Ok, but even as far as the pricing mechanism is concerned it’s not aware of any such “Equilibrium”. The whole concept of “Equilibrium” was just created by us to assist in understanding markets. It’s not applicable to real world situations, much like the ERE.
The problem is when you take these objects with an understanding that they are real world phenomena and must exist somehow somewhere. So you come into these incredible dilemma’s that something must be wrong! The truth is they are not real and cannot exist. It just helps us understand why prices bounce back and forth. So I don’t believe the pricing mechanism operates with any knowledge of an equilibrium price. It’s not that the pricing mechanism has some concious thats always aiming at “Equilibrium”. Instead the whole concept of “Equilibrium” was created by human’s for human’s for expand understanding, just like the ERE.
Furthermore if your assessment of Sieben’s critique is true then how would we ever know what the “wrong” price is? As we would have to know what the equilibrium price is to detirmine that. Whats the equilibrium price?
[edit]
Note my point above that I added after you responded. I believe it’s a fallacy to classify any type of pricing as a vector. It’s not always “moving” but instead it’s new data points differing from historical data points. For a price to move, and be a vector, we would be referring to the exact same object. However when discussing prices we are discussing seperate events that occur at seperate times and are completely unreleated to one another.
I doubt my point about vectors is what you mean, but I thought it was an interesting point for Sieben to contemplate. Prices aren’t ever “Moving” in the direction of error correction. Prices don’t move but instead are historical data points and are static. There just happends to be an incredible amount of individual instances of price data points. Superficially we can say that the price of grain moves. But in truth it does not move. The price of grain for BOB on Nov the 14th at 2PM was at XXX rate. On the other hand the price of grain for Billy on Dec 5th at 8am was XXX+1. This doesn’t mean that grain is a vector and that it’s positioned to move a certain direction. These are two entirely seperate data points. Out of convenience we might say that the price of grain is “rising”. But all that means is that our expectation of future prices to rise. In our speculation it doesn’t mean that historical prices were somehow flawed and that future prices are some how more or less correct.
I wonder if that offers anything constructive to the discussion.
Ok, but even as far as the pricing mechanism is concerned it’s not aware of any such “Equilibrium”. The whole concept of “Equilibrium” was just created by us to assist in understanding markets. It’s not applicable to real world situations, much like the ERE.
I never said otherwise.
The problem is when you take these objects with an understanding that they are real world phenomena and must exist somehow somewhere.
Equilibrium price, roughly speaking, does exist. It’s the price at which the market clears. This doesn’t mean we know where it is, or that it’s attainable, but it’s not just theoretical. We say that the market tends toward equilibrium, because prices tend towards the price at which the market will clear (at which the seller will sell the entirety of his supply with the highest profit [over all sales]). It’s an entrepreneurial process.
Furthermore if your assessment of Sieben’s critique is true then how would we ever know what the “wrong” price is? As we would have to know what the equilibrium price is to detirmine that. Whats the equilibrium price?
I don’t know why you’re asking me. Ask Sieben.
I believe it’s a fallacy to classify any type of pricing as a vector.
You misunderstand what I meant when I say that a price is moving. I’m not saying that the price, an object, is moving in a direction. That’s absurd. A better word might be “change”.
I recently attended a seminar by Agricultural Economist, Brian Wright, in which he spoke on price volatility in storable commodity markets. His major point (and I’m paraphrasing and probably grossly misrepresenting what he said) is that supply shocks alone are not enough to cause price volatility. Supply shocks in times of low storage cause price volatility. The impetus for the recent run-up in food prices may be ethanol mandates or drought or…fill in the blank. But we’ve seen such supply shocks before. Why the volatility now? Storage. Or lack thereof.
I think there is some confusion in the dialogue between us. I am not saying your this is your position. My comments were at large directed at Sieben, but I was responding to your comment (which was directed at me I think) and trying to elaborate on my position towards Sieben. Sorry for the confusion.
Is it something that an end consumer tangibly interfaces with? Is it the “equilibrium price” that’s influencing prices? Or is it the individual actors which are influencing the hypothetical “equilibrium prices”. I’m not arguing against the usefulness of an equilibrium price to expand our understanding of markets. Especially when considering hypotheticals. I am, on the other hand, critiquing the abused application of this(equilibrium price) concept as being some type of driver for the economy. As if the equilibrium price directed the economy and directed prices.
Once we know that it’s individual consumers that influence future prices the concept of an “Equilibrium Price” is nothing more then a scholarly activity. Consider the relationship between the fluctuation in prices and the Misesian regression theorum. Equilibrium price isn’t needed to understand prices and why they differ from point a to point b. (I know this may not be your position)
Because they’ve foregone immense profit opportunity by routinely underpredicting the silver price.
But changing fundamentals is not a sufficient condition to produce a continuous price change. If the fundamentals change and entrepreneurs didn’t forecast it, then yes. But the idea is that entrepreneurs are rewarded by and attempt to predict changing fundamentals. If they correctly predict them, they make money, and the price is bid up even before the fundamentals change.
But we don’t have to wait for the fed to print money. Expectation of inflation is enough to cause inflation.
But entrepreneurs compete by trying to forecast uncertainty. I don’t see any reason why regime uncertainty is any different from natural disasters, which are routinely factored into prices/economic decisions.
Entrepreneurs make mistakes - that’s understandable. But I’m hung up because their mistakes have all been in the same direction. Why would all the marginal buyers/sellers all make the same mistake over and over again?
Because they’ve foregone immense profit opportunity by routinely underpredicting the silver price.
How do you know that? What if someone sold part of their silver stock in order to invest in something else? The decision to sell or buy something is done within the framework of utility scales. I’m still not sure why you think people are “erring” in their decisionmaking.
But changing fundamentals is not a sufficient condition to produce a continuous price change.
Err, what? Of course they are.
But the idea is that entrepreneurs are rewarded by and attempt to predict changing fundamentals. If they correctly predict them, they make money, and the price is bid up even before the fundamentals change.
I’m not sure what you’re saying here. Prices don’t change by means of magic. Entrepreneurs may predict a change in price, but the profit comes out of their accurate prediction; i.e. buying low and selling high.
But we don’t have to wait for the fed to print money. Expectation of inflation is enough to cause inflation.
It depends on what you mean by inflation. Expectation of inflation cannot cause a general increase in prices.
But entrepreneurs compete by trying to forecast uncertainty. I don’t see any reason why regime uncertainty is any different from natural disasters, which are routinely factored into prices/economic decisions.
A natural disaster can only be “routinely” factored into a decision if it’s expected. Otherwise, the statement is nonsense.
Entrepreneurs make mistakes - that’s understandable. But I’m hung up because their mistakes have all been in the same direction. Why would all the marginal buyers/sellers all make the same mistake over and over again?
You’re really missing the point. Nobody is making a mistake in the sense that you mean it.
Right. Maybe people sold silver so they could do something else with it. Maybe they need to consume or there’s another better investment out there. But from the perspective of medium/long term investment, this has been a failure for marginal sellers of silver.
The idea is that the fundementals change, and entrepreneurs adjust their forecasts, and then the price adjusts accordingly. Continuous one-way change in price implies that entrepreneurs are failing to predict it over and over again. Why?
Right. But if they forecast that the price of silver will be high, they will be willing to pay almost that much right now to buy silver. So expectation of price change is enough to cause price change right now.
So if the money supply were to double a week from now, would prices stay the same for 7 days, or would they approximately double before then?
You can factor regime uncertainty into economic decisions if you expect it. I guess I’m operating under the assumption that financial groups know what the federal reserve is.
I’m saying “mistake” in the sense that they’re forgoing profit.
I deal heavily in silver. If the silver market is confusing you, it’s because the silver market is confusing.
Silver is heavily manipulated. The range of consipiricies about who/what/when/where/why are broad, but the truth is that there is a great deal of naked paper floating around–particularly from JP Morgan. Due to this, many of the big players are demanding physical, and there simply isn’t enough. Comex is in peril for this very reason.
Some people say that there are about 100 oz. of paper silver chasing 1 oz. of physical silver. I don’t set that ratio quite so high, but it isn’t drastically far off in my opinion. Even with whispers of a rout ahead, I will still be buying. To me, the Austrian school teaches stability, temperence, and long-term profitability versus the boom or bust mentality that grips investors today. Even with a rout once QE II stops, I expect silver to truely erupt within the next 18 to 24 months. Soon I’ll be investing (what would be considered a pitance) in some junior mining stocks that might even allow me to retire at…25.
If a price is the objective manifestation of our individual subjective value scales then the only thing that can change a price is a change in the underlying subjective valuations of individuals. As our circumstances are constantly changing so are our valuations and so are prices.
If equilibrium is ever achieved it would imply that no exchanges of that good would take place; trading would stop. While equlibrium is a possibility the same constantly changing circumstances and value scales of the individual actors are working against equilibrium.
I believe the answer you are looking for is risk. The risk profile for underestimating the gain (not making as much profit as you could have) and overestimating the gain (losing your initial capital) are really different. Since the actual final price is uncertain, it makes more sense to be conservative in your estimates, which is why rational actors tend to underestimate instead of being evenly distributed around the actual future price.
I’m just going to start asking obvious questions to see where you’re coming from, because I can’t really see any basis to your arguments.
But from the perspective of medium/long term investment, this has been a failure for marginal sellers of silver.
Why has it been a failure?
Continuous one-way change in price implies that entrepreneurs are failing to predict it over and over again.
Why does it imply failure?
But if they forecast that the price of silver will be high, they will be willing to pay almost that much right now to buy silver. So expectation of price change is enough to cause price change right now.
Only at the expense of the fall in price of something else.
So if the money supply were to double a week from now, would prices stay the same for 7 days, or would they approximately double before then?
This is incorrect. The degree by which they would increase depends entirely on the quantity of money bid towards them at that point in time.
You can factor regime uncertainty into economic decisions if you expect it. I guess I’m operating under the assumption that financial groups know what the federal reserve is.
Even if they operated under that assumption it makes absolutely no sense to assume that they know exactly what the Federal Reserve and government will do, or the consequences of those actions.
I’m saying “mistake” in the sense that they’re forgoing profit.
What profit are they foregoing? I don’t understand what you’re saying. It’s easy in retrospect to decide what is a mistake and what isn’t. Decisions aren’t made in retrospect.