30
May
2011
A Lesson in Subjective Value Theory
Today at Mises. You know how a lot of times, you bump into a guy with a bunch of barrels of fish, and he’s trading them for another guy’s horse? And you wish you had a theoretical framework to explain the price upon which they agree? Rest easy.
Notice that Rothbard’s example was able to explain the price of a horse (in fish) without any reference to other prices in the economy. This was one of the major drawbacks of the cost theory of value. By saying (for example) that the price of a car “had to” be $10,000 because of the costs of the steel, rubber, glass, and labor that went into its construction, the cost theory of value was merely explaining one price (of a car) in relation to other prices (of steel, rubber, glass, etc.). The cost theory didn’t actually explain market prices in terms of more fundamental building blocks. But Rothbard achieves precisely this with his example of the fish-and-horse market.
Definitely, but then with subjectivist pricing, aren’t you only explaining the prices of the car’s fundamental building blocks, and not the price of the car itself, which does depend on the prices of those building blocks? Wasn’t the Austrian contribution an explanation that costs of production, while playing the direct role in determining the prices of many processed/manufactured goods that are produced from factors of production that are used in the production of other goods with relatively lower marginal utility, these costs can themselves be broken down into a direct supply and demand, subjectivist framework?
You write
“Also notice that Rothbard’s approach can work for any type of good or service. It doesn’t matter whether the horses were bred for sale or whether they were discovered the day before “for free.” The subjectivist approach can therefore explain the price of Picassos as well as the price of peanut butter. In contrast, the cost theory of value at best could explain the (long-run) price of reproducible goods.”
Yet the price of the car is still primarily a function of the cost of the factors that go into the production of cars is it not? At any given moment today, isn’t it the case that most car production, indeed most manufactured production, is already at the “long run,” where costs are the primary driver of prices?
Isn’t it the absolute either or insistence, this “costs or go home” and “subjectivist pricing or go home” back and forth, which has lead to most economists no longer distinguishing between goods that are priced by costs of production, and goods that are priced by supply and demand? Isn’t this refusal to accept that costs of production play the primary role in manufactured, reproducible goods that has lead generations of anti-capitalist economists to conclude that most producers (of processed/manufactured goods) engage in so-called administered pricing, which is “inefficient” relative to the “pure and perfect” ideology, which then leads those with violent power to increase market regulation, to force producers to either sell at a loss, which then leads to more regulation and more subsidies, or to break companies up for engaging in “oligopolistic” pricing?
I see no good that can come out of insisting that it’s either/or. Why can’t pricing be different for different goods that have different marginal utilities connected to them?
Suppose a car doesn’t have a steering wheel. As is, the wheel-less car would provide relatively very little utility compared to other goods. But the value that most people would derive from an otherwise good car without a steering wheel would not be what the subjectivist framework theorizes. It would be what the cost of production framework would theorize. The value of the car without a steering wheel would almost certainly be what a full car would be, minus the costs of a spare steering wheel, which in other words means the value of the car as is would be a function of the costs of the remaining components of the car, plus profit. If not only the steering wheel were missing, but a tire as well, then the value of the car would tend to gravitate around the price of the full car minus the costs of a spare steering wheel minus the costs of a spare tire, plus profit, which of course is what we would expect if the cost of production framework were the correct framework. If the subjectivist framework explained ALL pricing, then as soon as the steering wheel was taken out, or some other critical component of a car that makes it possible to drive a car, then the price of the car minus a steering wheel SHOULD collapse to the value of a trophy in one’s unused collection of things that look like cars but are not cars. It might still have a positive price for sure, but the price should not gravitate around the costs of the remaining components of the car. But if the price does gravitate around the price of a full car minus the costs of the steering wheel, plus profit, which is the same as the costs of the remaining components of the car without a steering wheel, plus profit, then the subjectivist framework has to be wrong and the costs of production framework has to be right, at least for the pricing of cars.
Perhaps you can explain this in a subjectivist framework, but I just can’t see how costs of production are not the primary driver of most prices, when considering that most firms that succeed in cutting labor costs almost always reduce their prices.
Also, doesn’t subjectivist pricing make it impossible to understand why prices of most things don’t change with every single change in demand and supply? Things like restaurant hamburgers, newspapers, cars, bread, and movie tickets, these prices don’t change with every change in supply and demand. Producers tend to meet increased or decreased quantity demanded out of inventory, or excess capacity respectively. Only if the change in demand is large enough, do producers change their investment in capital machinery and factories and whatnot, as profits drastically rise and fall. But with relatively minor demand changes, producers tend to set the same price regardless, and either step up production temporarily using existing excess productive capacity, or let inventory build up temporarily using existing warehouse space. This would not happen if the subjectivist framework (supply and demand) explained all prices all of the time.
One of my direct family siblings runs his own small business, and he sets his prices according to his own costs of production, plus a competitive profit. The prices he sets are always always always “cost plus markup.” The mark up is where his degrees of freedom reside. His markups are high enough to earn him a good profit, but it is low enough to prevent his competitors from attracting away his customers. The price he has to set for competitive reasons are that he has to set a price that is the costs of the lowest cost competitor in his market, plus a profit that will prevent his market share from receding. He knows his customers are doing the same, because they too are competing with the lowest cost competitor who is the primary market driver. That’s why they are all trying to lower their costs as well. They are all trying to lower their costs so that they can sell at lower prices and gain market share, but still earn enough profit.
I can tell you for an absolute fact that when he has a really good month (high demand, high sales), or a really bad month (low demand, low sales) he does NOT, EVER, change his prices to exactly reflect the new supply and demand reality. He either meets the excess demand out of existing inventory (and that is a hard thing to manage) or he lets his inventory temporarily build up in his warehouse. The prices he sets are cost plus markup.
MF, some quick thoughts:
(1) Everything you are talking about is handled through the subjective ranking of different units. I tried to make that point at the end of the article, apparently not very well. You can say that it’s then vacuous, but the point is, the subjectivist approach is a complete framework that can handle the formation of any price. All the knowledge you have about real-world price formation works through that mechanism, as opposed to having to use different explanations for different goods’ prices.
(2) Have you ever read Man Economy and State? I’m not trying to be a jerk but I just wonder, since Rothbard (I thought) did a good job showing all this and arguing for the superiority of the subjectivist approach. Even supply curves are “governed” ultimately by subjective preferences.
(3) If your family member hit zero inventory, and it stayed there for month after month while he kept turning business away, I bet he’d eventually raise prices. And if he couldn’t sell any inventory because demand collapsed, he’d eventually do so at a loss. His rule of thumb can work but only because he’s never seen those extremes.
(4) If every business in the economy actually followed cost-plus pricing, then the economy could never adapt to changes (in preferences, money stock, etc.). If your family member’s costs change, then what explains that? Why did those producers deviate from the rule?
(1) Everything you are talking about is handled through the subjective ranking of different units. I tried to make that point at the end of the article, apparently not very well. You can say that it’s then vacuous, but the point is, the subjectivist approach is a complete framework that can handle the formation of any price. All the knowledge you have about real-world price formation works through that mechanism, as opposed to having to use different explanations for different goods’ prices.
Oh you made that point very clear, and I agree with you in principle. I just think that there can be a difference between what mechanism(s) directly determines the price of good X, and what mechanism *ultimately* determines the price of good X. Sometimes they can overlap, for example wages, commodities, and other broad market items. But sometimes I don’t think they do overlap at the point of price formation. In the last post on cost theory of value, I tried to give a most clear cut example of where (I think) they do not overlap:
Suppose I can produce 3 bushels of wheat over a given time period, and one loaf of bread made from the flour made from one bushel of wheat, for a total of 4 goods, that is, 3 bushels of wheat and 1 loaf of bread. Suppose the bread is all that I ate for food, and thus represented sustenance for my life itself. The three bushels of wheat I devote to less important goods, like birdseed, and decorating my cottage. The “absolutist” marginal revolution position would argue that the value I should attach to this loaf of bread would be as high as the value I attach to my life, for that is the direct utility the loaf of bread serves. But what happens if this loaf of bread becomes mouldy and inedible? Well, I will just take one of my 3 other bushels of wheat, and make flour and then make a loaf of bread again. My life is not threatened. Therefore, the value I will attach to the loaf of bread is not the direct marginal utility of the bread, which is my life, but by the lesser marginal utility of feeding the birds, which is very low on my marginal value scale.
(2) Have you ever read Man Economy and State? I’m not trying to be a jerk but I just wonder, since Rothbard (I thought) did a good job showing all this and arguing for the superiority of the subjectivist approach. Even supply curves are “governed” ultimately by subjective preferences.
I have read MES, but to be honest, it’s been many years. I’ll go back and read what he said again. I am not here trying to argue that costs is an alternative framework to subjective pricing. I just don’t think subjectivist pricing is itself a universal alternative to costs of production. I know you gave only some quick thoughts here, but I’m just not convinced.
The early Austrians expressed strong reservations about subjectivist supply and demand being the sole determinant of prices. It is only the most contemporary of Austrians who I think go too far in putting their foot down and say subjective demand and supply or go home. I think this is unwarranted. Perhaps this absolutism is due to being able to draw supply and demand curves and being able to imagine subjective rankings for any quantities of goods and services and any quantities of money. It is very attractive and seems consistent. But when I see restaurants selling their food at the same prices, regardless if there is nobody in the restaurant, or if the restaurant is full with people waiting outside in line, I imagine a horizontal supply curve, and I do not consider the prices of this food as determined by the direct demand of the patrons and the direct supply the restaurant owners are willing to offer. I see instead the restaurant owners offering anything from zero supply to maximum capacity supply, for the same prices which enables them to earn a profit for each meal on average, which of course means it is costs of production and not direct supply and demand that determines these prices. If however you look at the costs of the food, for the example the wages, and the commodities like wheat, and vegetables, then I can see supply and demand determining their prices.
If the restaurant food prices was determined directly by supply and demand, then the subjectivist approach will ignore the market competition process, and would not see what would happen if demand rose or fell with a great enough change.
For example, if the demand rose very rapidly, and only the subjectivist supply and demand framework were used, then one could not see that as demand rises rapidly, profits will rise as well, and with a rise in profits, capital investment will increase. As investment increases, supply will rise. As supply rises, the prices of each good will have to fall, all else equal. As prices fall, the rate of profit will start to fall as well. The stopping point is new cost plus profit.
Similarly, if the demand fell very rapidly, and only the subjectivist supply and demand framework were used, then one could not see that as demand falls rapidly, profits will fall, and when profits fall, capital will be withdrawn from the industry, and as capital is withdrawn, supply will fall. As supply falls, the relative price increases, and when that happens, the rate of profit will rise back up. The stopping point is against new costs plus profit.
Sure, we can imagine subjective ranking scales for every possible item of food and every possible quantities of dollars, all up and down each individual’s scales, but I think this is rather a cop out, an ex post facto assumption that masks the true processes and determinants of (SOME!!!!) prices.
I don’t see the fascination with using one framework to explain all prices for everything at all times. Most people think this kind of one-dimensional thinking is elegant, but I don’t. I find it simplistic. I mean, the whole Austrian economic platform is based on methodological dualism, the use of two methods to understand different things in the world, i.e. human action vis a vis “natural” physical processes. If someone said to me that metaphysically, ultimately both are guided by the same laws, I would agree, but epistemologically, as long as we are mortal, and as long as we act, and as long as our paths of learning is unpredictable, which will be always until (unless) we are Gods, then teleology is superior.
I think the same kind of thinking should underlie price formation. Physical matter is to postivism as commodities and labor are to subjectivist supply and demand framework. Human action is to teleology as manufactured/processed goods prices are to costs of production framework.
(3) If your family member hit zero inventory, and it stayed there for month after month while he kept turning business away, I bet he’d eventually raise prices. And if he couldn’t sell any inventory because demand collapsed, he’d eventually do so at a loss. His rule of thumb can work but only because he’s never seen those extremes.
Sure, but my point about costs of production was only within that “comfortable” range where demand does not radically change. If he uses this “rule of thumb” for not only months and months, but years and years, and so does his competitors, then I think it would be better to just accept how the prices for his goods are directly determined, rather than deny it. Sure, with enough of a radical change in demand, then all bets are off.
But then if those extremes do happen, for example his inventory dwindles, and he tries to raise his price way above costs plus competitive profit, then what will happen? Well, won’t his competitors be able to simply attract his customers away and pay the lower prices they are offering? Who ever said that him wanting to raise prices necessitates an actual rise in those prices? If he is getting phone call after phone call for supply, and he is constantly turning away customers, then he can’t raise his prices, not as long as there are competitors who can pick up what he doesn’t offer.
He is not the only small business owner, indeed not the only general business owner, who sets his prices in this cost plus markup way. I can’t remember where I saw it or what the source is, but I do remember a poll that was taken a few years back, and the research showed something like 90% of the businessmen set their prices by costs plus profit.
(4) If every business in the economy actually followed cost-plus pricing, then the economy could never adapt to changes (in preferences, money stock, etc.). If your family member’s costs change, then what explains that? Why did those producers deviate from the rule?
Again, I’m not saying cost plus markup is a universal be all and end all alternative to subjectivist supply and demand pricing. If preferences for certain goods change, for example the demand for horse and buggies falls and the demand for cars rises, then, in the short term, the price of cars can drastically exceed costs plus competitive profit, and the price of horse and buggies can drastically lag costs plus competitive profit. But if that does happen, then investors will start to withdraw capital from horse and buggies, and invest instead in car making. That will decrease the supply of buggies, and increase the supply of cars. This process will continue until the price of buggies rises and the price of cars falls, back to costs plus competitive profit. And the same process will repeat for any given change in consumer demand between the two manufactured goods, and by principle, so too does this occur for all other manufactured goods and all changes in consumer demand.
If a business costs change, then it could be either subjectivist supply and demand changes (for example wage rates can change based on supply and demand for labor), or it could be a result of the same process I laid out above about manufactured consumer goods like buggies and cars, but for manufactured means of production instead. For the latter, it will be, I argue, the costs of production plus profit framework that directly determines the prices of those manufactured components. For those manufactured means of production, their pricing is set according to subjectivist supply and demand framework for the labor that was used to manufacture those components, and costs of production plus profit for any bought manufactured components that will be turned into other, more finished manufactured components by the company in question.
Eventually, and through this process of price breakdown, we can ultimately explain all prices by subjectivist supply and demand. But it is still the case, I would argue, that for manufactured goods, which is most goods in our economy, the DIRECT determinant for prices is costs plus profit. A given business owner simply cannot change what economic competition results in. If he deviates his prices too far from costs plus profits, then market competition will kick in, and supply and prices will change back to costs plus profits, or else these goods simply will not be offered and sold. Business owners simply will not sell goods at a perpetual loss even though subjectivist supply and demand framework would have him set a low price that generates those losses. He has to sell for at least cost, and if he wants to eat, then he has to set a price of cost plus profit.
Also I can use some of your own arguments against you. A movie theater doesn’t use “cost plus markup” automatically. If the price of electricity goes up, the movie theater doesn’t adjust ticket prices that month. So inertia in retail prices blows up your theory too, if you think it blows up the subjectivist approach.
>A movie theater doesn’t use “cost plus markup” automatically. If the price of electricity goes up, the movie theater doesn’t adjust ticket prices that month.
Well, I didn’t say cost plus markup was automatic. When I said costs, I meant the total costs.
It’s not necessary that an increase in the price of electricity ipso facto leads to an increase for a movie theatre’s costs, is it? I mean, they could cut back on other expenditures, or they could even increase the prices of snacks and drinks.
In addition, and perhaps more importantly, if a movie theatre did price their tickets according to supply and demand for movie tickets, then crappy movies that attract only a handful of movie goers should be priced at rick bottom prices, whereas movies like Avatar should be priced at $100 a pop. But you don’t see that. Regardless of the demand for movie tickets on any given day, the price of movie tickets does not change. If they sell an empty theatre, or a full theatre, or even if they have to sell out and turn people away, the ticket prices are the same.
Bob I have asked this question before and I will ask it again.
How would a purely demand based approach to prices explain the year after year fall in say hard drive prices?
Surely people don’t just wake up each day and say “well today I think hard drives should cost 0.01 cents less / gigabyte than yesterday”. But this is the only explanation the sort of analysis you are promoting can give, because you can’t say “well the cost of manufacturing higher density platters fell so higher capacity products have reached the market this causing the price to fall” even though this is exactly what happens.
And I understand that ultimately everything stems from demand, I just don’t see how the approach you recommend can explain a lot of real world phenomeneon. I am not unwilling at all to change my mind about this btw, which is part of the reason I am asking.
How would a purely demand based approach to prices explain the year after year fall in say hard drive prices?
Just to be clear, I don’t call it a “purely demand-based approach.” Market prices are obviously determined by supply and demand.
What I say is that subjective preferences dominate both the supply and demand. All of the technological and other “real cost” facts that influence prices, work through somebody’s subjective appraisals.
As far as hard drives: The increased output lowers the marginal utility. You’re right, a person doesn’t wake up and say, “I value the first gigabyte of RAM less than I did a year ago.” On the contrary, at the lower prices, a person buys the 100th gigabyte instead of stopping at the 10th gigabyte, and values that 100th one less than the 10th one.
What I say is that subjective preferences dominate both the supply and demand.
That could be the case for a barter economy. In a monetary economy it probably makes sense to say it dominates demand, but no supply. Producers don’t want to keep their production. They want to sell it and maximize profits (aka net savings).
Hold on, let me see if I interperted what you said correctly. In someone’s head he has
1st GB of digital storage ~ $ 5
2nd GB of digital storage ~ $4
3rd GB of digital storage ~ $3
and so on, according to his own demand schedule ( I know that austrians recommend that the dollars are put in the actual demand schedule, but I just did it this way for simplicity ), and then its up to producers to find a way to lower the real costs to sell that extra gigabyte, but its not actually the costs that determine the price, its the amount they can supply, and everybody’s demand schedules.
Is this right?
See what I am thinking at this point is that we both agree that the cost does actually determine the supply, and in the end of the day that contributes to determining the price. Sure, It is correct to say that the real cost of something is determined by other demands for the same capital goods due to the demand for other different finished products as determined by end consumer subjective value demand schedules, but is it not also correct to say that this cost (even if derived from demand) is a real factor in *price* determination?
As someone who buys this stuff for a living, it doesn’t work quite like that. No one buys technology speculatively because (as you pointed out above) the price always falls. Thus, any speculative purchase is a guaranteed loss.
Generally a purchase will target a specific task, so there is a minimum specification to achieve that task. Having established minimum specification; there is ZERO value buying less than that — you won’t be able to achieve the task that you want. Then it’s a matter of searching for the lowest price. If the bare minimum specification costs more than the task is worth then the whole project is not viable and nothing gets purchased. Let’s presume the project is viable.
It’s generally worth mildly overkilling the specification, in order to mitigate risk… no one really knows how long it will be in service, upgrades, yadda, yadda. At that point, if it only costs a little bit more, might as well buy a little bit of contingency.
Buy too much contingency and management will think you are not trying, and they will pay 10 times as much to have someone else review the whole design. That’s why managers never get to become engineers.
My example of hard drives is illustrative. I imagine that if we were living in the 19th century my technologically driven rapidly falling prices example would have been buttons or cloth or something.
Avram, yes, you can say that if you want, but by the same token it’s also correct to say that advertising determines prices, and hunger determines prices, and girls determine prices. (If a pretty girl works in a store, I’m more likely to hang out in the store and buy its stuff.) But rather than listing 1,000 different things that may or not matter for an individual price, Rothbardians instead say prices are determined by the subjective rankings of every participant–full stop. Now, in a particular case if you want to shed more light on what is going on, you can ask, “Well why does Smith value the 3rd horse higher than the 87th barrel of fish?” blah blah blah.
Bob, I agree with your main point: it is silly to list all the reasons why people might make their demand schedules the way they are.
But I don’t think saying costs influence prices is the same as saying hunger and advertising influence prices, because when you are talking about hunger, advertising, ane beautiful bubbly red heads, you are talking about things that influence the demand, but when you talk about costs you are talking about how much it will still be profitable for producers to produce.
You said you think that both supply and demand determine the price right?
Well whats wrong with saying that costs determine the supply?
Avram,
You’re right, it would be better for me to have picked some examples that didn’t all fall under demand; I realized that later.
But look you said:
Well whats wrong with saying that costs determine the supply?
Because that is simply a false statement. The most you can say is, “For a lot of goods, in the long run, costs are the single most important determinant of supply.”
Look, I explained the fish-price of horses in the article without saying a word about the cost of producing that horse. Now it’s true, if Johnson is a horse breeder, then where his horses fall on his subjective rankings may be influenced by the costs of breeding them.
However, regardless of the past cost of production, if Johnson expects that the price of horses will rise next month, then he won’t sell today for anything less than that future price (adjusting for the time-value of money and the extra cost of feeding the horse, if you want). So it is never true that cost alone determines price, even in the cases where the cost theory is supposed to reign supreme.
Look, if you want to handle this in your own framework by saying, “OK fine, technically cost influences work through subjective rankings as the ‘last hurdle’ before hitting market prices, fine, but that’s a technicality that’s not important to me,” I’m fine with that. I just want to be clear on what the Austrian position is, but also I want to make sure you see that (I think) costs aren’t as explanatory as you seem to think.
I am going to point out one of the paragraphs you wrote cause thats the one I have most of my trouble wrapping my head around. You said:
” I explained the fish-price of horses in the article without saying a word about the cost of producing that horse. Now it’s true, if Johnson is a horse breeder, then where his horses fall on his subjective rankings may be influenced by the costs of breeding them.”
I think you did explain it and you did a very good job and I agree with all of it completely. But you left a whole half of the equation around. Namely why are there only say 4 horses instead of 5 i.e. the supply of horses.
Surely you agree that if Johnson had brought 100 horses to market he would value the 100th horse for some amount less than his 2nd horse, right? And if he brought 1000 horses he’d value those even less. So the more horses he brings to market the less the price of horses will be in terms of barrells of fish.
Well how many horses does he have? In your example the amount of horses this guy has is just given, so you left that part of the equation out. But I just seem to think the amount of horses in existence will be determined by the costs of creating / acquiring them.
Of course the costs themsleves are oppourtunity costs of producing other things that fulfill other fish owner demand schedules better (assuming the guy needs fish here) / the producer’s own demand schedule, but I don’t see how you can say so strongly that the statement “costs determine supply” is a false statement, because if costs don’t then what does?
Notice I am not saying costs determine demand, they obviously do not, but you still haven’t convinced me how costs don’t determine supply.
What happened to my response :S
Another good post about how prehistoric barter economies work.
Any chance of addressing modern monetary economics?
Yes MamMoTh I think I pointed out its fundamental flaws (in the hands of its current proponents) in my MMT critique. I realize you disagree, but your (and others’) responses confirmed that my view is right. You are focusing on nominal amounts and being agnostic about “real” outcomes.
OK guys I’m jumping ship on this one. When I get to the production section in Man Economy and State, I’ll write another mises.org and we can resume the fight.
For now, MF, let me just say that we could play the game all day with picking certain pricing strategies to see which is like a “demand” versus a “cost” approach. (E.g. you can’t explain why movie theaters give senior citizen discounts or student discounts–it’s not cheaper to build a seat for those customers.) But that’s missing the point. Whatever considerations you have in mind, they ultimately go through subjective valuations. Now if the two approaches had equal explanatory power, then it would be a toss up. But the subjective preference approach can explain any price, whereas the cost theory can only explain long-run prices of reproducible goods.
Thanks for not jumping ship, then swimming to shore, forgetting about the crew, and then telling all the locals how wrong some of the crew of the HMS Costs versus Supply/Demand were. At least you’re going to send out a rescue boat in the future, so in the meantime I’ll use my lime wedge as a flotation device (they always seem to float in my glass, so…)
Sure, I’ll concede that, but direct supply and demand can’t explain why the theatre won’t charge less if the demand for a movie attracts zero customers, indeed anything less than a full house, at the asking price that I argue is more a function of costs than direct supply and demand.
Readily accepted. But the proposition that all prices ULTIMATELY go through supply and demand, is not the same thing as saying “this good here has a price, and the price of this good is a function of the direct supply and demand for that good.”
Why do they have to have equal explanatory power in pricing ALL goods? Why can’t one method work for some goods, and another method work for other goods?
My argument has always been that neither costs of production, nor supply and demand, can explain all prices for all goods all of the time. But you keep responding as if I am trying to propose costs as an alternative to subjectivist pricing for all goods all the time. I am not doing that. There is nothing wrong with recognizing that costs of production are the primary driver for the prices of SOME goods, whereas subjectivist supply and demand is the primary driver for the prices of SOME OTHER goods.
Why do you feel the need to use a one size fits all ideology? You do accept methodological dualism, yes? Well, why not a pricing dualism as well? The proposition that costs of production determine the prices of most goods, i.e. manufactured goods, is logically founded upon the law of declining marginal utility, so it’s not like I am trying to apologize for it and force feed it into all price explanations. My 3 sacks of wheat and 1 loaf of bread example is an example of taking the law of declining marginal utility and understanding that the value of the bread is NOT a function of the direct utility of the bread, but rather a function of the utility of the lower valued sacks of wheat. That can only mean that costs of production determine the value of that loaf of bread, not the direct utility of that loaf of bread.
Again, I am not saying that costs of production is an ALTERNATIVE framework for subjectivist supply and demand. I am only saying that costs of production are the primary determinant for the prices of goods that you call “long run goods that are reproducible.” It’s not necessarily really long run, but yes, time is a key factor.
The original Austrian economists did not think that subjectivist theory explained the prices of all goods all the time. They knew that some goods were priced differently. They just showed how those prices ultimately go back to supply and demand by breaking down the costs into further costs. But they never accepted that subjectivist theory can apply to every single good’s price all the time.
If you accept that costs can explain “only” the prices of manufactured goods in the long run, and you accept that a manufactured good that currently has a really high price which results in enormous profits on top of costs, which leads to further investment into that good, which increases the supply and thus lowers the price back down to costs plus normal profit, then you have to accept that subjective supply and demand is NOT universal. Subjective preference CAN’T explain the prices of ALL goods ALL of the time.