 OK, good morning, everyone. My topic this morning is the birth of the Austrian school. And when you talk about the Austrian school, you can't but talk about the name of Carl Menger, who is the founder, acknowledged by everyone to be the founder of the Austrian school. It's really one of the most important intellectual achievements in the history of humankind, the founding of a whole system of economics, or at least the outlines of that system of economics, which was undertaken by Menger at a fairly young age. So the story goes, the conventional story goes, that there were three economists in different countries at about the same time who discovered the law of marginal utility. And this ushered in the age of modern economics. Well, that's true, but it's not quite true. There was a big difference between the way these three economists viewed the law of marginal utility. So the intellectual change in economics was known as the marginalist revolution. And all three economists had a version of the law of marginal utility. And they were Carl Menger from Austria in 1871, William Stanley Jevons, who hailed from Great Britain, also in 1871. By the way, they were working independently of one another. They did not know of each other's existence before their books appeared. And then Leon Ball Ross, who was wrote in French, and he was Swiss. And actually, I think he was French and moved to Switzerland. And wrote a mathematical treatise, which also encapsulated the law of marginal utility. Let's just take a look at the names that were given. So the Austrians, Menger did not name the concept of marginal utility. And actually, there's a reason for that, because that wasn't the central focus. It was an important implication of what he was talking about. But it wasn't the central focus of his economics. Human beings were. Their wants and how they strived to satisfy their wants. That was the central focus. Whereas for the other two, this law in a more or less mechanical, mathematical version was the central focus. Jevons, in any case, called the term final utility. And Ball Ross called it rarité, which roughly translated as scarcity. Let's take a look at the people who were involved. There you have William Stanley Jevons, dashing ladies, man when he's younger. He gets older. He's like a weird old guy sitting on a bench feeding pigeons in the park. Leon Ball Ross, kind of dark and mysterious when he's younger. He gets older. He's like your grandfather, doddering around. But then you can come to Menger. Menger is kind of hip and handsome when he's younger and he's very, very distinguished when he's older. That seems to be the pattern in Austrian economics. Oh, I didn't know how to get in there. OK, but to sum up what I was saying before, so Jevons and Ball Ross, they viewed margin utility or utility, which is another term for satisfaction. So when you think of utility, you can think of satisfaction. They viewed it as a quantity that could actually be added up, subtracted, divided, multiplied. You could perform mathematical operations on it. But Menger viewed utility as a result of individual actor's judgment about how important something was to their own welfare. How much, whether one thing improved their welfare more than another thing. In other words, for Menger, utility was not cardinal. You couldn't put numbers on it. But you could put ordinal rankings on it. Something was more or less important. So if someone had $2 to spend at a vending machine and you could observe them, we know that that $2 is scarce and that they could spend it on a number of different things that were in that vending machine. So if they chose a bottle of water, all we could say is that they valued the bottle of water first higher on what we call their value scale than the can of Coke or the granola bar that they could have purchased. We can say that, as you may have seen in your textbooks, that they derived 10 noodles of satisfaction from the water and only five from the can of Coke so that the bottle of water had twice as much utility as the can of Coke. What the heck is a util? I mean, no one's ever seen one. It can't be defined. It has no extension in objective time, in space. It's an internal magnitude. It's an intensive magnitude, as Mises would say. So we know we like one thing more than another. We'll come back to that point. So for Menger, there was always judgment involved in utility. Utility wasn't inherent in a good. It was judged to be more or less important to the individual. But as I said, it discovered more than the principle of margin utility. It was really sort of nested in his economic view that focused on subjective value and individual choice. So all value for Menger was subjective. Could not be described or quantified in objective quantities. And he was a creative genius. He did draw from many, many different sources. He drew from the classical economists. He drew from the German tradition, from the Italian, French tradition, Italian and French economists, and back to the scholastics of the 15th century and 16th century. So he drew from a lot of different sources. But it was really his system of economics, as we'll see. And it was revolutionary. And just very quickly, a few great historians of economic thought, including Joseph Schumpeter, remarked on how original Menger was. And he wrote, Menger is nobody's pupil. And what he created stands. Menger's theory of value, price, and distribution is the best we have up to now. And that was in 1926 in an obituary for Menger. Ludwig von Mises, who was not Menger's student directly, but met him once or twice towards the end of Menger's life, wrote, what is known as the Austrian School of Economics started in 1871 when Karl Menger published the volume of Principles of Economics. And then Mises goes on to say, until the end of the 70s, the 1870s, there was no Austrian school. There was only Karl Menger. OK, but pretty soon in the 1880s, he began to get followers to continue his work and to advance it. And Frederick Hayek, who was also a notable historian of thought, said that the Austrian school's, quote, fundamental ideas belong fully and wholly to Karl Menger. What's common to the members of the Austrian school what constitutes their peculiarity and provided the foundations for their later contributions is their acceptance of the teaching of Karl Menger. And that's true even until today. All of us, all of the faculty, we really consider ourselves as ultimately Mengarians. OK, so what was the state of economics when Menger came onto the scene? What school dominated economics? Well, it was the classical school. And they did make it very important into contributions to economics. But they had a number of important flaws that prevented them from forming a system of economics that was centered on human beings. If you've had a history of thought course, or even just an intro course, you've seen their names before, the most important were David Hume, a philosopher, Adam Smith, the so-called founder of economics, so he really wasn't, and David Ricardo. What were their contributions that Menger appreciated? And we still appreciate today. First of all, they pointed out, and this is all sort the basis from where Menger started. They pointed out that prices are not arbitrary or random. A huge firm can't just impose a price on someone. A US auto company can't just price its car if it's losing money. And its car is $40,000. It can't simply raise the price to $50,000 and make more money. So these prices are determined by unchangeable and immutable laws, true for all times, all places, and all situations. And as an example, the law of supply and demand. Now these prices that are formed on the market, and they're formed on the market every day, at every moment, every scarce good in the economy has a price. Just walk through Walmart. There's nothing that has no price. Everything has a price. And that price is determined by economic law. And they're used by business owners to calculate profits and losses. Classical school understood this. These business owners, when they saw profits, they would expand their businesses. And they would also expect that new competitors would rush into the business and invest more capital. And there would be competition. So profits call forth competition. Competition isn't something that just happens. Losses, on the other hand, discourage production of the goods for which money is being lost and cause some firms to shut down, others to cut back. And finally, in the long run, if we would hold everything constant, profits and losses themselves would disappear, because resources would be shifted by immutable laws away from those industries that were losing money into industries where profits were being gained. And as competition increased in the profitable industries, prices would fall. Costs of the things that went into producing that good would be bid up, and the prices would be wiped out. So the classical school understood all of that, and Menger took that as accepted doctrine. So he wasn't trying to overthrow that type of thing. Now there wasn't a big flaw in classical economics. When it came to talking about goods, they unfortunately thought of goods in classes. So they would say, is steel more important than diamonds, or diamonds more important than water? They would talk about it in terms of abstract classes of things, a milk, coal, iron, and so on, okay? But think about it. In your experiences in the market, in buying things that satisfy your wants, you never think in terms of all the steel in the world, how much that's worth in some sense compared to diamonds, okay? You're always concerned about, should I buy one gallon of milk, or should I buy two gallons of milk, or should I buy a case of water? I mean, you're continually comparing concrete units of a good, okay? What we might call marginal units, okay? So we'll see marginal really means relevant in Austrian economics, okay? In other forms of economics, it means a very small increment of a good. But that's not what Austrians mean by it. It means the good that's being evaluated and judged by the consumer. Okay, so unfortunately, this failure to understand how consumers valued goods led classical economics into a dead end, okay? At least as it comes to consumer demand. And that was known as a diamond water paradox which we'll talk about. Basically diamonds have a very high exchange value, right? The price per car is very high compared to the price of a gallon of water, let's say, okay? So they have a high exchange value diamonds, but a low use value. Because diamonds are used for satisfied trivial wants like conspicuous consumption, you wanna show off how rich you are, you wanna display your wealth and so on, okay? On the other hand, water, which is absolutely essential to human life, you can't live for more three or four days without consuming water, has a very low price per gallon on the market, okay? What accounts for that? Well, the classical school couldn't figure it out, okay? What they did was to say, well, there's really two kinds of value, exchange value, which is prices, and that's what economics is concerned with, and use value, okay? How people value different things subjectively. And we're not gonna worry about that. We don't need to explain that. We can explain prices without explaining use value, okay? Which is a major error in economics. And they also had to split value into two categories, you know? So that's kind of, science should always be as simple as possible. There should be one law to explain the value of goods, period. Shouldn't be two different categories of goods with totally different explanations. So they explained the costs or the price of bread and water according to their cost of production. They call these non reproducible goods. These goods could be reproduced. So therefore it was a cost that were incurred by businessmen that explained their price, okay? So if something costs, you know, let's say a hundred, a tablet computer costs $200 to produce, well then the price would be that cost plus a bit for profit. So it might be $220 or $250 on the market. But on the other hand, how do you explain that? How do you explain this pink graph, which is called the pink graph diamond, fancy intense pink diamond, which was bought at auction by a London jeweler named Graf back in 2010. How do you explain that being $46 million? First of all, the people who were bidding on this diamond, did they care whether the diamond was found on a beach or whether someone had to spend a lot of effort and time and money in digging it out of the ground? And even if they did have to spend time and money, they certainly didn't have to spend $46 million on it, okay? No one cared about that, okay? So how do you explain that value? Well, the classical economists said, well, you know, it's a monopoly value. You can't produce any more of those diamonds, which isn't totally true, but let's say that that might be true. So therefore a piece of art or a diamond like that sort of has a monopoly value. And so since they could not explain the value of land, which we'll show you can be explained in Austrian economics, they had, and land can't be produced. They had to say, well, all land is a monopoly. So they were really led into erroneous doctrines by, even though they're very brilliant men, but by their failure to understand value. Also, by the way, the cost of production theory of value can't explain why firms ever lose money, right? So if when IBM lost $3 billion, $5 billion, and $6 billion in 1989, 90, and 91, why did they just raise the price of their mainframe computers so that it covered the cost and they didn't lose money? Well, you can't explain that with the cost of production doctrine, okay? And Menger understood all that. And also you get into weird things that, you know, where does value come from? And some of them literally said it comes from the sweat of the laborers. So the laborers sweating over the goods, trying to produce them, that infuses the good with value. It was this crazy stuff. I mean, of course, out of all this came Karl Marx. Okay. So what were Menger's thoughts and achievements on, upon surveying the state of economics when he came on the scene? Oh, I know. I wanted to go back and just say one thing. So if you look at bullet point number four, once you've gotten the consumer out, once you've said that, look, subjective value has no place in economics, then you don't focus on the consumer anymore. You don't focus on individual wants. You don't focus on judgments about how important something is to a person's life in determining its value. What you focus on is the business decision maker. So the businessman became the central figure in classical economics. The homo economicus, the economic man. And that was someone who bought at a low price and sold at a high price. And whose purpose was to accumulate wealth. But again, accumulating wealth to what end? I mean, the natural question is to what end? Why are you accumulating this wealth? Because it serves human wants, but they never took that step because of their failed view of goods, that they were abstract classes. So what was Menger's view? In his preface to his great book, he wrote, I have devoted special attention to the investigation of the causal connections between economic phenomena, involving the products and the corresponding agents of production, the things that you use to produce the good. Not only for the purpose of establishing a price theory based on reality. So he wanted a price theory based on reality and placing all economic phenomena together under one unified point of view. He wanted to explain all economic phenomena, okay? Prices, wages, interest rates, the business cycle, everything, okay, starting from a given standpoint. And that standpoint was human beings striving to satisfy their wants. So we call this approach in economics, causal realist approach. Menger wanted to know the causes wanted to show the causes and demonstrate them of real prices paid in actual markets. Okay, prices being paid right now by people that have been shopping in CVS or Walmart or firms buying inputs from one another or the labor market, all that's going on right now. And those are the prices and wages that Menger wanted to explain. So economic theory to him was the investigation of the causes of prices, wage rates and rents actually paid on real markets, okay? Not equilibrium prices, not prices that would be paid if everybody knew everything, if they knew what all the prices were on the market, okay? But prices paid by human beings who have limited knowledge who have expectations that sometimes turn out to be wrong. That is by prices paid by you and I, okay, real people. Now Menger wrote some notes to himself before he started on his book. He was a journalist by the way before he became an economist. He watched the markets every day and he looked around at the markets and how prices were changing for commodities minute by minute and how stock prices were fluctuating. And he said, the cost of production theory of price can't be right, okay, it's just not right. So economics has to have another starting point. So he wrote these notes out. First, he said, man himself is the beginning and end of every economy, okay? Then he went on another in his notebook elsewhere, he wrote, our science is the theory of a human being's ability to deal with his wants. And then most importantly, the very first line of text in his book is all things are subject to the law of cause and effect. So once you talk about human beings striving to satisfy their wants, they have to have a grasp of the law of cause and effect. Without the law of cause and effect, there would be no human life. Everything would be chaos, okay? You couldn't plan for the future. If you didn't know what the consequence would be of an action that you've undertaken at any given point in time. If different things could follow every time you tried to put peanut butter on bread, if sometimes instead of a peanut butter sandwich, you got a diamond or you got a car, okay? I mean, that's what the world would look like without the law of cause and effect. And Mangan realized that. Most importantly, we live in the real world. We don't just live in our own heads. So what Mangan wanted to do was combine the subjective with the objective. And in order to do that, you have to focus on action and causality and on people's wants and expectations, but as well on their surroundings, on their environment. Now, some Wall Street economists have gone to the extreme of almost denying objective reality. Almost denying that objective reality plays a big part in their decisions. Somehow they have this knowledge that's going through their heads and their expectations are changing and they're buying things randomly. We call them Locmanians. So Mangan recognized that every action embodies both subjective and objective elements and they're related by cause and effect. That's why the first line of his book said that all things are subject to cause and effect. So all action begins in the human mind, uses elements of the objective world in order to satisfy the wants that were in the human mind. So you start with the human mind, go through objective reality and come back to it. So everyone has ends in mind, whenever you are deciding to undertake any action. But then in order to satisfy these ends or to realize these ends, you have to go into the real world and find the means to do so. You then combine those elements, you realize your ends and so you wind up back in subjective reality. So the ends cause people to look for the means which they then combine and when they combine them, that causes something that satisfies them, okay? And these are tritities of terms that Manga wrote out in his notebook. He also wrote man, external world and subsistence. So man causes elements of the external world to be used and combined in a way that will give him subsistence, shelter, food, warmth and so on, okay? And then he's able to subsist and continue in the real world. And finally he wrote out wants, goods and satisfactions which comes from the great French liberal economist and libertarian, Frederick Bastiat. That's the title of a chapter in an unfinished book by Bastiat. So human beings have wants, they go look around the external world, they find things that are called goods that either directly or indirectly satisfy those wants and then that satisfaction culminates in human mind. Satisfaction is a psychic state, okay? I don't mean psychic in the sense that I can talk to the dead. I mean psychic in the sense that it's not just psychological, it's something that puts you at ease at least for the moment, okay? All right, so here's a cartoon version. Here's a guy who's hungry, okay? That hunger causes him to focus on bringing together different means or goods, okay? And combine them, okay? So he has knowledge of what we call the production function. He knows how to make a ham sandwich. And then once the ham sandwich is completed, he then undertakes a further action which directly satisfies him. The ham sandwich serves, it's a service of the ham sandwich. It's not the physical ham sandwich itself, by the way, that's actually directly valuable. It's the service of the ham sandwich in satisfying his wants. And so it goes back to the man himself. His state of hunger is now assuaged. It's now satisfied, okay? So Menger then moved to a theory of goods. We have to look at the real world. We have to look at what makes one of these external elements of the real world valuable, okay? What causes that relationship between the mind and the thing that the mind believes can cause a satisfaction of what Mises called felt uneasiness. So we feel uneasy about something. And if we think we can do something about it, we have to go again and find goods. So Menger started, this is his list, with his first chapter, the theory of the good, okay? And he said, there has to be a human need, like hunger. Secondly, in order to have a good, the thing must be capable of being brought into a causal connection with the satisfaction of the need. So that is the ham sandwich causes the satisfaction of the need. Third, the human knowledge of this causal connection. The person has to know that the ham sandwich will satisfy their hunger. And fourth, you must have control of the thing, okay? Menger used ownership and a sense of control. You must be able to control the elements that go into the making up of the ham sandwich, okay, the production of the ham sandwich. Now, Mises pointed out that Menger was wrong by listing two and three, okay? In fact, someone just has to have a belief that a thing can cause a satisfaction of their wants, okay? So we can combine two and three. The belief that a thing has a capacity to cause a satisfaction of human need, okay? So for, in other words, and Menger recognized this, a few pages later he wrote, well, there are imaginary wants that aren't real wants that can be satisfied. And for example, I mentioned the psychic before, so somebody who speaks to the dead, well, I mean, they don't really speak to the dead, but other people are willing to pay them money for doing so, okay? The New York Times supposedly prints all the news that fits the print, okay? And we know that that's not true. I mean, that's an imaginary belief, okay? But people still pay prices for the New York Times, okay? And we can multiply the goods that don't really satisfy a want, at least from our own point of view, that other people are willing to pay money for, okay? So that's why Mises corrected him. What makes something an economic good? It's economic if there's not enough of it to satisfy all human wants for it, okay? And so then when something's an economic good, okay, and it cannot satisfy all human wants, well, then that's where action comes in, that's where economizing comes in. If something is scarce, then a choice must be made about how to use it, okay? Manga recognize that. So in order to do that, you have to rank your wants, are they more or less important? And in doing that, you have to economize the good. You have to use the goods at your disposal to satisfy only the wants that are most important, okay? So at this point, Manga tries to bring this objective and the objective together. That is, he says, now, how are goods valued? And this is where the law of margin utility comes into play. But notice, Manga doesn't start the law of margin utility. It's just one of the steps in deriving how goods are valued in the real world. So for Manga, he asks a question that allowed him to develop this law of margin utility. And the question was this. Let's say we have an individual who has a number of different wants and he has the same good, okay? And he uses the example of Robin Tsukruso who was shipwrecked on an island, okay? And has nothing at his disposal, but the elements of goods that are available there on the island. Now, what he does with this example is to develop the law of margin utility, which I'll give you first, and then we'll go back and we'll look at what it actually means in real life. So the value of a good is determined by its margin utility. Again, Manga didn't use that term. That is the satisfaction from the least important or lowest ranked end served by the available supply of the good, okay? Now I'm gonna show you a concrete example of that. So the law is as the supply of a good that an individual possesses increases, the value of, or the margin utility, the lowest ranked end that can be served by the unit of that good declines or falls, and therefore the value of the good falls, okay? Now what could that mean, okay? So let's go to the example. Let's say that Crusoe has five sacks of wheat, okay? And he has many, many wants, okay? He only has five sacks, so the black font shows the ends that he can serve with those units. And then he has other ends, okay? So the first end is bread, the most important end is bread to sustain life, that is to allow him to live another year, let's say. A sack of wheat can produce enough bread to keep him alive, okay, not healthy and not too vital, but just keep him alive. The second bread would be, second sack would be used to bake bread that would make him vital and healthy and allow him to achieve other ends. The third would be used for seed for the following year to keep him alive for another year. He would then harvest it the following year. He wants a various diet, so the fourth ranked end, okay? The end that gives him the fourth greatest satisfaction is to feed the wild goats he finds there. So he can vary his diet, he can have milk and cheese and so on. And finally, Menger used whiskey, but he wants a beverage to make him happy, so he uses the fifth sack, let's say, to make, I like vodka, so I'll put vodka in there, okay? And if he had a sixth sack, he wants company, he's lonely. He would feed parrots that he sees on the island and keep company, okay? So here's the question that Menger asked. He said, what's the value of a sack of bread, okay? How can we determine it? Is it the highest satisfaction? Is it dependent on the highest satisfaction you can get from the sack of bread from keeping you alive? Is it an average? Well, Menger said, what if one sack was, let's say, a fox broke into where he was storing the sack, and let's say the third sack, seed for the next harvest was devoured by the fox, okay? So now he would only have four sacks and he could only serve four of his ends. What value has he lost? What would any rational, what would any human being do, given that they value things that way? They would give up the lowest ranked end. So the value of all five sacks is the satisfaction from drinking the vodka. The expected satisfaction from drinking the vodka over the course of the following year, okay? That is what each, that is the marginal utility of that supply of the good. It's the satisfaction from the lowest ranked end from drinking the vodka. So no matter which, because no matter which sack you lost, you would not give up any end, but what? The lowest ranked end, okay? And if you found another sack of wheat, if you harvested another sack, a sixth sack of wheat, then you would have feed for your parrot, okay? So then the marginal utility would drop and the value of the good would drop, okay? Now each sack would be worth less. Now how did that resolve the paradox of value? Why is a diamond much more expensive than a gallon of water or a pound of bread, okay? Well, you can sort of have a mental experiment like Menger does and think about having a diamond, maybe that pink graph diamond you paid $46 million for in your pocket and you're in a desert and you haven't had water for three days. Would you exchange that diamond for a gallon of water? Well, you would because the marginal utility of living three more days with that gallon of water exceeds the value of the diamond, okay? So the reason why diamonds are much more expensive in the real world than bread is or in everyday life, okay? Is because the marginal utility of bread is so much lower. It serves a much lower ranked end. So you don't look at the highest end that's served by the bread. You always look at the lowest ranked end that's served by the bread. Whereas diamonds are much more scarce compared to bread and therefore their marginal utility and their value is higher, okay? And so that explains, by the way, why one of the most important things in this room is free, air, okay? We can't live more than a few more minutes without any air yet we don't pay a price for air in a normal situation because if we lost a cubic foot of air from this room, no human want would go unsatisfied. We still have more than enough air in this room for all of us to have as much as we want, okay? So again, air is the most important good on earth, but yet we pay the exchange value is zero. Menger explained all of that. And then here's a little test. Let's say a farmer has supply of three horses and two cattle and he can use the horses have different uses. They're all identical, the three horses, but they have different uses than the two cows which are also identical. So he uses the first horse for plowing wheat, the second horse, he can also hitch to the plow and it increases his productivity so he can produce more wheat. The cow, the first cow is used for the third ranked end, which is milk, whereas the second cow is used for beef, okay? And the third horse is used for recreational riding. Okay, so which animal is more important? Which animal is more valuable to Crusoe? What's the mangarian answer to that? Well, the barn's on fire, all five animals are in the barn. You can only say four, which one do you leave in a barn? The one that yields the lowest satisfaction, okay? The horse, the horse is the animal that has a lower value. Now if you've lost that horse, then which animal becomes more valuable? Well, the margin utility of horses are now higher because now the second ranked end is served by a horse and the fourth ranked end is served by a cow, okay? So and by the way, so in a real-world situation, I mean, you would see the law of margin utility operating. So let's say a family has three cars, okay? Let's say there's a primary breadwinner, then let's say the spouse has a part-time job and runs errands and then junior, you know, the teenager drives a car to school and for entertainment purposes, okay? So you have three cars. Let's say the old man crashes his car. Who goes without the car? Okay, junior. Junior loses the use of the car, okay? That's a little more of a utility because on the household's value scale, that is the lowest-ranked use. Okay, now there's a few other concepts I wanna just mention and that is how does the value of these consumer's goods get imputed, we'll use that word because that's the word Austrians use, imputed back to things that are used to produce them. So Menge came up with the concept of orders of goods, okay? So you have in this case the production of an automobile and it goes through many, many different stages of production, okay? And you call these stages that were furthest away from consumers, higher order industries, okay? So producing the iron ore, mining the iron ore, which then is turned into steel, which then it's turned into rolled steel, which then can be used to stamp out auto parts, which then are assembled, okay? So as you move down these orders of production, as you move from the higher to the lower stage, you get closer and closer to the consumer, okay? And then the consumer good is produced, okay? So keep that in mind because that's at the basis of Menge's law of imputation, okay? So what Menge pointed out is that the value of the means is determined by the value of the ends or by the value of the wants that they serve. So value is always imputed backwards, okay? The value of the consumer good causes the value of the goods that are used to produce it. So the subjective value of transportation services to you, the services that a car yields you, determines the value of the car itself, the consumer's good, and the gasoline that you use, which in turn determined the value of the metal, okay? Of the steel, of the robot assembly machinery, and so on, okay? So just to give it to you in the form of a little chart here, production goes from the higher to the lower orders. We know that, okay? So farm tools combine with labor, cause a production of wheat. Wheat combined with labor, cause a production of flour. Flour combined with labor, cause a production of bread, and so on, all the way down to consumer's good. And the consumer, the consumer good, serving the wants of the consumer causes the value of the bread, okay? So production goes from higher to lower stages, but value goes which way, the other way? It's the fact that the bread satisfies hunger that causes the value of the loaf of bread. And the fact that the bread can be used to satisfy hunger causes the value of the bread at wholesale, okay? Which causes the value of the flour. So I often give my undergraduates the example of, well, let me give you Menger's example first, and I'll give you the other example. So Menger used the example of tobacco. He said, look, if people were to stop smoking cigars and cigarettes, then the value of rolling machines in those days, they rolled their own cigarettes and cigars would go down, or would fall to zero. If everyone changed their preferences and then stopped using tobacco, which in turn would then cause the value of tobacco to fall to zero, which in turn would then cause the value of fields that are growing tobacco, if they can't be used for anything else, to fall to zero, okay? So contrary to the classical school, production doesn't yield value. It's really the other way around. It's the fact that the consumer good is valuable that causes people to undertake production and people to impute value to those things that are used in production. So another example is one of my favorite movies, an older movie from the 80s with Harrison Ford was called A Witness, a very good movie. And it's set in the Amish country in southeastern Pennsylvania. The Amish are religious sect and they're not ostentatious. They don't wear any jewelry. They don't even use buttons on their clothing. They use hooks and hoops, because it's against their religious beliefs to be ostentatious and to conspicuously display wealth and so on, but they are very wealthy. Their farms do very, very well. But in any case, what if everyone adopted, everyone in the US adopted the values of the Amish and sort of disdained jewelry and would not use jewelry. What would happen to the value of diamonds, of that graph diamond? Four from $46 million to zero. What would happen to the high wages of gem dealers and of those who fashioned diamonds into gems? That would fall to zero. What would happen to the value of diamond mines? That would fall to zero. But it would be backwards, right? It's because the value of diamonds have full, or diamonds have no value. That diamond mines now suddenly have no value. Finally, just as a last point, Manger applied subjective value to exchange. So he pointed out that if you have two people, A and B, and let's say under barter, A has a cow, so the good that's in parentheses is good that they don't have and are thinking about getting, but they value a horse more than the cow, well then they would be willing to exchange the cow for the horse with B. So an exchange would take place because both A and B are getting something that they value more than what they're giving up. That contrast with the classical school who would say that, well, a horse exchanges for a cow because a horse is equal in value to a cow. Or in modern times, a BMW exchanged for $70,000 because a BMW is equal in value to $70,000. It costs $70,000 to produce a BMW. But that's, of course, not true. What Manger pointed out is that exchange takes place not because there's an equality of value, but because there's a double inequality of value. Both parties to the exchange value what they're getting more than what they're giving up, which means that they value the goods in reverse order. So I will stop there and thank you very much for your attention.