Economics Dictionary of ArgumentsHome
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| Price theory: Price theory, or microeconomics, analyzes how prices are determined within markets. It explores the interactions between supply and demand, examining how individuals and firms make decisions regarding production, consumption, and pricing. Price theory elucidates the mechanisms behind allocation of resources, the impact of changes in prices on market behavior, and the efficiency of market outcomes. See also Supply, Demand, Microeconomics, Price, Markets. _____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Price Theory - Dictionary of Arguments
Rothbard II 167 Price Theory/time/Rothbard: Here we must emphasize a crucial distinction between the proper status of the ‘short run’ and the ‘long run’ in economic theory. In price theory proper, the short run should take precedence, because it is the real-world market price, while the long run is the remote, ultimate tendency that never occurs, and could only take place if all the data were frozen for several years. In sum, we could only live in the improbable if not impossible world of long-run general equilibrium – where all profits and losses are zero – if all values, technologies and resources were frozen for years. But in monetary theory, the order of precedence should be different. For in monetary theory, the impact of partial ‘real’ factors on the price level, exchange rates, and on the balance of payments, are all ephemera determined by the general factors: the supply of and demand for money. These monetary influences are not ‘long-run’ in the sense of far off and remote, but are underlying and dominant every day in the real world. The monetary influence corresponding to the long run of general equilibrium would be a condition where all price levels and all real wage levels in a gold standard world would be identical, or strictly proportionate to the relative currency weights of gold. In a freely fluctuating, fiat money world, this would be the situation where all price levels would be strictly proportionate to the currency ratios at the international market exchange rates. But dominant influences of the supply and demand for money on price levels and exchange rates occur in the real world all the time, and always predominate over the ephemera of ‘real’ specific price and expenditure changes. Hence real-world analysis, which must always predominate, comprises short-run price analysis and slightly longer-run (but still far from final equilibrium) monetary reasoning. To put it another way: in the real world, all prices are determined by the interaction of supply and demand. For individual prices, this means consumer valuations and consumer demands for a given stock: supply and demand in the real world. This is ‘short-run’ micro-analysis. For overall prices or the ‘price level’, the relevant supply and demand is the supply of and demand for money: the result of individual utility valuations of the given stock of money at any time. And while equally real and dominant in the Rothbard II 168 ‘macro-sphere’, this is determinant in a slightly longer run than the superficial ‘real’ factors stressed by anti-bullionists in all ages. >Money, >Money supply, >Demand for money, >Bullionism, >Inflation, >Central Banks._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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