The Just Price?
Writing by abuhatem on Monday, 9 of June , 2008 at 12:04 pm
In one of those interesting tidbits of life, I have been searching for a copy of Mario Kart for Wii for the past few weeks. I finally decided to check Amazon.com on the internet to see just how much I would have to pay for the luxury. Amazon.com has run out of copies, and the used copies are selling for from $77.89-89.00.
My first impression of course, when looking at this, is that this is a textbook example of the fallacy of just price. What would be the “just price” of Mario Kart? The answer is that prices are subjective, because the inherent value that human minds give to goods and services in the marketplace is subjective. The price of Mario Kart has gone up from its retail price of $50.00 because there is a high demand, i.e. more people find Mario Kart in their marginal utility than the amount of Mario Kart games currently on the market. Because of this, the price goes up. The price, as the Ottoman Islamic business law manual al-Mejelle tells us is the uncoerced and volitional offer and acceptance agreed upon by buyer and seller.
Jeffery Tucker, of the Ludwig von Mises institute made it ever so clear with a beautiful article on the just price this weekend:
The only real answer here is to let the free market rule, which is another way of saying that people should be free to come to their own negotiations about the prices they are willing to pay or accept for this and that. Those points of agreement should be as flexible as human valuation itself. That is to say, we should be free to change our minds, with each exchange taken as an end in itself, with no bearing on future points of agreement.
This is not only fitting with the needs of freedom — any attempt to force prices to do this or that does in fact impinge on our freedom to negotiate — but it is also essential to a well-functioning economy. That’s because the price is heavily influenced by factors such as resource availability, the subjective valuations of consumers, and the profitability of the undertaking in light of accounting costs. In the end, the books have to be in the black. The prices that are accepted in the market must sustain this state of affairs. Even in mega-industries like oil, the difference between revenue and expenses can be surprisingly thin. Even small regulatory and tax changes can drive companies of all sizes to bankruptcy.
Prices are crucial to the wise apportioning of resources in a world with unlimited wants and limited resources. Prices affect the way in which we use things, whether conserving them or throwing them away. You will note that higher gas prices change the way you make judgments about going places and doing things. This is a good thing. Higher prices signal the need to conserve — and without unworkable mandates from government. And from a producer point of view, prevailing prices provide crucial information concerning the forecasting of future profits and hence today’s investment decisions.
Tucker’s article was wonderful. When we establish the freedom of human beings to voluntarily enter into their transactions with their own voluntary prices, the spontaneous natural order of the market ripples benefits throughout the entire economy. This is the miracle of the market economy, of the right to private property and the right to buy and sell as opposed to central planning. From a spiritual point of view, when one ponders the spontaneous order of the market one ponders the miracles of God in his creation.
Category: Economics
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