 The birth of the Austrian school, that's my topic. The founding of the Austrian school was one of the greatest intellectual achievements in human history. And it was all undertaken by one man, Carl Menger. Carl Menger is the founder of the Austrian School of Economics. In fact, at some point Ludwig von Mises said that until 1881, when Menger began to find some students, there was no Austrian school. There was only Carl Menger. So he was the one who founded it. It was something new under the sun, as we'll see. So let me start just by directing your attention to the Marginalist Revolution. Marginalist Revolution was also a very, very interesting development because it was sort of the founding or the invention or discovery, rather, of the law of Marginal utility. And it was done independently by three different economists who were working independently of one another and who lived in different areas. So we had Carl Menger from Austria, William Stanley Jevins, who was British, and Leon Valras, who was a Swiss French. And Menger and Jevins wrote their books in 1871, and Valras, who was at the time not familiar with their books, or so he said, published his book in 1874. Now, Valras and Jevins were mathematical economists. They conceptualized Marginal utility, and utility is simply another word for satisfaction. They conceptualized utility, and we'll talk more about this, as quantities of satisfaction that could be added up, that could be compared between individuals. That was not Menger's approach. Carl Menger saw utility as the outcome of a judgment by human beings about how concrete goods, the bottle of water that I'm about to be drinking, the laptop that you have, concrete units of goods were judged as more or less important by individual human beings. So utility was not a mathematical concept to Menger, and that's extremely important. There were different terms were used. Menger himself did not apply a term to the concept. His student, Wieser, came up with the word Marginal utility, or the term Marginal utility. The final utility was the term used by Jevins, and Rarite was the term used by Valras. However, the term Marginal utility did find its way into common use among economists, and is the term that we use today. That's William Stanley Jevins, kind of a wise guy when he was younger, and then sort of a grandfatherly type as he got older. There's Leon Valras, kind of dark and diabolical. But then again, he turns into a grandfather, too. There's Menger, distinguished when he was younger, distinguished when he was older. Oh, that's a modern economist. But you'd say the same thing about him as you did about Menger. I can't believe I wore goggles when I was that age, but that was his style. Trust me on that. Okay, so the great historians of thought have gushed about Menger's, and rightly so, about his achievement. Okay, so we had Joseph Schumpeter saying that Menger was no one's pupil and what he created stands. Menger's theory of value, price, and distribution is the best we have up to now, 1926. And just so you know, Schumpeter was, even though he was an Austrian, he was more a follower of Valras, but he still gave testimony to how great Menger was. Ludwig von Mises, who was two generations after Karl Menger in the Austrian school, wrote what is known as the Austrian School of Economics started in 1871, when Karl Menger published a slender volume, okay, and it was called Principles of Economics. Until the end of the 70s, as I said before, there was no Austrian school that was only Karl Menger. And finally, Mises's student, Hayek, wrote that the Austrian school's fundamental ideas belong fully and wholly to Karl Menger. Okay, so Menger was the founder. And what he created, and he did create, I mean, there's one thing that human beings can create in this world. Okay, as the economist, J.B. Say, pointed out in 1802, human beings cannot create goods. Okay, they can transform elements of their environment so that they better satisfy wants, but they can't create something from nothing. However, ideas are something that human beings can't create. They are something new under the sun. And that was the case with Karl Menger. Okay, so let's talk a little bit about what economics looked like when Karl Menger began to write, or what Karl Menger published in his book. He began to write it a little bit earlier than 1871. There were the classical economists. Now, Ludwig von Mises liked the classical economists. They did a lot of good things, but they did have their flaws. So David Hume, Adam Smith, David Ricardo, they were the main classical economists you might want to add in John Stuart Mill, who wrote later in the century, but he was a much weaker thinker than these three. Okay, and he turned towards socialism under the influence of his wife Harriet. Okay, let me just say a few things about the classical school. They faced a problem that they could not solve. What they did was they focused on goods, when they dealt with goods, as classes so that they talked about diamonds, water, coal, bread, in general. Not as they related to human beings at a given time in history with given wants and given resources at their disposal, which is what Menger did. So that brought them face to face with the problem. And that problem was the paradox of value. And they went wrong in trying to solve this paradox. Because they gave this paradox a wrong answer, their value theory was flawed. And this is what ultimately undermined the classical school. So they looked at diamonds and they said, hmm, there's a paradox there. Diamonds are very expensive. Okay, a carat of diamonds costs much more or had a much higher price than, let's say, a pound of bread. But on the other hand, bread was much more useful to human beings. Okay, without bread, and again, in classes if there's no bread in the world, whoever chooses between all the bread in the world. I mean, this is Menger's great insight, no one does. But without bread, human beings would not be able to subsist. Because that was a staple in England, bread. On the other hand, diamonds were simply a mere frippery. They were for ostentation, for conspicuous consumption. We could do without them and not be worse off as human beings. We could certainly go on living. So that was the paradox. Now how did they solve that paradox? What they did was to, and here's an example of the paradox. That diamond, which is a graph pink, was at the time in 2010 the most expensive diamond ever sold at auction. And you can begin to see the problem there, right? Because the classical school believed that the cost of production was what determined the price of a good. So this is how they tried to solve the paradox of value. They said, look, there's two kinds of values for goods. There's a subjective use value, the satisfaction that human beings get from consuming the good, and then there's an objective exchange value, which was the price of the good on the market. So what they said was, well, we don't really have much to say as economists about subjective use value. Yes, yes, there has to be subjective use value if something is to be a good, but that's all we're going to say about it. So they just forgot about it. And they focused on building a system of economic theory around the exchange value, trying to explain prices of goods and services. And their explanation was a cost of production explanation. So Adam Smith used money costs of production. David Ricardo used an even simpler theory which was picked up by Marx, and that is the number of labor hours. So if, for example, an HDTV had 20 times the number of labor hours as, let's say, a tablet computer, then the HDTV would be 20 times as expensive. But they confronted another problem. The problem was, things like HDTVs, articles of clothing, coal, and so on, those all can be reproduced. And in some sense, you can explain the prices by the costs. Though those costs were backward-looking. On the other hand, what about something like this diamond? We don't know when it was found. No one knows what the cost of this diamond was. Or what about things like the handwritten lyrics to I Am the Walrus by John Lennon which sold for over $100,000 at auction? How much did that cost John Lennon to write those lyrics? Or what about a painting by an old master who is now dead or any artist that has passed away? The price of those paintings typically had nothing to do with the cost of production. Classically, economists weren't dumb. They recognized this problem. They said, well, okay, there's two kinds of goods. So one kind of the reproducible goods, the clothing, the McDonald's, hamburgers, and so on, these things have their prices explained by cost of production. Prices depend on the cost of production. Other things like antiques, collectibles, handwritten lyrics, and so on, those things are scarcity goods. So that's explained simply by supply and demand. Now they did believe in supply and demand. This is one of the reasons why Menger liked them. In the short run, they did believe that the supply and demand for good determines its value. So therefore, for example, that if the demand for hybrid cars went up, goes up, then you have an increase in the price of those hybrid cars, and they went even further, they had a good theory of how prices regulate production. They did not think prices were arbitrary. So Menger also liked these two things about them, the fact that they did focus on supply and demand, at least in the short run, and at least for goods that could not be reproduced, and that in the long run, my other point, which is now slipping away, that prices did regulate production. For example, take the example of an increase in the price of oil in 2010, when price of oil shot up, the fracking technology became commercially viable. So in response to the increase in price, there was an increase in the supply or output of oil and gas, and resources then shifted into those areas. So they did believe that supply and demand controlled things in the short run. But in the long run, everything tended toward the cost of production. Since there were high prices, let's say in fracking technology, more people got into fracking technology. We had more oil, with the greater supply of oil, prices fell, and the price fell to near the average cost, which then wiped out profits. So this was the theory of the classical economists. So there were a number of problems with that theory. So this is what I just went over. There was certainly wrong about this. That was your explanation. This is what I just mentioned about how prices regulate production, and these will be up, and you can go through them. But any increase in demand for anything raises the price in the short run above the average cost. That brings about a profit, and that raises the profit above normal, brings new people in, draws new entrepreneurs in, and that pushes prices down. So when the Apple iPad was introduced, there was introduced a high price, high profits, and soon the tablet computer market exploded. So all of this stuff was good, at least from Enger's point of view. But the paradox of value was the real problem. Now, before I get to Enger's purpose, it's important to point out that the classical economists believe that value was inherent in a good. So that when you had a price of a good and its cost, that that cost was determined by the production process, by what happened before the good reached the market, not by the consumers, not by the judgments of the consumers, but by the laborers in some sense sweating into the good, how much sweat was put into the good. That's the cost of the good. But as I pointed out before, certainly we don't know, or certainly from the point of view of an individual, if a diamond is picked up on a beach, or a diamond takes a lot of effort to find and to mine, those two diamonds, if in the eyes of the consumer, in quality, well, then those two diamonds are equal in value. So Enger's point was that value was forward-looking. Once the good came onto the market, you had individuals assessing those goods and how important they were for their own ends. So value was not inherent in a good. Value was imputed to a good by human beings who were deciding on how useful those goods were in achieving their own welfare. Okay, so in the preface of his book, Menger wrote the following. He said, I have devoted special attention to the investigation, and note the words that I have in red here. Causal connections between economic phenomena involving products and the corresponding agents of production. Not only for the purpose of establishing a price theory based on reality and placing all price phenomena together under one unified point of view, but also because of the important insights we thereby gained into many other economic processes, which were, before then, completely misunderstood. So he wanted to explain the value of all goods, not just consumer goods, but also labor, land, capital goods. He wanted to all explain it by one principle. So that was his intent. And you can see that what he did was to start a tradition, and we call it the causal realist tradition. He wanted to explain the cause of prices in the real world. So his price theory, Austrian price theory, is causal realist price theory. It's the investigation of the causes of real prices and wages that are actually paid on the market. We want to know what explains the prices that are right now being paid, for example, at Walmart. Why are those prices being paid? This is what Menger aimed at explaining and all of his followers have kept to this tradition. It's very important. Now, in writing some notes to himself before he wrote his book, he came up with this idea that human beings were at the center of all economic activity. He was a journalist. He was a financial journalist. So he saw that prices were changing on financial markets, not only from day to day, but sometimes from minute to minute. And that certainly wasn't something that the classical economists could explain with their course of production theory. So he began to make notes to himself. And one was man himself is the beginning and the end of every economy. So the economy begins with people's wants and ends with people satisfying those wants through their economic activities. And I'll give you a little diagram of how that occurs. He also wrote, our science is the theory of human beings' ability to deal with their wants. So now what he's doing, he's putting consumers at the center of economic activity. The classical school, because they had sort of pushed the side subjective use value, put the business decision maker, the businessman, at the center of economic activity. Okay, so what the classical school focused on was buying your factors of production, your resources cheap, and producing a good that you could sell at a higher price. So they focused on the decision making of the businessman. Now that's important, but that doesn't tell the complete story. Because why is the thing that the businessman has transformed his resources into? Why is that electric car or hybrid car? Why does that have a high price? A price that's higher than its costs? You have to go to the consumer to be able to explain that phenomenon. So here is the diagram. And Menger wrote out these three trinities of causation. So if you'll know, we start with ends, human ends, human ends inspire people, induce people to look around for means to satisfy those ends. So someone is cold and wants shelter from the elements. So let's say Robinson Crusoe, he's going to look around this island and see what is useful or what can be used to build some sort of a shelter. So human ends then bring about the notion of means. How can I satisfy these ends? Once the means have been arranged and transformed into something that can directly satisfy those ends, the ends are realized. So the means cause the realization of the ends. And so you see that arrow goes back. So causation goes two ways. All activity is caused by the ends, but then when you achieve those ends, that satisfies your wants. The second one you begin with, these again are Manger's words, you begin with man in a generic sense. That brings about an investigation of the external world for things that can satisfy the man's wants, that can keep the man alive. So then the subsistence is what causes the man to be able to live and satisfy his wants. So man causes the creation of subsistence, but the subsistence then causes the life in this case to go on. And finally, wants, goods, and satisfaction, that's the same sort of trinity. Wants cause the search for goods, the production of goods, and once you have the goods, the goods themselves cause the satisfaction of the wants. And this is interesting, because it's taken from... Manger was a bibliophile, had one of the biggest economics libraries in all of Europe, and he certainly read the French liberal economists, he referred to them in his writings. And one of the chapters in Frederick Bastiat, the great laissez-faire economist from the mid-19th century, reads wants, efforts, and satisfaction, which is exactly the trinity of causality that Manger put in his notes. Wants bring about human efforts to satisfy those wants. Once you have the goods available then, you can directly satisfy those wants. And that was Bastiat's point. Now, Manger looked very carefully at goods. He had two long chapters on goods in his principles, because goods weren't something that were just produced by human beings. You could dig a ditch and fill it in, or you could build a huge structure that was ugly and no one liked and no firm wanted to rent space in. So no matter how much time, effort, and resources it cost to build this huge skyscraper that no one wanted to rent in, that would not be a good. So Manger said there has to be a human need. And he used the word need synonymously with the word want. He didn't mean necessarily biological need. He said the thing is capable of being brought into causal connection with the satisfaction of the need. So you have to have the need. So let's say your need is that for food. You're hungry. What thing might be brought into causal connection with satisfying that need? Well, let's say a meal at Chipotle. So you have the means. You can control those means. If you have the money available you can purchase a meal at Chipotle. Human knowledge of the causal connection you have to know that a meal at Chipotle will satisfy your hunger. That there's a causal connection between that meal and your hunger. And finally you have to have command of the thing sufficient to direct it to the satisfaction of the need. So in this case if you have the money available then you can have command of the thing. Now there's a mistake there that Manger made and it was later on until the 1930s corrected by Ludwig von Mises. Mises, and this was in Manger but Manger wasn't aware of it as much as Mises was. Mises understood that in the real world there's imperfect knowledge and uncertainty. We don't always know what things will satisfy our needs. So Mises combined two and three or actually crossed them out and replaced them with another proposition. He said really it's the belief that a thing has the capacity to cause the satisfaction of a human need. And Mises of course is right if you look at things like a psychic if someone has a need to get in touch with a dead relative they go to a psychic. They don't have knowledge that this is actually will satisfy that need, right? They have a belief that it will. They may very well be wrong about all of this. Someone wants knowledge and knowledgeable commentary about the real world about what's going on in the world. So they buy the New York Times. Again, certainly the human knowledge of the causal connection is not there. There's a belief that it will do that. Now Manger actually recognized this and he said well there are these goods because he saw that psychics for example did get paid or people who sold quack medicines did sell the medicine at a price but he called them imaginary goods. So Manger actually recognized that but he put them into another class. So for Manger then if you start with wants then that means that you have dissatisfaction, right? That you're not satisfied. That the things around you aren't immediately fulfilling your wants. So Manger pointed out that there's scarcity and as a result of scarcity there has to be choice, okay? You have to rank some things higher than other things. You have to decide how to use the scarce things that are around you. And then in order to do that you have to rank your wants according to which one is more important which is less important. And that brings us to the concept of economizing. So in classical economics you had what was called the economic man. The person who operated on markets as a businessman who bought in markets where things were cheap and then sold the markets where things were more expensive to earn a profit. Manger broadened that to human beings faced with scarcity who then ranked their wants and economized those things. That is when you say you economize what we mean is that you use things or resources or goods for only those wants that are most important to you. So Manger had a concept of economic goods so if I can go back on this which I may be able to Manger pointed out that some of the things that fulfill a human need things like the sun, a sunny day or the air in this room those things are not scarce. Goods, Manger said, they're free goods but they're not scarce. All of the conditions have to be present for something to be a scarce good. Once you admit into your system that most goods are scarce that's when you have economics. That's when you have the need to economize. So instead of being an economic man someone who's controlled by economic motives someone who's controlled by the need to earn a profit you have someone who is acting the economizing man. So economizing is a verb. Economizing is something that someone does in reaction to the all pervasive state of scarcity that we as human beings find ourselves in. What's interesting here you might note that let's say you want to go to a baseball game and to go to a baseball game you need a sunny day. Well certainly the sun fulfills the human need there is a belief that there is a causal relation between the sun and a pleasant experience at the baseball game but the sun isn't a good. Why isn't the sun a good? The sun isn't a good because you can't command it. We don't have the technology yet available to produce a sunny day to get rid of the clouds. So even though the sun is extremely useful to human beings we're going to come back to this point it's not a good. And air is not a good even though it fulfills some of these because as we'll see in a few minutes it's not scarce, air is not scarce in a normal situation. So for menger the value of a good is determined by its marginal utility and that has a very specific meaning. Remember utility means nothing more than satisfaction. So it's the satisfaction from the least important or lowest ranked and served by the available supply of the good. So I'm going to give you the abstract definition which you might not catch on to right away. Then I'll go through an example. And the law of marginal utility is the next proposition that's listed there. As the supply of a good possessed by an individual increases its marginal utility and therefore its value decreases. Right now, how did menger arrive at those propositions? Menger asked some very probing questions. He was very good at solving economic problems by first posing a question. So he came up with this example and then asked the question. In this example you have a fictional Robinson Crusoe who is stranded on an island without any resources at his disposal but what exists on the island itself. So he has no capital goods. He just has his human energy and natural resources. And he has a lot of wants. Well, let's say that this island is arable. He can grow wheat on this island and there are the means there that will permit him to grow the wheat but he can only grow so much wheat. Wheat is scarce. It's scarce good. It doesn't grow wild. It doesn't grow in overabundance. So let's say that menger ranks his wants. Because he can grow let's say five sacks of wheat each harvest. And so the most important to him is the first end which is to sustain his life. The second is to have a second sack of wheat that's enough to give him vitality to allow him to be more active and satisfy other wants. Then the third sack he would devote to using it as seed for the next year's harvest so that he can live another year. The fourth he might use to vary his diet. Let's say there's wild goats on the island. He can domesticate them, feed them and get butter, milk, cheese and goat meat and so on. And finally well, he used whiskey. He also wants a beverage. I like vodka so I put vodka in there. So menger then asks a question. What is the value of a sack of wheat? Because remember, Austrians don't focus on classes of goods. We don't focus on all the wheat. We focus on units of goods that we have to choose between. So he asks the question, what is the value of wheat? Is the value of wheat the satisfaction that you get from sustaining your life? Is it from some average of all five ends you sort of try to add them up which obviously you can't do. You can't add the utility from these five ends. You can only rank them. So notice it's first, second, third, fourth, fifth. I did not put cardinal numbers there. I didn't say that the bread to sustain life would give you 100 eutles and bread to sustain health would give you 50 eutles. Eutles is sometimes if you had economics used as the unit to measure utility. But the question of course immediately presents itself, what the hell is a eutle? And there is no definition of a eutle. It's not extensive time and space. It's an intensive internal magnitude or even just a quality. So here's the question Mengar asked to solve that problem of what is the value of one sack of wheat. He said to himself or he said to his readers, what would happen if let's say some vermin break into the shelter where we had the wheat stored and let's say it consumed the bag or the sack that was earmarked for the second highest ranked end. That is bread to sustain his health. What would Mengar as an economizing man do? Well you can see the answer right away. Would he go without the bread to sustain his health? Of course not. He would rearrange his resources so that he was economizing them so that he was achieving only the highest ranked ends that he could with that supply of the good. So he would give up making vodka. It would be a terrible thing, but he'd give it up. And that's true of no matter which sack he lost. So the marginal utility is the relevant. When you see marginal it's the relevant. It's the unit that you're considering. So the relevant utility in utilities in other words for satisfaction. The relevant satisfaction of a sack of wheat is simply the satisfaction from consuming the vodka. That is what he values the sack of wheat at. No matter which one it is that's the value. Now what would happen to the value if he lost that first sack? Okay, now he only has four sacks left. Well that's the law of modern utility. As you increase the supply of a good that an individual possesses the margin utility of the good falls and so does its value. And of course that holds in reverse. As you decrease the supply of a good that an individual possesses the margin utility rises. That is the least satisfaction that you can achieve with that supply increases and so does the value. So wheat is now more valuable to Robinson Crusoe. On the other hand if he found that he could with fertilizer get a sixth sack of wheat then he would feed a parent which has a lower value than consuming the vodka and therefore the value and the margin utility of the good would fall. Or rather the margin utility which controls the value would fall. Let me give you a quiz. Let's say there's a farmer who has different goods that satisfy different ends are not interchangeable like we're assuming the wheat was all interchangeable. There were identical sacks and this is how he ranks the uses that he can put these two animals to. So the horse can be used. Most important then is to use the horse for plowing wheat. Second most important is to add the second horse to the team and make him more productive in producing wheat. The third end is to have milk. So one cow can give him milk and then the fourth is to have beef. So a second cow would be used for beef and he has a supply of two cows and then the third horse would be used for recreational riding. So we can ask Manger's question what if the barn is burning and you can save four of the five animals. What's a lower valued animal? So the horse is going to be a lower valued animal. You don't look at the higher end of the value scale. What you do look at is the relevant satisfaction. It must be given up. So looking at that value scale as it is, we call it a value scale, a ranking of values, we would say with those animals that the cow has a higher value than the horse. Right now the cow has a higher value than the horse. Once the horse is lost in that fire what happens? Now the margin utility of beef is lower than the margin utility of the second horse that increases productivity. So now the horse becomes the higher valued animal. But Manger went beyond that. He came up with another notion that helps us explain pricing in the whole economy. By the way of course. So then how did Manger solve the paradox of value? Manger solved the paradox of value very simply by pointing out that we value diamonds in units just as we do any other good. We value bread in units. Let's say it's the water it was called the water diamond paradox, but let's use bread, the bread diamond paradox. In a normal situation there's much more many more pounds of bread in the world than there are carrots of diamonds. So diamonds may be ranked very may have a much higher price than bread. But ask yourself if you're in the desert and you've been there for three days and you're on the point of dying of thirst and you had that pink diamond, that $46 million pink diamond in your pocket and someone came up to you with a gallon of water which would need to stay alive would you trade the pink diamond for the gallon of water? Yes, of course you would. The reason being that the relevant unit of water since you have none, it's extremely scarce the relevant unit of water is higher in value than the relevant diamond. You're going to choose the water over the diamond. So in that situation the water has a higher value. In a normal situation the water is much more abundant than diamonds so even though water might be very, very high on your value scale, on almost everyone's value scale water has a much lower value than diamonds because it serves much lower ranked ends and that's why, as I mentioned before, air has no value to us in a normal situation. So because if we lost one cubic foot of air from this room no one would notice it. It wouldn't on anyone's satisfaction. However, if someone's going to the moon or if someone is a deep sea diver or someone has emphysema and it's a day where like a normal day in Los Angeles with a lot of smog then you would pay to purchase a supply of air. So it all depends on the situation of the individual, his values, his means and so on. So the concrete situation. Menger always used the word concrete to refer to real situations. So let's go on to the orders of goods I have a few more minutes here Menger said that there are steps in producing consumer goods. We have to progressively transform certain elements beginning with land and labor into what we later call capital goods and then finally transform them into the good that we consume. So he called the higher order goods those goods that were further away from the consumers, those that were less ready for consumption and would take more time such as iron ore mining, steel production all those higher order goods and the lower order goods were those goods that were closer to consumers. The final order good was of course the consumer good to deal at the dealer. And what's important about this is that Menger realized and was able to show just why the cost of production theory of the classical economist was wrong. And what he pointed out is that value was imputed backwards. People don't value the automobile because it costs a lot to dig iron out of the ground in the sometime in the past no one cares about that. You go into an automobile, you don't think about wow, the guy who was working on that steel it was a hard job and there was a lot of resources involved. No one thinks about that. What they think about is how does this car improve my welfare compared to other things I could purchase with this sum of money. That's what you think about. Your always value is a forward looking phenomenon not a backward looking phenomenon. And here's a little diagram of that. Notice that production goes in one direction. It goes from the higher order goods to the lower order goods from the farm tools to the wheat to the flour which is the wheat's ground into flour and flour is then baked in the bread and bread is then transported to the supermarket and then you purchase it. But notice value goes the other way. So consumers don't value the bread because it costs some money to produce the bread. In fact the consumers don't value the loaf of bread at all. What consumers actually value and this wasn't Manger who saw this but his student Bombaverk pointed out that what we value are the services from the bread. We value what we expect our satisfaction to be when we actually eat the bread in the form of a sandwich let's say. So with a one time good like bread that you consume right away that might be a little difficult to understand. But you value the car that's sitting in your driveway not because you like the car itself not because you attach a value to the car directly but because you attach a value to the transportation services or the showing off services if it's a really cool car that you get from owning that car and then you impute that back to the car itself. So all that stream of satisfaction into the future is the basis of the value of the automobile itself. And then all the way up things go back the only reason why the steel and the electricity and the factory space are valuable is because the car that they produce is valuable. So Manger used a very good example he said what if people stop smoking cigarettes they suddenly believe that they're bad for your health and they stop smoking cigarettes all together. What would happen to the value of the cigarettes? Well, they would fall to zero but not only the value of cigarettes the value of cigarette rolling machines would fall to zero the value of the premises if it couldn't be used for anything else on which the cigarettes were produced would fall to zero and most importantly the value of land would fall let's say the land could only produce tobacco leaves that would fall to zero. The classical school could never explain why land had a price. So they said well land's a monopoly there's not enough land in the world everybody can't have it so the people that have it are monopolists and they charge a monopoly price. Manger showed no no it's the consumers that determine the value of land. Let me just tell you one more story before I end. So a few nights ago I saw the movie Witness again I like that movie quite a bit it's about the Pennsylvania Dutch Harrison Ford stars in it it's kind of a police thriller takes place in southeast in Pennsylvania where there are Amish and there's a scene in the movie where he's in hiding Harrison Ford from people that want to kill him and he's living among the Amish and he can't find the buttons on his shirt and she says well we're plain people we don't wear any sort of adornments and in fact we just have eyes and hooks just little loops and a little metal piece that we put in we don't even want buttons so if everyone had adopted the values let's say of the Amish let's say everybody in the United States did what would happen to the value of diamonds not only do they not have buttons obviously they don't have any jewelry value of diamonds is 4 to 0 despite how much it cost to mine diamonds what would happen to the value of or the wages or salaries of the very specialized gem appraisers well suddenly no one would pay anything for a gem appraiser and of course what would happen to the value of diamond mines 4 to 0 so what Menger has done to sum up is to explain how prices are determined throughout the economy in all orders of goods starting with human beings at the center okay and through the notion of causation that the wants cause all of this phenomenon everything you see around us if you go to New York City and see the skyline all of those things were built were constructed because of human wants okay and they in turn then satisfy the human wants so that was Menger's vision and I'll stop there thank you