Imagine that a generic drug becomes available for the treatment of a condition, no substitute good is available (inslulin might be a good example), and the elasticity of demand is low .Say that there are multiple companies producing this drug and competing with each other for customers.
Assuming no real differences in quality, competition should surely bring the price down to the level at which profits are around zero. So why do Austrians talk of prices being purely about preferences? Obviously a commodity won't sell if it isn't wanted, but that is just stating the obvious. What insight does this statement provide?
Here you set up a thought experiment with an exogenous variable (price) and allow the endogenous variable (demand) to vary as you adjust the former.
but you could have easily set up the exactli inverse experiment......
But from the perspective of the individual, price IS exogenous. Now you may claim that for a producer demand is exogenous, but producers still have to bear in mind the prices they pay for capital goods - which to the individual producer is also exogenous.
So, you say that I could set up an inverse experiment. Lets do that together.
A producer is selling a good at a certain price, he has a given number of demanders. Suddenly the amount of demand increases because people want more of it. Now let me ask you a question - are we talking about an increase in demand due to a general increase of effective demand (i.e a shift in the demand curve to the right)?, or are we talking about unchanged effective demand but a change in preferences (i.e a change in the quantity of goods demanded)?
@the OP, I think it's important to note that Austrians(at least not all of them) don't entirely deny the influence costs have in determining prices, especially for factors with many uses, though they do not constitute an ultimate causal factor in price formation, as everything eventually boils down to valuation and appraisement. Cf. George Reisman and Eugen von Bohm Bawerk on the Law of Costs.
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
Consumariat:...However, the new price of steel makes it more profitable, and so businesspeople are incentivised to enter into the market of steel production. The supply of steel increases and competition between producers lowers the price again. So the higher price - set by the increased demand - was just a temporary moment of price varience. The claim that price is set by consumer valuation is a static analysis that ignores the effect of current prices on the future behaviour of entrepreneurs.
business people are incentivised to enter into the market of steel production... this is called responding to consumer valuation....the entrepreneours that move out of their prior activities and into steel production do so in an attempt to satisfy what they perceive as a revolution in consumer valuation and hence in the structure of production necessary to serve that...
It is not as you might have had it, that consumer values chase production restoring an equilibium properly ascribable to some fixed 'mode of production' to which consumer valuation *responds* ... rather production chases anticipated consumer valuation and this process does not cease, it is endless....
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
In which situation could you imagine where the subjective valuation was not to buy but other factors caused a consumer to buy anyway?
There is no situation in which the valuation was 'not to buy' yet the good gets bought anyway. That's why I said it was a neccesary condition. But 'without losing our grounding lin logic', a condition that is neccesary is not neccessarily fundamental (a definition of 'fundamental' is probabley needed here). That is to say, there could exist other neccesary conditions. On what grounds do we say that one neccesary condition is more 'fundamental' than the other?
Is Labour not a neccesary condition? Have Austrians now adopted the labour theory of value? I'm guessing not. So on what grounds is subjective valuation 'more fundamental' a condition than anything else?
In the case of labour, there is a clear heirarchy because of causal structure...
labour is employed because of subjective valuation...
Subjective Valuation leads to examples of labouring....
There is a clear fundamental and a secondary phenomena.
Is this so hard to agree to?
Austrians(at least not all of them) don't entirely deny the influence costs have in determining prices, especially for factors with many uses, though they do not constitute an ultimate causal factor in price formation, as everything eventually boils down to valuation and appraisement.
See my last post for a response that is applicable to this. My question is about why subjective valuation is claimed to be more important than any other determining factor. It appears artbitrary.
We call contentment or satisfaction that state of a human being which does not and cannot result in any action. Acting man is eager to substitute a more satisfactory state of affairs for a less satisfactory. His mind imagines conditions which suit him better, and his action aims at bringing about this desired state. The incentive that impels a man to act is always some uneasiness [1]. A man perfectly content with the state of his affairs would have no incentive to change things. He would have neither wishes nor desires; he would be perfectly [p. 14] happy. He would not act; he would simply live free from care.
My question is about why subjective valuation is claimed to be more important than any other determining factor. It appears artbitrary.
Consumariat:That is to say, there could exist other neccesary conditions
Example being?
Consumariat:That is to say, there could exist other neccesary conditions. On what grounds do we say that one neccesary condition is more 'fundamental' than the other?
For if there was no prior subjective valuation from both the side of the purchaser and the seller all of the production that goes into the product and all of the effor that goes into even considering an exchange would never even have existed. It is at the bottom. From subjective valuation comes everything else. You cannot have anything else without a preference to do so first.
Consumariat:Labour
But you would never consider the act of labor without first having a preference/desire to produce and foster someone else's prefernece to buy.
In which situation can you describe where labor is present but that subjective valuation did not drive that labor into existence in the first place?
Consumariat:So on what grounds is subjective valuation 'more fundamental' a condition than anything else?
Can you provide an example of a condition that does not depend on the prior existence of some type of subjective valuation? I doubt you could imagine such a thing.
I have not said that consumer valuation chases production. Consumer valuations determine what percent of the overall capital infrastructure is dedicated to a given task. But price is not linked to how much somthing is 'prefered'. Think of it this way
There is an economy with 10 producers, 3 goods (toasters, kettles and hair-dryers), and 100 consumers.
50 consumers want to buy toasters, 30 want to buy kettles, 20 want hair-dryers. Given a competitive market, the proportion of productive energies spent making these goods should be 50%, 30%, 20%.
This is a good example of how preferences determine the structure of production. However, there is nothing in this story that tells us what the price of each good will be. It is not true to say that kettles are a third more expensive that hair-dryers, or that a hair-dryer is two fifths the price of a toaster. The prices of each are unknown and cannot be duduced from a set of preferences even if we know them.
You will have to explain this a bit more. I am not sure what you mean.
Yes it is VERY hard to agree with because it is circular logic. You are telling me that subjective valuation is more fundamental than labour because labour is subjectively valued.
My question is about why subjective valuation is claimed to be more important than any other determining factor.
Because consumers determine the direction of production.
>>However, there is nothing in this story that tells us what the price of each good will be. It is not true to say that kettles are a third more expensive that >>hair-dryers, or that a hair-dryer is two fifths the price of a toaster. The prices of each are unknown and cannot be duduced from a set of preferences >>even if we know them.
You are right and wrong. in your example with your limited info there is nothing that tells us what the price of each good will be. But if you could know the resources available, and if you had everyones set of preferences and expectations then you would be able to arive at the price solution. This is not feasible in reality, but heyho.
>>The prices of each are unknown and cannot be duduced from a set of preferences even if we know them.
because we lack other info....what do you think is left out? I want to check that what you come up with is not subjective value or an outcome of it...
>>Yes it is VERY hard to agree with because it is circular logic. You are telling me that subjective valuation is more fundamental than labour because >>labour is subjectively valued.
No dude. read it slowly. people labour , they perform acts only because stuff happens in the meat in their heads.
Consumariat:However, there is nothing in this story that tells us what the price of each good will be. It is not true to say that kettles are a third more expensive that hair-dryers, or that a hair-dryer is two fifths the price of a toaster. The prices of each are unknown and cannot be duduced from a set of preferences even if we know them.
Preferences (Preference Scales) are not just an ordinal ranking of the consumer (final) goods, they are an ordinal ranking of the good TIED with a value (what someone is willing to give up for this good). For the third time, go check out the example in Lessons For The Young Economist.
Edit: I will also look up a Salerno speech, I remember him explaining Preference Scales really well in one of them.. I should have the link a little later.
And I do remember Rothbard writing/drawing examples of them somewhere, I just forget exactly where.
Consumariat:Yes it is VERY hard to agree with because it is circular logic. You are telling me that subjective valuation is more fundamental than labour because labour is subjectively valued.
Go start back at the basic Crusoe Economics and build up from there.
You cannot have anything else without a preference to do so first.
OK, I will admit you are correct on this point. Prefering one act over another is prior to labouring in causality, and this would make it more 'fundamental' so to speak. However, being causally prior to labour does not imply that prices are DETERMINED by 'valuation' whatever that means.
I think the Austrians rejection of 'utils' is very insightful, but the conclusion is that Preferences can only determine ratios of productive activity, not prices themsleves.