Direct Exchange

0:00The topic of my lecture is direct exchange, but it's much more than talking about price determination in a border economy. In fact, what Rothbard really demonstrates in this chapter is that exchange is the very foundation of the division of labor. And the division of labor, in turn, is the foundation of society. And he really follows and elaborates on a group of French economists, French liberal economists. There was an economist, Stute de Tracy, who said that all society develops from commercial relations. Others went along with this view, such as Jean-Baptiste Say and Bastiat, and many of the others in this French tradition. But Rothbard gives it a rigorous foundation.

0:46It's also in Mises. So what we want to start with is the concept of interpersonal exchange or trade, okay? Rothbard points out that there are really two conditions for any voluntary exchange to occur. And the first is a reverse valuation of the things exchanged. Each party to the exchange must expect greater benefit from the good that he's receiving in exchange Then the good that he's giving up. In other words, the benefit must exceed the cost. What's being sacrificed has a lower value to him than what's being received in the exchange. So if today, for example, you bought a Wall Street Journal for $1.50, then you prefer the Wall Street Journal to the $1.50.

1:36The seller, in turn, preferred the $1.50 to the Wall Street Journal. So it's a very simple diagram that shows this. If there's A and B are the two people that are involved in this exchange, The horse, which is owned by B, and the cow, which is owned by A, they're exchanged for one another, okay? And the reason why they're exchanged is because B values the cow more highly than the horse, and A values the horse more highly than the cow, okay? The parentheses represent the good that the individual does not have, okay? Now, this is true of all exchanges. The market economy is simply a network of exchanges. All of the complex phenomena that we see going on right now at this moment in the economy are merging out of moment-to-moment exchanges on labor markets, on financial markets, in supermarkets, everywhere.

2:32Secondly, of course, everyone must, for an exchange to take place, the two individuals involved, the two groups involved, if it's firms, have to know of each other's existence. So, Austrians start with the view that any decision, any action that's taken in the market is based on given knowledge. At that moment, people have expectations about the future. People might be wrong. They might have gone to one store when in fact the good could have been gotten more cheaply at another store. Or they may have gone to one store and walked away because the good had too high a price. They valued the money more than the good that they were seeking to buy. So therefore they walked out of the store, but they could have gone to another store, maybe a mile or two away, that had a lower price, which would have stimulated them to make the exchange.

3:24So Wall Street Economics does not assume, Rothbard does not assume, perfect knowledge, with that second precondition that you must know of each other's existence, the two people involved. Here are the things I want to say about exchange. Obviously, only scarce means can be exchanged. In a normal situation, air cannot be exchanged, sunlight cannot be exchanged. These are what might be called general conditions of human welfare, or sometimes called in neoclassical economics, free goods. Only scarce means can be exchanged. This bears on the question which we will get into now of copyrights and patents, and Intellectual Property Rights. We know that certain things like air become scarce means in less than, in abnormal situations.

4:14For example, deep sea divers are willing to pay a lot of money for reliable air tanks. The government spends a lot of money on oxygen systems for the astronauts and so on. Because in those situations, then, air does become a scarce means and can be bought and sold. What about the question of goods that are available in a supply of homogeneous units, not just one unit, as in this case? There, the law of marginal utility comes in. Remember, just to give you an illustration, David alluded to it. Each individual in deciding how to allocate his or her resources has in mind the value scale.

5:01So each unit of the good is always allocated or devoted to the most important use on the subjective value scale. Each additional unit then is devoted to the second most important use and further on down the line. So that the law of marginal utility indicates that the more units an individual possesses, the lower the marginal utility and therefore the value of each of those homogeneous units. So if this individual had three units, then the value would be the expected satisfaction from the third one, whatever that might be. B. There's also a law of total utility. Austrians do not consider a total utility to be the integral of marginal utility, of all the marginal utilities.

5:50In fact, total utility refers to the utility of the entire supply of the good that the individual possesses. So if someone possesses six sacks of wheat, that has a higher utility than if that person were to possess five sacks of wheat, or if they were to possess four sacks of wheat. Why? Because they can serve There's more human wants with them, okay? So that's a lot of total utility. Now let's look at the mechanics of an exchange in the case in which each individual owns more than one unit of the good. In this case here, there's an individual A who has no horses and has four cows.

6:39Once again, I placed in parentheses those units of the good that each individual does not possess but ranks on his or her value scale. So A possesses cows and does not possess any horses at the outset of the exchange. Similarly, B possesses four horses but no cows at the outset of the exchange. As an exchange goes on, the forces are set into motion to bring it to an end. Those forces are the law of marginal utility. That is, as A, let's say, receives more and more horses in exchange for his cows, the marginal utility and value of horses fall. Okay, so that's, on the other hand, the value of the cows that A is giving up rises.

7:27So you can see if you, I don't think you can, yeah, the first exchange takes place between the lowest valued unit of B's horse, the fourth horse at the bottom there, okay, I have a red arrow, okay, that horse then becomes the highest valued horse on A's value scale. The second exchange, and exchange of course, A gives up his lowest value cow, which becomes the highest value cow on B's value scale. Second exchange takes place, the blue arrows, that's the third value cow that A possesses, goes to B and becomes the second highest value cow on B's value scale, in return for which B gives up the third most valued horse in exchange for that cow.

8:15So, the exchange ends at that point, okay? The value of an additional horse to A now is less than the value of the third cow, okay? On the other hand, for B, the value of an additional cow in this case is the third ranked end there, or use for the cow, okay, which sits above the value of the horse there. So, the exchange, there is not a, they both value the cow, you see it in the yellow, okay, above the horse. So the exchange cannot take place, even though one party, in this case, A would like to get a hold of, rather, B would like to get a hold of an extra cow, but cannot, okay, because A will not give up that cow, right?

9:18So if you don't have these reverse valuations, or at the point where they cease to be a reverse of one another because of the law of marginal utility, The exchange comes to an end, a voluntary exchange. Of course, if, let's say, B was the government and wanted to requisition cows for more milk, then they could force that exchange. And that would not benefit both parties. Okay, let me, now, that's sort of the basis of exchange, low marginal utility. Let me go on to talk a little bit about what happens as exchange takes place.

10:04You immediately get exchange value coming in along with use value. When people are working in isolation in small household economies, they're producing only for the use of the good and how they value the use of the good. Once they realize they can exchange the good, they begin to produce the good with an eye to exchanging it. The effect is the following. Once people know they can exchange the good, they begin to specialize and to produce more units of the good. In which case, more units of the good lowers the use value to them and therefore makes them more likely to exchange. So a company, for example, a corporation like GM, has almost no use value for all of its goods.

10:53Almost all of its units of automobiles and other vehicles are produced for exchange, okay? So as the exchange process broadens and deepens, more and more goods are produced solely for the market, okay? Now, consumer sovereignty comes in at this point. Even though a household economy has complete consumer sovereignty, that is, nothing will be produced that the household does not expect has a value to them in direct use. But it's even the case that when you have exchange value coming in as the main motive for production, that consumer sovereignty still reigns just as it does in a household where there is no exchange.

11:38In other words, the entrepreneurs that are producing the goods or the producers, are producing things that they believe consumers will want because they want to get the good in exchange that they value. So consumer sovereignty then comes in as a concept in economics. Whether the consumer is the person who's going to be producing and using the good or there's a split between the producer and the consumer of the good.

12:13As I said, one of the most important conditions Rothbard stresses is that governs a relationship between exchange value and use value is the number of units that someone possesses. As someone continues to produce a particular good, let's say a shoemaker, each additional pair of shoes has a lower and lower value to him, the tenth pair, you know, he has back Back-up shoes, he doesn't need the tenth pair, he's not going to wear them ever. So that then is being produced almost solely for its exchange value, that's a key point. Now that is what leads to the market society, this network of interpersonal exchanges. At that point we have a contractual society in which titles are exchanged for these various units of goods.

13:05Two things about this contractual society. One is that it's mutually beneficial, and the second is that the relationship, in a sense, is symmetrical. Whether or not someone is dealing with another individual or a huge corporation, he has the same ability or right that that corporation has. That is, to make the exchange if it's acceptable to the other person or to refrain from making that exchange. Exchange. So in that sense, there is an equality or a symmetry of economic power. One party does not have more economic power than another party. They both have the absolute right not to engage in the exchange or to engage in the exchange if they feel that the psychic benefit outweighs the psychic cost. That is, what they're getting outweighs what they're giving up. Which brings us now to property ownership. You cannot talk about a market.

14:02You cannot talk about exchange, you cannot talk about a network of exchanges without having ownership of property. We can define property as a structure of complementary means that the individual uses to satisfy his wants. So every unit of every good that you possess right now is in the service of some end that you value. People continually allocating and reallocating their resources. So that structure of means that is devoted to your most highly valued ends is known as your property. Ownership entails absolute control, the ability to allocate this property according to your own decisions and choices.

14:53So property and ownership are value free in that sense. I could dispossess Patrick Ramey of his automobile that he drove down here in, okay? I think I'm stronger than him, I think I can take him. Once I got position on that car, that would now be my property, not my just property, okay? That's normative. But it would be in my control and I would use it according to my scale of ends and not his scale of ends. There was a question, and was it your question, Jonas? There was a question that someone had asked, is there a difference between property and ownership? No, there's a normative connotation for both, or there's a normative discussion that applies to both, and there's also a positive description of both, okay?

15:44The positive description being, again, the structure of means that someone controls and can allocate to achieve their ends, okay? So as Rothbard emphasizes, no society, even a hegemonic society, a dictator, a king, a mass democracy such as we have, can abolish property. All they can do is redistribute it. Scarce means always going to be someone's property. That's a key point, whether or not it's justly held is a problem of political philosophy, not of economics. However, if in fact we want to analyze the free market for instrumental purposes, and because it is the basic construct that allows us to understand the pricing process and monetary calculation, then we do want to go to the cognate discipline of political philosophy and decide what is just property because just property is a foundation for a free market so as economists and praxeologists we're value free we take the set of conditions which is given by political philosophy as telling us that this is just property, this is just ownership

17:04and then we analyze the implications of that arrangement of property It's a very important distinction. Again, we're walking a tightrope there. We're not making a value judgment, but we're saying that the free market should be the object of economic theorizing, okay? Because it's in the market that you see the pure formation of prices. You see the unadulterated use of monetary calculation, calculating profits and losses and so on. And then later on, we will analyze interventions into that market. invasions of property. Now people can disagree with Rothbard's description of what a free market entails, okay?

17:49That's another question that can be done on the philosophical level, okay? But what Rothbard does and other economists do not do is to set out the preconditions of economic theorizing in property and ownership. He realizes that you have to give some description of it, of the system that you're analyzing, in terms of property and ownership. And so, according to Rothbard, let me just go through this very briefly. Property is acquired in a number of ways on the free market. If you assume, as he does, that people own their own bodies, their persons, the powers that are embodied in them, Then the ways to establish ownership over scarce means is through homesteading.

18:40I don't like that word. I like the word appropriation better. So through appropriation of unused factors, factors under no one's control, or receipt of a gift of those factors, or production of goods using one's labor, which one appropriates by the very act of consciousness and volition, and the use of environmental or elements in the environment that are scarce, okay? And those goods then become produced goods. They can either be produced consumer goods or produced capital goods, okay?

19:25So, the third way, okay? So, there's appropriation, there's production, and then there's exchange. You can also acquire goods through voluntary exchanges. All of that really goes back to basically appropriation and production. All exchanges are derivative. They derive from the prior acts of appropriation and production. Everything can be traced back to that. This brings us to the exchange and the division of labor. If there's any exchange, it implies that the appropriation and the production of the goods between two different people is disproportionate to their wants.

20:18That is that they've already implicitly specialized. So exchange implies specialization, and specialization then, through exchange, brings about a division of labor in which the various tasks in producing different types of goods in society are now divided up. Under a household economy or under what's called an autarkic economy, in which one person or a small group together produces, there is no division of labor, okay? Or if there is, it's internal to the household and it's very, very limited. Now, this division of labor is limited by the extent of the market, meaning that the more people that are involved in this network of complex exchanges, the more goods that are being produced outside the producer's household.

21:12And therefore, the more the producer can have confidence that what he produces will find someone who will accept it, will find a market somewhere, okay? The key, now where does society come from? Okay, society comes from this insight that as people progressively engage in production for exchange value and exchange their products in the market, they grasp the fact that they are becoming richer. That is, that their labor is much more productive. Social relations begin when people realize that this is a system that should become prominent because it benefits them. So it benefits everyone in the market to specialize.

22:01And this is what the Stute de Tracy, the French economist I spoke about, Bastiat, all these economists saw. Their economics wasn't sophisticated enough to give the full basis to their proposition that all society arises out of commercial relations. But Mises and Rothbard focused on this great empirical insight that the productivity of people operating in the division of labor is much superior to the productivity of household economies. That is the The ideology that is necessary to underlie what Hayek has called the Great Society or the Catallaxy and Mises has called the Ecumen. It's from the Greek word meaning all embracing, okay, the world economy, the ecumen.

22:52Mises actually says that the eventual, he doesn't use the word destiny, he doesn't like that word, too Hegelian in some sense. But the ultimate end of humanity, a sense of goal of humanity, is the complete unfolding of the division of labor that embraces the entire world. and Rothbard also holds this view.

23:26Now what is the source of specialization? Why do people specialize? How did primitive peoples begin to recognize that exchange was beneficial directly? And once they began exchanging, realized that in fact, specializing even further, increased productivity, gave them more to exchange and improve their standards of living. Well, the key was that there's a number of differences in our world. This is an empirical insight. Without this empirical, this fact about our world, there would not be the market economy. It would not have arisen. And that is that there's an enormous variety in natural resources. Okay, that is, all parcels of land throughout the earth are not like every other parcel of land, okay, every, let's say resources are unevenly distributed throughout the world, okay.

24:25And people have different innate skills, aptitudes, and desires for different types of labor. So it's heterogeneity, inequality, okay, in the distribution of natural resources and in the distribution of labor, skills and powers and so on. That brings about the division of labor and higher productivity. Without that, if we had absolute equality, if every person was exactly a clone of every other person, skills, abilities and so on, Every person's piece of land was, like every other person's, equally endowed. There would be no reason to exchange. There would be no improvement in productivity that would accrue from exchange.

25:11Now that's not completely true. There would be certain tasks that people could do together, which is called cooperation of labor rather than division of labor, like rolling big logs that one person can't get off their land or can't cut up himself in exchange for rolling logs on other people's land. So this sort of log rolling would increase productivity a little bit, but it would not bring the division of labor, it would not bring the continued permanent network of exchanges that we know as the market economy. Okay, see on this, on exchange, there might be a few other things you might want to say here. And the last thing I want to say about exchange has to do with the question of, What about people that are inferior in producing every good?

26:02They're absolutely less productive in producing every good. For example, Hong Kong is basically a barren rock in the middle of the sea. It has absolutely no natural resources. It has a lot of people. The U.S. is incredibly rich in natural resources. Yet the U.S. trades quite a bit with Hong Kong. Why is that? We can make shoes more cheaply than Hong Kong. We can make shirts more cheaply than Hong Kong. We can make toys and so on more cheaply than Hong Kong in some absolute sense. However, the reason why we trade with Hong Kong is the same reason why, for example, a doctor hires a nurse to prepare his patients for medical procedures. The doctor can certainly do that.

26:49The doctor might be, in fact, twice as efficient as the nurse in Preparing the Patient for Various Medical Checkups and Procedures and so on. So, he could do it four hours with the nurse does in eight hours. Does he spend four hours dispensing medical services and the other four hours only dispensing doing nursing services? Absolutely not. The reason being, well, he gets, let's say, $200 per hour for medical services. So he would give up, let's say, $800 if he spent four hours as his own nurse. But you can hire nurses for $30 an hour. So both parties benefit. The doctor specializes in what he has a comparative advantage in, and the nurse specializes in what she has a comparative advantage in.

27:38And so that's why it pays even the most superior people in terms of productivity to trade with others that are much less capable of, in an absolute sense, of producing goods and services, okay? Let me talk now about price determination, because the central task of economics is to explain how prices are determined on the market. And Rothbard and the Austrian economists explain the determination of prices in a way that is much different, okay, ultimately, even though they use some of the same apparatus than neoclassical economists, okay. I'm going to just go through a couple of slides very, very quickly. Right here, I want to just show that the demand curve for any good, individual demand curves comes from the utility scales.

28:35You'll notice that Nick and Mila, these are two people that are value milk in relation to money. Nick, for example, if milk was, let's say, $4 a gallon, would buy the first three gallons. He would not buy the fourth gallon because he ranks at $4 above the fourth gallon. Okay, so you have Nick's demand schedule down there. Okay, and Mila, on the other hand, has a much lower marginal utility of milk with relation to money. So, at $4, she wouldn't buy any milk. Okay, until the price fell to $3, she would go without milk. Okay. So, first of all, Rothbard derives demand curves directly from marginal utility scales.

29:22Okay. They are not marginal utility scales, they are derived from marginal utility scales or value scales. For Rothbard and for Austrians, the real demand curve, the actual demand curve is discontinuous, it's lumpy. There's indivisibilities in the real world of both of money and of the goods, so it's never smooth and continuous, okay? Now, that's not to say you cannot use that as a heuristic device, which we do, makes things easier, okay? But this is what a demand curve would look like, a market demand curve. Let me say something about price determination.

30:10In this example, we have buyers and sellers, okay? Buyers denoted by A, A1 through A10, sellers are denoted by B1 through B8, and let's assume each seller owns one unit of the good, okay? So we have a stock of eight goods in the economy. What's relevant about these buyers and sellers, and what is important for the price determination process, I don't know why we're getting all this air here, is the fact that each individual buyer has a maximum buying price that he will pay for that horse, determined by his value scale. Each seller has a minimum selling price below which he will not sell the horse.

30:59The most capable buyers, I had most capable at the top there in the last column, are those that have the highest maximum buying prices. They're most likely to make the exchange, okay? The most capable sellers are those that have the lower selling prices. They're most capable, they're most likely to make the, to engage in the exchange. In this example, what's going to happen is that there's going to be five units of the goods sold, and there'll be five buyers, A1 to A5 will be the ones that purchase the good, and the sellers will be B1 through B5, they will be the sellers of the good. The price of the good will fall somewhere between $210 and $215 and let me show you why that is so.

31:55This is the great insight of Boehm-Bawerk, which Rothbard incorporates into his price theory and that is that the marginal pairs determine, determine the price of the good, okay. Thanks, just move it up a little bit, yeah. A5 is known as the last successful buyer, okay. He values the horse at up to $220, alright. However, the prices are going to reach $220, because there's someone there who will, if it goes up as high as $220, the seller will drop out.

32:49One of the sellers will, let's see. So, B6 is the seller.

33:12As the price goes up to $2.15, we'll have either an additional horse coming in or an additional horse coming off the market, okay? If the price goes $2.10 or lower, we'll have a horse coming off the market or we'll have an additional buyer wanting the horse. There will be a surplus, there will be a shortage if the price is 210 or below, there will be a surplus if the horse is 215 or above. So there's an additional buyer that will come in at 215, that's B6, and you will have your surplus. And there will be an additional buyer that drops out, that's A6, at 210, or rather that comes in at 210, and therefore that causes a shortage. It's always the range, the equilibrium range here of price is always set by the marginal pairs, by the two people, either the last unsuccessful buyer or first unsuccessful seller, or by the first unsuccessful buyer and the last unsuccessful seller, whichever is closer together.

34:18If you change those numbers, their value scales, the price range would change. Now, there's something that's important to realize here. It's not that the marginal pairs determine where the price is set, okay? The price is set by or within the range of the marginal pairs. If you change, for example, if you took away the most capable buyer way up there, who would be willing to, let's say, buy at $300, okay? And you lowered his maximum buying price of below $100. Suddenly, the whole situation would change, the supply and demand curves would change, okay? So, Boehm-Bawerk made one mistake, he said that the marginal pairs determine the price or the equilibrium price range, okay?

35:08But in fact, the price range is determined within the marginal pairs. It's determined by the whole entire situation of people's value scales. So, what Rothbard emphasizes is that the pure interaction of subjective values is what brings about the price, okay? That's what determines the price.

35:32And so, this is a... I can hold it. Let me just zoom in on that. This is the demand-supply curves that represent those demand-supply schedules I just gave you. They're step-like, they're discreet, they intersect between 210 and 215, depending on bargaining power of the various sides, of the two sides. However, for simplicity, when we do, and Rothbard uses this, When we do use supply and demand curves, we tend to smooth out the curves. I didn't smooth out the demand curve. This is an example of the market for milk.

36:19Two things. First of all, I've drawn there a vertical supply curve, and Rothbard uses that sometimes. Now you should be aware that the only reason in a developed market economy why sellers would hold units of the good off the market at lower prices is not because they want to use it. Bill Gates does not want to use these software programs himself. He has produced so many of them. GM is not going to, you know, the stockholders have no use for these hundreds of thousands of cars that they produce. okay the only reason why they would reduce the quantity supplied that's why the supply curve is slipping upward there is for the reasons of speculation if they believe that the price is going to be higher in the future okay they will then hold some off the market so as price drops let's say from five dollars down to two dollars quantity supply drops because there's a feeling that the price will be higher in the future on the part of more and more people on the

37:20On the other hand, as the price goes up, the expectation then becomes that this is a good price to sell for now, the price is going to be low in the future, right? Now, if you don't have that expectation, okay, in the long run, that expectation of that speculation on the future drops out. We draw the supply curve vertically, that is at a moment in time or over, let's say, a period, a market period, let's say a week, 13 million gallons of milk come onto the market that the seller has no use for, there's no use value. There's no cost to selling it once it's produced and all advertising costs and all other selling costs have been incurred. So the Austrians tend to draw, unless you're talking about speculation, they tend to draw the supply curve as a vertical curve at the fixed stock that is currently on the market.

38:14The reason they do that is because, unlike neoclassical economists, the Orpheus points out that the demand curve is moment to moment. Now neoclassical economists do accept that, that at any moment in time, people's value skills determine the demand curve. It's instantaneous. But when the neoclassicals draw their short-run supply curve, that supply curve has to do with production and extends over a period of time. So they're inconsistent with one another. Rothbard points out that the complement to the instantaneous demand curve, which we all take part in when we enter the market, which we all express in our actions at any moment in time, is really the counterpart of the instantaneous stock that the seller owns at that moment in time.

39:02The only cost of selling that stock to the seller, remember, is if the seller believes there's a higher price that is forthcoming in the imminent future, right? If not, then the seller simply, sale of the good is costless. Whether you've invested, say, $10 million in a building, and the best price you can get now is a million, and you don't think the price is going to go up, okay? Or you can sell the good for twice that, $20 million. Either way, it's caught, there's no cost to selling the good, okay? Now, prior to production decisions, as we'll see later in the week, there is a cost, okay? That is, you can invest in alternate lines of production.

39:47Once all costs have been incurred, including the selling costs, there is no cost to selling the good. That's why it's ridiculous to claim that a country dumps a good on another country, because they're selling below cost. No, the good is there. Let's say the Japanese have these cars and now they're selling them in the U.S. at the best price they can get. Same thing is true with stores like TJ Maxx and Marshalls. My niece a few years ago went to a prom and she wanted a gown and she found one in Marshalls for $12. That was a $300 gown. Why? It was the end of the season. So the gown was probably less in the course of production. It certainly was less in the course of production. That's why you can get automobiles at the end of a model year, what we call leftovers here in the United States, for very good deals.

40:36Not only for below a sticker price, but for occasionally below the actual cost to the dealer, okay, if he's overstocked, right. One last point I want to make before I stop, and that is this. Someone, I think in one of the questions, asked why Rothbard put so much emphasis on what's called a plain state of rest, okay? Plain state of rest in Austrian theory and in Man Economy and State is that situation that exists at the end of a set of exchanges, okay? So, you go into a supermarket, you went to Super Walmart, people have been talking about going there, and you go and buy a number of items.

41:28You might buy two six-packs of beer at the price of, let's say, five dollars each. Well, why didn't you buy the third six-pack? Okay, it was there at that price. Well, because of marginal utility, the third six-pack has a lower value than the price, whereas the first two six-packs have a higher value than the price, okay? You buy two pounds of strawberries, but not three pounds. You buy four bottles of soda, but not five bottles, no more, no less. In other words, everyone purchases right up to the point where they exhaust all gains from exchange. And the sellers sell right up to the point where they exhaust all gains from exchange. Super Walmart could easily announce, you know, all prices are 75% lower if they wanted to sell more that day, or 50% lower.

42:21But they don't. Why? Because they believe that the price that they set will be the price that they can sell out the stock over time. That explains what we call reservation prices in retail markets. There's no mystery to this. They're not rigid. The sales can change them instantaneously. They don't because they believe that they can sell their stock out. If they would sell everything, the question sometimes becomes, well, you know what, there's surpluses. Because at the close of the day, the supermarket isn't sold out, Super Walmart's not sold out. They could be if they wanted to at certain low prices. The reason why is because with these goods, which are durable consumer goods, they feel like they can get the same or higher price the next day. So they don't sell all their stock.

43:07So, just to finish up, this is my plain state of rest from two years ago, when I went to Super Walmart, and here's what I bought. I bought a George Foreman grill, okay, I actually had the receipts for $19.44, I didn't buy a second one, okay, because these things are indivisible and a second one would have actually no use to me whatsoever, okay. I bought a Mary Higgins Clark mystery novel. I have a weakness for these short novels and she's a very good writer, so I bought that. I bought a Def Leppard album, shame to admit. I bought a DVD, I'll just tell you the name of that.

43:53I bought multivitamins, 130. I didn't buy the lower amount, okay, because the additional amount still had a marginal utility above the additional price and so on. Toothpaste. When I walked out of there with those things, I could have bought many other things, I could have bought more units of those things. I was in a plain state of rest. So what Austrians emphasize is that there's a real equilibrium that actually does exist in the real world, comes into being again and again and again, at the end of the day, for example, on the stock exchange. And that is an equilibrium, which is an exchange equilibrium. It's not a general equilibrium. That is, it's not an equilibrium which all resources and all production processes are adjusted to consumer wants. It's an equilibrium in which those goods that are on the market, those people that are interacting in the market on that day, and none of each other's existence, have all exhausted the gains from exchange.

44:44They've all moved from a lower place on their value scales to a higher place on their value scales.