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Murray Rothbard

Apr 08, 2025150 min read

Man, Economy, and State

Chapter 1: Fundamentals of Human Action

That humans act, because humans can have problems conceptually. That all human actions must take place in time—otherwise there is no need for action. That the laws of physics dictate that humans act. That time is scarce even for the immortal being. That knowledge itself cannot be goods—because once learned, it no longer has to be produced—it remains with the actor as an unlimited factor of production. That the multiverse implies both explanation and action. That all action involves exchange across the multiverse. That if you assume more than one value scales, you are extending across the multiverse, and that is forbidden by the laws of physics. That saving doesn’t necessarily have to be in the form of money. That he who possesses capital is that much further advanced in time. That the accumulated stock of capital goods imposes a conservative force on present-day action. That the more saving one has, the longer his period of provision becomes, as dictated by the laws of diminishing marginal utility and positive time-preference. That the judgement of whether one is objectively improving or not can only make sense in the domains where there is something objectively real—in other domains, you cannot define what “improvement in his value scale” means, because that is also subjective. That logistics is far more suited to the physical sciences, where, in contrast to the science of human action, the conclusions rather than the axioms are known. That praxeology consists of axioms and its implications—i.e., explanations. That refuting the existence of the multiverse will refute praxeology.

1. The Concept of Action

  • Human action is defined simply as purposeful behavior. (p. 1)
  • The purpose of a man’s act is his end; the desire to achieve this end is the man’s motive for instituting the action. (pp. 1-2)
    • Because humans have problems—while other animals don’t.develop
    • As Deutsch would likely argue, it is memes—and in the case of rational memes, knowledge—that drive men.
  • The fact that men act by virtue of their being human is indisputable and incontrovertible. To assume the contrary would be an absurdity. (p. 2)

2. First Implications of the Concept

  • The first truth to be discovered about human action is that it can be undertaken only by individual “actors.” (p. 2)
  • In order to institute action, it is not sufficient that the individual man have unachieved ends that he would like to fulfill. He must also expect that certain modes of behavior will enable him to attain his ends. Action requires an image of a desired end and “technological ideas” or plans. (p. 3)
  • To act, he must have technological ideas about how to use some of the elements of the environment as means, as pathways, to arrive at his ends. (p. 4)
  • All human life must take place in time. If the desired ends could all be attained instantaneously in the present, then man’s ends would all be attained and there would be no reason for him to act; and we have seen that action is necessary to the nature of man. Therefore, an actor chooses means from his environment, in accordance with his ideas, to arrive at an expected end, completely attainable only at some point in the future. (p. 4)
  • A man’s time is always scarce. Time is a means that man must use to arrive at his ends. Time is scarce for man only because whichever ends he chooses to satisfy, there are others that must remain unsatisfied. (p. 5)
  • The action axiom and its implications:
    • All means are scarce—if the means are in unlimited abundance, then they need not serve as the object of attention of any human action. (p. 5)
      • Time is scarce means time is a means—because the multiverse is a general condition.
      • Air is abundant means air is a general condition.
    • These scarce means must be allocated—this act of choice may be called economizing the means to serve the most desired ends. The larger the supply of means available, the more ends can be satisfied and the lower the rank of the ends that must remain unsatisfied. (pp. 5-6)
    • The uncertainty of the future must be true because the contrary would completely negate the possibility of action. This uncertainty stems from two basic sources: the unpredictability of human acts of choice, and insufficient knowledge about natural phenomena. (p. 7)
      • And I argue that both originate from the following general condition—humans are fallible because knowledge is unpredictable.develop
        • All his actions are of necessity speculations based on his judgment of the course of future events. The omnipresence of uncertainty introduces the ever-present possibility of error in human action. (p. 7)

3. Further Implications: The Means

Knowledge has to be instantiated physically in goods (labor included)—knowledge itself cannot be goods.develop

  • The means to satisfy man’s wants are called goods. (p. 8)
    • Consumption goods—directly serviceable
    • Factors of production—indirectly serviceable
  • Production:
    • The use by man of available elements of his environment as indirect means—as co-operating factors—to arrive eventually at a consumer’s good that he can use directly to arrive at his end. (p. 9)
      • Cooperating factors include land and time—both are first-order producers’ goods. (p. 9)
        • Viz., the multiverse.
    • Any process (or structure) of production may be analyzed as occurring in different stages (p. 9)
  • Important general conclusions applicable to all processes of production (p. 10):
    • Each stage of production takes time
    • The factors of production may all be divided into two classes:
      • Those that are themselves produced (the produced factors of production)—Capital Goods
      • Those that are found already available in nature—in man’s environment (the original factors of production), which may, in turn, be divided into two classes:
        • The expenditure of human energy—Labor
        • The use of nonhuman elements provided by nature—Land or Nature
  • Land must be available to provide room at every stage of the process, and time, as has been stated above, is required for each stage. (p. 10)
  • Action uses materials available in the present to arrive at desired goals in the future, and there is no need to be concerned with development in the past. (p. 11)
    • Is this the same with problem-solving?develop
  • Another unique type of factor of production indispensable in every stage of every production process—”technological idea” (p. 11)
    • Viz., knowledge.
  • Without such plans or ideas, there would be no action. These plans may be called recipes; they are ideas of recipes that the actor uses to arrive at his goal. (p. 11)
  • The distinguishing feature of a recipe is that, once learned, it generally does not have to be learned again. It can be noted and remembered. Remembered, it no longer has to be produced; it remains with the actor as an unlimited factor of production that never wears out or needs to be economized by human action. It becomes a general condition of human welfare in the same way as air. (p. 11)
  • The material bread is valued not for itself, but for its service in satisfying wants. (p. 12)
  • The various higher-order producers’ goods are valued solely because of their anticipated usefulness in helping to produce future consumers’ goods or to produce lower-order producers’ goods that will help to bring about consumers’ goods. (p. 12)
  • The scarcity of consumers’ goods must imply a scarcity of their factors. (p. 12)
    • Because if its factors are abundant, then the good becomes abundant as well.
  • For each consumers’ good there must be more than once scarce factors of production. This is implied in the very existence of human action. (p. 13)
    • Think of that magic sandwich which will appear in the coming analysis.
    • The second sentence, when inverted, means: we wouldn’t act if everything was abundant and accessible—if one could access the whole of the multiverse, such an existence amounts to having been already performed every possible action, and as such wouldn’t act.develop
      • Viz., the multiverse implies both explanation and action.develop
        • Action, if understood as problem-solving, is implied in the multiverse in another sense—that problem must’ve been already solved somewhere in the multiverse.develop
      • Accessibility is constrained by both the laws of physics and the unpredictability of knowledge.develop
        • Or, put differently, the laws of physics dictate the unpredictability of knowledge.develop
  • To simplify the example, let us suppose the sandwich already is prepared and in the kitchen. Then, to produce a consumers’ good from this stage forward requires the following factors: (1) the sandwich; (2) carrying it to the armchair; (3) time; (4) the land available. (p. 13)
    • If we assume that it required only one factor—the sandwich—then we would have to assume that the sandwich was magically and instantaneously moved from kitchen to armchair without effort. But in this case, the consumers’ good would not have to be produced at all, and we would be in the impossible assumption of Paradise. (p. 13)

4. Further Implications: Time

  • Acting man does not trace back past production processes to their original sources. (p. 14)
    • E.g., the labor theory of value.
  • Acting man is not interested in past processes, but only in using presently available means to achieve anticipated future ends. (p. 14)
  • At any point in time, when he begins the action (say A), he has available to him: labor, nature-given elements, and previously produced capital goods. (p. 14)
  • He is concerned only with the capital (and other) goods in the present and the future. This is the necessary result of the fact that action occurs in the present and is aimed at the future. (p. 15)
    • Viz., the laws of physics, and specifically the general condition of the multiverse, implies action.develop
  • A fundamental and constant truth about human action is that man prefers his end to be achieved in the shortest possible time. The sooner any end is attained, the better. This is the universal fact of time preference. The less waiting time, the more preferable it is for him. (p. 15)
    • I.e., the meaning of positive time-preference.
  • Some people live from day to day, taking no heed of later periods of time; others plan not only for the duration of their own lives, but for their children as well. (p. 17)

5. Further Implications

A. Ends and Values

  • A scale of values (or scale of preferences):
    • These scales differ for each person, both in their content and in their orders of preference. Furthermore, they differ for the same individual at different times. (p. 17)
      • Related: Daniel Everett on ranked values.
      • Related: Information is often in relation.develop
      • Given that other times are just special cases of other universes, there is no difference between the differences that exist among the same individuals across the multiverse and the differences within the same individual at different times.develop
        • Taking this further, the same individual is as different from any other instance of himself as with other individuals in his universe.develop
          • Put differently: self-identity is no stronger than identity between any two people.develop
            • The non-copiability principle doesn’t necessarily hold across the multiverse, as universes can exist that are perfectly identical to each other.develop
            • But to the extent that explanatory knowledge must evoke the multiverse (as the former is implied in the latter), other universes must be different for such evocation to be meaningful—as such, the same universes wouldn’t matter.develop
  • Values cannot be measured; values or utilities cannot be added, subtracted, or multiplied. They can only be ranked as better or worse. (p. 19)
    • He can say, “I am better off” or “I am happier” but he cannot say, “I am two and a half times happier because of this choice”—two and a half times what? (p. 19)
  • All action involves exchange—an exchange of one state of affairs, X, for Y, which the actor anticipates will be a more satisfactory one (and therefore higher on his value scale). (p. 20)
    • All action involves exchange across the multiverse.
  • Value proceeds from the ends to the consumers’ good to the various first-order producers’ goods, to the second-order producers’ goods, etc. The original source of value is the ranking of ends by human actors, who then impute value to consumers’ goods, and so on to the orders of producers’ goods, in accordance with their expected ability to contribute toward serving the various ends. (pp. 20-21)

B. The Law of Marginal Utility

  • Acting man does not evaluate the goods open to him by abstract classes, but in terms of the specific units available. (p. 22)
  • Actors choose between, and evaluate, not “coal” or “butter” in general, but specific units of coal or butter. (p. 21)
    • If butter is an object serving human ends, we know that two pounds of butter will be valued more highly than one pound. (p. 22)
      • This will be true until a point is reached when the butter is available in unlimited quantities to satisfy human wants and will then be transferred from the status of a means to that of a general condition of human welfare. (pp. 22-23)
  • A supply—a commodity available in specific homogeneous units equally capable of rendering the same service to the actor. (p. 23)
    • Viz., fungible (e.g., money).
  • What is significant for human action is not the physical property of a good, but the evaluation of the good by the actor. (p. 24)
    • If the actor, despite no physical discernible differences, chooses to evaluate differently one good from another (e.g., cow), they are no longer part of the supply of the same good. (p. 24)
      • The difference can be ascertainable only through actions—i.e., ex post.
  • For all human actions, as the quantity of the supply (stock) of a good increases, the utility (value) of each additional unit decreases. (p. 25)
    • It is impossible to determine by how much greater one value is than the other. (p. 25)
  • The supply must be scarce in relation to the ends that it is capable of fulfilling; otherwise it would not be a good, but a condition of human welfare. (p. 25)
  • If the supply of the good is 6 units, then the first six ends, ranked in order of importance by the valuing individual, are the ones that are being satisfied. (p. 26)
    • Ideas precede actions. Ideas are ascertainable only through actions. Ideas are created by human minds. Human minds include both explicit and implicit. As such, humans are often at loss with themselves as to why they act the way they act.develop
      • To assume that we will eventually do away with the inexplicit disrespects the substrate-independence of information.develop
    • Because humans create knowledge, and because knowledge precedes actions, and because not all knowledge can be explicit at any point in time (this is why knowledge can be improved infinitely, and also why knowledge can be ascertained through actions), a scale of preference must be assumed no matter the content of actions—however silly they might appear to be.develop
  • The marginal unit
    • The least important end fulfilled by the stock is known as the satisfaction provided by the marginal unit, or the utility of the marginal unit—in short: the marginal satisfaction, or marginal utility. (p. 27)
  • The greater the supply of a good, the lower the marginal utility; the smaller the supply, the higher the marginal utility. This fundamental law of economics has been derived from the fundamental axiom o human action; it is the law of marginal utility, sometimes known as the law of diminishing marginal utility. (p. 27)
    • Scarcity per se does not equal value, since anything can be substitute (e.g., see Voskuil’s Scarcity Fallacy and Substitution Principle, respectively).
  • Thus, presented with a choice of units of goods to give up, he will give up the good with units of lowest marginal utility on his value scale. (p. 30)
  • It is evident that in the act of choosing between giving up or adding units of either X or Y, the actor must have, in effect, placed both goods on a single, unitary value scale. (p. 31)
    • Or more precisely, action evokes the value scale—and it is the multiverse that dictates that we act.develop
      • This is somewhat analogous to Ayache’s emphasis on the precedence of price over models (e.g., BSM formula).revisit
        • Interestingly, Ayache also discusses how making something redundant can create something new, by elaborating the genealogy of options market.revisit
  • The actor may not and cannot measure differences in utility, but he must be engaged in ranking all the goods considered on one value scale. (p. 31)
    • Viz., to assume otherwise implies that the actor isn’t acting based on his knowledge (both explicit and implicit), and because that cannot be the case (if so, he is an automaton controlled by its genes, and is not human), the action axiom implies a scale of preferences.develop
    • Better way to put it: if you assume otherwise (i.e., more than one value scales), you are extending across the multiverse, and that is forbidden by the laws of physics.develop

6. Factors of Production: The Law of Returns

  • The law of returns states that with the quantity of complementary factors held constant, there always exists some optimum amount of the varying factor. (p. 35)
  • The law that such an optimum must exist can be proved by contemplating the implications of the contrary. (p. 35)

7. Factors of Production: Convertibility and Valuation

  • A change in the value of the product causes a greater change in the value of the specific factors than in that of the relatively nonspecific factors. (p. 40)
  • The value of a unit of a convertible factor is set, not by the conditions of its employment in one type of product, but by the value of its marginal product when all its uses are taken into consideration. (pp. 41-42)

8. Factors of Production: Labor versus Leisure

  • The nature-given factors are limited by his environment and therefore cannot be increased. This leaves him with the choice of increasing his supply of capital goods or of increasing his expenditure of labor. (p. 43)
  • A recipe, however, can only set outer limits on his increases in production; the actual increases can be accomplished solely by an increase in the supply of productive factors. (p. 43)
    • As Rothbard argues elsewhere, the supply of capital goods enforces narrower limits than knowledge.
  • But without the necessary supply of factors available, this knowledge could not suffice to construct the mansion. (p. 43)
  • “Whether or not the work is directly satisfying in itself, labor always involves the foregoing of leisure, a desirable good.” (p. 43)

9. The Formation of Capital

“If I have seen further, it is by standing on the shoulders of giants” – Isaac Newton

  • Without the aid of capital, the only goods open to him for consumption are goods with the shortest period of production. (p. 47)
  • The restriction of consumption is called saving, and the transfer of labor and land to the formation of capital goods is called investment. (p. 48)
    • Saving doesn’t necessarily have to be in the form of money (e.g., restricting consumption and then transferring labor for that period constitutes saving).
  • At any given point in time, all men will have invested in all the shorter periods of production to satisfy the most urgently felt wants that their knowledge of recipes allows; any further formation of capital will go into longer processes of production. (p. 51)
  • If Crusoe were lucky enough to find an axe in good condition left by some previous inhabitant, he would reckon his period of production at 200 hours instead of 250. (p. 52)
    • He who possesses capital is that much further advanced in time on the road to the desired consumers’ good. (p. 52)
    • The role of capital is to advance men in time toward their objective in producing consumers’ goods. (p. 52)
  • All capital goods are perishable.
    • Those few products that are not perishable but permanent become, to all intents and purposes, part of the land. (p. 53)
  • Any actor, at any point in time, has the choice of: (a) adding to his capital structure, (b) maintaining his capital intact, or (c) consuming his capital. (p. 55)
  • Any given saving will be invested either in maintaining the present capital structure or in adding to it capital in more and more remote stages of production, i.e., in longer processes of production. (p. 57)
  • Capital goods have no independent productive power of their own; they are completely reducible to labor and land, which produced them, and time. (p. 58)
  • Capital goods are purely way stations in the process of production, worked on at every possible stage by the forces of labor and land. (p. 59)
    • Maintenance included.
  • He will cease saving and investing at the point at which the value of goods forgone exceeds the present value of the future utilities to be derived. This will determine an actor’s rate of saving and investing at any time. (pp. 63-64)
    • Viz., his time preference—the discount rate—determines his rate of saving and investment.
  • The concepts of success or failure in entrepreneurship are thus deducible from the existence of action. (p. 64)
    • Viz., the action axiom—the uncertainty of future—implies success and failure.
  • The accumulated stock of capital goods (or, for that matter, durable consumers’ goods) imposes a conservative force on present-day action. (p. 65)
    • Viz., the past, to some extent, influences the present.
  • Capital formation and the concomitant lengthening of the period of production prolong the period of provision of the actor. (p. 68)
    • Viz., the more saving one has, the longer his period of provision becomes, as dictated by the laws of diminishing marginal utility and positive time-preference.

10. Action as an Exchange

  • All action involves an exchange—a giving up of a state of affairs for what the actor expects will be a more satisfactory state. Every aspect of action has involved a choice among alternatives. In each case, the actor adopted the course that he believed would afford him the highest utility on his value scale; and in each case, the actor gave up what he believed would turn out to be a lesser utility. (pp. 70-71)
  • Since man is always acting, he must always be engaged in trying to attain the greatest height on his value scale. There must always be room for improvement in his value scale; otherwise action would disappear. This means that there is always open to each actor the prospect of improving his lot, of attaining a value higher than he is giving up, i.e., of making a psychic profit. (p. 71)
    • Deutsch (or extension of his theory) would likely argue that there is objective reality out there, and with regards to the understanding of that reality there is objective improvement. But in The Evolution of Culture, he also emphasized how we cannot do away with anti-rational memes.
    • Everett (or extension of his theory) would likely agree with Deutsch, if not fully—he would likely argue that although science deals with the objective reality, scientific theory is fallible and cannot comprehend all of human knowledge (i.e., the dark matter theory of mind).
    • The subjective value theory, another axiom of praxeology, is retained even with the existence of objective reality and associated scientific theories, precisely because we are fallible.develop
    • Put differently: the judgement of whether one is objectively improving or not can only make sense in the domains where there is something objectively real—in other domains, you cannot define what “improvement in his value scale” means, because that is also subjective.develop

Appendix A: Praxeology and Economics

  • Once it is demonstrated that human action is a necessary attribute of the existence of human beings, the rest of praxeology (and its subdivision, economic theory) consists of the elaboration of the logical implications of the concept of action. (p. 72)
  • Economics is not concerned with their content, and its laws apply regardless of the nature of these ends. Psychology and ethics deal with the content of human ends; they ask, why does the man choose such and such ends, or what ends should men value? (pp. 72-73)
  • The law of marginal utility depends on no physiological or psychological assumptions but is based on the praxeological truth that the first unit of a good will be used to satisfy the most urgent want, the second unit the next most urgent want, etc. (p. 73)
  • Praxeology includes economics, and the latter includes the analysis of the action of an isolated individual (Crusoe economics) and that of interpersonal exchange (catallactics). (p. 74)
  • It is the great quality of verbal propositions that each one is meaningful. Algebraic and logical symbols, as used in logistics, are not in themselves meaningful. (p. 75)
  • Logistics, therefore, is far more suited to the physical sciences, where, in contrast to the science of human action, the conclusions rather than the axioms are known. In the physical sciences, the premises are only hypothetical, and logical deductions are made from them. In these cases, there is no purpose in having meaningful propositions at each step of the way, and therefore symbolic and mathematical language is more useful. (p. 75)
    • Physical sciences, as with most of human thinking, start in the middle—it consists both theorization and experimental refutation of such theories. The representation of the latter (i.e., experimental results) can be done with mathematical symbols.
    • Praxeology consists of axioms and its implications—i.e., theorization.
      • Viz., explanations.
    • If the laws of physics imply the existence of the multiverse, and if the multiverse implies the existence of explanatory knowledge (i.e., humans), then praxeology per se does not necessarily have to be refutable. In other words, refuting the existence of the multiverse will refute praxeology.develop
  • Contrary to what might be believed, the use of verbal logic is not inferior to logistics. On the contrary, the latter is merely an auxiliary device based on the former. (p. 76)
    • “If you can’t explain it simply, you don’t understand it well enough” – Einstein

Appendix B: On Means and Ends

Chapter 2: Direct Exchange

That you access the other instances of knowledge-creation being through exchanges. That the more “extended” the market for each of the products, the more will exchange-value predominate. That psychic cost is equal to the next best use that he could have made of the resources that he has used—i.e., the could’ve been conception that makes sense because of the multiverse. That prices can imply a difference in the seemingly same goods. That price implies value scales—the latter (ideas) can be ascertained only through the former (actions). That it is utility alone that determines the price and the quantity exchanged. That “cost” is simply the utility of the next best alternative that must be forgone in any action. That supply is demand. That specialization implies speculation.

1. Types of Interpersonal Action: Violence

  • The interpersonal relation under slavery is known as hegemonic. The relationship is one of command and obedience, the commands being enforced by threats of violence. (p. 82)
  • The subject chooses once in choosing to obey the ruler; the other choices are made by the ruler. (p. 83)

2. Types of Interpersonal Action: Voluntary Exchange and the Contractual Society

  • The essence of the exchange is that both people make it because they expect that it will benefit them; otherwise they would not have agreed to the exchange. (p. 85)
  • A necessary condition for an exchange to take place is that the two goods have reverse valuations on the respective value scales of the two parties to the exchange. (p. 85)
  • Since it takes two to make a bargain, Jones and Smith will exchange units of X for units of Y until one of them reaches a point beyond which further exchange will lead to loss rather than profit. (p. 87)
  • In order for a person to exchange anything, he must first possess it, or own it. (p. 91)
    • Although the statement here is logical, the same argument can be made in functional terms—that is, given how exchanges are beneficial to all parties involved, a contractual society must presuppose property.revisit
  • The goods owned are known as property. (p. 92)
  • Only scarce means are property. (p. 92)
  • A man owns himself; he appropriates unused nature-given factors for his ownership; he uses these factors to produce capital goods and consumers’ goods which become his own; he uses up the consumers’ goods and/or gives them and the capital goods away to others; he exchanges some of these goods for other goods that had come to be owned in the same way by others. (p. 93)

3. Exchange and the Division of Labor

  • The extent to which division of labor is carried on in a society depends on the extent of the market for the products. The latter determines the exchange-value that the producer will be able to obtain for his goods. (p. 96)
    • Products need market (i.e., economy).
  • Praxeologically, the very fact of exchange and the division of labor implies that it must be more productive for all concerned than isolated, autistic labor. (p. 96)
    • You access the other instances of knowledge-creation being through exchanges, as it were.develop
  • Mises: “One may as well consider these two facts as one and the same fact, namely, the manifoldness of nature which makes the universe a complex of infinite varieties. If the earth’s surface were such that the physical conditions of production were the same at every point and if one man were … equal to all other men … division of labor would not offer any advantages for acting man.” (pp. 96-97)
    • The interoperability law implies differences.develop
  • As more and more people are linked together in the exchange network, the more “extended” is the market for each of the products, and the more will exchange-value predominate, as compared to direct use-value, in the decisions of the producer. (p. 98)
    • The combined value scale is necessarily more exhaustive than any of the component value scale.
  • It is far more likely that feelings of friendship and communion are the effects of a regime of (contractual) social co-operation rather than the cause. (p. 100)

4. Terms of Exchange

  • If we express one commodity in terms of the other, we obtain the price of the commodity. (p. 103)
  • Psychic costs include all that the actor gives up by making the exchange. This is equal to the next best use that he could have made of the resources that he has used. (p. 104)
    • I.e., could’ve been—a conception that makes sense because of the multiverse.develop
  • The seller will always prefer the highest possible selling price for his good. (p. 105)
  • The buyer will always purchase his good at the lowest possible price. (p. 106)
    • In cases where Jackson chooses the latter price, the two berries are no longer the same, but different, goods. (p. 106)
      • Inverted, this means that prices can imply a difference in the seemingly same goods. It’s like some type of information is entangled and becomes ascertainable through prices.develop

5. Determination of Price: Equilibrium Price

  • We do not know exactly what the price will be, but we do know that it will be set by bargaining somewhere at or below the maximum buying price of the most capable buyer and above the maximum buying price of the next most capable buyer. (p. 110)
    • Price implies value scales—the latter (ideas) can be ascertained only through the former (actions).develop
  • Clearly, this preliminary “testing of the market” will tend to be more prolonged in a “new” market, where conditions are unfamiliar, while it will tend to be less prolonged in an “old” market, where the participants are relatively familiar with the results of the price-formation process in the past and can estimate more closely what the results will be. (pp. 113-114)
  • The amount offered for sale at each price is called the supply; the amount demanded for purchase at each price is called the demand. (pp. 114-115)
    • Viz., the supply is seller’s demand.
  • The price of the good will find a resting point where the quantity demanded is equal to the quantity supplied, i.e., where supply equals demand. (p. 116)
  • The more capable or “more urgent,” buyers (and sellers)—the supramarginal (which includes the marginal)—obtain a psychic surplus in this exchange. (p. 117)
  • The fact that it is one man that is supplying the new units rather than different men does not change the results of the analysis. (p. 124)
    • This specific supply (or demand) curve within his value scale is information (i.e., knowledge)—whether it is instantiated within the same individual, or across different individuals, does not matter (at least as it concerns the curve).develop

6. Elasticity of Demand

  • Contrary to what might be thought at first, the concept of “elasticity of supply” is not a meaningful one, as is “elasticity of demand.” (p. 130)
    • If we compare any two rather widely spaced prices, it is evident that the outlay is less at the higher price. If the price is high enough, the demand for any good will dwindle to zero, and therefore the outlay will dwindle to zero. (p. 129)
      • I.e., the equilibrium price is achieved because the demand will dwindle to zero when the price is high enough.revisit

7. Speculation and Supply and Demand Schedules

  • Speculative anticipations render the demand curve far more elastic, since more will be bought at the lower price and less at the higher. (pp. 132-133)
    • I.e., speculation intensifies the force of market feedback.
  • The more this anticipatory, or speculative, element enters into supply and demand, the more quickly will the market price tend toward equilibrium. (p. 133)
  • It is, for every good, utility and utility alone that determines the price and the quantity exchanged. (p. 136)
  • “Cost” is simply the utility of the next best alternative that must be forgone in any action, and it is therefore part and parcel of utility on the individual’s value scale. (p. 136)

8. Stock and the Total Demand to Hold

  • The equilibrium price not only equates the supply and demand on the market; it also equates the stock of a good to be held with the desire of people to hold it, buyers and sellers included. (p. 139)
  • The result of the exchange process is that the stock finally goes into the hands of the most capable possessors. (p. 140)
  • It focuses more sharply on the fundamental truth that price is determined solely by utility. (p. 141)
    • Viz., supply is just another form of demand.develop
  • The supply curve is reducible to a reservation demand curve and to a quantity of physical stock. (p. 141)
    • Because Stock - Supply = Reservation Demand means Supply = Stock - Reservation Demand
  • The supply curve is not based on some sort of “cost” that is independent of utility on individual value scales. (p. 141)
  • The fundamental determinants of price are the value scales of all individuals (buyers and sellers) in the market and that the physical stock simply assumes its place on these scales. (p. 141)

9. Continuing Markets and Changes in Price

  • An increase in stock, with demand and reservation-demand schedules remaining the same, is equivalent to a uniform increase in the supply schedule by the amount of the increased stock. (p. 150)

10. Specialization and Production of Stock

  • The distinguishing feature of the original producers is that, as a result of specialization, the direct use-value of their product to them is likely to be almost nonexistent. (p. 155)
  • The only reason for a producer to reserve, to hold on to, any of his stock is speculative—in anticipation of a higher price for the good in the future. (p. 155)
    • Specialization implies speculation.develop
  • If we eliminate the temporary speculative element, and if we consider the sellers as the specialized original producers, only the following factors ultimately remain: the revenue for both the buyers and the sellers is the expected direct use of the goods acquired; the costs are the exchange for a third good that is forgone because of this exchange. (p. 161)

11. Types of Exchangeable Goods

  • A man’s self-ownership over his will is inalienable. (p. 164)
    • Viz., since his will cannot be exchanged, and since it’s subject to change, he can opt out whenever he changes his mind—whenever he wants to.
  • The share is evidence of part-ownership, or a claim to part-ownership, of a good. (p. 166)
  • Types of possible exchanges:
    • a. A commodity for a commodity
    • b. A commodity for a personal service
    • c. A personal service for a personal service
    • d. A commodity for a claim
      • There are claims for present goods, and for future goods.
    • e. A claim for a service
    • f. A claim for a claim

12. Property: The Appropriation of Raw Landrevisit

13. Enforcement Against Invasion of Property

  • It may be considered more moral to keep promises than to break them, but the condition of a free market is that each individual’s rights of person and property be maintained, and not that some further standard of morals be coercively imposed on all. Any coercive enforcement of such a moral code, going beyond the abolition of invasive acts, would in itself constitute an invasion of individual rights of person and property and be an interference in the free market. (p. 178)
  • The “blacklist” is permissible on the free market. (p. 179)
  • Another legitimate action on the free market is the boycott. (p. 179)
    • Any coercive action against a boycott is an invasion against the rights of free persons. (p. 179)
  • The law of negotiability is evidently a clear infringement of property right. (p. 181)
    • Viz., with the law of negotiability, the transactions can be reversed.develop
  • A man has no such objective property as “reputation.” His reputation is simply what others think of him, i.e., it is purely a function of the subjective thoughts of others. But a man cannot own the minds or thoughts of others. Therefore, I cannot invade a man’s property right by criticizing him publicly. Further, since I do not own others’ minds, either, I cannot force anyone else to think less of the man because of my criticism. (pp. 182-183)
  • The foregoing observations should firmly remind us that what the enforcing agency combats in a free society is invasion of the physical person and property, not injury to the values of property. For physical property is what the person owns; he does not have any ownership in monetary values, which are a function of what others will pay for his property. (p. 183)
    • Value exists in the minds of others. Will there be value, if others don’t exist? Is my future-self constitute the other?revisit
      • Or there will be value even without the others—because the other instances of myself exist in the multiverse?revisit

Chapter 3: The Pattern of Indirect Exchange

That direct exchange could yield only an economy of the most primitive type. That the existence of money permits the splitting of production into minute branches. That the gold miner receives no money by gift but must actively find and produce gold to acquire his money. That there is never a need for anyone to worry about anyone else’s balance of payments—a person’s “unfavorable” balance of trade will continue so long as the individual wishes to reduce his cash balance. That the capitalists are the only ones who spend money on producers’ goods. That a consumer is not necessarily driven to have more money income than money expenditure—and everyone, including an entrepreneur, is a consumer. That value scales converge only through knowledge. That a destitute person is far less likely to prefer the nonexchangeable to the exchangeable than one whose “standard of living” in terms of the latter is high. That man allocate his resources (consumers’ goods, land, capital goods, personal energy, and time) according to the same principles by which he has allocated money—that each unit goes into the use with the highest prospective marginal utility on his value scale. That with money, one’s value scale becomes more transparent, measurable, actionable, comparable, and unifiable. That the previous investors expected that he would be able to sell the good for a money income greater than the money expenditures that he had to make on the factors of its production—and this investment decision accounts for the existence of all the stock of all producers’ goods and durable consumers’ goods for any community at any given point in time. That in general, pursuit of the rule: “Buy on the cheapest market and sell on the dearest” leads to satisfaction of the most highly valued ends for each individual, both as a consumer and as a producer.

1. The Limitations of Direct Exchange

  • Under a system of direct exchange, a plow would have almost no marketability in exchange, and few if any would be produced. (p. 188)
  • The conclusion is evident that no sort of civilized society can be built on the basis of direct exchange and that direct exchange, as well as Crusoe-like isolation, could yield only an economy of the most primitive type. (pp. 188-189)

2. The Emergence of Indirect Exchange

  • The butter was more marketable than his eggs and was worth purchasing because of its superior marketability. (p. 189)
    • Viz., salability.
  • Tending to increase the marketability of a commodity are its demand for use by more people, its divisibility into small units without loss of value, its durability, and its transportability over large distances. (p. 190)
  • Their choices will quickly focus on the few most marketable commodities available. (p. 191)
  • This demand for their use as a medium is superimposed on the demand for their direct use, and this increase in the composite demand for the selected media greatly increases their marketability. (p. 191)
    • A form of network effects.revisit
  • The process is cumulative, with the most marketable commodities becoming enormously more marketable and with this increase spurring their use as media of exchange. (p. 191)

3. Some Implications of the Emergence of Money

  • Intricate and remote stages of production are now possible, and specialization can extend to every part of a production process as well as to the type of good produced. (p. 193)
  • With the great variety in human skills and natural resources resulting in enormous advantages from the division of labor, the existence of money permits the splitting of production into minute branches, each man selling his product for money and using money to buy the products that he desires. (p. 194)
    • Put differently, money encourages differences.develop
  • The economy is therefore a “money economy,” and almost all goods are compared with and exchanged against the money commodity. (p. 195)

4. The Monetary Unit

5. Money Income and Money Expenditures

  • Other things being equal (an important qualification that will be examined in later sections), he will strive to earn as much money income in any prospective period as he can. (p. 199)
    • E.g., 3-7
  • The production of the money commodity, as with all other valuable commodities, itself requires the use of land, labor, and capital goods, and these must be paid for by the use of money. The gold miner, then, receives no money by gift, but must actively find and produce gold to acquire his money. (pp. 200-201)
  • Labor services, therefore, can only be bought for “hire,” on a “pay-as-you-go” basis. (p. 201)
  • In each period, some individuals decide to add to their cash balances, and others decide to reduce them, and each makes that decision which he believes will benefit him most. For centuries, however, fallacious popular usage has asserted that one whose income is greater than expenditures (exports greater than imports) has a “favorable balance of trade,” while one whose expenditures have been greater than income for a period (imports greater than exports) has suffered an “unfavorable balance of trade.” (pp. 204-205)
  • There is therefore never a need for anyone to worry about anyone else’s balance of payments. A person’s “unfavorable” balance of trade will continue so long as the individual wishes to reduce his cash balance. (p. 205)

6. Producers’ Expenditures

  • For a man to produce a consumers’ good, he must obtain labor services and the services of land and capital goods, in order to use the technological “know-how” available in the production of the good. (p. 207)
  • The capitalists are the only ones who spend money on producers’ goods, and they, therefore, may here be termed “the producers.” (p. 208)
  • Where, then, do the producers acquire their money for investment? (p. 209)
  • In order to obtain the money for investment, then, an individual must save money by restricting his possible consumption expenditures. This saved money first goes into his cash balance and then is invested in the purchase of factors in the anticipation of a later sale of the produced good. (p. 209)
  • A crucial difference, then, between man as an entrepreneur and man as a consumer is that in the latter case there is no drive to have exports greater than imports. A man’s imports are his purchase of consumers’ goods and are therefore the ends of his activity. (p. 212)
    • Viz., a consumer does not have drive to have more money income than money expenditure.
  • On the other hand, the businessman is “importing” only producers’ goods, which by definition are useless to him directly. He can gain from them only by selling them or their product, and therefore his imports are merely the necessary means to his later “exports.” (p. 212)
  • It is clear, however, that the man, considered as a whole, has no particular desire to export more than he imports or to have a “favorable balance of trade.” (p. 212)
    • Because everyone is consumer.

7. Maximizing Income and Allocating Resources

On the “other things being equal”—the ceteris paribus—qualification

  • We examined the truth that in every action, men try to obtain the greatest advantage, i.e., to attain the end located on the highest possible point on their value scale. This was also called attempting to “maximize psychic revenue” or “psychic income.” This is a praxeological truth, a general law holding for all human action, with no qualification whatsoever. (p. 213)
    • Inverted: because we are in the multiverse, we must choose something over others—counterfactuals are implied in the multiverse. Unless you create knowledge that compels you to choose certain things over certain other things, there will be many instances of you across the multiverse who manifest, through their actions, different value scales. Put differently, value scales converge only through knowledge.revisit
  • The very fact that exchangeable consumers’ goods are more abundant enables each individual to enjoy more of the nonexchangeable ones. (p. 214)
  • A destitute person is far less likely to prefer the nonexchangeable to the exchangeable than one whose “standard of living” in terms of the latter is high. (p. 215)
  • The important fact for catallactics is that a man always chooses a bundle of money income plus other psychic factors and that he will maximize his money income only if psychic factors are neutral with respect to his choices. (p. 216)
  • Man allocates his time between leisure and productive labor, between labor for money and labor on unexchangeable items, etc., in accordance with the principle of maximizing his psychic income. (p. 219)
  • Each man, at every point in time, has in his ownership a certain stock of useful goods, a certain stock of resources, or assets. These resources may include not only money, but also consumers’ goods, nonpersonal producers’ goods (land and capital goods), personal energy, and time. He will allocate each one of these resources according to the same principles by which he has allocated money—so that each unit goes into the use with the highest prospective marginal utility on his value scale. (p. 221)
  • At any time, each owner of a consumers’ good must judge on his value scale whether its exchange-value or its highest direct use-value is the greater. In the money economy, the problem of exchange-value is simplified, since it will be exchange for money that will be especially important. The utility on his value scale of the highest direct use-value will be compared to the utility of the sum of money the good could procure in exchange. (p. 223)
    • With money, value scale becomes more transparent, measurable, and comparable (although never completely).develop
      • Value scale becomes more actionable with money.develop
      • Value scale becomes more unifiable with money.develop
  • Nonexchangeable factors for an owner of a stock of consumers’ goods or of producers’ goods will generally be negligible in importance, since they had already been discounted when the investment in them was made. If we set aside the value of the durable consumers’ good in direct use for some owners, the aim of the owners will be to maximize their money income from the stock of the good. (p. 227)
  • At this point we may, at least briefly, begin to answer the question we did not have the information to answer in chapter 2: Granted the behavior of the owner of a given stock, what determines the size of that stock of goods? (p. 228)
    • E.g., 2-8
  • The previous investors expected that he would be able to sell the good for a money income greater than the money expenditures that he had to make on the factors of its production. This investment decision accounts for the existence of all the stock of all producers’ goods and durable consumers’ goods for any community at any given point in time. (p. 228)
  • With few exceptions—e.g., the laborer who spurns a higher money price for his labor because of the nonexchangeable conditions attached to the work, or the investor who spurns a greater prospective income for a line of production that he prefers for its own sake—aside, pursuit of the rule: “Buy on the cheapest market and sell on the dearest” leads to satisfaction of the most highly valued ends for each individual, both as a consumer and as a producer. (p. 230)

Personal Notes

  • Money is technology—without money, the period of provision shortens.develop
    • Money is a special form of technology—nobody in specific invented it (e.g., gold), yet everyone contributed to it.develop
      • Bitcoin was invented by Satoshi Nakamoto, but still requires others to implement it.develop

Chapter 4. Prices and Consumption

That the purchasing power of the monetary unit consists of an array of all the particular goods-prices in the society in terms of the unit. That supply is essentially the inverse of reservation demand—if there is no reservation demand, the supply curve will be vertical. That the general factors that determine the supply and demand schedules of any and all consumers’ goods, by all persons on the market, are the balancing on their value scales of their demand for the good for direct use and their demand for money, either for reservation or for exchange. That there is no basis for saying that one person subjectively benefits more than another. That we deduce the existence of a specific value scale on the basis of the real act; we have no knowledge of that part of a value scale that is not revealed in real action—humans are unpredictable because we create knowledge, and that knowledge can be only ascertained through actions—we are doubly blind, as it were. That money obeys the law of marginal utility, just as any other commodity does. That the desire to keep a cash balance stems from fundamental uncertainty which encompasses unpredictable changes in both the future environment and future-self—in other words, changing prices and changing value scales are the same thing. That the existence of prices in terms of money makes subjective valuation easier, but nothing more. That time component in prices emerges from the introduction of money. That everyone benefits at the time of exchange, but not everyone will benefit from the exchange—in other words, there is no error without money. Market is a new evolutionary process (along with genes and memes) which emerges with money. That value has nothing to do with the past—money’s past price influences expectations but today’s demand still determines its present value. That money facilitates error-correction. That if there are many substitutes, slight price increase (or decrease) will cause people to demand substantially less (or more) of that good. That the closeness of goods does not exist objectively. That the emergence of new types of goods will bring about price decrease for existing substitutes along with revenue decrease due to the leftward shift of the demand schedules for these existing substitutes. That all goods are substitutable for one another, while fewer are complementary—the complementary effect will be mixed with the substitutive effect, and the nature of each particular case will determine which effect will be the stronger. That the desires for various goods are of necessity interdependent, since all are ranged on the consumers’ value scales. That value scales consist of goods with which the individuals are familiar—the good will not be on the value scale if the individual does not know about that good. That capital value at any time is based on expectations of future rental prices. That the market tends to establish and maintain as high a quality of forecasting as is humanly possible to achieve. That the purchasing power of money in terms of all other commodities is continually changing, and there is no way to measure such changes—because such objective “power” doesn’t exist, and because market conditions are always changing. That the law of the diminishing marginal utility of money applies only to the valuations of each individual person. That utilities are not quantities, but ranks. That praxeological discussion of value scales is a deduction from the nature of human action and not a speculative essay on the internal workings of the mind. That praxeology is not concerned with the content of the ends pursued, the manner of arriving at them, or their order; it is concerned with analysis of the logical implications of the existence of these ends—praxeology is concerned with the fact that humans solve problems, regardless of how. That the case of Buridan’s ass is an excellent demonstration of the fact that indifference can play no part whatever in an analysis of human action. That the individual differentiates due to the indifference—a lack of preference, which in turn is due to the lack of knowledge. That the individual converges across the multiverse through knowledge. That in praxeology we are not interested in the concrete content of his value scales nor in his underlying personality—we are interested in value scales as revealed through choice. That praxeology is concerned with that part of value scales that can be ascertained from actions. That “total utility” can be only ascertained when the marginal good with which the individual acts upon coincides with whatever the totality means in that context.

1. Money Prices

  • With the establishment of a money economy, the number of markets needed is immeasurably reduced. (p. 233)
  • Money has an almost infinite array of “goods-prices” that establish the “goods-price of money.” The entire array, considered together, yields us the general “goods-price of money.” For if we consider the whole array of goods-prices, we know what one ounce of money will buy in terms of any desired combination of goods, i.e., we know what that “ounce’s worth” of money (which figures so largely in consumers’ decisions) will be. (p. 237)
  • The purchasing power of the monetary unit consists of an array of all the particular goods-prices in the society in terms of the unit. (pp. 237-238)

2. Determination of Money Prices

The individual demand schedules and the market-demand schedule

  • The money price will remain at the equilibrium point for further exchanges of the good, until demand or supply schedules change. (p. 247)
  • Where there is a rise in reservation demand, the increase in the total demand to hold is greater—the curve far more elastic—than the regular demand curve, because of the addition of the reservation-demand component. (p. 248)
  • It is characteristic of the total demand curve that it always intersects the physical stock available at the same equilibrium price as the one at which the demand and supply schedules intersect. (p. 248)
  • If there is no reservation demand, then the supply curve will be vertical. (p. 249)
    • When reservation demand is zero, there is no choice to hold onto stock—it is all sold no matter the price. The supply curve then becomes perfectly inelastic (vertical), meaning quantity supplied does not change with price. The supply curve is just the flip side of reservation demand—it shows how much stock sellers release instead of holding back. If reservation demand exists, supply increases gradually with price (upward-sloping curve)—which explains why total demand curve is more elastic than demand curve. If reservation demand is zero, all stock is sold at any price (vertical supply curve). Thus, supply is essentially the inverse of reservation demand.

3. Determination of Supply and Demand Schedules

  • What can be the possible sources of his demand for the good? (p. 252)
    • (a) The anticipated later sale
    • (b) Direct use as a consumers’ good
    • (c) Direct use as producers’ good
  • If we set aside the temporary speculative source, (b) is the source of the individual demand schedules for all consumers’ goods, (c) the source of demands for all producers’ goods. (p. 252)
  • What is the source of his reservation demand for the good? (p. 253)
    • (a) Anticipation of later sale at a higher price
    • (b) Direct use of the good by the seller
  • If we set aside (a) as being a temporary factor and realize that (b) is frequently not present in the case of either consumers’ or producers’ goods, it becomes evident that many market-supply curves will tend to assume an almost vertical shape. Here the seller’s problem is what to do with given stock, with already produced goods. (pp. 253-254)
    • The problem of production will be treated in chapter 5 and subsequent chapters. (p. 254)
  • Personal service is consumed immediately upon their production. There is no “stock” in this sphere, since the goods disappear into consumption immediately on being produced. (p. 255)
  • The general factors that determine the supply and demand schedules of any and all consumers’ goods, by all persons on the market, are the balancing on their value scales of their demand for the good for direct use and their demand for money, either for reservation or for exchange. (pp. 256-257)

4. The Gains of Exchange

  • Value scales of each individual are purely ordinal, and there is no way whatever of measuring the distance between the rankings; indeed, any concept of such distance is a fallacious one. Consequently, there is no way of making interpersonal comparisons and measurements, and no basis for saying that one person subjectively benefits more than another. (p. 258)
    • Another sense in which valuation is subjective.develop
  • The fact that even if we could identify the marginal and supramarginal purchasers, we could never assert that one’s gain is greater than another’s is a conclusive reason for the rejection of all attempts to measure consumers’ or other psychic surpluses. (pp. 259-260)
  • We deduce the existence of a specific value scale on the basis of the real act; we have no knowledge of that part of a value scale that is not revealed in real action. (p. 260)
    • To be more precise, the real act implies a value scale at the moment—but this does not guarantee that the actor will behave similarly in the future, given similar circumstances. Humans are unpredictable because we create knowledge, and knowledge can be only ascertained through actions—we are doubly blind, as it were.develop

5. The Marginal Utility of Money

A. The Consumer

  • We are interested here in the marginal utility of money as relevant to consumption decisions. Every man is a consumer, and therefore the analysis applies to everyone taking part in the nexus of monetary exchange. (p. 262)
  • Money obeys the law of marginal utility, just as any other commodity does. (p. 263)
  • Its marginal utility of addition is equal to the rank of the most highly valued end the monetary unit can attain; and its marginal utility is equal in value to the most highly valued end that would have to be sacrificed if the unit were surrendered. (p. 264)
    • Either for consumption, saving, or investment.
  • The desire to keep a cash balance stems from fundamental uncertainty as to the right time for making purchases, whether of capital or of consumers’ goods. Also important are a basic uncertainty about the individual’s own future value scale and the desire to keep cash on hand to satisfy any changes that might occur. (pp. 264-265)
    • Uncertainty about both the future environment and the future-self.
  • Uncertainty, indeed, is a fundamental feature of all human action, and uncertainty about changing prices and changing value scales are aspects of this basic uncertainty. (p. 265)
    • Uncertainty principle in economics, as it were.develop
    • Uncertainty arises because nothing can extend across the multiverse.develop
    • To the extent that values derive from human demand, and humans are significant in so far as we create knowledge, and to the extent that there is no meaningful difference between differences with others and with the future-self, changing prices and changing value scales are the same thing.develop
  • The marginal utility of money differs from person to person, just as does the marginal utility of any other good. There is no measuring or comparability in the field of values or ranks. Money permits only prices to be comparable, by establishing money prices for every good. (p. 267)
    • Viz., the existence of prices in terms of money makes subjective valuation easier, but nothing more.develop
  • To determine the price of a good, we analyze the market-demand schedule for the good; this in turn depends on the individual demand schedules; these in their turn are determined by the individuals’ value rankings of units of the good and units of money as given by the various alternative uses of money; yet the latter alternatives depend in turn on given prices of the other goods. (p. 268)
  • But how, then, can value scales and utilities be used to explain the formation of money prices, when these value scales and utilities themselves depend upon the existence of money prices? (p. 268)
    • In short, any prior money (e.g., gold, USD, and Bitcoin) must necessarily trace its origin back to the original money, which must’ve had direct use-value. And because all subsequent money derived part of its value from that historical chain starting with the original money, even if the new money does not exhibit the property of direct use-value (e.g., Bitcoin), and even with the seemingly naivety of assuming some “objective use-value” (e.g., gold) which contradicts the subjective value axiom, the regression theorem still stands because the original money must’ve had direct, subjective, use-value.

B. The Money Regression

  • The marginal utility of money is based, as we have seen above, on a previously existing array of money prices. Money is demanded and considered useful because of its already existing money prices. The economic analysis of money prices is therefore not circular. (pp. 270-271)
  • In a society of barter, there is no time component in the prices of any given day. (p. 271)
    • Time component in prices is an emergent phenomenon, as it were, with the introduction of money.develop
  • Since the marginal utility of the money commodity depends on previously existing money prices, a wiping out of existing markets and knowledge of money prices would render impossible the direct re-establishment of a money economy. (p. 271)
  • The determination of money prices (gold prices) is therefore completely explained, with no circularity and no infinite regression. (p. 273)
  • It does not follow from this analysis that if an extant money were to lose its direct uses, it could no longer be used as money. (p. 275)
    • E.g., Bitcoin.

C. Utility and Costs

  • It is convenient to distinguish the two vantage points by which an actor judges his action as ex ante and ex post. (p. 277)
    • Viz., everyone benefits at the time of exchange, but not everyone will benefit from the exchange.revisit
  • Ex ante, then, he will always take the most advantageous course of action, and will always have a psychic profit, with revenue exceeding cost. Ex post, he may have profited or lost from a course of action. It is clear that his ex post judgments are mainly useful to him in the weighing of his ex ante considerations for future action. (pp. 277-278)
    • Viz., there is no error without money.develop
      • A new form of evolutionary processes—market—emerges with money.develop
  • It is clear that value can be conferred on a good only by individuals’ desires to use it directly in the present or in the present expectation of selling to such individuals in the future. (p. 278)
    • Value is derived from people’s demand, and since demand is implied in human action which is concerned with the present and the future, value has nothing to do with the past.develop
    • Also, the regression theorem does not contradict the statement here. Money’s past price influences expectations, as discussed in the previous sub-section, but today’s demand still determines its present value—e.g., if everyone suddenly lose faith in a currency (e.g., hyperinflation), its past price history wouldn’t matter anymore.revisit

D. Planning and the Range of Choice

  • Ex ante he appraises his situation, present and prospective future, chooses among his valuations, tries to achieve the highest ones according to his “know-how,” and then chooses courses of action on the basis of these plans. (pp. 279-280)
    • Viz., in a free society, everyone is allowed to benefit from exchange as best as their knowledge allows—and if they make mistakes, they can learn from them (thanks to the existence of money and money prices).develop
      • Money facilitates error-correction, as it were.develop
    • Viz., in a hampered market, people are unable to fully apply their knowledge, and errors persist rather than being corrected (and such errors will be then incorporated by people as “knowledge”—further exacerbating the error).revisit
  • It is erroneous, therefore, to assert that a free market society is “unplanned”; on the contrary, each individual plans for himself. (p. 280)

6. Interrelations Among the Prices of Consumers’ Goods

Elastic goods prefer price decrease, in terms of total revenue in comparison with other goods (e.g., 1% increase in price causes a more than 1% decrease in quantity demanded), and vice versa for inelastic goods whose demand curve is steeper.

  • The law of the interrelation of consumers’ goods is: The more substitutes there are available for any given good, the more elastic will tend to be the demand schedules (individual and market) for that good. (p. 282)
    • E.g., if there are many substitutes, slight price increase (or decrease) will cause people to demand substantially less (or more) of that good.
  • And all consumers’ goods are partial substitutes for one another; for every good is engaged in competing for the consumers’ stock of money. (pp. 282-283)
  • The closeness of the substitution depends, however, on the particular circumstances of the consumer and his preferences rather than on technological similarity. (p. 283)
    • As with values, the closeness of goods does not exist objectively, but subjectively in the minds of consumers (which gets aggregated intersubjectively, as it were).develop
  • Consequently, there is a tendency for the demands for the various consumers’ goods to become more elastic. (p. 284)
    • Inelastic goods are those that people will buy regardless of price. A unitary value scale means all goods are compared—goods become more substitutable with money, to some degree. The more diverse an economy, the less likely it is that any good remains truly inelastic.
    • Consequently, price decrease will be dominant.develop
  • Furthermore, when new types of goods are established on the market, these will clearly draw monetary demand away from other, substitute products, and hence bring about the first type of reaction (i.e., when the stock of A rises, the price of A falls, but the revenue increases if the demand for A is elastic, and that implies relative revenue decrease and price decrease for other substitutable goods B and C). (p. 284)
    • And if an existing producer’s product has an elastic demand schedule, the emergence of new goods does not harm them—it benefits them.revisit
      • I misinterpreted Rothbard here—the emergence of new types of goods will bring about price decrease for old substitutes but this is because of the leftward shift of demand schedules (i.e., revenue also decreases) for these goods, and that is not beneficial to the producers of old substitutes.
    • The above is assuming that the emergence of new product doesn’t cause leftward shift of the existing product’s demand schedule—because if that were the case (e.g., the new product is a superior substitute), then it can harm the existing producer—specifically, if the magnitude of the shift outweighs the degree of elasticity.revisit
      • The effects from the changes in demand side is discussed later in this section.
      • Again, I misinterpreted Rothbard here—this is already discussed in the above sentence quoted.
  • The substitutive interrelations of consumers’ goods were cogently set forth by Philip Wicksteed. (p. 284)
    • “The price is the first and most obvious indication of the nature of the alternatives“
      • Put differently, the action axiom (which is implied in the multiverse) implies value scales and exchange, which implies market, which implies price (both of barter and then of money).revisit
  • Complementary consumers’ goods
    • For example, an increase in the supply of golf balls will tend to cause a fall in their prices, which will tend to raise the demand schedule for golf clubs as well as to increase the quantity of golf balls demanded. This will tend to increase the price of golf clubs. (p. 285)
      • Why vertical integration and conglomeration can benefit firms.revisit
    • For this effect the elasticity of demand for the original good has no relevance. (p. 285)
      • Viz., it doesn’t matter whether the increase in golf ball purchases was large (elastic) or small (inelastic), because this is a supply-side effect—any increase in golf ball purchases (via change in supply side) raises the demand for golf clubs (unless the demand curve for golf balls is vertical).
      • For the whole operation, what matters is the elasticity of golf balls (because if the demand for golf balls is elastic, revenue will increase with price decrease), and the magnitude of the rightward shift in golf clubs’ demand schedule (its elasticity will matter only after the operation—if elastic, the operation will further benefit from price decrease in golf clubs, and the opposite if inelastic).revisit
  • All goods are substitutable for one another, while fewer are complementary. When they are also complementary, then the complementary effect will be mixed with the substitutive effect, and the nature of each particular case will determine which effect will be the stronger. (p. 286)
  • More money spent on good A, given the stock of money, signifies that less money is spent on goods B, C, D … The demand curves for the latter goods “shift to the left,” and the prices of these goods fall. (p. 286)
  • The second-order effect:
    • If there is an increase in the demand schedule for golf clubs, it is likely to be accompanied by an increase in the demand schedule for golf balls, since both are determined by increased relative desires to play golf. (p. 287)
        1. Supply for A (golf balls) increases—supply-side.
        • Step 1 per se is beneficiary only if A’s demand schedule is elastic in that specific price ranges—i.e., conglomerates (or vertically integrated entities) will not pursue Step 1 unconditionally (and remember that they can be doing completely different things—that is to say, they are also constrained by the opportunity costs, which should often outweigh such details as the specific demand elasticity of specific good).develop
          • The tendency toward equilibrium price via market feedback is the general condition of free market. Bitcoin—specifically, its use of market feedback in fee premiums—per se is nothing special, it’s just an application of that general market force.
          • Conglomerates (can) produce complementary goods, and vertically integrated entities produce a good independently by themselves—two are not the same entities by definition.develop
            • But to the extent that all goods are somewhat substitutable by all other goods, everyone who produces more than one good is a conglomerate.develop
        1. If A’s demand schedule is elastic, the revenue increases.
        1. Demand for B (golf clubs) increases—demand-side-i.
        1. Demand for A (golf balls) increases—demand-side-ii.
  • Much has been written in the economic literature of consumption theory on the “assumption” that each consumers’ good is desired quite independently of other goods. Actually, as we have seen, the desires for various goods are of necessity interdependent, since all are ranged on the consumers’ value scales. Utilities of each of the goods are relative to one another. These ranked values for goods and money permit the formation of individual, and then aggregate, demand schedules in money for each particular good. (p. 288)
    • Value scales consists of goods with which the individuals are familiar—the good is not on the value scale if the individual does not know about that good.develop

7. The Prices of Durable Goods and Their Services

Analysis of the arbitrage profits and losses of entrepreneurship in the case of selling outright as against renting.

  • For nondurable goods, the problem of the separate sale of the service of the good and of the good itself does not arise. (p. 289)
  • Personal services are never sold as a whole, since, on the free market, slave contracts are not enforceable. Personal services, then, are always sold in their individual units. (pp. 289-290)
  • The problem whether services should be sold separately or with the good as a whole arises in the case of durable commodities. The price of the service unit is called the rent. (p. 290)
  • There is a definite relationship between the price of the unit services of a durable consumers’ good and the price of the good as a whole. (p. 291)
  • The market price of the good as a whole is equal to the present value of the sum of its expected (future) rental incomes or rental prices. (p. 292)
  • The capital value—the “price of the good as a whole”—of any good (be it consumers’ or capital good or nature-given factor) is the money price which, as a durable good, it presently sells for on the market. The capital value at any time is based on expectations of future rental prices. (pp. 292-293)
  • The man who has bought a good to rent out at what proves to be an excessive capital value has only himself to blame for being overly-optimistic about the monetary return on his investment. And since successful forecasters are, in effect, rewarded, and poor ones penalized, and in proportion to good and poor judgment respectively, the market tends to establish and maintain as high a quality of forecasting as is humanly possible to achieve. (p. 293)develop
  • The equilibrium relation between present capital value and actual future rents is only a long-range tendency fostered by the market’s encouragement of successful forecasters. This relation is a final equilibrium, similar to the final equilibrium prices that set the goal toward which the day-to-day prices tend. (p. 294)revisit
    • E.g., 5-2
  • Study of capital value and rental prices requires additional supply-demand analysis. It is clear that the supply schedules on the two markets are interconnected. They will tend to come into equilibrium when the equilibrium-price relation is established between them. (pp. 294-295)
    • Because the sellers who believe that the capital market is offering higher price than the rental market will sell in the former (and vice versa).revisit
    • The equilibrium-price relation: the market price of the good as a whole is equal to the present value of the sum of its expected (future) rental incomes or rental prices.
  • The price of presently established long-term rents will tend to be equal to the present value of the sum of the expected fluctuating rents for identical goods. The ever-present uncertainty of the future causes the more able forecasters to gain and the less able ones to lose. (p. 296)
    • Viz., speculation is an inherent and continuous feature of the market, because uncertainty is never eliminated.revisit

8. Welfare Comparisons and the Ultimate Satisfactions of the Consumer

  • From the full praxeological point of view, the butter becomes a consumers’ good only when it is actually being eaten or otherwise “consumed” by the ultimate consumer. (p. 299)
  • From the point of view of that subdivision of praxeology that covers traditional economics—that of catallactics, the science of monetary exchanges—however, it becomes convenient to call the good at the last retail stage a “consumers’ good.” (p. 299)
  • The purchasing power of money in terms of all other commodities is continually changing, and there is no way to measure such changes. There is no precise method of measuring or even identifying the purchasing power of money and its changes. (pp. 300-301)
    • a. Value is subjective—objective “power” doesn’t exist.revisit
      • E.g., A’s psychic income can be equal to, or greater than, B’, despite the lower monetary expenditures—although such comparison itself is meaningless, given the subjectivity of value.
    • b. Market conditions are always changing—e.g., CPI consists of arbitrary selection of goods and hence meaningless.
  • The law of the diminishing marginal utility of money applies only to the valuations of each individual person. (p. 301)revisit
    • Revisit this particularly in conjunction with Eric Voskuil’s [Time Preference Fallacy]

9. Some Fallacies Relating to Utility

  • Even in the case of the most divisible of goods, there will still be a difference in rank, not an equalization, between the two utilities. (p. 303)
    • Otherwise, men wouldn’t act.develop
  • Utilities are not quantities, but ranks, and the successive amounts of a commodity that are used are always discrete units, not infinitely small ones. If the units are discrete, then the rank of each unit differs from that of every other, and there can be no equalization. (p. 305)
  • Human beings act on the basis of things that are relevant to their action. The human being cannot see the infinitely small step; it therefore has no meaning to him and no relevance to his action. (p. 306)
  • “Indifference maps”
    • The crucial fallacy is that “indifference” cannot be a basis for action. If a man were really indifferent between two alternatives, he could not make any choice between them, and therefore the choice could not be revealed in action. (p. 307)
  • Praxeology is a logical science based on the existence of action per se; it is interested in explaining and interpreting real action in its universal sense rather than in its concrete content. Its discussion of value scales is therefore a deduction from the nature of human action and not a speculative essay on the internal workings of the mind. (p. 308)
  • Praxeology is not concerned with the content of these ends, the manner of arriving at them, or their order; it is concerned with analysis of the logical implications of the existence of these ends. (pp. 308-309)
    • Viz., praxeology is concerned with the fact that humans solve problems—regardless of how.revisit
  • Economics is interested not in value scales professed in response to questionnaires, but in the values implied by real action. (p. 309)
  • “The scale of value is nothing but a constructed tool of thought. The scale of value manifests itself only in real acting; it can be discerned only from the observation of real acting. It is therefore impermissible to contrast it with real acting and to use it as a yardstick for the appraisal of real actions.” – Ludwig von Mises (p. 309)
  • The case of Buridan’s ass
    • He is confronted not with two choices, but with three, the third being to starve where he is. (p. 310)
    • We are interested in preference as revealed through choice and not in the psychology of preferences. (p. 310)
    • Far from being a proof of the importance of indifference, the case of Buridan’s ass is an excellent demonstration of the fact that indifference can play no part whatever in an analysis of human action. (pp. 310-311)
      • Relate this with the multiverse (specifically with differentiation and fungibility)—viz., elaborate how differentiation relates with being made redundant (i.e., fungibility).develop
        • Bredan will either choose the left water hole or right. In some universes, the left will be preferred to the right, while the right will be preferred to the left in other universes.
        • Put differently, the individual differentiates due to the indifference—a lack of preference, which in turn is due to the lack of knowledge.develop
          • Inverted: the individual converges across the multiverse through knowledge.
  • In praxeology we are not interested in the concrete content of his value scales nor in his underlying personality. We are interested in value scales as revealed through choice. (p. 311)
    • Viz., praxeology is concerned with that part of value scales that can be ascertained from actions.

Appendix A: The Diminishing Marginal Utility of Money

“Total utility” can be only ascertained when the marginal good with which the individual acts upon coincides with whatever the totality means in that context.revisit

  • There is no possible way of adding or combining marginal utilities to form some sort of “total utility”; the latter can only be a marginal utility of a large-sized unit. (p. 314)
  • “Value can rightly be spoken of only with regard to specific acts of appraisal… . Total value can be spoken of only with reference to a particular instance of an individual … having to choose between the total available quantities of certain economic goods. Like every other act of valuation, this is complete in itself… . When a stock is valued as a whole, its marginal utility, that is to say, the utility of the last available unit of it, coincides with its total utility, since the total supply is one indivisible quantity.” – Mises (p. 314)
  • There are, then, two laws of utility, both following from the apodictic conditions of human action: first, that given the size of a unit of a good, the (marginal) utility of each unit decreases as the supply of units increases; second, that the (marginal) utility of a larger-sized unit is greater than the (marginal) utility of a smaller-sized unit. But there is no arithmetical relationship between the items apart from these rankings. (p. 314)

Appendix B: On Value

  • It is more important to keep distinct the subjective use of the term in the sense of valuation and preference, as against the “objective” use in the sense of purchasing power or price on the market. (p. 316)
  • Appraisement—fundamental to the entire economic system in an economy of indirect exchange—is to be distinguished from subjective evaluation. (p. 316)

Chapter 5: Production—The Structure

1. Some Fundamental Principles of Action

2. The Evenly Rotating Economy

  • What would occur if value scales, technological ideas, and the given resources remained constant? (p. 321)
  • The state of final equilibrium is one which the economy is always tending to approach. It is never reached in practice and it is always changing. (pp. 321-322)
  • At the final position of rest, on the basis of the given, actually existing value scales, all individuals would have attained the highest positions on their value scales, given the technology and resources. (p. 322-323)
  • Such a position of no change would be most unfortunate, since it would imply that no further want-satisfaction would be possible. (p. 323)
    • Viz., a final equilibrium position implies the end of progress.revisit
  • Far too many writers discerning that in the evenly rotating economy entrepreneurial profits and losses would all be zero, have somehow concluded that this must be the condition for any legitimate activity on the market. (p. 323)
    • Viz., do not confuse the effect with the condition.
  • We are not dealing with “functional,” quantitative relations among variables, but with human reason and will causing certain action, which is not “determinable” or reducible to outside forces. (p. 324)
    • Relate this with the unpredictability which is inherent in the multiverse—in particular, relate this with how experimental results cannot be used to verify theories due to the non-determinancy which is inherent in each universes.revisit
      • Does that mean experimental results can be only used to falsify theories? How is the multiverse related with fallibilism?revisit
  • The only “natural laws” (if we may use such an old-fashioned but perfectly legitimate label for such constant regularities) in human action are qualitative rather than quantitative. (p. 324)
  • The “mathematical economists”:
    • It cannot describe the path by which the economy approaches the final equilibrium position. This task can be performed only by verbal, logical analysis of the causal action of human beings. (p. 325)
      • And the multiverse explains causation, at least in the realm of human actions.revisit
        • Viz., because the multiverse is the general condition, and because the multiverse allows the explanation of life and mind by allowing the causality to be evoked by the mind, causation (as a concept implied in the multiverse) is sure to explain human actions.revisit
    • The mathematical equations of the evenly rotating economy describe only a static situation, outside of time. (p. 325)
      • Other times are special cases of other universes. Inverted, the mathematical equations—at least in the sense the mathematical economists use them—disregard the multiverse.revisit
  • The use of the mathematical concept of “function” is particularly inappropriate in a science of human action. On the one hand, action itself is not a function of anything, since “function” implies definite, unique, mechanical regularity and determination. On the other hand, the mathematics of simultaneous equations, dealing in physics with unmotivated motion, stresses mutual determination. In human action, however, the known causal force of action unilinearly determines the results. (pp. 326-327)
  • Training in mathematics, without adequate attention to the epistemology of the sciences of human action, is likely to yield unfortunate results when applied to the latter. (p. 366)
  • The idea of the evenly rotating economy is indispensable in analyzing the real economy; through hypothesizing a world where all change has worked itself out, we can analyze the directions of actual change. (p. 329)
    • Is this actually true?revisit
      • Is discussing the ERE a form of explicating the contradiction?revisit

3. The Structure of Production: A World of Specific Factors

  • Let us for a time consider a world where every good is produced only by several specific factors. In this world, a world that is conceivable, though highly unlikely, every person, every piece of land, every capital good, would necessarily be irrevocably committed to the production of one particular product. (p. 330)
  • There would still, in the sphere of production of exchangeable goods, be one allocation that every man would make: how much time to devote to labor and how much to leisure. But there would be no problem of which field to labor in, no problem of what to do with any piece of land, no problem of how to allocate capital goods. The employment of the factors would all depend on the consumers’ demand for the final product. (p. 330)
  • There are two alternatives in regard to the final ownership of the product (before it is sold to the consumer)—although the latter is the nearly universal condition, it will be convenient to begin by analyzing the first alternative. (p. 332):
    • (a) All the owners of these factors jointly own the final product
    • (b) The owner of each of the factors sells the services of his factor to someone else, and the latter (who may himself contribute a factor) sells the good at a later date to the consumer.
      • The term “capitalists” will be confined to the owners in the second alternative.

4. Joint Ownership of the Product by the Owners of the Factors

  • Since every capital good analytically resolves itself into original nature-given and labor factors, it is evident that no money could accrue to the owner of a capital good. All 100 ounces must eventually be allocated to labor and owners of nature-given factors exclusively. (p. 334)
  • To the truism that the income from sale of the consumers’ good equals the consumers’ expenditure on the good, we may add a corresponding truism for each stage of production, namely, that the income from sale of a capital good equals the income accruing to the factors of its production. (p. 336)
  • The income gained from the final sale of the product to the consumers accrues only to the owners of land and labor; there is no separate group of owners of capital goods to whom income accrues. (p. 337)
    • Viz., there is no capitalist.
  • Their income is received only at a much later date. (p. 337)
    • I.e., when the consumers’ good is finally purchased.
  • The joint monetary income earned by the owners of the factors fluctuates pari passu with consumer demand for the product. (p. 338)
    • Viz., the capitalists hedge this risk for the owners of land and labor.
  • His labor, on our assumptions, may be a specific factor, but his money is usable in every line of production. (p. 338)
    • Saving literally can save you.develop
  • It is the free market in a free society that furnishes the only instrument to reduce or eliminate poverty and provide abundance. (p. 340)

5. Cost

  • What are the costs involved in the decisions made by the owners of the factors? (p. 341)
  • It must be stressed that these costs are subjective and cannot be precisely determined by outside observers or be gauged ex post by observing accountants. (p. 341)
    • Viz., only monetary income (or loss) can be measured ex post—never psychic income (or loss).revisit
  • Since such factors as land and the produced capital goods have only one use, namely, the production of this product (by virtue of being purely specific), they involve no cost to their owner in being used in production. (p. 341)
  • The use of labor, however, does have a cost, in accordance with the value of the leisure forgone by the laborers. This value is, of course, unmeasurable in money terms, and necessarily differs for each individual, since there can be no comparison between the value scales of two or more persons. (p. 341)
  • Individuals, on their value scales, evaluate a given stock of goods according to their utilities, setting the prices of consumers’ goods; the stock is produced according to previous decisions by producers, who had weighed on their value scales the expected monetary revenue from consumers against the subjective costs (themselves simply utilities forgone) of engaging in the production. (p. 343)
    • In the former case, the utility valuations are generally (though by no means always) the ones made by consumers; in the latter case, they are made by producers. But it is clear that the determinants of price are only the subjective utilities of individuals in valuing given conditions and alternatives. There are no “objective” or “real” costs that determine, or are co-ordinate in determining, price. (p. 343)
  • Added to the leisure-labor element, the workers, in this case, must wait for some time before earning the return, while they must give up their leisure in the present or in various periods earlier than the return is obtained. Time, therefore, is a critical element in production, and its analysis must pervade any theory of production. (p. 344)
  • Present consumption is given up in anticipation of future consumption. This restriction of present consumption is saving. (pp. 344-345)
  • In a world where products are all jointly owned by owners of factors, the original owners of land and labor must do their own saving; there is no monetary expression to represent total saving, even in a monetary economy. (p. 345)
    • Because saving in a pure production process without monetary intermediaries is fundamentally a real, not a monetary, phenomenon.
    • Under the current assumption, the owners of land and labor “save” real resources (e.g., time), and not in money (e.g., monetary wages and rents are assumed to be non-existent).
  • It is impossible for us to say what this saving or investment was in monetary terms. (p. 345)
    • Because the question of leisure forgone (which constitutes the saving under the current assumption) implies time preference—and because time preference is subjective preference, it cannot be measured in monetary terms.revisit

6. Ownership of the Product by Capitalists: Amalgamated Stages

  • The capitalists relieved the owners of the original factors from the necessity of sacrificing present goods and waiting for future goods. Instead, the capitalists have supplied present goods from their own savings (i.e., money with which to buy present goods) to the owners of the original factors. (p. 346)
  • The owners of these factors have the money already for which they otherwise would have had to save and wait (and bear uncertainty), while the capitalist has only a mass of capital goods, a mass that will prove worthless to him unless it can be further worked on and the product sold to the consumers. (p. 347)
    • Viz., the capitalists are not “powerful”
  • Let us now add another temporary restriction to our analysis—namely, that all producers’ goods and services are only hired, never bought outright. This is a convenient assumption that will be maintained long after the assumption of specific factors is dropped. (p. 348)
    • Similar assumption as in 4-7
  • A laborer cannot be bought, then, but his services can be bought over a period of time; i.e., he can be rented or hired. (p. 348)

7. Present and Future Goods: The Pure Rate of Interest

Interest is not the “reward” of capital goods—interest arises because the capitalists buy labor and land today in exchange for goods that will be sold in the future.

  • In an evenly rotating economy, where all the market actions are repeated in an endless round and there is therefore no uncertainty, entrepreneurship disappears. (p. 349)
    • Viz., under the current assumption, the capitalists can exist, but not entrepreneurs.
  • Even if final returns and consumer demand are certain, the capitalists are still providing present goods to the owners of labor and land and thus relieving them of the burden of waiting until the future goods are produced and finally transformed into consumers’ goods. (p. 349)
  • When the capitalists have saved money (“money capital”), however, they are at liberty to purchase factor services in any line of production. Money, the general medium of exchange, is precisely nonspecific. (p. 350)
  • The concept of rate of return is necessary in order for him to compare different potential investments for different periods of time and involving different sums of money. (p. 350)
    • And since money has market with all the other goods, and ceteris paribus the more monetary returns the better, the concept of rate of return can abstract the specificity of goods exchanged with money.
    • Because of money, the concept of rate of return can be abstracted to the ratio between present goods exchanged against future goods in general, resulting in the pure rate of interest which is uniform for all lines of production.
    • Money exists due to the uncertainty of the future (which is implied in the multiverse)—inverted, money is a technology (not forbidden by the laws of physics) that allows the present to coordinate better with the future—which is by definition uncertain as implied in the multiverse.develop
    • Although David Deutsch emphasized fungibility as one of the distinguishing features of money, many other goods are by definition fungible—it’s the combination of money’s medium-ness (viz., salability) and its fungibility that makes it uniquely useful.develop
    • Money’s medium-ness means it can be exchanged with any other goods (another sense of fungibility apart from the literal sense of any money can substitute any other money)—it can be otherwise—it’s analogous to a quantum system before differentiation via entanglement.develop
    • Each individual is fungible with every other instances of himself across the multiverse (the literal sense of fungibility), as well as with every other individual across the multiverse (the contingent sense of fungibility—because there is no substantive difference between the difference between himself and other instances of himself and the difference between himself and others, due to the fact that other times are special cases of other universes, and because humans are significant to the extent that they create knowledge)—viz., humans replicated themselves in money.develop
  • After data work themselves out and continue without change, the rate of net return on the investment of money capital will, in the ERE, be the same in every line of production. (p. 350)
  • In the ERE, there is no entrepreneurial uncertainty, and the rate of net return is the pure exchange ratio between present and future goods. This rate of return is the rate of interest. This pure rate of interest will be uniform for all periods of time and for all lines of production and will remain constant in the ERE. (p. 351)
    • Viz., there is no time inconsistency—e.g., see Mark Spitznagel—in the ERE.develop
      • Is the concept of time inconsistency universal and necessary as in the case with positive time-preference? If not (which is very likely), what is the implication?revisit
  • Since money is the general medium of exchange and can be invested in all products, this close competition extends throughout the length and breadth of the production structure. (p. 351)
  • It is the time element, the result of the various individuals’ time preferences, and not the alleged independent productivity of capital goods, from which the interest rate and interest income arise. (p. 352)
    • Again, capital goods per se are not productive.
  • We shall see below that this exchange rate between present and future goods is not only uniform in the production process, but throughout the entire market system. (p. 353)
    • Time inconsistency does not exist in the ERE.revisit
  • It is the “social rate of time preference.” It is the “price of time” on the market as the resultant of all the individual valuations of that good. (p. 353)
    • Viz., the capitalists—in supplying present goods for future goods—are constrained by aggregated time-preference schedules just as sellers of any other present goods are constrained by aggregated demand schedules.develop
    • Viz., the capitalists are not exploiters but intermediaries, bridging present and future demand with money—because, by definition, money is the best technology for this function.develop
      • Elaborate this without using the “store of value” rhetoric.TODO

8. Money Costs, Prices, and Alfred Marshall

The subjective utility of individuals—both of consumers and producers—alone (a “monistic causal explanation”) determines how much productive energy and savings will go into producing goods (i.e., size)—both total size and specific sizes.revisit

  • The price of the final product is determined by the valuations and demands of the consumers, and this price determines what the cost will be. (pp. 354-355)
  • Costs of production, then, are at the mercy of final price, and not the other way around. It is ironic that it is precisely in the ERE that this causative phenomenon should be the clearest. (p. 355)
    • E.g., 5-4
  • In the real world of uncertainty it is more difficult to see this, because factors are paid in advance of the sale of the product, since the capitalist-entrepreneurs speculatively advance money to the factors in the expectation of being able to recoup their money with a surplus for interest and profit after sale to the consumers. (p. 355)
  • The economist, instead of viewing the economy from the standpoint of an individual entrepreneur, must see how money costs are determined and, taking account of all the interrelations in the economy, must recognize that they are determined by final prices reflecting consumer demands and valuations. (p. 356)
  • Alfred Marshall:
    • He considers the “long run” as actually existing, as being the permanent, persistent, observable element beneath the fitful, basically unimportant flux of market value. (p. 358)
    • The long run, by its very nature, never does and never can exist. The point at issue is that it is not observable, or real, as are actual market prices. (p. 359)
      • The ERE—the Austrian version of the “long-run”—is by definition unobservable in the real world, and the Austrians know it.develop
    • The actual market prices, on the contrary, are the only ones that ever exist, and they are the resultants of actual market data (consumer demands, resources, etc.) that themselves change continually. (p. 359)
      • Elie Ayache again (see, e.g., 1-5-b, 4-6)
      • The physical reality creates life, mind, and money via the Turing principle—as such the multiverse is implied in life, mind, and money.develop
    • The “long run” of the ERE is not real at all, but a very useful theoretical construct that enables the economist to point out the direction in which the market is moving at any given time—specifically, toward the elimination of profits and losses if existing market data remain the same. (p. 360)

9. Pricing and the Theory of Bargaining

  • What will be the process of pricing productive factors in a world of purely specific factors? (p. 362)
  • Laborer could always enjoy leisure, and this sets a minimum supply price for labor service. On the other hand, the use of land sacrifices no leisure. The bargaining power of the owner of labor is almost always superior to that of the owner of land. (p. 364)
  • In the real world, labor is uniquely the nonspecific factor, so that the theory of bargaining could never apply to labor incomes. (p. 364)
  • Not only is bargaining theory rarely applicable in the real world, but zones of indeterminacy between valuations, and therefore zones of indeterminacy in pricing, tend to dwindle radically in importance as the economy evolves from barter to an advanced monetary economy. (p. 365)
    • Because money allows you to prove your relative worth.revisit

Chapter 6: Production—The Rate of Interest and Its Determination

A fuller discussion of the determination of the rate of interest (e.g., see 5-7).

1. Many Stages: The Pure Rate of Interest

  • Not only must the interest rate be uniform for each good; it must be uniform for every stage of every good. (p. 370)
    • Again, there is no time inconsistency in the ERE.
  • In the real world of uncertainty, the tendency of entrepreneurial actions is always in the direction of establishing a uniform rate of interest throughout all time markets in the economy. (p. 372)
    • Viz., does time inconsistency exist because of the government intervention?revisit
  • Capital goods are vital and of crucial importance in production, but their production is, in the long run, imputable to land, labor, and time factors—the capitalists’ function is thus a time function. (pp. 373-374)
  • The interest income is not derived from the concrete, heterogeneous capital goods, but from the generalized investment of time. (p. 374)
    • Again, capital goods per se are not productive.

2. The Determination of the Pure Rate of Interest: The Time Market

  • The establishment of money as a general medium of exchange has greatly simplified the present-future market as compared to the laborious conditions under barter, where there were separate present-future markets for every commodity. (p. 375)
  • Money is clearly the present good par excellence. (p. 375)
  • There are two specific types of future goods that enter the time market:
    • Credit transaction
    • The purchase of producers’ goods and services, which are transformed over a period of time, finally to emerge as consumers’ goods
  • The time market is therefore not restricted to the loan market. It permeates the entire production structure of the complex economy. (p. 378)
    • Viz., credit transaction doesn’t exhaust the time market.

3. Time Preference and Individual Value Scales

  • Many economists have made the great mistake of believing that the interest rate determines the time-preference schedule and rate of savings, rather than vice versa. (p. 382)
  • In the aggregate, the interaction of the time preferences and hence the supply-demand schedules of individuals on the time market determine the pure rate of interest on the market. (p. 382)
  • We cannot compare utilities or values between persons, but we certainly may say that A’s time-preference schedule is higher than B’s. In other words, it cannot make sense to compare the rankings or utilities that the two men accord to any particular unit of a good, but we can (if we know them) compare their schedules based purely on their demonstrated time preferences. (p. 385)
  • Every man must consume in the present, and this drastically limits his savings regardless of the interest rate. After a certain point, a man’s time preference for the present becomes infinite. (p. 386)
    • Because one has to consume some amount in the present.
  • The intersection of the two curves—supply of present goods and demand for present goods—determines the equilibrium rate of interest—the rate of interest as it would tend to be in the evenly rotating economy. This pure rate of interest is determined solely by the time preferences of the individuals in the society, and by no other factor. (p. 389)

4. The Time Market and the Production Structure

  • Two main subdivisions of the present-future market:
    • The production structure
    • Consumer loan market
  • The fact that different durations of production processes and different degrees of vertical integration make no difficulties for aggregation permits us to use the diagram almost interchangeably for a single production process and for the economy as a whole. (p. 394)
  • The temptation has been simply to write off the various intercapitalist transactions as “duplications.” The inference from such concepts is that even without any savings, consumption expenditure is alone sufficient to maintain the productive capital structure intact. (pp. 396-397)
  • This thesis is tragically erroneous. For with production divided into stages, we must consider all the decisions to supply present goods on the present-future market to provide for the maintenance of the capital structure. (pp. 397-398)
  • What maintains capital is gross expenditures and gross investment and not net investment. (p. 399)
  • Civilization advances by virtue of additional capital, which lengthens production processes. The economy would revert to barbarism, with the employment of only the shortest and most primitive production processes. (pp. 399-400)
  • The aggregate time-market schedules (determined by time preferences) determine the aggregate social proportions between (gross) savings and consumption. (p. 400)
  • The time preferences of the individuals on the market determine simultaneously and by themselves both the market equilibrium interest rate and the proportions between consumption and savings (individual and aggregate). (p. 400)
  • In our example, the increase in time-preference schedules has caused a decline in savings, absolute and proportionate, and a rise in the interest rate. (p. 401)
    • In general, the supply curve of present goods shifts to the left, but the demand curve for present goods also shift to the right. Interest rate will increase for sure. The level of saving case by case.revisit
  • Capital per se is not permanent (as endorsed by J.B. Clark, Frank H. Knight, and “neoclassical” economists)—the all-pervading influence of time is stressed in the period-of-production concept and in the determination of the interest rate and of the investment-consumption ratio by individual time-preference schedules. (p. 402)
    • To argue otherwise is to argue against the multiverse.revisit
  • It is this rate of interest that induces capitalists to save and invest present goods in productive factors. (p. 403)
    • Not consumers’ spending.
  • There is, in fact, never any need to worry about the maintenance of consumer spending. (p. 403)
  • Large changes in the interest rate, which would make an enormous difference to capitalists and determine huge differences in interest income and the profitableness of various lengthy productive processes, would have a negligible effect on the earnings of the owners of the original productive factors. Land is very likely to have no reservation price, i.e., it will have little subjective-use-value to the owner. Labor services are also likely to be inelastic with respect to the interest discount, but probably less so than land, since labor has a reservation demand which stems from the value of leisure as a consumers’ good (i.e., lower prices will increase the relative advantage of leisure). (pp. 405-406)revisit

5. Time Preference, Capitalists, and Individual Money Stock

  • All consumers can be capitalists if they wish. They will be capitalists if their time-preference schedules so dictate. (p. 410)revisit
  • How can a laborer or a landowner be a demander of present goods, and then turn around and be a supplier of present goods for investment? The solution to this puzzle is that the two acts are not performed at the same time. (p. 411)
  • A landowner’s pre-income demand for money is likely to be practically inelastic, or vertical, while a laborer’s will probably be more elastic. (p. 414)
    • Viz., regardless of the height of interest rate, the land will be rent out—because the land doesn’t have direct use-value for the owner.
      • E.g., 6-4
    • Viz., depending on the height of interest rate, the laborer will work less (or more)—with lower rate he will work more for present money (because he will be paid more as laborer when the time spread is tight), while with higher rate he will work less and can turn as a supplier of present money.revisit
  • The only thing that stops a man from being a capitalist is his own high time-preference scale. (p. 415)
  • We cannot compare time preferences interpersonally, any more than we can formulate interpersonal laws for any other type of utilities. (pp. 415-416)
  • The common-sense observation that it is generally the rich who save more may be an interesting historical judgment, but it furnishes us with no scientific economic law whatever, and the purpose of economic science is to furnish us with such laws. (p. 416)

6. The Post-Income Demanders

  • The time market’s components are savings as supply of present goods for future goods, and producers’ demand (i.e., landowners and laborers) and consumers’ demand (i.e., borrowing consumers) for present goods. (pp. 417-418)
  • The total savings going into investment in production is the total supply of savings minus consumers’ loan demands for present goods. (p. 419)
    • See Figure 51
  • We have seen that the productive demand (i.e., that of landowners and laborers) for present goods tends to be inelastic with respect to interest rates. (p. 419)
    • Viz., this is why consumers’ loan demand curve is almost parallel to the total demand curve.
  • There can be no long-run deviation of the rate of interest on the consumption loan market from the rate of interest return on productive investment. Both are aspects of one time market. (p. 420)
    • Viz., there is no substantive difference between debt and equity, as will be discussed elsewhere.
  • The rate of interest will tend to be equalized for all areas of the economy, as it were in three dimensions—“horizontally” in every process of production, “vertically” at every stage of production, and “in depth,” in the consumer loan market as well as in the production structure. (p. 420)

7. The Myth of the Importance of the Producers’ Loan Market

  • The productivity of production processes has no basic relation to the rate of return on business investment. This rate of return depends on the price spreads between stages, and these price spreads will tend to be equal. The size of the price spread, i.e., the size of the interest rate, is determined, as we have seen at length, by the time-preference schedules of all the individuals in the economy. (p. 424)
  • The neoclassicists are partly right in only one respect—that the rate of interest in the producers’ loan market is dependent on the rates of return on investment. They hardly realize the extent of this dependence. (p. 424)
  • From the point of view of fundamental analysis, there need not be any producers’ loan market at all. (p. 425)

8. The Joint-Stock Company

The ERE cannot exist in reality, yet is a powerful explanatory tool. How? The ERE is inhabited by all-knowing beings, because it’s deterministic. Inverted, the laws of physics forbid all-knowing being.revisit

  • With the assumption of the ERE, to the superficial, it looks as if the firm is an automatically continuing thing and as if the production is somehow timeless and instantaneous, ensuing immediately after the factor input. (p. 427)
  • The joint-stock company:
    • Wherein each investor-owner receives a share (or stock)—a certification of ownership in proportion to the amount he has invested in thee total capital of the company. (p. 429)
  • It is easy for new capital to be attracted through the issuance of new shares. It is also easier for any owner to withdraw his capital from the firm. (p. 431)
  • In the ERE, the share market is strictly dependent on the price spreads. If the price spreads are 5 percent, the rate of interest return yielded on the share market (the ratio of earnings per share to the market price of the share) will tend to equal the rate of interest as determined elsewhere on the time market. (p. 431)
  • Far from rendering economic analysis obsolete, the modern world of the corporation aids analysis by separating and simplifying functions in production—specifically, the managerial function. (pp. 433-434)
  • In the ERE, where all techniques, market demands and supplies, etc., for the future are known, the investment function becomes purely passive and waiting. (p. 434)
    • Viz., the investment return in the ERE is exclusively dependent on time element.
  • Some theorists lapse into the sheer mysticism of considering the “corporation”—a conceptual name which we give to an institution owned by real individuals—as “really” existing and acting by itself. (p. 435)

9. Joint-Stock Companies and the Producers’ Loan Market

  • In essence, the creditor on the prospective loan market is no different from the man who has invested in stock. (p. 436)
  • The interest rate is determined by the various time-preference schedules, and the final rate is set by the saving schedules, on the one hand, and by the demand-for-present-goods schedules, on the other. (p. 437)
    • You must evoke others—other configurations (i.e., contingencies)—to explain interest rate.develop
  • The difference between investing in stock and lending money to firms is mainly a technical one. (p. 437)
  • The interest return on investment, as set by total savings and total demands by owners of factors, completely determines the rate of interest on the producers’ loan market as well as the rate of earning on stock. (p. 437)
  • The creditors get first claim on the assets of a corporation, and they get paid before the stockholders. They are therefore definitely owners of these assets. (p. 439)
  • Investment trust sells its own stock to individuals and then uses this capital to buy stock of other companies. (p. 440)
  • Each individual attempts to maximize his psychic income, and this will translate itself into maximizing his monetary income only if other psychic ends are neutral. (p. 441)
  • The disfavored armament industry example:
    • The burden of the lower prices at each stage of production falls on the purely specific factors in the industry, those which must be devoted to this industry if they are to be in the production system at all. (p. 442)
    • It is therefore likely to be specific land factors that bear the brunt of the lower return. (p. 442)
  • The rates of interest will differ in accordance with a “psychic” component, either positive or negative, depending on whether there is an acute dislike or liking among investors for a particular production process. (p. 443)

10. Forces Affecting Time Preferences

  • Praxeological analysis can supply some truths about time preferences, using ceteris paribus assumptions. (pp. 443-444)
    • Thanks to the multiverse.
  • It is not his money stock that is relevant to his time preferences, but the real value of his money stock. In the ERE, of course, where the purchasing power of the money unit remains unchanged, the two are identical. Ceteris paribus, an increase in his real income—real additions to his money stock—will lower the time-preference rate on his schedule. (p. 444)
    • E.g., 8-2
  • If people all became immortal and healthy as a result of the discovery of some new drug, time preferences would tend to be very much lower, there would be a great increase in investment, and the pure rate of interest would fall sharply. (pp. 444-445)

11. The Time Structure of Interest Rates

Arbitragers will equalize the rate of interest throughout the time structure (e.g., across short-term and long-term bonds)

  • Just as speculative errors in regard to commodity prices cause losses and impel further change to the “real” underlying price, so speculative errors will be self-correcting here too and lead the rate of interest to the height determined by underlying time preferences. (pp. 448-449)
  • The stock market equates the rate of interest on all investments, obliterating the differences in time structure so thoroughly that it becomes difficult for many writers to grasp the very concept of period of production. (p. 449)

Appendix: Schumpeter and the Zero Rate of Interest

  • If the rate of interest paid were zero, complete capital consumption would ensue. (p. 452)
  • The authors’ “proof” simply consists of ignoring the powerful, universal fact of time preference. (p. 452)

Chapter 7: Production—General Pricing of the Factors

1. Imputation of the Discounted Marginal Value Product

  • The mathematical bent toward replacing the concepts of cause and effect by mutual determination has contributed to the willingness to engage in circular reasoning. (p. 508)
  • According to the law of returns, there is an optimum of proportions of factors, given other factors, in the production of any given product. We shall see that our analysis of factor pricing is based only on this praxeological law and not on more restrictive technological assumptions. (pp. 455-456)
    • See 1-6
  • The key question is specificity of factors. (p. 456)
  • The marginal value product is the monetary revenue that may be attributed, or “imputed,” to one service unit of the factor. In the ERE every isolable factor will earn its DMVP (discounted marginal value product), and this will be its price. (pp. 456-457)
    • E.g., the capitalist sees that a labor will produce 20 gold ounces worth in a year; assuming 5% interest rate, he will buy the factor at up to 19 ounces; if the factor is offered cheaper than 19—i.e., the factor’s DMVP—then other capitalists will bid up the factor (and vice versa).
  • But by what process does the market isolate and determine the share (the MVP of a certain unit of a factor) of income yielded from production? (p. 458)
    • E.g., how is laborers’ income decided?
  • As new supply is added, the marginal value product of a unit declines. (p. 461)
  • We must recall that there takes place the inexorable tendency in the market for the price of all units of any good to be uniform throughout its market—since factor units by definition are interchangeable, the value of one unit will be equal to the value of every other unit at any one time. (p. 462)
    • Interchangeable, fungible, interoperable.develop
  • Effectively, all factors will shift until the prices that they can attain will be uniform throughout the market for their services. (p. 462)
  • The tendency will always be, then (and this will always obtain in the ERE), for the DMVP of any factor to be equal in each line of production. (p. 463)
    • The tendency is achieved because increased purchase of a factor even within each line will lower the MVP in that line.
      • See 7-2-b.
  • The impact of a change in consumer demand on a specific factor will be far greater, in either direction, than it will be on the price of employment of a nonspecific factor. (p. 463)
  • It should be evident that the array of MVPs as a whole is the determining factor, and the lowest-ranking process in terms of MVP will, through the medium of factor prices, transmit its message, so to speak, to the various firms, each of which will use the factor to such an extent that its DMVP will be brought into alignment with its price. It is the general DMVP schedule that determines the price of the supply of the factor, and then the particular DMVP schedules within each production process are brought into alignment so that the DMVPs of the factor equal its price. (p. 464)
  • The nonspecific factor’s price will be set equal to its DMVP as determined by its general DMVP schedule: the full possible array of DMVPs, given various units of supply of the factor in the economy. (p. 464)
    • Viz., the price exists because of the fungibility achieved due to the laws of physics which allows information via abstraction.develop
    • Viz., the laws of physics allow and imply the interoperability laws, which in turn allow and imply the formation of price.develop

2. Determination of the Discounted Marginal Value Product

A. Discounting

  • The higher the rate of discount (as a result of rises in time-preference schedules), the lower will tend to be the DMVP and, therefore, the lower the price of the factor. (p. 466)

B. The Marginal Physical Product

  • The marginal value product of a factor service unit is equal to its marginal physical product times the price of that product. (p. 467)
  • There can be no general schedule for the MPP as there is for the MVP, for the simple reason that physical units of various goods are not comparable. (p. 467)
  • The MPP is the amount of physical product that will be produced with the addition of one unit of a factor, other factors being given. (p. 468)
  • The APP is the ratio of the total product to the total quantity of the variable factor, other factors being given. (p. 468)
  • No factor will be employed in the region where the MPP is negative. (p. 469)
  • If APP is increasing, then MPP is greater than the APP, and vice versa. When APP is at its maximum, MPP must be neither lower nor higher than, but equal to, APP. (p. 472)
    • See Figure 59
  • If the producer remains in the region where the APP is increasing, he is in an area of negative MPP of the other factors. A region of increasing APP for one factor signifies a region of negative MPP for other factors. (p. 474)
  • The variable factor will be set so that it has zero MPP only if it is a free good. Conversely, the APP is at its maximum for the variable factor, only when the other factors are free goods and therefore have zero MPP at this point. However, there can be no production with only one factor. (p. 474)
    • See 1-3
  • A factor will always be employed in a production process in such a way that it is in a region of declining APP and declining but positive MPP. Every factor will be employed in a region of diminishing MPP and diminishing APP so that additional units of the factor employed in the process will lower the MPP, and decreased units will raise it. (pp. 474-475)
    • This explains why increased purchase of a factor even within each line will lower the MVP in that line. (e.g., 7-1)

C. Marginal Value Productrevisit

  • What will be the shape of the MVP schedule? (p. 475)
  • The MVP curve of the factor will always be falling, and falling at a more rapid rate than the MPP curve. (p. 475)
    • Because the greater the stock the cheaper the price, and because MVP = MPP x Price.revisit
      • The caveat is discussed in 7-A.revisit
  • The producers will employ the factor in such a way that its DMVP will be equalized among all the uses. (p. 475)
    • Viz., if a certain line of production has higher MPP for a factor, the producers will employ more of that factor in that line of production, until its MPP is lowered and equalized with MPP in other lines of production.
    • Again, the economist must evoke all the producers, instead of one particular entrepreneur.
  • By looking at a factor in all of its interrelations, we have been able to explain the pricing of its unit service without previously assuming the existence of the price itself. (p. 476)
    • Rothbard is providing a time-structured causal explanation:
      • Consumers’ preferences determine the value of consumer goods.
      • This value is imputed backward to the higher-order capital goods (factors of production).
      • MPP is a technical relation (how much output a unit of factor adds).
      • Multiply that MPP by the subjectively determined value of the final good (not yet market price) to get the MVP.
      • The price of the factor, then, is determined by the MVP discounted by the interest rate, since production takes time.
    • Viz., Rothbard isn’t assuming MVP depends on an already-existing market price—he’s saying the MVP arises from subjective valuations + MPP + time:
      • Because factor prices are imputed when the consumers’ goods are sold (or via the capitalist who provides the discounted amount of present money which is the equivalent of the consumers’ goods discounted by the time element—the interest rate), instead of factor prices influencing the price of consumers’ goods (the circular reasoning employed by the neo-classics). His analysis of production processes without the capitalist clarifies the point.
        • MPP = physical contribution (independent of prices)
        • Subjective valuation of output = value
        • MVP = MPP × value of output
        • Factor price = MVP discounted by time preference
      • No circularity involved, since factor prices are not assumed up front.
  • The fact that most factors (and all labor factors) are nonspecific enables the market to isolate value productivity and to tend to pay each factor in accordance with this marginal product. On the free market, the price of each factor is not determined by “arbitrary” bargaining, but tends to be set strictly in accordance with its DMVP. (p. 477)
  • In the free-market process, there is no separation between production and “distribution.” There is no separate “distribution”; there is only production and its corollary, exchange. (p. 477)
    • Because the production factors are valued when it’s distributed, as it were.revisit

3. The Source of Factor Incomes

  • The time-honored controversy in economics: Which is the source of wages—capital or consumption? (p. 478)
  • We must conclude that in the dispute between the classical theory that wages are paid out of capital and the theory of Henry George, J.B. Clark, and others that wages are paid out of the annual product consumed, the former theory is correct in the overwhelming majority of cases, and that this majority becomes more preponderant the greater the stock of capital in the society. (p. 479)

4. Land and Capital Goods

  • With depletable resources left aside, “permanent” becomes identical with “nonreproducible.” (p. 508)
  • The “permanence” with which we are dealing refers, to the physical permanence of the goods, and not to the permanence of their value. The latter depends on the shifting desires of consumers and could never be called permanent. (p. 485)
  • One of land’s most fundamentally indestructible features: its physical space—its part of the surface of the earth. This eternally fixed, permanent, positional aspect of geographic land is called the site aspect of the land, or as Mises aptly puts it, “the land as standing room.” Since it is permanent and nonreproducible, it very clearly comes under the category of economic land. (pp. 486-487)
    • Viz., a spacetime—a universe—in the multiverse.revisit
  • “Basic land” (or “ground land”) in this treatise refers to the soil without maintenance, in the case of agriculture, or the pure site without depreciating superstructure, in the case of urban land. (p. 487)
    • What about cyberspace?revisit
      • To the extent that its infrastructure depends on physical facilities (and this must be so, because all computations are physical processes), the analysis here should also apply to cyberspace.

5. Capitalization and Rent

  • “Rent”: the unit price of the services of any good. (p. 488)
  • Rent is the same as hire. (p. 488)
  • The rents are the fundamental prices—men value goods in units and not as wholes; the unit price is the fundamental price on the market. (p. 489)
  • The price of the “whole good”—the capital value of the good—is equal to the sum of the expected future rents discounted by the rate of interest. The capital value, or price of the good as a whole, then, is completely dependent on the rental prices of the good, its physical durability, and the rate of interest. (p. 489)
  • Many writers have fallen into the trap of assuming that they can, in a similar way, add up the entire capital value of the nation or world and arrive at a meaningful figure. Estimates of National Capital or World Capital, however, are completely meaningless. The world, or country, cannot sell all its capital on the market. Therefore, such statistical exercises are pointless. They are without possible reference to the very goal of capitalization: correct estimation of potential market price. (p. 491)
  • Given the MVPs, durability, and the rate of interest, all the prices on the capital market—the market for exchange of ownership (total or partial) of durable producers’ goods—are determined, and these will be the prices in the ERE. (p. 492)
  • A major characteristic of land as compared to capital goods is that its series of future rents is generally infinite, since, whether as basic soil or site, it is physically indestructible. (p. 493)
  • The fact that lands do have prices is an indication that there is always a time preference and that future rents are discounted to reduce to a present value. (p. 493)
    • Viz., PV is finite because the series converges to a finite sum, given positive interest rate.
      • E.g., if r=10%, and annual-perpetual-rent=10, then PV=100.
  • No one receives pure rent except laborers in the form of wages, that the only incomes in the productive ERE economy are wages (the term for the prices and incomes of labor factors) and interest. (p. 495)
    • Because land rent is treated as part of capital and absorbed into interest in the ERE.
    • Pure rent = return to a factor that is not a result of human investment (i.e., nature-given land)
    • In the ERE, Incomes = Wages + Interest
  • But there is still a crucial distinction between land and capital goods. For we see that a fundamental, irreducible element is the capital value of land. The capital value of capital goods still reduces to wages and the capital value of land. (p. 495)
    • Because land is indestructible and given in the economy—it retains its value across time.develop
  • In a changing economy, there is another source of income: increases in the capital value of ground land. (p. 495)
    • Incomes = Wages + Interest + Increases in the capital value of land.
      • Because, again, all capital goods ultimately reduces to labor and land.revisit

6. The Depletion of Natural Resources

What is the purpose of this section?revisit
Revisit the concept of net rent (e.g., p. 498)revisit

  • The natural resource that is being depleted (nonreplaceable but also nonpermanent) comes as a special division under the “land” category. (p. 496)
    • Viz., capital goods are producible and nonpermanent—everything else is land (see Table 15).
  • There is, however, one striking problem that pervades any analysis of the resource subject to depletion and that distinguishes it from all other types of goods. This is the fact that there can be no use for such a resource in an evenly rotating economy. (p. 498)
  • Forests would have to be classified as capital goods rather than depletable resources. (p. 499)

Appendix A: Marginal Physical and Marginal Value Product

Appendix B: Professor Rolph and the Discounted Marginal Productivity Theory

Chapter 8: Production—Entrepreneurship and Change

That more investment will result in the longer production processes (also discussed in 1-9). That you don’t want to be the best but the only. That real wages and rents will rise in a progressing economy. That the existence of time preference acts as a brake on the use of the more productive but longer processes. That technology, while important, must always work through an investment of capital. That the laborers are external beneficiaries of increased investment, while the main benefits gained by the investors are short-run entrepreneurial profits. That nothing necessarily changes time-preference: the more money you have, the more of it will be invested due to DMU—but that doesn’t guarantee a shift in time-preference schedules. That class probability par excellence cannot be realized in a universe.

1. Entrepreneurial Profit and Loss

  • Having developed in the previous chapters our basic analysis of the market economy, we now proceed to discuss more dynamic and specific applications, as well as the consequences of intervention in the market. (p. 509)
  • The difference in the dynamic, real world is this. None of these future values or events is known; all must be estimated, guessed at, by the capitalists. (p. 510)
  • In the real world, profits and losses are almost always intertwined with interest returns. Our separation of them is conceptually valid and very important, but cannot be made easily and quantitatively in practice. (p. 514)
  • If we must condemn anyone, it should not be the profit-making entrepreneur, but the one that has suffered losses. For losses are a sign that he has added further to a maladjustment, through allocating factors where they were overvalued as compared to the consumers’ desire for their product. (p. 515)
  • The market is no respecter of past laurels, however large. Capital does not “beget” profit. Only wise entrepreneurial decisions do that. (p. 516)

2. The Effect of Net Investmentrevisit

See 1-9revisit

  • When will there be aggregate profits or losses in the economy? (p. 517)
  • What happens if, in a certain period, there are now net savings as a result of a lowering of time-preference schedules? (p. 518)
  • Simple investigation will reveal that the only way that so much investment can be shifted from the lower to the higher stages, while preserving uniform (lowered) interest differentials (cumulative price spreads) at each stage, is to increase the number of productive stages in the economy, i.e., to lengthen the structure of production. (p. 519)
  • Lowered time preferences mean an increased proportion of savings-investment to consumption and lead to smaller price spreads and an equivalent lowering of the rate of interest. (p. 520)
    • See Figure 60
  • The change in the rate of interest lessens the spreads of cumulative prices, so that aggregate consumption is lower, the immediate next higher stages are less and less lower, until the lines cross, and the prices in the higher stages are higher than before. It is as if the impact of lower consumer demand tends to die out in the higher stages and is more and more counteracted by the increase and shift in investment funds. (pp. 521-522)
    • See Figure 61
  • It is the land and labor elements that constitute the fundamental resources being shifted or remaining in production. The shift ceases when the price of the factor is again uniform throughout. (p. 523)
    • The more supply of a factor there is, the less value will be imputed to that factor due to the laws of diminishing MVP (which reflects both the diminishing physical productivity of the factor MPP and the diminishing marginal utility of the final goods it helps produce)—this is why you don’t want to be the best but the only.develop
      • This is the true sense of MVP = MPP x Price.
        • Since MPP will always diminish but never enters the negative territory, the quantity of the final product will increase, and that implies the price decrease via the laws of diminishing marginal utility.
        • Viz., DMU plays a foundational causal role in the relationship between MPP and Price.
  • The one certain prospect in a progressing economy (an economy with increasing gross investment) is that total net income for factors and interest will fall. (p. 524)
    • Simply because the consumption falls.
  • The prices of these factors, as well as the interest rate, will “in general” also decline. (pp. 524-525)
    • Because in principle it is possible for interest to fall significantly resulting the net income for factors to increase.
  • What interests us, however, is not the course of money incomes and prices of factors, but of real incomes and prices, i.e., the “goods-income” accruing to factors. (p. 525)
    • Instead of money-income.
  • Price of factor service = DMVP = MPP x P / d
  • Real price of factor service = MPP / d
  • The progressing economy consists of two leading features: an increase in the MPP of original factors resulting from more productive and longer production processes, and a fall in the discount or interest rate concomitant with falling time preference and increasing gross investment. (p. 526)
  • Both elements—the increase in MPP and the fall in d—impel an increase in the real prices of factor services in a progressing economy. The conclusion is that in a progressing economy, i.e., in an economy with increases in gross savings and investment, money wages and ground rents may well fall, but real wages and rents will rise. (p. 526)
    • When we lengthen the production process, we are introducing an entirely new process, which implies an increased MPP even for the same factor.
    • Remember Robinson Crusoe and his cherry-picking (e.g., 1-9)—saving creates new technology, which in turn increases MPP.
  • It is this increasing “roundaboutness” that causes every increase in capital—even if unaccompanied by an advance in technological knowledge—to lead to higher physical productivity per original factor. (p. 527)
    • Even without new technology, the extra stages increase efficiency.

3. Capital Values and Aggregate Profits in a Changing Economy

  • The first impact of the new investment, then, is to cause aggregate profits to appear in the economy, concentrated in the new production processes in the higher stages. (p. 527)
  • There is practically nothing unique about incomes from ground land and all net income in the productive system goes to wages, to interest, and to profit. (p. 530)
    • Viz., a rise in the capital value to the first finder and user of the land is reducible to profits (because the aggregate gains in capital value are synonymous with aggregate profits) and interest (because pioneering is a business like any other).
  • As production and investment increase in the higher stages, and the effects of the new saving continue, the profits disappear and become imputed to increases in real wage rates and in real ground rents. (p. 530)
  • A retrogressing economy
    • There would be higher prices for consumers’ goods and therefore a greater demand for factors in this and other lower stages. (p. 531)
    • There would be general abandonment of the higher stages. (p. 531)
    • Money wage rates and money rents may rise (although this possibly might not occur because of the higher interest rate), but the prices of consumers’ goods will rise further because of the reduced physical supply of goods. (pp. 531-532)
  • A stationary economy
    • This is not the same construct as the ERE—in the stationary economy, uncertainty does not disappear and no unending constant round pervades all elements in the system. (p. 533)
    • There is only one constancy: total capital invested. (p. 533)
  • Are “capital gains”—increases in capital value—income? (p. 533)
    • If we fully realize that profits and capital gains, and losses and capital losses, are identical, the solution becomes clear. No one would exclude business profits from money income. The same should be true of capital gains. In the ERE, of course, there are neither capital gains nor capital losses. (p. 533-534)
  • Capital consumption
    • Professor Frank H. Knight has been the leader of the school of thought that assumes capital to be automatically permanent. (p. 535)
    • This is obviously incorrect. Services are yielded by things, at least in the cases relevant to our discussion, and they are produced through the using up of things, of capital goods. (p. 536)
  • Progress can occur, in fact, with falling prices of all products and factors. (p. 536)

4. Capital Accumulation and the Length of the Structure of Production

  • Calling these methods “roundabout” is definitely paradoxical; for do we not know that men strive always to achieve their ends in the most direct and shortest manner possible? These longer processes are the most direct that must be used to attain the goal—not more roundabout. (pp. 537-538)
  • If there were no time preference, the most productive methods would be invested in first, regardless of time. The existence of time preference acts as a brake on the use of the more productive but longer processes. (p. 539)
  • The limits at any time on investment and productivity are a scarcity of saved capital, not the state of technological knowledge. In order for the new invention to be used, more capital must be invested. Technological inventions have received a far more important place than they deserve in economic theory. (pp. 540-542)develop
  • While knowledge is a limit, capital is a narrower limit; technology, while important, must always work through an investment of capital. (p. 542)
  • What is lacking is the supply of saved capital needed to put the advanced methods into effect. (p. 542)

5. The Adoption of a New Technique

  • What determines the extent to which these firms adopt new and more productive techniques? (p. 544)
  • The fact that investment in a new technique or location is unprofitable means that the use of capital in the new process at the cost of scrapping the old equipment is a waste from the point of view of satisfying consumer wants. (p. 545)
  • It is determined by the values and desires of consumers, who decide on the price and profitability of the various goods and on the values of the necessary nonspecific factors used to produce these goods. (p. 545)

The Entrepreneur and Innovation

  • Under the stimulus of the late Professor Schumpeter, it has been thought that the essence of entrepreneurship is innovation—however, most entrepreneurs are not innovators, but are in the process of investing capital within a large framework of available technological opportunities. Supply of product is limited by supply of capital goods rather than by available technological know-how. (pp. 546-547)
  • If he succeeds in his estimate and reaps a profit, then he and others will continue in this line of activity until the income discrepancy is eliminated and there is no “pure” profit or loss in this area. (p. 547)

6. The Beneficiaries of Saving-Investment

  • The laborers are “external beneficiaries” of increased investment, i.e., they are the beneficiaries of the actions of others without paying for these benefits. (p. 548)
  • The main benefits gained by the investors are short-run entrepreneurial profits. (p. 548)
  • The short-run benefits earned by the workers and landowners are immediate and more certain. The entrepreneur-capitalists take the risks of speculating on the uncertain market; no one can guarantee profits to them. (p. 548)

7. The Progressing Economy and the Pure Rate of Interest

The artificially induced seeming abundance of capital does not change people’s time preference per se (viz., QE lowers interest rates without lowering time preference)—the entrepreneurs would then make plans based on fictitious savings (i.e., no real increase of capital—because money does its job regardless of its quantity in the economy) while consumer time preferences haven’t changed, leading to malinvestment and capital consumption (the capital structure cannot be sustained because the real capital didn’t increase).develop

  • A lower pure rate of interest increases the quantity and value of capital goods available. (pp. 549-550)
    • Nothing necessarily changes time-preference.
    • The more money you have, the more of it will be invested due to DMU—but that doesn’t guarantee a shift in time-preference schedules.develop
  • The causative principle is just the other way round from what is commonly believed. The pure rate of interest, then, can change at any time and is determined by time preferences. If it is lowered, the stock of invested capital will increase; if it is raised, the stock of invested capital will fall. (p. 550)

8. The Entrepreneurial Component in the Market Interest Rate

  • On the market, a whole structure of interest rates will be superimposed on the pure rate, varying positively in accordance with the expected risks of each venture. (p. 551)
  • It is because data are always changing and thus setting up new uncertainties in place of the old that we do not have the uniformity of the ERE. (p. 552)

9. Risk, Uncertainty, and Insurance

  • “Risk” occurs when an event is a member of a class of a large number of homogeneous events and there is fairly certain knowledge of the frequency of occurrence of this class of events. (p. 552)
  • The principle of insurance is that firms or individuals are subject to risks which, in the aggregate, form a class of homogeneous cases. (p. 553)
    • The key is pseudo-fungibility via abstraction.revisit
      • “Case probability” exists because of the multiverse—viz., the subjective randomness as discussed by David Deutsch.revisit
  • “Class probability”
    • Class probability means: We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class. (pp. 553-554)
      • E.g., objective probability across the multiverse.revisit
        • Class probability attempts to emulate this by abstraction in a universe, as it were.revisit
        • Viz., class probability par excellence cannot be realized in a universe.develop
    • In the free market each homogeneous group will tend to pay premium rates in proportion to its actuarial risk. (p. 554)
      • Inverted, it means that the rate would be homogeneous to the extent that the group can be made homogenous.revisit
  • “Case probability”
    • Most uncertainties are uninsurable because they are unique, single cases, and not members of a class. They are unique cases facing each individual or business; they may bear resemblances to other cases, but are not homogeneous with them. (p. 554)
      • Because fungibility (not pseudo-fungibility) is achieved only across the multiverse—and never within a universe.develop
    • Case probability means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing. (p. 554)
      • I.e., the contingency in the sense of it could’ve been otherwise (because the multiverse implies symbols).revisit
        • The multiverse implies fallibilism (because it could’ve been otherwise) via symbols (because knowledge is a special type of information).revisit
          • And information is implied in symbols.revisit
  • The entrepreneur is not creating uncertainties for the fun of it. On the contrary, he tries to reduce them as much as possible. The uncertainties he confronts are already inherent in the market situation, indeed in the nature of human action; someone must deal with them, and he is the most skilled or willing candidate. (p. 556)

Chapter 9: Production—Particular Factor Prices and Productive Incomes

That there is an optimum population level—and that the economy would be able to absorb population increase as long as there is concurrent increase in capital. That there can be no implicit estimates without an explicit market. That firms will be economically located in relation to the consumer. That knowledge is rare—but never finite.

1. Introduction

  • We now return to analysis of the particular ultimate factors—labor and land—and to a more detailed discussion of entrepreneurial incomes. (p. 557)

2. Land, Labor, and Rent

A. Rent

  • Since all goods have unit services, all goods will earn rents, whether they be consumers’ goods or any type of producers’ goods. (p. 558)
  • Net rents are earned only by labor and land factors, and not by capital goods. (p. 558)
    • Because Net Rents = Gross Rents Earned - Gross Rents Paid to Owners of Factors
    • In the ERE, capitalists only earn time interest, and zero net rent.
  • In the real world, capital goods’ capital value changes, but this does not mean that they earn net rents. Rather, these changes are profits or losses accruing to their owners as entrepreneurs. (p. 558)
  • A wage is a special case of rent. (p. 559)
  • The wage, in fact, is the only source of rent that cannot be capitalized on the free market, since every man is necessarily a self-owner with an inalienable will. (p. 559)
  • One distinction between wages and land rents, then, is that the latter are capitalized and transformed into interest return, while the former are not. (p. 559)
  • At any time, for any given conditions of capital and production processes, there will be an “optimum” population level that will maximize the total output of consumers’ goods per head in the economy. Whether a given increase in population at any time will lead to an increase or decrease in real output per head is an empirical question, depending on the concrete data. (pp. 561-562)revisit
  • It might be wondered how the statement that increasing population might increase MPP and MVPs can be reconciled with the demonstration above that factors will always be put to work in areas of diminishing physical returns. (p. 562)
    • The same question I had in 8-2
  • If the total supply of a factor changes and it has an effect on the productivity of the labor factor, this is equivalent to a shift in the MPP curves (or schedules) rather than a movement along the curves such as we considered above. (p. 562)
    • As I elaborated in 8-2: “When we lengthen the production process, we are introducing an entirely new process, which implies an increased MPP even for the same factor.”
  • Prices of consumers’ goods, through market processes, determine the prices of productive factors (ultimately land and labor factors), and the brunt of price changes is borne by specific factors in the various fields. (p. 564)

B. The Nature of Labor

  • It is grossly unscientific to separate laborers into arbitrary categories and to refer to one group as “labor” and “workers,” while the other group receives various other names. (p. 565)
    • Because praxeology is concerned with humans.
  • If everyone admits that the unionizing of vice presidents is absurd or evil, then perhaps the same adjective would have to apply to the unionization of any workers. (p. 566)

C. Supply of Land

  • Three basic differences between the conditions of land and those of labor:
    • (1). Labor cannot be capitalized
    • (2). Land tends to be more specific
    • (3). There will be reserve prices for labor against leisure
  • The fact that labor is scarcer and nonspecific means that there will always be unused land. Only the best and most productive land will be used, i.e., the land with the highest DMVPs. (p. 567)
  • Similarly, in the real world of uncertainty, where errors are made, there will also be unused capital goods, i.e., in places where malinvestments had been made which turned out to be unprofitable. (p. 567)revisit
  • The supply curves for land factors:
    • If we take the general supply curve (the factor considered in relation to all of its uses), then it is clear that there is no reservation demand curve for land; at least this will be true in the ERE. (p. 567)
      • I.e., the general supply curve of a land factor is vertical
    • In its particular uses, the landowner will have a reservation demand, since he may obtain a higher return by shifting to another use. (p. 568)
  • The value scales of the consumers determine, given the stocks of original factors, all the various results of the market economy that need to be explained: the prices of the original factors, the allocation of original factors, the incomes to original factors, the rate of time preferences and interest, the length of the production processes in use, and the amounts and types of the final products. In our changing real world, this beautiful and orderly structure of the free market economy tends to be attained through the drive of the entrepreneurs toward making profit and avoiding loss. (p. 569)
  • The speculative site-owner is performing a great service to consumers and to the market in not committing the land to a poorer productive use. (p. 571)

D. Supply of Labor

  • Since labor is the relatively nonspecific factor, the particular supply curve of a labor factor is likely to be flatter than the supply curve of the (usually more specific) land factor. (p. 572)
    • Viz., labor is more price sensitive.
  • “Backward supply curve of labor”
    • Rising wages may draw nonworking people into the labor force and induce people to work overtime or to obtain an extra part-time job. (p. 574)
    • On the other hand, it may lead to increased leisure and a falling off in total hours worked. (p. 574)
  • “The psychic income”
    • There will be so much labor competing in the generally liked jobs that they will pay lower wage rates. (p. 576)
    • Our amended conclusion is that not money wage rates, but psychic wage rates, will be equalized throughout—psychic wage rates being equal to money wage rates plus or minus a psychic benefit or psychic disutility component. (p. 576)
  • Many writers have based their analyses on the assumption of the homogeneity of all workers. Consequently, when they find that generally well-liked jobs, such as television-directing, pay more than such disliked jobs as ditch-digging, they tend to assume that there is injustice and chicanery afoot. (pp. 577-578)
  • A recognition of differences in labor productivity eliminates this bugbear. (p. 578)
    • E.g., since TV-directing takes more skill than ditch-digging, or rather skill that fewer people have, the wage rates in the two occupations cannot be equalized. (p. 578)

E. Productivity and Marginal Productivity

  • An advancing capital structure increases the marginal productivity of labor, because the labor supply has increased less than the supply of capital goods. (p. 578)
    • The existence of an optimum population level is also implied in here (see 9-2-A)
  • The causal agents of increased wage rates in an expanding economy, then, are not primarily the workers themselves, but the capitalist-entrepreneurs who have invested in capital goods. The workers are provided with more and better tools, and so their labor becomes relatively scarcer as compared to the other factors. (p. 578)
    • As already elaborated in 8-6
  • It is impossible to impute absolute “productivity” to any productive factor or class of factors. We can discuss productivity only in marginal terms, in terms of the productive contribution of a single unit of a factor, given the existence of other factors. This is precisely what entrepreneurs do on the market, adding and subtracting units of factors in an attempt to achieve the most profitable course of action. (p. 579)
    • Similar to how there is no “total” utility unless the total quantity happens to be the marginal quality, as discussed earlier (e.g., 4-A).
  • A connexity between all the occupations on the labor market:
    • When a certain branch of industry expands its capital and production, an increase in DMVP, and therefore in wage rates, is not confined to that particular branch. Because of the connexity of the supply of labor, labor tends to leave other industries and enter the new ones, until finally all the wage rates throughout the labor market have risen, while maintaining the same differentials as before. (p. 579)
    • Suppose, for example, that there is an expansion of capital in the steel industry. A rise in capital investment in steel will increase the wages of workers in domestic service. The latter increase is clearly not caused by some sort of increase in the “productivity” or in the quality of the output of the domestic servants. Rather, their marginal value productivity has increased as a result of the greater scarcity of labor in the service trades (because some laborers left the service industry and entered the steel industry). (pp. 579-580)

F. A Note on Overt and Total Wage Rates

  • The institutional manner of paying wage rates is a matter of complete indifference to our analysis. (p. 581)

G. The “Problem” of Unemployment

  • Economic theory does not “assume” full employment. Economics, in fact, “assumes” nothing. (p. 582)
  • The whole discussion of alleged “assumptions” reflects the bias of the epistemology of physics, where “assumptions” are made without originally knowing their validity and are eventually tested to see whether or not their consequents are correct. (p. 582)
    • Physics starts in the middle (see 1-A)revisit
  • Labor factors will always be fully employed on the free market to the extent that laborers are so willing. (p. 582)
  • What the worker wants is not just “employment” (which he could always get in the last resort by paying for it) but employment at a wage. (p. 583)
  • There can never be an employment problem on the free market—the problem is employment at an above-subsistence wage. (p. 584)
  • The able-bodied in a developed economy can always find work, and work that will pay an over-subsistence wage. This is so because labor is scarcer than land, and enough capital has been invested to raise the marginal value product of laborers sufficiently to pay such a wage. (p. 585)revisit
    • Viz., the economy would be able to absorb population increase as long as there is concurrent increase in capital.revisit
  • On the ever-recurring doctrine of “technological unemployment”:
    • The process of technological innovation shifts workers from the inelastic-demand to the elastic-demand industries. One of the major sources of new employment demand is in the industry making the new machines. (p. 588)
      • Because the rightward shift of the supply schedule means revenue increase for that industry—if the demand schedule is elastic (see 4-6).
      • Viz., to the extent that the demand for the related good is elastic, the prices of all other substitutable goods will also decrease, for the benefit of the consumers—and everyone is a consumer.revisit
      • Again, what benefits the consumer is not the technological improvement per se, but the increase in gross savings (assuming that most goods have elastic demand given the substitution principle—e.g., see Eric Voskuil’s [Substitution Principle]).develop

3. Entrepreneurship and Income

A. Costs to the Firm

  • As Böhm-Bawerk and the Austrians pointed out, costs conform to prices, and not vice versa. (p. 588)
  • Where all factors and the product are completely divisible, a proportionate increase in the quantities of all the factors must lead to an equally proportionate increase in physical output. (pp. 592-593)
  • As any firm’s scale of output increases, it necessarily bids factors of production away from other firms, raising their prices in the process. And this is particularly true for labor and land factors, which cannot be increased in supply via new production. The increase in factor prices as output increases, combined with constant physical costs, raises the average money cost per unit output. We may therefore conclude that if factors and product were perfectly divisible, average cost would always be increasing. (p. 593)
  • Other things being equal—average production costs increase with the increase in the quantity produced. (p. 596)
  • What any given firm’s size and output will be is therefore subject to a host of conflicting determinants—at what point any firm will settle depends on the concrete data of the actual case and cannot be decided by economic analysis. This is the task of the businessman and not of the economist. (p. 598)
  • There is no infinite tendency for ever-larger size—the general rule of operating in a zone of diminishing marginal productivity for each factor, as well as the tendency for product prices to decline and factor prices to increase as output increases, establishes limits on the size of each firm. (p. 599)
    • Also see 9-3-E

B. Business Income

  • The income accruing to a business owner, in a changing economy, will be a composite of four elements. (p. 604)
    • (a). Interest on capital invested (uniform in ERE)
    • (b). Wages of management, when owner is self-employed (se according to DMVP)
    • (c). Rents of ownership-decision (set according to DMVP)
    • (d). Entrepreneurial profit or loss
      • Only (d) disappears in ERE
  • One important distinction between capitalist-entrepreneurs and laborer-entrepreneurs is that only the former may suffer negative incomes in production. (p. 604)

C. Personal Consumer Service

  • Direct labor
    • Doctors, lawyers, concert artists, servants—they earn a peculiar type of income: a business return consisting almost exclusively of labor income. (p. 605)
    • The market-supply curves for most consumers’ goods are vertical straight lines, since the sale of the product, once produced, is costless to the entrepreneur. He has no alternative use for it. (pp. 605-606)
    • The case of personal service, however, is different. In the first place, leisure is a definite alternative to work. In the second place, as a result of the connexity of the labor market, the worker can shift to a higher-paying occupation further up on the structure of production if his income in this occupation is unsatisfactory. As a result, for this type of consumers’ good, the supply curve is likely to be a rather flat, forward-sloping one. (p. 606)

D. Market Calculation and Implicit Earnings

  • In practice, the different sources of income can be separated only by referring to these incomes as determined by prices on the market. (p. 606)
  • A very important aspect of such estimates of implicit incomes has been overlooked: there can be no implicit estimates without an explicit market. (p. 608)
  • To isolate them by calculation, there must be in existence an external market to which the entrepreneur can refer. (p. 608)
    • Could’ve been otherwise is already realized to some extent, as it were.develop
  • Without an external market for wage rates, rents, and interest, there would be no rational way for entrepreneurs to allocate factors in accordance with the wishes of the consumers. There could be no efficiency in production because the requisite knowledge would be lacking. (p. 608)

E. Vertical Integration and the Size of the Firm

  • A firm can accurately estimate the profit or loss it makes in a stage of its enterprise only by finding out the implicit price of its internal product, and it can do this only if an external market price for that product is established elsewhere. (p. 611)
    • Viz., you need redundancy, as it were.develop
  • If there were no market for a product, and all of its exchanges were internal, there would be no way for a firm or for anyone else to determine a price for the good—not being able to calculate a price, the firm could not rationally allocate factors and resources from one stage to another. (p. 613)
  • We must conclude that complete vertical integration for a capital-good product can never be established on the free market. (p. 613)
  • This economic law sets a definite maximum to the relative size of any particular firm on the free market. (p. 613)
  • There can never be One Big Cartel over the whole economy or mergers until One Big Firm owns all the productive assets in the economy. (p. 613)
    • Again, redundancy is required.develop
    • What does the analysis here imply for all-knowing in general? What does it mean to be all-knowing? What does the fact that nothing is all-knowing tell us about the nature of knowledge?develop
      • I think the nature of price lies in its symbolicity. And anything that is all-knowing denies symbols. Knowledge consists of symbols as well. In short, all-knowing has no knowledge.develop
  • Under one owner or one cartel for the whole productive system, there would be no possible areas of calculation at all, and therefore complete economic chaos would prevail. (p. 614)
    • This is what Mises meant when he posed socialism as calculation problem. The free society may be said to mandate their own comprehensibility with money, and also by allowing every contingencies to exist (analogous to the laws of physics and the Turing principle).develop
  • Ever more important for the maintenance of an advanced economy is the preservation of markets for all the capital and other producers’ goods. (p. 614)
  • The reason for the impossibility of calculation under socialism is that one agent owns or directs the use of all the resources in the economy—there is no possibility of calculation anywhere in the production structure, since production processes would be only internal and without markets. (p. 615)
    • Market is there. Price is there. You have to adjust to it. Just like how you adjust to your culture. Initially via imitation and assuming (icon).develop
  • There can be no calculation problem in the ERE because no calculation there is necessary. There is no need to calculate profits and losses when all future data are known from the beginning and where there are no profits and losses. In the ERE, the best allocation of resources proceeds automatically. The difficulty of calculation applies to the real world only. (p. 616)revisit

4. The Economics of Location and Spatial Relations

Jared Diamond was not completely wrong, and David Deutsch was not completely right.develop

  • It would not matter whether the trade was within or outside a nation—the laws of the free market that we have been enunciating apply to the whole extent of the market, i.e., to the “world” or the “civilized world.” (p. 617)
  • Since it is psychic, not money, wage rates that are being equalized, money wage rates will be equalized throughout the world plus or minus negative or positive psychic attachment components. (p. 618)
  • What determines how people and businesses will be distributed over the face of the earth? (p. 618)
  • “The fact that the production of raw materials and foodstuffs cannot be centralized and forces people to disperse over the various parts of the earth’s surface enjoins also upon the processing industries a certain degree of decentralization.” – Mises (p. 628)
  • We must say rather that there will be a tendency for equalization of money wage rates plus or minus the attachment component, and plus or minus the cost component, for every geographic area. (p. 619)
  • Other things being equal, then, the cost components tend to become relatively less important as the economy progresses. (p. 620)
  • A “good” must be considered as homogeneous in use-value, and not in physical substance. (p. 620)
    • Viz., what it does over what it is (whatever the latter means).develop
  • A difference in position with respect to consumers makes a physically identical thing a different good. (p. 620)
    • E.g., wheat in Kansas is a higher-stage capital good than wheat in New York (because transporting the wheat to New York is a stage in the process of production).
  • Firms will be economically located in relation to the consumer. (p. 622)
    • E.g., as firms are more distantly located from the consumer, they will then not be able to remain in business unless their average costs at the mill are sufficiently lower than those of their competitors to compensate for the increased freight costs.
    • Cyberspace must be supported by physical network infrastructure (e.g., data centers, servers, and under-the-sea cable wires), and to that extent the analysis here should be applicable even with the digital economy.revisit
      • See 7-4
  • A firm with a location closer to the consumer market therefore has a spatial advantage conferred by its location. Given the same costs in other fields as its competitors, it earns a profit from its superior location. The gains of location will be imputed to the site value of the ground land of the plant. (p. 622)

5. A Note on the Fallacy of “Distribution”

  • “Distribution” theory is simply production theory—“distribution” is only the other side of the coin of production on the market. (p. 623)
    • Similar to how supply is demand.revisit
  • The initial distribution of income (or rather of money assets) did not originate in thin air. It was the necessary consequence of a market allocation of prices and production. It was the consequence of serving the needs of previous consumers. It was not an arbitrarily given distribution, but one that itself emerged from satisfying consumer needs. It too was inextricably bound up with production. (p. 623)
    • Rational economics is focused on with is, and not with should.revisit
    • Put differently, rational economics is concerned with how is should be developed.revisit
  • After the initial period, the effect of unjust incomes becomes less and less important. For in order to keep and increase their ill-gotten gains, the former robbers, now that a free economy is established, have to invest and recoup their funds so as to serve consumers correctly. If they are not fit for this task, and their exploits in predation have certainly not trained them for it, then entrepreneurial losses will diminish their assets and shift them to more able producers. (p. 624)

6. A Summary of the Market

  • The (monetary) value productivity of a course of action depends on the extent to which it serves consumer needs. (p. 625)
  • An increase in the labor supply may lower the DMVP of labor and hence wage rates, or raise them because of the further advantages of the division of labor and a more extended market. Which will occur depends on the optimum population level. (p. 626)
  • To expand production, the important consideration is not so much technological improvement as greater capital investment. At no time has invested capital exhausted the best technological opportunities available. Many firms still use old, unimproved processes and techniques simply because they do not have the capital to invest in new ones. (p. 626)
  • While the state of technology is ultimately a very important consideration, at no given time does it play a direct role, since the narrower limit on production is always the supply of capital. (p. 626)
  • In a progressing economy, the real capital value of land will increase, although the value will fall in money terms. (p. 628)
    • Because consumption decreases for the latter, but MPP / d increases for the former.
  • In a stationary economy, total production, the capital structure, real wages per capita, real capital values of land, and the rate of interest will remain the same, while the allocation of factors of production and the relative prices of various products will vary. (p. 628)revisit

Chapter 10: Monopoly and Competition

6. Multiform Prices and Monopoly

Once we take into account transactions costs, it is possible for multiple prices to exist even for “the same” good. However, this is not an infringement on consumers’ sovereignty; some consumers would rather risk paying higher prices in exchange for not spending time researching all relevant sellers.

7. Patents and Copyrights

On a free market, there would be no analogue to the patent; someone who independently discovers a technological recipe would be free to begin using it immediately. However, there would be copyrights, in the sense that it would be illegal to fraudulently impersonate another individual when selling a good or service.

Chapter 11: Money and Its Purchasing Power

5. The Demand for Money

D. Demand for Money Unlimited?

Anyone who owns any nonmonetary asset demonstrates that he or she does not want “more money.”

E. The PPM and the Rate of Interest

The PPM and the rate of interest are not inherently connected. For example, the demand for money could increase (raising the PPM), yet if time preferences remain the same, this will not affect the (real) rate of interest. Instead, each person could increase his cash balances by reducing expenditures on present and future goods in a proportion reflecting the original time preference.

F. Hoarding and the Keynesian System

Only if we assume that workers do care about money (rather than real) wages could hoarding have such sinister effects.

G. The Purchasing-Power and Terms-of-Trade Components in the Rate of Interest

The nominal rate can never be negative, and so Fisher’s explanation can’t be the whole story in times of severe price deflation.

  • The purchasing power component, then, is not the reflection, as has been thought, of expectations of changes in purchasing power. It is the reflection of the change itself. (p. 797)

6. The Supply of Money

B. Claims to Money: The Money Warehouse

Rothbard claims here that, in a free market, FRB would be illegal because of its fraudulent nature.

D. A Note on Some Criticisms of 100-Percent Reserve

16. Schumpeter’s Theory of Business Cycles

Schumpeter doesn’t explain why there should be sudden clusters of innovation that trigger the boom-bust cycle.

Chapter 12: The Economics of Violent Intervention in the Market

4. Utility Ex Post: Free Market and Government

People always expect to benefit from voluntary exchanges, and in practice they usually will do so. In particular, inept businesses soon go bankrupt while entrepreneurs who make good forecasts earn profits. In contrast, in the government sector there are no mechanisms to minimize error. When a government policy fails in its stated objectives, the politicians do not necessarily suffer and the voters may not be sophisticated enough to perceive the true causes of the failure.

11. Binary Intervention: Inflation and Business Cycles

B. Credit Expansion and the Business Cycle

In a credit expansion the government artificially lowers the interest rate, thereby spurring investment in higher stages of production. There is a temporary “boom” period of illusory prosperity. But unlike a genuine expansion spurred by actual saving, in the case of credit expansion the capital structure becomes unbalanced and eventually entrepreneurs realize that their plans cannot be fulfilled. The “bust” ensues when businesses discontinue the unprofitable lines and resources must be reallocated to their proper uses.

12. Conclusion: The Free Market and Coercion

  • Proudhon, indeed, wrote better than he knew when he called “Liberty, the Mother, not the Daughter, of Order.” (pp. 1024-1025)
    • Liberty → Order
  • Coercion benefits one party only at the expense of others. (p. 1025)
  • Coerced exchange is a system of exploitation of man by man, in contrast to the free market, which is a system of cooperative exchanges in the exploitation of nature alone. (p. 1025)
  • Coercion leads only to further problems: it is inefficient and chaotic, it cripples production, and it leads to cumulative and unforeseen difficulties. (p. 1025)
  • The hidden order, harmony, and efficiency of the voluntary free market, the hidden disorder, conflict, and gross inefficiency of coercion and intervention—these are the great truths that economic science, through deductive analysis from self-evident axioms, reveals to us. (p. 1025)
    • Viz., seeing the unseen.

Power and Market

Anatomy of the State

What the State Is Not

What the State Is

How The State Preserves Itself

How The State Transcends Its Limits

What The State Fears

  • The death of a State can come about in two major ways: (a) through conquest by another State, or (b) through revolutionary overthrow by its own subjects—in short, by war or revolution. (p. 31)
  • As stated above, any way must always be used to mobilize the people to come to the State’s defense in the belief that they are defending themselves. (p. 31)
  • The fallacy of the idea becomes evident when conscription is wielded against those who refuse to “defend” themselves and are, therefore, forced into joining the State’s military band: needless to add, no “defense” is permitted them against this act of “their own” State. (p. 31)
  • War provides many benefits to a State. (p. 31)
  • The gravest crimes in the State’s lexicon are almost invariably not invasions of private person or property, but dangers to its own contentment, for example, treason, desertion of a soldier to the enemy, failure to register for the draft, subversion and subversive conspiracy, assassination of rulers and such economic crimes against the State as counterfeiting its money or evasion of its income tax. (p. 32)

How States Relate to One Another

History as a Race Between State and Social Power

  • “Social power” and “State power”:
    • Social power is man’s power over nature, his cooperative transformation of nature’s resources and insight into nature’s laws, for the benefit of all participating individuals. Social power is the power over nature, the living standards achieved by men in mutual exchange. (p. 38)
    • State power, as we have seen, is the coercive and parasitic seizure of this production—a draining of the fruits of society for the benefit of nonproductive (actually antiproductive) rulers. While social power is over nature, State power is power over man. (p. 38)
  • In this century, the human race faces, once again, the virulent reign of the State—of the State now armed with the fruits of man’s creative powers, confiscated and perverted to its own aims. (p. 39)

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