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Austrian Analysis by Anecdote » The Disabled Car Because of Missing or Broken Essential Parts Problem
The Disabled Car Because of Missing or Broken Essential Parts Problem

Sparsely scattered over Austrian and other economic literature are treatments of both the valuation and the factor pricing (separately) of essential parts of an automobile whose absence or malfunction prevent the automobile from serving its intended end or goal. Known examples include a steering wheel and a fan belt.

This is a call for references to any such treatments or mentions, for automobiles or anything else.

Thanks, Don

 

 

Posted Tue, Feb 3 2009 3:39 PM by Don Lloyd

Comments

nirgrahamUK wrote re: The Disabled Car Because of Missing or Broken Essential Parts Problem
on Wed, Feb 4 2009 11:45 AM

George Reisman drawing argument from Bohm-Bawerk:

www.capitalism.net/.../boehm_q.htm

excerpt:

What Böhm-Bawerk has shown in these passages is that when the price of goods such as [automobile] fan belts, or anything else whose own, direct marginal utility is extremely high, is determined on the basis of cost of production, precisely then is its value determined on the basis of marginal utility--the marginal utility of the means of production used to produce it, as determined in other, less important employments.

Don Lloyd wrote re: The Disabled Car Because of Missing or Broken Essential Parts Problem
on Wed, Feb 4 2009 12:46 PM

nirgrahamUK,

Thank you. That is a very useful reference.

Regards, Don

nirgrahamUK wrote re: The Disabled Car Because of Missing or Broken Essential Parts Problem
on Wed, Feb 4 2009 6:56 PM

this topic rather interests me too, and i find its not the easiest to get fluent in, so if you want to chat about it sometime feel free to msg me. also if you find any similar literature i'd be grateful for a link. cheers.

Don Lloyd wrote re: The Disabled Car Because of Missing or Broken Essential Parts Problem
on Wed, Feb 4 2009 9:41 PM

nirgrahamUK,

OK, that sounds good, although we can start here, then see if any alternatives make sense (read : are comprehensible by me)

I have a couple of references that will need some digging.before I post.

Regards, Don

Don Lloyd wrote re: The Disabled Car Because of Missing or Broken Essential Parts Problem
on Thu, Feb 5 2009 1:50 AM

mises.org/.../aen21_3_1.pdf

REISMAN: If you open up the hood of an automobile, you see a number of individual parts that disable the entire car if they are broken. There’s a fan belt, a carburetor,  a starter, among many other items.There’s no way that you can derive the value of those items from the value of the car, because you would have to attribute the entire value of the car over and over again. When you go to the car-parts store to buy another fan belt, you only pay a tiny fraction of the utility that you derive from it. You pay $20, but it restores the entire value of a $20,000 car. In this case, the value of the car is not imputed back to a part that makes it run. You are only paying a price based on the cost of production of the belt. What determines the cost of production is the value of alternative marginal products elsewhere in the economy.

This seems incomplete. It only applies if a single necessary part is missing. If two or more necessary parts are missing, only the last part acquired has a non-zero marginal utility. Even better, we can say that the full $20,000 is restored only by an acquisition of a bundle of ALL the missing necessary parts.

Regards, Don

Don Lloyd wrote re: The Disabled Car Because of Missing or Broken Essential Parts Problem
on Thu, Feb 5 2009 1:49 PM

mises.org/.../5-Klein.mp3

From 24:14 to 26:02, Klein on the steering wheel as an indispensible factor.

Regards, Don

 

nirgrahamUK wrote re: The Disabled Car Because of Missing or Broken Essential Parts Problem
on Fri, Feb 6 2009 6:20 PM

thanks for the klein link, it was good ! (i watched the video version)

so if you have a full car minus steering wheel, its marginal utility, its value 'for you' is the use of the car, many thousands of dollars. yet the cost that you have to pay to procure it is thankfully much less, its the cost of production of the steering wheel, itself arrived at by considering the other uses that the factors of production that go towards making steering wheels could be used for ... is this close???

Don Lloyd wrote re: The Disabled Car Because of Missing or Broken Essential Parts Problem
on Fri, Feb 6 2009 11:15 PM

n-UK,  

(pls choose a nickname)

I think that's part of it. If a specific steering wheel had multiple uses, then it would tend to.pick up the value that it has in its least-valued use for all of its uses. Since this is not likely to be true, the same ideas should apply to all of the factors used in the steering wheel.

I think that having an email connection would be useful If you agree you can send me a first contact at (First name-3), (1st letter of Last Name), (three zeroes), (one), AT comcast.net

Regards,Don