----------------- HES POSTING ----------------- 
 
In reply to Larry Moss' message:  
 
My understanding of the subjective theory of value (i.e., of prices),  
which Marshall never accepted in full, had the effect for those who  
understood it, of making the human actor the foremost "exogenous  
variable" in the theory of "the market." According to this theory,  
changes in such things as the physical environment and in peoples'  
behavior had effects only because actors perceive such changes and  
take them into account in their judgments about what are factors of  
production, in their appraisals of the factors, and in their decisions to  
produce and invest. In other words, these changes have effects only  
because entrepreneurs include them in their plans to produce goods  
that are ultimately used to satisfy what they perceived to be the wants  
of individuals acting in the role of consumers. As the theory developed  
from Menger through writers like Wicksteed, Davenport, Knight,  
Schumpeter, and Mises; the characteristic of active, imaginative,  
inventive entrepreneurship came to be the fundamental driving force, or  
"exogenous variable," of the market economy.   
 
My comment on Larry's post is that with respect to the problem of  
describing the "market process" or, more correctly, the system of  
exchange under the conditions of strict private property, use of money  
and specialization; there was at least one major transformation in the  
history of economic thought: the replacement of the labor or cost  
theory of value (prices) with the subjective theory. For those who  
understood this transformation, the nature of the "exogenous variables"  
changed radically from material, physical, potentially quantifiable things  
to the non-quantifiable human mind and volition.   
 
I can agree that in giving examples of the "market process" we make  
ceteris paribus assumptions. If this is what Larry means when he says  
that we may assume in some cases that the banks of the river do not  
change, I have no objection.   
 
The main concern of this post is with the broader issue. With respect  
to this issue, I think Alan is right. The first step is to define "the  
market." This indeed is what the subjective value theorists were trying  
to do, albeit in a different way than had been previously done. The  
second step, which is perhaps implied in the above, is for the  
economist to tell his aims. Is he trying to describe the market economy  
in general or is he trying to give examples of particular actions in a  
market economy in which many other actions, which the example-giver  
is not concerned with, may have an influence?   
 
A remarkable fact about professional economics is that the exogenous- 
endogenous terminology developed without any obvious  
acknowledgment of the subjective theory of value. On this basis, one  
might question the use of this terminology to refer to the "market  
process." 
 
Pat Gunning 
 
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