 Welcome to the first lecture of Mises University, 2019. The topic of the lecture today will be the birth of the Austrian school. And as you heard last night, all of the faculty are members of the modern Austrian school of economics. So what we want to do is to know what it is and where it came from. And there's no better way to do that than to focus on the founder of the Austrian school, Karl Minger. So let me talk a little bit about Minger. And before we do that, let me talk about the environment that Minger arose out of. So in the 1870s, there's a radical change in economics. An event occurred called the Marjolist Revolution, which I'll explain about Marjolism a little bit more later on in the lecture. But basically, it refers to the simultaneous discovery independently by three different economists of what's sometimes called the law of marginal utility, and what you would be familiar with, you should be familiar with if you've had introductory economics. This occurred over three years by, as I said, three different economists. There was the Austrian economist, Karl Minger. He wrote a book called The Principles of Economics in 1871. At the time, he didn't know that there were others who were working along the same lines. One was William Stanley Jevins, who wrote Theoretically Economy in 1871, also came up with a marginal utility approach to economics. And then there was Leon Volras, who was a French Swiss economist, who a few years later, without having read the previous two books, also came up with an approach to economics that was based on marginal utility. Now, they all use different names for this. Minger didn't name his principle. It was only later on that his student, Frederick von Wieser, gave the term marginal utility to Minger's contribution. Jevins called it final utility, and the Swiss economist, Volras, used the term rarité. Let me just give you some pictures here. This is the young William Stanley Jevins. Kind of looks like a mob enforcer, didn't age very well. At that age, as you got older, he looks more like the cranky guy who lives next door and yells that the kids would get off his lawn. Leon Volras, kind of diabolical and scary when he was younger, and turns out to be your grandfather. And his name's called Minger. Dignified when he was younger, dignified when he was older. This seems to run in Austrian circles, all right? OK, you got it. Kind of a surpical-looking guy when he's younger. All right, OK. Now, there was a big difference between Minger and his approach to the law of marginal utility, or the concept of marginal utility. And Jevins and Volras, both of whom were mathematical economists. So they thought of utility as sort of a quantity, a quantity of satisfaction that could be added up, that could be compared between different individuals. That is, if I have a bottle of water, it might be worth five utils, five units of utility to me, but 10 to you, because, let's say, you're a poorer person. So then the government should come in and take my bottle and give it to you. That was some of the implications of the sort of mathematical approach to utility. So the problem, of course, is what is a quantity of utility? I mean, what the heck is a util? Doesn't make any sense. Now, Minger was different. He viewed utility as a result of an actor's judgment about how important certain goods were to their welfare. So his notion of utility was ordinal. That is, what he said was that people ranked different goods according to which was most important. So if you had $2, you had a choice between buying a bottle of water, a can of Coke, or a granola bar, you would use that $2 to buy the thing that was highest in your estimation and would serve the most important want. You couldn't say you liked a bottle of water five times as much as you liked a granola bar. There was no, you couldn't do any mathematical operations with utility. You could simply compare it, and you could rank it first, second, third. And so utility had always evolved choice. It wasn't sort of free-floating satisfaction in your mind. It wasn't in your mind, but it only was demonstrated when you were choosing between different things. So Menge discovered much more than the principle of margin utility. Really, that wasn't really his only contribution, or even the main contribution. The main contribution was his focus on people striving to satisfy their wants, wants that were more or less important to them. And so his system of economics was an entire system based on people's subjective values and the choices they made in the economy. So the central figure in the economy was a consumer who was striving systematically to satisfy his or her wants. So the economy as a whole is really an outcome of the judgments of different people about their different wants and how they saw them as satisfying as being satisfied. So he was a creative genius. He didn't come up with all this on his own. He had many influences, but he was the one who really put it together. Now, what did some of the important historians of thought say about these economists or say about Menge? So we had Joseph Schumpeter, who was an Austrian economist and a very famous historian of thought. And he said that Menge is nobody's pupil and what he's created stands. Menge's theory of value, price, and distribution is the best we have up to now. And that was in 1926 after Menge had passed away. Ludwig von Mises, who was a follower of Menge explicitly and thought very highly of him, says, what is known as the Austrian School of Economics in 1871 when Karl Menge published a slender volume, His Principles of Economics. There really was not. Until the end of the 70s, there was no Austrian school. There was only Karl Menge. So he really was a true founder. And finally, F.A. Hayek, who won the Nobel Prize, very famous Austrian economist, and a very good historian of thought, said that the Austrian school's fundamental principles belong fully and wholly to Karl Menge. What is common to the members of the Austrian school, what constitutes their peculiarity and provide the foundations of their later contributions, is their acceptance of the teaching of Karl Menge. So we cannot underestimate how important Karl Menge was to the Austrian school. When Menge wrote the School of Economics that was dominant was the British Classical School of Economics. And the three main figures here, and you may have had history of thought class, were David Hume, Adam Smith, and David Riccardo, all of whom were British, Scottish, and English. And they wrote a number of works. Now, they were brilliant economists. They said some things that are still true today and are very important. They pointed out that prices are not arbitrary or random. They're determined by the law of supply and demand. They're determined by universal and unchangeable laws. And that certainly is true. There are economic laws. Law of supply and demand is one of them. And it's the same for all societies and throughout history. That law never changes. They also point out that these prices are used by business decision makers to allocate resources to decide how much to produce and what to produce. And these businesses also used these prices to calculate their profits and losses. So for example, if the price of oil and gasoline goes up, well, then it'll be more costly to drive large cars. And suddenly, people's demand for large cars would fall. And they would begin to move to purchasing smaller cars. So you would have losses being earned by those who are producing larger cars and high profits in producing hybrids and smaller cars and electric cars and so on. So what would happen would be because of people's choices, because of their values, there'd be a shift in the real world out there by business decision makers away from producing the larger cars to producing the smaller cars. So they understood all this. They were wrong in certain ways, as we'll see, but this is very important. Now, they did have a main flaw. And the flaw was that when they were talking about goods and they were trying to decide the importance and the value of goods, they took goods as an abstract class of things. They talked about all the coal in the world. They compared bread to diamonds to coal, water, beef, and so on. And that in itself was a mistake. That was a mistake at really right at the beginning of their attempt to explain prices. Because you and Beads do not think about whether coal is more important than diamonds or water is more important than bread. What they think about is at that moment in time when they're making a choice and they're expressing their values about what is most important to them, they're looking at concrete units of goods. And this is what, as we'll see, so that these were the things that were essential to economic analysis, looking at goods in terms of concrete units and not abstract classes. And as a result, the classically kind of because they did not do that and they did focus on abstract classes, bobbed down into what was called or unable to solve what was called the paradox of value, sometimes also called the water diamond paradox with a bread diamond paradox. And the paradox was as follows. Diamonds have a very high exchange value, which simply means they have a high price on the market. But they have a very low use value in everyday life. People use them to show off their wealth, they use them to adorn themselves, to be conspicuous, and so on. So for the human race, diamonds are not very important. They have a high exchange value, but they have a low use value. Water, on the other hand, has a very high use value. Without, if you were unable to obtain water for two or three days, you would die. Your bodily organs would shut down and you would pass away. So it has a very high use value. So the paradox was it had a high use value, but its exchange value is very low. So you have that paradox where something has a very low use value, such as diamonds, has a price per unit that was much higher than the price of something like bread or water without which the human race would perish. So they could not solve that. Now what they did do, most of the diamond and water paradox, there's one of the most expensive diamonds ever sold at auction, that's been recently surpassed, but was $46 million, over $46 million, 25 carat diamond, and that was in 2010. So the class leaders kind of just couldn't understand that. They didn't understand how that could come about. So what they said was this, look, we're not going to worry about use value. That's not the job of economics. That's not the domain of economics. What we're going to focus on is exchange value. We're going to explain prices. So guess what they did when they did that? They got rid of the consumer, because the consumer is the one who experiences use value, who judges use value. And so if they were going just to explain prices and forget about use value as the basis of prices, then their focus became, guess whom? The businessman, as they would say then. So they focused on the businessman, and they pointed out that the businessman buys in the markets where prices are low, they make a product, and they sell in markets where the prices are high. And that's called Homo economicus. They focused on the economic man. Now they knew that that was unrealistic, but they didn't know how to solve that paradox of value and bring use value back into the picture. So some people claim that, well, the classical economists were dumb. Well, they weren't dumb. They just couldn't solve this very, very subtle problem. So that was their solution, and of course, it was wrong. Manger solved the paradox of value and showed how subjective use value is the basis of objective exchange value. He brought the two together. He gave us a complete value and price theory. He didn't throw or he didn't take subjective value and throw it out the back door and just worry about objective value or price. He realized that even though prices are important, you had to base them in human action, in people striving to satisfy their wants. And there were a few other mistakes that as a result of this paradox of value not being solved were made by the classical economists. For example, they began to develop a theory of prices that was a cost of production theory. They said, well, in the long run, cost of producing something determined its value. So the cost of producing bread pretty much determined its price. The cost of producing an automobile, if we were a classical economist, we would say that, well, that's pretty much determined by, or rather the price of an automobile is pretty much determined by its costs. The problem with that is that you could not explain the costs or the prices of things like diamonds. Did it cost $46 million for that diamond that I showed you before? No one knows. No one cares. If people at that auction don't know how much it costs. All they know is the value they attach to it. So the classical economists was caught in this problem. And so what they said, well, there's two kinds of goods. There's goods like iron and coal and bread. Those goods are reproducible, and their prices are determined by their costs of production. Whereas things like diamonds and old paintings and so on that are not reproducible, well, their prices are determined by supply and demand. So now you had two different theories to explain the same thing, to explain prices. And that's not scientific. It's unscientific. Couple of other things that they made mistakes on, and I'll show you again how Mengehr fixed all these mistakes, had to do with value. So if value is determined by the cost of producing it, by the resources you use in producing the good, if that's what determines price, then it tells us that the source of value is not in the human mind. The source of value is in the good itself. If people sweat a lot over producing a television set, that television set costs $2,000. Because it embodies a lot of labor time. That's the laborer's sweat. Or it embodies a lot of money spent on resources to produce that television set versus something like a bottle of water, which is only $2, much less than a television set. Because it doesn't embody, it doesn't cost a lot to produce. So value is inherent in the good, and that's incorrect. In other words, production gives value to the good. And we're gonna see that's exactly the opposite of the truth. And also, if it is true that the cost of production determine prices, how could firms ever lose money? How could AIG, the biggest insurance company in the world, back during the financial crisis, how could it have lost $72 billion in one year? It just should raise the price so that it covers its costs. How could IBM, in the late 1980s, have lost four or $5 billion for three years running? Well, if you believe that cost of production determine price, you cannot explain firms losing money. So that's another problem. Okay, so let's get to Manger. Manger, in his preface to his book, aimed at setting forth or presenting to people what he called the realistic price theory. And this is the sort of mission that he set himself. He said, I have devoted special attention to the investigation, and cause and effect was very important to Manger, to the causal connections between economic phenomena, involving products and the corresponding agents of production, in other words, involving the goods and the resources that we use to produce those goods. He says, not only for the purpose of establishing a price theory based on reality and placing all price phenomena together under one unified point of view, but also because of the important insights we gained to other economic processes, okay? So right from the beginning, you realize that, look, Manger is going to focus on a realistic explanation of price and a realistic explanation of price, one that focuses on cause and effect, cannot leave out the ultimate cause of all value, which is human value judgments about what is more and what is less important to them. So what we've come to call the causal realist tradition, okay, became the sort of central tradition of Austrian economics, and that derives from Karl Manger. So economic theory to Austrian economists today is the investigation of the causes of real prices, wages, rents that are actually paid in everyday markets. What Manger wants to explain is if you go a few miles down the road to Super Walmart here, the prices that people have paid for the goods right now, okay? He doesn't care about, in the long run, prices tend to equal their cost of production. He wants to explain the factors that govern the prices that people right now registers, cash registers and, you know, at Walmart, at CVS and other places are paying, right? He also wants to explain the prices of steel, of labor that are being paid right now, okay? And as we'll see, these prices have a little different time dimension, right? Because the prices that people are paying for steel today, which will be an automobile five years from now, that those prices are focused on the future, okay? Which brings in the entrepreneur, which you'll learn about later on. So before he wrote his book, Manger carefully wrote out some notes to himself about what he wanted to do in the book. And these are some of the notes that he wrote to himself. He said, man himself is the beginning and the end of every economy, okay? Not cost of production, not labor, okay? But man in his fullness, okay? As consumer and producer and entrepreneur, okay? The beginning and the end of every economy. And second, our science is the theory of a human being's ability to deal with his wants. So immediately you realize that the ultimate factor, okay? That causes all economic phenomena, all economic activity is subjective, is deeply subjective, it's deep in the human soul. As Mises once said, the pricing process is a war of scarcity or reflection of the war of scarcity that is going on in the human soul. He used those terms. So Mises was a mangarian. And then the first line of, this is the first line of the text of his book. All things are subject to the law of cause and effect. So he wanted to untangle the causes and show you step by step how different economic activities and phenomena arose. He also wrote out three different, what I call a triad of causation. They all mean the same thing. So if you'll note, the first term in each of those three has to do with the subjective part of human activity. People have ends if you look at number one. Or we begin with man if you look at number two. These are all mangar's little diagrams. Or you begin with wants. All of the same things are all subjective, okay? They are what precipitates economic activity. Now, in order then to serve the person's ends, the individual has to look around him or her at the various means available in the real world. Means or another word for that is goods or the elements of the external world. So all action begins in the human mind with ends or with man and his mind. And then transitions through the objective world, okay? Where the elements of action are present, okay? So these are the external things, things that are different from the human being. If you didn't have the external world, you couldn't have any action. And in all ends, okay? So if the means are used properly, then the ends are realized. So the person is satisfied, okay? Or the wants are satisfied, right? So realization, subsistence, and satisfaction are all the third step. And that goes back to the very first step, okay? So you start with subjective wants. You look around for elements or goods or means that can help you satisfy those wants. And then you achieve your ends and you become satisfied. So there's a guy who's hungry, okay? That's a subjective want. A want is simply a lack, okay? He lacks the food to satisfy his hunger. He has, there's resources available to him in the real world. And those resources are costly because he can use them for other things or because he could use the money that he used to purchase those things for something else. So they're scarce and costly. And so he puts together a sandwich, he combines them, produces the sandwich, and then we achieve satisfaction, okay? So in sort of in diagrammatic form, that's Manger's idea of economic activity. And the end of the goods are only valuable to the extent that they satisfy the ends, right? If someone is a vegetarian and doesn't eat carbs and hates mustard, well, those things are worthless. No matter how much they cost to produce, they have no value to that person. So one of the central elements in the want satisfaction process that makes up the economy is goods. And so in the very first chapter, Manger defines what it takes for something to be a good. So it's called the preconditions of a good. You need a human need, all right? So there has to be someone who has a need for something or a want. A thing is capable of being brought to causal connection with the satisfaction of the need. For example, the sandwich we were talking about, the person that objectively to Manger can be used to satisfy that want. Human knowledge of this causal connection, the person must know that this thing can be used to satisfy the want that he or she is experiencing. And then the person must have command of the thing, sufficient to direct it to the satisfaction of the need. That is, you need ownership or control, right? Now there's a mistake there, okay? Manger didn't follow his own preference for focusing on the purely subjective. What Mises points out is that number two and three can be combined, okay? Into two prime, which tells us the belief that a thing has the capacity to use to cause the satisfaction of human need. In other words, the thing it may be, we're all fallible, so the thing that we choose to satisfy a want may not be actually capable of satisfying that want. That doesn't matter. We're still willing to pay a price for it if we believe that it's capable of satisfying the want. Look, people buy the New York Times to get the news. People go to mediums to talk with their dead relatives. Now it's interesting, a few pages later, Manger actually says, well, there are imaginary wants. But they may disappear over time, but he realized that people would pay prices for, I think he mentions a medium who communicates with the dead, okay? But Mises says no, there's no difference between any of these goods, all right? If people pay a price for them, that reflects a value that they have for that thing. Whether that thing objectively does in fact satisfy the want that they're aiming at satisfying is irrelevant, all right? Okay, so these things are scarce. Since they're scarce, you have to choose between them. And as we'll see, as I explained the Law of Modern Utility, you have to rank the wants which wants are most important to you, given your, and which would allow you then to use or allocate your resources among the wants. And that you would then economize your good. You would only use your goods for the most important want, okay? So Mises, Menger replaced the idea of economic man which was fictional with economizing man. That is someone who has all these different wants whether altruistic or selfish, didn't matter. Whatever the wants are, the person needed resources to satisfy them and resources being scarce, okay? Because we have economic goods. So economic goods to Menger were goods that there were not enough of to satisfy all human wants for them, okay? So for example, the sun to Menger was not an economic good, all right? Or air, more usually used, the air in this room is not an economic good, okay? And when we talk about the Law of Modern Utility we'll see what we mean by that. So let me first define the Law of Modern Utility. It's the value of a good is determined by its margin utility, that is, okay? Now, simply means a satisfaction from the least important or lowest ranked and served by the available supply of the good. So utility is simply another word for satisfaction, okay? And marginal simply means the relevant unit, okay? And that's a very important concept that we'll talk about in a moment, okay? So the Law tells us as a supply of a good possessed by an individual, as you have more of a given thing, as you have more money or you have more automobiles if you're a car collector or you have more bottles of water, the value of each individual unit falls, okay? So the greater the increase in supply the lower the margin utility and therefore the lower the value. So let's take a famous example that was more or less used by Manger, Robinson Crusoe example, the example of a castaway who is on an island and has nothing but his own labor and the resources available on the island. And let's say that he has a certain supply of wheat, okay? That grows wild on the island so he can harvest this wheat and then devote it to his most important purposes. So he ranks the purposes. Let's say a sack of wheat can serve each one of these purposes. So most important to him is to keep himself alive, okay? Secondly, most important is to make him vital to maintain his health so that he can engage in other activities. So you would need a second sack of wheat that he would bake into bread, okay? To keep him healthy, okay? The first sack would simply keep him alive. Third sack would be provision for the future. He needs to use the wheat as seeds for the future. Third, he would like to vary his diet so he would have feed, he would use some of the wheat, a sack of wheat for feed, for goats, okay? So that he could get goat milk and cheese and meat and so on, okay? And Manger likes whiskey, I like vodka, but he might want to have a little stronger beverage to go along with the rest of his diet. And so he would transform this by producing vodka with it. Let's assume he only has five sacks, but they're scarce. So if he had a six, there is something else he could do with it, okay? And there's seventh, eighth, and ninth, and so on, okay? The wheat is scarce. Let's say he could make use of 20 or 25 bushels of wheat and after that they wouldn't be useful, but since he only has five they are scarce. So he doesn't have the sixth, if he had a sixth he would then use it to feed the parodies. Lonely, he wants some company. Now let's look at the law of margin utility. What is the, so Manger asked himself, he posed this question in his book, what is the value of a sack of wheat to this individual? Is it the value of the most important one, the first one? Is it the value of an average of the five wands? Well, he solved it in a very ingenious way. He said to himself, or to his readers, what if the born, what if let's say a pack of vermin break into the barn where I'm keeping the wheat or break into the shelter where the wheat is being kept and devour one of the bushels, okay? Let's say it's bushel number two, okay? So he's about to allocate these bushels to these wands. What satisfaction does that individual lose? What satisfaction does Crusoe do without? Well, it's obvious. This economizing individual will forego the least valued use that five bushels of wheat can fulfill or conserve and that would be the value of the vodka. So no matter which bushel is lost, you're losing the margin utility. The vodka, the value of the vodka is a margin utility, okay? It's the satisfaction for the lowest ranked end. So every single one of those identical five bushels of wheat has a value that is equal to the value of the vodka. Now if one is lost, what happens to the margin utility? It rises. Now you only have four. So now there's a more important want that you would have to go without if you lose a bushel of wheat. So the margin utility rises as the supply decreases. With three bushels of wheat, each bushel would be more important because now you would lose seed for the next harvest, which is much more valuable let's say than a feed for the goats. Now something else you should realize here, you cannot quantify the value from each of these things. You can simply rank them. To use a more sort of a more modern example, let's say there's a family who has three drivers. Let's say the dad's the main breadwinner, the mom uses a car to do errands and works part-time and then junior has a use for the car. Let's say the dad crashes his car. Let's say the cars are pretty identical. They can all serve the same purposes. Who loses the car? Does the dad go without the car? No, junior doesn't drive anymore because that's the lowest ranked use in that family. And just to see if you understand the concept, let's just look at a short quiz here. Let's say you have a farmer who has two different kinds of goods. He has horses, horses can be ridden, they can be used to plow and he has cows. Cows can be used for milk, they can be slaughtered and used for beef and so on. So they're not identical, they're two different goods. Let's say he ranks, by the way, all of your ends are ranked on the same value scale. They're all ranked together as more or less important. So let's say the most important end is using one horse for plowing. Using a second horse for plowing makes plowing easier, makes it more productive. So that's the second highest valued good. And then the third is milk and so on. So looking at that, which good is more valuable? So everyone says the horse's horse is not more valuable, the cow's more valuable. And the way to answer that question is to pose a mangarian example. Let's say the barn is burning and you can only get four animals out. Which animal do you leave behind? The least valuable animal. The animal with the lower margin utility. The margin utility of the cow is the satisfaction from the beef, which exceeds the satisfaction from recreational riding. So now if you've lost that horse, it's kind of tough to conceive of a horse burning up. So let's say the horse runs away. Anyway, which is the more valuable animal now? Which animal has a higher margin utility? The horse, okay, the cow is now the less valuable. So as the supplies of a good change, their values change. And voila, mangar has solved the paradox of value, right? Why then does a diamond have a much higher value than a pound of bread or a gallon of water on the market? Okay, well, the reason is simply because in relation to their uses, diamonds are much more scarce. So their margin utility is higher. If you want to change that, if you want to see how that can change, put yourself in a desert where you have not have water for three days and you have that 46 million dollar, 25 carat diamond in your pocket. And you're on the point of dying of thirst. Would you trade the diamond for the gallon of water? Yeah, of course you would. Because a gallon of water every three days serves the most important one, okay? Much more important than the satisfaction you expect to derive from the diamond. So when you change the utility of things or rather supply of things, the margin utilities change and the value changes. So right now there's more than enough cubic feet of air in this room that air is worth what? But air has a value of zero in a normal situation. Now if you put yourself on the moon, okay? Air is extremely valuable. Or if you're a deep sea diver, air is extremely valuable. Or if you suffer from emphysema and it's a bad day in Los Angeles as far as pollution. People are willing to pay high prices for air under those conditions, okay? Because the margin utility is so much higher, okay? Now there's something else that Menger pointed out about goods, and that is that since all production takes time, okay, and proceeds step by step, okay, from what he called the highest orders, those furthest away from consumers toward consumers and satisfaction of consumer wants, he said he came up with the concept of orders of goods, okay? So here you see the structure, what's called the structure of production. He didn't use that term structure of production. You see really a system of orders of goods that start with iron ore mining, okay? And end in an automobile that is produced, let's say after five or six years, and then sold to consumers, okay? So for Menger, the further away from a consumption, a good was the higher its order, okay? Consumer goods were lowest order goods. Now, why was that important to Menger? It was important to Menger because Menger wanted to show that the classical economists were wrong, that production did not bestow value on goods, okay? It was really the other way around, okay? Consumer value judgments about the goods that were final order goods, or the goods that were lowest order goods were the things that gave value to those goods, to the car, to the loaf of bread, or whatever else we were talking about, and then because those things were valuable, the resources that were used to produce bread was valuable, and because those were valuable, that caused value to be imputed backwards, okay? So production proceeds from the higher order goods, you see the downward arrow, the blue arrow, production goes from the higher to the lower order goods, okay? And the mistake made by the classical economists was so does value, okay? But as Menger pointed out, really value starts with the consumer, the judgment made that bread is important for satisfying certain wants, and the bread was valuable, or the bread itself, because it was value, caused the value of the bread that the wholesaler was selling to the retailer, which in turn caused the value of the flour, okay? And again, the wheat was only valuable because flour was valuable. So value is imputed backwards, okay? From the consumer back up through the orders of production to the highest stages, to land, for example. And as Menger pointed out, the classical economists could not explain the value of land, okay? Because land wasn't produced, okay? Land is nature-given, or God-given, okay? It's not produced. So what did the classical economists do? They said, well, land is a monopoly. Since it's scarce, it has a monopoly price. It was a very bad explanation. But Menger said, no, of course not. Land is only valuable because the things that it produces, or allows to be produced, are valuable. So, an example he gave was, if everyone stopped demanding tobacco products, okay? What would happen to the value of tobacco rolling machines? Would fall to zero, okay? Cigarette rolling machines, and cigar rolling machines, and a step further back. What would happen to the value of tobacco leaves? Would fall to zero. And similarly, the land that grows tobacco, let's assume it has no other uses. Let's assume it has no other uses. The value of that land, which is extremely high, by the way today, would fall to zero, okay? Same thing is true of diamonds. The example I always give my undergraduates is that in the movie with Harrison Ford Witness, which takes place in the Amish country, in Southeastern Pennsylvania, there the Amish avoid any sort of ostentatious displace to the point where they don't even have buttons on their clothing. They use eye and hook, so it doesn't show any ostentatious, no vanity, okay? So if all Americans or everyone adopted the values of the Amish, what would happen to the value of diamonds? Okay, assuming they have no industrial value, the fall to zero. And that would work its way up to diamond mines, to the point where there would be zero demand for diamond mines, the cost of a diamond mine, or price, would drop to zero. One last thing I wanna point out about Manger. Once you realize that value is subjective, then you can understand exchange, because according to the classical economists, exchange showed an equality between the price paid for a thing and the thing itself. So if a bottle of water costs $2 to produce, then it was equal in value to the $2 price that you paid for the water. A Manger point that is totally incorrect. So if you take, for example, of the exchange of a horse and a cow, if A has a cow, okay, and the good that that individual does not have is in parentheses, A has a cow and trades the cow for a horse with B. The reason why that exchange takes place is because A values what he gets, the horse, more than what he gives up, the cow. The more utility of the horse to him is higher than the more utility of the cow. And the reverse is true of B. So Manger said there's not any quality in exchange, doesn't show any quality in value. It shows a double inequality, okay? So if someone buys a BMW for $70,000, doesn't show that that person thinks it's equal to $70,000. It shows that that person prefers, the buyer prefers the BMW model to any other use that he can think of for the $70,000, okay? And likewise, or contrary-wise, the seller believes that the $70,000 has a higher value than the BMW that's given up, right? So the ancient fallacy that there's an equality between things exchange, that something is worth the price for it or not, is completely wrong because people have diverse preferences, they have diverse value scales, they rank things differently, okay? There's when two people meet for exchange, Manger pointed out, and they make the exchange, it shows that there's a double inequality of value, okay? That everybody believes that what they're getting has a higher value to them than what they're giving up. I'll stop there. Thank you.