, if a person uses one of said good, it is toward an end, whose successor end must be of relatively less importance to the actor. It follows then, that the 6th unit of a homogeneous stock of goods would be put towards a more highly valued end than that of the 7th unit of said stock of goods.

Again, this assumes that the person in question has different ends, different felt uneasinesses .I was pointing out that it is conceivable for there to be a case where a person has only one end (getting chickens), only one felt uneasiness (lack of chickens).

N.B. Since value is subjective, the value scale is ordinal: i.e. there are no magnitudes attached. The value scale represents the value of one thing relative another thing. Obviously, this cannot be done unless there are at least two different things. Strictly speaking, a value scale with just chickens qua consumer goods is not a value scale at all; it does not express relations; it has no order; it is just a list.

apiarius delendus est, ursus esuriens continendus est
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gotlucky:
I think I see our disagreement better now. I still don't think it's necessary to say "expect to". If I steal your TV, I have profited at the time of stealing your TV. I view myself as better off having stolen it rather than leaving your stuff alone.

You cannot assess whether or not you profited from any given decision until you have full knowledge of the consequences of that action.  So in the short time between you stealing my TV and it catching fire and burning your house down, you may think you profited, but when you learn more about the consequences of what you did (i.e. you learn that one of the consequences of your decision was that your house would burn down) you realise you actually did not profit, you made a mistake.

If you don't add the words "expects to" then the statement is a denial that human beings (or at least, coercers) ever make mistakes, because it assumes that profiting ex ante (which we do whenever we make a voluntary exchange, or initiate a coercive exchange) always means profiting ex post (which this example shows we don't).  Hoppe is certainly not meaning to imply this, but without being specific his statement is open to that interpretation.

More on ex ante and ex post: Murphy, Rothbard, Carden.

I never mentioned money or monetary profits.  I was talking about psychic profits throughout.  I don't know why you thought otherwise.  This is not where our disagreement lies.

I see what you are saying, but I don't think it's necessarily the case that we need to have more of both goods in order to profit.

That is what I take Hoppe to mean when he says "a mutually beneficial division of labor".  My point is that in a contrived two-person-two-good society, there is a situation where no advantage can be had by dividing labor, although it is extremely unlikely, and increaingly unlikely as the number of people and the number of goods in the society increases.  But the caveat is technically necessary for the statement to be true.

Here is a Mises Daily on the Law of Association (aka Law of Comparative Advantage): Mallick.

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@ Minarchist,

I may have misunderstood what you originally meant.  I thought you were talking about a chicken-maniac, meaning someone who has multiple ends, but all of them can be achieved using chickens.  We are in agreement that the Law of DMU applies to this person.  A person with only one end is different.  Although I would argue the Law of DMU applies even here.  He obviously values the first unit of the good that will satisfy his one end more than he values the second unit, because he doesn't value the second unit at all, nor any further units, so the law holds, even here.

 

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AJ:
It appears that the different answers were due primarily to unclear wording in the original statements

Yep.

except perhaps for #3, where it is additionally unclear whether a set of two boxes used for climbing out of a hole is a different good than a single box used for storage.

What is unclear about that?  "A set of two boxes" and "a single box" are not things that are considered equally serviceable from the point of view of the actor, so they are different goods (or rather, units of two different goods).  I take it you are alluding to the view of David Friedman on the Law of DMU, as he explained it in the recent thread on it?

I'd be interested to hear whether David Friedman considers any of Hoppe's statements in the OP to be a priori true.

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Graham Wright:
A person with only one end is different. Although I would argue the Law of DMU applies even here.  He obviously values the first unit of the good that will satisfy his one end more than he values the second unit, because he doesn't value the second unit at all, nor any further units, so the law holds, even here.

I suppose that's true for someone who has only one end, and that end is acquiring one unit of chickens. But I was thinking more along the lines of a person who has only one end, and that end is acquiring chickens in general, not a particular number of units of chickens. That is, a chicken-maniac with an insatiable lust for chickens, which will never be satisfied no matter how many chickens he acquires. For this person, no one unit of chickens is more or less valuable than any other, the Nth unit is not less valuable than the (N-1)th unit, since all units go toward achieving one and the same end, and do so equally well.

 

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AJ replied on Fri, Nov 2 2012 12:53 AM
Graham, that makes sense to me, but then don't we have to allow that one set of objects can be seen as two (or more) different goods by the same actor? It seems to call into question the utility of the DMU if obtaining an additional unit of a good can actually provide higher utility, albeit as something we now will call a different good.
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"A set of two boxes" and "a single box" are not things that are considered equally serviceable from the point of view of the actor, so they are different goods (or rather, units of two different goods)

Well, to me it sounds like "the Law of DMU is always true, except when it does not". If you do not like the boxes example, consider another: puzzle pieces. The value of the last piece is vastly higher than that of the first. Or take a pair of socks for that matter (or medieval shoes, which were identical for left and right feet). Come on, even with horses, which are usually the goods in examples - you can use two horses for the job which no horse alone could do.

If you persist that a set of two items is a different good - fine, I guess we can define it this way. Then we have to understand - is it always the case? Are sets of any size always a different good? Or does it depend on the specific person and his ends? Does this reduce the value of the Law of DMU?

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Minarchist:
I suppose that's true for someone who has only one end, and that end is acquiring one unit of chickens. But I was thinking more along the lines of a person who has only one end, and that end is acquiring chickens in general, not a particular number of units of chickens. That is, a chicken-maniac with an insatiable lust for chickens, which will never be satisfied no matter how many chickens he acquires. For this person, no one unit of chickens is more or less valuable than any other, the Nth unit is not less valuable than the (N-1)th unit, since all units go toward achieving one and the same end, and do so equally well.

It seems to me that that is an ill-defined end.  An end is always a state of affairs, a particular arrangement of the environment, that the actor has in mind when he acts.  "Acquiring chickens in general" is not an end, but an action.  The person you're talking about has multiple ends, arranged like this on his value-scale:

...

- Having N+1 chickens

- Having N chickens

- Having N-1 chickens

...

I think the answer to whether the law applies here is the same as whether it applies to tyres or sacks of grain.  Because here the actor is not treating each chicken as an interchangeable unit, but is treating N+1 chickens as a whole separate good to N chickens.  The (N+1)th chicken is not being used to satisfy an additional end.  The actor is switching his use of his N chickens, he foregoes the achievement of the end "having N chickens" and replaces it with an end "having N+1 chickens" which is higher on his value scale.  The examples are equivalent, but since this chicken-maniac example is a bit obscure/bizarre, we should concentrate on the much better example of tyres.

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@ AJ and Andris,

I think that's what Friedman was getting at when he said "I think that once one takes seriously both how complicated a utility function and how complicated a production function can be, you will discover that if you limit yourself to a priori argument you can't do much, if any, economics."

I think nirgrahamUK and DD5 explained the Austrian way of looking at things very well in that thread.  We Austrians are defining "a good" in way that is entirely subjective, and the problem comes when we point to an objective "good" in the real world and try to use our theories to explain it's price.

If we start off being entirely subjective, there is no relationship at all between "4 tyres" and "1 tyre".  There are certain ends (like a tyre swing) that can be achieved using 1 unit of the good "1 tyre" and there are certain ends (like a car) that can be achieved using 1 unit of the good "4 tyres".  That there is an objective, physical relationship between these two goods does not matter to the subjectivist.  The law of DMU applies to both goods separately.  We can construct a demand curve for units of the good "1 tyre" and a separate demand curve for units of the good "4 tyres". 

The physical relationship between these two goods means that their demand curves are very closely related.  I think the proper way of thinking about it is to consider that it is virtually costless to "switch" or "arbitrage" between the two goods, or to "produce" the one good using the other.  4 units of "1 tyre" can be used as a means to "produce" 1 unit of "4 tyres".  And 1 unit of "4 tyres" can be used as a means to "produce" 4 units of "1 tyre".  Both of these production processes are so cheap that any price disparity between the price of 4 units of "1 tyre" and the price of 1 unit of "4 tyres" will be closed very quickly.  Because of this fact, we generally combine the demand curve for units of "1 tyre" and units of "4 tyres" into one demand curve for "tyres".  This simplification causes problems when we try to apply the law of DMU to the combined good, rather than each good separately.

The reason I use the word "arbitrage" above is because it's really no different to ordinary arbitrage.  We talk about the demand curve for "gold", or price of "gold", but this a simplification because actually each individual gold seller faces a different demand curve.  The reason we simplify is because it is very easy to arbitrage between "gold in London" and "gold in Edinburgh", so we don't bother breaking it down that far and just talk about the price of "gold" in general.

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AJ replied on Fri, Nov 2 2012 9:08 PM
I read the thread, and although Friedman makes two errors - it's not the 4th tire that will be used but the set of four tires, and of course logic must trump evidence - I have to wonder what use it is to hold constant for unit size, that is, to say that DMU only applies to uses of a prespecified set of units (in this case individual units of tires). After all, isn't the question we would like to answer ultimately whether the actor desires *to acquire* the fourth tire more or less than he desired to acquire the third one? If we speak of "diminishing utility of each additional unit a good to an actor," this is obscured, but if we speak of "an actor's diminishing desire to acquire each additional unit of a good" (which seems from a praxeological perspective identical) it seems clear that DMD (diminishing marginal desire) does not hold. Are DMU and DMD really different?
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1. Whenever two people A and B engage in a voluntary exchange, they must both expect to profit from it.

True a priori if profit means that each person prefers the state of affairs expected to result from exchanging vs. not exchanging.

2. Whenever an exchange is not voluntary but coerced, one party profits at the expense of the other.

Not true a priori if we are using the same definition as above. If someone holds a gun to me and asks me to turn over my money, then in doing so I prefer the state of affairs expected to result from giving up the money vs. not giving up the money. Coercion doesn't change anything, and therefore both parties still (expect to) "profit."

3. Whenever the supply of a good increases by one additional unit, provided each unit is regarded as of equal serviceability by a person, the value attached to this unit must decrease.

Not true a priori.

4. Of two producers, if A is more productive in the production of two types of goods than is B, they can still engage in a mutually beneficial division of labor.

Not true a priori. In addition to the reason others have mentioned, it is also possible that both parties would simply prefer to not divide the labor.

5. Whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result.

Not true a priori. Nothing compels employers to fire employees just because their wages have increased.

6. Whenever the quantity of money is increased while the demand for money to be held as cash reserve on hand is unchanged, the purchasing power of money will fall.

Not true a priori. People set prices. Nothing compels them to raise prices just because there is more money in circulation.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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If someone holds a gun to me and asks me to turn over my money, then in doing so I prefer the state of affairs expected to result from giving up the money vs. not giving up the money. Coercion doesn't change anything, and therefore both parties still (expect to) "profit."

Interesting observation. Do I understand it correctly? There are three instants of interest:

  1. A and B before any interaction, A has his money.
  2. B points a gun to A, and demands A's money or else.
  3. A gives up money, B leaves with money, A lives (less happily).

What you are saying, both A and B profited from exchange, if we focus on the states 2 and 3. Most people, however, treat an exchange as a more prolonged transaction, involving state 1 as well.

This demonstrates once more, how different people attach different meaning to the simplest of statements.

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