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Transcript of Austrian Economy
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
IntroductionAustrian Economy - central planning - free market
Marx
Menger
Hayek
Tucker
Rothbard
Mises
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
ContentAgenda: marxism and commodity fetishism
Labour Theory of Value (LTV): Marx - SmithHaug: Commodity Aesthetics
Agenda: critique of marxism
State Socialism The invisible hand
Command economy: economic critique of Socialism
BREAK
Austrian Economics: Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
ContentAgenda: marxism and Commodity Fetishism
Labour Theory of Value (LTV): Marx - SmithHaug: Commodity Aesthetics
Agenda: critique of marxism
State Socialism The invisible hand
Command economy: economic critique of Socialism
BREAK
Austrian Economics: Carl Menger
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AgendaMarxism
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Agenda
David Brody: Introduction to section 3: Theorizing design and visibility (en antologi over
design)
“This subsection continues this dialog by including six readings that challenge
us to look at design as a response to social and economic situations producedby politics. Rather than only seeing design as a reaction to politics, several of
these excerpts also hint at design’s power to create change within the politi-
cal sphere...Karl Marx, Pierre Bourdieu, and Naomi Klein each assess our capi-
talist condition and explain how design reinforces our political economy. Dick
Hebdige and John Stones reveal that design can appear to subvert the political
order... Karl Marx helps us to understand the politicized dimension of design
within the framework of his critique of capitalist culture, in which owners (the
bourgeoisie) exploit workers (the proletariat).” (192)
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Agenda
Stuart Hall (1981) ‘Notes on Deconstructing “the popular”’ in People’s history and Social-
ist theory, Ed. Raphael Samue
“Popular culture is one of the sites where this struggle for and against a culture
of the powerful is engaged: it is also the stake to be won or lost in that struggle.It is the areana of consent and resistance. It is partly where hegemony arises,
and where it is secured. It is not a sphere where socialism, a socialist culture - al-
ready fully formed - might be simply ‘expressed’. But it is one of the places where
socialism might be constituted. That is why ‘popular culture’ matters. Otherwise,
to tell you the truth, I don’t give a damn about it” (227-39).
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Agenda
Jean Burgess & Joshua Green (2009) Youtube: Digital Media And Society
“Continuing this tradition, much work on popular culture online has focused on
fan communities and their creative practises (see, for example, Hellekson and-Busse, eds 2006), and fandom is frequently represented as a site of resistance to
capitalism that is always at the same time in danger of being captured or shut
down by corporate interests (Consalvo, 2003)” (12-13).
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MarxCommodity fetishism
Karl Marx (1818 – 1883) German philosopher andeconomist, inventor (with Engels) of Communism
The Communist Manifesto (1848)
Das Kapital (1867)
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In Capitalist societies
“The mystical character of commodities does not originate, therefore, intheir use-value. Just as little does it proceed from the nature of the deter-mining factors of value”
“The equality of all sorts of human labour is expressed objectively bytheir products all being equally values; the measure of the expenditure oflabour-power by the duration of that expenditure, takes the form of thequantity of value of the products of labour...”
(The fetishism of commodities and the secrets thereof in Marx, Karl, Capi-tal: A critique of political economy, transl. 1906: 81-87)
MarxCommodity fetishism
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According to Marx,
Commodity fetishism is a special condition of social relations existing inCapitalist societies. Here it is believed that value exists in the productsthemselves; versus value as something that is transferred to the products
through labour.
The social relations (labor) disappears in the Capitalist system in favor ofsomething that appears to be objective relationships between productsexchanged on markets through money.
MarxCommodity fetishism
M
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According to Marx value is in labor
’The labor theory of value’ (LTV) is essential in marxism: the
value of a prouct is defined through the necessary sociallabor required to produce it.
MarxCommodity fetishism
Ad S i h
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
e.g. Adam Smith (1723- 1790, Scottish economist and social scientist)Wealth of Nations (1776) a theory of the free market economy
‘Division of labor’: when work tasks was divided between different
people, more could be produced. Better than one person doing all steps
‘Natural price’: production costs + sellers normal profit
versus
‘Market price’: the price that is regulated of the relationship between the
quantities brougt to the market and the demand from those who arewilling to pay the ‘the natural price’
The value of a product = the necessary amount of labor needed to
produce it (inclusive of the labor needed to produce tools and machinery
and raw materials).
Adam SmithLabor theory of value (LTV)
H
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HaugCommodity Aesthetics
Wolfgang Fritz Haug (f. 1936, German marxist philosopher)
Known for the term Commodity Aesthetics (Warenästhetik) in 1971
the book Critique of Commodity Aesthetics (Kritik der Warenäesthe-
tik)
Historical relation (European) to Branding / Corporate Branding and
consumer culture:
Commodity fetishism (Marx)
Commodity Aesthetics (Haug) - links to the Frankfurter School
The sign exchange value (Baudrillard)
Aesthetisization of everyday life (Featherstone)
H
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
HaugCommodity Aesthetics
For Haug Capitalist societies generate an artificial addition of stimulus to
commodities: ‘All manner of jewellery, fabrics, scents and
colours offer themselves as means of presenting beauty and desirability’ .
‘Thus, commodities borrow their aesthetic language from human
courtship’; but at the same time, this relationship is reversed and ‘people
borrow their aesthetic expression from the world of the commodity’
(Critique, 19).
“This indicatas an initial feedback from the stimulating use-form of
commodities, which is itself provoked by valorization motives, to human
sensuality. Not only does this alter the possibilities of expressing the
human instinctual structure, but the whole emphasis changes: powerful
aesthetic stimulation, exchange-value and libido cling to one another...”
(Critique, 19).
H
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
HaugLuxury
Emphasizes luxury production as an important ingredience in the
Capitalist system. To create new needs based on enjoyment/plea-
sures. Refers to Mandeville who wrote about luxury for the masses as
an important facilitator of the British economy.
Mandeville (1670 - 1733, Dutch philosopher and economist, living in
the UK).
Haug was likely inspired by Werner Sombart (1863-1941, German
marxistisk sociologist).
In ‘Luxus und Kapitalismus’, 1913, he asserted that the demand for
luxury products was important for the emergence of capitalism in
Europe.
H
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HaugMass production of commodities
The Capitalist system leads to greater productivity that lead to surplus-val-
ue an this requires a mass demand.
“The capitalization of commodity production unleashes a powerful incen-
tive for the development of techniques for the manufacture of relative
surplus-value, i.e. to increase profits by increasing productivity, particularly
through the use of machinery and the establishment of large industries.
At the same time the tendency is to draw all members of society into dis-
tributing commodities through the market. Hence with the spread of massdemand, both technology and the productive forces of mass manufacture
are promoted. From now on it is no longer primarily expensive luxury com-
modities that determine big business but the relative cheap mass-pro-
duced articles.” (Critique, 22, my emphasis)
Haug
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
HaugStyling of commodities“The lust for money is the reason why, under capitalist production, the commodity is
created in the image of consumer’s desires. Later on this image, divorce from its
commodity, is the subject of advertising” (Critique, 24).
The capitalist must try to lift the commodity above the use-value (the true value): the
commodity is elevated to a higher status through a brand name.
“All available aesthetic devices are employed to further this end. The decisive factor,
however, is the concentration into one named character of all the aesthetic, visual and
verbal communications contained in the styling of the commodity”
(Critique, 25, my emphasis).
The use-value is pushed to the background in favour of an illusionary commodity
aesthetics that never fullfill what it promises (Critique, 35). It is or the benefit of the ex-
change value, the regeneration of demand (Critique, 41).
Content
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Content
Agenda: marxism and Commodity Fetishism
Labour Theory of Value (LTV): Marx - Smith
Haug: Commodity Aesthetics
Agenda: critique of marxism
State SocialismThe invisible hand
Command economy: economic critique of Socialism
BREAK
Austrian Economics: Carl Menger
Agenda
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
AgendaCritique of marxism
Gulag in Soviet Russia Food lines in Soviet Russia
Agenda
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
AgendaCritique of marxism
Rome Januarysales 2010
G
State Socialisme
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
State SocialismePolitical critique of government regulation
Benjamin R. Tucker (1853-1939, Am. Anarchist): State Social-ism and Anarchism: How far they agree & wherein they differ(1888)
Three Socialist thinkers continued the work of Adam Smith -the dictum, that work is the true meassure for price (LTV):
Josiah Warren (1798-1874, Am. philosopher, individualistanarchist)
Pierre Proudhon (1809 - 1865, Fr. politician, philosopher,Socialist and anarchist)
Karl Marx (1818 – 1883, Ger. philosopher and economist)
State Socialisme
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
State SocialismePolitical critique of government regulation
According to Tucker Warren, Proudhon and Marx all reached this conclusion:
“that the natural wage of labor is its product; that this wage, or product, is the
only just source of income... that all who derive income from any other source
abstract it directly or indirectly from the natural and just wage of labor; that
this abstracting process generally takes one of three forms, - interest, rent, and
profit; that these three constitute the trinity of usury, and are simply differ-ent methods of levying tribute for the use of capital; that capital being simply
stored-up labor which has already received its play in full, its use ought to be
gratuitous, on the principle that labour is the only basis of price... the only way
to secure to labour the enjoyment of its entire product, or natural wage, is to
strike down monopoly” (State socialism, 13).
How can we prevent monopoly? They took different roads:
Marx went to the right (authority, State Socialisme)
Proudhon and Warren went to the left (liberty, Anarchism)
State Socialisme
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Tucker about State Socialism:
“the doctrine that all affairs of men should be managed by the government re-
gardless of individual choice...the only way to abolish the class monopolies was to
centralize and consolidate all industrial and commercial interests, all productive
and distributive agencies, in one vast monopoly in the hands of the State.The gov-
ernment must become banker, manufacturer, farmer, carrier, and merchant, and inthese capacities must suffer no competition. Land, tools, and all instruments of pro-
duction must be wrested from individual hands, and made the proporty of the col-
lective... Product and capital are essentially different things; the former belongs to
individuals, the latter to society. Society must seize the capital... Once in possession
of it, it must administer it on the majority principle, through its organ, the State, uti-
lize it in production and distribution, fix all prices by the amount of labor involved,and employ the people... The nation must be transformed into a vast bureaucracy,
and every individual into a State official... All freedom of trade must disappear.
Competition must be utterly wiped out. All industrial and commercial activity must
be centered in one vast, enormous all inclusive monopoly. The remedy for monop-
olies is MONOPOLY” (State socialism, 14).
State SocialismePolitical critique of government regulation
State Socialisme
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
According to Tucker State Socialism will lead to:•
the right of the majority is absolute•
no constitutional guarantees•
individual rights will gradually disappear - government/State becomes all-in-all•
The State will prescribe health, wealth, and wisdom, and destroy individual independence,•
and individual responsibility
all must kneel to State religion•
State schools, State hospitals, State universities•
State nurseries must bring up children•
The State can decide whether people can have children•
•
“Thus will Authority achieve its acme and Monopoly will be carried to its highest power”
(State socialism, 16).
State SocialismePolitical critique of government regulation
The invisible hand
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Adam Smith:
‘The invisible hand of the market’: rational human beings acting inselfishness will be lead by an invisible hand and bring about a collec-
tive result that is positive for all of society.
Through private ownership and the rights for owners to trade theirbelongings freely, the market is able to rise the standard of living forall of society - through the individual selfishness of its actors.
The invisible hand
The invisible hand
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
“[Hayek] argued markets operated by makig efficient use of the
specific knowledge of time and place, which everyone in an econo-my had but which would be impossible to effectively communicate
to a central planning authority. The market was able to make use of
this information by allowing people to use resources at their dispos-
al to improve efficiency, to offer new or improved goods or services,
or to undertake other innovations. Profits and losses play the crucial
role of rewarding efficient allocations of resources and punishing in-
efficient allocations. The system works because the market economy
rewards those who make efficiency-enhancing decisions and penal-
izes those who squander resources, but that system depends crucial-ly on private ownership of economic resources” (Holcombe, Randall
2002: From Liberty to democracy: 31)
The invisible hand
Liberalist economy
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2. GANG / DE IMPLICITTE IDEALER Designkultur: proces, historie, teori EF 2009 Erik Hansen-Hansen
The three classes of pioneers driving economic progress:
entrepreneurs, savers and devicers of new technologicalmethods [technologists].
“The characteristic feature of the market economy is the fact that it
allots the greater part of the improvements brought about by the en-
deavors of the three progressive classes - those saving, those invest-
ing the capital goods [producer goods/higher order goods] and those
elaborating new methods for the employment of capital goods - to the
nonprogressive majority of people. Capital accumulation exceeding
the increase in population raises, on the one hand, the marginal pro-
ductivity of labor and, on the other hand, cheapens the products. The
market process provides the common man with the opportunity to en-
joy the fruits of other people’s achievements. It forces the three pro-
gressive classes to serve the nonprogressive majority in the best pos-
sibly way”
(Mises, The anti-capitalistic mentality, 1956)
Liberalist economyLudwig von Mises: economic progress
Rothbard versus collectivism
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Rothbard versus collectivismSocialist thinkers make antagonistic (mutually opposing) accu-sations against market economy:
1: 1930s/40s capitalism suffers from ‘secular stagnation’
2: 1950s economic growth not fast enough
3: 1958 John Kenneth Galbraith ‘The afuent Society’ too much afu-ence
4: 1962 Harrington ‘The other America’, increasing poverty
5: 1960s ‘automation hysteria’, superabundance but mass unemploy-ment
6: late 1960s falling productivity
7: 1970s too much afuence, Super-Galbraithian position + assaulton technology. “in the name of conservation, ecology, and the in-creasing scarcity of resources, free-market capitalism is growing toomuch’. State planning must step in to ‘abolish all growth and bringabout a zero-growth society and economy’.
Rothbard versus collectivism
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
“It is not at all unusual, in fact, to nd the same peo-
ple now holdig a contradictory blend of positions 5
and 7 and maintaining at one and the same time that(a) we are living in a ‘post-scarcity’ age where we no
longer need private property, capitalism, or material
incentives to production; and (b) that capitalist greed
is depleeting our resources and bringing about immi-
nent worldwide scarcity. The liberal answer to both, or
indeed to all, of these problems turns out, of course,
to be the same: socialism or state planning to replace
free-market capitalism”
(Rothbard, For a new liberty, 1973, pp. 303-304)
Rothbard versus collectivism
Rothbard versus collectivism
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
“Enjoying a material contentment and a living standard undreamt ofby even the wealthiest men of the past, it is easy for upper-class lib-
erals to sneer at ‘materilalism’, and to call for a freeze on all furthereconomic advance. For the mass of the world’s population still living insqualor such cry for the cessation of growth is truly obscene; but evenin the United States, there is little evidence of satiety and superabun-dance. Even the upper-class liberals themselves have not been con-spicuous for making a bonre of their salery checks as a contribution
to their war on ‘materialism’ and afuence.” (ibid: pp. 304-305)
“What we need is more economic growth, not less; more and bet-ter technlogy, and not the impossible and absurd attempt to scraptechnology and return to the primitive tribe. Improved technology andgreater capital investment will lead to higher living standards for all
and provide greater material comforts, as well as the leisure to pursueand enjoy the ‘spiritual’ side of life... The real problem is that produc-tive capital investment is being siphoned off by taxes, restrictions, andgovernment contracts for unproductive and wasteful government ex-penditures, including military and space boondogling.” (ibid: pp. 306-307)
Rothbard versus collectivism
Command economy
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Ludwig von Mises (1881 -1973, Austrian economist and philosopher)Friedrich Hayek (1899 – 1992, Austrian economist and philosopher)
Murray N Rothbard (1926 – 1995, Am. Austrian economist and liber-tarian)
They all argue against command economy/central planning
Mises (1932): ‘Economic calculation’
Hayek (1948): ‘Socialist calculation’ as impossible
Rothbard (1973): Defence for private ownership and exchange
Public ownership prevents efficient allocation of ressources on manylevels (reward-penalty problem; socialist calculation as impossible; norational way to determine prices).Link to article Hayek, Friedrich. ‘The Use of Knowledge in Society’,American Economic Review, Vol. 35, No. 4, Sep. 1945 - an attack on
Socialist organization
Command economyEconomic critique of command economy
Content
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Content
Agenda: marxism and Commodity Fetishism
Labour Theory of Value (LTV): Marx - Smith
Haug: Commodity Aesthetics
Agenda: critique of marxism
State Socialism
The invisible hand
Command economy: economic critique of Socialism
BREAK
Austrian Economics: Carl Menger
Break
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Break
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Austrian economics
Carl Menger
Eugen von Böhm-Bawerk
Friedrich von Wieser
Ludwig von Mises
Friedrich Hayek (nobel laureate)
Murray N. Rothbard
Mises Institute
The Independent Institute (Randall G. Holcombe, Robert Higgs)
Ron Paul
Peter Schiff
Carl Menger
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Carl Menger (1840-1921), Austrian Economist, one of the founders of
‘Austrian Economics’.
‘Principles of Economics’ (‘Grundsätze der Volkwirthschaftslehre’,
1871)
1. part: general conditions that lead to economic activity: exchange
of value, price and money. A theory of subjective value.
2. part: Interest, wage, rent, income, credit and paper money
3. part: Production and trade
4. part : Critique of the economic system of his time and his recom-
mended solutions
Carl Menger
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Purpose
To create a uniform price theory but half of the book is about ‘value’as a background explanation.
Economic activity is essentially about planning for the future.
We must destinguish between ‘good’ og ‘economic good’. A non-economic ‘good’, i.e. sunshine cannot be owned and controlled byhumans.
Menger explains the conditions for economic goods and value: eco-nomic ‘goods’ can only have a value if they are perceived; and if they
can be privately owned/controlled by individuals.
g
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Value is introduced this way:
Value is the importance which concrete goods, or quantities ofgoods, receive for us from the fact that we are conscious of beingdependent on our disposal over them for the satisfaction of our
wants.
“To have value, a good must assure the satisfaction of needs thatwould not be provided for if we did not have it at our command”(Principles, 227)
“Value, we saw, is the importance a good acquires for us when weare aware of being dependant on command of it for the satisfactionof one of our needs – that is, when we are conscious that a satisfac-tion would not take place if we did not have command of the good
in question” (Principles, 227)
gValue
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Value
Value as measurable but not in absolute terms. Only that oneproduct can be compared with another product; a relative meaningof ‘needs’.
“Value is thus nothing inherent in goods, no property of them, noran independent thing existing by itself. It is a judgment economiz-ing men make about the importance of the goods at their disposalfor the maintenance of their lives and well-being. Hence value doesnot exist outside the consciousness of men… it is a judgment madeby economizing individuals” (Principles, 120-121)
g
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Value
Value as measurable but not in absolute terms. Only that oneproduct can be compared with another product; a relative meaningof ‘needs’.
“Value is thus nothing inherent in goods, no property of them, nor anindependent thing existing by itself. It is a judgment economizing menmake about the importance of the goods at their disposal for the main-tenance of their lives and well-being. Hence value does not exist out-side the consciousness of men… it is a judgment made by economiz-ing individuals” (Principles, 120-121)
Menger makes a fundamental attack on LTV (Labor theory of value), thebelief that the value of products has a relationship to the labour thatwas needed to produce them.
LTV is asociated with ‘classical economy’ (i.e. Adam Smith and David
Ricardo) and later with ‘marxist economy’.
g
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Value
“D. The subjective character of the measure of value. Labor and value. Error”
“value is nothing inherent in goods and that it is not a property of goods. But nei-
ther is value an independent thing… The measure of value is entirely subjective
in nature, and for this reason a good can have great value to one economizingindividual, little value to another, and no value at all to a third, depending upon
the differences in their requirements and available amounts… There is no neces-
sary and direct connection between the value of a good and whether, or in what
quantities, labor and other goods of higher economic order were applied to its
production… Comparison of the value of a good with the value of the means of
production employed in its production does, of course, show whether and to whatextent its production, an act of past human activity, was appropriate or economic.
But the quantities of goods employed in the production of a good have neither a
necessary nor a directly determining influence on its value” (Prnciples, 146-147)
g
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Orders of goods
Causal relationship between goods: goods of first, second,
third (etc.) order
they serve our needs directly; bread, clothing
used to produce ‘goods of first order’ and therefor they satisfyneeds indirectly; flour, fuel, the labour of the baker
grain mills, labor services applied to the production of flour,etc.
the fields, instruments necessary for their cultivation
g
Goods of first order:
Goods of second order:
Goods of third order:
Goods of fourth order:
etc.
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Use value versus exchange value
“To have value, a good must assure the satisfaction of needs that would not be
provided for if we did not have it at our command. But whether it does so in a di-
rect or in an indirect manner is quite irrelevant when the existence of value in the
general sense of the term is in question”. (Principles, 227)
“The skin of a bear that he has killed has value to an isolated hunter only to the
extent to which he would have to forgo the satisfaction of some need if he did
not have the skin at his disposal. After he enters into trading relations, the skin has
value to him for exactly the same reason… The value of the skin in the first case
[direct use] and its value in the second case [trading] are therefore only two differ-
ent forms of the same phenomenon of economic life. In both cases value is the im-portance that goods acquire for economizing individuals when these individuals
are aware of being dependent on command of them for the satisfaction of their
needs” (Principles, 227-228)
g
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Use value versus exchange value
Use value: “the importance that goods acquire for us because they
directly assure us the satisfaction of needs, that would not be pro-
vided for if we did not have the goods at our command”.
Exchange value: “the importance that good acquire for us because
their possession assures the same result indirectly” (Principles, 228)
g
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Relationship between the use value and exchange value
g
Exceptions:no exchange value only use value: a writers notes, family portraits•
no use value only exchange value: optical instruments in stock at an optical instruments deal-•
er, a book in a foreign language
Normally economic products have use value and exchange value for those who possess them
high exchange value but only low use value: gold cuv for a poor person•
high use value but only low exchange value: a pair of glasses adjusted for specific eyes•
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Relationen mellem objekters brugsværdi og bytteværdi
Exceptions:no exchange value only use value: a writers notes, family portraits•
no use value only exchange value: optical instruments in stock at an optical instruments deal-•
er, a book in a foreign language
Normally economic products have use value and exchange value for those who possess them
high exchange value but only low use value: gold cuv for a poor person•
high use value but only low exchange value: a pair of glasses adjusted for specific eyes•
g
“One of the most important tasks of economizing men is that of recognizing the economic valueof goods – that is, of being clear at all times whether their use value or their exchange value is
the economic value. The determination of which goods or what portions of them are to be re-
tained and which it is in one’s best economic interest to offer for sale depends on this knowl-
edge. But judging this relationship correctly is one of the most difficult tasks of practical econo-
my…” (p. 231)
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
The chief causes of changes in the economic form of value are:
All equal,
changes that decrease the use value of an object lead to an in-•
crease of its exchange value
changes that increase the use value of an object lead to a decrease•
of its exchange value
changes that decrease the exchange value of an object lead to an•
increase of its use value
changes that increase the exchange value of an object lead to a•
decrease of its use value
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
The chief causes of changes in the economic form of value are:
1) changes in the importance of the particular satisfaction that a good ren-
ders to the person who has it at his command
looses an interest in the enjoyment of tobacco -> increased exchange value of•
tobacco
natural age cycluses (older people loose interest in something they did earlier)•
-> increased exchange value
an owner of a forrest suddenly needs his wood in order to melt iron in his newly•
constructed blast furnace -> increased usevalue of wood
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
The chief causes of changes in the economic form of value are:
2) mere changes in the properties of a good
negative in relation to use value: clothes, coaches usually loose use value
to wealthy people if they get a visible defect
negative in relation to exchange value: grocers usually employ foods hav-
ing some external defect for their own consumption
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
The chief causes of changes in the economic form of value are:
3) increases/decreases in the quantities of goods at the disposal of a person (the most im-
portant cause of changes)
increased quantity -> usually means that the exchange value increases and the use value de-•
creases (one inherits a large amount of furntitures)
decreased quantity -> usually means that the use value increases and the exchange value de-•
creases (the owner of an apple field has only a few apples left at the end of the year)
Special case when one’s economic position is changed: a loss of one’s fortune usually means•
that one sells expensive objects in order to fulfill more important needs; increase of one’s for-
tune means that one sells the inadequate home who used to have a use value
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Every unit of a good satisfy individual needs for the person who
controls it
1st apple is used for personal consumption, to stay alive
2nd apple is given to the wife in order for her to stay alive
3rd apple is given to the kid4th apple is given to the second kid
5th apple is given to the grand mother
6th apple is sold on the market
7th apple is given to charity
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
“Value, we saw, is the importance a good acquires for us when weare aware of being dependant on command of it for the satisfactionof one of our needs – that is, when we are conscious that a satisfac-tion would not take place if we did not have command of the goodin question” (Principles, 227)
the magnitude of this value is equal to the importance attached tothe least important satisfaction which is secured by a single unit ofthe available quantity of the commodity.
Value
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Another expression for ‘marginal utility’ : the utility gained (or lost)
from an increase (or decrease) in the amount available of that good
or service. - or the posited quantified change in utility obtained by
increasing or decreasing use of that good or service.
Menger 1871
William Stanley Jevons 1871
Marie-Esprit-Léon Walras 1874
Marginal utility
l i l i
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
A praxeological view
A ‘demonstrated preference’ – a praxeological law
That I choose to use a good for a specific purpose - first I eat the ap-
ple, then I feed my wife - proves that these usages are the most im-
portant one’s for me.
I prove it through my action. I show that other usages are less impor-
tant for me, than those I choose.
Mises main work ‘Human action’
A l i l i
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
A praxeological view
According to the praxeological view we get a decreased value when
the quantity increases.
Value is not a unit, it is not absolute, it cannot be expressed in a
mathematical formula.Value is a relation between various choices and it changes from con-
text to context.
V l l
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Value scales
Goods are always in a value relationship to other goods - bananas
versus potatoes
Anna (bananas) Mike (potatoes) potatoes bananas
Mike has one value scale: potatoes are more important than banan-
as
Anna has another value scale: bananas are more important than po-
tatoes
V l l
Carl Menger
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introduction to Austrian Economics February 2010 Erik Hansen-Hansen
Value scales
Market exchanges and market prices requires:
Private ownership and different value scales/rankings of the goods
in question.
If the parties involved in the transaction perceive the sitaution, a
market transaction can take place.
Perception: Market prices are always based on value differences not
equal value ( we do not exchange objects of equal value)! The values
must be different for the two market participants.
Market exchanges are not based on value equality they come about
because of differences in values. From Aristoteles to Karl Marx many
people held that value exchanges was a matter of equality.