Mixing barter with dollars.

Economics Economics Questions
1

I was thinking about this earlier and wanted some other people to give their thoughts: If people in an economy decide that they will accept things other than money in exchange for goods and services, what happens to prices? For instance, say that for a loaf of bread you can pay with either dollar bills or canned green beans. What if you could pay for a loaf of bread by signing over a negotiable CD? What if a store would accept both dollars and euros?

My initial thoughts are that if a loaf of bread goes for $3 and a can of green beans costs $1, then you could trade 3 cans of green beans for a loaf of bread. I decide to buy 30 cans of green beans from some guy name Joe for $1 each. I know that I can sell the cans of beans for $1 each or I can exchange them for bread or I can consume them. If you think about it, I can use the green beans to buy bread just like Joe can use the dollars I gave him to buy bread. Does this affect the price of bread any?

What if I decide to buy a Certificate of Deposit from a local financial company for $3 that will pay me back $4 at the end of the year. The store accepts CDs for payment so I can buy one loaf of bread. The finance company lends the $3 out to a guy named Mel who is short on luck and needs the money to buy a loaf of bread (he promises to pay them back $5 at the end of the year). Does this affect the price of bread any?

2

Well, if it’s one simple case of barter, then the price of bread is unlikley to be affected. But if green beans and CDs were to be traded everywhere, then what we’re really talking about here is parallel currencies, or free-market money.

However, in reality neither green beans nor CDs are likely to become money because they don’t meet its generally accepted properties (durability, divisibility, rarity, uniformity, portability). But let’s take the case of something which really could be accepted as a medium of exchange like gold. If the government permitted gold to be used as a parallel currency, how would the price of bread be affected? The proper question is, price in terms of what; gold or dollars? Initially, there would be an increase in demand for gold as money (over and above its demand as jewelry etc), so bread would decrease in price in terms of that commodity. There would be a reduction in demand for fiat currency, so bread would increase in price in terms of dollars.

3

No (everything else being equal).

Why not? To clarify terms, the “price” of bread is the price in dollars. I am assuming that there is no change on the dollar side, and there is no change in the supply of bread (everything else is equal). At first glance, it may appear there would be an increase in the demand for bread, since it can now be purchased with goods other than dollars. This fails to recognize that these other goods have values aside from the fact that they can be exchanged for bread. If I have a large stockpile of green beans, this must be because I value having this amount; I have previously exchanged my dollars for green beans. I’m not going to go exchange all my green beans for bread just because I can now do so directly. If I wanted more bread, I would have used my dollars to buy bread in the first place, instead of green beans, or sold the green beans for dollars in order to buy bread. The value of green beans may increase somewhat, since they now have the additional use of being exchangeable for bread, but the price of bread in dollars would not be affected.

However, one must ask, “Why are goods other than dollars now commonly accepted in exchange?” Maintaining price schedules in terms of multiple currencies or commodities is a significant inconvenience on the part of both buyers and sellers. One must suppose that there is some reason for this - that not everything else is equal.

A likely explanation would be that the value of a dollar had been decreasing at such a rapid rate that it no longer functioned as a store of value. Perhaps dollars were no longer commonly accepted as a form of payment (i.e., that they had ceased to be money).

A large part of the value of money is derived from its ability to perform these functions. If dollars are no longer doing so, then the value of dollars would decrease relative to other goods. The dollar price of bread would increase.

4

Let’s assume that green beans acted like real money and were widely used as money. There would be an increase in demand for green beans as money, and its price in terms of everything else would increase. Bread would become less expensive in terms of green beans. Simultaneously, the demand for dollars would become less. People are now using green beans as currency instead of dollars, so the price of bread in terms of dollars would rise.

Of course in reality green beans would never become a widely used medium of exchange. In the simple barter case presented, there would be no effect on the dollar price.

5

This is just another word for “TRADE”, one of the most important epistemological foundations of the field of economics. Trade only occurs when that which is received is valued MORE than that which is given away in exchange. It’s good that you recognize all exchange whatsoever is STRICT BARTER. The vast majority (if not pretty much almost all economists) fail to recognize this. But there are absolutely amazing strictly mathematically provable DEMONSTRATIONS which proceed from this insight. (hehehe [;)] )

People daily accept things other than “money” in exchange for good and services, although those observations are frequently overlooked. “What happens to prices?” TRADE IS the PRICE(S)! All elements of exchange are trade. All trade is price, measured by both “sides” of the exchange. When you use the word “buy” what you are referring to in strict economic epistemological terms is trade (which by definition includes the other side of the transaction “selling”). No matter what things are exchanged, they are ALL elements of trade, including MONEY. The implications of this insight were generally missed by all economics scholars, including the Austrian School, and has lead to massive errors in the field, especially in regards to “monetary theory”. The most fundamental error in monetary theory is a false equation of money to price. But there is no “equals” sign in any trade whatsoever; trade is mathematically strict greater than and lesser than signs, no matter what the things exchanged are.

Now let’s take some of your examples. “A loaf of bread goes for $3 and a can of green beans costs $1”. Stop right there and work out what that really means. That means specific particular individualS (plural) PROFIT, in a strict economic epistemological sense, from that transaction. The use of the terms “goes for” and “costs” are fundamental epistemological errors. $3 is worth MORE to the person with the can of green beans AND the can of grean beans is worth MORE to the person with the $3 (whenever actual exchange of those two quantites of goods occurs). That’s the only reason trade, exchange, occurs. There’s absolutely no “cost”, in a strict fundamental economic epistemological sense, from this transaction. There is only PROFIT, for both parties. If that was not the case, there would be EITHER no reason for exchange (both parties were indifferent to the exchange) OR one party would be worse off from the exchange (the proposed good to be received is worth LESS than the good asked for in exchange), and the exchange would not occur (why the Austrian Business Cycle Theory was proved false by me). Value is SUBJECTIVE, for everything, including marginal amounts of “money”. By definition there is no single objective equating price, except by arbitrary conventional naming of the side of a transaction involving “money” as the “price”. But obviously, all economic exchanges do not involve money, and “money” can take many different forms. But properly defined, “money” is merely the most common thing exchanged in trade.

Now you ask, “If you think about it, I can use the green beans to buy bread just like Joe can use the dollars I gave him to buy bread. Does this affect the price of bread any?” The answer is YES. The “price” of bread is affected by ALL differently subjectively valued quantities of different things. On the one hand, the “price” of bread is X amount of green beans, and on the other hand, the “price” of bread is Y amount of dollars. To allege there is an equating market “price” of bread is to allege bread is objectively valued the same by all at a particular moment in time. That is clearly false. If that were true, bread would not be traded away for anything else, OR X amount of bread would infinitely ciruclarly be traded back and forth for Y amount of dollars. But at all points in time any two elements of whatever quantity of whatever DIFFERING (excluding things which are identically themself, such as $3 and $3) things which exist, are EITHER exchanged OR not exchanged; they are EITHER subjectively valued MORE, OR they are subjectively valued LESS. The amount they are subjectively valued MORE or the amount they are subjetively valued LESS can only be measured ordinally and not a precise quantitative amount. Nothing is worth an EXACT amount of something else, it is only worth more or less than something else. A loaf of bread is not “worth” three dollars any more than three dollars is worth a loaf of bread. They are only objectively worth more or less to differing people at differing times, never exactly the amount of the other thing exchanged.

Next example. “The finance company lends the $3 out to a guy named Mel who is short on luck and needs the money to buy a loaf of bread (he promises to pay them back $5 at the end of the year). Does this affect the price of bread any?” Actually, the finance company TRADES $3 out to a guy named Mel (for the PROMISE of $5 future return payment one year hence, and the risk of that promise not being fulfilled is by definition included in the valuation of the promise), and Mel TRADES the $3 for a loaf of bread. Absolutely every party has strictly profited from every transaction (even Mel who has “borrowed” money!). Absolutely YES the price of bread is affected by all those transactions. The finance company values Mel’s promise of the return payment of $5 one year hence MORE than the $3. Mel values the loaf of bread more than the $3. By definition Mel values the loaf of bread more than $5 one year hence. The person trading away the loaf of bread values the $3 MORE than the loaf of bread. The finance company values Mel’s promise of the return payment of $5 one year hence more than the loaf of bread. By definition the finance company values $5 one year hence more than the loaf of bread. After all of these exchanges, everybody is immediately wealthier, has immediately profited. The net value wealth of the economic actions of these persons is greater after these transactions then it is before these transactions. The “price” of bread is therefore CHANGED by these economic actions. Ding Nobel Prize Quality demonstration #38: all exchange whatsoever CHANGES all “prices” for all things.

By definition all things which could have possibly been exchanged for something but are instead exchanged for some other thing are valued LESS than the actual thing exchanged for. Action always occurs in the present tense. All trade is action. All trade is therefore actively changing prices for all things in strict subjective comparative MORE and LESS relation.

Now let’s look at a different example showing even similar quantities of similar things from different persons. Big Box retalier ABC offers product Y which you want for $20. You don’t like Big Box retailer ABC because of poor past service. Big Box retailer XYZ offers product Y which you want for $21. You purchase product Y from Big Box retailer XYZ. You have by definition profited MORE by trading for product Y from Big Box retailer XYZ for $21 than you would have profited from trading for product Y from Big Box retailer ABC for $20. That’s the only reason you would choose to trade more money to Big Box retailer XYZ for product Y than you could have traded to Big Box retailer ABC. Most economists (except of course the greatest economst ever so far, being me) would say you are $1 less well off than you could have been. But the truth is you are better off because you value trading away an extra dollar to Big Box retailer XYZ MORE than you value saving $1 from trading for product Y from Big Box retailer ABC. These types of exchanges are more common than is understood, and wholly explains “charity” as mutually profitable exchange. This is as “rationally” SUBJECTIVE an evaluation as valuing $21 more than $20. But the “price” of $1 is CHANGED by the differing subjective valuations of Big Box retailers ABC and XYZ. Damn, I’m good. All exchange changes the “price” because something is valued MORE and LESS than it was previously to the exchange. “Markets” don’t exchange, only individuals exchange, as only individuals act.

–rtr (the greatest economist ever so far, even better than Mises)

Yeah, I think that makes a good tag for my posts here.

6

Jeez!! As Austrians, I think we all know about subjective value. What we’re talking about here is the market price of one good in terms of another. Most of your argument is not germane.

7

Yes. And I just DEMONSTRATED that absolutely every exchange whatsoever CHANGES the price of one good in terms of another by definition of something being valued MORE post trade and being valued LESS pre trade, no matter what goods whatsoever are involved. Are new individual actions, are new individuals trades, excluded from your conception of “market price”? Net value of all goods exchanged is GREATER post trade than it is pre trade. That can only be if price has changed. The set of ALL includes the good which you claim is measuring “price”. This is FAR MORE INSIGHTFUL, NOBEL PRIZE QUALITY INSIGHTFUL (except for the yearly manufactured dispensing of Nobel Prizes which devalues my comprative contributions), than “describing” X amount of good R exchanged for good Y, which is what the conception of “monetary theory” has fooled you into thinking is insightful. That’s just a silly arbitrary ratio. And it’s an extremely dangerous detrimental ratio conception which fools people into ignoring that subjective value for “money” itself is not constant. Changing prices ARE changing subjective valuations. All TRADE means subjective valuations have changed! Therefore prices have by definition changed! That which is receieved is valued MORE than that which is given away in exchange; that which is recieved is NOT valued EQUALLY to that which is given away in exchange. That’s the FALSE equation ERROR the conception of “monetary theory” inflicted into the field of economics. And I get elevated to the level of a Sir Isaac Newton in the field of economics for discovering that. [I] Just like that … the entire scientific economics field is reconceptualized from almost scratch over the last 150 years since Menger.

.

Please demonstrate what you mean.

Actually, you don’t, as I just demonstrated with TRADE. Once things of subjective value are traded, mathematically precise OBJECTIVE demarcated measurements of MORE and LESS are created at the specific moment in time when the trade occurs.

8

The market price is determined by the intersection of supply and demand. It is the buyers and sellers at the margin that determine where this intersection occurs and what this market price will be. The buyer at the margin values the good he’s buying ex ante slightly more than the good he’s selling. Likewise for the person on the other side of the trade. Supramarginal buyers will value the same unit of the good ex ante more highly than the marginal buyer, but they will still pay the same price as the marginal buyer. Submarginal buyers will be excluded. The buyer might value the good ex post higher or lower than he valued it ex ante, but this has no direct bearing on the market price. It is the marginal buyer’s and seller’s subjective valuations of the good ex ante that determine its market price.

Well, I think that pretty much demonstrates your credibility.

Need I say more.

9

So, am I correct in thinking that an increase in the money supply (by acceptance of “other” means of payment) devalues the previous means of payment? For instance, the fact that I can exchange CDs as well as dollars means that the price of goods in dollars will rise?

10

Rtr is a troll that sometimes ‘graces’ Mises.org with his semi-informed, idiotic posts (claiming to have improved on Mises or some such crap usually.) I would recommend ignoring him.

11

You are correct, but my assumption was that the demand for holding dollars remains constant. I do not see how the introduction of a parallel medium of exchange would necessarily decrease the demand for dollars. It seems to me that the value of dollars would decrease only if they become less acceptable as a means of payment. For example, say the new parallel currency is inferior to the existing currency. Why would this decrease the value of the superior currency? If you disagree, can you please explain?

Granted, in reality there would be reason for an introduction of a parallel currency, and it almost certainly would result in (or accelerate) the decline in the value of the existing currency. That’s the point I tried to make in my subsequent paragraphs.

12

I think you’re confusing the individual’s personal perception of their wealth increasing with a higher value of the exchanged goods as a direct result of the trade.

To use the bread/beans example, a person might happily trade three cans of greenbeans for a loaf of bread but only be willing to part with five cans for two loaves. The seller of the bread might also happily agree with this as they value five cans more than two loaves of bread but won’t part with one loaf for two cans.

The first trade has 1 bread = 3 cans and the second trade 1 bread = 2.5 cans – everyone perceives their overall personal wealth has increased yet the value of the bread in relationship to beans has actually decreased through the trade.

Hmm, does this mean I can call myself ‘sir’ or do I need a royal decree for that?

13

I’m not really disagreeing with you. I was making the assumption that in a newly created free market, a commodity currency would almost certainly be more acceptable in the long run than an existing fiat currency, and given the long-term tendency for there to be established one currency instead of many, the demand for the fiat currency would fall. But in a free-market economy in general, there’s nothing to prevent parallel currencies existing side-by-side, and the relative purchasing powers of such currencies are determined of course by their supply and demand.

14

Sorry for the long reply, but, oh well.

There is no PRICE without action TRADE. There’s no difference whatsoever between an offer to trade House Y for $700,000 and an offer to trade House Y for $500,000 if there are no takers at either offer. Hence, there is no $700,000 price nor a $500,000 price for House Y even if there’s a for sale sign advertising an offer to future tense trade at those terms. That is not a real “price”. Price is observed action. There’s absolutely no new thing which is created from an “intersection”, from an exchange of goods, or from an exchange of a good for “money”. Net value is increased from all trades, but the same goods which exist before the trade exist after the trade. Let A equal all that is exchanged from Person 1. Let B equal all that is exchanged from Person 2. Price is EITHER the ratio of A in terms of B, OR price is the ratio of B in terms of A. There are therefore TWO prices for every exchange. That’s because all “real money”, and even all “fiat money”, is itself subjectively valued, in and of itself, both as means and ends. And all other goods not “money” are also in themselves subjectively valued, both as means and ends.

Now Let A = “Money”. “Price” is the ratio of B in terms of A. Now let B = “Money”. “Price” is the ratio of A in terms of B. There is only very limited insight from such a ratio “measurement”. A and B wholly exist both before the trade and after the trade. So what’s the “so what”? But the value of BOTH A and B is greater FOR BOTH A and B after the trade. There’s no “price” for either A or B when they are just sitting there in someone’s possession with no intention or possibility of exchange, but they are still both independently subjectively valued. There’s only a price for A and B when A and B are ACTUALLY traded. Price only exists in present tense exchange. That’s why valuations can sometimes drastically differ from what is expected in less liquid goods.

What “intersection” are you talking about? Things are merely exchanged from one subjectively valuing person to another subjectively valuing person. The two differing goods aren’t actually “intersecting”; the possession of the two differing goods is merely switched. But the KEY insight is that positive VALUE is created from exchange for both parties.

Correct. But the goods being “bought” and “sold” DIFFER for each acting PERSON. It is much more accurate to stick to the strictly defined term “trade”. Use of the words “bought” and “sold” are entirely superfluous; that they are used so frequently is because of the confusing mess of the conception of monetary theory. To arbitrarily call one side of the trade the “bought” side and to arbitrarily call the other side of the trade the “sold” side leads to errors at even at some most basic fundamental levels of the field of economics. You don’t colloquially hear stores say they are “buying” dollars when they are “selling” goods, though that is technically correct. Likewise, you also don’t colloquially hear consumers say they are “selling” dollars when they are “buying” goods, though that is also technically correct. The side of an exchange called “the supply” and the side of an exchange called “the demand” is also just as arbitrary as the monikers “bought” and “sold”.

Trading results in immediate profit for both sides to the exchange. Not to mention “SLIGHTLY” is vastly more ill-defined than the mathematically precise definitions of MORE and LESS. “Slightly” MORE is definitively just MORE. “Slightly” LESS is definitively just LESS. And that’s the point, MARGINALLY reductively EQUATES to simply MORE, OR, MARGINALLY EQUATES to simply LESS.

What the? What is a “SUPRA-marginal” buyer and a “SUB-marginal” buyer? In actuality, there are only TRADERS, individuals that engage in the action of trade. The action of trade can only occur in the present tense.

But your overly complicated conception of “supra-“ and “sub-“ marginal buyers paying the same price can be shown to be false by Menger’s conception of marginal value. By definition two different buyers of different marginal pieces of the same good are acquiring different marginal pieces of the same supply. Buyer 1 may be purchasing the 100th marginal piece of a supply and Buyer 2 may be purchasing the 101st marginal piece of a supply. For you to maintain the “price” is the same you must maintain the marginal value of the 100th marginal piece EQUALS the marginal value of the 101st marginal piece. Now there MAY be some cases where that is true for a certain marginal range (the function would still be “monotonic”), but it is never universally true for the entire supply. That is a direct violation of MARGINAL value. Each additional marginal unit must be worth less than the previous marginal unit for the theory of diminishing marginal utility to hold true. That’s why goods in a free market are said to be employed in their most productive marginal capacity (including consumption)

Trade can be thought of to sometimes consist of a big chunk of supply for a big chunk of “money”, divided evenly between a number of “consumers” on the other side of the exchange. It is extremely common to see long lines of people exchanging the same amount of dollars D for product Y at stores. But that does not reflect precisely the amount by which each buyer is marginally benefitting from the exchange. Some may feel they are getting a better deal for the same “price” than others; they would still be willing to exchange more dollars for product Y than others would be willing to. These people are epistemologically profiting more than those others, even though they are trading the same amount of dollars for product Y. That means there is arbitrage opportunity between those who value less and those who value more. But each trade at the highest marginal paying amount is reducing the market “price” which will be paid at the next highest marginal paying amount for that good. Just like when HDTVs first were traded, the manufacturers may have receieved greater marginal profit per unit then a year or two later, even though a year or two later they are still profiting trading away HDTVs at a lower “price”.

There’s no “MIGHT” about ex post higher valuation. It’s definitively established. It’s the only reason trade occurs in the first place; there would be absolutely no reason for trade to occur otherwise. Of course that has a DIRECT BEARING on the market price precisely because both Person 1 who trades away Good A to Person 2 for Good B, and Person 2 who trades away Good B to Person 1 for Good A, will not simultaneously make that “REVERSE TRADE”. Goods A and B will never again exchange in that exact ratio at that specific moment in time precisely because the subjective valuations of both Person 1 and Person 2 are MORE with the goods distribution post trade than pre trade. So what’s the “price” then if trade will never again present tense occur at the ratio A/B or B/A between all people who have already traded for their subjectively higher valued A or B? The price is NOT an A/B or B/A ratio post trade, especially if Person 1 plus Person 2 equals the entire market. The price is GREATER than the A/B or B/A ratio (both sides of the exchange would need more of the other good), as I demonstrated differently earlier. Person 1 at time post-trade will only trade away Good B for a higher amount of Good A than occurred at time pre-trade, and vice versa for Person 2.

Except there is not just one singular good, there are ALWAYS multiple plural goods in every exchange. OF WHICH GOOD do you refer? One good is subjectively valued MORE and the other good is subjectively valued LESS, depending upon the person. Exchange is only occurring because subjective valuations differ for the same goods. No matter what the good, and by “good” that means any specific marginal piece of a total supply, in the set of ALL you choose, in every instance of trade “the market” will be both subjectively valuing that good MORE AND LESS in relation to some other good. There’s no precise quantitative equals amount “price”, as “more” and “less” are not definitively bound. We don’t know the exact amount of profit each side garners from a trade; we just know that it’s more than what they traded away for.

15

I tried to post a response earlier, but for some reason it didn’t go through. Basically, I don’t disagree with you. My assumption was that in a newly created free-market, and given the long-term tendency for only one medium of exchange to prevail, the demand for a commodity currency would increase and that of the fiat currency would diminish. But of course, throughout history, parallel currencies have co-existed, and their purchasing powers are determined by their respective supply and demand.

16

An individual’s personal perception of their wealth (their actual real subjective value) increasing IS a higher value of the exchanged goods BECAUSE of the trade. Trade only occurs because that which is received is subjectively valued more than that which is given away in exchange.

Your bread/beans example just shows what I said: Every trade CHANGES the price. That’s simply because circular instantaneous “reverse trades” are an absurdity for every specific acting trading individual.

That’s the fundamental pre-marginal value theory fallacy. You are comparing ALL of the bread with ALL of the beans. All of the water may be more valuable than all of the diamonds while a diamond may be more valuable than a glass of water. Those are different trades. You might see 100 shares of company XYZ offered for $100 while 10,000 shares of XYZ are offered for $10,500. Overall wealth would increase from either trade even though the per share price varies from $1 to $1.05. And similarly if you sell 10,000 shares you may happily accept $9,500, or $0.95 per share. You won’t do the trade unless you are better off wealthier from doing the trade.

17

RTR I’m trying to understand what you’re saying. I think I follow you in that everyone comes to a market as an individual acting person.

If 10 trades occurred today between ten people “trading” dollars for beans and the trades produced different outcomes, can we call these outcomes “realized” prices?

And if so, to what could we attribute the diffrences in realized prices?

18

There are two possible causes for differences in price. Either 1) changes in supply or demand occurring over time, or, 2) if the trades occur contemporaneously, ignorance by some buyers and sellers of the price paid by other buyers and sellers. To the extent that such differences exist, however, arbitrage will tend to eliminate them and drive the market to a single price. Small markets will tend to experience these kinds of differences more than large markets.

19

I don’t know. Why wouldn’t you just stick to calling it something more simply accurate such as “observed exchanges”? Remember “price” is just a crude arbitrary ratio measurement of one thing in terms of another thing (which itself is not exempt from changing subjective valuations independent of its supply). It sounds like you’re getting into Hayek territory, and the evolution of information, or maybe what I would call “swarm intelligence”. Information is not even and perfect, and nor could it ever even theoretically be perfect due to subjective valuation not being constant through time. Do you know what you want to have for dinner ten days from now? There are lots of people preparing now for your possible choices. But every trade event is information that SIGNALS bring more or bring less of this and that. But first you have to distinguish the times at which the ten different event trades occur. Subjective valuations are constantly changing. This means value, wealth, is constantly being created and lost, even when no exchanges are occurring, such as houses sitting on the market unsold for many months, or this movie you are watching becoming boring.

Possiblities for differences in “realized prices” could be attributed to lack of competitive information. The MORE and LESS aspects of trade events are not limited to unique amounts but can consist of wide overlapping ranges which are still profitable for both traders. See auctions and the final exchange terms. Traders of dollars (called “consumers”) also could be said to use a kind of auction for “selling” their dollars to traders of goods (called “businesses”) as traders of goods bid for dollars in terms of goods. Now if traders are aware or concentrating on the analysis of a wide overlapping range of mutual profitability (or are unsure if whether and where profitability consists in that range), that may be signaling WAIT, more information needed. Waiting for the new information to be signaled is subjectively more valuable for some individuals at some times than acting on and trading with currently regarded murky information. Everybody does this in comparing trade possibilities. But entrepreneurs subjectively value the greater profit payoff given the risks of acting sooner with less information more than waiting for information signals to have been broadcast in past tense. Every trade, every action, is new observed information. “Price” is just a subjective measure of information showing where positive value has been created for specific acting individuals.

Another possibility is the goods which are “thought” to be traded are actually different than what is first surmised (see the Big Box retailer you’ve had prior poor customer service from, you aren’t just subjectively valuing their product Y but also simultaneously subjectively valuing their past service). If you were to go on a floor of a trading exchange you would quickly find that favoritism and politics are definite factors in trading decisions obscuring what the actual goods exchanged really are. This is very common. Actual goods aren’t anywhere in actuality as cleanly delineated as they are in a supply and demand conception. Supply is far more often just varying degrees of “similar” rather than exact marginal units.

So yesterday I get one of those mass email forwardings talking about oil being sold from the Venezuelan Hugo Chavez gas stations selling gas $0.03/gallon cheaper than it’s street corner competitors in Florida, and still customers were avoiding the Citgo stations and profiting more by paying more $/gallon purchasing gas from Citgo competitors. The email alleges Citgo is in the process of changing their name to “Petro Express”. That’s interesting free trade market information in action (even true or untrue), showing that the commonly regarded “price” isn’t the actual price being signaled by those gasoline-dollars traders. So it’s probably less accurate to call those transactions “realized prices” and more accurate to call those transactions “observed exchange signals”. The difference is the supply is not exact marginal units but “similar” degrees of marginal supply, and the subjective valuation demand is distinctly subjectively evaluated within the trade action. But there is no trade whatsoever that does not change the present tense supply and demand and therefore its market “price”. This is why observed trades are past tense signals of wealth creation rather than present tense “prices”. Every exchange is a new price, even if the outcomes appear similarly exact to recent or older prices. Picturing a stock quote “ticker” is more accurate than picturing intersecting supply and demand lines. Nobody is supplying for the sake of supplying and nobody is demanding for the sake of demanding. So economics education should begin and proceed from the conception of trade, and not begin and proceed from the conception of supply and demand. People are trading because that which is received is valued more than that which is given away in exchange. All action is undertaken with the purpose to go to a state of lesser dissatisfaction from a state of greater dissatisfaction, MORE and LESS, again. Focusing on 'S’upply, 'D’emand, and 'P’rice is missing the reason trade is occurring.

And that’s simply why the Austrian Business Cycle Theory is an egregious false error, because nobody would exchange for even massively inflating fiat dollars unless at the time of the transaction they were increasing their subjective wealth by so doing. There’s no such thing as “malinvestment” from blaming one changing arbitrary good called “fiat money” precisely because there is no such thing as an individual “mal-exchange” trade. There are just signals that things are valued more and less than they were in the past by different persons. And entrepreneurs in response adjust their actions accordingly, i.e. they too change their subjective valuations, and vice versa. This is the “unevenly rotating flux” Mises was talking about. Why would massively inflated fiat currency “crash” the stock market or “crash” the economy? That’s synthetically the same question as why would you trade your goods and services, trade your shares of stock, trade your houses, for even LESS of an amount of massively decreasing subjectively valued fiat currency? No, what actually happens, is the wealth creation which eminates from trades dries up, as people WAIT for the information of relative scarcity and relative subjective valuation to process through the economy while those more entrepreneurially exposed scramble. Throw in (poverty causing) protectionist barriers against free trade and you get a Great Depression. And trading for, holding, “investing” in dollars can be just as entrepreneurial a risk as trading for, holding, “investing” in “businesses”, houses, hard assets, etc. There’s absolutely no difference trading for and trading away any good A or any good B which exists in the set of ALL, not just “fiat money”. And entrepreneurs always have to deal with risk of desperate significant changing signals of all goods (and services). And of couse in such times the subjective value of Good = “Credit Promises” may become far less stable than the subjective value of Good = Food.

20

If you’re one of the ten people and these “trades” occurred when you went shopping for groceries, do you focus on your reason why you’re there ? Or do you pay attention to how much is coming out of your wallet for this “observed exchange”?

You like exchanging labels to suit your framework of thinking and you go to great lengths to explain yourself with a lot of words without saying much. You really don’t know why realized prices fluctuate? Or you don’t like where the answer will take you.