After I spend the five bucks, there isn't any more course. It's finished.
Well, this course is ex ante, is the term here.
It's prospective.
Ex ante is a Latin term meaning beforehand.
Ex post, ex ante is you're looking totally actually just about to do something.
And you're looking ahead at what's going to happen.
Consequences of a value to do something.
Ex post is looking back, so on account of looking back, what happened last year, last month.
And so, costs are only ex-ante. Before you spend the money, before you spend your time, whatever the expenditure is, before you make your choices, you have your value scales, your pick, these things are the top value to you, the cost is your second highest value, and the cost disappears after you do it. After you do it, there's no more cost. You can go back and say, well, gee, I shouldn't have done that, or did do that, or something. That's some sort of history.
It's not cost.
So cost is ephemeral and disappears
after the action occurs.
There's a question, for example, of so-called sunk cost,
where, well, for example, a businessman spends $10,000
on a product, produces a product,
he'd like to sell it for $12,000,
let's say, anticipates a profit of 20% or something.
He's already spent the $10,000,
The product is there, so we can't sell it for $12,000.
Nobody wants to buy it.
He sells it for $5,000, let's say.
But if he says to himself, I can't sell it for less than $10,000,
then my cost would be excessive.
I'd have to hold on to it and not sell it.
It's pretty ridiculous, because the cost has already disappeared.
It's too bad he spent the $10,000.
But he's done it already.
Now he's stuck with this thing.
Now it's the figure, what's the most value I can get for it?
And so, if it's $5,000, then it's $5,000, there's no more.
The $10,000 cost has already been expended
and it's finished, out the window.
He now tries to get what he can get for it.
So, as a result, they're basing something on costs,
what costs supposedly are as an entity, as non-existent.
This goes in welfare, economics, and politics,
this is all over the place.
For example, economists dealing with government projects will say,
should the government do something?
Should it build a dam?
Or should it build a highway?
Or should it build a steel plant?
Economists will say, well, you have to engage in cost-benefit analysis.
You take the social benefits, you add it up, put a money figure on it.
Take the social costs and add them up, put a money figure on that.
And if the social benefits are higher than the social costs, you should do it.
Government should do this project.
If social costs are higher than social benefits, you shouldn't do it.
Sounds terrific.
Only two problems with it.
One, nobody knows what the benefits are.
Two, nobody knows what the costs are.
Benefits are psychic, subject to each individual.
Costs are also psychic, subject to each individual.
And there's no way to add them up.
Even an individual, it'd be tough to add them up,
because there's no room to, certainly across,
between individuals, you can't add them up.
So there ain't no such thing as social costs.
There ain't no such thing as social benefits,
This is the main economic prop for most government action now, many economists, even so-called free market economists.
Well, we add up the social costs, we add up the social benefits, and see what's what.
There are no such things as social costs and social benefits, because they're not addable, and they're ephemeral and all that.
So it polishes off in like five minutes, almost all welfare economics that goes down the brink, all economic justifications for most government action.
Of course sometimes you see that sales-free marketing, sometimes they say, well we added up and it looks like it shouldn't build this dam, but the social costs are greater than social benefits.
So you say, well gee, this guy's pretty good, he's blocking that dam. Okay, that's true.
And on the other hand, he's also justifying the other 90% of stuff that government wants to do.
Okay, so another thing about costs is, looking at pure expenses now, monetary expenses,
the cost of how much you have to pay out, the costs themselves are not given.
The costs themselves, as another great Austrian insight, are determined by the utility of the value of the consumer's place on the product.
In other words, let's say there's a product and entrepreneurs think the consumer will spend $10,000 on it and let's say $12,000, my original example,
and therefore they're willing to pay out $10,000 on wages, labor, rent and material and whatever.
They're willing to pay out the $10,000 because they expect their anticipated consumer demand is $12,000.
Otherwise they wouldn't be paying the $10,000. They expect the consumers would only pay $8,000 for this thing.
They would not pay the $10,000 for the course of production, just in terms of money, payment.
Because then the term is not a fixed item, God-given, somehow, and long run and eternal.
Cost of production is itself a function of how much entrepreneurs think consumers will pay for it.
So rather than saying that in the long run, prices are determined by cost of production,
consumer prices are determined by factor of prices, the cost of production in terms of money.
Quite the opposite. In the long run, cost of production will indeed equal prices,
except that the other causal factors the other way around.
In the long run, the cost will be determined by how much entrepreneurs think consumers will pay for it.
For the long run, 10,000 is 10,000 or 12,000 or whatever,
as determined by the fact that entrepreneurs and consumers will pay that amount.
So the utility, consumer utility determines cost all the other way around.
So the causal connection goes individual value scales, utility, demand, price, consumer price, costs.
So in addition to the whole problem of long run and shifting, like there is no long run, all the rest of it, another big hole in the neoclassical theory is, which says that in long run, costs determine prices, which is exactly the opposite.
Now you can see this is a very, very great pack of applications.
That's how many conservatives, businessmen, say that inflation is caused by cost going up.
Costs go up, therefore we have to raise prices.
This is by the way the typical PR excuse.
Gee, I'm sorry Mrs. Jones, I have to raise the price of bread, but I have to pay more for it.
Otherwise, I'd love to give it to you next to nothing.
So this is essentially PR, but many people believe it, unfortunately.
It's actually two points to consider here.
One is the price is determined by supply and demand, as I've already said.
Where does cost come in?
This business here doesn't have that equation.
If the supply is this much, the demand is that much, this is what the price will be.
It all depends on what the costs are.
It all depends on how much the entrepreneurs pay for it.
So, the price will be, let's say, 80 cents a loaf, or one bread, it's a cost of money expenditure, cost a sense of that,
go up to a dollar a loaf, they just go out of business, they can't just add on extra 20 cents,
because if they could add on extra 20 cents, why do they wait for costs to go up?
What's the cost going to do with it? It means we'll charge a higher price to begin with.
Nobody waits for costs to raise prices.
If you can raise the price and make a profit out of it, you'll do it at the beginning of the month.
Good example of that. The computer I bought six months ago, I paid $1,200 for it.
Now I can buy two for the price of one. And you know what it costs it to produce them? $20 to $30.
And probably other costs of transportation and stuff, packaging and all that.
So it's the other way around. Prices determine cost rather than vice versa.
And also some of the things that should have no cost at all, more or less, like Rembrandt's.
It doesn't cost anybody to produce Rembrandt's, Rembrandt's dead already.
The painting is there, and yet it has a price, the price shifts.
A nice example of that too would be something like the energy, if the demand for energy goes up then,
because the price goes up, the sources out of which are more costly to produce start producing, so the cost goes up too.
Right, exactly. Those are determined by price. The amount that the businessmen want to pay for copper is determined by how much copper products will sell among the consumers.
So the chain, the cause will change from the consumer back to the, to manufacturing, back to raw material.
And copper will be more expensive because if the demand for copper goes, products go up, which will then revert back to the increase in demand for copper.
So, and this also goes, of course, to the unions, because many servitors and businessmen blame unions for inflation.
Well, the inflation of the unions jack up wage rates, and therefore we have to increase prices.
That's the same sort of thing.
The prices go up anyway, or go down anyway, regardless of unions, regardless of wage rates.
Secondly, the question then asked is, why are entrepreneurs and businessmen willing to pay the higher wage rates?
Why don't they say the people you can't pay will lose money to pay?
The fact they're willing to pay it is a sign that they're willing to incur or determine what they think the prices are going to go up, they're willing to pay higher wage rates.
So the cause will change, once again, from the consumer.
The only time when the costs will contingent on prices is if the supply goes down.
If the supply goes down, indeed, price will go up.
If in some way an increased cost results in a lower price in production, a lower supply, then the price will go up.
You see this, for example, the only time the price will go up from the supply side is if the supply goes down.
Now, the cost going up is not going to do anything unless something happens where the supply also contracts.
For example, if the computer business or whatever costs go up and you can't charge a higher price because you already charged the maximum price which is profitable,
then firms go out of business, let's say, they cut back production and then supply goes down and the price goes up.
So it's not the cost that do it, it's the possible drop in supply.
If you're looking for causes of inflation, of course, supply doesn't go down.
Obviously, production usually goes up every year, in a broad sense.
We don't have a situation where every year, production doesn't serve a 10% less than the year before.
Fortunately, not in that situation. So obviously, it can't be the supply side that causes the problem.
And obviously, something on the demand side that's going to fall, for general increase in prices.
Another thing, for example, people tend to think a sales tax or an excise tax can be just passed on by the business man, just passed on by the consumer.
Well, it doesn't work that way, isn't that automatic?
For example, usually when the price of the movie, when the emission tax in movies goes up, very often the movie owners, theater owners will circulate petitions.
Don't fight a tax, write your city councilman or something against the emission tax.
against the admission tax.
They wouldn't do that, they could just pass it on automatically.
Why should they bother?
If a tax is simply going to be passed on to a consumer,
there's no other problem, the businessmen wouldn't care.
The problem is, of course, because it is passed on,
the consumer spends less, surprises less of it,
it's mainly, yeah, and they're going up to demand curve.
In other words, the supply of movies or theaters
is going to go down.
It could be hurt, the profit margin is going to go down.
So, you can't just pass on a price, you can only do it through a cut in supply, nobody
wants to cut supply unless they might be going out of business, contracting their businesses,
etc.
By the way, on the subject of taxes, it's kind of interesting because, at least in the
United States, a lot of the taxes, there is of course very heavy taxes on liquor for various
reasons.
In the U.S., that's really hurting our convention and tourist business. In the U.S., if you buy a drink in a bar, about 60% of the cost is taxed. In Ontario, it's about 90%.
Taxes on taxes. That's unbelievable.
We go to this place to buy cheap wine.
We like your taxes.
So, part of that is revenue works for the government, part of it is fundamentalism where liquor is evil and makes the sinners pay.
Part of it comes in from businesses themselves. For example, in the United States, for example, there are fixed taxes on stills.
The idea is to pay a large fixed amount regardless of the size of the still.
What this does obviously is put in by large liquor manufacturers to shaft their small competitors.
If you have a fixed tax, if every liquor producer has to pay a million dollars as a fixed amount,
regardless of how much they produce, obviously a small liquor person is forced out of business.
Big liquor people know that full well.
For example, in hysteria, we have a person in the Appalachian mountains, we have a great tradition of the moonshine or heroic farmers, moonshiners,
out there producing illegal liquor. Why is it illegal? It's illegal because they don't pay a still tax, which is enormous, which prevents them from setting up their equipment.
So there's a constant fight between the revenuers and the moonshiners. I guess that's a good note, moonshine, isn't it?
Okay, any quick questions before we wrap up the session?
There's no such thing as a quick question.
I just have one comment there, that this fixed amount of tax, but also various government
agreements, just the fact that it's the same amount of work for a small company to make
and Income Tax and Terminus for large companies.
There are all sorts of these fixed things, and they are what lead very much to the fakeness of companies that we have.
I don't think that in every market there would be so many big companies in proportion to small companies.
That's a big reason. For example, Berkman's Compensation Law, which came in 1900, 1910,
were put in largely by bigger businesses. You have to have a certain, you know, full of paperwork on what's going on.
You want to impose higher costs on their smaller competitors and drive them out of business.
Before we go, does anybody have a preference of our restaurant recommendations here?
Well, I think I want to try to get more discussion here this time.
Going onto a more advanced so-called area, obviously it's skipping a lot of stuff in between and it's logically changed.
At any rate, I want to do a little bit more comparison of Austrian economics with orthodox economics and the political implications of them, because it would be law and law.
Those of you who have taken micro, for example, there are several motivations for antitrust legislation, antitrust action.
One of them, I'm convinced, which is another story,
but there's mostly one group of businessmen trying to shaft the other group.
And there are now, for example, in the United States, a lot of private antitrust suits,
controlled data corporations, it's like IBM, it's too efficient, they file a suit saying it's unfair competition,
and they try to restrict them and request them from doing stuff.
So there's a lot of that.
A lot of the antitrust suits that have been filed over the years by the Department of Justice,
This is a Federal Trade Commission or done to be has the one set of competitors trying to eliminate or cripple the other set.
So, in addition to that, there's, I know of course, there's also the attorney motivation.
One of the great, one of the attorney, one of the ways you achieve fame and fortune in the legal profession in the United States.
You become an assistant here, young lad out of, nowadays young lass also, out of Harvard Law School.
So you become attached to the Attorney General Division, Department of Justice, you work up an anti-trust suit against DuPont or IBM or something.
It takes you about five years to become one of the world's foremost experts prosecuting IBM or DuPont.
But then lo and behold, you leave the Justice Department and you become Chief Attorney for IBM and DuPont fighting in a suit.
So this is essentially, of course, a racket.
So that's one of the reasons for antitrust prosecutions, this is quite prevalent.
Anyway, in the economic sphere, in economic theory, the big, which fits in both theory and political application,
the big, a little bit weak in that, it's still the big thing to read micro textbooks, that's always in there,
The big reason for breaking up business, for government regulation, for divesting parts
and breaking up firms and all that sort of stuff is so-called monopolistic competition
or imperfect competition or whatever.
The competition is not perfect.
The competition does not meet the standards by which economics applies to the real world.
And it goes basically something like this.
This is sort of a standard thing.
There's another diagram.
This is almost, despite all the millions of words
that have been written about that, this is basically it.
You have dollars, y-axis, quantity
Produced on the x-axis, we have so-called average cost curve, which is considered to be U-shaped.
I won't go the whole thing on this because I don't agree with cost curves anyway.
Basically, it is the common sense kind of way that if you're building an automobile plant
and you have this huge amount of equipment. You've got $200 million invested in equipment.
If you produce one automobile per year, it's very costly because you're geared for the optimum of $100,000 automobiles a year.
If you're only producing one, of course you're like, I don't know, $250,000 per car or something like that.
So if you look at average cost, it starts very high.
And you keep using up the, what really is, in the Austrian view, it really is because of indivisibility.
You have different kinds of machinery and buildings in order to really use them in an optimal sense.
If you start too low, you're going to be extremely costly per unit.
So, you keep going and the average cost declines.
Finally, you reach a point where everything is sort of using the capacity or whatever.
You wind up with an average cost turning up, where you get a so-called U-shape average cost curve.
Total cost in terms of dollars per unit produced.
The assumption is, by the way, that it's a smooth arc.
This is various other problems with average cost.
This is a fact that you don't know what the cost is because, one thing, the cost depends on the time horizon.
If you're going to produce something over a two-year period, of course it'll be one set of curves.
If you produce it over a five-year period, it's another set of curves.
You have a whole bunch of things going on, which can't be incorporated into this.
At any rate, you don't know, not only that, cleaning everything out,
just like you don't know that the man curve has a particular shape,
you don't know what the shape of this thing is.
It doesn't have to be a smooth arc.
All you know is it falls at one point and finally reaches the bottom somewhere and then goes up.
That's all.
It could be anything, it could be something like that, it could be something like this, it could be jagged, something, whatever.
Making it a smooth arc leads to various seemingly simple questions, seemingly trivial, it leads to all sorts of implications.
You make it a smooth arc so you can get a tangency. You can't get a tangency if you've got something like that, what's a tangency?
So that's the firm.
All right, that's the average cost per the firm, Lund's firm.
Then you've got the demand curve.
According to, I've already talked about it, it's following the demand curve.
The demand curve of the week is full.
According to neoclassical, Lawrasian, current mainstream orthodox theory,
it's true that the demand curve of the industry falls.
But, in the true, correct, proper competition, what they call perfect competition, perfect or pure, notice the loaded terminology here, these are economists who claim to be value-free, totally value-free,
they don't have no good application, no moral application, they use the word perfect, to me in the case that's good, okay, imperfect seems to be bad, alright, so then,
At any rate, perfect competition is when the demand curve for each firm is horizontal.
Perfectly following horizontal like that.
Now, if you look at this thing, if you really analyze it, it's totally ridiculous,
because how do you have a horizontal demand curve?
The implication is, if you have, the famous example is the wheat industry.
Each farmer is so small compared to the rest of the industry,
He has no impact on the price of wheat. In other words, he can multiply his product almost infinitely, maybe even infinitely, and still have no impact on the total supply of wheat.
Therefore, whatever he does to manage over his particular wheat being horizontal, one of the problems with this is that if the angel Gabriel comes down to him and says,
Zeeck, I love you, and therefore I'll be able to multiply your wheat by 2 billion fold.
So instead of whatever Bush was going to enter, getting 3 billion times that, he will have an impact on the wheat market.
It doesn't matter if he's a small farmer.
So it's not really horizontal, maybe slightly like that or something like that.
As soon as you enter any kind of qualification in this thing, the whole theory is shot.
I'll show you why in a minute.
The assumption is that the horizontal, why do they assume that the horizontal, oh, so a small wheat farm, a teeny little wheat farm at the horizontal of the Manchurk or the Zeke, Zeke's wheat.
On the other hand, every other firm in the real world has a foreign Manchurk, because any firm, whether it's IBM or whatever, controlled data or anything, will have some kind of impact.
Wheaties, underbred, if they keep producing more of it, they'll have to cut their price, have an impact on the market, if they're big enough.
I was going to say a question, but why aren't you talking about the supply curve?
You're talking about these guys producing more or less.
Is that the supply?
Yeah, increasing supply, I'm sure.
I don't think the supply curve, I don't think there is a supply curve,
as I've said before, except in a very long-run sense.
That's one reason I don't know about that.
But increasing the supply will probably shift the vertical line to the right
when you get one of these.
But if you have a firm which is infinitely small compared to the industry,
you have 20,000 wheat farms, each wheat farm is teeny,
then you might get something like, in theory you get something like carousel and acre for each wheat farm.
Anything else is evil. Why is it evil? Why is it inefficient?
And a larger firm does have an impact on its market.
And here is the, this, my friends, is the reasoning behind it.
This is why the impetus of economics in the 30s until fairly recently was
You should try to break up industry so that they approach the level of a small-leaf farm, a big-up firm.
If you have a smoothly arcing average cost curve, it's the same given the firm, all right?
Given the firm, important, firm X, producing widgets.
If it has a horizontal demand curve, like that, OK?
Because the average price, this means the average price is $10 a widget, the average cost is $8 a widget, it makes a profit of $2 a widget, alright?
In equilibrium, this is not the market equilibrium we're talking about, this is a different kind of equilibrium, this is totally different kettle of fish, this is long run equilibrium.
Long run equilibrium is such, which the economy is supposedly in, not only intending to open in, according to the orthodox economics, in long run equilibrium, nobody makes any profits.
Nobody makes any losses, because there's no uncertainty.
It frees the economy, it frees the data, it frees value scales, which remain frozen forever.
It frees resources, it frees technology, and that's it.
It frees everything, and then you wind up, if you do that, there's no uncertainty.
If everybody knows in their heart, in their gut, in their mind,
that everything will be exactly the same 2,000 years from now as it is now,
the same values, the same production, the same knowledge, everything,
Then you'll wind out fairly soon in what's called general equilibrium theory, a piece that's called the evenly rotating economy.
Because there's no uncertainty, everybody adjusts to the situation, everybody knows, or even knows for two million years or whatever,
there's certainly X amount of TV sets that are being purchased, X amount of washing machines, it's all fixed, it's all freeze-frozen by the end of April.
And so you wind up, then, with a tangency, and the magnificent heroic tangency occurs, at zero profits.
How do you make zero profit zero? It must mean your total revenue is equal to your total cost.
Total money expended is the same as the total money taken in.
If total revenue is equal to total cost, then by definition, average revenue, which is total revenue divided by the amount you produce,
X is the same as the average cost, the average revenue is the same thing as the man curve.
The man curve is the total revenue per quantity, the same thing as the price.
If, in other words, you sell, you produce 10 widgets, you produce 1,000 widgets and sell them for $10 a widget,
If you're getting $10,000 in, your total revenue is $10,000.
Your number of widgets is 1,000, therefore,
it's the same thing as the price, which is $10.
All right, so in equilibrium, in final and general equilibrium,
this is not market, this is not day-to-day equilibrium.
This is this never-alive-never-alive land,
which you'll see in a minute, never exists, never can exist,
never will exist.
In this situation, where everything is frozen forever,
You will have each firm with a price equal to the average cost.
This thing is a beautiful setup.
If you have a horizontal man curve for each firm,
the only place it can be tangent is right at the bottom.
It's the same firm as an imperfect monopolistic competition,
My definition means that as faces are falling to man curve, there's only one place to be tangent to it.
It's falling, right?
It's falling to man curve, whatever it's falling, it has to be tangent somewhere over here.
So in the final equilibrium, and then these guys say, aha, see, what do we conclude from this?
We conclude from this as follows.
Well, if a firm in the economy is a perfect competition,
which is this by definition perfect, its production will be higher
and its price will be lower than if it's an imperfect or monopolistic
competition, QED, end of the analysis.
Therefore, consumers are being shafted by imperfect competition
or the real world.
They would benefit if every firm was so tiny that they were being a perfect competition.
That is inclusion, that's the basis for antitrust legislation and all the rest of it.
There are many holes in this argument.
Maybe you can supply me with some of the holes before I get into my blockbuster conclusion.
See any holes in this liar reasoning?
I didn't understand how you get the definition of perfect just by something.
It's just called perfect, it's the name, it's called perfect, one of the reasons is because the knowledge is perfect by the way, you have perfect knowledge, you know what your man curve is, you know what your course curves are, you know it.
Perfect, it's the perfect mobility of people.
Perfect mobility of life.
Well for one thing, I mean this deliver exists, I mean no fear of man curve is going to be perfect, horizontal no matter what.
Precisely.
So everybody is imperfect, some call it steps, so everybody is getting shot.
And this gives an excuse for the, you set up an ideal, suppose an ideal of perfection, which the market is failing to achieve and therefore the government then is supposed to have a rationale for stepping in and trying to create these perfect conditions.
And then once again they've got the good word.
Yeah, great word.
The other thing would be that a large firm would not necessarily have the same cost per the small firm.
Okay, step number one. Who says that these curves are equal? Who says that the average cost curve of a small firm is the same as a large firm?
Totally bananas. If we broke up, Schumpeter had a great analysis of this in Capitalism, Socialism and Democracy,
which is a very interesting book, he was not a libertarian or free market person, he had very interesting things to say.
And he wasn't an Austrian either, he was a Schumpeterian.
Anyway, and essentially one of the things he said was this,
Okay folks, let's assume you're right, let's assume that in the present state of evil and perfection, we're up here instead of down here.
But, suppose you get time to take General Motors and break it up, try to make it perfect.
Try to make it so that, break it up into teeny little pieces so that each one would be, have a horizontal man curve, you have like 500,000 teeny little firms, each of which has a cost curve.
As a cost curve, however, the way the hell out here,
is you're not taking advantage of large-scale production.
So even though the consumers have a wonderful benefit
of being a down here on the bottom of this thing,
they'd be paying a whole lot more, but much less, okay?
So let's hook our number one.
Who says that the cost curve would be the same?
In fact, the reason why there is a larger business
in many cases, is the cost curves are lower.
You're taking advantage of large-scale production
and the visibility you're able to buy,
doesn't it require does this allow new businesses to enter the market it would
require that everybody has to consume exactly the same amount they do now and
not produce any more net people in the world at a net consumable level of their
There's no innovation, there's no new discoveries, things are given, as the textbooks say, we have given the man curves, given the course curves, given the products and everything, all what real competition is really about, which is trying to find out what's going on, which is trying to beat out the other guy, which is trying to find out, invent new things, out-compete the other guy, all this is tossed aside, but we have perfect knowledge, everybody knows the man curve, everybody knows the product, everybody knows the course curve, and they're grinding this stuff out.
Even as such a simple thing as equipment wearing out would throw this thing right out the window.
The standard of living would just keep going like this.
The equipment is replaced automatically, so at the same rate that it's...
The exact amount of time.
Not only are the cost curves different for different companies, as was pointed out,
but the fact that the free market will tend to produce the lowest cost curves for companies,
and so if you break people up or interfere with it in any way,
You'll get higher cross-curves, therefore you'll get these equilibrium points for each individual company higher up.
Right.
What has just happened, because of the scale of the economy, will be that the cost curves of the imperfect competitors will be lower, and they'll still be imperfect.
Yeah.
And the price will still be lower.
Exactly. And you have this sort of situation.
Let's assume you're in here, and you have the perfect competitors, and there will be teeny little firms that are in the bottom, whatever,
If the cost curve is not smooth, you might get tangencies along with bumps.
Who says these curves are smooth? Nobody says they're evidence for any of this stuff.
Again, the quality, what we know is qualitative, what they try to assume is quantitative.
There's no evidence that has to be like this.
For example, this is one of my favorite things.
What if the cost curve is a little bumpy? Something like that.
Something like that. Then it only hits a tendency, like here, where it's going to easily disrupt the situation,
where the falling demand curve is just as tangent at the same spot as it is at the horizontal mark.
Only a little twist here, and as I say, there's no evidence for any of this stuff. In fact, why think it's smooth?
The exact opposite of what somebody just mentioned.
Wouldn't they say, well, if you had General Motors and it ended up being the only car company,
that of course there's supposedly no limit on their prices.
Well, that's something else. That's not the cost problem, you see.
That's a little different.
Now you're dealing with the real world where you're not assuming zero profits and zero losses.
But that's an interesting area.
That whole cartels thing is...
We should go into it because it's important anyway.
There's two other things.
What is the basic effect of that?
Assuming people are prepared to work for zero profit.
I can't see now, if they're only small companies, people are prepared to work for zero profit.
Why are they working for zero profit? Well, they're trying to get around that.
The two ways of thought, tripair or self-thought, in an angelic equilibrium, there'd be zero profit.
I don't know why you maintain your capital with zero profit. I just won't let the whole thing run down.
The more rational view of it was that the profit would be more than one rate of interest, just enough, three percent, six percent, whatever, just enough to keep maintaining the capital.
And so you'd have wages of management, which I'll take into consideration, you'd have interest...
Supposedly it's owner-managed.
But yeah, you can conceptually, yeah, well you can conceptually separate an ad, say in other words, you say wow, here's a guy who owns his own firm, you can say wow, part of his returns are wages to his management, part of it is interest on his capital investment, you can sort of separate ads, obviously, great disposal of practice, conceptually you can say okay, he's got his labor of management, whatever that is, and he's got the capital investment,
You see, the capital investment is very different here, you assume it won't change, everything is certain.
Capital investment then is pure time preference, the interest is then a functional time you have to wait, which is important.
If you cut out profits and losses, which is the entrepreneurial part, which is the other...
Well, Austrians adopted this refining knife, in some ways it was in Austria,
and that you take the return on a business firm's investment, there are two parts to it.
As a return for waiting, for just simply for, well for waiting in a sense of, well two things, one is, the capitalist provides to the workers and the landowners the other factor of production.
That's important service. They, let's say, have a certain productivity, they would get their return. Let's put it this way, let's say you have a corporation which are owned by the workers, the consumer producers co-ops, owned by workers and landlords.
If they did that, they would have, let's say they'd get the same payment,
forget about differences of management and entrepreneurship.
They would get, let's say they'd get the same, whatever, I guess $10,000 a year to get it.
But he'd have to wait three years or six years, whatever, for the product to come rolling off the
assembly line before he gets it. He'd have to wait if he had no paycheck until the money comes in.
Essentially, that's what happened out of Yugoslavia, which are more or less worker-owned firms.
They have to wait, which is a tough proposition. Many people don't have the capital and they want to wait.
A capitalist provides, even in a world without uncertainty,
a capitalist provides the savings to provide the money to pay them now before the three years.
They don't have to wait.
For this service, the workers, in a sense, pay him the capitalist a discount.
They pay him a time preference discount.
They pay him six percent, eight percent, whatever.
They're happy to do that because they're getting money now
instead of having to wait three, six years for it.
That's the time preference.
really are interests, where you have a, where essentially in a time market, this is one of the contributions of Austrians, by the way.
Interest is not just a loan, it's the whole, the whole profit system, interest pervades the whole capitalist system or market system.
On a long list, we're easy to see this, right?
And by the way, a little more on our interest,
the creditor, okay, let's say, gives to the debtor,
an exchange, or the creditor gives to the debtor right now, say $10,000,
and he, in return, for an IOU, saying I will pay you,
$11,000 a year from now.
What some of the creditors are doing is giving the debtor command over immediate resources to use the money right now,
which is what he wants, the debtor wants to pay stuff, buy stuff, invest it, whatever.
So this is a present good, that's why it's called a present good.
This money is useful right now.
On the other hand, this IOU is a future good.
It's only the creditor can only cash it in or start using the money a year from now.
So the creditor is exchanging $10,000 present money for future money.
Present good for future good.
Because present good, because of time preferences, everybody has a different ratio.
ratio. Everybody prefers money now to money later. In the time market, which is worked out between
creditors and debtors, or between everybody when they have time preference, a certain rate comes out,
let's say eight percent, six percent, ten percent, whatever, in this case ten percent, where both
parties agree in this time preference price that they will pay a discount, a premium of ten percent
for present good or a discount of five percent future good. So in other words, the payment of
The Catholic Church and Scholastic Philosophers are extremely bright economists. They work
out a lot of the stuff I've been talking about, a lot of utility theory, a lot of market analysis
that are very closely marked, as a matter of fact. It's amazing in many cases, a lot of
these guys are Franciscan monks who were living in a hut somewhere, a cave somewhere for 50 years,
can work out a very sophisticated analysis of the market.
And the one thing they couldn't hack, the one thing they
couldn't understand is time preference.
In other words, they can understand about risk,
and instead of about uncertainty and profit.
They all feel that, right?
They couldn't understand why it's legitimate, moral, illicit
to earn an interest on a pure loan, just a pure loan,
and no other, nothing else attached.
And they couldn't, therefore they concluded
it was sinful and evil, a post-natural war, and outlawed it.
All interest was outlawed by the Catholic Church for centuries, thousand years or so.
And it was really tragic, because it meant that nobody, after a while, by the 18th century,
so when everybody, of course, everybody came in favor of interest, they didn't understand my time preference.
They more or less realized that it was important.
These usury laws, they were called, were the spread of this last economic golden era.
In fact, these guys are nutty.
The whole concept, the whole analysis went out the window.
The baby you can throw out with a bathwater, so to speak.
And so it's too bad, because they understood about risk, opportunity, cost, and all that.
They understood that if you could make 20% by investing in some kind of sea voyage, it's okay to charge 20% for a loan,
because then you're giving up the other 20% you would have gotten.
All that sort of stuff, very sophisticated.
They couldn't understand a pure loan, because they never grasped by the time preference.
The time preference, by the way, was the discovery of von Bawerk, when I mentioned before the 1880s.
And before that, well, some people, Arturo, also Arturo, was a really great guy. He's been forgotten.
The pre-French Revolution. And basically, these were people really
copper-riveted why it's just as charged, why it's explainable, why it's understandable, why it's moral to run for a bad way, etc. etc.
and why it's being done.
Otherwise, it always seemed that somehow the creditor was ripping off the debtor one way
or the other.
It was never explained why the debtor would want to agree to pay for this, by the way.
It was one of the hitches in the argument.
So we see how this works in the pure alone.
But as Bob Baupreit pointed out, and Feder, the great American illustrious,
pointed out afterward, Frank Feder, unfortunately,
generally neglected magnificence, value of pricing, bill and market theorist.
But this whole thing pervades the economy.
If you take, for example, the guy who got alone for a minute,
here's a capitalist who, so what does he do?
He buys, he saves up money by not spending it, saves up money.
He then pays workers, landlords, or whatever, for their product production, for their productive services.
So he is paying them, let's say he pays some worker $10,000.
This is the employer now, the capitalist.
And the employee gets the money, and he gets, the employee gets the employer,
the labor services was then incorporated into the products, so to speak, helping to transform the product, eventually sold.
So let's say it's worth $12,000, whereas the amount the employee produces, the so-called marginal product,
the whole question of how you get to that, assuming that.
The employer pays, let's say, $10,000 because the employee is going to accept it because the employee is getting it right now.
It doesn't have to wait five years to get it.
And so what's happening is the employer is providing a presently good.
The employee is giving the employer a future good, which the employer will reap, you know,
after the thing is produced in the Soviet Union.
So what happens is you have a vast time market, where
the employer is essentially the creditor, not legally,
but economically, and the employee is the debtor.
He's getting the money, he's getting the present good.
Now the employee pays the employer
same sort of interest return, let's call it natural interest,
like with Barber, that the debtor pays the creditor.
And in the long run, the tendency is
The tendency is to have a similar rate in one area and the other, because we're going to earn 20% in one place and 5% in another place, we're going to shift out of the 5% and into the 20%.
I'm going to place a shift out of the five percent, into the five percent.
A tens-torrent equalization, the number gets there.
That's the long run equilibrium, tens-torrent.