Study Guide to Man, Economy, and State with Power and Market

Chapter 9: Production: Particular Factor Prices and Productive Incomes 113
E. Vertical Integration and the Size of the Firm
If a hypothetical firm were to merge with all other
firms, there would no longer be a market for the various
factors and hence its owner(s) could not calculate the relative
profitability of various lines. Such a chaotic situation
would never persist on a free market. Socialism is
just a special (important) case of this more general phenomenon.
4. The Economics of Location and Spatial Relations
The same price will emerge for the “same” good, but this is
defined from the point of view of the consumers. Thus an
orange-in-Florida is not the same good as an orange-in-New-
York, and hence the prices for oranges may differ in the two
regions. Production centers will not be located merely on the
basis of technical efficiency; the cost of transporting the goods
to the final consumers must also be considered. Also, the money
wage rates in an area with a high “cost of living” may adjust
accordingly.
5. A Note on the Fallacy of “Distribution”
In contrast to the approach of the classical economists (particularly
Ricardo), modern economics recognizes that there is
not a two-fold process in which goods are first produced and
then “distributed.” Rather, goods are produced and distributed at
the same time; if one alters the incentives facing producers
(such as who gets to consume what), then this may upset the
total size of the “pie” overall. It is true that richer individuals
have a greater say in determining the course of production, but
their greater wealth is itself a result of prior market activities.
On a free market, all wealth is achieved through prior acts of
homesteading, production, or receipt of a gift.