I've just finished the section on Capital Goods in HA (pg 490). Mises talks about how prices of factors plus the opportunity cost in terms of time for combining them(given positive time preference) equals the price of the produced factor/consumer good(while not explicitly mentioning he's dealing with equilibrium conditions).
This got me thinking. What if the prices for the individual factors are not known? What happens in the case of 2 goods A and B both completely specific, such that they can only produce good C? Also, what about when just one good is highly specific but the others are not? Is it always possible to equate prices of factors with interest to the prices of produced goods? What are the exceptions?
I know fishing through MES and HA I should be able to find the answers (indeed I'm going to start once I finish this message), but I would really appreciate if somebody could save me some time.
Thanks in advance.
"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."
Guess it was pointless me making this thread. Mises answers the question on pg 336:
"A Limitation on the Pricing of Factors of Production The process which makes the prices of the factors of production spring from the prices of products can achieve its results only if, of the complementary factors not replaceable by substitutes, not more than one is of absolutely specific character, that is, is not suitable for any other employment. If the production of a product requires two or more absolutely specific factors, only a cumulative price can be assigned to them. If all factors of production were absolutely specific, the pricing process would not achieve more than such cumulative prices. It would accomplish nothing more than statements like this: as combining 3 a and 5 b produces one unit of p, 3 a and 5 b together are equal to I p and the final price of 3 a + 5 b is--due allowance being made for time preference-equal to the final price of I p. As entrepreneurs who want to use a and b for purposes other than the production of p do not bid for them, a more detailed price dctermination is impossible. Only if a demand emerges for a (or for b) on the part of entrepreneurs who want to employ a (or b) for other purposes, does competition between them and the entrepreneurs planning the production of p arise and a price for a (or for b) comes into existence, the height of which determines also the price of b (or a).
A world in which all the factors of production are absolutely specific could manage its affairs with such cumulative prices. In such a world there would not exist the problem of how to allocate the means of production to various branches of want-satisfaction. In our real world things are different. There are many scarce means of production which can be employed for various tasks. There the economic problem is to employ these factors in such a way that no unit of them should be used for the satisfaction of a less urgent need if this employment prevents the satisfaction of a more urgent need. It is this that the market solves in determining the prices of the factors of production. The social service rendered by this solution is not in the least impaired by the fact that for factors which can be employed only cumuIativcly no other than cumulative prices are determined.
Factors of production which can be used in the same ratio of combination for the production of various commodities but do not allow of any other use, are to be considered as absolutely specific factors. They are absolutely specific with regard to the production of an intermediary product which can be utilized for various purposes. The price of this intermediary product can be assigned to them cumulatively only. Whether this intermediary product can be directly apperceived by the senses or whether it is merely the invisible and intangible outcome of their joint employment makes no difference."
Come on guys! You can do better than this!