A good theory is good precisely because it is confirmed by practice. I constantly find examples in life of how the economy works as described by the Austrian School. Let us take, for example, taxis. I use their services constantly, since I live in a place that is rather questionable in terms of transport conveniences. Taxi is a wonderful illustration of several theses of the Austrian School.
Thesis #1: A competitive market is the democracy of the consumer. Since I travel practically the same route, it is quite easy to calculate the price increase. Since 2004, the price of my route has approximately doubled. At the same time, I should say that I take the minimum fare. The increase will be much smaller if we compare the cost of longer routes; sometimes I even have a feeling that they have become cheaper in absolute terms. I think it is unnecessary to say how much all other prices have risen during this time. If we add to this the decline in income even in absolute terms, then we can say that the real price of taxi service has fallen very significantly during this time.
Meanwhile, this market exists, and although, apparently, it is quite difficult to stay afloat in it, it is not noticeable that the quality of taxi service has deteriorated. This shows that, in reality, any good and service exists only because and only as long as they are needed by the consumer. Our public opinion, experts, and politicians are convinced of the opposite — that production is some kind of self-goal, that production brings profit by itself, and that the consumer is some object that mindlessly consumes everything that is foisted upon him. For them, the survivability of the taxi business under Ukrainian conditions and its ability to serve the consumer while lowering the price is an insoluble mystery.
Well, what about the rise in gasoline prices, inflation, as well as price increases for other reasons — after all, all this should affect taxi drivers’ expectations for their income. According to the logic that you will encounter everywhere economics is discussed, a huge rise in prices for all goods and services should lead to a proportional rise in taxi prices. However, this does not happen. “There is no such thing as cost-push inflation. Neither higher wage rates, nor higher oil prices, nor even higher import prices in general can raise the aggregate price of all goods as long as no additional money is provided to buyers for purchasing them,” said Friedrich von Hayek. And this is Thesis #2. Prices are not determined by costs. Price is the result of painstaking profit-seeking, depending on a multitude of conditions and, above all, on “circumstances of time and place.” Of course, costs influence prices, but this relationship should be depicted as “costs depend on prices,” rather than the other way around, as is done by us.
But what about, you will say to me, Hayek here clearly says that if money is provided to buyers, prices will rise. Our buyer is constantly being provided with new money, you will tell me, and the taxi price has barely changed. Correct, I will say, and this is Thesis #3. Value is determined by the personal scale of preferences. For buckwheat, our buyer is ready to pay more, but for taxi — no. For the time being, taxi is considered a luxury rather than a means of transportation, and there are significantly more people who think so. If there were more freaks like me in our society, taxi prices would have risen long ago, and buckwheat prices — no. By the way, after the New Year, taxis tried to form a little cartel and hold the New Year’s rate, which was about twice the normal one. It did not work. The buyer does not want to pay more.
The taxi example is an example of the amazing power of self-organizing cooperation among people, which is called “the market.” No matter what the state does, taxis still work and bring benefit to people at ever lower prices. I think with horror about what will happen if the plans for state intervention in this business, which periodically arise among those in power, are implemented. Then we will see both price increases and the absence of service… But for now — just go out without calling.