 Good morning, everyone here, and everyone watching online. I'm happy and delighted to be kicking off Mises University. And fittingly enough, my topic is the birth of the Austrian school. And when we talk about the Austrian school, we talk about, or it's birth, rather, we talk about one person. And that's Karl Manger. Karl Manger was a creative genius and is widely accepted to be the founder of the Austrian school. Now, the Austrian school was founded in the late 19th century, 1871, to be exact, during what was called the Marginalist Revolution. And the Marginalist Revolution refers to a period when three economists working in different countries all came up with what we call the principle of marginal utility. You may know that principle from your intro classes, but we will go over it and talk about it because this principle is extremely important in explaining all economic activity. But it's also very subject to misconception because the other two economists, besides Manger, who discovered the principle, developed it in quite a different way than Manger did, a more mathematical way. There are the three people who simultaneously but independently discovered this principle. Karl Manger in his book in 1871. William Stanley Jevins also wrote a book in 1871 in Great Britain. And finally in 1874, Leon Valrasch, who was a Swiss-French economist, also developed the principle. They had different names for it. Actually, Manger never gave a name for it. One of his students came up with the term Grenzenutsen, which is marginal utility. Jevins called it final utility. He used the term utility also. Utility usually meant, even before the marginal utility revolution, usually meant satisfaction. And rarité was the French term that was coined by Valrasch. But now here's William Stanley Jevins, real ladies' man, right, but then look what he turns into. There's Leon Valrasch, sort of diabolical and shady. But then he gets older and looks like your grandfather. Now, Manger was distinguished when he was younger and when he was older. That says everything. Oh, look, I don't have a gun in there. But we're going to get it. Those are nice goggles on the left, you can tell. You can date me from that, OK. OK, so what were the differences between Manger on the one hand and Jevins and Valrasch on the other? Well, they conceived of utility as a sort of quantity of satisfaction that you could add up, you could subtract, you could do mathematical operations on. And you could compare it interpersonally, OK. Manger, on the other hand, simply viewed utility, marginal utility as the outcome of individuals' judgments on what things in their environment, things in their environment that are useful to them, which we call goods, what goods were more important and what goods were less important. So Manger focused on the goods themselves and the satisfaction that people derived from the goods. As we'll see, he did not refer to marginal utility or did not conceive of it as a quantity of satisfaction. I mean, if you've had principles of economics, you've heard the term utils that if you like a particular concert, I went to see Paul McCartney a number of years ago and I spent over $100 on that. And then I saw Rod Stewart. I spent half. Does that mean that I got 100 utils from Paul McCartney and 50 utils from Rod Stewart? What the heck is a util? Can anyone define it? It can't be defined. So for Manger, utilities involved just comparing things that were more or less useful in their lives, that they expected to give them more or less satisfaction. So I chose a bottle of water today. I could have chosen a can of Coke. I ranked the bottle of water above the can of Coke. I didn't say to myself, oh, I'll get 12 utils from that bottle of water and eight utils for the can of Coke. So I better choose the bottle of water. That ain't the way it works in Austrian economics. But actually, Manger discovered much, much more than just his principle. He created a theory of price and really a whole system of economics that was based on individual choice and subjective value. And he had many different influences, but his vision of the economy was that of human beings striving to satisfy their most important wants. And this was new and revolutionary, even though economists before Manger had talked about utility in sort of vague terms. And some of them came close to Manger's conception, but it was really Manger who used that conception, not just to introduce the principle of marginal utility, but to build, to develop an entire system of economics based on this insight that all value is subjective. It's all oriented towards the satisfaction of the individual. So here are three great historians of thought, all of whom happened to be Austrians who commented on Manger and his contribution to this achievement. Joseph Schumpeter said that 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, that's 50 years later. I think he's saying this about Manger. Ludovan Mises said, what is known as the Austrian School of Economics started in 1871 when Karl Manger published the slender volume entitled Principles of Economics. And then, very tellingly, he says, until the end of the 70s, there was no Austrian school. There was only Karl Manger, who was carrying the torch until some of his great students began to develop his vision even further in the 1880s. And finally, Hayek says that the fundamental ideas of the Austrian School belong fully and wholly to Karl Manger, it's a pretty strong statement. And he says, what is common to the members of the Austrian School, and I would say this is still true today, what constitutes their peculiarity and provided the foundations for their later contributions is their acceptance of the teaching of Karl Manger. Okay, so Manger is the founder, no doubt about it. Now, before we can understand Manger's contribution, we have to look at the School of Economic Thought that prevailed on the eve of Manger's book, The Principles of Economics. This school is the classical school and it involves some very, very brilliant individuals. David Hume wrote in 1750s, Adam Smith, who was wrongly said to be the father of economics and David Ricardo, a student of Smith. What was their economics? Okay, well, they had some important contributions. One was that they realized that prices were not random, they just weren't historical accidents, they weren't arbitrary, big firms didn't set the price and say, you have to pay this, okay. They realized that they were determined by universal economic laws and in the short run, this law was the supply and demand. So day-to-day prices were determined by supply and demand according to the classical school and then businesses, entrepreneurs, capitalists use these prices to calculate, to calculate profits and losses. So they had some good insights into the business world. And then they pointed out that not only are prices not random, not only do entrepreneurs use them to calculate, but entrepreneurs also use them to determine how much to produce, what goods to produce. For example, when iPads were introduced in 2010, the profits were enormous. So other firms jumped into the market because of the high profits and began to produce other types of tablet computers. On the other hand, when the price of oil has fallen recently in the last few years, fracking has shut down in a number of areas of the US. That is, finding oil and drawing it from rocks and shale and so on. So the class of economists were by no means dummies and Menger didn't think of them this way. He just thought that their system was incomplete, okay. Not only was the system incomplete, but they made a crucial error. And part of that error was that they believed that in the long run, it was really cost of production, how much it cost you to produce something that determined value. So let's just talk a little bit about the problems that they faced. What they did was to look on goods as classes, as abstract classes. So there was iron, there was diamonds, there was water. And water was more important to the human race than diamonds. And iron was more important than diamonds, but less important than water to the human race. Water sustained life, okay. You couldn't live with it. You couldn't live more than three days without water. Diamonds were sort of trivial wants for conspicuous display of wealth, for ornamentation. So that was the puzzle. Even though water, and let's use bread and bread had a very high use value to human beings. It kept them fed and it kept them from suffering and dying from thirst. They had a very low market price per unit of weight. On the other hand, diamonds, which served as I said, very trivial wants, had a very low use value, but a very high exchange value. So exchange value was another word for price. So that was the paradox of value. How could something have such high use value to human beings yet have such low prices on the market like water or bread, compared to something like diamonds? So what did they do? They never solved the paradox. This water diamond or bread diamond paradox. What they in fact did was to run away from it, to say use value is important and for something to be a good, yeah, it has to have use value, but economics is only concerned with price or exchange value. So they cut value in two, they bifurcated it, okay? And they put the one side use value and said we're not gonna talk about that anymore. Yeah, yeah, things that we buy are very, very useful. We just are interested as economists in showing what brings about prices on the market. So they lapsed into a cost of production fallacy. What they said was, well, yeah, diamonds are more expensive than bread because it costs more in terms of either labor or money to produce diamonds than it does to produce bread. And so they never advanced to the subjective value view that Manger got. The other problem that they had was that they believed that value was a substance, okay? Substance outside of human beings somehow was infused into goods by people sweating and producing. The more you sweat to produce something, the more it costs, okay? Whereas we'll see the Austrians and Manger looked at value as internal to human beings as a relationship between a mind and the thing. But they had another problem and that was things like diamonds that someone may find on a beach or something and things like art and antiques and land itself, they didn't have a cost of production. How are the prices of these things, land and great art, which the old masters during the Renaissance who painted, we don't know what the costs are and they can't be reproduced. So how can we determine the prices? Well, the classical school said, there's two approaches, okay? So things that are reproducible like clothing and bread and so on, their value is determined by cost of production. But on the other hand, things like land and great art and things that can't be reproduced, well, they're monopolies. So it's just demand and supply that determine their value. So they had a very strange monopoly theory and that was that anything that couldn't be reproduced had a monopoly price. Landlords who owned land were monopolists, okay? Whether or not they had any privileges from government. Okay, a few other implications. When you focus only on price or exchange value in the market, who do you look at? You only look at the entrepreneur, the businessman. So they had, they came up with an abstract concept which was called the Homo economicis, the economic man which means someone who buys low and sells high. So the center of classical economics was the business man. The consumer got lost. The consumer, yes, we produce for the consumer but we don't know how to explain use value so we're not gonna talk about the consumer. And one last point is that any exchange to classical economists meant that there was an equality between the two things exchanged. The equal amounts of costs in these things in the long run, okay? So if a bottle of water exchange for a can of soda, that meant in the long run, they were equally costly to produce. So these are the things that Menger objected to. So, and they were wrong, okay? It's not just concerned, economics is not, is concerned with explaining use value, okay? Diamonds are much more expensive than water because it costs more money to reduce the character of diamonds than a gallon of water. That's clearly incorrect, okay? So what Menger's aim was was a following, okay? He stressed causation and he stressed reality. He was, in fact, from 1867 to 1871 and even before that, he was a journalist. He followed markets and he went, in following markets, he saw that prices, commodities prices, stock prices were changing from minute to minute, day to day. So he realized that, look, the classical theory of price is incorrect. And so for those years, from 1867 to 1871, he was hard at work at developing his own conception of economics. So he, in his preface, he wrote, I have devoted special attention to the investigation of the causal connections between economic phenomena, involving products and the corresponding agents of production, land, labor and capital. Not only for the purpose of establishing a price theory based on reality and placing all phenomena together under one unified point of view. So it wasn't, what he was trying to do was to actually explain real prices that we see every day. We never see long-run prices, okay? Things change from day to day. People's tastes change, technology changes and prices then adjust, okay? They adjust immediately and over time, they'll adjust even more. But what's important to the entrepreneur is what prices will be on any given day. When they're looking forward, when they're speculating on how much to produce and what quality goods to provide and what type of technology to use, what they're looking at is what the market will be like, what the actual prices are that will be paid two years from now, five years from now, six months from now. It took years to bring the, let's say, the iPhone to market. So Steve Jobs wasn't looking at prices of, well, there are no iPhones. He was looking at prices, not today, but three, four years down the road at the end of the development of the iPhone and bringing it to the market. And that's what Menger wanted to explain. Those types of prices, because those drove the economy and drove entrepreneurial activity. So I've used the term causal realist. Menger began the causal realist tradition in economics, meaning he searched for the causes of real prices. He wanted a system of economics that explained that. And so, therefore, economic theory is the investigation of the causes of real prices, wages, and rents that are actually paid on markets. So what we're interested in is what prices right now are being paid at the Super Walmart that's about a mile from here. That's what's important. And that was what was important a year back when orders were made by the managers of Super Walmart for the various items that are now on the shelves. So economics, and this is in Menger, was always a speculation on the future. Now he wrote notes to himself in preparing his book. He had notebooks, and you can see that his main aim, from these three statements, he says, man himself is the beginning and the end of every economy. And there's a specific meaning to that as we'll see in a moment. He said, our science is the theory of a human being's ability to deal with his wants. So we have man and his wants at the center of economics. And then the first line of his book is all things are subject to the law of cause and effect. These are also notes that he made. So you can see where cause and effect come in here. Human beings have certain ends they want to achieve. They wanna become more educated. They wanna have their hunger satisfied. They want to have a nice means of transportation and so on. So you begin with the ends and that causes or stimulates people to find means, land, capital, time, labor, that they can combine into a final product in which their ends are realized. So the ends cause economic activity but the goods that are produced by economic activity cause the satisfaction or the achievement of the ends. And all three of these trinities of causation he wrote out, start with man, man has certain wants, et cetera. There's all he has to satisfy these wants is the external world. He has to find the means in the external world, the resources, combine them according to a technology that he or she knows and then that provides their subsistence. Their means of living, their means of flourishing, their means of enjoying their lives. And the same thing with wants, goods and satisfaction. Wants cause people to produce goods. The goods themselves though, when they're used, cause the satisfaction. That actually comes from a chapter and Menger, by the way, was a bibliophile. He had one of the best book, best libraries of economics books in all of Europe at the time. Frederick Bastia, the great liberal economist and also subjective value theorist in one of his chapters in a book that was published in 1848 or actually after he died in 1848, it's called Wants, Efforts and Satisfaction and you see Menger's trinity there. So at the center of the economy it's not only human beings but the things that satisfy human beings. Things that have value because human beings attribute the ability to satisfy their wants to these things. So Menger set out the preconditions of a good. Okay, he said, well, there must be a human need. Not only that, but the thing to be a good, not only must there be a human need but the thing in question must be capable of being brought into what he called causal connection with the satisfaction of the need. So the fried chicken last night was brought into causal connection if you want to be fancy about it with your need for food, your need to satisfy your hunger. And then three, people must know about this causal connection. And finally, they must have command of the thing, the sufficient to allow them to cause that thing to bring about satisfaction. Now Mises corrected Menger on this Mises said, wait a minute, all that has to happen is that people have to believe that there's a causal connection. So we can get rid of two or three and replace it with the belief that a thing has the capacity to cause the satisfaction of a human need. And Menger actually realized that he said, there are such things as imaginary goods. If you want to get in touch with a dead relative you go to a psychic, you pay the psychic. You might not, this might be holy bogus and false and not really bring about the satisfaction of your need to talk to this relative, okay? You may take a certain kind of quack medicine and pay for it and it may be very valuable on the market but it doesn't work, okay? Or you may try to get the news from the New York Times thinking that this is a real good. No, but it's an imaginary good. But the New York Times still has value on the market though rapidly diminishing, I might add, with great pleasure. Okay, so Mises did correct Menger on that one point. Okay, so Menger, in Menger's principles, what we see is that sequence of concepts that you see in intro books, that is we start off with scarcity, the scarcity of things to serve human wants. We have to choose between them, water or soda or granola bar because we have scarce money resources. So in order to choose between them, we rank them as more or less important to our welfare and then we economize. We use our resources only for the most to serve or to satisfy the most important wants, okay? So Menger replaced Homo economicus, which referred to the business decision maker with what he called the economizing man. The economizing man was the consumer, the consumer who had resources and was striving to satisfy his or her wants. Okay, so let's get to the law of marginal utility, which is sort of where we started. The law of marginal utility, as Austrians stated, is that the value of a good is determined by its marginal utility. That is the satisfaction from the least important or lowest rank and served by the available supply of the good, okay? Another way of putting that is that as a supply of a good that an individual possesses, increases its marginal utility and therefore its value decreases. And Menger had a very good example, which I'll use, sort of a variation of his example. Menger posited or supposed an individual who was alone on an island, an isolated individual, Robinson Crusoe, a fictional castaway. And let's assume that Robinson Crusoe had five sacks of grain or five bushels of wheat with which to satisfy his wants. Now, he had many, many wants for this good, but he could only satisfy five, so he ranks them. According to importance. According to this example, he needs one bushel of wheat to make enough bread to just keep him alive, okay? He's not gonna flourish, he's not gonna thrive, he'll just remain alive with that first bushel. But if he has a second bushel of wheat that he can transform into bread, well then that will give him vitality, that will allow him to serve, to look around the island, find other kinds of good to satisfy other kinds of wants. He also would need a bushel as seed for next year's harvest, so he can stay alive for another year, and that's ranked third. If he had a fourth bushel, he would feed goats, he'd wanna vary his diet for milk, cheese, meat, and so on. A fifth, he'd want a beverage. Menger put in vodka, or whiskey, I like vodka better, so you would make vodka. And if you had a sixth, you'd keep a pet, you're lonely, I mean, you're really alone in this island, so even to have a parrot talk back to you would improve your welfare, and so on, okay? So Crusoe only has five bushels. So Menger came up with the law of margin utility by asking a brilliantly insightful question. He said, let's say I have these five bushels, and a pack of rodents breaks into the barn to the little structure where he's maintaining them, and destroys, let's say, bushel number two, okay? So Menger then asked the question, which end would I sacrifice or forego now that I only have four? Well, I'm certainly not gonna give up the end that allows me to have bread that will satisfy, will allow me to flourish in my life and to be vital and to go after and to achieve other ends. Obviously, no matter which, I'll actually take a step back for a moment, the question that Menger first asked before he made that supposition was, look, what is the value of each of these bushels? Is it the value of the satisfaction from the highest? Is it the average value of the satisfaction, okay? And his supposition, this idea that I'm gonna think through losing one. So you lose one, you lose the second one, but you give up the fifth end. That is the lowest valued end. That is the utility of the marginal unit. The marginal unit is the relevant unit, okay? So the marginal utility is simply the satisfaction that you get from the fifth end. Now that means, there's a very momentous implication of that, that the value of each of those bushels of wheat are equal to the value of drinking vodka over the course of the year, okay? No matter which one is lost, they are all identical, they're all interchangeable, they all can be used for the same ends. Therefore, they all must have the same value. What is that value? That value is determined by the marginal utility. What is the marginal utility? It's a satisfaction that you will be deprived of from the lowest valued end, because no matter which one you lost, you would give up the making of vodka, okay? But notice what would happen here. Once that happened and you had only four remaining, what would happen to the value of each of those bushels of wheat? Even though they may have cost you the same amount to produce, all of them, now each bushel of wheat would now be valued more. They would now have a higher value because now if you lose one, you give up the chance to consume milk and cheese and meat, which has a higher value than vodka. So the lower the supply of the good that you possess, the higher the value, okay? On the other hand, the greater the supply, then the lower the value. And value is determined by marginal utility. In everyday life, let's say you have the example of a family that has parents and a teenager, and there are three cars, and let's say they're pretty much interchangeable. One parent is the main breadwinner, the other parent works part-time, goes on errands and so on, and the teenager is a teenager. Annoying always wants the car. Well, let's say that the old man cracks up his car, okay? Does he find other means to get to work? No, Junior loses the car because that's the marginal utility. That's the lowest valued end served by those three interchangeable cars. So let me give you a little test. Here's a farmer. He's got three horses and two cows. The three horses are interchangeable. They can all serve the same ends, but they're different from the cows. Two cows are interchangeable. They serve different ends. So the most important end is to get wheat, to plow for wheat. So you can use one horse, horse number one for the wheat. Horse number two increases the productivity because you can plow better with two horses. The third ranked end, the third most valuable end is milk from the cow. The fourth most valuable end is raising a cow for a beef, and the fifth end is served by that last horse for recreational riding. So the question is which animal, given the situation, is the more valuable animal? Which is the more valuable animal? The cow is a more valuable animal. You don't look up at the top, okay? You don't look up at the top. You look at the lowest valued ends that those different goods can serve, okay? So, and you can ask yourself the question like Menger did. If the barn was on fire, and I could only say four of the animals, which animal would I leave in the barn? The least valuable animal, the less valuable animal, that is a horse. If that happens, okay, and now you're left with two horses and two cows, which becomes the more valuable animal? The horse, because the more utility of the horse is the second most valuable end, okay? So that is not the way you've learned margin utility for those of you who've taken principles of economics, okay? There's no talk here of trying to assign indexes or numbers that reflect satisfaction to any of these things. The utility is all choice-based, based on people's subjective values and how they will choose to express those values. But Menger went a little further, oh, by the way, let me just then resolve the paradox of value for you. So Menger said, given the law of margin utility, we can now solve or resolve the paradox of value. The diamonds, in a normal situation, have a higher exchange value because the marginal utility of diamonds is higher than the margin utility, let's say a carat of diamonds, has a higher margin utility than a pound of bread, because bread is so abundant that its margin utility is much lower than diamonds. Now someone is in the desert, hasn't had water for three days, has that diamond I showed in an earlier picture, that 46 carat pink diamond, $46 million worth, in his or her pocket, someone comes upon someone with a gallon of water, would they trade the diamond for the water? Yeah, of course they would, because in that situation, water has a higher margin utility, and that is the satisfaction of staying alive for another three days, so you would give over the diamond, which has a lower margin utility, okay? And that also sheds light on other things. In a normal situation, air is valueless. Air has no value. It doesn't have a price on the market. It has no value because if we lose a cubic foot of air from this room, no one goes without any air, okay? On the other hand, if you're a deep diver or if you're going into space, well then air has a higher margin utility, okay? Because it's much more scarce in those other environments. So menger resolve the paradox of value once and for all. But menger went further with his whole idea of cause and effect. Putting human beings, consumers, at the center of the economy, meant that all value must emanate from the consumer. So if you buy an automobile, let's say you buy a BMW 550 and you're willing to pay $50,000 for it, it's not the automobile that is actually directly valued, it's actually the services that you expect to get from that automobile in satisfying your wants for aesthetic appeal, for good handling, and for means of transportation. So it's the services from the physical thing that are directly valued, okay? And that value comes from how important the wants are that those services satisfy. So it goes from human wants, value goes from human wants, and how they are ranked back to the services of the physical thing. That's imputed backwards to the physical thing itself. That's the reason why the automobile has a value. But then why does the steel and the labor and the other things that are used to assemble the automobile have a value? That's only because they cause the production of the automobile, which causes the services of transportation, which causes the satisfaction of wants for those things. So menger distinguished between higher order industries, okay, the goods that were produced that are further away from the consumer goods that directly satisfy human wants, and lower order goods. The lower order goods are the consumer's goods and the capital goods that go into producing the consumer goods. So let me just give you this in a little bit more or in a little simpler fashion. So this is menger's law of imputation. And it says that the value of the means reflects the value of the ends or wants they serve. So the means are not independently valuable, okay? They're valuable only because we see them as serving, believe that they will serve important wants. And secondly, value is imputed backwards, okay? From consumer value judgments of the services of those goods back to the goods, back to the things that have created those goods. So the value of the car and the gasoline determine the value of steel, the robot assembly, machinery, oil wells, and all those other things that go into producing a functioning car. So that's sometimes called backwards imputation. And you can see it here. Production follows the blue line. It goes from the higher stage goods, okay? You start with land and labor and you produce farm tools. And then those tools are used to produce wheat. And then the wheat is combined with labor and other machinery and that's used to produce flour, which is a third order good, okay? And as we get closer to the consumers, the orders are lower and lower. And then the wheat's milled into flour. The flour is then taken and transported and baked into bread using more machinery like ovens and more labor. And then it goes from the wholesale to the retail and then finally to the consumer, okay? So this is the mistake the classical economists made and people still make today. That because things in the past have produced these things, those things are what are valuable, okay? And from the business person's point of view, from the point of view of the baker, it looks as if all these, the flour and the labor, he has to pay certain prices for them. He's, well, it costs me this much. But it doesn't matter. People don't like that kind of bread. If consumers feel that, let's say white bread, which is unhealthy for them, and they put zero value on it, then these other things aren't gonna have value at all. So value is imputed upwards from the consumer and his wants up through the various stages to the highest stage. So I give my undergrad, I used to give my undergraduates this example, but this movie is very dated now. But in the movie, Witness, with Harrison Ford, he plays a policeman that's hiding a witness in Southeastern Pennsylvania with the Amish live. The Amish are a religious sect which do not believe in any sort of ostentatious display. They don't even have buttons on their clothes. They use eyes and hooks to sort of fasten their clothing. So let's say we all took on the values of the Amish. And so no one would wear any jewelry. So everyone in the US now is sort of takes on Amish values. What happens to the value of diamonds? Forgetting about their industrial uses. Value of diamonds is jewelry, four to zero. People have no use for them. The wants for diamonds are four to not, they aren't there, okay? But then as a result of that, what happens to the highly paid jewelers and those who assess diamonds and assay diamonds and so on? Well, their wages in that field fall to zero. What happens to diamond mines and the equipment that are used in diamond mines? That value falls to zero. It's price that determines cost, not the other way around, okay? The prices of diamond mines are very high because the price of diamonds are so high. Once take away that value of diamonds, once allow human beings to avoid diamonds to repudiate them as something evil, and then the value falls to zero of the diamond mines. And that of course explains the complete and utter futility of the drug war, okay? As the way to fight the drug war or the way to end the drug war is simply to change people's minds, that is the demand side. If people had no wants for drugs of any kind, for recreational drugs of any kind, then what would happen? Well, then the poppy fields would be worth zero. All these means of transportation that secretly moved the drugs, that would fall to zero. The so-called drug cartels would all go out of business, they wouldn't be able to buy weapons and so on, okay? You cannot fight something on the supply side because demand and supply are not really symmetrical. It's demand that is the expression of values, subjective values of human beings that drive supply, as we said, that causes supply. Let me just take one more minute. Manger also solved another problem, and that problem was this. He said in his book, look, yes, it's true that he used tobacco that the value of all the things that go into making cigarettes, cigarette rolling machines, the labor and so on, they all depend on the value of cigarettes. They're determined by the value of cigarettes. But what about just one unit of these things? So if you take the example of wheat, what's the value of, let's say, 100 pounds of fertilizer, okay? Now let's say that 1,000 bushels of wheat could be produced by 90 units of labor, two hours of, what's H, two horses were plowing, one plow, 40 acres, and 500 pounds of fertilizer, okay? So all those things combined produce 1,000 bushels of wheat. But what's the value of 100 pounds of one thing that is used in what we call economics of production function? And it's very simple. Menger asks himself the same question. What if we lost 100 pounds of fertilizer? What if 100 pounds was subtracted from all of the other things that produce wheat? What's the value of that 100 pounds? Well, what happens to the amount of wheat? If wheat falls by 100 bushels to 900, because we lack that 100 pounds of extra fertilizer, then the value of the fertilizer, of that 100 pounds of fertilizer, is equal to the value of 100 bushels of wheat. So whatever price that is on a market, let's say $2 per bushel of wheat, and so it's $200, the fertilizer is worth $200, okay? So that's what Menger, he didn't go into great detail on that, but he gave people of other Austrians and others the tools to solve that problem, and that was solved 20 years later in the 1890s. Finally, his analysis of exchange, he criticized Adam Smith for saying exchange occurred because people had innate propensity to truck and barter to exchange. Menger said, no, that's not true, and he also said that Smith was wrong about saying that the goods exchanged are equal in value. He says they are not equal in value, and just to finish up, that was his analysis of exchange. People exchange those things which they believed to have, or which had a lower value to them for the things that had a higher value. So if A has a cow but does not have a horse, but values a horse more highly, he will gladly give away the cow to B, who does not have the cow, which is in parentheses, in exchange for a horse, okay? So Menger pointed out something that is absolutely true about every exchange that has ever taken place and will take place in human history, and that is that there's exchange always, never shows equality, it always shows double inequality. Each individual party to the exchange values the goods in different orders, okay? So that was a radical improvement in economics. I will stop here, thank you.