 Good morning. In the first two days of Mises University, the faculty constructs the foundation of understanding the working of the market economy, the foundation of understanding catalactics, and in understanding the market economy, in understanding all other possible economies. And this foundation is the principle of economic calculation. So in this time that we have together now, we will lay the cornerstone of this foundation. And the cornerstone of the foundation of economic calculation is the theory of price. We'll proceed in four steps. In the first step, we will talk about some of the fundamental principles of human action, repairing to some of the things that Dr. Hoppe discussed last night. And from there, we'll move on to the concept of valuation. And we'll see that valuation is the logical principle behind the way in which all of us construct what we might call our personal economies, how we come to acquire and goods and use them in acts of production and consumption. And having done that, we'll introduce the principle of appraisement, which is the method by which entrepreneurs in the market economy economize the use of resources and consumer goods in a way that's parallel to our own personal economies in the way that we economize within our own personal lives. And in doing that, we'll talk briefly about the concept of economic calculation. And then with all that as background, we'll talk about the theory of price. So to start at the beginning, human action is purposeful behavior. That in human action, the human person is aiming to attain an end. Or we could say that the human person has the motive of attaining the end. We realize, though, immediately, once the concept is in our minds, present in the forefront of our minds, of having an end, that having an end does not constitute action. In order to act, we have to first perceive that there are means in the world that can be brought into concert and used by us to act and then attempt to realize the attainment of the end for which we're striving. Or we could put it this way, in any particular instance of action, we have unmet ends, because our means are scarce. There's just another way of saying that some of our ends are unmet. Now another fundamental principle is that the means that we have available to us in our world are somewhat convertible from one process of production to another. So this is obviously true of labor. We can shift our labor activity from producing one thing to producing another, and therefore, attaining one end as opposed to another. And again, it's sort of obviously true about land sites. They can be used for all sorts of various productive activities. They're somewhat convertible from one thing to another. And even capital goods are this way, although some of capital goods, of course, are not as convertible as others. But you can think of things like computers that could be shifted from one kind of production process to another. Now, given all of this, it follows that we have to make choices when we engage in action. That action is predicated upon choice. If our means are scarce, we have to make a choice then. Which ends to pursue? If our means are convertible, if we can combine them in different ways to act and try to attain an end, we have to choose then which combination of means to put together in order to engage in action to strive to attain our ends. Now, if we combine these facts with the purpose that we mentioned at the beginning, we get the fundamental concept of economic analysis which is economizing. You could see that the whole language of economics comes from this idea that we economize. Human beings are economizing. We strive to attain higher valued ends with the means that we have. And we set aside lesser valued ends. And for any given end, we strive to attain this end with a combination of means that we value less highly. And therefore have a more valuable means to attain other ends. So we're always constantly engaged in economizing in every action. This is a fundamental principle of human action. And as Dr. Hoppe pointed out last night, this economizing activity requires personal judgment. It's only undertaken by each individual person striving to, again, perceive and acquire and use means that he or she thinks are appropriate to the attainment of the ends that they value. So this can't be ignored or set aside in doing economic analysis. This personal judgment that is the foundation really of economizing, of making a choice between one course of action and another. Now, every choice then involves a comparison of the valuations that a person might make between competing ends or competing sets of means. Because means are scarce, there's always something accepted or chosen in action and something set aside. And in order to indicate this verbally, economists like to use the word preference. So we have a preference for one thing over another. We just mean a rank order of one thing being better. This end to attain is better. That end to attain is set aside, right, is not preferred. So this is the idea of preference. Notice Dr. Hoppe again mentioned all this last night about the linguistics of all of this. When economists are talking about these concepts of valuing and preferring and so on, we have a very technical way in understanding these concepts, a very specific way of the logic of action, so driven by our task of trying to construct a set of concepts by which we can grasp the reality of human action. And so when we talk about preference, we're talking about what Murray Rothbard liked to call demonstrated preference. We're not talking about wish lists or what we would put down on a survey or something of this sort. We're talking about the choice that we make in action is driven by the valuation comparison in that act of choice between the thing that we prefer and choose and the thing that we prefer less and set aside. So it's the idea again of this fundamental idea again of preference. Now, since this topic is called subjective value, let's get to the subjectivity of value. Value has, in fact, two more important realistic features to it. One is subjectivity. And by subjectivity of value, what economists are referring to is that value is simply a state of mind. Value is nothing more than a mental judgment that's made. Value only exists in the mind of the person who is valuing his or her action. And because of this, there isn't any possibility of measuring subjective value. Subjective value is not a substance that can be measured. It doesn't make any sense to talk about this sort of thing. But if it can't be measured, we can't then make comparisons of the amount of subjective value, especially this is important that we cannot do this interpersonally. So it isn't possible to compare directly the amount of subjective value one person has with the amount of subjective value another person has, because objective value is not an amount of anything. It's just a state of mind. It's just a mental judgment. This is what we mean in economics by the subjectivity of value. We'll see the implications of this as we go along. Second thing to note about valuing this important as a fundamental principle is that valuation lacks constancy. Again, this is something Dr. Hoppa mentioned last night. Each individual person, when confronted with certain circumstances in which the person is going to act, in the action will make a mental judgment as to the importance and relevance of these circumstances and how best then to act within the circumstances given their judgment. And this judgment cannot be predicted or it isn't determined by the circumstances themselves. And so we're just not in a position to be able to formulate mathematical expressions of, that are based on subjective valuation as Ludovan Mises likes to put it, in economics, everything is a variable. There are no constants, either between people or for a given person over time, right? Our subjective judgments, our mental judgments are changeable in ways that aren't quantitatively predictable. And so that too is an important fundamental principle to keep in mind as we start to lay this cornerstone and build this foundation of economic calculation. And then finally, I'll just mention again, something Dr. Hoppa pointed out last night that since human action requires choice and since choice was predicated upon a comparison of the value of the option chosen relative to the value of the next best option not chosen, there's always a subjective cost or opportunity cost, as economists like to say, involved in choice and action. And it too then has the same character as the value of the option chosen. It's just a subjective assessment of the importance of the satisfaction that a person anticipates getting from taking that particular alternative. It follows then directly from these considerations that there's also an attempt by a person in action to attain a net benefit, to set aside something less valuable and strive to attain something more valuable. And so the very idea of net benefit or profit is a fundamental subjective category of human life. Now the next step is to see what is the relationship though between these mental end valuations that we make and the particular consumer goods and producer goods that we assemble in action to attain these ends. And so the top line of this slide gives you the Austrian view of so-called value imputation. The middle line gives you the view of the British Classical School, let's say, from David Ricardo in the labor theory of value. And the bottom line gives you the view from Neoclassical Economics as given by Alfred Marshall. And you can see the different way in which they conceive of the transmission, the arrows of transmission of value, where the Austrians say it must be the case that since all human action aims at attaining an end, that the consumer good that a person uses as an aid to attain an end must have its value given to it by the person who's striving to attain the end, that the value of the good comes from or is derived from the value of the end itself and the assessment that the person makes is to the importance of using this particular good in an action to attain the end. And if that's true of consumer goods, then it must also follow through for producer goods. The only reason a person values a producer good is because he or she anticipates that the application of the producer good in combination with other producer goods will produce a consumer good and then the consumer good will directly aid in the attainment of the end. The middle line from the British Classical School turns this transmission process on its head and says, producer goods must have intrinsic value and the intrinsic value of a producer good like the labor theory of value, the intrinsic value of labor is transmitted to the consumer good through the act of production and then that value of the consumer good is assented to by the human mind. And all I'm pointing out at this juncture is to say that to hold this view contradicts the very basic fundamental notion of human action, which is that it's purposeful behavior, that everything about human action is driven by the motive to attain the end. The end is the primary thing and therefore the means must be secondary to the attainment of the end. The neoclassical view that turns the arrows in on each other, this position that Alfred Marshall that the price of a consumer good is jointly determined by the subjective valuation of the consumers on the demand side and the intrinsic cost of production values on the supply side, surrenders all possibility of engaging in anything like a scientific approach to economic logic, right? It throws out of consideration any sort of teleological approach to economic analysis and instead just says something like, everything depends upon everything else, right? It doesn't really get us anywhere in this regard or as Dr. Hoppe pointed out last night, it throws one back into this realm of just thinking that the only economic analysis that can be done theoretically is to engage in empirical hypothesis testing, is to do empirical work. All right, so let's take the next step. We can say some other things about the value of consumer goods and producer goods at the beginning of this consideration, right? And so here on the left hand side of the slide first, so suppose we have a person who owns an iPhone SE and we ask this question, this person obviously, we already answered some of the questions that economic logic can tell us about this. Person owns the iPhone SE, they came to acquire it, right? They purchased it and somehow or it was gifted to them and they kept it or however they acquired it and they're using it as a consumer good to satisfy their ends. They're choosing to retain this good and use it because they find it conducive, more conducive than other alternatives to the attainment of the end. But the question we want to pursue now is, why doesn't a person own another iPhone SE? If a person just owns one and it's a good to them, why don't they own two? And what, yeah, so we get again what Dr. Hoppe had mentioned last night, we see immediately the law of diminishing marginal utility or what Rothbard would call the first law of utility that since the first unit of a good, in this case the iPhone SE is being used for the most valuable purposes, that's economizing. If a person had another unit of the consumer good, that person would have to apply it to less valuable ends and therefore would impute less value to that unit, diminishing marginal utility. And it also illustrates this simple preference rank, illustrates the other law that Dr. Hoppe mentioned, which is the law that more units of a good is always preferred to fewer units of a good. This, of course, requires the condition that having an extra unit of a good is always in the face of scarcity. That a person doesn't have so many units of a good that they no longer have ends to which they could put the units of the good. If that's true, then the law doesn't apply. Laws only apply to goods. Goods, by definition, are scarce, as we talked about already. Okay, so that's the first set of laws that we can derive about this. On the right-hand side, we have the second principle or law that we can derive about valuation of consumer goods. And this is the idea that, let's suppose, my example is just this, let's suppose that this person who owns the iPhone SE engages in this act of consumption, which is the person does face time for two hours with his dear mother who hasn't heard from him for a week or two. And so he wants to spend some time, face time with his mom. But remember, once he does that, then the most valuable use of the consumer good has been exhausted. And then any additional act of using the consumer good would have less value to this person. The person is always economizing, right? They're always choosing what they value more highly. Well, if another use of the iPhone SE is less valuable, the person might then interject a different action that doesn't use this particular consumer good into their personal economy, right? So this is the explanation that economists would give the logical structure that explains how you and I divide up our acts of consumption during the day, right? We're doing this act and then that act as you go, you know, you go for a run for an hour. Well, why does this person have a pair of Hoka Bondi shoes? Well, because the person gets consumptive value from doing running, right? And the shoes are valued as a consumer good means to attain this end. And but then once that act was accomplished, what would the next use of the shoes be, right? Less valued. And so something else comes into consideration. Now, tomorrow, I know what you're thinking because you're a bunch of bright students. You're thinking, doesn't that imply a certain, isn't my example sort of implying a certain chronology of these actions? We'll get to that tomorrow. We'll get to that first thing tomorrow. We'll talk about chronology later. Oh, who we're talking about now is logic. We're not talking about the chronological structure of action. We're just talking about it's logic, okay? All right, so that's how we think about consumer goods. Now we can do the same thing. Remember our value imputation process goes from consumer goods to producer goods. We can do the same thing with producer goods. It's no different. We just, there's just a certain universal logical structure of how this works. So here my example is, suppose this same person lives on, you know, bought property. He has his family and he owns property and he bought this property because it has a stream that runs through the property and he likes to fish and they're fishing stream and so now he has personal economy. He's acquired this property that has what he wants in terms of that consumer possibility and then he buys a fishing rod and tackle box and he's got all the complimentary factors of production to engage in fishing and now he's just applying labor. He's just going out and fishing, right? And what we find in this sort of situation, we think of the logic of this case, every act of production uses complimentary factors of production, in this case the natural resource of the stream and capital goods of the fishing pole and the tackle box and then labor. It's a combination of these things and if it's always a combination of things then we can always, just as a mental exercise, just as a logical exercise, vary the amount of one of the factors of production leaving the others fixed in amount. We can always ask the question, what would happen if this person just continued to fish? 24 hours a day, seven days a week, they just fished. Well, they would hit eventually then this principle of the law of returns, right? They would hit diminishing returns for increasing amounts of the variable input used with fixed amounts of these complimentary inputs. And therefore the advantage that they get from these acts of production would diminish progressively, from adding more and more units of labor. So you can see that we can establish laws in the same way when we're talking about our personal economies as we did for consumption. If these acts of personal production are subject to the law of returns that is diminishing returns, decreasing returns to additional units of the variable input, in this case labor, then a person will shift labor away from things that are increasingly less valuable towards things that the person finds more valuable, right? They'll shift away from fishing because the two extra fish from the second unit of labor and fishing isn't as important as half of the doghouse. And so there the person right is just making a doghouse with labor. He bought the labor, you know, the materials and has the tools and so on. He's just sawing and hammering and building a doghouse. And, you know, what would happen if he built a second doghouse? What would be the marginal value product of this labor in that second doghouse? What would be lower than the first? So you see again we have this similar principle because we're finite beings in a finite world. We have these principles of diminishing effect if we continue to do certain things over and over and over again. And so we get this second principle. Now let's go to the social economy. And here what we want to do is just first introduce the issue of economic calculation. And the issue is this. We've seen that each one of us will economize his or her own actions, their own personal economy by using valuation, just mental judgments, personal judgments of the value of things, personal assessment of the usefulness of the goods and so on and so forth. This is how we act. This is the logical structure within which we engage in our particular actions. Then we ask this question, is it possible then to use this process of valuation alone to arrange economizing use of resources in production and consumer good allocation among different persons and so on in a division of labor? That would be the question. Can one person in other words, through just subjective valuation in his or her own mind, arrange for all of the different people in society in a division of labor, doing all the different tasks across the division of labor in an economizing way? And hopefully you can see that the answer is to this is absolutely not. This is because subjective value is a personal judgment in the minds of different people. And it isn't comparable or even known to any outsider, to any third party. And by the way, this isn't just a problem, of course, of socialism. It is a problem of socialism. It's a problem that exists for every politically determined outcome of the use of resources in a division of labor. The politicians never repair to economic calculations in deciding to do this or that or the other thing. And so lacking that, they can't economize. The use of resources, they can't do what we would have them do socially as consumers of the goods that are produced by these processes. And so this is the issue before us. Now, one might say, well, okay, that's all well and good, but can't we just do this on our own then? Couldn't we just have a plebiscite and we could vote or whatever? Democracy, we could have democratic socialism. We could all just, in every use of resources, we could just vote. Every job that might be undertaken, we could just vote people into this job. Would that be economizing? And again, you can see readily that this doesn't solve the problem of the inability for one person or different people to be able to compare subjective values interpersonally. It simply cannot be done. And if it can't be done, well, then there isn't any possibility of sort of economizing by voting or assignment of some sort or by voting for representatives that then vote for what being done. This is just a non-starter. It's a logical misconception to think that this could work. All right, so how is this problem overcome? Well, this problem is overcome as again, you probably already know or will learn in the first couple of days of this week that it's overcome only in a market economy. Only in a market economy where people have property they can acquire, they have freedom and property that they can acquire and use and so on. And then make exchanges and then as long as they develop into this process of the market develops into a monetary economy, it becomes possible then to engage in economic calculation because once we have exchange in terms of money, we can in fact objectively tell who values something relative to money more than other people. So the buyer of a good who pays the price values the good, subjectively rank orders the good above that money price and another consumer in the same store at the same time looking at the same thing who doesn't buy the good values keeping the money relative to the good. So we do have a way of making relative comparisons in some common term, the money unit, right, which allows for economic calculation. All right, so now let's just kind of sketch out what price theory looks like and we'll make a few other comments as we go and explain this framework with respect to economic calculation and appraisement. So this is price theory, this is the sketch or the structure of it, right? So the way in which we explain the prices of things in a market economy is we start with preferences that people have and then we find that some people who own goods are willing to supply them at certain prices that others who wish to acquire the goods are willing to pay. And so we have supply and demand and then the individuals in the market come together and make trades and prices emerge in these trades. And then once we have the prices of consumer goods, these prices then generate two effects. They generate expenditures for consumers and they generate revenue for entrepreneurs who have produced these goods. And then with the revenue that entrepreneurs have obtained, this funds their ability to demand factors of production. And so the demand for the factors of production or the producer goods is determined by our buying of the products that the entrepreneur produces. And we can defund entrepreneurs by not buying the product and we can fund them or that's what we'd actually do, we fund them by buying their products. And so you can see how the value imputation process that we talked about before in personal terms is also mimicked here in monetary terms in the market economy. So the bottom of the diagram then deals with prices of producer goods, prices of labor and land and capital goods and so on. The demand from the entrepreneurs and then the supply which will come from the factor owners, people own land and labor and so on. And this will be just based upon their preferences. And so we have again the same sort of logical pathway, right? And once we get revenues, once we get revenues of the, I can't see that. Once we get revenues for the entrepreneur, right, in the middle part of the diagram and costs on the lower part of the diagram, we have the first entrepreneurial form of economic calculation, which is what economists sometimes call gross profit or net income, right? Entrepreneurs can compare the costs of acquiring the input services with the revenues from that are generated by the sale of the output. And by doing so, they can engage then in economizing allocation of resources. And again, we'll fill in some of the gaps in this as we go. But let's start with the simplest case. We'll start with the top part of the diagram and do consumer goods prices first. And let's start with the simplest possible case. Let's say we have this person who owns the iPhone SE that I mentioned before on the right hand side. This person is gonna be the seller, at least potentially a seller of the iPhone that he or she owns. And for my purposes, I wanna start with this case. This case is, suppose the iPhone SE is last year's model. Suppose in other words, this person bought the iPhone SE in 2022, let's say in the spring of 2022. So it's a more than a year old. So it's a used consumer good. And so by doing this, we don't have to worry about the entrepreneur and production, we'll get to that in the next step. We just wanna see, in other words, the basic principles that are always in play when people trade consumer goods and then prices for these consumer goods are established. So these are the preferences for the seller. And you can see that the seller's minimum selling price, at least on my preference rank, is $230. If the seller could find a buyer who would offer $230 or more, then the seller would sell his or her iPhone. And you could see the preferences of the buyer with the iPhone in parenthesis indicating the buyer doesn't have this iPhone. The preferences of the buyer are such that the maximum buying price of the buyer is $280. So obviously there's a potential voluntary trade, a mutually advantageous trade. For example, at $250, their preference ranking would be reversed in the reverse order. The buyer would prefer the iPhone to the $250, the seller would prefer the $250 to the iPhone. So they can make a mutually advantageous trade. And of course, if we then allow for a more robust market where there's competitive bidding by other buyers and competitive offering by other sellers, we get the full apparatus, if you will, of the standard sort of market, actual market in the real world. But before we do that, I wanna make sure we touch upon this basic logical structure of what's always involved in the demandor, the buyer, demanding something and the seller supplying something. Because again, this will be important when we move to the entrepreneur. So it always looks like this, right? Just as we depicted, the demand by the buyer is always, the value of the good obtained is rank ordered above the value of the money given up. And the opportunity cost, the thing given up when the money is surrendered, right? Can fall into one to two categories. It can be the personal use of the thing so the buyer can just keep the money and use it as a hedge against uncertainty or something, you can just hold onto the money, right? Instead of expending it on this good. Or the buyer can try to find another seller who will sell a good more cheaply or been in slightly better condition or something like this, right? That exhausts the possibilities. Either the buyer keeps his money or expends it to someone else, right? Those are the logical possibilities. If they expended it to someone else it's either to this seller or to some other seller. It doesn't have to be for an iPhone, right? It could be for something else. But that's the point of seeing the logic of this. And then a similar thing for the seller, right? When somebody sells something it's always the same logic. The value of the money they receive is rank ordered above the value of the good that they give up, that's why they sell. That's their motive for selling. And the value of the good given up always has the same two categories. The person who sells the iPhone could keep it for personal use. That's what they were doing with it before it was sold. Or they could, instead of selling it to the buyer that we have in mind here they could hold out and try to sell it to another buyer. So the iPhone is either kept by the person or sold to someone or gifted, right? But we're looking at sales. It's sold to someone. If it's not sold to buyer A it's sold to buyer B or C or D, right? They can hold out. So those are the logical possibilities. And again, this will be important when we get to the entrepreneur in just a minute. Now also we wanna touch upon the point that we alluded to earlier, right? That there is a law of demand that comes from the laws of utility. So we know that if this buyer is acquiring an iPhone the buyer is thinking about the value of applying that iPhone to all of the most important acts of consumption that the buyer has in mind. And since those would all be fulfilled by the first iPhone acquired, so to speak if the buyer were to buy a second iPhone the second iPhone would have less marginal utility and therefore the buyer would be willing to pay less for it, right? So only at lower prices would buyers quantity demand be larger. And a similar thing then happens on the seller side. There's a law of supply, right? We don't know, I didn't stipulate how many iPhone SEs this seller has. Maybe the seller is an arbitrage activity, right? And buying up used iPhones and then reselling them maybe it's got a whole inventory of them. Well, if so then the reason why the seller wouldn't sell out at some particular price depends upon their anticipation again of these opportunity costs given up. Maybe they wanna keep one for personal use. Maybe they think that buyers next month will pay more, right? And so only at higher prices would the quantity offered for sale be larger the law of supply. Now in addition to that, of course in an actual market we have this extra condition that we talked about before there can be competing buyers who will compete against each other by making bids for the good and competing sellers who compete against each other making competing offers or ass, right? And so we get this logical structure. Now again, unlike the neoclassical economists in empirical economics, the only empirical data point for Austrian analysis is point A. In other words, what we do in price theory we just look out into the market and we see what the price is. So I took the opportunity to do this. I went on the internet and I found a used trading site and this was on July 15th, 2023, just a week or so ago. And the P-Star was $250. I found to use last year's iPhone SE for sale for $250. That's what we're talking about. Why is the price $250 in this market at that moment in time? By the way, the quantity I just made up. I don't know what the quantity is, but I gotta have some number there, right? I mean, there actually is a number. I just don't, I didn't research that. So why is it $250? Well, it's $250 because of the laws of supply and demand. It's $250 because if sellers at that moment offered higher prices than this, the quantity demand would be reduced and the quantity supply that they're competing against would be increased and there would be excess supply. There would be sellers who could not find buyers. And likewise on the downside, it's $250 because if buyers were to offer lower prices, then the quantity supply would be reduced and the quantity demand that they're competing against would be increased and there'd be excess demand. And there's no point in excess demand and excess supply. This is contrary to the motives and ends that the traders have in mind or to put it a different way, when the market clears, we get the maximum possible mutual benefit from all the trades that are being made in the market. And since that's the point of trading, that tends to be the outcome in the market, right? So we get this market clearing apparatus. Or we could say it this way. When the market clears, what happens is the good, in this case all the 210 iPhone SEs, the good gets allocated to the buyers or the people who value the good the most relative to money. And the money gets allocated to the sellers of the good who value the money relative to the good most highly. And therefore the good is allocated and the money is allocated in an economizing way. This is what the market performs for us, right? The result that we get from the market. Okay, so now let's turn to the last step, which is the question of production. We wanna move to producer prices, right? But to do that, we need, as we said in the schematic a few slides ago, we need to introduce the entrepreneur who's producing the good, because the entrepreneur producing the good is when demanding the factors of production. So let's go to that case. Now here, we need to recognize, remember again that Austrian analysis is realistic. And so we need to recognize that there can be different particular strategies that entrepreneurs might have about their ask prices, about their offer prices. This is just an entrepreneurial business strategy as to how they engage in making an ask price. And so I've taken the case, since I picked an iPhone taking the case of what Apple seems to do when they offer the price, right, of the iPhone. So now we're dealing with the this year's model, the 2023 model, which somewhat confusingly went for sale back in October, I think of 2022, but I'm gonna call this the 2023 model. I don't know what the actual model designation is for this, but you get the idea, right? So they started selling this model last October and they're gonna sell it until October this year. That's how they do it, right? Every model year is different than they update a little bit or radically change the design or whatever. And so that's the setup. And so the way in which Apple, their business strategy in asking the price is, in October when they first started selling these iPhones, their ask price was $429. If you go to their website, that's what you buy it for. And they keep that price the same for the whole model year. That's just one entrepreneurial strategy. Why do they do that? Well, they do that because they think that the overall demand for the whole model is going to be something like, again, I've made up a number, 20 million. I don't know if that kind of ballpark issues do how many they actually sell of this model every year, whatever, 20 million. And they think that by selling 20 million of them at $429, they at least will not injure their revenue. They'll get the most revenue they can, right? They think, in other words, that they ask the price of $459, that the reduction in sales would reduce their revenues more than the increase revenue per unit sold. And likewise, they think if they drop their price or left it at $399, which is what it was a couple of years ago, that they'd get more sales, they'd sell more than 20 million, but the lost revenue on each iPhone would be greater than the revenue that they make up by selling more. That's how they're thinking about this, right, with respect to the monetary result. That, by the way, is what we call appraisement. That's an act of appraisement. When Tim Cook and his entrepreneurial group decided on the ask price of $429, they did this back in the summer of 2022, right? They did this long before they actually started to ship them and so on. Where did they come up with this price? Well, they came up with this price by thinking about the impact on revenue, thinking about the overall demand, in other words, for the phone over the model year. That's how they do it. Or at least it seems from an outsider's view that that's how they do it. Now, if you know anything about car dealers, you know that that's not how they do it, right? It's just a business strategy. So car dealers, it's the same kind of thing, right? They have a model year and it runs and they're selling the same thing for the whole year, but they don't ask the same price over every day or week or whatever during the year. If demand surges, they raise their price and if demand wanes, they have a sale and so on. It's just a business strategy as to how you do this. So that's not really the material thing. The material thing is the entrepreneurs are trying to maximize their revenue from the sale of the output. However, they think about this, the particular process by which it's done. So in my example, they generate, Apple would generate, or they're anticipating, and hence appraisement, right, they're anticipating, generating $8.58 billion in revenue over the model year. And if they do, well then, or if they're thinking this back in July, then that provides them with the ability then to appraise their demand for the inputs. So let's turn to this question. Let's say this is the anticipated, our jargon in economics, discounted marginal revenue product of employing the services of a producer good. In this case, the example I've used is computer hardware engineering. So Apple hires some computer hardware engineers and they were paying them salaries back, from the beginning of 2022, they're paying salaries and these hardware engineers are working on the upgraded model, right? They're redesigning it or whatever, the internal structure of it and thinking about it and making it more efficient or whatever. And so Apple is appraising whether or not it's worth it to pay a salary of a certain amount to get the services of these hardware engineers. Will it pay off in the sale of the good to the consumer? That's the principle of diminishing, the principle of discounted marginal revenue product. The marginal revenue product is the revenue from the contribution of the input. The discount comes because the entrepreneur is paying in advance, right? Again, this is something we'll talk in detail about tomorrow. The entrepreneur pays the computer hardware engineer in January of 2022, but they're not gonna get the revenue until 2023 is completed. And so they're lending, so to speak. They're giving up money sooner and acquiring money later. So this commands an interest rate. And it's always based on anticipation. That's where we get appraisement again. It isn't just that the entrepreneurs look at past profitability and they say, oh, now I know exactly what to do. It's that their anticipations are always made within the form of gross profit or within the form of economic calculation. Now, the entrepreneur is constrained in this way because if the entrepreneur were to pay more than the discounted marginal revenue product for the service of the computer hardware engineer, the entrepreneur would suffer a loss on that arrangement, right? And if they try to pay less, they'll be outbid by the competing users, the competing entrepreneurs for the service. And so once again, there's a law of demand. The opportunity cost on the side of the computer hardware engineer follows the same principle we mentioned before. The computer hardware engineer will just compare the salary offered with keeping the services for himself or herself or selling the services to someone besides Apple. And then they'll just make a preference, right, and supply. And so we get this result. And again, I'll end with this. We get this data too. I looked up from the Bureau of Labor Statistics. So this is the actual, well, it's what they record the data and the actual precise data. But the point is there is some precise payment that's being made for computer hardware engineers. And the BLS said on, again, this was in 2022, that the salary for a computer hardware engineer was $128,170 a year. And there were 76,900 computer hardware engineers hired in the U.S. economy. That's what we're talking about. That's what we're trying to explain. Why is the price 128,170? Why is it 150 or 200,000? Why isn't it 100,000? And the answer is the same, right? If the price were above this, we'd have excess supply. If the price were below this, we'd have excess demand. The traders, some of the traders in those conditions would be unable to make their trades and they would engage in the more aggressive bidding and offering in order to make their trades. And we'd move to this market clearing point. And so this gets us to at least an introduction to the prices of producer goods. Now, I'll say one last thing in closing. Again, you'll see this all laid out in front of you over the next two days. So I mentioned one thing about economic calculation which is for the entrepreneur, which is gross profit, right? The costs and the revenues that guide the entrepreneur's production decisions. The other major form of economic calculation is equity, the balance sheet of a business, which records asset values against liabilities, right? And so that is the economic calculation form that entrepreneurs use in deciding whether or not to invest in various capital projects where they wind up owning, not buying the services of some factor of production, but owning the factor of production itself. So that's it, thank you for your kind attention. Thank you.