Principles of Economics

Economic illiteracy permeates not only the mainline American public, but also the activist milieu. All too common it is for those activists to proselytize without a comprehension of market phenomenon, and this is most pronounced amongst those who advocate for the restoration of a hypothetically limited government. Ignoring the reality of the free market’s modus operandi easily often leads individuals to erroneously conclude that constitutionally enumerated monopolies, such as those on adjudication and copyright, are inexplicably “necessary evils” in order to enjoy a civil society.

 

 

Although the rulers may imagine themselves to be immune from market forces, they are still humans, and as such, are considered to be what Carl Menger, the founder of the Austrian School of economics, described as economizing men. Menger was no socialist, for as he wrote:

 

“The entire sum of goods at an economizing individual’s command for the satisfaction of his needs, we call his property. His property is not, however, an arbitrarily combined quantity of goods, but a direct reflection of his needs, an integrated whole, no essential part of which can be diminished or increased without affecting realization of the end it serves.”

 

Few other descriptors are better than this that I’ve read where property rights are upheld and defended on their own merits; of course, argumentation ethics goes one step further as a logical proof of self-ownership. Even on strictly economic grounds, though, Menger here derives a foundation for property rights that is rooted in human action. Just as the field of philosophy discovers truths that are universalizable, Menger compares and contrasts the following humans:

 

“Even an Australian savage does not postpone hunting until he actually experiences hunger. Nor does he postpone building his shelter until inclement weather has begun and he is already exposed to its harmful effects. But men in civilized societies alone among economizing individuals plan for the satisfaction of their needs, not for the short period only, but for much longer periods of time. Civilized men strive to ensure the satisfaction of their needs for many years to come. Indeed, they not only plan for their entire lives, but as a rule, extend their plans still further in their concern that even their descendants shall not lack means for the satisfaction of their needs.”

 

Foresight is an underappreciated quality of humanity, which Menger highlights here by showing that noticeably different types of humans are still acting economically in their own best interest. Despite all the fallacious pleas from socialists and authoritarians of all types, it is literally impossible for central planners to dictate the raw extraction, industrial manufacturing, and retail distribution of wooden pencils, mainly because knowledge is dispersed, and as such, our very survival utterly depends upon the spontaneous order of the market to satisfy each individual’s needs and wants.

Profoundly, Menger diverges from the classical economics usually associated with the limited government constitutionalism of the American Founders, particularly regarding his theory of value. He explains:

 

“The value of goods arises from their relationship to our needs, and is not inherent in the goods themselves. With changes in this relationship, value arises and disappears…[v]alue is thus nothing inherent in goods, no property in them, nor an independent thing existing by itself. It is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men. It is, therefore, also quite erroneous to call a good that has value to economizing individuals a ‘value,’ or for economists to speak of ‘values’ as of independent real things, and to objectify value in this way. For the entities that exist objectively are always only particular things or quantities of things, and their value is something fundamentally different from the things themselves; it is a judgment made by economizing individuals about the importance their command of the things has for the maintenance of their lives and well-being. Objectification of the value of goods, which is entirely subjective in nature, has nevertheless contributed very greatly to confusion about the basic principles of our science.”

 

In other words, the labor theory of value as established by Adam Smith is pure bunk, and had this insight been discovered and promoted earlier by the classical liberals of the 19th century, then perhaps the Marxist School, and its concomitant revolutions permeating throughout the 20th century, might have been avoidable, especially considering all the democide those communist governments eventually committed.

Simply put, it matters not how much effort was placed into developing a product, service, or idea, but rather, whether such a product, service, or idea is perceived by the customer as being individually satisfactory to his desires. This is why entrepreneurial start-ups, regardless of the work or labor the entrepreneur invests into it, ultimately either financially succeeds or become subject to creative destruction.

A related idea to Menger’s subjective theory of value is the law of diminishing marginal utility, which means that the value of a tradable good is progressively lowered upon each use or exchange of it. Within the context of exchange value specifically, Menger says:

 

“Above all, we would find, in each instance and at any given point in time, a limit up to which two persons can exchange their goods to their mutual economic advantage. But we would find that they cannot overstep this limit without placing themselves in a less favorable economic position. In short, we would everywhere observe a limit at which the total-economic gains to be derived from an exchange relationship are exhausted, and beyond which these gains would be diminished by further exchange operations, making the exchange of any further portions uneconomic. This limit is reached when one of the two bargainers has no further quantity of goods which is of less value to him than a quantity of another good at the disposal of the second bargainer who, at the same time, evaluates the two quantities of goods inversely.”

 

Menger uses examples of farmers trading cows repetitively in order to illustrate marginal utility, but I would like to offer an even simpler one here so as to demonstrate the marginal utility of an economic good’s use value.

Case in point – imagine you are eating potato chips; now, would the very first potato chip taste just as good as the fifteenth chip? If not, then the marginal utility of a potato chip’s use value will now have been rationally deduced to mean that the flavor of each chip eaten diminishes upon yet another being eaten.

Fascinatingly, Menger’s realization about the nature of money is truly insightful. He wrote:

 

“The origin of money is…entirely natural and thus displays legislative influence only in the rarest instances. Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state.” [emphasis added]

 

This, by far, is my favorite passage throughout his whole treatise, because it means that the free market itself is natural and existed before government was constituted or otherwise brought into force by subjugating the populace through systematic coercion. It also debunks the so-called “greenbackers” with all their wishful thinking of a debt-free, interest-free fiat currency that is issued by beneficent government central planners who think they know everything, as some sort of “alternative” to central banking.

Whether people freely choose to exchange value through self-issued barter credit or crypto-currencies, the fact of the matter is that centralized national banking, as explicitly advocated by Alexander Hamilton in 1790, only serves the interests of Leviathan and its predatory feasting upon the productive serfs under its coercive rule.

Carl Menger’s Principles of Economics is a groundbreaking text that really kicked off the Austrian School in 1871, which precedes Alfred Marshall’s similarly titled book by 19 years. If education really were the answer to the problem of tyranny, I think that such learning ought to be primarily economic in nature, for individual liberty counts for very little if the freedom of a man in his wallet is disregarded by the iron fist of the State, which in turn squeezes the invisible hand of the Market. Menger observes:

 

“Human life is a process in which the course of future development is always influenced by previous development. It is a process that cannot be continued once it has been interrupted, and that cannot be completely rehabilitated once it has become seriously disordered. A necessary prerequisite for our provision for the maintenance of our lives and for our development in future periods is a concern for the preceding periods of our lives. Setting aside the irregularities of economic activity, we can conclude that economizing men generally endeavor to ensure the satisfaction of needs of the immediate future first, and that only after this has been done, do they attempt to ensure the satisfaction of needs of more distant periods, in accordance with their remoteness in time.”

 

Time, indeed, is related closely to market forces. The reason I abhor conspicuous consumption as much as I do is because it is a fascist consequence of government intervention whereby consumers are tricked into doing jobs they hate to buy shit they don’t need or even truly want at all. Corporatism, just like socialism, disorders the otherwise purposeful behavior of economizing men into making short-sighted buying decisions at the expense of their foresight, which as Menger pointed out, was something enjoyed by the Aborigines and “civilized” men alike.

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