The Birth of the Austrian School | Joseph T. Salerno

welcome to the first lecture of Mises University 2019 the topic of the lecture today will be the birth of the Austrian school and as you heard last night all of the faculty are members of the modern Austrian School of Economics so what we want to do is to know what it is and where it came from and there's no better way to do that than to focus on the founder of the Austrian school karl menger so let me talk a little bit about menger and before we do that let me talk about the environment that manga arose out of okay so in the 1870s there's a radical change in economics so an event occurred called the modulus revolution which I'll explain about Marg Elizabeth lecture but basically it refers to the the simultaneous discovery independently by three different economists of what sometimes called the law of marginal utility and what you would be familiar with you should be familiar with if you've had introductory economics this occurred over three years by as I said three different economists there was the Austrian economist karl menger he wrote a book called principles of economics in 1871 at the time he didn't know that there were others who were working along the same lines gone one was William Stanley Jevons who wrote theory of political economy in 1871 also came up with with a marginal utility approach to economics and then there was leon walras who was a french swiss economist who a few years later without having read the the previous two books also came up with an approach to economics that was based on marginal utility now they will use different names for this mangar didn't didn't name his principle it was only later on that his student friedrich von wieser gave the term marginal utility to two mangers contribution Jevons called it final final utility and the Swiss economist Valle Ross use the term rarity let me just give you some pictures here this is the young William Stanley Jevons kind of looks like a mob enforcer didn't age very well okay at that a as he got older he looks more like the guy who lives the cranky guy lives next door and yells with the kids get off his lawn Leon Vollrath kind of kind of diabolical and scary when he was younger and turns out to be your grandfather my name's Carl Menger dignified when he was younger dignified one who's older okay this seems to run in Austrian circles all right okay you gotta have a surfer go looking guy when he's younger all right okay now there was a big difference between Menger and his approach to the law of marginal utility or the concept of marginal utility and Jeffersonville Ross both of whom were mathematical economists so they thought of of utility as sort of a quantity okay a quantity of satisfaction that could be added up that could be compared between different individuals that is if I have a bottle of water it might be worth five utils five units of utility to me but tend to you okay because let's say you're a poor person so then the government should come in take my bottle and give it to you that was some of the implications of the sort of mathematical approach to utility so the problem of course is you know what is the quantity of utility I mean what say you what the heck is util okay doesn't make any sense now mango is different he viewed utility as a result of an actor's judgement about how important certain goods were to their welfare so his notion of utility was was ordinal that is what he said was that people rank different Goods according to which was most important so if you had two dollars you got a choice between buying a bottle of water a can of coke or a granola bar you would use that two dollars to buy the thing that was highest in your estimation and would serve the most important want okay you couldn't you couldn't say you liked a bottle of water five times as much as you like the granola bar there was no you couldn't do any mathematical operations with utility okay you simply compare it and you could rank it first second third okay and so utility and always involved choice it wasn't sort of free-floating satisfaction in your mind it wasn't your mind but it only was demonstrated when you were choosing between different things so Mangler discovered much more than the principle of margin utility really that wasn't really his only contribution or even the main contribution the main contribution was his focus on people striving to satisfy their wants wants that were more or less important to them and so his system of economics was an entire system based on people's subjective values and the choices they made in the economy okay so the central figure in the economy was a consumer who was striving systematically to satisfy his or her wants so the economy as a whole is really an outcome of the judgments of different into different people about their different different wants and how and how they saw them as satisfying as being satisfied okay so he was a creative genius okay he didn't come up with all this on his own they were many he had many influences but he was the one who really put it together now what did some of the important historians of thought say about these economists or say about mangers so we had Joe Joseph Schumpeter was an Austrian economist and a very famous historian of thought and he said that Menger is nobody's pupil and what he's created stands mangers theory of value price and distribution is the best we have up to now okay and that was in 1926 after men had passed away Woodie von Mises was a who was a follower of manga explicitly and thought very highly of him says what is known as the Austrian School of Economics in 1871 when karl menger published a slender volume his principles of economics well there really was not until the end of the 70s there was no Austrian school there was only karl menger okay so he really was a true founder and finally I say hi I could won the Nobel Prize very famous Austrian economist and a very good story of thought said that the Austrian schools fundamental principles belong fully and wholly to karl menger what is common to the members of the Austrian school what constitutes coolly arity and provide the foundations of their later contributions is their acceptance of the teaching of carl menger okay so we cannot underestimate how important Cormega was to the Austrian school when mehnga wrote the School of Economics that was dominant was the British Classical School of Economics and the three main figures here and you may have had history of thought class where David Hume Adam Smith and David Ricardo all all of whom were British Scottish in English and they wrote a number of works now they were brilliant economists they said some things that are still true today you know are very important they pointed out that prices are not arbitrary or random they're determined by the law of supply and demand they're determined by universal and unchangeable laws okay and that certainly is true there are economic laws law of supply and demand is one of them and it's the same for all societies and throughout history that law never changes you know they also point out that these prices are used by business decision-makers to allocate resources to decide how much to produce and what to produce and these businesses also looked use these prices to calculate their profits and losses so for example if the the price of the price of oil and gasoline goes up well then it'll be more costly to drive large cars and suddenly people's demand for large cars would fall and they would begin to move to purchasing smaller cars so you would have losses being earned by those who producing larger cars and and all high profits in producing hybrids and and and and smaller cars and electric cars and so on so what would happen would be because of people's choices because of their values there'd be a shift okay in the real world out there by business decision makers away from producing these larger cars to producing a smaller cars so they understood all this okay they they were wrong in certain wages we'll see but but this is very important now they didn't have a main floor and the floor was that when they were talking about goods and they were trying to decide the the importance and the value of goods they took goods as an abstract class of things they talked about all the coal in the world they compared bread - diamonds - coal water beef and so on okay and that in itself was a mistake that was a mistake that really right at the beginning of their attempt to explain prices okay because human beings do not think about whether coal is more important than diamonds or water is more important than bread what they think about is at that moment in time when they're making a choice and they're expressing their values about what is most important to them they're looking at concrete units of goods and this is what as you'll see commenter focused on like one pound of bread twelve ounces of beef two carats of diamonds okay these units were what they chose among so that these were the things that were essential to economic analysis looking at goods in terms of concrete units and not abstract classes and as a result the classical economists because they did not do that and they did focus on abstract classes bogged down into what was called aurorae what were unable to solve what was called the paradox of value sometimes also called the water diamond paradox with a bread Diamond paradox and the paradox was as follows diamonds have a very high exchange value which simply means they have a high price on the market right but they have very low huge value in everyday life but people use them to show off their wealth they use them to adorn themselves to be conspicuous and so on alright so for for for you for the human race diamonds are not very important okay they have a high exchange value but to have a low huse value okay water on the other hand has a very high use value without Monnaie Beltaine water for two or three days you would you would die okay your bodily organs would shut down and you would pass away so it has a very high use value so the paradox was it had a high use value but his exchange value is very low okay so you have a that paradox where something has a very low use value such as diamonds has a price per unit that was much higher than than the price of something like bread or water that without which the human race would perish so they could not solve that now what they did do moves the diamond a water paradox there there's a one of the most expensive diamonds ever sold at auction that's been recently surpassed but was 46 million dollars okay over over 46 million dollars okay 2025 carat diamond and that was in 2010 so the classical economists couldn't understand that right they didn't understand why how that could come about so what they said was this look we're not going to worry about use value that's not the job of economics that's not the domain of economics well we're gonna focus on his exchange value and explain we're gonna explain prices so guess what they did when they did that they got rid of the consumer because the consumers the one who experiences use value who judges use value okay and so if they were going just to explain prices okay and forget about use value as the basis of prices then their focus became guess guess whom the business man as they they would say that okay so they focused on the businessman and they pointed out that the businessman buys in the markets where prices are low they'd make a product and they sell in markets where the prices are high okay and that's called homoeconomicus they focused on the economic man now they knew that that was unrealistic but they didn't know how to solve that paradox of value and bring use value back into the into the picture okay so some people claim that well the the classical economists were were dumb well they weren't dumb they they just couldn't solve this very very subtle problem okay so um that was their solution and of course it was wrong okay mangers solved the paradox of value and showed how subjective use value is the basis of a objective exchange value he brought the two together okay he gave us a complete value and price theory okay he didn't throw the sum he didn't take subjective value and throw it out the back door and just worry about objective value or price okay he realized that even though prices are important okay you you had to base them in human action in people striving to satisfy their wants and there were a few other mistakes that as a result of this paradox of value not being solved were made by the classical economist for example they began to develop a theory of prices that was the cost of production theory they said well in the long run costs of producing something determines its value okay so the cost of producing bread pretty much determined its price the cost of producing an automobile we were classical economists we would say that well that's pretty much determined by or rather the price of an automobile is pretty much determined by its course the problem with that is that you could not explain the costs or the prices of things like diamonds okay did it cost 46 billion dollars for that that diamond guy showed you before okay no one knows no one cares if people like that auction doesn't know how much it cost okay all they know is the value they attach to it so the classical economist was caught in this in this problem and so what they said well there's two kinds of goods there's goods like iron and coal and bread those Goods are reproducible and their prices are determined by their costs production rest things like diamonds and the old paintings and so on that are not reproducible well their prices are determined by supply and demand so now you had two different two different theories to explain the same thing to explain prices and that's not scientific unscientific a couple of other things that that they made mistakes on and I'll show you again how manga fixed all these mistakes I had to do with value so if value is determined by the cost of producing it by the resources you use in producing the good if that's what determines price then it tells us that the source of value is not in the human mind the source of value is in the good itself if people sweat a lot over producing a television set that television set costs $2,000 okay because it embodies a lot of labor time that's the labor of sweat or embodies a lot of money spent on resources to produce that television set okay versus something like a bottle of water which is only two dollars costs much less than a television set because it doesn't embody it doesn't cost a lot to produce okay so value is inherent in the good and that's incorrect okay in other words production gives value to the good and we're gonna see that's exactly exactly the opposite of the truth and also if it is true that the cost of production determined prices how could firms ever lose money how could a IG the biggest insurance company in the world back during the financial crisis how could it have lost 72 billion dollars in one year it just should raise the price so that it covers its course okay there were how could i be m in the late 1980s have lost four or five billion dollars for three years running well you just you know if you believe that cost of production the term price you cannot explain firms losing money okay that's another problem okay so let's let's get some anger Menger in his preface to his it's book aimed at at setting forth or presenting to people a real it what he called a realistic price theory okay and this is the sort of mission that he set himself he said I have devoted special attention to the investigation okay and cause-effect was very important to Menger to the causal connections between economic phenomena involving products and the corresponding agents of production in other words involving the goods and the resources that we used to produce those goods he says not only for the purpose of establishing a price theory based on reality and placing all price phenomena together under wonderful one unified point of view but also because of the important insights we gained to other economic processes okay so right from the beginning you realize that look manga is going to focus on a realistic explanation price and a realistic explanation of price one that focuses on cause and effect cannot leave out the ultimate cause of all value which is human value judgments about what is more and what is less important to them so we what we've come to call the causal realist tradition okay became the sort of central tradition of Austrian economics and that derives from karl menger so economic theory to Austrian economists today is the investigation of the causes of real prices wages rents that are actually paid in everyday markets what manga wants to explain is if you go a few miles down the road to Super Walmart here the prices that people have paid for the goods right now okay he doesn't care about in the long run prices tend to equal their cost of production he wants to explain the factors that govern the prices that people right now registers cash registers and and you know at Walmart at CVS and other places are paying right he also wants to explain the prices of steel of Labor that are being paid right now okay and as we'll see these prices have a little different time dimension right because the prices that people are paying for steel today which will be an automobile five years from now that that that those prices are focused on the future okay which brings in the entrepreneur which you'll learn about later on so before he wrote his book Menger carefully wrote out some notes to himself about what he what he wanted to do in the book and these are some of the notes that he wrote to him selves he said man himself is the beginning and the end of every economy okay not a costs of production not labor okay but man in his fullness okay as consumer and producer and entrepreneur okay the beginning in the end of every economy and second our science is the theory of a human beings ability to deal with his wants so immediately you realize that the the ultimate factor okay that causes all economic phenomena all economic activity is subjective is deeply subjective it's it's a deep in the human soul as Mises once said the pricing process is is a war of scarcity or a reflection of the wharfs scarcity that go is going on in the human soul he used those terms so manga of Mises was a was it was a man garyun and then the first line of this is the first line of the text of his book all things are subject to the law of cause and effect so he wanted to untangle the clauses and and show you step-by-step how different economic activities and and and and phenomena arose he also wrote out three different or what I call a triad of causation they don't mean the same thing so if you'll know the first turn in each of those three has to do with the subjective part of human activity people have ends if you look at number one or we begin with man if you look at number two these are all mangers little diagrams or what you begin with wants all of the same things we're all subjective okay they're what precipitates economic activity now in order then to serve the person's ends the individual has to look around him okay or her at the various means available okay in the real world means or another word for that is goods or the external events of the external world so all action begins in the human mind with ends or with with with with man and and then is mine and then transitions through the objective world okay where the elements of of action are present okay so these are the external things things that are different from the human being if you didn't have the external world you couldn't have any action and it all ends okay so if the means are used properly then the ends are realized so the person is satisfied okay or the wants are satisfied so realization subsistence and satisfaction are all the third step and that goes back to before the very first step okay so you start with with subjective wants you look around for elements or goods or means that that can help you satisfy those wants and then you achieve your ends and you become satisfied so there's a guy who's hungry okay that's a subjective want I want is simply a lack okay he lacks the food to satisfy his hunger he had those resources available to him in the real world and those resources are costly because he can use them for other other things or because he could use the money that he used to purchase those things for something else so they're scarce and costly and so he puts together a sandwich he combines them produces the sandwich and then we chief satisfaction okay some so someone sort of in diagrammatic form that's that's mangers idea of a Veck anomic activity and the the end of the goods are only valuable to the extent that they satisfy the ends if someone is a vegetarian and doesn't eat carbs and hates mustard well those things are worthless no matter how much they cost to produce they have no value to that person so so one of the central elements in the lawn satisfaction process that may that makes up the economy is goods and and so in the very first chapter Menger defines what what what it takes for something to be a good so it's called the preconditions of a good you need a human need all right so there has to be someone who has a need for something or a want a thing is capable of being more than two causal connection with the satisfaction of the need for example the hamster the sandwich we're talking about the person that that objectively - manga can be used to satisfy that one human knowledge of this causal connection the person must know that this thing can be used to satisfy the want that he or she is experiencing and then the person must have command of the thing sufficient to direct it to the satisfaction of the need that is you need ownership or control now there's a mistake there okay manga didn't follow his own preference for focusing on the purely subjective what Mises points out that is is that number two and three can be combined okay into two prime which tells us the belief that a thing has a capacity to use to cause the satisfaction of human need in other words the thing it may be we're all fallible so so the thing that we choose to satisfy a want may not be actually capable of satisfying that one that doesn't matter we're still willing to pay a price for it if we believe that it's capable of satisfying the one look people by the wall by the New York Times to get the news people go to mediums to talk with their dead relatives now it's interesting a few pages later manga actually says well there are imaginary wants but they may disappear over time but he realized that people would pay prices for I think he mentions a medium who communicates with with the dead okay but means this is no there's no difference between any of these goods all right if people pay a price for them that reflects a value that they have for that thing whether that thing objectively does in fact satisfy the law that they're aiming a satisfying is irrelevant all right okay so these things are scarce since they're scarce you have to choose between them and as we'll see as I as I explained the law of market utility you have to rank the wants which ones are most important to you given your and and and and have it which would allow you then to to use your hour allocate your resources among who wants and that you would then economize your good you would only use your goods for the most important ones okay so Mises manga replaced this the idea of economic man which was fictional with economizing man that is someone who has all these different wants whether altruistic or or selfish didn't matter whatever the wants are the the person needed resources to satisfy them and resources being scarce okay because we have economic goods some so economic goods to beggar were goods that there were not enough up to satisfy all human wants for them okay so for example the Sun the Mangler was was not an economic good all right or air more usually use the air in this room is not an economic good okay and when we talk about a little more utility but we'll see what you mean by that so let me first define the law of marginal utility it's a you've a good is determined by its margin utility that is okay you know simply be it's a satisfaction for the least important or lowest ranked and served by the available supply of the good so utility is simply another word for satisfaction okay and marginal simply means the relevant unit okay and that's a very important concept at work that we'll talk about in a moment okay so the law tells us as a supply of a good possessed by an individual as you as you as you have more of a given things as you have more money or you have more automobiles if you're a car collector or or you have more bottles of water the value of each individual unit Falls okay so the greater the increase in supply the lower the margin utility and therefore the lower the value so let's take a example that was more or less used by Menger robinson crusoe example the example of a castaway was on an island and has nothing but his own labour and and the resources available on the island and let's say that he has a certain supply of wheat okay that grows wild on the island so he can he can harvest this wheat and then devoted to his most important purposes so he ranks the purposes let's say a sack of wheat can serve each one of these purposes so what was important to him to keep himself alive okay secondly most important is is to make him vital to maintain his health so that you can engage in other activities so you would need a second sack of wheat that you he would bake into bread okay to keep him healthy okay the first sack would would simply keep him alive okay third sack would be provision for the future he needs to use the wheat as seeds for for the future third he would like to vary his diet so he would have feed he would use some of the wheat a sack of wheat for feed four goats okay so that he could get goat milk and cheese and meat and so on okay and Menger likes whiskey I like vodka but you might want to have a little stronger beverage to go along with with the rest of his diet and so he would he would transform this produce by producing vodka with it let's assume he only has five five sacks if he had it but but they're scared so if you had a six there is something else he can you could do with it okay and and there's seventh eighth and ninth and so on okay the wheat is scarce unless he could make use of 20 or 25 bushels of wheat and after that they would be useful but since he only has five they are scarce so he doesn't have the six if he had a six he would then use it to feed the parrot he's lonely he won't you want some company oh now let's look at the law of margin utility what is the VAT so Menger asked himself he posed this question in his book what is the value of a sack of wheat to this individual is it the value of the most important one the first one is it the value of an average of the five wants well he solved it in a very ingenious way he said to himself or to his readers what if the born or what if let's say a pack of vermin break into the barn where I'm keeping the wheat or break into the shelter where the Wiis being kept and devour one of the bushels okay let's say it's bushel number two okay so he's about to allocate these bushels to these wants what satisfaction does that individual lose what satisfaction does crusoe do without well it's obvious this economizing individual will forego the least valued use that five bushels of wheat can fulfill or conserve and that would be the value of the vodka so no matter which bushel is lost you're losing the marginal utility the vodka the value the vodka is a margin utility okay it's the satisfaction for the lowest-ranked end so every single one of those identical five bushels of wheat has a value that is equal to the the value of the vodka now if one is lost what happened to the marginal utility it rises now you only have four so now there's a more important one that you would have to go without if you lose a bushel of wheat so the margin utility rises as a supply decreases with three bushels of wheat each bush would be more important because now you would have you would lose seed for the next harvest which would is much more valuable let's say then then a feed for the goats now something else you should realize here you cannot quantify the value from each of these things you can simply rank them use a more sort of a more modern example let's say there's a family who has three drivers let's say the dads the main breadwinner the mom uses a car to go do errands and works part-time and and then then jr. has a use for the car let's say the dad crashes his car and let's say the car they were pretty identical they can all serve the same purposes who loses the car does the dad go without the car no jr. jr. doesn't drive any mortgage that's the lowest-ranked use okay and in that family and just to see if you understand the concept let's just look at a short quiz here let's say you have a farmer who has two different kinds of goods he has horses horses can be ridden they can be used to plow and he has cows cows can be used for milk they can be slaughtered and used for beef and so on okay so they're not identical through two different goods okay so let's say he ranks okay so by the way all of your ends are ranked on the same value scale okay ok they're all ranked together as more or less important so let's say the most important and is the the using one horse for plowing I'm using a second horse applying makes plowing easier makes you more productive so that's the second highest valued a good and then the third is milk and so on so looking at that which good is more valuable okay so everyone says the horse horse is not more valuable cows more valuable okay and the way to answer that question is to pose a man garyun example let's say the barn is burning and you can only get four animals out which animal do you leave behind the least valuable animal about yeah a animal with a lower margin utility okay the large utility of the cow is the satisfaction the beef which exceeds okay the satisfaction from recreational riding so now once you've lost that horse it's kind of tough to concede conceive of a horse burning up so let's say the horse runs away anyway which is the warm fat valuable animal now which horse has a hot which animal has a higher margin utility the horse ok the cows now the less valuable so as the the supplies of a good change their values change and voila manga has served has solved the paradox of value right why then does diamonds I have or does a diamond have a much higher value than a pound of bread or a gallon of water on the market okay well the reason is simply because in relation to the tutu to their uses diamonds are much more scarce so they're more utility is higher if you want to change that if you want to see how that can change put yourself in the desert where you have not have water for three days and you have that 46 karat a forty six million dollar twenty five carat diamond in your pocket and you're on the point of dying of thirst would you would you trade the diamonds for the gallon of water yeah of course you would because water serves the most a gallon of water every three days serves the most important one okay much more important then the satisfaction you expected arrived from from the diamond so when you change the utility of things or rather supply of things the larger utilities change and the value changes so right now there's more than enough cubic feet of air in this room that air is worth what what air has a value of zero in a normal situation now if you put yourself in on the moon okay air is extremely valuable or as if you're a deep-sea diver air is extremely value valuable or if you suffer from emphysema and it's a bad day in Los Angeles as far as pollution okay people are willing to pay high prices for air under those conditions okay with some art utility is so much higher okay now there's something else that Menger pointed out about Goods and that is that since all production takes time okay and proceed step by step okay from what he called the highest orders those furthest away from consumers toward consumers and satisfaction of consumer wants he said he came up the concept of orders of goods okay so here you see the structure what's called the structure of production he didn't use that term structure of production you see a really a system of orders of goods that start with iron ore mining okay and and in an automobile that is produced it let's say after five or six years and then sold to consumers okay so from anger the further away from a consumption a good was the more the higher its order okay consumer goods were lowest order goods now why was that important to Menger it was important to manga because manga wanted to show that the classical economies were wrong that production did not bestow value on on goods okay it was really the other way around okay consumer your value judgments about the goods that were final order goods or the goods that were lowest order goods were the things that gave value to those goods to the car to the loaf of bread or to whatever else we were talking about and then because those things were valuable the resources that we use to produce bread was valuable and because those are valuable that caused value to be imputed backwards okay so production proceeds from the higher-order good to see the downward downward arrow of the blue arrow production goes from the higher to the lower order goods okay and the mistake made by the classical economist was so does value okay but as megger pointed out really value starts with the consumer the judgment made that's that bread is important for satisfying certain wants and the bread was valuable or the the bread itself because it was valued cause the value of the bread that the wholesaler was selling to the retailer which in turn caused the value of the flour okay and and and and again the wheat was only valuable because flour was valuable so value is imputed backwards okay from the consumer back up through the orders of production to the highest stages put to land for example and as banker pointed out the classical econ is could not explain the value of land okay because land wasn't produced okay land is nature given or god-given okay it's not it's not produced so what did the classical economists do they said well land is a monopoly it's since it's scarce it has a price a monopoly price it was a very bad explanation but manga said no of course not land is only valuable because the things that it produces or allows to be produced or valuable so example he gave was if there if no one if everyone stopped demanding tobacco products okay what would happen to the value of tobacco rolling machines would fall to zero okay cigarette rolling machines in cigar rolling machines and and and and a step for the back what would happen to the value of tobacco leaves its fall to zero and and similarly the land that grows tobacco assuming it has no other uses let's assume it has all the uses that the value of that land which is extremely high by the way today would fall to zero okay same thing is true of diamonds the example I always give my undergraduates is that in in the in the movie with Harrison Ford witness which takes place in the Amish country in southeastern Pennsylvania there the Amish avoid any sort of ostentatious displays to the point where they don't even have buttons on their clothing they use I and hook so it doesn't show any ostentatious no vanity okay so if all all Americans or everyone adopted the values of the Amish what would happen to the value of diamonds okay assuming they have no industrial value the fall to zero and that would work its way up to diamond mines to the point where there would be zero demand for diamond mines and diamond the the cost of a diamond mind would or price would drop to zero one last thing I want to point out about manga once you realize that value is subjective then you can understand exchange because according to the classical economists exchange showed an equality between the price paid for a thing and the thing itself so if a bottle of water cost two dollars to produce then it was equal in value to the $2 price that you paid for the water I'm anger point does is totally incorrect so if you take for example on the exchange of a horse and a cow if a has a cow okay and the good that that individual does not have is in parentheses a has a cow and trades the cow for a horse with B the reason why that exchange takes place is because a values what he gets the horse more than what he gives up the cow the larger Tilly of the horse to him is higher than the Margit ility of the calf and the reverse is true of be so mangers said there's not an equality in exchange doesn't show any quality in value it shows a double inequality okay so if someone buys a BMW for $70,000 doesn't show that that person thinks it's equal to $70,000 it shows that that person prefers the buyer prefers the BMW model to any other use that he can think of for the $70,000 okay and likewise or contrariwise the seller believes that the $70,000 has a higher value than the BMW that's given up right so mentalis II that there's an equality be Fink between things exchange that something is worth the price for it or not it's completely wrong because people have diverse preferences they have diverse value scales they rank things differently okay there's when two people come meet for exchange Menger pointed out and they they make the exchange it shows that there's a double inequality of value okay that everybody believes that what they're getting has a higher value to them than what they're giving up okay I'll stop I'll stop there thank you you

Channel: misesmedia

Views: 3,691

Rating: 4.9764705 out of 5

Keywords: Economics, Austrian School, Salerno, Value, Menger, Mises, Mises University, Auburn

Id: xdepDj8C4D0

Length: 46min 42sec (2802 seconds)

Published: Tue Jul 16 2019

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First video from this year's Mises U