Friday, April 29, 2016

The Choice Theory of Value

GOLD economics posits the choice theory of value, in contrast to the labor theory of value, which is Marxist, and the subjective theory of value, which is Austrian. I am well aware that many, perhaps most, libertarians are Austrians or are fond of Austrian economics, so I am sure they will be angry for my taking on Austrian theory, and will try to discredit and attack me. I come from the Objectivist-influenced school of libertarianism, which is sharply contrary to the Rothbardian Austrian school, but I believe in one unified big tent libertarianism, and so I want to try to persuade the Austrians that there is some merit in what I have to say. Let me see if I can answer some of their objections, in anticipation. Two obvious objections that I anticipate are, first, that the choice theory of value will collapse into the labor theory of value, and second, that there are factual scenarios which disprove my theory.
The labor theory of value says that money should be equal to the amount of work done to make the sold goods, in other words, money should equal labor expended. The Austrian theory of value says that value is subjective, in other words, money should equal the subjective feelings of the consumer. The choice theory of value is, perhaps, in between the other two, or, perhaps, is in a different area altogether. The choice theory of value holds that profit is equal to the amount of value that the producer created and added to the raw materials on top of what was there already. Value refers here not only to physical items added to the raw materials, but of work done to improve the raw materials and turn them into a finished product, such work including both physical labor, intellectual work, and making decisions. Assuming that a person has free will, which the choice theory does assume, a person is responsible for their work and choices, hence created the value, hence is entitled to own the profits as their just reward. The choice theory of value, like the Austrian theory, also holds that value begins with the subjective tastes, feelings, and preferences of the consumer, but the point of sale converts this into an objective measurement, where the consumer made a choice to spend $X to buy something, and at this point the subjectivity is converted into an objective value, the mathematical value of $X of the price of the item, which is fundamentally an objective existing thing in reality, which can be measured and compared and quantitatively analyzed, and is not merely a subjective entity in the consumer’s mind.
The choice theory of value is so named because it is the choice to buy or sell at a given price which defines the objective value of the product as being objectively worth that price, so that only the freely made choices of consumers in the marketplace can objectively evaluate values. This implies that government bureaucrats could not know objective values in the absence of free market choices by buyers and sellers, so socialists cannot accurately assign productive resources in proportion to the value of the goods they need to produce. The choice theory of value is distinctly libertarian and anti-socialist. The only way to know what people would choose is to give them the freedom to choose and then see what it is that they actually choose. It is not something an economic planner can guess or predict, despite the fact that it is objective and not subjective, hence economic central planning is futile.
According to the labor theory of value, the value of something is defined by the amount of blood, sweat, and tears that went into producing goods and services, hence, obviously, the working class deserves to own everything. The Austrian will say that, if I say that the person who made the value deserves the money, then this collapses into the Marxist position, because doing the work would earn the profit. To which I reply, for an ethical defense of capitalism, we must be able to say that the people who own money deserve to own it, and earned it, otherwise capitalism has no ethical justification for the ownership of private property, and it would simply be random chance that the rich have money, a random chance that would seem unfair and could be fixed in the interests of fairness. Such a moral justification is utterly missing from the Austrian position, when one turns the magnifying glass of critical scrutiny upon the details of Austrian dogma.
The choice theory of value is not the labor theory of value, because the relevant measurement for my theory is the money price that is paid, not the amount of blood, sweat and tears expended to make the product. If a rich person makes a product that people pay a million dollars for, then he made that money, he earned it, and he deserves it and is ethically justified in owning it. My favorite example is the star Major League baseball player, who brings joy to millions of fans and deserves a $20 million/year salary because he brings joy to 20 million people and thereby creates the value to make that money, even though his job is fun and easy compared to the daily grind of a school janitor who makes $10/hour to clean up unpleasant filth. In the market there is a high supply of potential employees relative to a janitor’s work, and the janitor’s work is low-risk work that does not entail high stakes if he fails in his job, so the value he creates is actually worth $10/hour in the context of supply and demand and the importance of the job. A corporate CEO, of course, is like the baseball star, but more so: the CEO of a company that mass-produced products bought by millions of people creates millions of units of value, and he bears the risk of what happens if he fails at his job, which is bankruptcy and disaster for his company, so the value he creates is obviously enough to earn a million dollar a year salary. In a free market society, the people who make lots of money deserve to be rich, and the poorer people who don’t make as much value deserve less money, as a conclusion of deductive logic. Profit is not labor, it is value created, which does not perfectly correspond to labor, but the objective measure of value does correspond to money price paid, indeed, it is identical to it.
The Austrian position is anathema to any Objectivist-influenced libertarian, first because we don’t believe that subjective things really exist, second because we understand that capitalist economics needs a moral justification for people to believe in its justice or rightness, or it will die. Under the Austrian postulates, that money need not be earned, and that economics exists to prioritize scarce resources, the people with large amounts of unearned money would have their needs and wants held as a higher priority than people who did lots of hard work and created lots of value but have less money, which screams unfairness to any normal human being, although within the narrow, cloistered Austrian community the Austrians probably don’t come into contact with average people very often. In the Austrian model there could be people with lots of money who don’t ethically deserve to own their money, yet the entire economy would be organized to satisfy their every whim, and this is not fair. My theory solves the problem created by the Austrians: it rejects Marxism while proving that the people who created value have an ethical right to their profits, which includes the profits made by businesses in a capitalist economy.
The choice theory of value is not the labor theory of value, but doing hard work and making smart decisions generally does create value, so you will get what you deserve under GOLD, whereas the Austrian theory is, in the end, value free, and therefore not as good for capitalist politics. The choice theory of value can never collapse into the labor theory of value, because prices don’t perfectly correspond to labor, and A is not non-A, price is not labor, so they are two different theories. One won’t collapse into another with any greater probability than that Austrian theory will collapse into Marxism, or that Quantum Mechanics will collapse into Flat Earth Theory. If Austrian theory continues to insist that a person does not need to earn money to own money, then they are sabotaging the ethical justification for capitalism, and this may very well lead to Marxism, which, in a sense, means their theory will collapse into Marxism long before mine does.
There are three factual scenarios which will be asserted against me, so let me anticipate them. First, that a man buys a bottle of wine for $200 from someone who walks past him on the street, and in the very next moment he turns around and sells it to someone else who passes by for $400, but he did absolutely nothing to the bottle of wine, hence created no additional value, yet has a $200 profit. Second, that a man makes a grilled cheese sandwich and puts rare, precious caviar into it, but then sells it on a street corner for $5, so its objective worth was not the price that was objectively paid for it. Third, a worker deserves the money they are paid as salary, yet my theory of profit, that it is the value added on top of raw materials and valued objectively by the free market at the price paid for the product minus the cost of the raw materials to make the product, does not account for salary.
In the bottle of wine case, the value that is created is the value of the wine being in the hands of someone who values it for $400 instead of the person who valued it less at only $200. This is value, as the economic theory of arbitrage, well known to Wall Street traders, would understand. The man did the work to create this arbitrage, and the market valued it at $200 of profit. But what if this man did not work to arbitrage it, and found the buyer and the seller by accident? Then no value was created, it would merely good luck, yet a profit was made.
Well, to this I would reply: everything that exists has some degree, big or small, of luck and chance intertwined with it. From the position of the electrons in the atoms that form your cells, to the position of planet Earth relative to the Sun that makes life on Earth possible, to the fact that your ancestors 50,000 years ago lived to reach sexual maturity and procreated, to the prices and details of the things you can buy and sell, to the people you deal with every day, everything is influenced by luck and chance. Thus, when someone creates value, there is always some degree of luck and chance that created it, yet the creator still deserves to own his property as a result of creating it. In other words, luck is everywhere, hence it should not be considered as a controlling element in any specific case as separate from something that hovers around us everywhere and falls out of the analysis. Thus, the presence of luck and chance should not be an argument against a person having done work to deserve something or earn something, since there is some luck in all work that is done. In the bottle of wine case, perhaps 99% of the profit is luck of being there at the right place and time to find that seller and then that buyer, but 1% is making the decision merely to talk to them, buy it, sell it, and hold the bottle of wine without dropping it and spilling it, and we have already evaluated that luck is a non-factor, so this person did create a value that the market priced as being worth $200, therefore he earned $200. Of course, in the vast majority of cases, the numbers will be reversed: 80 to 90% of the profit will usually be value created intentionally, and about 10 to 20% of most value is attributable to good luck and chance favoring the productive creator, although in short-term fluctuations luck and chance can play a much greater role, as it does in the bottle of wine scenario, and good luck and bad luck tend to even out to reveal the effect of productive capacity only over a long enough period of time for probability to emerge from randomness.
The thought experiment posits that the man does absolutely nothing to get a $200 profit, but we have seen that this postulate collapses into an impossibility, because the man must have done something to make a sale at all, even if it was just being in the right place at the right time for one split second. The market has valued this minimal amount of work at a $200 profit, so objectively the tiny value he created is actually worth $200 in the evaluation of the market. If the man truly had literally done nothing, and someone handed him $400 and did not get a bottle of wine in return, then this would have been a gift, not a profit. Gifts are not the same as profits in terms of economics, and one does not earn gifts or deserve to own gifts on the basis of the recipient (rather, a gift is rightfully placed because the gift-giver deserved to have the right to give it to a person of their choosing) so the gift scenario would also not be an obstacle to my theory of profit.
Now, for the man who sells caviar in a sandwich for $5, we say that he sold it for less than what it was objectively worth, yet the choice theory of value would say that it must be objectively worth $5, since that it was the marketplace priced it at. Yet why do we say that it was objectively worth more? Because caviar is more expensive than $5. And why do we say that? Because there are people buying and selling jars of caviar for $1000 and $2000 elsewhere. The only reason we say it is objectively more expensive is because there are other trades happening elsewhere in the market where the same product is sold, in money prices, for other amounts. The choice theory of value would say that those other purchases and sales of caviar that price caviar at $2000 are defining the objective value of caviar, and it is on the basis of those objective prices that we can say the man undersold the sandwich relative to its objective value. In the choice theory of value, the objective value of something is priced by the purchases and sales in the market, and the market functions by each individual aggregating to find the price where one unit of a product won’t be bought by buyers for more $X and won’t be sold by sellers for less than $X because of the supply and demand for it, the price of its competitors, and the price of its raw materials.
In this way, the purchasing decisions of individuals come together to form the wisdom of the market and create an objective evaluation of the value of an item. The individuals decide the price, but Adam Smith’s invisible hand guides all individuals into a choreography wherein the sum of all purchases and sales ultimately finds the market price, so one individual who defies the market does not create the price, although the $5 sale does lower the price of caviar ever so slightly below the $2000 it was priced at elsewhere. This Adam Smith invisible hand process is what evaluates an objective value for the product, let us say $2000/jar for caviar. One purchase or sale may define an objective price relative to that one buyer or seller, but the evaluation of the market is what defines an objective price overall. So, yes, in fact, the sandwich was objectively worth more than $5, but it is only true because of those other sales for $2000. If the other jars of caviar were only selling for $5/jar in the caviar stores, then the sandwich might actually be worth the $5 objectively.
We can take the caviar principle and broaden its application. If someone objects that my choice theory of value is incorrect because the amount of profit that is made by selling a specific product is not actually equal to the objective value that the producer created in taking the raw materials and producing the finished product, we can say: why not? Why do you think it is worth more, or less? Often, it will be because elsewhere in the market there are sales which price comparable value differently, but the person who makes this objection is pretending to be blind to that data. If there are not other trades to value the profit, we can answer: no, the market has evaluated the worth of that created value, and has valued it as being worth this amount of money. The market has spoken, so that it the objective worth, and your feelings that it is really worth more, or less, are mere subjective feelings. Specifically, if you make something, and you put a lot of work into it, and you think it is great, but the marketplace rejects it and it sells for a tiny value, or doesn't sell at all and you take a loss, then your subjective valuation is irrelevant, and the product was objectively worth its price in the free market.
The salary objection is simple to answer. I think of work done by an employee as a product made by the employee and sold to his or her employer, from an economist's point of view. Indeed, work is probably the most common product that is ever sold. The raw materials are the factors of production: the employee's food, water, shelter, healthcare, and education. The salary, minus the cost of those factors of production, is the profit the employee makes on selling his labor to his employer. Indeed, in my triangle of trade theory, an employee sells his labor to his employer and gets the things that he buys as the corresponding value that he receives in return for giving his labor, from other traders who bought the end products produced by the employer, either directly, or, as in the pool of value theory, via an indirect path through many intermediate buyers and sellers. In this sense, it is quite necessary for us to characterize labor as a product sold by the worker to the employer, and my theory of profit and price does account for it.
That exhausts the refutation of these arguments, but I look forward to seeing what other critical arguments will be aimed at me in the future, in the interests of a healthy, open-minded debate and discussion of GOLD vs. Austrianism.

Friday, April 22, 2016

Windows and Doors Theory

Everyone has heard the saying “When God closes a door, He opens a window.” I summarize an important principle of libertarian political policy with my own spin on this, by saying: “When the government opens a window, it closes a door.” The funny thing about doors and windows is that, when you think about it, you can escape to freedom through a door, but not, usually, escape out a window. I call this principle, summarized by the above saying, as Windows and Doors Theory, and it really is central to my politics and economics.
What Windows and Doors Theory states is that, when you consider a political or economic policy, you should consider it as a complete package of every policy that flows from its underlying principle, and you take the bad with the good, and the good with the bad. Three basic principles exist (there may be more, but let’s not worry about that here): the libertarian principle, the conservative principle, and the liberal/socialist principle. What Windows and Doors theory really means is that if you have identified something good about one of these principles, your analysis is not complete until you also consider all the bad things about the principle, and, in the end, you should add up everything good and bad and see if there is a net benefit or net disadvantage to choosing that policy.
Let’s play with some examples. Assume that there is an epidemic of obesity and diabetes among the poor in the United States. Assume that a politician proposes a tax on soda (or “pop”, as they say in the West Coast--I am an East Coast guy, and we call it “soda”) and junk food like McDonalds and potato chips. Suppose that experiments are run in cities and towns which adopt this tax, and it is proven that it does, in fact, improve the public health. Is this a good policy?
Windows and Doors theory states that you must look at the underlying principle, and identify the policy as a whole, to evaluate it. This principle here is liberal regulations to manipulate the sale and consumption of food. Assume, in this example, that there is a Midwestern state--let’s call it “Iowa”, as a purely hypothetical example--which has a politically important role in Presidential primaries, and which has an economy based on the farming of a food product, corn. Let’s assume that corn, if paid with taxpayer dollars, can cheaply be processed into high fructose corn syrup, a substance which when added to food makes food extremely prone to cause obesity and diabetes. Let’s assume, in this example, that the government is providing vast farm subsidies to the Iowa corn farmers, which results in a huge supply of artificially cheap high fructose corn syrup.
Windows and Doors Theory simply states that you cannot consider the soda tax without also considering the corn subsidy, because they are, in fact, a package deal. In this example, you could have the soda tax and the corn subsidy, so you are helping and hurting obesity at the same time. Or, you could reject the principle, and thereby reject the package of policies that flows from it. In this example, this would look like voting no on the soda tax, voting to end corn subsidies, and then see whether the obesity epidemic is solved by the end of cheap high fructose corn syrup added to virtually every food in the stores. In fact, there is no such thing as the soda tax or the corn subsidy, there is instead one policy, liberal food regulation. But the liberal politicians want you to see only half the story, and see the soda tax while being blind to the corn subsidy, despite it being one and the same principle that underlies them both.
One can see hundreds of different areas where Windows and Doors Theory can be used for political analysis, but I will only go through one final example here, and then let you apply it to other areas yourself. Assume, in this next example, that a poor person is living in a slum. This poor person just recently lost their job, and has no money. Now, let us consider the liberal policy of giving this poor person free healthcare, and government-subsidized low income housing, and welfare money so they can buy food. Let us assume, for the sake of argument, that this poor person will literally die, would starve to death or get deathly sick, absent government welfare. The liberal politician will point to this as the triumph of liberalism, and accuse the libertarians (and conservatives) of issuing a death sentence to this victim, by proposing to cut taxes and slash welfare.
But Windows and Doors Theory says you must look at the fundamental principle and every detail that results from it, to evaluate a policy, and you take the good with the bad, and you take the bad with the good. Let us assume, in this example, that this poor person is fond of cutting hair, and is a talented hair stylist. Let us assume that in his or her state, in order to get a job as a hair dresser you need a hair-dresser’s license issued by a state occupational licensing board, which requires taking classes in hair styling, and this poor person is illiterate and can’t read and can’t afford the classes, and can’t even afford the filing fee to apply for the license. Assume that, in the absence of this occupational license regulation, this poor person can, and would, get a job at a hair salon cutting hair, would be very good at this job, would make an okay salary, and could pay for his or her own food, shelter, and medical treatment, without needing any help from the government. So, is welfare and liberal politics really helping this person, or hurting them?
The example can have further details added to this same example. Assume that, in addition to getting a job as a hair stylist, this person would be willing to work as a factory worker in manufacturing. But in this state there is a minimum wage law, and there are laws that mandate a slate of employee benefits that employers must give to employees. The liberals point to this law as a success, saying it helps the poor. But the law has made it so expensive to hire employees, that the companies in the state’s manufacturing industry have closed most of their plants in the state, and moved those plants, and those jobs, to Mexico and China, where the wage they must pay is lower, so that it is cheaper to hire employees overseas. Did the liberal policy really help this poor person, or, as a net result of adding up all the pluses and minuses, did it hurt them? In this example, we have conceded that this poor person, right now, will die if welfare benefits for them are cut. Does this mean that liberalism is a good policy for them?
Another interesting thing to consider is that, based on this, a libertarian could concede that abolishing the welfare state might cause great short-term harm to the poor masses dependent upon it, and that the poor might die without it, yet, as a matter of reason and logic, this might not mean that the net result for those poor masses would be bad. In fact, the libertarian could concede the death sentence argument as part of the story yet still argue that libertarianism is ultimately much better for the people than liberalism, because the supposed death sentence that will result from the end of welfare is not really a death sentence after all, since libertarianism will create new jobs so that the people won’t need to rely on welfare to survive any longer. Of course, it is the job of the economists to analyze whether the benefits to the people of job growth are greater or lesser than the loss to the people from welfare benefits ending.
Right here I am not going to go through all the hundreds of different policy details that flow from the three central principles of libertarianism, liberalism, and conservatism, and make arguments as to which of the three is actually best. You can probably guess what I would say, anyway. That is not the point. The point is to make you understand the Windows and Doors Theory, which states that, when analyzing a political policy, look first at the underlying principle, then identify every detail in practice which flows from it, and then, to decide whether it is good or bad, consider both the good it does and the harm it causes, and sum up the net result. Just because you can look out an open window, does not mean you should ignore the sound of a door slamming shut. This is a more wise and intelligent method of analysis than what politicians and pundits do right now, namely, looking at some details that are good and turning a blind eye to the associated bad, or blaming some things as bad and refusing to consider other good things that go hand in hand with them. Windows and Doors Theory is the principle of principles-based analysis.
In conclusion, sometimes in order to open a door you must close a window. And sometimes, when you close a window, then a door swings wide open, so that people can actually exit the room through the open door.
Footnote: Do not confuse Windows and Doors Theory with two other theories with similar names, the Fallacy of the Broken Window (in economics), and Broken Windows Theory (in police procedure). They all sound similar but are not related. Also note that Windows and Doors Theory is not precisely identical to the Principle of Unintended Consequences, which states that economists must consider both intended and unintended consequences of a policy. My theory argues that you should look at all policies that flow from a principle as one package and take the bad with the good, which is not quite what Unintended Consequences Theory says, and, also, some of the bad that flows from a principle may, in fact, be intended, as the policy’s advocates may not see some intentional consequences as a bad thing at all.

Tuesday, April 19, 2016

GOLD Thought #2

This post follows up on my last post, in which I explained the economic theory as to why increases in the supply of oil and natural gas due to new fracking technology ended the Great Recession in circa December 2014. A GOLD economic postulate is that the value of a dollar equals the total pool of value in the economy divided by the total number of dollars in the economy. Thus, with newly created wealth (namely, newly created oil and gas) (and by the way, when I say "wealth" I refer to value, not to money) the difference between the old amount of wealth and the new amount of wealth is like a gift given to all dollar owners who buy gas and oil and automotive gasoline. Their dollar now buys more relative to the previous equilibrium between supply and demand. This is why, from a policy point of view, the supply side policies that create new wealth are always better than the demand side policies of taxing and spending, which focuses on wealth redistribution instead of new wealth creation. When new wealth is created, it usually makes prices cheaper, which very obviously inures to the benefit of the poor and lower middle class, since it is in essence giving them a gift. In contrast, a policy that makes things more expensive while claiming to help the poor is almost always going to hurt people with scare dollar holdings who just can't afford it, and does not actually create any new wealth to give more to the people than what they had already--hence the naive and ironically self-defeating nature of many liberal platform planks.
Of course, gas won't stay cheap forever, nor would GOLD theory hold such. The decrease in the price of oil relative to other prices will redirect profit-seeking resources away from the production of oil. Thus, in turn, will decrease the supply of oil until oil finds a price where it clears the market, in other words, where its profit justifies the precise amount of resources spent to produce it. This then becomes a new equilibrium point, the price point where supply clears demand, which is the most efficient use of resources in the context of consumer decisions to buy it and the supply of and demand for that commodity, the resources used to create it, and everything else that competes with them. When people choose to buy more, price goes up, which draws in more resources to produce it until it reaches an efficient price, and when supply goes up, price goes down, which takes resources to produce it away until supply goes down to the price that clears the market. Price summarizes and results from an incredibly sophisticated machinery of the economy that measures everything relative to everything else and coordinates the economic behavior of all the disparate individuals in the world--the miracle of Adam Smith's Invisible Hand. This is not complicated, really, it is basic supply and demand from Economics 101, yet both the Keynesians and Austrians frequently just don't get it.
Lastly, while on the topic of the price of oil and supply and demand, this is a perfect opportunity to flay a pet peeve of mine, namely, the theory of marginal utility. The Austrians say that water is cheap despite being vital to humans survival because every unit of water is priced at the value of its lowest use, in other words, for washing your car or something even less important, not for drinking when dehydrated. I think there is no need to say this, since water is valued at the value of the use it is bought for, obviously. Instead, the theory of supply and demand explains it adequately. Water is cheap, despite being a vital necessity, because there is a high supply relative to demand. If there wasn't--and on the Moon and Mars, there won't be--it would be quite expensive. Oil is fundamentally like water, a vital essential commodity, and its recent collapse in price due to supply and demand supports my argument. Why does it matter? Well, why does it ever matter to believe a true theory instead of an incorrect theory? Because, if you apply it, and you are wrong, the results will be worse than applying a theory that is actually true.

Friday, April 8, 2016

Your GOLD Thought for the Day

Economists are constantly trying to analyze data to find principles. On that note, let us consider the Great Recession. We may debate what caused the Great Recession: Wall Street greed in reselling mortgage-backed securities of subprime mortgages, or government backing for these same subprime mortgages. The issue is debatable, and it all probably contributed. But it is undeniable that the Great Recession ended in December 2014, coinciding with a massive drop in the price of oil and automotive gasoline. The only difference between December 2014 and any other month in the preceding 5 years was the collapse of the price of oil, so we must conclude that this is what ended the Great Recession.
There is no more poignant argument for GOLD economics. What actually happens when the price of an inelastic commodity collapses? According to GOLD, price is the mechanism whereby consumers and producers compare one item relative to all other items, in the context of their supply and demand. American fracking technology released a massive amount of fossil fuels into the marketplace, which nobody had been expecting. At this point the supply of fossil fuels relative to their demand went way up, so the price went way down. When the price collapsed, Americans who would have had to spend $500 on gas for their cars were instead able to spend that $500 on other things, which stimulated the economy enough to end the Recession.
To understand this, let's consider XYAB. Say that X drives to work, and pays oil rigger A $20 for a tank of gas. A sells gas to X. X makes widgets, which X sells to C, also for $20. Now, A suddenly sells gas to X for $10 instead of $20. Next, the amount of money X must pay A for gas goes down, from $20 to $10. The price of gas is inelastic, meaning that its buyers must have it and will therefore pay whatever price is necessary to get it. So this puts an additional $10 in X's pocket. X can then spend an additional $10, or sell cheaper widgets to C, to compete better against the other widget makers. If X chooses to pay $10 to D for something else, this creates a job for D to make $10 worth of that item, or if X sells cheaper widgets to C, then X sells more widgets, and C then has more money, which he can spend to buy something from D or use to pass on a discount to his buyers, and so on. This continues until A reaches the new price that is the highest price he can charge in the context of the supply of oil.
One of the central principles of GOLD is that the use of money in economics can sometime cloud and obscure what actually happens, as is the case here. If we look at it in terms of trades, and not in actual dollar amounts, it is clear that the people who trade things to the makers of oil in return for oil end up trading less to the oil makers in return for the same amount of oil, at which point these people then have held more of their wealth, which they can then turn around and trade to other people. The increased amount of oil is an increase in the total amount of value in the economy, and, as GOLD theorizes, the value of a dollar is equal to the total value in the economy divided by the number of dollars, so this results in a massive deflation, but what has actually happened is a vast increase in the amount of economic wealth in the economy, and the amount of value that goes to the buyers of oil is equal to the amount of new wealth that increased, as this additional wealth is represented by the difference between the new price of oil and the old price of oil. This is literally the inverse of inflation: when more money is printed and the amount of wealth remains the same, the printing of money causes inflation, whereas, when the amount of money is relatively stable and more wealth is created, it results in deflation. A classic example of the GOLD theory that the value of a dollar equals the amount of wealth divided by the number of dollars, to explain inflation and deflation under the general GOLD theory that money represents value in trades.
So we can see several GOLD economic principles at work: first, that when supply or demand changes the market recalibrates to the new point of equilibrium where a buyer would not pay more to a seller for that product, and, second, and distinctly libertarian in nature, the more wealth people have, the more jobs and wealth it creates, because each new unit of wealth creates a job to buy or sell it or buy and sell what accompanies it, so economic efficiency creates an upward spiral, where having more money creates more jobs, which creates more things, which makes more money, and so on. Sadly, jobs were lost in the oil industry, but the net effect is a benefit to the economy, and, of course, to new jobs for displaced oil workers. This is why, also sadly, government taxes and regulations designed to help the poor actually hurt the poor, frequently, because every trade which might have happened but for government regulation would have created new wealth, and each unit of new wealth that is created also creates jobs to go with it, making it or buying it or selling it or making, buying and selling whatever accompanies it.
In this story we can also see a decisive refutation of socialist economics. The socialists would say that the price of gas is dictated by the exploitative greed of the oil makers, and that the surplus benefit of any increased efficiency in oil production would be kept by the oil makers as their profit, instead of being passed on to the consumers, and to the people generally. Certainly, if the oil makers could have kept the price of oil artificially high, they would have done so, as their profit would have grown by billions if not trillions. The fact that fracking increased the supply of fossil fuels which thereby sharply increased economic growth overall shows that the price was set by supply and demand, not by corporate greed, and that the benefits of economic growth naturally flowed out into the economy to be enjoyed by the people, and were not siphoned into exploitative profits by the rich. The facts simply do not support the socialist economic theories of the nature of profits and the setting of prices.