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Pastimes : Austrian Economics, a lens on everyday reality
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To: Don Lloyd who wrote (117)9/16/2002 1:18:05 AM
From: Don Lloyd  Read Replies (2) of 445
 
According to Austrian Economics, all economic values are subjective, and market prices are the result of individual subjective valuations.

I find it interesting that part of the actual price determining mechanism seems to work in the opposite direction without really violating the above.

The following is an attempt to describe this mechanism. It may not make much sense without an extensive familiarity with the Austrian literature, or even with it, for that matter. -g- Comments are welcome.

For a consumer in a money-based market economy, the existing market array of the money prices of goods, as perceived, is the primary external factor that determines his subjective ordinal rankings of the comprehensive states of satisfaction achievable through the actions of exchanging money for goods, as well as providing a basis for valuing as future purchasing power the remaining cash balances included in those states. In turn, the exchange actions taken help determine the future market array of the money prices of goods by sequentially removing the chosen goods from the market beginning from the low end of their price distributions.

As an example --

Assume that I have $10 in cash and wish to choose between an apple and an orange for dinner tomorrow. Both apples and oranges have market prices of $6. When I subjectively rank the possibilities, the following is the result --

1. 1 $6 apple and $4 in cash.
2. 1 $6 orange and $4 in cash.
3. $10 in cash.

If the market price of oranges falls to $5, this changes my subjective ranking of the possibilities as follows --

1. 1 $5 orange and $5 in cash.
2. 1 $6 apple and $4 in cash.
3. $10 in cash.

In other words, market prices help determine subjective values. But it is still true that market prices result from subjective values through the interaction of individual actions.

Regards, Don
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