All right now stuff is this is picking up now. This could be really good or really bad usually when numbers start getting leaked This is coming from the players side because they want to see if anything better is out there for them They want to see if they can get anything more significant than what they're currently getting So as you all know, we literally just dropped a video a couple minutes ago about the they're being mutual interest between the Baltimore Ravens and Derek Henry So it would happen as soon as we drop that video this came out that the Baltimore Ravens have made it an official Offer to Derek Henry. Let's read the report from Stainbrook NFL He said source Ravens current offer to free agent running back Derek Henry is in the range of 6.5 mil per year so It's significant amount, but nothing crazy to him We've been seeing a lot of these other running bags getting we've been seeing Josh Jacobs get like what 12 mil per year I think say Juan Barclays was like was it was it 13 something permit? I forgot what it was per year, but it was something super high Ravens like we just talked about this in the last video to how the Ravens they will look at these other high-pay free agent Running back numbers that got their bread and be like, oh, we're not gonna go there We'll go more like down there and that's exactly what ended up happening So this is nice though that there is an offer because that means it's real That means it's serious. That means the Ravens are trying to get this thing done But I think this is Derek Henry his last swing his last shot at seeing like alright Ravens you offer me six point five mil per. All right, cool. I think that's just him and his camp putting it out there like a Some somebody else y'all got something for me because I'm trying to get as much as I could possibly get This is going to be not even a big payday for Derek Henry But this is probably going to be his last significant payday like that so Well, we'll see but I do like it I do like it because it shows that the Baltimore Ravens they are trying to get it done It shows that the Baltimore Ravens are serious about Derek Henry It shows that the Baltimore Ravens are not behind the wheels sleeping like a lot of people Like a lot of people have said today, but the Baltimore Ravens all working and they really do want Derek Henry, but They ain't trying to pay no crazy prices for a Derek Henry Will the deal get done? Will Ravens and Derek Henry make it happen? We'll find out sooner or later. Like I'm assuming that with them having an offer on the table That we gonna know something by tomorrow good Or bad and the reason I say that because once the numbers are put out there, okay You can still negotiate obviously, but with the running back market what it is.  You just got Joe mixing added to the mix And I know that a few other guys too, but then there's Derek Henry as well So there's some still some players out there There's always options in the draft undrafted rookie free agents and then some other guys too But um as far as the cream of the crop Then you're looking at that right now So whether it's going to happen with the Baltimore Ravens or it's gonna end up happening with somebody else I think we would know about what's gonna go down rather soon So We just got to stay on the lookout for it and just keep waiting keep watching keep being patient Uh, because that's a Ravens fan Ravens will make you be patient You don't want to be patient because you want stuff right here right now But Ravens saying no, no, no, you're gonna wait for this So we'll see what happens to stay updated on everything so you don't miss nothing Subscribe to the channel and turn notifications on and leave a like on the video So youtube can keep telling you about when we drop a video today has been insane But y'all already knew this was coming y'all already knew this was coming people that have been here for years People that have been here for months people that have been here for days. Y'all know free agency is wild it is crazy and Even though the Ravens haven't had a crazy free agency With all this news that's been coming out about Derek Henry. It's like it's been coming out every 15 minutes We might as well start a live stream for all this Derek Henry news because something comes out every 15 to 20 minutes Something new pops up with Derek Henry So first it was the Ravens have been talking to Derek Henry Then it was oh Derek Henry is interested in the Ravens through this mutual interest Then there was oh boom the Ravens. They got a contract off on the table for Derek Henry What's it gonna be next?


Our first speaker this morning is Dr. Joseph Salerno of Pace University. He's the editor of the quarterly journal Boston Economics and his lecture this morning is on the birth of the Austrian school. Joe? Thank you. Thank you Mark. And welcome to the Mises Institute and welcome for those who are viewing online. Hans Hoppe was actually incorrect last night when he said the you know inanimate objects do not act. They do. The universe is malevolent and so it strikes back for example when you're giving the first lecture of the Mises University. I think all of us have experienced this sort of malevolent universe but without further ado let me just talk a little bit about the birth of the Austrian school. Now there's a lot of controversy about various issues in Austrian economics but there is none about when and by whom the Austrian school was founded. The Austrian school was founded in 1871. We can mark the year. That year and a few years after that marked what was called the Marginalist Revolution and basically what the Marginalist Revolution was and I'll talk more about the principle in a moment was the simultaneous and independent discovery of what we call the principle of marginal utility by three different economists in different countries. One economist was in France that was Leon Valras. He wrote in 1874. There was another in Great Britain, William Stanley Jebbins. He wrote in 1871 and the Austrian economist was Carl Menger who published his work on principles of economics in 1871. All three of them without knowing one another discovered this principle. This has happened a number of times in the history of science. For example Calculus was discovered by Newton and Leibniz around the same time. Now they all gave different names to the principle. Actually Menger never even mentioned, never even named the principle. He just sort of stated it but it was called Final Utility by Jebbins and it was called Rarité by Valras, French-speaking Swiss economist. But there was a difference, a big difference between the way the principle was expounded by these three individuals. Jebbins and Valras were both mathematical economists and they believed that marginal utility was actually a thing, a magnitude that you could do arithmetic operations on that you could add up, that you could compare between people. Whereas that was not what Menger talked about when he was talking about marginal utility. His idea was that marginal utility depended on the satisfaction of wants or denoted the importance of satisfying wants to individuals. So he focused on human choices and how human choices among different goods out there, among different concrete units of goods, how that was, and how important those things were to the human actors. And so marginal utility grew out of that. Now I will give you a demonstration or a little bit of a diagram in a moment about marginal utility. But I do want to say a few words about Carl Menger. Really he created, he discovered more than the principle of marginal utility. He created an entire system of economics based on subjective value and human choice. And in doing that he founded the Austrian school. He is the father of the Austrian school. It's his achievement alone that marks the beginning of the Austrian school. He was a creative genius and he had many different influences, but ultimately it was his act of creation, of insight into the connection between the economy that we see out there. And he was someone who was a journalist for a long time and looked at real markets. So he saw these prices being formed. And he came to the conclusion that the explanation up to that point about how prices were formed, basically by how much things cost, prices depended on the cost of production, that that was completely wrong. So it was that act of insight that were the seeds of the beginning of the Austrian school. And his achievements were recognized by some great economists. Let me just read you three quotes. I would have shown you these quotes, but we have a technological problem. One great historian of thought, Joseph Schumpeter, who was an Austrian but really more followed Valras. He was more of a mathematical theorist. But what he said was a manger is nobody's pupil and what he created stands. Manger's theory of value, price and distribution is the best that we have up to now. And he was writing in 1926. Manger had written in 1871. Ludwig von Mises, who was a student of Manger's student and who knew Manger at the end of his career, wrote the following. He said, what is known as the Austrian school of economics? It started in 1871 when Karl Manger published a slender volume under the title Principles of Economics. Until the end of the 70s, that's the 1870s, there was no Austrian school. There was only Karl Manger. And finally, Hayek, who was a colleague and a student of Mises in some of the disciplines of economics, wrote the Austrian school's fundamental ideas belong fully and wholly to Karl Manger. What is common to the members of the Austrian school? What constitutes their peculiarity and provided the foundations of their later contributions is their acceptance of the teaching of Karl Manger. Okay, so there's really no doubt about who founded the Austrian school. It was indeed Karl Manger. Now, before Manger wrote the prevailing school of economics was the classical school. That was probably the most influential school in Europe. Okay, even though there were economic schools in Germany and France and so on, the most influential was the British classical school. Just to throw out some names there, Adam Smith is often seen as the founder of British classical economics, though it goes back further. David Hume, who wrote before Smith, was another great classical economist, and David Ricardo, who was a follower of Smith, those three people were probably the most influential classical economists. Okay, now let me just say a few words about classical economics and the problems with it. Okay, there's a lot of good things that came out of classical economics. But there were some problems. First, the good things. The classical economists observed that prices were not accidental. They were not arbitrarily set. They couldn't be set at any level. So they basically pointed out that prices were determinant. There were forces out there. There were natural laws, if you will, that determine prices. Okay, prices were not random. And secondly, they found that prices regulated production and were extremely important in the allocation of resources by capitalists and entrepreneurs. And thirdly, they developed a theory of supply and demand. At supply and demand, classical school determined prices but only in the short run. In the long run, and here's where I begin to have problems, they believe that costs of production, even in terms of money or in terms of labor hours spent, determine value. So the classical economists were half right. Now, let me just give you an idea of how they were right. We know that the price of oil has gone up in the last few years. And there's a number of reasons for that. But one reason is that there's been a tremendous increase in demand on the part of nations like India and China that are rapidly developing and need more fuel for their industrial economies. So the classical school would analyze that by saying, well, the demand for oil has gone up. That has caused prices to go up above some long run average profit. They talked about average profit, 5%, 10%, whatever it was. But the average profit was what the normal business in the economy was earning. When demand increased for a particular product, then you had prices going up and causing huge profit margins in that area. So the classical schools then followed through and said, at that point, people begin to look to produce more of that good that's profitable. So they move labor and other resources from other goods that are earning normal returns or where their losses being suffered into those areas. And as a result, supply increases. So eventually, the price of oil will come back down towards some sort of normal long run level. So they did have a theory of what we call calculated action of calculation. Now, the problem, however, was that, well, actually, one last important point about this, they believe that that law of supply and demand applied everywhere and at all times. They believed it was abstract and absolutely true. Though sometimes they qualified it by saying, well, people have different motives. If their motives were purely economic, prices would be determined, as we have explained by supply and demand, which was again a concession that they did not need to make. So what were the flaws in the classical theory? The flaws led to a number of false deductions, false theories. First of all, they attempted to explain value and price of different products in terms of broad and abstract classes. They talked about the value of bread, diamonds, coal, beef, corn. So they didn't focus on individual concrete units. And that got them into trouble. One of the problems was the so-called paradox of value that they faced and they could not resolve. And that is the following. They asked themselves, why is it that the price, which is known as the exchange value, the price of exchange value of a pound of bread, let's say, is so low compared to the price of exchange value of a pound of diamonds, an equal weight of diamonds, when bread is absolutely necessary to sustaining human life, because that was a main staple back in the 18th and 19th century of people's diets. Whereas diamonds, so bread has a very high use value, as opposed to exchange value. Diamonds, on the other hand, while they have a very high exchange value, have very low use value. They're used to show off people's wealth. They're used for ornamentation, what we now call conspicuous consumption, wearing diamonds. It showed that you were wealthy and that you had high status and so on. So they were not necessary to sustaining human life. They were a mere luxury, yet their value per unit weight was greater than that of bread or water, both of which had a very high use value. So the paradox was, why would something with such high use value have a low exchange value and, conversely, something with a high exchange value have a low use value. That's in the case of diamonds. So they couldn't resolve this. This is where they got into trouble, the classical school. So they split value into two categories. They said, okay, use value is on one side, exchange value is on the other side. It's the job of the economist to explain exchange value, and we can do that with supply and demand. We don't have to worry about use value. For goods to be demand, it has to be use value, but they didn't go into any details about use value. They focused only on exchange value. So they thought they resolved the paradox of value by simply saying, well, diamonds are more expensive than bread because diamonds cost more to produce than bread or water and so on. So they just restricted themselves to explaining exchange value. Now, once you do that, you then drop the consumer out. Their analysis focused on the businessman. He was the one who purchased the inputs, paid prices for the various factors of production, land, labor and capital, combined them, and then turned them into a product. So for his business to go on in the long run, prices would have to reflect costs in the long run, the cost of production. So it was a theory of calculated action, but it was a theory which was not grounded in the action of the ultimate consumers. Remember, the economy exists for consumers. It doesn't exist for people to have jobs. It doesn't exist for businessmen to make profits. It exists for the consumers. If everything grew on trees, would any of us work? Of course not. Work is the bad thing. Work is the export. Work is what you have to give away and give up your leisure in doing so in order to get the good things that you desire. Okay. So the key is that the consumer was not analyzed in classical economics. And that was what Manger saw and tried to remedy. Let me just give you an example. Let's say a high-deficient television costs $1,000 and the old-generation television costs $200. Well, classical economists would say, well, in the long run, the reason for that difference is that it takes five times as much labor to produce a high-deficient TV and HDTV as it does to produce an older-generation television. Or some of them said it takes five times the amount of money. You have to invest five times the amount of money to produce one unit of the HDTV compared to the older generation. But now there's a problem with this theory, right? Because then how do you explain the fact that, for example, an old baseball card, and there is one that was recently sold on eBay, a Honus Wagner baseball card. I think there's only five in existence that are in condition. He's a famous American baseball player from the early 20th century. His baseball card sold for $600,000. It didn't cost that much to produce that. How do you account for the fact that the land on which the Empire State Building in New York City sits, that parcel of land, probably $10 million or more, compared to the same parcel of land, let's say, in Peoria, Illinois. Same physical characteristics. Why would that be 100 times more valuable or 200 times more valuable? What are the costs of production of land? Well, they couldn't explain the price of land either. They couldn't. Very recently, and I would have shown you a picture of this, and this is something I wrote on last year, on Mises Daly. There was a diamond that was sold at auction for $46 million. It was a 25-carat pink diamond. It was called a graph pink. Did it cost that much or anywhere near that to produce the diamond? Does anyone even know or remember or record what it cost to actually produce that diamond? It doesn't matter because price has nothing to do with the cost of production, I will say. That was Menger's great insight. What are some of the implications of the classical theory that are false? First of all, they believe that value is inherent in the goods. Once you say the price of a good is determined by its cost of production, then you're saying that there's something that was added to the good, some substance called value, during the process of production. Maybe the sweat of the laborer that was absorbed, the more sweat that's absorbed, the more valuable it is. But it was something that was added during the process of production. It had nothing to do with the way the final consumer evaluates the good. It had to do with the process of producing the good. Secondly, you can't explain the losses of firms. In other words, why would firms lose a lot of money if price is always reflected in the cost of production? So for example, this is just in 2008. GM lost $30 billion. In 2007, they had lost $37 billion, all leading up to the bailout. AIG, for example, the big financial insurance company and financial institution lost $99 billion in 2008, and in a fourth quarter alone lost $62 billion. Well, if prices were high enough to cover costs of production, why would there ever be any losses? Finally, as I mentioned before, classical economics focused on the business decision-maker, on the businessman or the business woman, to the almost complete exclusion of the consumer. So they really only explained supply. They explained how supply was determined, but they never really explained how demand was determined. And finally, classical school believed that goods exchanged for equal value. So in other words, if you pay $20,000 for an automobile, that automobile is equal in value to the $20,000, because that's how much it basically costs to produce the automobile. Or if you pay $1.50 for a can of soda, that shows equality. The can of soda is equal to the $1.50, and that's completely untrue. When you buy an automobile, you value the automobile much more than $20,000, or anything else you could do with that $20,000. When you buy the can of soda, if you watch people passing by a vending machine, some stop, some don't. The ones that stop value the can of soda more than $1.50, the ones that pass by value the can of soda above the $1.50. I'm sorry, value the $1.50 above the can of soda. And the seller, the one who's willing to part with the can of soda, has the opposite valuations. You're the buyer, you value the can of soda more than $1.50, well, the seller values the $1.50 that he's getting from you more than the soda that he's giving up. So, in fact, not only is there no equality of value, as we'll see, as Mengor saw, but there's a double inequality of value whenever any exchange takes place. Okay, so now let's talk about Mengor. Mengor liked a few things about classical economics, as I mentioned. The fact that they believed in abstract and universal laws that held everywhere and at all times, he liked that. He liked the fear of supply and demand as far as that went, but he didn't think there was much basis in human choice for it and that there should be. So, let me just give you some quotes that, again, I would have shown you these quotes, from Mengor about what he thought economics was. He said, in the preface to his book, he said, I have devoted special attention to the investigation of the causal connections between economic phenomena involving products and the corresponding agents of production, meaning involving the consumer goods and the things that we used to produce consumer goods. And he goes on to say, not only for the purpose of establishing a price theory based upon reality and placing all price phenomena, interest, wages, ground rents, together under one unified point of view, he thought all prices were explained by one thing, as we'll see. He says, further, but also because of the important insights we thereby gained into many other economic processes that we have up to now completely misunderstood. Now, before he wrote the book, he was writing notes to himself. Well, he was a journalist writing about the commodities markets. He wrote this note to himself. He wrote, man himself is the beginning and the end of every economy. So, man's wants, and he's using that generically, man's wants determine what is going to be produced, on the one hand, and on the other hand, what is produced finally satisfies human wants. So, it's the consumer that's the beginning and the end of political economy, not the businessman. He also said, our science is the theory of a human being's ability to deal with his wants. So, he started off with wants and people's striving to satisfy these wants. We're all imperfect beings, meaning that we're all incomplete, that there are always things that we can think of that will improve our welfare, that will improve our economic well-being. It never ceases. And he finally, in the very first line of his book, he wrote, all things are subject to the law of cause and effect. That's very, very important, that human wants are the cause of the whole economy, of everything that we see around us. Of all the hustle and bustle that goes on, I work in New York City, three blocks from Wall Street, all the hustle and bustle that goes on in Wall Street, that goes on ultimately because of the consumer. And then he also wrote some notes to himself. He wrote three words, I'll write them up here. He wrote ends, I'll get out of your way, means, realization. He wrote three things and they're all three words, so it's three trinities. Man, external world, subsistence. They all basically mean the same things we'll see. And finally he wrote wants, goods, wants, goods, satisfaction. What did he mean? He means that man's wants cause him to take elements of the external environment, things that are useful to him in producing, things that are labor, land and so on, raw materials. And then, so man's wants cause production, okay, I should put world here, it's external world. And once the goods are produced, that causes satisfaction, okay, so man is the beginning and the end. His wants activate the process of production and the products that come out of the production satisfy his wants, okay, or to put another way, his ends are what stimulates man's define means to achieve these ends and once he's done that his ends are realized, okay, that is, they're satisfied. So those are his three trinities. And what's interesting is, I think he got this from a French, laissez-faire French economist, Frederick Bastiat, who wrote in the 1840s, one of the chapter titles in his economic text was called wants, efforts, satisfaction. So your wants stimulate your efforts to satisfy those wants, which in turn cause the satisfaction. Once your efforts bear fruit in the form of goods that are produced then you have satisfaction, okay. So one of the first things that Menger did in his book was to talk about goods, okay, he has a whole, you don't see this usually in textbooks today, but he has a whole chapter on the theory of goods, okay, what a good is. And there are four properties, okay, again I could write it up there, might take a little bit too long. He basically says something to be a good, there must be a human need, okay, so somebody must have a want or a need. Second, the thing must have properties that render it capable of being brought into causal connection with the satisfaction of this need, meaning that this thing, the good, must have certain characteristics that will make it suitable for satisfying the need or the end, okay. Three, a human being must have knowledge of this causal connection. Not only must the thing exist and the need exist and the thing be capable of satisfying the need, but Menger added the human being involved must have knowledge that there's a causal connection, okay. So you have to know that that ham sandwich sitting there will satisfy your hunger, okay, or you must, or let's say you must, you have to know how to make the ham sandwich, you have the bread and the ham and so on. And finally he said you have to have command of the thing sufficient to direct it to the satisfaction of the need. The thing must be under your control, okay. Now he made a mistake, which Ludwig von Mises pointed out later. The second and third preconditions of a thing to be a good, such properties as rendered to the thing capable of being brought into causal connection with the satisfaction of this need and human knowledge of this causal connection, that could be replaced. The thing doesn't have to objectively actually satisfy the want, okay. It only has to be the case that you or I as the actor has to believe that'll satisfy our want. So if someone believes that having certain let's say doing a rain dance will actually bring rain to Texas as we were just discussing the Texas in the middle of a severe drought and that you need certain ritualistic items for this rain dance, then those items will be valuable, okay. Whether or not it turns out to be correct is another story. Now Menger, you could not explain someone who goes to a psychic, you could not explain someone who takes quack medicines or you know psychics charge money that they're actually getting a price. People who sell quack medicines that don't objectively cure the disease and so on, that's still valuable, okay. So you could not explain it with the Menger's original preconditions. You have to change it to what? People in people's opinion the thing must be capable of satisfying that human need, okay. So it's a sunny day, a good, okay. Is the sun being out on a given day? Well I mean there's a human need for sunny day if you're going on a picnic or you're going to baseball game, okay. A sunny day is certainly most people's opinion capable of satisfying that need. You don't want to be caught out in the rain and so on. The only thing, the only reason why it's not a good is because you can't control the sun, okay. So a sunny day can't be bought and sold, right. So that is not a good. On the other hand you can control let's say the malaria parasite, it's actually a parasite not a virus or bacteria as I found out recently. But unless you're a terrorist there's no human need for it. So it's not a good, okay. It's not valuable because there's no human need for it. And in people's opinions it wouldn't satisfy any of their wants, right. Unless again they want to use it for some sort of bio attack. And if they do and it has a price then it is a good. We don't make any ethical judgments on whether something should be a good or not. I mean you could be anti pornography but pornography has a price. People devote a lot of resources to producing it, people consume it. So the economist doesn't say whether something's right or wrong. They just say whether or not it's valuable to to the individuals involved. Now Menger went a little further and he pointed out that there's a difference between goods and what he called economic goods. And economic goods are goods for which are goods um which are insufficient are are in insufficient supply to satisfy all human wants for them, okay. That is that there's not a sufficient quantity of if there's not a sufficient quantity for a thing to satisfy all the human wants for it. At that point it will be an economic good. In other words you'll have to use it to satisfy only your most important wants because you don't have all that you you you you want, okay. So when a good is an economic good then Menger says it will have a price and it will have a value. Air is extremely extremely important to sustain a human life but air is not a good, okay. So it's not an economic good. Now we've changed the terminology. We don't even call something that is in superabundance a good. So in a normal situation air is superabundant and therefore it is not a good. Why isn't it a good? Because no one acts to try to acquire air. We acquire it in an normal situation without any conscious action on our part, okay. So what as we'll see the value of air is zero, okay. Now that's not true if you're in deep space if you're walking on the moon or you're you're going to the the shuttle the space shuttle whatever then air is very valuable, okay. Because in those circumstances it isn't in short supply or someone who is a diver, okay, who dives you know in the ocean and so on. In which case air is valuable and there's a price paid for it. So how did Manger explain the value of of goods, okay. And here's where the law of marginal utility comes into play, okay. So it's sort of a you know an arcane name but it's really a simple concept and here I will put this on on on the board so that you can you can see hopefully people in the back can see. Now Manger used an example from fiction and that is Robinson Crusoe if you're familiar with the novel who was shipwrecked on an island alone with only the resources on the island and his own labor available to him as means, okay. To satisfy his many human wants. He's hungry, he's thirsty, he's lonely, he wants to get drunk, so on. So let's assume that he's able to grow wheat on this island, okay. So here's what Manger said. Robinson's Crusoe has a number of concrete wants for wheat, okay. Wheat is not taken as an abstract thing that has a value. For Robinson Crusoe there are different units of wheat and they serve different purposes and these purposes are more or less valuable to Robinson Crusoe. So let me just start with the first, okay. The first let's say he has five sacks of wheat. The first sack will be devoted to producing bread, okay, which will keep him alive, okay. Not very healthy but but it'll keep him alive. The second sack will also use the producing bread, okay, this is for health or this is for you know life, this is for health. This will give him strength and allow him to perform other activities. The third, third sack of bread he'll use for let's say seed for next year's harvest so he can stay alive another year, okay. So withhold some of it from present consumption and he'll use it to plant wheat for the next harvest. The fourth he'll use it so that he has a beverage to drink, let's say you'll use it for vodka, make vodka. Menger use whiskey, I like vodka better. And the fifth, he wants a various diet so for the fifth most urgent or important use of a sack of wheat he has, he'll use it for feed for farm animals, okay. So he'll domestic, he'll find some animals that are able to give him dairy products and meat, okay, and so on, okay. Okay and then sixth, he's really lonely, I put six up here so I can see it and so he would use this for food for a pet parent so he can at least pretend he's talking to somebody. And so many uses for the wheat you know you go down to 20th maybe if 20th you know that is last maybe that's his last one. But let's say he only produces five, okay. So he has to economize, he has to use it only for his most important wants. Now Menger's asked the following question, this was brilliant, what he said was what is the value of bread? Is the value of bread the satisfaction I get from the life that's sustained by the first loaf, the first sack that I produce into bread? Or is the value of, I'm sorry not the value, but the value of wheat, okay, or is the value you know some average of this? Because remember all five sacks of wheat are identical, they all, any one of them can serve any of these purposes. So how do you, how do you answer this question? What is the value of a sack of wheat? Menger asked a great question to answer the question. He said what would happen if one sack went missing? Let's say that rodents broke into the, to the little barn where he was keeping the wheat and they devoured the second, second bag, okay. Would he give up that satisfaction? Of course not. Menger said with no matter which bag he lost, what would he do? He would always give up the least valuable end that the supply serves. And if he has five that's the fifth. So whether he lost the fourth, the first, or the third he would always give up the, the, the last satisfaction. Another word for last is marginal, okay. He would give up the marginal satisfaction. Another word for satisfaction is utility. So the value of all five, of each of the five are equal to what? The marginal utility. Because that's the satisfaction you lose if you, if you forego one bushel of wheat. Okay, but now let's say he lost that. Now what would happen to the value of, of, of wheat? Would it go up or down? It would go up because now the marginal utility is higher. Now he would have to give up the satisfaction from the vodka if he lost another, uh, bushel of wheat, another sack of wheat, okay. So in that case there's a law. The law is simply this. The greater the supply of a good that an individual possesses, the lower its marginal utility and therefore the lower its value. The less of a good, the fewer units of good, a good an individual possesses, the higher the marginal utility and the higher the value. Okay, so for Menger, marginal utility determined value. So he gave us the theory of demand, okay. In a money economy the reason why you'll only purchase additional units of a good if the price falls is because each additional unit has a lower and lower value used to you. So we have, we have a theory of demand which, you know, you learn about later in the week as the week goes on. In fact I think Jeff Herbner in the next lecture will talk about that. Okay, so on the other hand if he found another sack of wheat or harvested another sack of wheat the value of the wheat would fall. Why? The value of each sack. The value of each sack would fall because now there's a lower value of satisfaction that would be lost. Okay, there's a new marginal utility. So to give sort of a modern example of this there's let's say it's a family that has three cars. Okay, one is for the primary bread winner to get to and from work. The other is for the spouse to run errands with and the third is for junior who just got his license. Okay, so let's say the old man cracks up his car. Okay, does he give up the transportation to work? Let's say the cars which are changeable pretty much. No, junior's out of luck because that that satisfaction from that household pull point of view is the marginal utility of the of the automobiles in terms of its value. Now what happens to the value of automobiles in that family if one's gone? Goes up.  My eraser, marginal utility of racers just went up. Where? Oh right here. Thank you. Okay, so here's the puzzle. Just let's say there's a farmer. Now the farmer has two different goods. Three horses and two cows and he ranks them the following way. First, second, fifth. Okay, so he's got the first horse serves the most important purpose that's you know for to plow his field. Okay, the second horse H2 is second most important. It makes it easier to plow the field with a team of horses of two. Okay, the third best use is for the cow. Okay, he ranks the milk from the cow third that the cow gives over the course of the year and then the fourth want is cheese that he'll get from from the from having additional cow. He'll use its milk to turn into cheese and finally the third horse, remember he has three horses and two cows. H3 is for riding. Okay, just you know pleasure riding.  Okay, well let's let's let's which is the which is the most important which animal has greater value? Everybody says the horse doesn't. It's not the horse. You always have to ask Mengers question. The barns on fire can only save four. Which four do you save? Two cows, two horses. Which which which animal do you give up? Horse, which has the lowest margin utility? Horse, which has the lowest value? The horse. The horse has the lowest value because no matter because of all the animals here you would rather lose a horse. Doesn't matter that now that solves now by the way now once that happens if he's stuck with this this is gone now what happens? The margin utility of the horse jumps up to here. Marge utility of the cow is here. The horse is a more valuable animal. Okay, so now we can solve the paradox of value a Menger did. How did he solve it? Well he said look in a normal situation diamonds are much scarcer in relation to human wants. They have a much higher margin utility than water does or bread does. Okay, because he didn't focus on water as a cold category or bread or diamonds as sort of abstract categories and try to assess which is more valuable to the human race. It's ridiculous. He focused on individuals and their wants in specific situations. Okay, so what what what he he did was then to ask the question let's change circumstances. Okay, let's say you're in a desert you haven't had water for three days. Somebody has a gallon of water that you see and you have you have that perfect pink graph diamond in your pocket. You can't divide it up. Okay, so it's you have this 46 million dollar diamond in your pocket. You trade it for the water. Remember you can't go out go without water from one three or four days. Of course, because now water is so scarce that's more utility is higher than the most valuable diamond in the world. Okay, so that's the resolution of the paradox of value. All right, you can you can think of you know all of those types of situations you just change the normal circumstances and you'll find that there's there's that will make a difference in value. One last thing I want to do, yeah, let me see if I can. Oh, so for from Menger's point of view then costs don't determine prices. Prices determine costs. I mean think about that graph diamond. No one cares how much it costs. Okay, so Menger used the following example. He said look think of it this way. What if you suddenly people did not have any desire for tobacco products. They didn't want to smoke cigars, cigarettes, they didn't want to chew tobacco, and so on. They had no no desire for tobacco products. So what would happen to the price of tobacco? Price of tobacco would fall to zero. Okay, if there were no human wants for it it's not even a good anymore. So it falls to zero. But he says then what would happen to the valuable factories and machines that roll the cigarettes, that made the cigarettes? That would fall to zero. Okay, what would happen then to the raw stocks of tobacco? That would fall to zero in value and therefore tobacco land. Assume you can't do anything else with the land. Let's say it's only fit suitable for tobacco production. So in fact, as he pointed out value is imputed backwards. Okay, value is imputed from the consumer good, consumer, then the consumer good, which he called the lower order good, the good that's close to consumers. So let's say lower, lowest order. Those are the cigarettes and cigars. Okay, so value, those are, that's where cause and effect comes in. Those are valuable. The cigarettes and cigars are valuable because they satisfy human want. So value goes from the consumer to the consumer good. It's a relationship between a thing in the external world and the human mind. Okay, because human mind believes that it will satisfy a want. And then to the machines and factories, they're only valuable because they cause, together they cause with labor the production of the cigarettes and cigars. That's a higher order good. And then tobacco land. That's only valuable because that causes what? The satisfaction because you grow tobacco. That causes the production of the things in this order. So value goes this way. It's imputed upwards from the consumer, but production goes this way. So it's consumer wants that determine value that cause value to be attributed to the immediate consumer goods and then to those things higher and higher or further and further away from the consumers that contribute to the production of the consumer's goods. Now that value causes the production process that goes from the higher order. It starts growing the tobacco and so on all the way down to the consumer. So whereas the classical school said they both arrows went this way, the value arrow and the production arrow. Manger said no, this goes upward. And I usually I'll finish with this quick anecdote. Got a minute. I usually bring up the example of the movie Witness which starred Harrison Ford throughout the 1980s. It's a good movie about the Amish country and in that movie the Amish or a sect that lived mainly in parts of Pennsylvania, Michigan and Ohio. And they they really renounced sort of all worldly displays of status or vanity and so on.  So my point that I give when I teach this is well in that and obviously they have no no desire for jewelry. Now if all Americans adopted that code what would happen to the value of diamonds? Okay, their fourth is zero. What would happen to the very high salaries of very highly skilled jewelers? That would that would just drop to whatever the next best use is. Okay, you wouldn't have any sort of profession. You have resources being moved out. And the same thing would happen to the diamond mines. Okay, diamond mines suddenly would have no value whatsoever. So bottom line is that because of Carl Manger we understand today that it's price that determines costs. It's not cost that determine prices. Okay, I'll stop there. Thank you.