Mises on the Connexity of the Market

Dan Sanchez
Jul 27, 2017 · 3 min read

In Human Action, Ludwig von Mises remarked that:

“…economics opened to human science a domain previously inaccessible and never thought of.”

This opening was…

“The discovery of a regularity in the sequence and interdependence of market phenomena…”

By “sequence” Mises refers to the market process: how people combine higher-order producer goods to create lower-order producer goods, which are are then sold to others who combine those to create still lower-order producer goods, and so on, until finally consumers’ goods are produced, purchased, and consumed.

This sequence is set in motion by the pull of consumer demand, which producers of consumers’ goods strive to appease. This striving shapes those producers’ demand for higher-order producers’ goods. Producers of higher-order ’ goods strive to satisfy that demand. And so on, going all the way up to the highest-order producers who tap raw nature and human energy (original factors of production) to create their products.

By “interdependence” Mises refers, for one, to the fact that every stage of production is driven ultimately by the draw of consumer demand.

For another, he refers to the fact that the demand for, supply of, and price of every good on the market is influenced by that of every other good. Later in Human Action, Mises calls this:

“…the general connexity of the prices of all goods and services.

Mises traces this connexity to one highly significant fact: that labor is nonspecific, meaning that the same person’s labor can be used to produce any of a number of different goods.

If all factors of production were specific — if each could only be used to produce a single kind of good, then “human action would operate in a multiplicity of fields of want-satisfaction independent of one another.” In other words, each line of production would be a silo with no influence on any other line of production. The production, exchange, and consumption of goods within a line of production would be interdependent, but there would be no such interdependence between goods across lines of production, because there would be no question as to how any given good would be economized.

But in the real world, each producer in every line of production competes with producers in all other lines of production by bidding for nonspecific goods, especially labor:

“What links together in our actual world the various fields of want-satisfaction is the existence of a great many nonspecific factors, suitable to be employed for the attainment of various ends and to be substituted in some degree for one another. The fact that one factor, labor, is on the one hand required for every kind of production and on the other hand is, within the limits defined, nonspecific, brings about the general connexity of all human activities. It integrates the pricing process into a whole in which all gears work on one another. It makes the market a concatenation of mutually interdependent phenomena.

This is why Murray Rothbard characterized the market as a vast, intricate “latticework.”

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Essayist, Editor, & Educator | dansanchez.me

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