Philosophic Issues in EconomicsPart 3

Harry Binswanger1Hr 29min

Price (result of supply and demand) is socially objective
Supply is objective
Short Term supply
EX: Consider two barterers, Horton has 20 horses, but how many is he open to trading
away for cows?
Depends on how many cows he can get per horse
His supply depends upon his hierarchy of values
Although the number of horses he has is a simple fact, the number that hes
willing to trade depends upon a ranking of values
Supply in the short term is not intrinsic- depends on his willingness
EX: Store owner has 20 shirts on his rack, isnt that jus the ST supply?
No, he can use the shirts has loss leaders etc. It depends upon his judgmentthey
dont have to be sold.
Even when production is over, supply is not intrinsic. It is objective.
Long Term supply
Depends upon decisions of how much to produce
How many horses/shirts to manufacture
Not determined by fate- not an intrinsic number
Depends upon producers judgment of facts
Cost of capital etc
Demand is objective
Demand is money spent (or payment of goods in barter)
Says law: Supply constitutes demand
Say says it as It is production which opens the demand for products. Money is but
the agent of transfer for values.
All payment for goods is done in other goodsOne persons demand is anothers supply
Supply/demand curve shows not just the actuality but potentiality as well
What one gives in trade is what the other receives
The demand for cows is simultaneously the supply for horses
A supply curve can be derived from the demand curve
Demand depends upon the purchasers hierarchy of values
Demand depends upon wealth of purchaser
What youre willing to spend depends upon what you have and what you have is a fact
Marginal value is wealth contextual value
The value to you of any item depends in part on how much of that item you already
have
The smaller proportion the object brings to your stock of it the less marginal value
Additional factorThere are more than just one person in a market hence you can draw
curves
As price falls, its not just that the net value to you goes up but that there are more
people now in the market as well
Philosophic Issues in EconomicsPart 3
Harry Binswanger1Hr 29min
Hierarchy of value is objective
Austrian school is convinced that this is subjective
What they seem to mean is that values are not intrinsic but lack the proper concept of
objective
A value is that which one acts to gain or keep
One sense of hierarchy is the ranking of concretes under the same purpose
Ex: a ranking of friends
Another sense of hierarchy is a ranking of means and ends
Ex: Go to time square in order to get to the theater, go to the theater in order to be
entertaining, go to be entertained in order to enjoy life, etc
Another hierarchy is the issue of scope
Top would be life, then productive pursuit and romantic relationships etc
Another hierarchy is one of emergency
Things that are not particularly high values but have to be taken care of right now
Socially objective value is the sum of the individual judgments of the traders
Why isnt this social subjectivism?
The answer is that objective means governed by reason
In what way can reason govern a social phenomenon like price?
The societal governance of reason occurs only where there is freedom
Protecting individual rights is establishing the social objectivitythe reign of reason
Objectivity is a normative conceptthe right state vs the wrong state
Standards cannot demand omniscience, only what is possible for humans
Objective economic value has to be defined in terms of what is possible
It doesnt make sense to say that objective value would require that everyone is rational
When rights are protected, each person is free to think, act on his thinking, and reap
rewards/incur penalties
In a free market there is a natural selection of rational choices
Men succeed to the extent theyre rational
Men who are more rational make more money and that greater money has more of an
effect on the market.
Under statism, irrationality is subsidized
It means thwarting this feedback mechanism
When reason is free to operate reality is able to teach people a lesson
Thus, since demand and supply are objective, price is socially objective
Question: It takes time for the market to teach a lesson; does it change anything if that time period
extends to the length of your life?
People buy astrology charts etc and other irrational things that go on for entire life times, but
the best that can be done, as distinguished from the worst thing that can be done, is to establish
a free system where they can learn from mistakes
Consumer sovereignty is a cheap way to appease altruism
Capitalist is not a box office chaser
Philosophic Issues in EconomicsPart 3
Harry Binswanger1Hr 29min
Does not produce based upon market studies but innovates
Some are box office chasers but what they are chasing had to first be conceived and created
by the real leaders
Competition
Used in a general sense to mean actions to gain a value whose achievement excludes others
from gaining it
Economic competition is competition for sales revenue
Sharply distinguished from conflict
Is a peaceful competition
Emotion centered view: competition is a restraint on greed and lowers prices
Prices lowered by competition do not affect the average standard of living
Competition cannot lower all prices
Money saved on one purchase goes to bid up the prices of other purchases
What counts for the average standard of living is not the money price of this or that good
but the total production in the economy [!]
The lesson is that you have to look at the full context and not just the here and now
Supposedly all business men are trying to become a monopoly (where they can supposedly
raise their prices as much as they want)
The real value of competition is not that it stops someone from being a single seller, the real
value of competition is cognitive
Different minds have different ideas
This is what makes the FDA such a deadly entity
It is anti-competitive and therefore anti-progress
A monopoly is a market closed to competition by force
Ex: NY Taxis are holding market share by force
Alcoa had 100% of the aluminum market by virtue