Value, Utility, and Price

I just checked my archives and found that my last post in the Reading Economics Project was more than six months ago! Let’s fix that, shall we?

Week 6 of the Mises Institute’s Home Study Course in Austrian Economics includes one audio lecture and two book chapters dealing with subjective valuation and price theory. I did this reading months ago and am only just now getting around to posting about it, so I hope I’m not too rusty.

  1. Value, Utility, and Price” by Jeffrey Herbener: Prof. Herbener gives an overview of the action axiom before zeroing in on the subjective valuation that gives rise to prices in exchange. I really like his critique of the attempt to create units of valuation, such as the “util.” Saying that a bowl of ice cream gives me a satisfaction of 10 utils is to make a meaningless statement because human satisfaction has no extensive property that can be measured objectively. Attempts to attach cardinal units to expressions of subjective valuation actually change the terms of the discussion, and we’re no longer talking about anything real. Herbener traces historically the attempts of people to make objective units of satisfaction so that they could then manipulate everything mathematically and shows they were failures.
  2. “Let’s Stay Together: On Direct Exchange and the Social Order” (Ch. 4 of Gene Callahan, Economics for Real People): Building on his Survivor example, Callahan introduces new people to his desert island and creates a rudimentary market. He illustrates principles of exchange using examples (rats for traps, etc.) similar to Shawn Ritenour’s in Foundations of Economics. The island inhabitants create a division of labor based on their comparative advantage (what Mises called the “law of association”). There’s also a humorous hypothetical attempt to impose exchange controls on goats.
  3. “The Market and Market Prices” (Ch. 5 of Thomas Taylor, An Introduction to Austrian Economics): “The tendency to ascribe to the market economy the characteristic of being something other than the events caused by the choices and actions of individuals is incorrect.” Reading this, I was reminded of a Facebook thread I saw yesterday where someone was blaming expensive gasoline on “the market, which controls prices.” His proposed solution to high gas prices was to–get this–eliminate “the market,” by which he meant the commodity exchanges. I consider my refusal to post a comment on that thread as evidence of my increasing self-control. I liked Taylor’s discussion of the tendency of prices toward equilibrium in a free market; this equivalent (I think) to what Callahan calls a “natural state of rest.” Equilibrium is never reached in the real world because people’s preferences are always changing.

Let’s hope that it won’t be another six months before I make another post in this series. Onward!

Also, I’d be remiss if I didn’t note that Dr. Herbener is one of my colleagues at Liberty Classroom. Check out his course on Austrian economics there!

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About Dr. J

I am an Associate Professor and head of the Department of Humanities at Faulkner University. I am also Associate Editor of the Journal of Faith and the Academy.
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4 Responses to Value, Utility, and Price

  1. anarchobuddy says:

    “Reading this, I was reminded of a Facebook thread I saw yesterday where someone was blaming expensive gasoline on “the market, which controls prices.” His proposed solution to high gas prices was to–get this–eliminate “the market,” by which he meant the commodity exchanges. I consider my refusal to post a comment on that thread as evidence of my increasing self-control.”

    I sometimes wonder whether the great intellectual battles of our time are waged on the comments sections of YouTube, Facebook, and various other places in cyberspace. But then I cast such silly notions aside.

    What is the best way to educate others, Dr. J?

  2. Dr. J says:

    Your question reminds me of an analogy made by a guest speaker on my campus a few years ago. He likened education to a triage situation in a medical emergency and said, “If you come up on a train wreck and see a guy with his head cut off, there’s not much you can do for him.” I took him to mean that some have closed themselves off to new ideas, and you will not be able to reach them without an inordinate amount of time and effort.

    In my experience, getting into discussions/debates online is not useful unless there is genuine good will and interest in exchange of ideas on both sides. Find some common ground to work from and stress areas of agreement before attempting to correct other people’s errors.

    • anarchobuddy says:

      That seems like wise advice.

      I suppose a better question to ask regards friends, family, and acquaintances. You obviously see the importance of having an understanding of Western civilization, US history, economics, and so forth. I find that it’s hard not to have the desire to share what I’ve learned with the people around me, especially if it is relevant to us today, but I have difficulty imparting this information without sounding like a broken record or boring people.

      Is the only way to help people around us learn the merits of free markets to make a bulk order of Hazlitt’s “Economics in One Lesson” and hand them out?

      • Dr. J says:

        I’d say that in most cases your relationships with people (especially with family) are more important than whether those people “see the light” on these issues, so the first thing would be not to endanger the relationships by pushing unwelcome topics into the conversation.

        Having said that, there are other ways to introduce your circle of acquaintances to this body of knowledge. For example. if you know someone has a particular interest in a certain topic, recommend an essay, video, article, or book on that topic and ask for his feedback. This can start a conversation. You’re probably up against the idea that “a prophet has no honor in his own country,” so in most cases it’s better to allow another voice to introduce the new idea or way of thinking. Smaller is better. Don’t ask people to go read Human Action without a lot of preparatory work.

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