Prices are Prices is Vacuous

Draft by Pyotr Malatesta

1. Premise 1: \( V \) (Value) is determined by \( S \) (Subjective preferences).
\[ V = f(S) \]
2. Premise 2 (Price Determination): Prices \( P \) are determined by \( D \) (Demand)
\[ P = g(D) \]
3. Premise 3 (STV Demand): Demand \( D \) is derived from valuations \( V \), which are themselves derived from Subjective preferences \(S \).
\[ D = h(V) \]
4. Conclusion 4 (STV Price): Prices \( P \) reflect aggregate subjective valuations \( V \).
\[ P = h(V); h(V) = f'(S); P = f(S) \]
- \( V = f(S) \) (Premise 1) defines value \( V \) in terms of subjective preferences \( S \).
- \( P = f'(V) \) (Conclusion 4) defines prices \( P \) in terms of subjective preferences \( S \).
- This creates a circular loop where value \( S \) is defined by \( P \), and \( P \) is defined by \( S \).
The only independent measure of anything within this argument are the prices themselves. Such an argument logically reduces to the grand economic theory that “prices are prices”.
The theory that "prices are prices" is essentially vacuous.
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“But it is clear that the determinants of price are only the subjective utilities of individuals in valuing given conditions and alternatives. There are no ‘objective’ or ‘real’ costs that determine, or are co-ordinate in determining, price.”
[Rothbard. M. 2009. Man, Economy, and State: A Treatise on Economic Principles. Scholar’s Edition (2nd edn.), Ludwig von Mises Institute, Auburn, Ala.]
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“Once the goods have been produced, his past money costs are irrelevant to deciding how to use these goods. … Once the goods are produced, only subjective valuations expressed by individual buyers and sellers relating to these goods and to their exchange ratios in money terms are effective in the establishment of market prices.”
[Taylor, Thomas C. 1980. An Introduction to Austrian Economics. Ludwig von Mises Institute, Auburn, Ala.: 59–60.]
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1. Premise 1: According to the subjective theory of value (STV), the value of a good or service is determined solely by individuals' Subjective preferences and desires.
2. Premise 2: Prices in a market economy are determined solely by a Demand function.
3. Premise 3: This Demand function, according to STV, is derived from individuals' subjective Valuations of goods and services.
4. Conclusion 4: Prices, in turn, reflect the aggregate Subjective Valuations of individuals in the market.
5. Conclusion 5: Therefore, Prices are ultimately determined by individuals' Subjective preferences and Valuations (from Premises 3 and 4).
6. Conclusion 6: Thus, according to STV, the value of a good or service (V) is reflected in its price (P), which is determined by individuals' Subjective preferences and Valuations.
- Premises 1 and 3 establish that STV links the value of goods and services directly to individuals' subjective preferences.
- Premise 2 introduces the economic concept that prices are determined by demand.
- Conclusion 5 states that market prices aggregate the subjective valuations of individuals.
- Conclusion 6 concludes that prices are a direct result of subjective valuations.
There are a few possible interpretations of these results. The first is that the subjective theory of value is entirely unsubstantiated theoretically but is merely an axiom that must be accepted on faith; this interpretation is rejected, as it is not sufficiently charitable to (ostensively) rational persons. The second possible interpretation is that this theory is substantiated by empirical evidence that all prices in the economy are entirely and reliably explained by sole analysis of the demand function, and that supply or costs of production never play any role in price formation; this interpretation is rejected, based on the available empirical counter-evidence.
The third interpretation is that the STV of value uses the subjective values of individuals to explain prices, and then justifies this by interpreting the observation of different people willing to pay different prices as confirmation of the STV without realizing that this is a circular argument. Such an argument forms a circular reasoning loop: STV asserts that value is subjective and determined by individual preferences, and prices are determined by these subjective valuations. However, prices are also used to infer the value of goods and services within STV, which effectively means that value is defined in terms of subjective preferences, and subjective preferences are defined in terms of value (through prices). If prices are *never* used as evidence of subjective values, then the STV could avoid this third interpretation of circularity (but then we would be left with the first or second interpretation). If prices are *ever* used as an indicator of aggregate or individual subjective values, then the STV participates in fallacious logical circularity, as the assumption of subjective values is used to explain prices, prices could never be used to support any statement explaining those subjective values. This interpretation is accepted because charitably, any rational person can be deceived by a well-positioned circular argument that confirms their own personal biases.
This circularity raises questions about the ability of STV to provide a coherent and objective basis for understanding economic value and pricing mechanisms.
[For the subjective theory of value] "prices are determined marginal utility; marginal utility is measured by prices. Prices... are nothing more or less than prices. Marginalists, having begun their search in the field of subjectivity, proceeded to walk in circle".
[Allan Engler. (1995) Apostle's of Greed. Pluto Press. p. 27]