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.
- “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.
- “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.
- “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!