Salerno's done it: a clear explanation of price theory

It would undoubtedly be helpful to read the examples he describes at the beginning of the article, but this is very clear even without them:

Now despite countless instances like these that we all regularly encounter in our market activities, most people still take for granted the view that costs of production basically determine prices. Furthermore, they believe that if prices greatly exceed costs, it is the result of price gouging, monopoly, or some other nefarious scheme on the part of producers. But as Carl Menger, the founder of the Austrian School of economics, brilliantly explained nearly 140 years ago, past expenses incurred during the production of a good are completely irrelevant to the determination of the current price of a good. For Menger, the market price of a good is determined solely by the relative valuations of goods and money by the buyers and sellers of the good, in conjunction with the number of units of the good currently in existence. The records and memories of how much money was spent to enlist the labor and other resources needed to produce the good have absolutely no effect on how much money people are currently willing to exchange for a unit of the good.

But Menger went even further and demonstrated that the (anticipated) selling prices of goods actually determine the costs of production for a good. Using the example of tobacco, Menger argued that if people completely lost their desire for consuming tobacco, not only would the prices of cigarettes, cigars, and pipes fall to zero, but raw tobacco and the machines specifically designed to produce these items would cease to command a price greater than zero, no matter how much it cost to produce them.

For Menger and modern Austrians, then, the ultimate source of value is the ceaseless efforts of individual human beings to use their scarce resources and money to improve their well-being by interacting with one another on the market to achieve their most cherished goals and desires while renouncing less-important desires and satisfactions. The actual market prices and costs of production we observe are simply the objective manifestation of this war of scarcity in the human soul. It is the current or future goods we have to sacrifice and the opportunities for satisfaction that we have to renounce that are the only relevant "opportunity costs" of the things that we purchase. These subjective and immediate experiences of renunciation and sacrifice — and not some recorded sum of money that one guy paid another guy to perform a production task last month or last year — these are the costs that will influence our decisions about what to buy and what not to buy and, thereby, determine the prices we pay during this Christmas shopping season.

The point in talking about this is that people are constantly demanding that the government pull it's guns out to protect them from high and low prices - depending on whether they're currently the buyers or the sellers - regardless of the availability (the current - usually temporary - state of scarcity) or the desirability (the current - also usually temporary - state of demand) of the good under consideration. Boiled down, they want a guy with a gun to take what they want from someone else and give it to them. Never considering that, if it's not worth the original producer's time and resources to produce it, it will not exist. Or it will not be transported to their location. It will remain rare in that location and become rarer until it ceases to exist.

That is the formula for de-civilization.