Production & the Market Process

Robert P. MurphyMises Academy

September 7, 2011

Lecture 8: 2nd Half of Chapter 9 of Man, Economy, and State

2nd Half ofChapter 9 of MES

I. Backward Bending Supply Curves?

1.Psychic Benefits of Labor

2.Capital Accumulation

and Labor Productivity

IV. Keynes: Orthodox Economists Assume Full Employment

V. The Fetish of Cost Curves

I. Backward Bending Supply Curves?

A. Labor Supply

B. Land Supply too?

II. Psychic Benefits of Labor

A. Education/Training “Costs”

B. Risk Premia

C. Demand for Labor Still Determined by DMVP

III. Capital Accumulation and Labor Productivity

IV. Keynes: Orthodox Economists Assume Full

Employment

For more, see optional reading at:

http://mises.org/daily/5464/The-Critical-Flaw-in-Keyness-System

V. The Fetish of “Cost Curves”

A. Notes on Cost

●Cost is opportunity cost, value placed on next-best alternative.

●Costs are not measured in money expenditures.

●Costs anticipated, and never “realized.”●Sunk costs are sunk.

B. Problems With Cost Theory of Value

●“Costs” are simply prices.●Ultimately subjective valuations determine

“costs of production.”●Cost theories can at best explain

reproducible goods, and give their long-run equilibrium prices.