I'm a little alarmed to realize there are probably logarithms that can predict human behavior well enough to predict THIS. :wideeyed: But the problem with all the economic theories is they sort of hinge on sanity. The idea that people make sense. That they can see what's in their best interest and act accordingly. They they DON'T actually have an inclination to cut off their nose to spit their face. My experience of the world we live in suggests that often people do exactly that.
That is a really good criticism
Humans are not "all knowing" and are not infallibly wise. There's nothing to say that with Crusoe and Friday, one of them won't kill or enslave the other
It's just if they each want to enjoy the best material standard of living, then the way to go about it is to concentrate on the things that each of them is best at, and to trade with the other for the things that they're better at.
If they kill or enslave, they'll be materially poorer as a result (that applies on all scales - war makes us poorer due to reducing the international division of labour)
Interestingly, mainstream mathematical economics completely abstracts away the idea that each individual actor's knowledge is very limited - that abstraction and lots of other abstractions are made to allow some really elegant mathematical reasoning to be used.
Unfortunately those abstractions mean that mainstream economics is divorced from the real world of individual humans acting and choosing on the basis of very limited knowledge
and having assumed "perfect knowledge" for their mathematical play, no one in the mainstream of economics asks the question of how knowledge arises, who discovers it, and how it is communicated to others. That whole question of Knowledge, discovery, and spontaneous order arising; became a distinct side branch of the Austrian School economists, starting with Frederic Hayek and continuing with Israel Kirzner as its main present day researcher.
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A digression into knowledge arising on the market
Very briefly, knowledge arises in the forms of prices on the market.
In Hayek's sense, a market is an arena of discovery
Consumers form their own preferences for what they want to buy and how much they are willing to pay to satisfy those wants
Those payments from consumers allow the People who are making consumer goods, to bid against each other (just as buyers at an auction do) to buy the labour, and the materials and machines to make those consumer goods such as cars, bottles of shampoo, tooth brushes, barbie dolls.
That process of bidding for inputs continues back up the "structure of production", further and further away from the things that consumers can use directly,
that bidding goes through the makers of metal and plastic shaping machines, producers of bulk plastics etc and allows them to bid for their inputs like iron and steel castings and electric motors copper wire, electronic control panels
all the way back to farmer's fields, oil wells, coal mines.
So the likes of coal, oil, Iron ore or land that grow wheat or cotton, or dairy cows, all derive their value (their selling price), from what consumers are willing to buy - or at least what entrepreneurs hope that people are going to be willing to buy - people who are good at guessing that sort of thing get rewarded, people who aren't good at it, loose money and have to stop trying to do something they're not good at.
The price of what those things can be used to produce - communicates the consuming public's wishes, all the way back to people who go looking for and drilling or mining, oil, coal, Iron ore etc.
On an unhampered market, the only way for someone to get rich, is to produce things that serve consumers - and to do that by using the inputs efficeintly.
In other words, they are turning things that consumers value less, into things that consumers value more, and that is signalled to them by them making profits.
If they turn things that consumers value more in different uses, into things that consumers value less; they get to learn that very quickly - their cost accounting tells them that they have made a loss, and if they don't work out why and get themselves into line with consumers wishes, then they'll soon be out of business.
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Implications of prices as information
One of the big implications of the "Marginalist Revolution" of the 1870s, by William Stanley Jevons, Leon Walras, and most especially the most sophisticated of the marginalists, Carl Menger,
Was the re-discovery of the realization that there are no intrinsic values for goods.
People like Adam Smith had previously posited the idea that things gained value because of what they cost to produce - and especially the labour that went into producing them. Karl Marx derived his ideas of "exploitation" based on a labour theory of value, but could never escape the circular argument; For Marx the selling price on the market is determined by the ammount of socially necessary labour embodied in the good - but the socially necessary quantity of labour going into the good is determined on the market (yeah -confused!).
What the marginalists (I'm taking Menger's position here, Jevons and Walras' ideas were much less well developed) showed was that value is entirely subjective (depends on the individual).
it depends on that individual's expectation of how the good can be used by them to better their life or meet their needs. That evaluation can only be expressed in ordinal numbers (first choice; glass of beer, second choice, five dollars, third choice half a glass of beer, etc)
The only way that the wants of consumers can be determined, is by their actions of buying or not buying.
and each additional concrete unit of a good is of less value to a consumer, because it can only be used to satisfy the next use down on the person's list of priorities
eg,
a motorist in the desert, first gallon of water is extremely highly valued - for drinking to stay alive
next gallon of water, less valued - for filling screenwash
next gallon, less valued still, for taking a cooling wash,
next gallon, less valued still, for a water fight
The marginalists had finally solved the classical economists paradox of value, which asks;
Why is water, which is so vital for human life, so cheap on the market and in many places almost free, while diamonds (which to Adam Smith were absolutely useless, a mere frippery) were so expensive?
The answer is that we are not choosing on the market between all of the water in the world, or all of the diamonds in the world, If the Angel Gabriel appeared and offered mankind that choice, we'd probably choose water
Instead, we are choosing a single diamond or a small number of diamonds, or a measure of water
Diamonds are scarce enough that there are only enough diamonds to partly satisfy our highly valued uses for them
whereas water is (in most places) sufficeintly abundant that we can easily satisfy our highest valued uses and many of our lower valued uses, like watering the lawn or washing the truck
Nevertheless, the paradox of value problem had created a belief which still persists, that markets don't work, that things have intrinsic values that are not reflected in market prices
certainly there are subjective values, I value my teddybear far more than I think anyone else would pay for it
but that does not imply an intrinsic value, it is only my individual subjective valuation.
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The price of steel
So immediately someone says "steel is too cheap"
it is only a question of "too cheap for whom?, for the 300million individuals in America who use products containing steel? or for the five steel producers in America and their few employees and cronies?"
The low price of steel carries information
It is communicating that there is sufficeint steel that it can be used to satisfy even some needs that are well down people's priorities
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Putting an artificially high price for steel in place by tarriffs, means;
- people can satisfy fewer of their uses for steel, goods like automobiles, and buildings that contain steel will be more expensive in America than in places without the tarriff
- steel manufacturers in America can bid goods (fuel, land, labour) away from uses that people would have preferred those inputs to go into if they had been able to enjoy the lower priced more abundant steel
- The steel that was blocked from going to America, now has fewer possible buyers for it - so it will likely now sell for even lower prices
That even lower price steel will result in goods containing steel being cheaper outside America than inside
In other words, money (I'll assume a hard money) will buy more goods outside america than inside it - in other words all americans have been made materially worse off by the tarriff
Just coming back to the question of violence - how are americans, and people who want to sell them goods made outside america from cheap steel - how are they going to be prevented for trading
and the answer to that, is by a credible threat of force
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One for @Russ
going back to Crusoe and Friday
if Friday can produce sweet potatoes more plentifully than Crusoe can
would it be in Crusoe's interest to impose a tarriff, to protect his own less successful attempts at growing sweet potatoes?
