[negligible91]

Thanks Dr. Herbener, I follow. An analogous example to my own would be if someone decided to go underwater and use an air tank to breathe rather than breathing outside. Underwater he is purposefully acting with respect to air, a scarce resource, but outside water he is not: air is just a general condition. Similarly, if I choose to use some other device (that is scarce) to stretch, I am using them as means, but if I use the boards I mentioned, then they are simply a general condition.

Thank you both for your responses!

[negligible91]

Just a few points I’d stress. I read through it quickly because I’m short on time, but I’m confident in these points nevertheless:

1) Competition (not perfect competition, but real competition). If workers are being paid less than their productivity, then this creates an opportunity for profitable competition. If there isn’t any competition, the first place we should look to find out why is government regulation. Retail isn’t some industry like telecommunications either, where there are network effects, huge economies of scale, etc. Also, industries other than retail could also be involved to bid these workers away.

2) Anytime he points to the economy being bad, that is the fault of institutional reasons: the Federal Reserve and fractional reserve banking causing the business cycle, etc.

3) “The strict Austrian school/libertarian argument at this point is obvious: don’t have public assistance. That way people will not take below-survival paying jobs, which will force employers to pay more in order to attract employees. ”

I’ve never heard this argument from Austrians before, but I’ll let someone else confirm whether it’s a true argument or not. Is he really saying minimum wage workers would be literally dying on the streets without public assistance? I am skeptical.

4) The minimum wage causes unemployment. It hurts the very workers it’s supposed to help. Is it easier to live off of $7.25/hr or $0.00/hr? Employers will not necessarily hire workers if they must pay them higher wages. They certainly will not if it is not profitable. They can use labor-saving technology instead.

If there is no public assistance, no minimum wage, no government causes of the business cycle, and no government restriction of competition, it is clear that worker’s wages will tend toward their productivity, and real wages will rise over time as the economy grows.

[negligible91]

Thank you Dr. Manish. After thinking it over, it seems to me I am confusing two different definitions of the word “choice.” The definition you, Dr. Herbener, and Mises are using, at least for this case, is that when you choose a means to satisfy a particular end, you are choosing to use that means for that end rather than using it for another end (and here it is clear to me now how scarcity follows). The definition of choice that I was thinking of, and that was confusing me, was choosing a particular means to satisfy my ends rather than another means to satisfy the same end. For example, rather than using the boards to stretch, I could stretch using some other device (to satisfy my end of stretching).

Is the second definition of choice not sufficient (absent the presence of the first definition, but with everything else we consider part of action, e.g. takes time, trying to change future state into one you prefer, etc.) to establish a purposeful action? And is it that, somehow, the board is not a means, but something else is a means?

Edit-
Also, I will take note of the book sections you have outlined and read them as soon as I can.

[negligible91]

I completely agree that almost any good will be able to be traded and therefore will have a secondary end, but I want to make sure I have the implications right.

“If you really have only one end for the machine and the machine fully satisfies that end, then the machine is not scarce.”

If the machine is not scarce, as it is in such a situation, does that mean 1) it’s not a means in the praxeological sense, and 2) that we are not purposefully acting on it?

If machine is a bad example to use, replace it with two wooden boards that have been put together in a position to help you stretch, that will, generally speaking, last you a lifetime before you (well, someone else, since you’d be dead) have to repair or remake it.

I can understand not purposefully acting on air – we just breathe it in without thinking about it – but it’s hard to imagine this case as nonpurposeful action. It seems strange that a key criteria for a use of a means in purposeful action is the fact there there are more ends than means. I, again, agree realistically that this would have another end, the fact that you can trade it. (At this point, this objection is just really theoretical, because I think you have definitely answered my question for the real world. I cannot imagine a good that has only one end, so perhaps it is even silly of me to ask.)

[negligible91]

Appreciate your help, Dr. Herbener!

[negligible91]

Thanks, Dr. Herbener! That makes sense, but I have one last clarification. I’m trying to integrate the bidding process and the equivalence of the price of a factor of production with opportunity cost in my mind.

“Thus, any entrepreneur who buys an input today pays for the value that will be lost in the future from not using it in other lines of production today.”

So if an entrepreneur who has increased demand for his product, bids for a resource (factor of production), increases the market price (of that factor), then the price he pays for it is equivalent to the value that the factor would have attained in the future, had it been used in the production process that has now been displaced by the production process with increased demand?

I think this is just a restatement of your quote. If so, is the price paid for the factor equivalent to the value of the displaced line of production, because at that price, the displaced line of production earns 0 profit (revenue=cost) and so no entrepreneur no longer wishes to do it?

[negligible91]

Hm, so I get what you’re saying, but it still seems like the actual cost the entrepreneur pays is higher than the opportunity cost. Even though, once demand goes up in one line of production, market demand for factors rises and thus prices for the factors of production increase all around, this new price is higher than the old price. The actual opportunity cost is the value of what would have been produced otherwise – and isn’t that equivalent to the previous cost?

If I’m right about that ^, I guess one possible answer is that the entrepreneur in the line of production where demand has increased, only has to increase his demand by an amount where the price increases to the point where the least valuable production line is making a net income of 0, which would mean the new price is in fact the correct opportunity cost?

What do you think about this? Appreciate your help as always!

Edit-

Oh, one last thing: so the money costs entrepreneurs pay aren’t really opportunity costs, but instead, our best way of estimating opportunity costs, correct? Would this be something related to what Mises means when he points to the imperfection of money, when he states “The inadequacy of the monetary calculation of value does not have its mainspring in the fact that value is then calculated in terms of a universal medium of exchange, namely money, but rather in the fact that in this system it is exchange value and not subjective use value on which the calculation is based.” (Economic Calculation in the Socialist Commonwealth, p. 10)

[negligible91]

If you don’t receive a satisfactory answer soon here, I’d recommend you post this in the “Austrian Economics, Step by Step” forum. Dr. Herbener will probably have answers to your questions, but he may not regularly look at this section.

[negligible91]

Hi Chris,
“Firstly, to say that the laws of logic are either immaterial or material is to create a false dichotomy. ”

It doesn’t seem to me this is the case, unless you are speculating some sort of substance that is partially immaterial and partially material. But I don’t think anyone would support the idea that the laws of logic themselves are material in any way, and thus they would have to be immaterial.

What they happen to be beyond that is an entirely different question. It’d be like asking “what category of immaterial are they?” or “what is immaterial?”

[negligible91]

No novel suggestions from me, but I just want to say that the book you mentioned, Ron Paul’s The Revolution: A Manifesto is fantastic for just that. It is the book that led me to libertarianism as well as a book my family (brother, father, mother, and grandparents) enjoyed when I recommended it to them. I wouldn’t call them libertarians now, but they’re much more open minded to the positions than before and found merit in his arguments whether they fully agreed with them or not.

[negligible91]

Thanks! That makes perfect sense.

Just to clarify, does this decrease in supply occur (as part of the other effects) every time a general sales tax is implemented?

Also, in the footnotes, Rothbard says that for a general sales tax, resources can only shift into idleness. He goes on to give an example of labor shifting into leisure. Does this occur for land as well in the case of a 20% sales tax? Or does it only occur for labor because labor has an opportunity cost?

[negligible91]

I messed this up in the first post so let me try again.

If I wanted use the argument Rothbard uses against the possibility of shifting a tax forward, but instead using it against the possibility of shifting a tax backward, I could say:

“It is true that a tax can be shifted backward, in a sense, if the tax causes the demand for the factors of the production of the good to decrease, and therefore the price of the factors to fall on the market. Production in this way is hampered, causing supply to decrease and marginal firms to go out of business. This can hardly be called shifting per se, however, for shifting implies that the tax is passed on with little or no trouble to the producer. If some producers must go out of business in order for the tax to be “shifted,” it is hardly shifting in the proper sense but should be placed in the category of other effects of taxation.”

The reason I think this is applicable is because it seems to me that, firms go out of business regardless of where the tax is shifted, forwards or backwards.

[negligible91]

Thanks for the quick response! Okay, so I think where I’m confused is when Rothbard brings up the discussion of a decreased supply increasing prices. Rothbard uses this point to argue that taxes cannot be passed forward, period, because a decreased supply means firms are going out of business, and if they’re hurt in such a way, this can’t truly be a case of passing on the tax to consumers.

Two questions:
1) Is this decrease in supply a special case within possible general sales tax scenarios, or does this occur every time a general sales tax is implemented (i.e. as demand for factors is lowered due to the tax, does supply necessarily decrease, and prices necessarily rise)?
2) If Rothbard’s point is that firms going out of business means that they cannot shift taxes forward, why cannot the same argument be used to say that they cannot shift taxes backward? Is this argument by Rothbard simply besides the point? I follow his process of reasoning how firms being taxed lower their demand for factors and derived demand in higher stages of production are thus lowered until the original factors receive lower incomes. So maybe that particular argument is just a bad one? If firms are going out of business, they’re going out of business, regardless of who the tax was really passed on to.

The only way I can square that particular argument with Rothbard’s line of reasoning is if firms being taxed do not go out of business as they pass on the tax backwards. Does that make sense?

[negligible91]

Can you restate your question? The economist qua economist doesn’t “run a country.”

If you’re asking how does an Austrian economist explain an economy rich in natural resources, the particulars and amounts of resources aren’t relevant for economic analysis. Austrian economics uses a deductive method starting with the premise of human action. The particular ends and means (resources falling under the category of means) aren’t what is relevant, but rather the structure of human action, the fact that human beings do have ends and means, and the conclusions we can deduce from that.

[negligible91]

See lecture 11 in Herbener’s Austrian Economics, Step by Step course. Rothbard also has a chapter dedicated to this subject in Man, Economy, and State (Ch. 10).

Quick summary: Rothbard finds the only sensible definition of monopoly as a state-imposed exclusion of competing firms in favor of one particular firm. A definition “single seller of a particular product” leads to absurdities, such as “we are all monopolists of our own labor.” Also, remember, goods are defined by individuals, and so any slight difference as judged by individuals (as maybe even the location of a firm) means those different firms are selling different products and are thus monopolists.

Rothbard goes on to find many different problems with the comparison of monopoly prices to so-called “perfectly competitive” prices but does show in the end that many criticisms of free-market monopolies do correctly apply to state-imposed monopolies.

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