 So my topic today is the birth, or actually the birth of the Austrian school. Later in a week, we'll talk about its rebirth. But so let's start with something called the Marginalist Revolutions, Fancy Name. It occurred in 1871. It involved three economists, all working independently of one another and in different countries. So this principle of Marginal utility, which I will explain as the lecture goes on, was what they all allegedly discovered. But let's leave that right now and go on to the three persons involved. And there was Carl Manger, the Austrian. He wrote a textbook, or more than a textbook actually. It's a very short treatise in 1871. Independently, William Stanley Jevins wrote the Theory of Political Economy in 1871. He was a British economist, actually Australian, and moved to Britain. And then a Swiss French economist, Leonville Ross, wrote an 1874 book in French. And all three of them expounded this principle of Marginal utility, this new thing in economics. And there were different names for it. But today it's called Marginal Utility. In fact, Mager did not use the term. The term was coined by his student, Friedrich von Wieser. Jevins used a close term. He used the term Final Utility. And again, this is really an amazing episode in intellectual history because these three men, again, working independently, discovered the same principle, essentially. And Val Ross used the term, the French term, Rarité. OK, there's Jevins. Starts off as a dashing young lady's man and kind of a broken down old guy. I mean, didn't age well. There's Val Ross, kind of diabolical and goth in his younger age. Turns out to be like your grandfather, right? And then this is typical of Austrians. They age very well. That's Manger as a young man. Of course, this carries through. It's not a one-shot deal. That's not Serpa code. It's me. OK, so what was the difference? Actually, there was a big difference between Manger and the other two. And there were differences between Jevins and Val Ross. But Jevins and Val Ross conceived of utility as a quantity of something. Quantity of satisfaction, because that's what utility really means. Quantity of satisfaction that could be added up and actually compared between people, different people, and also added up for society as a whole. In other words, you could apply mathematical operations to utility. And this was not the way Manger viewed utility. Really, what he spoke of utility as a judgment of how important a good is to a person's welfare, to a person's well-being. How much does one good that I might choose improve my well-being compared to how much does one good improve my well-being more than another good does? I used the wrong term there. I was wrong. I said how much, but that's not true. For example, if you're standing in front of a vending machine with those options and you have $2 and each one of them would absorb your $2, all Manger said you could say is that, look, this person prefers the bottle of water to a can of Coke and prefers can of Coke to a granola bar. You can't say he gets 10 units of utility or 10 noodles from the bottle of water and only five from the can of Coke so he prefers water twice as much as Coke. It's absurd. So for the Austrians in general, we took our lead from Manger. One economist pointed out that in the 1930s, writing in the 1930s, he said that utility to the Austrians is like love. If someone has a prospect of marrying, let's say, three different women, all they can say is I prefer person A to person B to person C. That is, I prefer to marry this woman to this other woman. You can't say I love her twice as much or three and a half times as much. It's absurd. But that's a ranking. I mean that is also an example of making a judgment about what will most improve your well-being. Any decision, including marriage and so on, so-called non-economic decisions, are based on utility in the Mangerian or Austrian sense. But he discovered much more than this principle. He created a whole theory of price and an entire way of looking at the economy that was based on individual values and individual choice and action. So the human being, as we'll see in a moment, is the source of all economic events and phenomena. He was a creative genius. He had many different influences. Other people had these ideas before him, both British economists and German economists. But he put them all together into a vision, a new vision of what the economy was and how it functioned. And let me just quote a few great historians of thought. Joseph Schumpeter, who was an Austrian but did not follow the Austrian school, said, Manger is nobody's pupil. And what he created stands. Manger's theory of value, price and distribution is the best we have up to now. And that was 1926. And I would say it's still the best that we have. It's been advanced and expanded, but it's still the best that we have today. Ludwig von Mises, who was one of Manger's students, said, what is known as the Austrian School of Economics started in 1871 when Karl Manger published a small volume. Until the end of the 70s, there was no Austrian school. There was only Karl Manger. So he carried it on for 10 years until he got other followers who had read his work, understood it, and contributed and advanced it. And finally, Hayek, who was Mises's student to some extent, said that the fundamental ideas of the Austrian school belong fully and wholly to Karl Manger and goes on to say what is common to the members of the Austrian school and what makes them peculiar in a good sense and provides foundations for their later contributions is their acceptance of the teaching of Karl Manger. OK, OK. Now, when Manger wrote, when he came on the scene, there was a dominant school of British economists, the classical school. And they did dominate economics for 100 years, or even more. And these were their big names, David Hume, Adam Smith, David Ricardo. And they made some important contributions to economics, things that are still in textbooks today. For example, they pointed out that, look, prices aren't arbitrary. They understood that. Prices aren't set arbitrarily by businessmen who want to screw everybody and set high prices, nor are they set sort of accidentally. OK, you want to pay me $3. That's fine. Give me $3 for this car. That doesn't happen. Things like that don't happen. There is an order to the way prices are determined. And they're also, they pointed out, they're used by business people to calculate and determine their profits and losses, to determine where to allocate their resources and what areas to avoid. So for example, if there's a high price of a good, like tablet computers in 2010 when the iPad was first released, those high prices then signaled other entrepreneurs to invest in tablet computers. And eventually, it drew them in, increased supply, and drove prices down. The classical economists understood all that. So prices began to fall as supply increased. So they believed in a universal and immutable law that was held for all time and all places of supply and demand. And in the long run, they believed that as prices adjusted, you tended to get profits wiped out. Now, these were great insights. However, they did make mistakes. They had a great flaw in their theory. And this is what Menger saw and attempted to correct. So he didn't really want to overthrow the classical economists. He just wanted to correct them and make their system more sound. OK, so before we get to the paradox of value, let me just talk about this great flaw. Unfortunately, the classical economists thought of goods as big abstract classes. For example, they would talk about coal or diamonds or beef, which is more valuable, coal or diamonds, beef or water or cotton. They didn't think of it in terms of concrete units, a loaf of bread, a gallon of water, a two-carat diamond. And as we'll see, that's what Menger added to this whole view of the economy. So they then confronted what we call the paradox of value. The classical economists, they couldn't solve this. They said, wait a minute now. Diamonds have very high price or exchange value on the market, but a very low use value in everyday life. They're merely used as ornamentation or conspicuous display of wealth. You leave diamonds around on your coffee table to show how wealthy you are. You wear them around. So they don't add much to human life. But water, on the other hand, or bread, it's called a water diamond paradox, but we usually use bread in economics. Bread has a relatively low exchange value, but a very high use value. Bread satisfies people's hunger. Without bread and other kinds of food, the human race would die out. Same thing is true with water. But here's the paradox. Compared to a carat of diamonds, a pound of bread has a very low exchange value, sells for a very low price on the market. But yet, it has a use value that is much, much higher than that of diamonds. How to explain that? Well, we'll see how Menger explains it, but they could not explain it. So what did they do? The classical economist said, well, what's really important in economics is exchange value, the value of a good on the market. So we're going to forget about use value. Now, that caused two things to happen. One, they left the consumer completely out of economics, and they focused on the business decision maker, the businessman, as a central figure in economics. Consumer wants and values, yes, yes, they're important, but we're not going to talk about them, it's not really part of economics. What determines prices are costs. So the more labor it takes to produce a good, or the more costs, in money terms, to produce a good, then the higher the price of the good. So they had a cost of production theory of value, whether in terms of labor, how much labor was used, or how much it cost. So they would explain the high price of a diamond as being the result of the fact that it costs quite a bit in terms of wages and payments for machinery to dig a diamond mine and go down and mine the diamonds, whereas bread doesn't cost as much to produce. But then there's a problem, of course, right? First of all, if you have a cost of production theory of value, as they did, you can't explain firms' losses. That is, if they just cost a term of prices, then how is it that prices can ever be below costs and firms lose money? And as an example, this is in 2011, Sears lost $3.1 billion, Sonoco lost $1.7 billion, Supervalue grocery stores lost $1.5 billion, AMR, American Airlines, lost $2.0 billion. So there's a problem there, okay? They can't explain losses in the economy. More importantly, they can't explain the prices of non-reproducible goods, of goods like antiques, collectibles, diamonds that people have no record of how much it costs to take out of the ground. A land, you can't explain the price of land because that's non-reproducible. So what they did then was to take another flawed step and basically say, look, there's two kinds of goods. Reproducible goods, well, ultimately, their value is determined by costs. In the case of non-reproducible goods, their value is determined by supply and demand. So, an example, the lyrics for I Am the Walrus by John Lennon sold on eBay for $70,000. And another one of his songs being for the benefit of Mr. Kite sold for $103,000. And this diamond, which has since been surpassed in price, it's 24.78 carat, fancy, intense pink diamonds sold for $46 million. Is that how much it costs to produce that? Of course not, okay. Does it even matter? People may not even know when or where it was produced. If somebody picked it up somehow on a beach or it was produced, okay, taken out from deep under the ground. So that was a real problem. And ultimately, that problem caused a collapse of the classical school. A couple of things I want to, other implications of the classical theory I want to just quickly mention. Is that it assumed that value was inherent in goods. That somehow production, the very production process, the process of people sweating to build a house, that gave value to the house, okay. The process of paying money for various inputs gave value to this thing, which then was produced later on. So it was backward looking, okay. And we'll come to that and we'll show how Menger readjusted the view of economics that was forward looking. Also, it implies that a thing is worth its price. A thing is equal in value to its price. So if a Mercedes, let's say 500 series models sells for $70,000, then it is equal in price to $70,000, equal in value to $70,000. And anything else that you can buy for $70,000. So it wrongly posits an equality of value between things exchanged, which is completely wrong as Menger pointed out. So let's look at some of Menger's achievements, okay. He wrote in a preface to his book that he was interested in investigating the causal connections between economic phenomena, involving products and the corresponding agents of production, okay. Meaning land, labor, capital and all their variety. And he says, not only for the purpose of establishing a price theory based on reality and placing all phenomena, price phenomena together under one unified point of view, but also because of the insights we gain into other things about the economic process. So he wanted to explain all prices, the prices of diamonds, water, the prices of land and so on with one theory, okay. With one unified theory. And he wanted to explain real prices. So that's why we've come to call this tradition in Austrian economics the causal realist tradition. He wanted to explain the causes of real things, real events in the economy. And every time you pay a price, that's an event. It's an individual event. Prices are not some abstract thing floating out there, okay. They're determined that every moment in time by the buyers and the sellers and their values and choices, okay. So the cause of a price or the values of individuals as we'll see. And we're interested in real prices. The price you actually pay at Walmart. The price that you actually pay for a ticket to enter a movie theater. And now Manga wrote notes to himself before he wrote his book in which he sort of summed up in a very pithy way the themes of the book. He said man himself is a beginning and the end of every economy. So that's the key. Second key is our science is the theory of a human being's ability to deal with his wants. A human being is always dissatisfied, always has unfulfilled wants, and is always striving to satisfy those wants. And then finally the whole idea of cause and effect. The first line of the text of his book says all things are subject to the law of cause and effect. Very important because once you say that you cannot engage in a mathematical treatment of economics because math is mutually determining. Or at least the approaches that have been applied to economics. He also had this in his notes, these three things that all meant the same thing, three terms. He said look things begin, people have ends, okay? They're hungry and they want to satisfy their hunger. Their kid wants to go to college and they want to put aside money for the college education. So they have certain ends. Those ends are subjective. Only the individual knows the importance of those ends to himself or to herself. But then they go into the real world, okay? So they go from the subjective ends to the objective means. The means, okay? The money, the time, the effort of searching for a college. That's all done in the real world. Now those means, if they're successfully applied, cause the realization of the ends. That was Menger's three terms. And then he said it could also be described as man. He started with man. He causes certain changes in the external world which leads to subsistence. That is the things that he needs to flourish and live. But the subsistence then causes the satisfaction of the man's wants. And so finally, a third way of putting this, for Menger was wants, cause people to engage effort and time and so on in producing goods. The goods cause then the satisfaction of the wants. So you have subjective causes, objective means, which then cause subjective feelings of satisfaction or states of satisfaction. So his book was very carefully planned out. I mean, this is really the mind of a creative genius. And so here we have it in sort of a visual representation. There's a guy who's hungry. So he has to go into the realm of the real world. He feels these subjective wants for food. He gets together the ham and the cheese and gouldins and so on, the mustard. And then produces something. That's where production comes in. So notice the consumer's at the beginning. That's the consumer. The businessman is in there, in the objective side of things. The entrepreneur's. And then that person makes his own sandwich, in this case, and then satisfies the wants. So wants cause the production of means. And when the means have been all brought together and formed into consumer goods, and they are being consumed, they serve to satisfy the wants. So it's not actually the sandwich itself that's a consumer good. It's actually the services from the sandwich. When you actually start to consume the sandwich, those serve to satisfy your wants. So Manger's first chapter was on what is a good? Because it was just, it was never discussed in classical economics. It was only just assumed that some things were good and other things were not goods. So he said, well, for a thing to be a good, there has to be a human need, right? A hunger, a thirst, a want for an education, a want to listen to a concert. A thing is capable of, second, he said, the thing must be capable of being brought into causal connection with the satisfaction of the need. The concert, you must expect that the concert is going to satisfy the need to hear this particular band or get out for the night and so on. He says, and there also must be human knowledge of this causal connection. You must know that a sandwich will satisfy your wants or that this band will satisfy your need to hear music. And then finally he says, person must command the thing or have sufficient command to direct it to the satisfaction of the need, okay? Now, this is wrong. There's a slight error here that Mises later corrected. There doesn't have to be knowledge. Mises says, get rid of two and three. He says, all there has to be is the belief that a thing has a capacity to cause the satisfaction of a human need, right? They may be wrong about it. They may be misled, they may be deluded. People go to mediums, right? To get in touch with their dead relatives, okay? Do we say that's not a good? Because it really, it isn't really something that will bring about what you believe it will bring about. No, it's still a good because the price is paid for. People read The New York Times to get objective news. They pay a lot of money. I mean, is that, you know, not a good? Okay, so Mises corrected him. Though actually Menger a few pages later said, well, there are imaginary needs. So yeah, he actually corrected himself in a way. He says, they're not really needs, I'm sorry, imaginary goods, he called them. And he mentioned the psychic. If you go to a psychic, you pay a price for it, but it's only imaginary. Well, Mises says, no, it's a real good. It's a good like anything else. What about something like the sun? You need a sunny day to go to a baseball game or go on a picnic. It meets a human need, okay? And people believe that a sunny day will help satisfy their need. It's one of the important components or ingredients. But the thing is, four is not satisfied. So the sun is not, or a sunny day, because you can't control it is not something that we would consider a good, okay? Nor is air for other reasons that we'll talk about. So Menger basically had this system of causality where a thing was scarce. Oh, let me just go refer back to the goods. So Menger said, okay, so if a thing fulfills all those conditions, it's a good. He says, but an economic good is a good in which there is an insufficient quantity, or of which there is an insufficient quantity to fulfill everyone's wants for that thing, okay? So for example, air, as we'll see, and we'll talk about marginal utility in this respect, is not really a good, okay? Because it's more than a sufficient quantity. It's not an economic good, it's a good, but not an economic good according to Menger, okay? But other things are economic goods, things that you pay prices for, or that you expend effort to get, okay? That means there's an insufficient amount in the world to satisfy all the wants for it. So he said, once it's something become scarce, then you have to choose. You have to choose whether to do one thing or another thing, whether to buy one item or buy another item, whether to produce one thing or another thing. And then in order to do that, you need to rank your wants, or have to decide which one is most important to satisfy, which is the next most important, and so on. And in doing that, you economize your goods. So he talked about the economizing man, not economic man, but the real person that has a list of wants and applies his or her resources in a way that serves the most important of those wants. And that's all that economizing means, okay? You don't need calculation. You don't need to figure out profits and losses in money terms to economize. Every individual economizes at every moment, okay? Right now I know that listening to Joe Salerno is at the top of your list, okay? For whatever reason, and what I don't know is what the cost is, the second most important want on your list, okay? It's different for everyone. But you've all demonstrated at least one part of what we come to call a value scale. That is the scale of value of the wants or ends that an individual has. So what is the law of marginal utility? Let's now explain this in Austrian terms. It's the value of a good is determined by its marginal utility. That is the satisfaction from the least important lowest ranked end served by the available supply of the good. So all utility means is satisfaction. It's a synonym for satisfaction, but we use the term utility. And marginal means the relevant unit of the supply. The supply, the unit that you're deciding whether to buy or abstain from buying, for example. So the law then says as a supply, this is the law of diminishing marginal utility. As the supply of a good possessed by an individual increases, it's marginal utility and therefore its value decreases. So let me just give you Menger's example. So Menger used the example of Robert and Crusoe, the fictitious character that shipwrecked on an island. And he said this person has a number of different wants and there's wheat on the island. His wants exceed the amount of wheat, so it's an economic good, and his wants are ranked. So the most important use of wheat is to bake it into bread, to sustain his life, to just keep him alive for a year. A second most important one is to bake a second amount of bread that will sustain his health. And then the third, now that his basic wants are met, he's starting to think of the future. So the third most important use for sack of wheat is to use it for seed for the harvest for the following year. And then to vary his diet, he knows there's some wild goats on the island, he can domesticate them, so he'll use the fourth sack for feed. He put a fifth to add some fun to his dull life on this island. He wants to make whiskey, I like vodka better, so I put vodka in there, but he only has five sacks. So if he had a sixth, he'd use it to feed the parrot. So let's look at what might happen or how we would determine the value of each sack of wheat. So what is the value of a sack of wheat? Does it differ according to the uses? It can't, it can't differ according to uses. Why? Because each sack of wheat is identical. Identical things that all serve the same kinds of wants of the same wants cannot differ in value from one another. So Manger, realizing this, asked a very insightful question. He said, which end would I give up? Which satisfaction would I give up if one sack of wheat was lost? Let's say a fox breaks in to the shed where he's keeping the wheat and consumes the second sack of wheat. Will he give up that satisfaction? No, of course not. He'll simply transfer the sack of wheat that was intended to be made, turned into vodka to the second sack. So no matter what sack he loses, he loses the satisfaction from the fifth sack. That is the margin of utility of the good. The margin of utility determines the value. The value of all five sacks then is equal to the satisfaction that he obtains from drinking the vodka. What happens if once the fox has consumed one of those sacks? What happens to the value of the good? Goes up, right? Now he only has four sacks left and a greater want, the fourth ranked want, depends on one sack of that wheat, okay? So as the supply diminishes, the value of the margin of utility goes up and the value increases. If he were to happen to find another sack, he would feed his pet parrot to keep him company on this island, he's lonely. So what he would do then is that he would take the sack and feed the parrot, but now the satisfaction from the relevant unit has fallen. So in that case, you have a decline in margin of utility and a decline in value. So he's not choosing between all the wheat, okay? Value depends on the relevant unit. How many units he has? So for example, if there's a family that has three cars, one, let's say for the primary breadwinner, and they're all pretty identical in the services that they give, let's say the second one is for the part-time earner in the family, and the third one is for junior. Let's say the old man cracks up his car. Who loses the car? Junior, junior, that's the lowest-ranked end for that family. And also, the thing that is ubiquitous in this room is air. But air is not a good, okay? Is air, we don't pay a price for it, why is that? Well, as we'll see, Menger solved the paradox of value, you can think about that for a moment, by using the law of margin of utility. But here's a short quiz. Let's say a farmer has three horses and two heads of cattle, and those are his ends, okay? Now, the cattle and the horses serve different needs or wants, and they're not interchangeable, they're not identical, and he ranks the wants as follows. So the first two horses are the most important to him, because they aid in the production of wheat, and the second horse increases the productivity of wheat. The first cow is used for milk, and milk is ranked third, the satisfactory from milk, that you can get for that cow over the year. The fourth head of cattle is used for beef, and the third horse is used for recreational riding. Which animal is more valuable to this individual, to this farmer? Yeah, the cow is more valuable, okay? Even though the cow is not at the top of his list, in fact, there are two horses that have higher values, or two uses of horses that have higher value. The cow has a higher margin of utility, and therefore, the cow is more valuable. And just by performing a mental experiment, if the barn is burning down, and he can save only four of the animals, which is gonna remain in the barn. The horses, one of the horses, okay? Now once that happens, if he only has four, then which animal becomes more valuable? Yeah, the horse becomes more valuable, because the margin of utility is much higher. It serves the second ranked end, whereas the cow serves the fourth ranked end. So, back there for a second. This is how Menger saw the paradox of value. Menger pointed out that, look, in a normal situation, it is true that diamonds have a much higher value than bread does. And the reason is because there's so many diamonds, or rather there are so few diamonds around, that the ends that they serve, the margin of utility of diamonds is much higher than that of bread, okay? Or water, that the last end served by water is much lower. And that's because of the abundance of water compared to diamonds. However, if you're in a desert, and you have, I'll say, that graph, that pink diamond in your pocket, and you haven't had water for three days, and basically that's the longest human being can go without water, would you make the exchange for a gallon of water? Yeah, many people would, because water has become so scarce now that its value, its margin of utility, has risen above that of the diamond. And therefore, the value has risen above that of the diamond. And the same thing is true with air, okay? So air has no value. In a normal situation, air has no value. We don't expend any effort or any resources to try to produce air. However, if you're going to be deep sea diving, or if you're going to go onto the space shuttle, then air is extremely scarce and people will pay high costs to obtain that air. Has a high margin of utility. Okay, something else that Manger did was to divide goods into orders, orders of goods, higher order goods and lower order goods. So if we look at this, this is sort of the different orders of goods. The higher order industries, those industries whose products are furthest from satisfying consumer wants. Iron ore, which then is turned into steel, which in turn is made into different kinds of shapes of steel. And then it goes to producing automobile parts. And then there's the automobile assembly plant in which the automobile is actually assembled. And then the automobile dealer who actually sells you the automobile at retail is the lowest order. The lower the order of goods, the closer to the consumer. Now, here's where Manger made distinction between his view and that of the classical school. What Manger said was that the value of the means, the value of those higher orders reflect the value of the ends or the wants they serve. So costs don't determine prices. It's the value of the automobile that determines the value of the steel. Or more sharply, if we have diamonds, the value of the diamond determines the high salaries of the gem dealers, the highly skilled jewelers, which in turn then determines the high value of the diamond mind. So I recently saw, I rewatched the movie with Harrison Ford last week called Witness, which takes place in the Amish country in the southeastern Pennsylvania. And the Amish are called the plain people because they avoid any sort of ostentation. They wear black clothing. They don't drive in cars. They use horses and buggies and so on. But there's one line there where one of the Amish women tells Harrison Ford's place of Philadelphia policemen is hiding out there that they don't even use buttons. They use eyes and hooks because buttons are considered to ostentatious. So obviously they don't wear any jewelry. Now, if everyone in the economy takes on the values of the Amish, what would happen to the price of diamonds? Forgetting about the industrial use, it would fall to zero, okay? But once that happened, since there's no value to producing diamonds, the value of the services of jewelers and gem cutters and so on, that would fall to zero. And there would be no demand for diamond mines. That would fall to zero. Now, Manger uses the example of tobacco. Is if everybody quits tobacco, then the value of rolling machines would fall to zero. And the value of tobacco fields would fall to zero, okay? So it's important to realize that from the Austrian point of view, it's the consumers who are at the center of the economy and whose values and choices determine the values of all the higher order goods, okay? All the mighty factories and the mines and the electric utilities, if people didn't have a demand for their products, they would have no value. So the classical school thought that the direction of production was downward. They were right about that. Both the Austrians and the classical school agreed that the production goes from the higher order, from the farm tools all the way down to the bread and then to the consumer. But the classical school thought that value also moves in that direction. Now that's not true. As Manger pointed out, value moves in the opposite direction of production, okay? That the only reason why farm tools are valuable is because farm tools cause the production of the wheat. And the wheat is only valuable because it causes the production of the flour, which in turn is only valuable because it causes the production of wholesale bread, which in turn is only valuable because with transportation and so on, it causes the production of the retail bread, which then causes the satisfaction of consumer wants. So value moves from the higher order goods to the lower order goods, or rather from the lower order goods all the way up to the higher order goods. Take that decision of the consumer away to buy bread and suddenly all these other things lose their value. Let me just finish off with a little bit of analysis of exchange. Up to Manger's time, the classical school thought that as I said, if a horse traded for a cow, a horse was equal in value to the cow, or if an automobile traded for $70,000, they were equal in value. That's not true. Okay, what Manger pointed out was that the only reason exchange takes place is because people value the goods in reverse order. So person A has a cow, but desires a horse. The desired good is in parentheses. So he has a higher value for a horse that he doesn't have. Whereas he meets a person B who has the horse, but desires a cow, values a cow more than a horse. Therefore the exchange takes place. Is there any quality there? There's no equality. Both value them in different orders. So it's not, exchange doesn't demonstrate an equality of value, it demonstrates a double inequality of value. The same thing is true not only on the border, but of course in any sort of sale or purchase. The seller of the automobile values $70,000 more than the automobile, whereas the buyer does the reverse. So according to Manger, goods exchange are not equal in value. There's a double inequality of value. Another way of saying that is that there's a reverse valuation of the goods exchange. We have to value the goods in reverse order. So if I were to purchase someone's laptop right now, it means I value the laptop more than $100 that you would demand and return for it. And the reverse is true, you demand that $100 or value the $100 more. The other thing that's important is that if we go back there, the previous slide, both buyer and seller have improved their welfare. They've moved to a higher utility. And that's the beginning of Austrian welfare economics. Austrians don't try to add up the amount of utility in the economy. What Austrians point out and this started with Manger was that anytime an exchange takes place by whatever parties, both parties believe that they are benefiting from that exchange. Both parties believe they are improving their welfare. And in fact, as Murray Rothbard later on pointed out, both parties are demonstrating to everyone else. We can see it when an exchange takes place that they're improving their welfare. So for Austrians, welfare is not a social thing. It's social only in the following sense that everyone who is making an exchange right now at this moment is improving their welfare. Anyone who's not making an exchange is not injured. There's just as well off as they were before. So you can say that there's been an improvement or an increase in social welfare when you have voluntary exchange. If there's any exchange, for example, let's say for a worthy cause, there's an increase in taxes so that a political unit can build a hospital for children. Well, what happens is that the taxes are extracted and the hospital then is built but the people who pay the taxes may not and because they're forced to pay these taxes do not value the hospital more than the funds that they're paying. So just assume that B holds up A and forces A to take the horse and takes the cow from A. Well, B values a cow more than the horse but because A was unwilling to make the exchange, A values a cow above the horse also. So if the values are ranked the same, an exchange wouldn't take place unless you're the government. That's what government taxation is. Okay, I'll end there. Thank you.