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Man, Economy, and State with Power and Market by Murray N.

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7. Speculation and Supply and Demand Schedules "e have seen that mar#et price is$ in the inal anal%sis$ determined b% the intersection o the suppl% and demand schedules. &t is no' in order to consider urther the determinants o these particular schedules. !an 'e establish an% other conclusions concerning the causes o the shape and position o the suppl% and demand schedules themselves( "e remember that$ at an% given price$ the amount o a good that an individual 'ill bu% or sell is determined b% the position o the sale good and the purchase good on his value scale. )e 'ill demand a good i the marginal utilit% o adding a unit o the purchase good is greater than the marginal utilit% o the sale good that he must give up. *n the other hand$ another individual 'ill be a seller i his valuations o the units are in a reverse order. "e have seen that$ on this basis$ and rein orced b% the la' o marginal utilit%$ the mar#et demand curve 'ill never decrease 'hen the price is lo'ered$ and the suppl% curve 'ill never increase 'hen the price decreases. +et us urther anal%,e the value scales o the bu%ers and sellers. "e have seen above that the t'o sources o value that a good ma% have are direct use-value and exchange-value$ and that the higher value is the determinant or the actor. .n individual$ there ore$ can demand a horse in exchange or one o t'o reasons: its direct use-value to him or the value that he believes it 'ill be able to command in exchange. & the ormer$ then he 'ill be a consumer o the horse/s services0 i the latter$ then he purchases in order to ma#e a more advantageous exchange later. Thus$ suppose in the oregoing example$ that the existing mar#et price has not reached e1uilibrium2that it is no' at 34 barrels per horse. 5an% demanders ma% reali,e that this price is belo' the e1uilibrium and that there ore the% can attain an arbitrage pro it b% bu%ing at 34 and reselling at the inal$ higher price.

"e are no' in a position to re ine the anal%sis in the oregoing section$ 'hich did not probe the 1uestion 'hether or not sales too# place be ore the e1uilibrium price 'as reached. "e no' assume explicitl% that the demand schedule sho'n in Table 2 re erred to demand or direct use b% consumers. Smoothing out the steps in the demand curve represented in 6igure 78$ 'e ma%$ or purposes o simplicit% and exposition$ portra% it as in 6igure 73. This$ 'e ma% sa%$ is the demand curve or direct use. 6or this demand curve$ then$ the approach to e1uilibrium ta#es place through actual purchases at the various prices$ and then the shortages or the surpluses reveal the overbidding or underbidding$ until the e1uilibrium price is inall% reached. To the extent that bu%ers oresee the inal e1uilibrium price$ ho'ever$ the% 'ill not bu% at a higher price (even though the% 'ould have done so i that 'ere the inal price)$ but 'ill 'ait or the price to all. Similarl%$ i the price is belo' the e1uilibrium price$ to the extent that the bu%ers oresee the inal price$ the% 'ill tend to bu% some o the good (e.g.$ horses) in order to resell at a pro it at the inal price. Thus$ i exchange-value enters the picture$ and a good number o bu%ers act on their anticipations$ the demand curve might change as sho'n in 6igure 79. The http://mises.org/rothbard/mes/chap2c.asp 09/02/2014 11:49:43 AM

Man, Economy, and State with Power and Market by Murray N. Rothbard good number o bu%ers act on their anticipations$ the demand curve might change as sho'n in 6igure 79. The old demand curve$ based onl% on demand or use$ is DD$ and the ne' demand curve$ including anticipator% orecasting o the e1uilibrium price$ is DD. &t is clear that such anticipations render the demand curve ar more elastic$ since more 'ill be bought at the lo'er price and less at the higher.

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Thus$ the introduction o exchange-value can restrict demand above the anticipated e1uilibrium price and increase it belo' that price$ although the inal demand2to consume2at the e1uilibrium price 'ill remain the same. No'$ let us consider the situation o the seller o the commodit%. The suppl% curve in 6igure 78 treats the amount supplied at an% price 'ithout considering possible e1uilibrium price. Thus$ 'e ma% sa% that$ 'ith such a suppl% curve$ sales 'ill be made en route to the e1uilibrium price$ and shortages or surpluses 'ill inall% reveal the path to the inal price. *n the other hand$ suppose that man% sellers anticipate the inal e1uilibrium price. !learl%$ the% 'ill re use to ma#e sales at a lo'er price$ even though the% 'ould have done so i that 'ere the inal price. *n the other hand$ the% 'ill sell more above the e1uilibrium price$ since the% 'ill be able to ma#e an arbitrage pro it b% selling their horses above the e1uilibrium price and bu%ing them bac# at the e1uilibrium price. Thus$ the suppl% curve$ 'ith such anticipations$ ma% change as sho'n in 6igure 2:. The suppl% curve changes$ as a result o anticipating the e1uilibrium price$ rom SS to SS;. +et us suppose the highl% unli#el% event that all demanders and suppliers are able to orecast exactly the inal$ e1uilibrium price. "hat 'ould be the pattern o suppl% and demand curves on the mar#et in such an extreme case( &t 'ould be as ollo's: .t a price above e1uilibrium (sa% 39) no one 'ould demand the good$ and suppliers 'ould suppl% their entire stoc#. .t a price belo' e1uilibrium$ no one 'ould suppl% the good$ and ever%< one 'ould demand as much as he could purchase$ as sho'n in 6igure 27. Such unanimousl% correct orecasts are not li#el% to ta#e place in human action$ but this case points up the act that$ the more this anticipator%$ or speculative$ element enters into suppl% and demand$ the more 1uic#l% 'ill the mar#et price tend to'ard e1uilibrium. *bviousl%$ the more the actors anticipate the inal price$ the urther apart 'ill be suppl% and demand at an% price di ering rom e1uilibrium$ the more drastic the shortages and surpluses 'ill be$ and the more 1uic#l% 'ill the inal price be established.

=p to no' 'e have assumed that this speculative suppl% and demand$ this anticipating o the e1uilibrium price$ has been correct$ and 'e have seen that these correct anticipations have hastened the establishment o e1uilibrium. Suppose$ ho'ever$ that most o these expectations are erroneous. Suppose$ or example$ that the demanders tend to assume that the e1uilibrium price 'ill be lo'er than it actuall% is. >oes this change the e1uilibrium price or obstruct the passage to that price( Suppose that the demand and suppl% schedules are as sho'n in 6igure 22. Suppose that the basic demand curve is DD, but that the demanders anticipate lo'er e1uilibrium prices$ thus changing and lo'ering the demand curve to DD. "ith the suppl% curve given at SS$ http://mises.org/rothbard/mes/chap2c.asp 09/02/2014 11:49:43 AM

Man, Economy, and State with Power and Market by Murray N. Rothbard this means that the intersection o the suppl% and demand schedules 'ill be at Y instead o X, sa% at 34 instead o 39. &t is clear$ ho'ever$ that this 'ill be onl% a provisional resting point or the price. .s soon as the price settles at 34$ the demanders see that shortages develop at this price$ that the% 'ould li#e to bu% more than is available$ and the overbidding o the demanders raises the price again to the genuine e1uilibrium price. The same process o revelation o error occurs in the case o errors o anticipation b% suppliers$ and thus the orces o the mar#et tend inexorabl% to'ard the establishment o the genuine e1uilibrium price$ undistorted b% speculative errors$ 'hich tend to reveal themselves and be eliminated. .s soon as suppliers or demanders ind that the price that their speculative errors have set is not reall% an e1uilibrium and that shortages and/or surpluses develop$ their actions tend once again to establish the e1uilibrium position. The actions o both bu%ers and sellers on the mar#et ma% be related to the concepts o ps%chic revenue$ pro it$ and cost. "e remember that the aim o ever% actor is the highest position o ps%chic revenue and thus the ma#ing o a ps%chic pro it compared to his next best alternative2his cost. "hether or not an individual buys depends on 'hether it is his best alternative 'ith his given resources2in this case$ his ish. )is expected revenue in an% action 'ill be balanced against his expected cost2his next best alternative. &n this case$ the revenue 'ill be either (a) the satis action o ends rom the direct use o the horse or (b) expected resale o the horse at a higher price2'hichever has the highest utilit% to him. )is cost 'ill be either (a) the marginal utilit% o the ish given up in direct use or (b) (possibl%) the exchange-value o the ish or some other good or (c) the expected uture purchase o the horse at a lo'er price2'hichever has the highest utilit%. )e 'ill bu% the horse i the expected revenue is greater0 he 'ill ail to bu% i the expected cost is greater. The expected revenue is the marginal utilit% o the added horse or the bu%er0 the expected cost is the marginal utilit% o the ish given up. 6or either revenue or cost$ the higher value in direct use or in exchange 'ill be chosen as the marginal utilit% o the good. No' let us consider the seller. The seller$ as 'ell as the bu%er$ attempts to maximi,e his ps%chic revenue b% tr%ing to attain a revenue higher than his ps%chic cost2the utilit% o the next best alternative he 'ill have to orgo in ta#ing his action. The seller 'ill 'eigh the marginal utilit% o the added sale-good (in this case$ ish) against the marginal utilit% o the purchase-good given up (the horse)$ in deciding 'hether or not to ma#e the sale at an% particular price. The ps%chic revenue or the seller 'ill be the higher o the utilities stemming rom one o the ollo'ing sources: (a) the value in direct use o the sale-good (the ish) or (b) the speculative value o re-exchanging the ish or the horse at a lo'er price in the uture. The cost o the seller/s action 'ill be the highest utilit% orgone among the ollo'ing alternatives: (a) the value in direct use o the horse given up or (b) the speculative value o selling at a higher price in the uture or (c) the exchange-value o ac1uiring some other good or the horse. )e 'ill sell the horse i the expected revenue is greater0 he 'ill ail to sell i the expected cost is greater. "e thus see that the situations o the sellers and the bu%ers are comparable. ?oth act or ail to act in accordance 'ith their estimate o the alternative that 'ill %ield them the highest utilit%. &t is the position o the utilities on the t'o sets o value scales2o the individual bu%ers and sellers2that determines the mar#et price and the amount that 'ill be exchanged at that price. &n other 'ords$ it is$ or ever% good$ utility and utilit% alone that determines the price and the 1uantit% exchanged. =tilit% and utilit% alone determines the nature o the suppl% and demand schedules. &t is there ore clearl% allacious to believe$ as has been the popular assumption$ that utilit% and @costsA are e1uall% and independentl% potent in determining price. @!ostA is simpl% the utilit% o the next best alternative that must be orgone in an% action$ and it is there ore part and parcel o utilit% on the individual/s value scale. This cost is$ o course$ al'a%s a present consideration o a future event$ even i this @ utureA is a ver% near one. Thus$ the orgone utilit% in ma#ing the purchase might be the direct consumption o ish that the actor might have engaged in 'ithin a e' hours. *r it might be the possibilit% o exchanging or a co'$ 'hose utilit% 'ould be enBo%ed over a long period o time. &t goes 'ithout sa%ing$ as has been indicated in the previous chapter$ that the present consideration o revenue and o cost in an% action is based on the present value o expected uture revenues and costs. The point is that both the utilities derived and the utilities orgone in an% action re er to some point in the uture$ even i a ver% near one$ and that past costs pla% no role in human action$ and hence in determining price. The importance o this undamental truth 'ill be made clear in later chapters.

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8. Stock and the Total Demand to Hold


There is another 'a% o treating suppl% and demand schedules$ 'hich$ or some problems o anal%sis$ is more use ul than the schedules presented above. .t an% point on the mar#et$ suppliers are engaged in o ering some o their stoc# o the good and 'ithholding their o er o the remainder. Thus$ at a price o 3C$ suppliers suppl% three horses on the mar#et and 'ithhold the other ive in their stoc#. This 'ithholding is caused b% one o the actors mentioned above as possible costs o the exchange: either the direct use o the good (sa% the horse) has greater utilit% than the receipt o the ish in direct use0 or else the horse could be exchanged or some other good0 or$ inall%$ the seller expects the inal price to be higher$ so that he can pro itabl% dela% the sale. The amount that sellers 'ill 'ithhold on the mar#et is termed their reservation demand. This is not$ li#e the demand studied above$ a demand or a good in exchange0 this is a demand to hold stoc#. Thus$ the concept o a @demand to hold a stoc# o goodsA 'ill al'a%s include both demand- actors0 it 'ill include the demand or the good in exchange b% nonpossessors$ plus the demand to hold the stoc# b% the possessors. The demand or the good in exchange is also a demand to hold$ since$ regardless o 'hat the bu%er intends to do 'ith the good in the uture$ he must hold the good rom the time it comes into his o'nership and possession b% means o exchange. "e there ore arrive at the concept o a @total demand to holdA or a good$ di ering rom the previous concept o exchange-demand$ although including the latter in addition to the reservation demand b% the sellers. & 'e #no' the total stoc# o the good in existence (here$ eight horses)$ 'e ma%$ b% inspecting the suppl% and demand schedules$ arrive at a @total demand to holdA2or total demand schedule or the mar#et. 6or example$ at a price o 32$ nine horses are demanded b% the bu%ers$ in exchange$ and 3 - 7 D E horses are 'ithheld b% the sellers$ i.e.$ demanded to be held b% the sellers. There ore$ the total demand to hold horses on the mar#et is 9 F E D 7C horses. *n the other hand$ at the price o 9E$ no horses are 'ithheld b% sellers$ 'hose reservation demand is there ore ,ero$ 'hile the demand b% bu%ers is t'o. Total demand to hold at this price is : F 2 D 2 horses. Table G sho's the total demand to hold derived rom the suppl% and demand schedule in Table 2$ along 'ith the total stoc#$ 'hich is$ or the moment$ considered as ixed. 6igure 28 represents the total demand to hold and the stoc#.

&t is clear that the right'ard-sloping nature o the total demand curve is even more accentuated than that o the demand curve. 6or the demand schedule increases or remains the same as the price alls$ 'hile the reservation demand schedule o the sellers also tends to increase as the price alls. The total demand schedule is the result o adding the t'o schedules. !learl%$ the reservation demand o the sellers increases as the price alls or the same reason as does the demand curve or bu%ers. "ith a lo'er price$ the value o the purchasegood in direct use or in other and uture exchanges relativel% increases$ and there ore the seller tends to 'ithhold more o the good rom exchange. &n other 'ords$ the reservation demand curve is the obverse o the suppl% curve.

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.nother point o interest is that$ at the e1uilibrium price o 39$ the total demand to hold is eight$ e1ual to the total stoc# in existence. Thus$ the e1uilibrium price not onl% e1uates the suppl% and demand on the mar#et0 it also equates the stock of a good to be held with the desire of people to hold it, buyers and sellers included. The total stoc# is included in the oregoing diagram at a ixed igure o eight. &t is clear that the mar#et al'a%s tends to set the price o a good so as to e1uate the stoc# 'ith the total demand to hold the stoc#. Suppose that the price o a good is higher than this e1uilibrium price. Sa% that the price is 92$ at 'hich the stoc# is eight and the total demand to hold is our. This means our horses exist 'hich their possessors do not 'ant to possess. &t is clear that someone must possess this stoc#$ since all goods must be propert%0 other'ise the% 'ould not be obBects o human action. Since all the stoc# must at all times be possessed b% someone$ the act that the stoc# is greater than total demand means that there is an imbalance in the econom%$ that some o the possessors are unhapp% 'ith their possession o the stoc#. The% tend to lo'er the price in order to sell the stoc#$ and the price alls until inall% the stoc# is e1uated 'ith the demand to hold. !onversel%$ suppose that the price is belo' e1uilibrium$ sa% at 34$ 'here 78 horses are demanded compared to a stoc# o eight. The bids o the eager nonpossessors or the scarce stoc# push up the price until it reaches e1uilibrium. &n cases 'here individuals correctl% anticipate the e1uilibrium price$ the speculative element 'ill tend to render the total demand curve even more @elasticA and latter. .t a higher-than-e1uilibrium price e' 'ill 'ant to #eep the stoc#2the bu%ers 'ill demand ver% little$ and the sellers 'ill be eager to dispose o the good. *n the other hand$ at a lo'er price$ the demand to hold 'ill be ar greater than the stoc#0 bu%ers 'ill demand heavil%$ and sellers 'ill be reluctant to sell their stoc#. The discrepancies bet'een total demand and stoc# 'ill be ar greater$ and the underbidding and overbidding 'ill more 1uic#l% bring about the e1uilibrium price. "e sa' above that$ at the e1uilibrium price$ the most capable (or @most urgentA) bu%ers made the exchanges 'ith the most capable sellers. )ere 'e see that the result o the exchange process is that the stoc# inall% goes into the hands o the most capable possessors. "e remember that in the sale o the eight horses$ the most capable bu%ers$ H7IH4$ purchased rom the most capable sellers o the good$ J7IJ4. .t the conclusion o the exchange$ then$ the possessors are H7IH4$ and the excluded sellers JCIJ3. &t is these individuals 'ho inish b% possessing the eight horses$ and these are the most capable possessors. .t a price o 39 barrels o ish per horse$ these 'ere the ones 'ho pre erred the horse on their value scales to 39 barrels o ish$ and the% acted on the basis o this pre erence. 6or ive o the individuals$ this meant exchanging their ish or a horse0 or three it meant re using to part 'ith their horses or the ish. The other nine individuals on the mar#et 'ere the less capable possessors$ and the% concluded b% possessing the ish instead o the horse (even i the% started b% possessing horses). These 'ere the ones 'ho ran#ed 39 barrels o ish above one horse on their value scale. 6ive o these 'ere original possessors o horses 'ho exchanged them or ish0 our simpl% retained the ish 'ithout purchasing a horse. The total demand-stoc# anal%sis is a use ul t'in companion to the suppl%-demand anal%sis. Kach has advantages or use in di erent spheres. *ne relative de ect o the total demand-stoc# anal%sis is that it does not reveal the di erences bet'een the bu%ers and the sellers. &n considering total demand$ it abstracts rom actual exchanges$ and there ore does not$ in contrast to the suppl%-demand curves$ determine the 1uantit% o exchanges. &t reveals onl% the e1uilibrium price$ 'ithout demonstrating the e1uilibrium 1uantit% exchanged. )o'ever$ it ocuses more sharpl% on the undamental truth that price is determined solel% b% utility . The suppl% http://mises.org/rothbard/mes/chap2c.asp 09/02/2014 11:49:43 AM

Man, Economy, and State with Power and Market by Murray N. Rothbard curve is reducible to a reservation demand curve and to a quantity of physical stock. The demand-stoc# anal%sis there ore sho's that the suppl% curve is not based on some sort o @costA that is independent o utilit% on individual value scales. "e see that the undamental determinants o price are the value scales o all individuals (bu%ers and sellers) in the mar#et and that the ph%sical stoc# simpl% assumes its place on these scales.L23M &t is clear$ in these cases o direct exchange o use ul goods$ that even i the utilit% o goods or bu%ers or sellers is at present determined b% its subBective exchange-value or the individual$ the sole ultimate source o utilit% o each good is its direct use-value. & the maBor utilit% o a horse to its possessor is the ish or the co' that he can procure in exchange$ and the maBor value o the latter to their possessors is the horse obtainable in exchange$ etc.$ the ultimate determinant o the utilit% o each good is its direct use-value to its individual consumer.

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9. Continuing Markets and Changes in Price


)o'$ then$ ma% 'e sum up the anal%sis o our h%pothetical horse-and- ish mar#et( "e began 'ith a stoc# o eight horses in existence (and a certain stoc# o ish as 'ell)$ and a situation 'here the relative positions o horses and ish on di erent people/s value scales 'ere such as to establish conditions or the exchange o the t'o goods. * the original possessors$ the @most capable sellersA sold their stoc# o horses$ 'hile among the original nonpossessors$ the @most capable bu%ersA purchased units o the stoc# 'ith their ish. The inal price o their sale 'as the e1uilibrium price determined ultimatel% b% their various value scales$ 'hich also determined the 1uantit% o exchanges that too# place at that price. The net result 'as a shi t o the stoc# o each good into the hands o its most capable possessors in accordance 'ith the relative ran# o the good on their value scales. The exchanges having been completed$ the relativel% most capable possessors o'n the stoc#$ and the market for this good has come to a close. "ith arrival at e1uilibrium$ the exchanges have shi ted the goods to the most capable possessors$ and there is no urther motive or exchange. The mar#et has ended$ and there is no longer an active @ruling mar#et priceA or either good because there is no longer an% motive or exchange. Net in our experience the mar#ets or almost all goods are being continuall% rene'ed. The mar#et can be rene'ed again onl% i there is a change in the relative position o the t'o goods under consideration on the value scales o at least t'o individuals$ one o them a possessor o one good and the other a possessor o the second good. Kxchanges 'ill then ta#e place in a 1uantit% and at a inal price determined b% the intersection o the new combination o suppl% and demand schedules. This ma% set a di erent 1uantit% o exchanges at the old e1uilibrium price or at a ne' price$ depending on their speci ic content. *r it ma% happen that the ne' combination o schedules2in the ne' period o time2'ill be identical 'ith the old and there ore set the same 1uantit% o exchanges and the same price as on the old mar#et. The mar#et is al'a%s tending 1uic#l% to'ard its e1uilibrium position$ and the 'ider the mar#et is$ and the better the communication among its participants$ the more 1uic#l% 'ill this position be established or an% set o schedules. 6urthermore$ a gro'th o speciali,ed speculation 'ill tend to improve the orecasts o the e1uilibrium point and hasten the arrival at e1uilibrium. )o'ever$ in those cases 'here the mar#et does not ar< rive at e1uilibrium be ore the suppl% or demand schedules themselves change$ the mar#et does not reach the e1uilibrium point. &t becomes continuous$ moving to'ard a ne' e1uilibrium position be ore the old one has been reached.L29M The t%pes o change introduced b% a shi t in the suppl% and/or the demand schedule ma% be depicted b% the diagrams in 6igure 2G.

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These our diagrams depict eight t%pes o situations that ma% develop rom changes in the suppl% and demand schedules. &t must be noted that these diagrams ma% appl% either to a mar#et that has alread% reached e1uilibrium and is then renewed at some later date or to one continuous mar#et that experiences a change in suppl% and/or demand conditions be ore reaching the old e1uilibrium point. Solid lines depict the old schedules$ 'hile bro#en lines depict the ne' ones. &n all these diagrams straight lines are assumed purel% or convenience$ since the lines ma% be o an% shape$ provided the a orementioned restrictions on the slope o the schedules are met (right'ard-sloping demand schedules$ etc.). &n diagram (a)$ the demand schedule o the individuals on the mar#et increases. .t each h%pothetical price$ people 'ill 'ish to add more than be ore to their stoc# o the good2and it does not matter 'hether these individuals alread% possess some units o the good or not. The suppl% schedule remains the same. s a result, the new equilibrium price is higher than the old, and the quantity of exchanges made at the new equilibrium position is greater than at the old position. &n diagram (b)$ the supply schedule increases, 'hile the demand schedule remains the same. .t each h%pothetical price$ people 'ill 'ish to dispose o more o their stoc#. The result is that the ne' e1uilibrium price is lower than the old$ and the e1uilibrium quantity exchanged is greater. >iagrams (a) and (b) also depict 'hat 'ill occur 'hen the demand curve decreases and the suppl% curve decreases$ the other schedule remaining the same. .ll 'e need do is thin# o the bro#en lines as the old schedules$ and the solid lines as the ne' ones. *n diagram (a) 'e see that a decrease in the demand schedule leads to a all in price and a all in the 1uantit% exchanged. *n diagram (b), 'e see that a decrease in the supply schedule leads to a rise in price and a all in the 1uantit% exchanged. 6or diagrams (c) and (d)$ the restriction that one schedule must remain the same 'hile the other one changes is removed. &n diagram (c)$ the demand curve decreases and the suppl% curve increases. This 'ill de initel% lead to a fall in equilibrium price $ although 'hat 'ill happen to the 1uantit% exchanged depends on the relative proportion o change in the t'o schedules$ and there ore this result cannot be predicted rom the act o an increase in the suppl% schedule and a decrease in the demand schedule. *n the other hand$ a decrease in the suppl% schedule plus an increase in the demand schedule 'ill de initel% lead to a rise in the equilibrium price. >iagram (d) discloses that an increase in both demand and suppl% schedules 'ill de initel% lead to an increase in the quantity exchanged, although 'hether or not the price alls depends on the relative proportion o change. .lso$ a decrease in both suppl% and demand schedules 'ill lead to a decline in the quantity ex! changed. &n diagram (c) 'hat happens to the 1uantit%$ and in diagram (d) 'hat happens to the price$ depends on the speci ic shape and change o the curves in 1uestion. The conclusions rom these diagrams ma% be summari,ed in Table 4.

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& these are the e ects o changes in the demand and suppl% schedules rom one period o time to another$ the next problem is to explain the causes o these changes themselves. . change in the demand schedule is due purel% to a change in the relative utilit%-ran#ings o the t'o goods (the purchase-good and the sale-good) on the value scales o the individual bu%ers on the mar#et. .n increase in the demand schedule$ or example$ signi ies a general rise in the purchase-good on the value scales o the bu%ers. This ma% be due to either "a) a rise in the direct use-value o the good0 (b) poorer opportunities to exchange the sale-good or some other good2as a result$ sa%$ o a higher price o co's in terms o ish0 or (c) a decline in speculative 'aiting or the price o the good to all urther. The last case has been discussed in detail and has been sho'n to be sel -correcting$ impelling the mar#et more 1uic#l% to'ards the true e1uilibrium. "e can there ore omit this case no' and conclude that an increase in the demand schedule is due either to an increase in the direct use-value o the good or to a higher price o other potential purchase-goods in terms o the sale-good that bu%ers o er in exchange. . decrease in demand schedules is due precisel% to the converse cases2a all in the value in direct use or greater opportunities to bu% other purchase-goods or this sale-good. The latter 'ould mean a greater exchange-value2o ish$ or example2in other ields o exchange. !hanges in opportunities or other t%pes o exchange ma% be a result o higher or lo'er prices or the other purchase-goods$ or the% ma% be the result o the act that ne' t%pes o goods are being o ered or ish on the mar#et. The sudden appearance o co's being o ered or ish 'here none had been o ered be ore is a 'idening o exchange opportunities or ish and 'ill result in a general decline o the demand curve or horses in terms o ish. . change in the mar#et suppl% curve is$ o course$ also the result o a change in the relative ran#ings o utilit% on the sellers/ value scales. This curve$ ho'ever$ ma% be bro#en do'n into the amount o ph%sical stoc# and the reservation-demand schedule o the sellers. & 'e assume that the amount of physical stock is constant in the t'o periods under comparison$ then a shi t in suppl% curves is purel% the result o a change in reservation-demand curves. . decrease in the suppl% curve caused b% an increase in reservation demand or the stoc# ma% be due to either (a) an increase in the direct use-value o the good or the sellers0 (b) greater opportunities or ma#ing exchanges or other purchase-goods0 or (c) a greater speculative anticipation o a higher price in the uture. "e ma% here omit the last case or the same reason 'e omitted it rom our discussion o the demand curve. !onversel%$ a all in the reservation-demand schedule ma% be due to either (a) a decrease in the direct use-value o the good to the sellers$ or (b) a d'indling o exchange opportunities or other purchase-goods. Thus$ 'ith the total stoc# constant$ changes in both suppl% and demand curves are due solel% to changes in the demand to hold the good b% either sellers or bu%ers$ 'hich in turn are due to shi ts in the relative utilit% o the t'o goods. Thus$ in both diagrams and # above$ the increase in the demand schedule and a decrease in the suppl% schedule rom S$ S$ to SS are a result o increased total demand to hold. &n one case the increased total demand to hold is on the part o the bu%ers$ in the other case o the sellers. The relevant diagram is sho'n in 6igure 24. &n both cases o an increase in the total demand-to-hold schedule$ sa% rom %D to %$D$$ the equilibrium price increases. *n the contrar%$ 'hen the demand schedule declines$ and/or 'hen the suppl% schedule increases$ these signi % a general decrease in the total demand-to-hold schedule and conse1uentl% a fall in equilibrium price.

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Man, Economy, and State with Power and Market by Murray N. Rothbard

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. total demand-stoc# diagram can conve% no in ormation about the 1uantit% exchanged$ but onl% about the e1uilibrium price. Thus$ in diagram (c)$ the bro#en lines both represent a all in demand to hold$ and 'e could conse1uentl% be sure that the total demand to hold declined$ and that there ore price declined. (The opposite 'ould be the case or a shi t rom the bro#en to the solid lines.) &n diagram (d)$ ho'ever$ since an increase in the suppl% schedule represented a all in demand to hold$ and an increase in demand 'as a rise in the demand to hold$ 'e could not al'a%s be sure o the net e ect on the total demand to hold and hence on the e1uilibrium price. 6rom the beginning o the suppl%-demand anal%sis up to this point 'e have been assuming the existence o a constant ph%sical stoc#. Thus$ 'e have been assuming the existence o eight horses and have been considering the principles on 'hich this stoc# 'ill go into the hands o di erent possessors. The anal%sis above applies to all goods2to all cases 'here an existing stoc# is being exchanged or the stoc# o another good. 6or some goods this point is as ar as anal%sis can be pursued. This applies to those goods o 'hich the stoc# is ixed and cannot be increased through production. The% are either once produced b% man or given b% nature$ but the stoc# cannot be increased b% human action. Such a good$ or example$ is a Oembrandt painting a ter the death o Oembrandt. Such a painting 'ould ran# high enough on individual value scales to command a high price in exchange or other goods. The stoc# can never be increased$ ho'ever$ and its exchange and pricing is solel% in terms o the previousl% anal%,ed exchange o existing stoc#$ determined b% the relative ran#ings o these and other goods on numerous value scales. *r assume that a certain 1uantit% o diamonds has been produced$ and no more diamonds are available an%'here. .gain$ the problem 'ould be solel% one o exchanging the existing stoc#. &n these cases$ there is no urther problem o production 2o deciding ho' much o a stoc# should be produced in a certain period o time. 6or most goods$ ho'ever$ the problem o deciding ho' much to produce is a crucial one. 5uch o the remainder o this volume$ in act$ is devoted to an anal%sis o the problem o production. "e shall no' proceed to cases in 'hich the existing stoc# o a good changes rom one period to another. . stoc# ma% increase rom one period to the next because an amount o the good has been newly produced in the meantime. This amount o ne' production constitutes an addition to the stock. Thus$ three da%s a ter the beginning o the horse mar#et re erred to above$ t'o ne' horses might be produced and added to the existing stoc#. & the demand schedule o bu%ers and the reservation demand schedule o sellers remain the same$ 'hat 'ill occur can be represented as in 6igure 2C.

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Man, Economy, and State with Power and Market by Murray N. Rothbard The increased stoc# 'ill lo'er the price o the good. .t the old e1uilibrium price$ individuals ind that their stoc# is in excess o the total demand to hold$ and the conse1uence is an underbidding to sell that lo'ers the price to the ne' e1uilibrium. &n terms o suppl% and demand curves$ an increase in stoc#$ 'ith demand and reservation-demand schedules remaining the same$ is e1uivalent to a uniform increase in the supply schedule b% the amount o the increased stoc#2in this case b% t'o horses. The amount supplied 'ould be the ormer total plus the added t'o. Possessors 'ith an excess o stoc# at the old e1uilibrium price must underbid each other in order to sell the increased stoc#. & 'e re er bac# to Table 2$ 'e ind that an increase in the suppl% schedule b% t'o lo'ers the e1uilibrium price to 33$ 'here the demand is six and the ne' suppl% is six. >iagrammaticall%$ the situation ma% be depicted as in 6igure 2E. The increased stoc# is re lected in a uni orm increase in the suppl% curve$ and a conse1uent all in price and an increase in the 1uantit% exchanged. * course$ there is no reason to assume that$ in realit%$ an increased stoc# 'ill necessaril% be accompanied b% an unchanged reservation-demand curve. ?ut in order to stud% the various causal actors that interact to orm the actual historical result$ it is necessar% to isolate each one and consider 'hat 'ould be its e ect i the others remained unchanged. Thus$ i an increased stoc# 'ere at the same time absorbed b% an e1uivalent increase in the reservation-demand schedule$ the suppl% curve 'ould not increase at all$ and the price and 1uantit% exchanged 'ould remain unchanged. (*n the total demand-stoc# schedule$ this situation 'ould be re lected in an increase in stoc#$ accompanied b% an o setting rise in the total-demand curve$ leaving the price at the original level.) . decrease in stoc# rom one period to another ma% result rom the using up o the stoc#. Thus$ i 'e consider onl% consumers/ goods$ a part o the stoc# ma% be consumed. Since goods are generall% used up in the process o consumption$ i there is not su icient production during the time considered$ the total stoc# in existence ma% decline. Thus$ one ne' horse ma% be produced$ but t'o ma% die$ rom one point o time to the next$ and the result ma% be a mar#et 'ith one less horse in existence. . decline in stoc#$ 'ith demand remaining the same$ has the exactl% reverse e ect$ as 'e ma% see on the diagrams b% moving rom the bro#en to the solid lines. .t the old e1uilibrium price$ there is an excess demand to hold compared to the stoc# available$ and the result is an upbidding o prices to the ne' e1uilibrium. The suppl% schedule uni orml% decreases b% the decrease in stoc#$ and the result is a higher price and a smaller 1uantit% o goods exchanged. "e ma% summari,e the relation bet'een stoc#$ production$ and time$ b% stating that the stoc# at one period (assuming that a period o time is de ined as one during 'hich the stoc# remains unchanged) is related to the stoc# at a previous period as ollo's: & : S e1uals stoc# at a certain period (t) t &&&&&&&& & S e1uals stoc# at an earlier period (t ' n) 'hich is n units o time be ore period (t)
t'n

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&&&&&&&&&& ( e1uals production o the good over the period n n &&&&& &&& ) e1uals amount o the good used up over the period n
n

Then:& S * S
t

t'n

+( ')
n

Thus$ in the case Bust mentioned$ i the original stoc# is eight horses$ and one ne' horse is produced 'hile t'o die$ the ne' stoc# o the good is 3 F 7 I 2 D E horses. &t is important to be on one/s guard here against a common con usion over such a term as @an increase in demand.A "henever this phrase is used b% itsel in this 'or#$ it al'a%s signi ies an increase in the demand schedule$ i.e.$ an increase in the amounts that 'ill be demanded at each h%pothetical price. This @shi t o the demand schedule to the rightA al'a%s tends to cause an increase in price. &t must never be con used 'ith the @increase in 1uantit% demandedA that ta#es place$ or example$ in response to an increased suppl%. .n increased suppl% schedule$ b% lo'ering price$ induces the mar#et to demand the larger 1uantit% o ered. This$ ho'ever$ is not an increase in the demand schedule$ but an extension along the same demand schedule. &t is a larger

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Man, Economy, and State with Power and Market by Murray N. Rothbard 1uantit% demanded in response to a more attractive price o er. This simple movement along the same schedule must not be con used 'ith an increase in the demand schedule at each possible price. The diagrams in 6igure 23 highlight the di erence.

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>iagram & depicts an increase in the demand schedule$ 'hile diagram && depicts an extension o 1uantit% demanded along the same schedule as a result o an increase in the suppl% o ered. &n both cases$ the value scales o the various individuals determine the inal result$ but great con usion can ensue i the concepts are not clearl% distinguished 'hen such terms as @increaseA or @decreaseA in demand are being used.

10. Specialization and Production of Stock


"e have anal%,ed the exchanges that ta#e place in existing stoc# and the e ect o changes in the stoc# o a good. The 1uestion still remains: *n 'hat principles is the si,e o the stoc# itsel determined( .side rom the consumers/ or producers/ goods given directl% b% nature$ all goods must be produced b% man. (.nd even seemingl% nature-given products must be searched or and then used b% man$ and hence are ultimatel% products o human e ort.) The si,e o the stoc# o an% good depends on the rate at 'hich the good has been and is being produced. .nd since human 'ants or most goods are continuous$ the goods that are 'orn out through use must constantl% be replaced b% ne' production. .n anal%sis o the rate o production and its determinants is thus o central importance in an anal%sis o human action. . complete ans'er to this problem cannot be given at this point$ but certain general conclusions on production can be made. &n the irst place$ 'hile an% one individual can at di erent times be both a bu%er and a seller o existing stoc#$ in the production o that stoc# there must be speciali,ation. This omnipresence o speciali,ation has been treated above$ and the urther an exchange econom% develops$ the urther advanced 'ill be the speciali,ation process. The basis or speciali,ation has been sho'n to be the var%ing abilities o men and the var%ing location o natural resources. The result is that a good comes irst into existence b% production$ and then is sold b% its producer in exchange or some other good$ 'hich has been produced in the same 'a%. The initial sales o an% ne' stoc# 'ill all be made b% original producers o the good. Purchases 'ill be made b% bu%ers 'ho 'ill use the good either or their direct use or or holding the good in speculative anticipation o later reselling it at a higher price. .t an% given time$ there ore$ ne' stoc# 'ill be sold b% its original producers. The old stoc# 'ill be sold b%: (a) original producers 'ho through past reservation demand had accumulated old stoc#0 (b) previous bu%ers 'ho had bought in speculative anticipation o reselling at a higher price0 and (c) previous bu%ers on 'hose value scales the relative utilit% o the good or their direct use has allen. .t an% time$ then$ the market supply schedule is ormed b% the addition o the suppl% schedules o the ollo'ing groups o sellers:L8:M

(a) The suppl% o ered b% producers o the good. 7. The initial suppl% o ne' stoc#. 2. The suppl% o old stoc# previousl% reserved b% the producers. (b) The suppl% o old stoc# o ered b% previous bu%ers. 7. Sales b% speculative bu%ers 'ho had anticipated reselling at a higher price. 2. Sales b% bu%ers 'ho had purchased or direct use$ but on 'hose value scales the relative utilit% o the good has allen.

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Man, Economy, and State with Power and Market by Murray N. Rothbard The mar#et demand schedule at an% time consists o the sum o the demand schedules o :

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(c) ?u%ers or direct use. (d) Speculative bu%ers or resale at a higher price.

Since the good consists o e1uall% serviceable units$ the bu%ers are necessaril% indi erent as to 'hether it is old or ne' stoc# that the% are purchasing. & the% are not$ then the @stoc#A re ers to t'o di erent goods$ and not the same good. The suppl% curve o the class (b) t%pe o sellers has alread% been ull% anal%,ed above$ e.g.$ the relationship bet'een stoc# and reservation demand or speculative resellers and or those 'hose utilit% position has changed. "hat more can be said$ ho'ever$ o the suppl% schedule o the class (a) sellers2the original producers o the good( &n the irst place$ the stoc# o ne'l% produced goods in the hands o the producers is also fixed or an% given point in time Sa% that or the month o >ecember the producers o copper decide to produce 4$::: tons o copper. .t the end o that month their stoc# o ne'l% produced copper is 4$::: tons. The% might regret their decision and believe that i the% could have made it again$ the% 'ould have produced$ sa%$ 7$::: tons. ?ut the% have their stoc#$ and the% must use it as best the% can. The distinguishing eature o the original producers is that$ as a result o speciali,ation$ the direct use-value o their product to them is li#el% to be almost nonexistent. The urther speciali,ation proceeds$ the less possible use-value the product can have or its producer. Picture$ or example$ ho' much copper a copper manu acturer could consume in his personal use$ or the direct use-value o the huge number o produced automobiles to the 6ord amil%. There ore$ in the suppl% schedule o the producers$ the direct-use element in their reservation demand disappears. The onl% reason or a producer to reserve$ to hold on to$ an% o his stoc# is speculative2in anticipation o a higher price or the good in the uture. (&n direct exchange$ there is also the possibilit% o exchange or a third good2sa% co's instead o ish$ in our example.) & $ or the moment$ 'e ma#e the restrictive assumptions that there are no class (b) sellers on the mar#et and that the producers have no present or accumulated past reservation demand$ then the mar#et suppl%-demand schedules can be represented as SS$ DD in 6igure 29. Thus$ 'ith no reservation demand$ the suppl% curve 'ill be a vertical straight line (SS) at the level o the ne' stoc#. &t seems more li#el%$ ho'ever$ that a price belo' e1uilibrium 'ill tend to call orth a reservation demand to hold b% the producers in anticipation o a higher price (called @building up inventor%A)$ and that a price above e1uilibrium 'ill result in the unloading o old stoc# that had been accumulated as a result o past reservation demand (called @dra'ing do'n inventor%A). &n that case$ the suppl% curve assumes a more amiliar shape (the bro#en line above2S$S$).

The removal o direct use-value rom the calculation o the sellers signi ies that all the stoc# must eventuall% be sold$ so that ultimately none o the stoc# can be reserved rom sale b% the producers. The producers 'ill ma#e their sales at that point at 'hich the% expect the mar#et price to be the greatest that the% can attain2i.e.$ at the time 'hen the mar#et demand or the given stoc# is expected to be the greatest.L87M

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Man, Economy, and State with Power and Market by Murray N. Rothbard The length o time that producers can reserve suppl% is$ o course$ dependent on the durabilit% o the good0 a highl% perishable good li#e stra'berries$ or example$ could not be reserved or long$ and its mar#et suppl% curve is li#el% to be a vertical line. Suppose that an e1uilibrium price or a good has been reached on the mar#et. &n this case$ the speculative element o reservation demand drops out. )o'ever$ in contrast to the mar#et in re-exchange o existing stock, the mar#et or new production does not end. Since 'ants are al'a%s being rene'ed in each successive period o time$ ne' stoc# 'ill also be produced in each period$ and i the amount o stoc# is the same and the demand schedule given$ the same amount 'ill continue to be sold at the same e1uilibrium price. Thus$ suppose that the copper producers produce 4$::: tons in a month0 these are sold (no reservation demand) at the e1uilibrium price o :X on the oregoing diagram. The e1uilibrium 1uantit% is :S. The ollo'ing month$ i 4$::: tons are produced$ the e1uilibrium price 'ill be the same. & more is produced$ then$ as 'e sa' above$ the e1uilibrium price is lo'er0 i less$ the e1uilibrium price 'ill be higher. & the speculative elements are also excluded rom the demand schedule$ it is clear that this schedule 'ill be determined solel% b% the utilit% o the good in direct use (as compared 'ith the utilit% o the sale-good). The onl% t'o elements in the value o a good are its direct use-value and its exchange-value$ and the demand schedule consists o demand or direct use plus the speculative demand in anticipation o reselling at a higher price. & 'e exclude the latter element (e.g.$ at the e1uilibrium price)$ the onl% ultimate source o demand is the direct use-value o the good to the purchaser. & 'e abstract rom the speculative elements in a mar#et$ there ore$ the sole determinant o the mar#et price o the stoc# o a good is its relative direct use-value to its purchasers. &t is clear$ as has been sho'n in previous sections$ that production must ta#e place over a period o time. To obtain a certain amount o ne' stoc# at some uture date$ the producer must irst put into e ect a series o acts$ using labor$ nature$ and capital goods$ and the process must ta#e time rom the initial and intermediar% acts until the inal stoc# is produced. There ore$ the essence o speciali,ed production is anticipation of the future state of the market by the producers. &n deciding 'hether or not to produce a certain 1uantit% o stoc# b% a uture date$ the producer must use his Budgment in estimating the mar#et price at 'hich he 'ill be able to sell his stoc#. This mar#et price is li#el% to be at some e1uilibrium$ but an e1uilibrium is not li#el% to last or more than a short time. This is especiall% true 'hen (as a result o ever-changing value scales)$ the demand curve or the good continuall% shi ts. Kach producer tries to use his resources2his labor and use ul goods2in such a 'a% as to obtain$ in the production o stoc#$ the maximum ps%chic revenue and hence a ps%chic pro it. )e is ever liable to error$ and errors in anticipating the mar#et 'ill bring him a ps%chic loss. The essence o production or the mar#et$ there ore$ is entrepreneurship. The #e% consideration is that the demand schedules$ and conse1uentl% the uture prices$ are not and can never be de initel% and automaticall% #no'n to the producers. The% must estimate the uture state o demand as best the% can. Kntrepreneurship is also the dominant characteristic o bu%ers and sellers 'ho act speculativel%$ 'ho speciali,e in anticipating higher or lo'er prices in the uture. Their entire action consists in attempts to anticipate uture mar#et prices$ and their success depends on ho' accurate or erroneous their orecasts are. Since$ as 'as seen above$ correct speculation 1uic#ens the movement to'ard e1uilibrium$ and erroneous speculation tends to correct itsel $ the activit% o these speculators tends to hasten the arrival o an e1uilibrium position. The direct users o a good must also anticipate their desires for a good 'hen the% purchase it. .t the time o purchase$ their actual use o a good 'ill be at some date in the uture$ even i in the ver% near uture. The position o the good on their value scales is an estimate o its expected uture value in these periods$ discounted b% time pre erences. &t is ver% possible or the bu%er to ma#e an erroneous orecast o the value o the good to him in the uture$ and the more durable the good$ the greater the li#elihood o error. Thus$ it is more li#el% that the bu%er o a house 'ill be in error in orecasting his o'n uture valuation than the bu%er o stra'berries. )ence$ entrepreneurship is also a eature o the bu%er/s activit%2even in direct use. )o'ever$ in the case o speciali,ed producers$ entrepreneurship ta#es the orm o estimating other people-s uture 'ants$ and this is obviousl% a ar more di icult and challenging tas# than orecasting one/s own valuations.

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Man, Economy, and State with Power and Market by Murray N. Rothbard )uman action occurs in stages$ and at each stage an actor must ma#e the best possible use o his resources in the light o expected uture developments. The past is orever b%gone. The role o errors in di erent stages o human action ma% be considered in the comparativel% simple case o the man 'ho bu%s a good or direct use. Sa% that his estimate o his uture uses is such that he purchases a good2e.g.$ 7: 1uarts o mil#2in exchange or 7:: barrels o ish$ 'hich also happens to be his maximum bu%ing price or 7: 1uarts o mil#. Suppose that a ter the purchase is completed he inds$ or some reason$ that his valuations have changed and that the mil# is no' ar lo'er on his value scale. )e is no' con ronted 'ith the 1uestion o the best use to ma#e o the 7: 1uarts o mil#. The act that he has made an error in using his resources o 7:: barrels o ish does not remove the problem o ma#ing the best use o the 7: 1uarts o mil#. & course at present 'ould be to resell the mil# and reobtain the he has made a speculative gain$ and he can resell the mil# or but the ish is still higher on his value scale than the 7: 1uarts sell the mil# or less than 7:: barrels o ish. the price is still 7:: barrels o ish$ his best 7:: barrels o ish. & the price is no' above 7::$ more ish. .nd i the price o mil# has allen$ o mil#$ it 'ould maximi,e his ps%chic revenue to

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&t is important to recogni,e that it is absurd to critici,e such an action b% sa%ing that he su ered a clear loss o X barrels o ish rom the t'o exchanges. To be sure$ i he had correctl% orecast later developments$ the man 'ould not have made the original exchange. )is original exchange can there ore be termed erroneous in retrospect. ?ut once the irst exchange has been made$ he must ma#e the best possible present and uture use o the mil#$ regardless o past errors$ and there ore his second exchange 'as his best possible choice under the circumstances. & $ on the other hand$ the price o mil# has allen belo' his ne' maximum bu%ing price$ then his best alternative is to use the mil# in its most valuable direct use. Similarl%$ a producer might decide to produce a certain amount o stoc#$ and$ a ter the stoc# has been made$ the state o the mar#et turns out to be such as to ma#e him regret his decision. )o'ever$ he must do the best he can 'ith the stoc#$ once it has been produced$ and obtain the maximum ps%chic revenue rom it. &n other 'ords$ i 'e consider his action rom the beginning2'hen he invested his resources in production2his act in retrospect 'as a ps%chic loss because it did not %ield the best available alternative rom these resources. ?ut once the stoc# is produced$ this is his available resource$ and its sale at the best possible price no' nets him a ps%chic gain. .t this point$ 'e ma% summari,e the expected (ps%chic) revenue and the expected (ps%chic) cost$ actors that enter into the decision o bu%ers and sellers in an% direct exchange o t'o goods.

& 'e eliminate the temporar% speculative element$ 'e are le t 'ith actors: revenue $ cost $ cost . or bu%ers0 and revenue $ cost $ cost # or sellers. Similarl%$ i 'e consider the sellers as the speciali,ed original producers2and this 'ill be more true the greater the proportion o the rate o production to accumulated stoc# 2cost drops out or the sellers. & 'e also remember that$ since the exchange involves t'o goods$ the set o bu%ers or one good is the set o sellers or the other good$ cost is eliminated as a actor or bu%ers as 'ell. *nl% the actors asteris#ed above ultimatel% remain. The revenue or both the bu%ers and the sellers is the expected direct use o the goods ac1uired0 the costs are the exchange or a third good that is orgone because o this exchange.

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Man, Economy, and State with Power and Market by Murray N. Rothbard The revenue and costs that are involved in ma#ing the original decision regarding the production of stock are$ as 'e have indicated$ o a di erent order$ and these 'ill be explored in subse1uent chapters.

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L23M*n the total demand-stoc# anal%sis$ see Philip ). "ic#steed$ %he .ommon Sense of (olitical /conomy and Selected (apers (+ondon: Ooutledge and Pegan Paul$ 7988)$ &$ 278I830 &&$ G98I42C$ and E3GI33. lso see ?oulding$ /conomic nalysis$ pp. 47I3:. L29MThis situation is not li#el% to arise in the case o the market equilibria described above. Qenerall%$ a mar#et tends to @clear itsel A 1uic#l% b% establishing its e1uilibrium price$ a ter 'hich a certain number o exchanges ta#e place$ leading to'ard 'hat has been termed the plain state of rest2the condition a ter the various exchanges have ta#en place. These e1uilibrium mar#et prices$ ho'ever (as 'ill be seen in later chapters)$ in turn tend to move to'ard certain long-run e1uilibria$ in accordance 'ith the demand schedule and the e ect on the si,e o stoc# produced. The suppl% curve involved in this final state of rest involves the ultimate decisions in producing a commodit% and di ers rom the mar#et suppl% curve. &n the movements to'ard this @ inal state$A conditions$ such as the demand curve$ al'a%s change in the interim$ thus setting a ne' inal state as the goal o mar#et prices. The inal state is never reached. See 5ises$ 0uman ction$ pp. 2G4 . L8:MThe addition o suppl% schedules is a simple process to conceive: i at a price X$ the class "a1 sellers 'ill suppl% % tons o a good and the class "b1 sellers 'ill suppl% %$ the total mar#et suppl% or that price is % F %$ tons. The same process applies to each h%pothetical price. L87MStrictl%$ o course$ costs o storage 'ill have to be considered in their calculations.

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