WEBVTT

NOTE XVI. Prices

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Chapter 16. Prices.

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1. The Pricing Process.

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In an occasional act of barter, in which men who ordinarily do not resort to trading with other people

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exchange goods ordinarily not negotiated, the ratio of exchange is determined only within broad margins.

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Catallactics, the theory of exchange ratios and prices, cannot determine at what point

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within these margins the concrete ratio will be established.

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All that it can assert with regard to such exchanges is that they can be effected only

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if each party values what he receives more highly than what he gives away.

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The recurrence of individual acts of exchange generates the market step by step with the

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evolution of the division of labor within a society based on private property.

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As it becomes a rule to produce for other people's consumption, the members of society

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must sell and buy.

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The multiplication of the acts of exchange and the increase in the number of people offering

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Banking or asking for the same commodities narrow the margins between the valuations

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of the parties.

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Indirect exchange and its perfection through the use of money divide the transactions into

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two different parts, sale and purchase.

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What in the eyes of one party is a sale is, for the other party, a purchase.

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The divisibility of money, unlimited for all practical purposes, makes it possible to determine

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and the exchange ratios with nicety.

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The exchange ratios are now, as a rule, money prices.

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They are determined between extremely narrow margins.

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The valuations on the one hand of the marginal buyer and those of the marginal offeror who

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abstains from selling, and the valuations on the other hand of the marginal seller and

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those of the marginal potential buyer who abstains from buying.

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The concatenation of the market is an outcome of the activities of entrepreneurs, promoters,

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speculators and dealers in futures and in arbitrage.

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It has been asserted that catallactics is based on the assumption, contrary to reality,

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that all parties are provided with perfect knowledge concerning the market data and are

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therefore in a position to take best advantage of the most favorable opportunities for buying

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and selling.

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It is true that some economists really believe that such an assumption is implied in the

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theory of prices.

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These authors not only failed to realize in what respects a world peopled with men perfectly

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equal in knowledge and foresight would differ from the real world, which all economists

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wanted to interpret in developing their theories.

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They also erred in being unaware of the fact that they themselves did not resort to such

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Such an assumption in their own treatment of prices.

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In an economic system in which every actor is in a position to recognize correctly the

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market situation with the same degree of insight, the adjustment of prices to every change in

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the data would be achieved at one stroke.

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It is impossible to imagine such uniformity in the correct cognition and appraisal of

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of Changes in Data, except by the intercession of superhuman agencies.

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We would have to assume that every man is approached by an angel, informing him of the

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change in data which has occurred, and advising him how to adjust his own conduct in the most

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adequate way to this change.

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Certainly the market that catallactics deals with is filled with people who are, to different

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The more enterprising and brighter individuals take the lead, others follow later.

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The Schroeder individuals appreciate conditions more correctly than the less intelligent,

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and therefore succeed better in their actions.

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Economists must never disregard in their reasoning the fact that the innate and acquired inequality

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of men differentiates their adjustment to the conditions of their environment.

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The driving force of the market process is provided neither by the consumers nor by the

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by the owners of the means of production, land, capital goods and labor, but by the

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promoting and speculating entrepreneurs.

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These are people intent upon profiting by taking advantage of differences in prices.

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Quicker of apprehension and farther sighted than other men, they look around for sources

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of profit.

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They buy where and when they deem prices too low, and they sell where and when they deem

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Profit Seeking Speculation is the driving force of the market, and the driving force

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as it is the driving force of production.

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On the market, agitation never stops.

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The imaginary construction of an evenly rotating economy has no counterpart in reality.

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There can never emerge a state of affairs in which the sum of the prices of the complementary

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factors of production, due allowance being made for time preference, equals the prices

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Changes of the products and no further changes are to be expected.

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There are always profits to be earned by somebody.

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The speculators are always enticed by the expectation of profit.

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The imaginary construction of the evenly rotating economy is a mental tool for comprehension

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of entrepreneurial profit and loss.

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It is, to be sure, not a design for comprehension of the pricing process.

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The final prices corresponding to this imaginary conception are by no means identical with

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the market prices.

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The activities of the entrepreneurs or of any other actors on the economic scene are

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not guided by consideration of any such things as equilibrium prices and the evenly rotating

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economy.

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The entrepreneurs take into account anticipated future prices, not final prices or equilibrium

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and Prices.

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They discover discrepancies between the height of the prices of the complementary factors

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of production and the anticipated future prices of the products, and they are intent upon

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taking advantage of such discrepancies.

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These endeavors of the entrepreneurs would finally result in the emergence of the evenly

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rotating economy if no further changes in the data were to appear.

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The operation of the entrepreneurs brings about a tendency toward an equalization of

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prices for the same goods in all subdivisions of the market, due allowance being made for

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the cost of transportation and the time absorbed by it.

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Differences in prices which are not merely transitory and bound to be wiped out by entrepreneurial

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action are always the outcome of particular obstacles obstructing the inherent tendency

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toward Equalization.

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Some check prevents profit-seeking business from interfering.

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An observer not sufficiently familiar with actual commercial conditions is often at a

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loss to recognize the institutional barriers hindering such equalization.

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But the merchants concerned always know what makes it impossible for them to take advantage

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of such differences.

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Statisticians treat this problem too lightly.

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When they have discovered differences in the wholesale price of a commodity between two

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cities or countries, not entirely accounted for by the cost of transportation, tariffs

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and excise duties, they acquiesce in asserting that the purchasing power of money and the

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level of prices are different.

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Sometimes the difference in price as established by price statistics is apparent only.

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The price quotations may refer to various qualities of the article concerned.

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Or they may, complying with the local usages of commerce, mean different things.

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They may, for instance, include or not include packing charges.

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They may refer to cash payment, or to payment at a later date, and so on.

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On the basis of such statements, people draft programs to remove these differences by monetary

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measures.

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However, the root cause of these differences cannot lie in monetary conditions.

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If prices in both countries are quoted in terms of the same kind of money, it is necessary

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to answer the question as to what prevents businessmen from embarking upon dealings which

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are bound to make price differences disappear.

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Things are essentially the same if the prices are expressed in terms of different kinds

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of money.

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For the mutual exchange ratio between various kinds of money tends toward a point at which

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there is no further margin left to profitable exploitation of differences in commodity prices.

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Whenever differences in commodity prices between various places persist, it is a task for economic

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history and descriptive economics to establish what institutional barriers hinder the execution

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of Transactions, which must result in the equalization of prices.

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All the prices we know are past prices.

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They are facts of economic history.

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In speaking of present prices, we imply that the prices of the immediate future will not

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differ from those of the immediate past.

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However, all that is asserted with regard to future prices is merely an outcome of the

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Understanding of Future Events.

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The experience of economic history never tells us more than that, at a definite date and

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definite place, two parties, A and B, traded a definite quantity of the commodity A against

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a definite number of units of the money P.

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In speaking of such acts of buying and selling as the market price of A, we are guided by

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I apply a theoretical insight, deduced from an a prioristic starting point.

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This is the insight that in the absence of particular factors making for price differences,

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the prices paid at the same time and the same place for equal quantities of the same commodity

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tend toward equalization, namely a final price.

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But the actual market prices never reach this final state.

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The various market prices about which we can get information were determined under different

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conditions.

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It is impermissible to confuse averages computed from them with the final prices.

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Only with regard to fungible commodities negotiated on organized stock or commodity exchanges

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is it permissible, in comparing prices, to assume that they refer to the same quality.

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Apart from such prices negotiated in exchanges and from prices of commodities the homogeneity

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of which can be precisely established by technological analysis, it is a serious blunder to disregard

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differences in the quality of the commodity in question.

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Even in the wholesale trade of raw textiles, the diversity of the articles plays the main

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role.

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A comparison of prices of consumers' goods is mainly misleading on account of the difference in quality.

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The quantity traded in one transaction, too, is relevant in the determination of the price paid per unit.

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Shares of a corporation sold in one large lot bring a different price than those sold in several small lots.

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It is necessary to emphasize these facts again and again because it is customary nowadays

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to play off the statistical elaboration of price data against the theory of prices.

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However, the statistics of prices is altogether questionable.

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Its foundations are precarious because circumstances, for the most part, do not permit the comparison

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of the Various Data, Their Linking Together in Series, and the Computation of Averages.

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Full of zeal to embark upon mathematical operations, the statisticians yield to the temptation

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of disregarding the incomparability of the data available.

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The information that a certain firm sold at a definite date, a definite type of shoes

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for six dollars a pair, relates a fact of economic history.

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A study of the behavior of shoe prices from 1923 to 1939 is conjectural, however sophisticated

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the methods applied may be.

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Catallactics shows that entrepreneurial activities tend toward an abolition of price differences

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not caused by the costs of transportation and trade barriers.

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No experience has ever contradicted this theorem.

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The results obtained by an arbitrary identification of unequal things are irrelevant.

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2.

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Valuation and Appraisement

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The ultimate source of the determination of prices is the value judgments of the consumers.

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Prices are the outcome of the valuation preferring A to B. They are social phenomena, as they

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are brought about by the interplay of the valuations of all individuals participating

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in the operation of the market. Each individual, in buying or not buying, and in selling or

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not selling, contributes his share to the formation of the market prices. But the larger

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the market is, the smaller is the weight of each individual's contribution. Thus the

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structure of market prices appears to the individual as a datum to which he must adjust

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his own conduct.

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The valuations which result in determination of definite prices are different.

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Each party attaches a higher value to the good he receives than to that he gives away.

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The exchange ratio, the price, is not the product of an equality of valuation but, on

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the contrary, the product of a discrepancy in valuation.

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Appraisement must be clearly distinguished from valuation.

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Appraisement in no way depends upon the subjective valuation of the man who appraises.

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He is not intent upon establishing the subjective use-value of the good concerned, but upon

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anticipating the prices which the market will determine.

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Valuation is a value judgment expressive of a difference in value.

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Appraisement is the anticipation of an expected fact.

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It aims at establishing what prices will be paid on the market for a particular commodity,

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or what amount of money will be required for the purchase of a definite commodity.

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Valuation and appraisement are, however, closely connected.

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The valuations of an autarkic husbandman directly compare the weight he attaches to different

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means for the removal of uneasiness.

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The valuations of a man buying and selling on the market must not disregard the structure

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of market prices.

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They depend upon appraisement.

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In order to know the meaning of a price, one must know the purchasing power of the amount

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of money concerned.

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It is necessary, by and large, to be familiar with the prices of those goods which one would

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like to acquire, and to form on the ground of such knowledge and opinion about their

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and their future prices.

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If an individual speaks of the costs incurred by the purchase of some goods already acquired,

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or to be incurred by the purchase of goods he plans to acquire, he expresses these costs

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in terms of money.

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But this amount of money represents in his eyes the degree of satisfaction he could obtain

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by employing it for the acquisition of other goods.

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The valuation makes a detour.

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It goes via the appraisement of the structure of market prices, but it always aims finally

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at the comparison of alternative modes for the removal of felt uneasiness.

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It is ultimately always the subjective value judgments of individuals that determine the

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formation of prices.

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Catallactics, in conceiving the pricing process, necessarily reverts to the fundamental category

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Theory of Action, the preference given to A over B.

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In view of popular errors, it is expedient to emphasize that catallactics deals with

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the real prices as they are paid in definite transactions and not with imaginary prices.

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The concept of final prices is merely a mental tool for the grasp of a particular problem,

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The emergence of entrepreneurial profit and loss.

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The concept of a just or fair price is devoid of any scientific meaning.

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It is a disguise for wishes, a striving for a state of affairs different from reality.

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Market prices are entirely determined by the value judgments of men as they really act.

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If one says that prices tend toward a point at which total demand is equal to total supply,

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one resorts to another mode of expressing the same concatenation of phenomena.

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Demand and supply are the outcome of the conduct of those buying and selling.

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If, other things being equal, supply increases, prices must drop.

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At the previous price all those ready to pay this price could buy the quantity they wanted

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to buy.

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If the supply increases they must buy larger quantities or other people who did not buy

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before must become interested in buying.

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This can only be attained at a lower price.

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It is possible to visualize this interaction by drawing two curves, the demand curve and

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and the supply curve, whose intersection shows the price.

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It is no less possible to express it in mathematical symbols, but it is necessary to comprehend

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that such pictorial or mathematical modes of representation do not affect the essence

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of our interpretation, and that they do not add a wit to our insight.

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Furthermore, it is important to realize that we do not have any knowledge or experience

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Concerning the Shape of Such Curves. Always what we know is only market prices, that is,

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not the curves but only a point which we interpret as the intersection of two hypothetical curves.

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The drawing of such curves may prove expedient in visualizing the problems for undergraduates.

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For the real tasks of catallactics, they are mere by-play.

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3. The Prices of the Goods of Higher Orders

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The market process is coherent and indivisible. It is an indissoluble intertwinement of actions

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00:21:16.660 --> 00:21:23.340
and reactions, of moves and counter-moves. But the insufficiency of our mental abilities

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enjoins upon us the necessity of dividing it into parts and analyzing each of these

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Parts Separately

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In resorting to such artificial cleavages, we must never forget that the seemingly autonomous

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existence of these parts is an imaginary makeshift of our minds.

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They are only parts.

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That is, they cannot even be thought of as existing outside the structure of which they

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00:21:50.980 --> 00:21:52.960
are parts.

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00:21:52.960 --> 00:21:57.820
The prices of the goods of higher orders are ultimately determined by the prices of the

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00:21:57.820 --> 00:22:03.820
Goods of the First or Lowest Order, that is, the consumer's goods.

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As a consequence of this dependence, they are ultimately determined by the subjective

245
00:22:08.580 --> 00:22:13.180
valuations of all members of the market society.

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00:22:13.180 --> 00:22:18.860
It is, however, important to realize that we are faced with a connection of prices,

247
00:22:18.860 --> 00:22:22.060
not with a connection of valuations.

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00:22:22.060 --> 00:22:27.180
The prices of the complementary factors of production are conditioned by the prices of

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00:22:27.180 --> 00:22:29.300
of the Consumer's Goods.

250
00:22:29.300 --> 00:22:34.780
The factors of production are appraised with regard to the prices of the products, and

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from this appraisement their prices emerge.

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Not the valuations, but the appraisements are transferred from the goods of the first

253
00:22:43.740 --> 00:22:47.060
order to those of higher orders.

254
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The prices of the consumer's goods engender the actions resulting in the determination

255
00:22:52.240 --> 00:22:56.000
of the prices of the factors of production.

256
00:22:56.000 --> 00:23:02.140
These prices are primarily connected only with the prices of the consumer's goods.

257
00:23:02.140 --> 00:23:08.000
With the valuations of the individuals, they are only indirectly connected, namely through

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the intermediary of the prices of the consumer's goods, the products of their joint employment.

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00:23:14.900 --> 00:23:20.060
The tasks incumbent upon the theory of the prices of factors of production are to be

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be solved by the same methods which are employed for treatment of the prices of consumers goods.

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We conceive the operation of the market of consumers goods in a two-fold way.

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We think on the one hand of a state of affairs which leads to acts of exchange.

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The situation is such that the uneasiness of various individuals can be removed to some

264
00:23:44.420 --> 00:23:51.420
of Money, The Theory of Money and State, The Theory of Money and State, The Theory of Money

265
00:24:14.420 --> 00:24:20.720
kept in motion by the exertion of the promoting entrepreneurs, eager to profit from differences

266
00:24:20.720 --> 00:24:27.660
in the market prices of the factors of production and the expected prices of the products.

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00:24:27.660 --> 00:24:33.040
The operation of this market would stop if a situation were ever to emerge in which the

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00:24:33.040 --> 00:24:39.080
sum of the prices of the complementary factors of production, but for interest, equaled the

269
00:24:39.080 --> 00:24:46.200
the prices of the products, and nobody believed that further price changes were to be expected.

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00:24:46.200 --> 00:24:52.120
Thus we have described the process adequately and completely by pointing out positively

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00:24:52.120 --> 00:24:57.640
what actuates it and negatively what would suspend its motion.

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00:24:57.640 --> 00:25:02.280
The main importance is to be attached to the positive description.

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00:25:02.280 --> 00:25:07.420
The negative description resulting in the imaginary constructions of the final price

274
00:25:07.420 --> 00:25:12.460
and the Evenly Rotating Economy is merely auxiliary.

275
00:25:12.460 --> 00:25:19.120
For the task is not the treatment of imaginary concepts, which never appear in life and action,

276
00:25:19.120 --> 00:25:24.220
but the treatment of the market prices at which the goods of higher orders are really

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00:25:24.220 --> 00:25:26.340
bought and sold.

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00:25:26.340 --> 00:25:31.420
This method we owe to Goessen, Carl Menger and Boehm-Bawerk.

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00:25:31.420 --> 00:25:36.940
Its main merit is that it implies the cognition that we are faced with a phenomenon of price

280
00:25:36.940 --> 00:25:42.060
Price Determination inextricably linked with the market process.

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00:25:42.060 --> 00:25:49.040
It distinguishes between two things, a, the direct valuation of the factors of production

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00:25:49.040 --> 00:25:54.300
which attaches the value of the product to the total complex of the complementary factors

283
00:25:54.300 --> 00:26:00.980
of production, and b, the prices of the single factors of production which are formed on

284
00:26:00.980 --> 00:26:08.140
in the market as the resultant of the concurring actions of competing highest bidders.

285
00:26:08.140 --> 00:26:14.200
Valuation as it can be practiced by an isolated actor, Robinson Crusoe or a socialist board

286
00:26:14.200 --> 00:26:19.940
of production management, can never result in a determination of such a thing as quotas

287
00:26:19.940 --> 00:26:22.620
of value.

288
00:26:22.620 --> 00:26:27.100
Valuation can only arrange goods in scales of preference.

289
00:26:27.100 --> 00:26:32.980
It can never attach to a good something that could be called a quantity or magnitude of

290
00:26:32.980 --> 00:26:34.140
value.

291
00:26:34.140 --> 00:26:39.520
It would be absurd to speak of a sum of valuations or values.

292
00:26:39.520 --> 00:26:45.300
It is permissible to declare that, due allowance being made for time preference, the value

293
00:26:45.300 --> 00:26:51.200
attached to a product is equal to the value of the total complex of complementary factors

294
00:26:51.200 --> 00:26:52.980
of production.

295
00:26:52.980 --> 00:26:58.540
But it would be nonsensical to assert that the value attached to a product is equal to

296
00:26:58.540 --> 00:27:04.960
the sum of the values attached to the various complementary factors of production.

297
00:27:04.960 --> 00:27:09.100
One cannot add up values or valuations.

298
00:27:09.100 --> 00:27:16.420
One can add up prices expressed in terms of money, but not scales of preference.

299
00:27:16.420 --> 00:27:20.700
One cannot divide values or single out quotas of them.

300
00:27:20.700 --> 00:27:27.340
A value judgment never consists in anything other than preferring A to B.

301
00:27:27.340 --> 00:27:34.140
The process of value imputation does not result in derivation of the value of the single productive

302
00:27:34.140 --> 00:27:38.100
agents from the value of their joint product.

303
00:27:38.100 --> 00:27:43.900
It does not bring about results which could serve as elements of economic calculation.

304
00:27:43.900 --> 00:27:50.220
It is only the market that, in establishing prices for each factor of production, creates

305
00:27:50.220 --> 00:27:54.860
What's the conditions required for economic calculation?

306
00:27:54.860 --> 00:28:01.060
Economic calculation always deals with prices, never with values.

307
00:28:01.060 --> 00:28:06.260
The market determines prices of factors of production in the same way in which it determines

308
00:28:06.260 --> 00:28:08.960
prices of consumers' goods.

309
00:28:08.960 --> 00:28:14.980
The market process is an interaction of men deliberately striving after the best possible

310
00:28:14.980 --> 00:28:18.080
removal of dissatisfaction.

311
00:28:18.080 --> 00:28:24.420
It is impossible to think away or to eliminate from the market process the men actuating

312
00:28:24.420 --> 00:28:26.640
its operation.

313
00:28:26.640 --> 00:28:33.780
One cannot deal with the market of consumers' goods and disregard the actions of the consumers.

314
00:28:33.780 --> 00:28:39.100
One cannot deal with the market of the goods of higher orders while disregarding the actions

315
00:28:39.100 --> 00:28:45.800
of the entrepreneurs and the fact that the use of money is essential in their transactions.

316
00:28:45.800 --> 00:28:50.880
There is nothing automatic or mechanical in the operation of the market.

317
00:28:50.880 --> 00:28:57.040
The entrepreneurs, eager to earn profits, appear as bidders at an auction, as it were,

318
00:28:57.040 --> 00:29:04.440
in which the owners of the factors of production put up for sale land, capital goods and labor.

319
00:29:04.440 --> 00:29:11.120
The entrepreneurs are eager to outdo one another by bidding higher prices than their rivals.

320
00:29:11.120 --> 00:29:16.240
Their offers are limited, on the one hand, by their anticipation of future prices of

321
00:29:16.240 --> 00:29:22.120
the products, and, on the other hand, by the necessity to snatch the factors of production

322
00:29:22.120 --> 00:29:27.260
away from the hands of other entrepreneurs competing with them.

323
00:29:27.260 --> 00:29:33.360
The entrepreneur is the agency that prevents the persistence of a state of production unsuitable

324
00:29:33.360 --> 00:29:38.840
to fill the most urgent wants of the consumers in the cheapest way.

325
00:29:38.840 --> 00:29:44.460
All people are anxious for the best possible satisfaction of their wants, and are in this

326
00:29:44.460 --> 00:29:49.220
sense striving after the highest profit they can reap.

327
00:29:49.220 --> 00:29:54.880
The mentality of the promoters, speculators and entrepreneurs is not different from that

328
00:29:54.880 --> 00:29:56.780
of their fellow men.

329
00:29:56.780 --> 00:30:01.840
They are merely superior to the masses in mental power and energy.

330
00:30:01.840 --> 00:30:06.040
They are the leaders on the way toward material progress.

331
00:30:06.040 --> 00:30:11.320
They are the first to understand that there is a discrepancy between what is done and

332
00:30:11.320 --> 00:30:13.400
what could be done.

333
00:30:13.400 --> 00:30:18.720
They guess what the consumers would like to have and are intent upon providing them with

334
00:30:18.720 --> 00:30:20.600
these things.

335
00:30:20.600 --> 00:30:26.360
In the pursuit of such plans they bid higher prices for some factors of production and

336
00:30:26.360 --> 00:30:32.720
lower the prices of other factors of production by restricting their demand for them.

337
00:30:32.720 --> 00:30:38.060
In supplying the market with those consumers' goods, in the sale of which the highest profits

338
00:30:38.060 --> 00:30:44.000
can be earned, they create a tendency toward a fall in their prices.

339
00:30:44.000 --> 00:30:49.040
In restricting the output of those consumers' goods, the production of which does not offer

340
00:30:49.040 --> 00:30:56.040
chances for reaping profit, they bring about a tendency toward a rise in their prices.

341
00:30:56.040 --> 00:31:09.840
All these transformations go on ceaselessly and could stop only if the unrealizable conditions of the evenly rotating economy and of static equilibrium were to be attained.

342
00:31:09.840 --> 00:31:19.720
In drafting their plans, the entrepreneurs look first at the prices of the immediate past, which are mistakenly called present prices.

343
00:31:19.720 --> 00:31:25.280
Of course, the entrepreneurs never make these prices enter into their calculations without

344
00:31:25.280 --> 00:31:29.100
paying regard to anticipated changes.

345
00:31:29.100 --> 00:31:35.240
The prices of the immediate past are for them only the starting point of deliberations leading

346
00:31:35.240 --> 00:31:38.560
to forecasts of future prices.

347
00:31:38.560 --> 00:31:44.200
The prices of the past do not influence the determination of future prices.

348
00:31:44.200 --> 00:31:50.260
It is, on the contrary, the anticipation of future prices of the products that determines

349
00:31:50.260 --> 00:31:55.200
the state of prices of the complementary factors of production.

350
00:31:55.200 --> 00:32:01.120
The determination of prices has, as far as the mutual exchange ratios between various

351
00:32:01.120 --> 00:32:08.780
commodities are concerned, no direct causal relation whatever with the prices of the past.

352
00:32:08.780 --> 00:32:14.100
The allocation of the non-convertible factors of production among the various branches of

353
00:32:14.100 --> 00:32:19.560
of Production, and the amount of capital goods available for future production are

354
00:32:19.560 --> 00:32:22.080
historical magnitudes.

355
00:32:22.080 --> 00:32:28.220
In this regard, the past is instrumental in shaping the course of future production and

356
00:32:28.220 --> 00:32:31.480
in affecting the prices of the future.

357
00:32:31.480 --> 00:32:37.020
But directly, the prices of the factors of production are determined exclusively by the

358
00:32:37.020 --> 00:32:41.700
anticipation of future prices of the products.

359
00:32:41.700 --> 00:32:48.380
The fact that yesterday people valued and appraised commodities in a different way is irrelevant.

360
00:32:48.380 --> 00:32:54.000
The consumers do not care about the investments made with regard to past market conditions

361
00:32:54.000 --> 00:32:59.320
and do not bother about the vested interests of entrepreneurs, capitalists, landowners

362
00:32:59.320 --> 00:33:04.580
and workers who may be hurt by changes in the structure of prices.

363
00:33:04.580 --> 00:33:09.000
Such sentiments play no role in the formation of prices.

364
00:33:09.000 --> 00:33:14.420
It is precisely the fact that the market does not respect vested interests that makes the

365
00:33:14.420 --> 00:33:18.500
people concerned ask for government interference.

366
00:33:18.500 --> 00:33:24.600
The prices of the past are, for the entrepreneur, the shaper of future production, merely a

367
00:33:24.600 --> 00:33:26.520
mental tool.

368
00:33:26.520 --> 00:33:33.180
The entrepreneurs do not construct a fresh, everyday, erratically new structure of prices,

369
00:33:33.180 --> 00:33:38.620
or allocate anew the factors of production to the various branches of industry.

370
00:33:38.620 --> 00:33:46.300
They merely transform what the past has transmitted in better adapting it to the altered conditions.

371
00:33:46.300 --> 00:33:52.520
How much of the previous conditions they preserve and how much they change depends on the extent

372
00:33:52.520 --> 00:33:55.360
to which the data have changed.

373
00:33:55.360 --> 00:34:00.940
The economic process is a continuous interplay of production and consumption.

374
00:34:00.940 --> 00:34:06.120
Today's activities are linked with those of the past through the technological knowledge

375
00:34:06.120 --> 00:34:35.580
Man has within his reach only two aids.

376
00:34:35.580 --> 00:34:40.740
of Past Events and his Faculty of Understanding.

377
00:34:40.740 --> 00:34:46.560
Knowledge about past prices is a part of this experience and, at the same time, the starting

378
00:34:46.560 --> 00:34:49.740
point of understanding the future.

379
00:34:49.740 --> 00:34:55.720
If the memory of all prices of the past were to fade away, the pricing process would become

380
00:34:55.720 --> 00:35:01.620
more troublesome, but not impossible, as far as the mutual exchange ratios between various

381
00:35:01.620 --> 00:35:04.000
commodities are concerned.

382
00:35:04.000 --> 00:35:09.580
It would be harder for the entrepreneurs to adjust production to the demand of the public,

383
00:35:09.580 --> 00:35:12.280
but it could be done nonetheless.

384
00:35:12.280 --> 00:35:17.900
It would be necessary for them to assemble anew all the data they need as the basis of

385
00:35:17.900 --> 00:35:19.900
their operations.

386
00:35:19.900 --> 00:35:26.960
They would not avoid mistakes which they now evade on account of experience at their disposal.

387
00:35:26.960 --> 00:35:30.820
Price fluctuations would be more violent at the beginning.

388
00:35:30.820 --> 00:35:52.200
The essential fact is that it is the competition of profit-seeking entrepreneurs that does

389
00:35:52.200 --> 00:35:58.300
not tolerate the preservation of false prices of the factors of production.

390
00:35:58.300 --> 00:36:03.620
The activities of the entrepreneurs are the element that would bring about the unrealizable

391
00:36:03.620 --> 00:36:10.700
state of the evenly rotating economy if no further changes were to occur.

392
00:36:10.700 --> 00:36:16.020
In the world-embracing public sale called the market, they are the bidders for the factors

393
00:36:16.020 --> 00:36:17.820
of production.

394
00:36:17.820 --> 00:36:22.540
In bidding, they are the mandatories of the consumers, as it were.

395
00:36:22.540 --> 00:36:28.420
Each entrepreneur represents a different aspect of the consumer's wants, either a different

396
00:36:28.420 --> 00:36:33.140
commodity or another way of producing the same commodity.

397
00:36:33.140 --> 00:36:38.100
The competition among the entrepreneurs is ultimately a competition among the various

398
00:36:38.100 --> 00:36:44.900
possibilities open to men to remove their uneasiness as far as possible by the acquisition

399
00:36:44.900 --> 00:36:47.540
of consumers' goods.

400
00:36:47.540 --> 00:36:54.140
The decisions of the consumers to buy one commodity and to postpone buying another determine the

401
00:36:54.140 --> 00:37:00.320
prices of factors of production required for manufacturing these commodities.

402
00:37:00.320 --> 00:37:06.060
The competition between the entrepreneurs reflects the prices of consumers' goods in

403
00:37:06.060 --> 00:37:10.140
the formation of the prices of the factors of production.

404
00:37:10.140 --> 00:37:16.280
It reflects in the external world the conflict which the inexorable scarcity of the factors

405
00:37:16.280 --> 00:37:38.880
The Pricing Process is a social process.

406
00:37:38.880 --> 00:37:44.120
It is consummated by an interaction of all members of the society.

407
00:37:44.120 --> 00:37:53.120
All collaborate and cooperate, each in the particular role he has chosen for himself in the framework of the division of labor.

408
00:37:53.120 --> 00:38:04.620
Competing in cooperation and cooperating in competition, all people are instrumental in bringing about the result, namely the price structure of the market,

409
00:38:04.620 --> 00:38:10.580
The allocation of the factors of production to the various lines of want satisfaction and

410
00:38:10.580 --> 00:38:14.820
the determination of the share of each individual.

411
00:38:14.820 --> 00:38:18.460
These three events are not three different matters.

412
00:38:18.460 --> 00:38:24.720
They are only different aspects of one indivisible phenomenon, which our analytical scrutiny

413
00:38:24.720 --> 00:38:27.860
separates into three parts.

414
00:38:27.860 --> 00:38:32.680
In the market process, they are accomplished uno actu.

415
00:38:32.680 --> 00:38:38.760
Many people pre-possessed by socialist leanings, who cannot free themselves from longing glances

416
00:38:38.760 --> 00:38:45.800
at socialist methods, speak of three different processes in dealing with the market phenomena,

417
00:38:45.800 --> 00:38:52.240
the determination of prices, the direction of productive efforts, and distribution.

418
00:38:52.240 --> 00:38:56.440
A limitation on the pricing of factors of production.

419
00:38:56.440 --> 00:39:01.200
The process which makes the prices of the factors of production spring from the prices

420
00:39:01.200 --> 00:39:25.580
If the production of a product requires two or more absolutely specific factors, only

421
00:39:25.580 --> 00:39:29.480
a cumulative price can be assigned to them.

422
00:39:29.480 --> 00:39:35.660
If all factors of production were absolutely specific, the pricing process would not achieve

423
00:39:35.660 --> 00:39:38.920
more than such cumulative prices.

424
00:39:38.920 --> 00:39:43.240
It would accomplish nothing more than statements like this.

425
00:39:43.240 --> 00:39:54.400
As combining 3A and 5B produces one unit of P, 3A and 5B together are equal to 1P, and

426
00:39:54.400 --> 00:40:02.960
The final price of 3A plus 5B is due allowance being made for time preference equal to the

427
00:40:02.960 --> 00:40:06.240
final price of 1P.

428
00:40:06.240 --> 00:40:12.240
As entrepreneurs who want to use A and B for purposes other than the production of P do

429
00:40:12.240 --> 00:40:18.480
not bid for them, a more detailed price determination is impossible.

430
00:40:18.480 --> 00:40:24.280
Only if a demand emerges for A or for B on the part of entrepreneurs who want to

431
00:40:24.280 --> 00:40:31.000
To employ A or B for other purposes, does competition between them and the entrepreneurs

432
00:40:31.000 --> 00:40:39.000
planning the production of P arise, and a price for A or for B comes into existence,

433
00:40:39.000 --> 00:40:44.120
the height of which determines also the price of B or A.

434
00:40:44.120 --> 00:40:50.720
A world in which all the factors of production are absolutely specific could manage its affairs

435
00:40:50.720 --> 00:40:53.600
with such cumulative prices.

436
00:40:53.600 --> 00:40:59.080
In such a world, there would not exist the problem of how to allocate the means of production

437
00:40:59.080 --> 00:41:02.880
to various branches of one's satisfaction.

438
00:41:02.880 --> 00:41:06.040
In our real world, things are different.

439
00:41:06.040 --> 00:41:11.600
There are many scarce means of production which can be employed for various tasks.

440
00:41:11.600 --> 00:41:18.080
There, the economic problem is to employ these factors in such a way that no unit of them

441
00:41:18.080 --> 00:41:23.480
Problems should be used for the satisfaction of a less urgent need, if this employment

442
00:41:23.480 --> 00:41:27.800
prevents the satisfaction of a more urgent need.

443
00:41:27.800 --> 00:41:34.280
It is this that the market solves in determining the prices of the factors of production.

444
00:41:34.280 --> 00:41:39.640
The social service rendered by this solution is not in the least impaired by the fact that

445
00:41:39.640 --> 00:41:48.060
for factors which can be employed only cumulatively, no other than cumulative prices are determined.

446
00:41:48.060 --> 00:41:53.420
Factors of production which can be used in the same ratio of combination for the production

447
00:41:53.420 --> 00:42:00.460
of various commodities, but do not allow of any other use, are to be considered as absolutely

448
00:42:00.460 --> 00:42:02.800
specific factors.

449
00:42:02.800 --> 00:42:08.260
They are absolutely specific with regard to the production of an intermediary product

450
00:42:08.260 --> 00:42:12.220
which can be utilized for various purposes.

451
00:42:12.220 --> 00:42:18.780
The price of this intermediary product can be assigned to them cumulatively only.

452
00:42:18.780 --> 00:42:25.400
Whether this intermediary product can be directly aperceived by the senses, or whether it is

453
00:42:25.400 --> 00:42:31.780
merely the invisible and intangible outcome of their joint employment, makes no difference.