The Seen, the Unseen, and the Unrealized
In this section of Bylund’s writing, he is really focusing on the valuation of a product. He continues his use of Adele and the apple orchard. Bylund starts off by talking about how Adele does not have an apple orchard because she wants to have 100 apples per week. This is a statement that makes sense to the average person reading it. Well if she doesn’t want the apples, then why would she put the time, energy, and money into running an apple orchard? Adele desires something, and this certain something requires money to acquire it. She has the ability to start an apple orchard and chances are, she finds some enjoyment in the upkeep and everyday tasks of running an apple orchard, so she decides to grow apples to sell them. She grows the apples and sells them so that she can use her money to buy whatever it is that she wants. Bylund does a great job at really simplifying this concept for the reader. It really is quite simple. Everyone wants something, and everyone has the ability to make money. With both of these things being true, people will do whatever it is that they need to do in order to make money that they can then go spend on whatever it is that they want. This whole process and exchange is the baseline of entrepreneurship.
Next, Bylund talks about how the actual apple orchard is of no value. This is another really interesting concept to think about. Adele has put a lot of time and effort into potentially buying land, keeping it watered, and keeping it in healthy enough condition to get an apple tree to grow on it. However, none of this is relevant or at all valuable, because the consumer is not consuming the apple orchard. The consumer is consuming the fruit of this labor. The only reason that the orchard itself has value is because it was an essential part of producing the apples which do have value to the customer. (Bylund, 2016)
Bylund then talks through the whole process of what Adele should do in order to determine if her product is profitable. She has to take into account the hours of labor she spent, along with many other factors, and it is ultimately up to her to decide if she is getting enough out of all of her input. In Bylund’s words:
It is thus based on the entrepreneur's judgment of the future market situation in which the final good will compete with others to satisfy consumer wants. More specifically, entrepreneurs place their bids based on their estimates of what price the final good can be sold for to consumers. (Bylund, 2016, p. 35)
Bylund goes on to talk about how there is an entrepreneur on both sides of a transaction like this. He talks about how it is not only the seller who is an entrepreneur but often the buyer is an entrepreneur too. In my opinion, there is only so much research you can do. I think that smart entrepreneurs do their research and try to figure out what price to purchase goods at and also what price to sell goods at, but it gets to a point where you can’t research any more and you just have to make a decision and be ready to adjust as needed.
Bylund does talk about setting your cost. I think that in short, what Bylund is saying is that there is a side to this that is entrepreneurs knowing how much their product is actually worth from a purely mathematical standpoint. However, on the other side of the coin, the truly important thing to look at is how much their product is worth from the eyes of their consumer. Because that is what is ultimately going to matter.
The Used of Knowledge in Society
Hayek’s writing titled “The Use of Knowledge in Society” was extremely difficult for me to understand and comprehend. However, I did my best to collect some key concepts that I think he covered.
I think one of the main themes that he was trying to communicate is that everybody's knowledge and pool of resources is different. This is a general statement that I believe most people would consider to be true. Hayek takes this and decides that if this is true, then planning and use of resources should be left up to individuals so that they can best use their personal resources and knowledge to the best of their abilities. But then Hayek changes his tone a little bit and seems to be saying that now people should not have that type of freedom. I think he is trying to say that in order for entrepreneurs to pick prices of their product or service, there has to be some type of collaboration with the rest of society. So even though Hayek believes that everyone has unique resources and knowledge and should be able to be creative in this field, it would not be efficient or even possible for there to be no consultation with the rest of society when it comes to pricing. (Hayek, 1945)
To assume all the knowledge to be given to a single mind in the same manner in which we assume it to be given to us as the explaining economists is to assume the problem away and to disregard everything that is important and significant in the real world. (Hayek, 1945, p. 530)
Sources
Bylund, P. L. (2016). Chapter 3: What Prices Communicate. In Seen, the unseen, and the unrealized: How regulations affect our everyday lives (pp. 27–45). essay, Lexington Books.
Hayek, F. A. (1945). The Use of Knowledge in Society. American Economic Review, 35(4), 519-30.
Hello Avery! I agree with your analysis of the readings. In Bylund’s book, the situation of Adele and her apple orchard helps to understand the theme of what prices communicate. For her to produce apples, she must value something in return or else she would not waste her time, money, and resources on this business. I agree that by using this example, Bylund helps readers understand this concept of prices, value, and scarcity that he was explaining in this chapter. When we think about this, we all do similar things in our day to day lives. We really only do something if it brings us value in return. When we are shopping, we only buy things because we see the value in the product, especially when prices seem a little too high. The more value a product has, the more we are willing to pay for it. You brought up an interesting section of the chapter that I did not really read into that is essential to products. The apple orchard itself is not valuable but is what makes the product valuable. We as customers do not get to see the process behind making the product, so we do not see the value in it. The only thing we care about is the product we are consuming. I feel, however, the process should be more valuable than what it is viewed as. Without it, like the apple orchard, we would not have the products that are important to us, in this case the product is apples. I enjoyed this next section that you mentioned because as a small entrepreneur, I relate to it.
When starting a business, you want to be profitable and not go under, so you cannot sell the product for less than what it costs to produce them. If entrepreneurs can predict what their products will be sold for in the future, they have a good understanding of whether they will be profitable or not depending on current costs and product demand. With this, entrepreneurs can also choose their costs to be more efficient to increase profits by lowering production costs with cheaper materials and resources. Bylund is successful in explaining these concepts so that we can apply them to real word experiences.
In the next section of your essay, I completely agree that Hayek’s article was not as easy to comprehend. From what I gathered, the use of resources or knowledge is important in maintaining the economy with product scarcity. When quantities decrease, we quietly shift our preferences to other products. As quantities decrease, prices increase so we determine whether the product is still valuable enough to spend those prices or find something else as productions ramp back up. I also discussed the same topic you did.
One person cannot determine what is best for the economy. We all have different insights and knowledge that are valuable in benefitting the economy because we all see things that others may miss. We all collaborate to determine prices because what one person may spend on something, can be different to what someone else might pay, so you have to create a middle ground to satisfy the majority of people to maximize profits. Hayek made his main themes unclear to understand, but I feel like you summarized it well enough to make sense of his perspective on the topic of scarcity and prices.