## Tuesday, May 15, 2012

### Calculating The Market

"Every innovation makes its appearance as a 'luxury' of the few well-to-do.  After industry has become aware of it, the luxury then becomes a 'necessity' for all."

Ludwig von Mises (1881 - 1973)

Ironically, the very year Dr. von Mises died, I was studying economics in college and really, really wanted a calculator.

The two most prominent manufacturers were Hewlett Packard and Texas Instruments.

The HPs were very expensive, and difficult to use.  I found them impossible!  To merely calculate 2 + 2 required many key strokes, and to my mind their process was not the least logical.

Texas Instruments (TI), however, had a straight-forward calculation keyboard.  It was also less expensive.

I say less expensive, but to me, and my friends, it was a difficult purchase at best.

We waited and waited for the price to come down.  My target price was $58. That would be approximately$300 in today's dollars.  Not huge, but for a college student difficult.

Very few of us had calculators!  So few, that in statistics class (where we had the infamous "Stat Lab," with calculators available for all) no calculators were allowed in class since so few had them.  Unfair advantage, you know!

The calculator we all wanted to buy was the TI SR-10.  You can see from its photo that it did very little really.  And it had really small red numbers!

But it was the "slide rule" calculator!  It could do everything a slide rule could do!  Only quicker!  We all had slide rules.  They did not help in statistics class very much.

In statistics tests the average grade was about 48.  Most stat calculations required adding huge columns of numbers.  Taking data required "A" numbers, "B" numbers, "A+B", "AxB", even more depending on the question, and each with more calculations.  Each row had to be brought to a number, each column added to a number, and each of these numbers plugged in to formulas, some of which are as long as your arm.  Do you think on a test you are going to get all those calculations right?  No way.  But, if we followed the formulas and demonstrated we understood which formula to use in answer to a question, we got full credit.  A 50 could be an A!

Let's say we had a simple question which asked for the probability theory development of a small population of cannibals and how much variance (or dispersion) from the mean a collection of shrunken blond heads varied, as statistical data points spread out over a large range of values, when compared to all shrunken heads in general.

A few numbers would be given on the test.  We had to develop the rest.  No problem!

$\sigma=\sqrt{\frac{\sum_{i=1}^n a_i^2}n-\left(\frac{\sum_{i=1}^n a_i}n\right)^2}$is the Basic Standard Deviation formula.  It is pretty simple, but from it one is required to develop variances, correlations, and

$\sigma = \sqrt{\frac{1}{N}\left[(x_1-\mu)^2 + (x_2-\mu)^2 + \cdots + (x_N - \mu)^2\right]}, {\rm \ \ where\ \ } \mu = \frac{1}{N} (x_1 + \cdots + x_N),$a summing notation for Discrete Random Variables  or even

$\sigma = \sqrt{\int_\mathbf{X} (x-\mu)^2 \, p(x) \, dx}, {\rm \ \ where\ \ } \mu = \int_\mathbf{X} x \, p(x) \, dx,$
Continuous Random Variables ...

Whew!  Well you get it.  A calculator sure could come in handy!  Now look at that calculator up there!  What does it do?  VERY LITTLE!  And something similar is given out today as key chains!  Dr. von Mises predicted that!

Dr. von Mises was right of course.  Today much more sophisticated calculators are required in schools, a necessity even at younger ages, and you MUST have one.  Well, calculators and more!  And they are cheap!  A really good graphing scientific or statistical calculator now costs about \$11 in 1973 dollars.

They are cheap because market needs initiated market demands which spurred market forces to produce market-ready products which attract free market disposable income to make the product (whatever the product) more available and more affordable to the market.  There were a lot of different markets in that sentence!!  Which market was which?

THIS CALCULATOR EXAMPLE IS FREE MARKET ECONOMICS AT ITS BEST, SIMPLE SUPPLY AND DEMAND, AND CAPITALISM DEFINED.  WHEN LEFT UNFETTERED CAPITALISM PROVIDES THE MARKET WITH ITS NEEDS EVERY TIME.  AND WITH PRODUCTS BECOMING MORE AND MORE AVAILABLE, JUST AS DR. VON MISES SAID.

And all that calculator stuff was done without gubment intervention or control.  Gee, imagine that!