Economists of all economic schools have used “The law of supply”. However, it’s as anti-austrian as any Krugman theory of your preference. Why are austrians then using it?
But Rothbard, Lew Rockwell and Salerno all used the “Law of supply”.
I have these objections:
Ceteris Paribus, we all know that you can not just freeze other variables in economics since this isn’t computer programming.
Price is an effect, and not a cause.
We are not ants.
Although a higher cost of production might lead to consumers preferring a substituite over the product I am trying to sell if I increase prices to keep the profit margin the same, and I might choose to sell something else and supply might get lower that way, it by no means can explain this freaky law.
Where is the “law” used by Austrians? Among other things “Price Controls”. Why? No Idea, the theory still holds up without “the law of supply”.
I just wanted to put this out there, I do not have the time to elaborate right now, and can only hope for someone with the time and influence to pick up on this and slap Lew and Salerno around a bit for me
Is the law of supply something that is used in the model of the evenly-rotating economy? In that case, it would not be true in the real world, just useful in the model
What does you avatar represent? I don’t get it [:)]
Isn’t supply ultimately the stock plus reservation demand? Rothbard showed how it can be analyzed in terms of demand IIRC, just don’t remember the exact formulations.
Then it’s irrelevant, Roderick Long talks about this, and there’s no reason for Austrians to take a Friedman approach.
My name on a flag represents me, a yellow ring around the A represents anarcho-capitalism and the two people with different values voluntarily getting along and trading.
But physicists can and do so, and they’re not doing computer programming either. Would you tell them partial derivatives don’t mean anything just because they can’t actually freeze other variables? If those variables are independent, they can be “frozen”.
Surely it is at least an expression of something (i.e. demand) which is a cause. Prices are the result of both supply and demand and to that extent they are an “effect” rather than a “cause” as you say. However once it is generally known that Tomatoes are selling for $1 more than the cost of supplying them where Apples are merely selling for $0.50 more than the cost of supplying them, surely profit seekers will invest more capital in expanding the production of Tomatoes than they will in expanding the production of Apples… thus prices have the effect of bringing about increased supply and can correctly be seen as both a cause and an effect of changes in the market place.
Fundamentally the “cause” comes from increased demand or reduced supply and the price is merely an expression of this change but, none the less, profit seekers will certainly look at the price of things in the market place in order to determine where to invest more capital and thus in reality prices are very much the cause. This can be further evidenced by the fact that when prices are maintained at artificially high levels we see surplus production (e.g. the surplus of agricultural production in in the United States as a result of farming subsidies that led initially to sending the food for free to Africa, before the African nations complained this was undermining the ability of their economies to develop and which led finally to all these products being transported at no small cost to central depots where they are quite literally burned). Surely if fundamental demand were the only “causal” factor we wouldn’t see all this surplus demand. The fact is that at least some capitalists look far more at nominal prices than they do at fundamental supply and demand and so changes in nominal prices can bring about very real changes in human behavior - regardless of whether the nominal price changes are the result of artificial factors (interference in the market place) or fundamentals (i.e. emerging from the free market as a result of changes in supply and demand).
True - which is why we need prices. Ants just use chemical trails and are pretty much controlled by a hive mind rather than cooperation at any individual level resulting from a conflict of interests over the use of scarce resources.
