With much trepidation, I opened the Scholar’s Edition of Murray Rothbard’s classic, Man, Economy, & State w/ Power and Market, to begin a deeper study of Austrian economics. With much relief, I found the reading to be pleasurable; the concepts easily understood; the logic flowing seamlessly as Rothbard leads his reader to a clear understanding of the principles developed by Mises in Human Action, and much more. I relaxed and read during the four days spent in the car, traveling to and from Texas.
Rothbard’s examples help the reader visualize the principle being explained, so when I came to:
As the offering price rises, the disproportion between the amount offered for sale and the amount demanded for purchase at a given price diminishes, but as long as the latter is greater than the former, mutual overbidding of buyers will continue to raise the price. The amount offered for sale at each price is called the supply; the amount demanded for purchase at each price is call the demand…as long as the demand exceeds the supply at any price, buyers will continue to overbid and the price will continue to rise. The converse occurs if the price begins near its highest point. (Pgs 114—115)
I instantly visualized, “Auctions!” Country auctions. City auctions. Butcher shop auctions. Estate auctions. Amish auctions. I’ve been to more auctions than I could ever count. In fact, I spent much of my youth at auctions since my father had a passion for them. One of the biggest annual auctions just happened to be this weekend, and we attended so I could observe Free Market activity up close; in person; through eyes readied to watch for certain things; with thinking skills that better understood the process.
What a crowd! The cars lined the country road, and the rest filled a huge cornfield. We parked in the corn stubble and began the long walk to the area where we could see a tent and hear auctioneers working five rings at the same time. By the time that we arrived at the cashier’s trailer to get our “Buyer’s Number” — #427 today — we passed every kind of "good" that one could imagine.
We even passed the most horrid-looking chassis and motor, although the reaction of the men tended to be “It’s a Chevy, isn’t it?” spoken in tones of awe. Whew! I was so glad that David didn’t accompany us, for he would have wanted that thing, for sure!
We heard disgruntled people complaining that the prices (meaning the equilibrium prices) were far too high, and I thought of Rothbard and muttered to myself, “Marginal buyers excluded by the final, closing bid.”
Despite the complaints of those who had to drop out of the bidding, at every ring the auctioneers were busy accepting bids from the many people who were participating. Occasionally an auctioneer would price an item too high in hopes of getting that as an opening bid, but quickly discover his error and throw out a lower starting price. I thought of Rothbard, “Thus, when the price is so high that the supply exceeds the demand at that price, underbidding of suppliers will drive the price downward.” (Pg 116)
On some items, the bidding was most aggressive until only the winning bidder nodded agreement, and again I thought of Rothbard, “…it is evident that the price of the good will find a resting point…where supply equals demand. At this price and at this price only, the market is cleared, i.e., there is no incentive for buyers to bid prices up further…this final, or equilibrium price…is the price at which the good will tend to be set and sales to be made.” (Pg 116)
Everywhere we looked, sales were being made to bidders Rothbard would describe as “capable buyers.” The auction sale became more cluttered and more confusing as these Capable Buyers arrived with trucks and trailers to load up the goods they had purchased at equilibrium prices. They worked quickly, sometimes even comically, to literally clear the market, and do it yet today.
Rothbard explained this process of "winning the bid" and "clearing the market" with “The specific feature of the ‘clearing of the market’ performed by the equilibrium price is that, at this price alone, all those buyers and sellers who are willing to make exchanges can do so…At any other price, there are either frustrated buyers or frustrated sellers.” (Pg 117)
Of course, in my family there is another dimension to the "frustration" aspect of the entire process. The guys secretly hope that they will return home with a huge trailer loaded with snowmobiles, mini bikes, garden tractors, a car chassis or two. I cross my fingers and hope that they spend the day as “frustrated buyers,” barely able to fill the kind trailer that would hold "enough" by my standards.
(Note the discrepancy between a trailer that the guys would consider "big enough"; compared to my idea of a trailer that would be "small enough" to use for hauling merchandise home. I try to discourage the fellows from attending auction sales, but am rarely successful.
The Free Market was operating in more areas than the five auction rings. There was a group of circled wagons offering a variety of foods and beverages. Since it was lunchtime, I went over and joined a line, and too late realized that I had made a poor choice. I ended up with dry, overcooked, bare hotdogs — the seller had run out of condiments — and warm pop. It was too bad that we would not be staying longer. On a subsequent food-run I would have "bid with my feet" by purchasing further items from a different vendor.
It was time to leave, and I breathed a sigh of relief that we would make it away from such a huge auction carrying only the camera; no purchases at all!
Wait! No! Don’t bid on that thing! Yes, I know that the market needs to be cleared, but…David doesn’t need that Chevy!
Here — I’ll hold the checkbook. Better yet, give me that auction number, too!”
Linda Schrock Taylor [send her mail] lives in Michigan. She is a free-lance writer and the owner of “The Learning Clinic,” where real reading, and real math, are taught effectively and efficiently.