Tim Worstall takes a look at what sort of thoughts rattle around inside the head of the man likely to be Britain’s next finance minster, George Osborne. He does not like what he sees, and in the process, makes this vital point:
“What in buggery are “intrinsic values”? If we’re all the way back to Thomas Aquinas and “true value” then we’re about to march off a very steep cliff. For there isn’t and aren’t any such things. The value of something depends upon the value of everything else: we cannot say that 1 kg of gold is worth $12,000, or x tonnes of wheat, or y tonnes of fresh water or z numbers of smiling babies, without having some idea of the relative values of fresh water and smiling babies. Which in turn depend upon the state of knowledge (medical knowledge tells us what our forefathers did not know, that unfresh water leads to definitely not smiling and in fact dead babies) and the state of technology (how much effort do we have to put into freshening water to get smiling babies?) and indeed where we are at any one time (less effort if we’re by a clear mountain stream, more if we’re on a boat out in the ocean). Values are thus relative, always, all the time, not intrinsic.”
Or as PJ O’Rourke once put it when taking Marxist economics (surely a contradiction in terms, Ed) apart, the problem with the left, in general, is that they cannot accept that the value of anything in a market is ultimately no more or less than what a person wants to pay for it. That makes such leftists angry. Well, that’s life.
Of course I mostly agree with this, but a thought occurs to me. Recently I bought a classical CD, for which I would gladly have paid far more. To me, it is more valuable than its price. As valuable as its price? Absolutely not.
I think that is relevant to this somehow.
No, not very encouraging.
What Osborne seems to be trying to get at, if it is anything at all other than the wax in the deeper recesses of his ear, is the sense of ‘value of use for which people would pay in a free market’ – as opposed to ‘value which people will pay, not because it is worth that much to them, but because they speculate that they will be able to sell it on for that much to somebody else’.
This latter is usually pretty much what ‘the market’ is for; but there’s one condition under which it is harmful. That’s when it is a negative-sum game wholly dependent on other people’s ignorance – some of which may be deliberately generated for the occasion. This looks like value-destroying rent-seeking. Pyramid a few levels of this on top of each other, and you have a plausible generator of irrationality.
In this case ‘true value’ makes most sense as simply the value towards which the free-market price would trend, as the levels of rationality and information amongst market participants approached perfection. Why the Government of all people should be able to divine this is more than I can say.
I suppose that a regime of chaotic price fluctuation or bubble-like boom/bust could be considered as evidence that noise in the market is effectively overwhelming the usual signals, and that the nature of the product itself has become pretty much divorced from what it trades for.
The noise introduced by some technocrat’s substituting an estimate based on the labour theory of value, adding assumed social utility, and subtracting twice the number they first thought of, is on the other hand quite negligible. Some Expert told me so!
“Obviously, we are in favour of tax credits” — yet more proof that there is no meaningful difference between parties.
Intrinsic value may not exist, but relative value isn’t to be sneezed at. It was the fact that the price of houses got completely out of sync with their relative value that caused the housing bubble to collapse, and in fact caused the housing bubble itself – along with every other bubble from tulips on.
Intrinsic value may be a mistaken concept, but it’s nothing compared to the mistaken belief, loudly proclaimed by those who stand to make a short-term profit from it, that value is the same as price.
I think there is such a thing as intrinsic value – it’s the value judgement, item by item, of the one who is most willing to impose his static valuation upon others with whatever Force is necessary. I am hemmed in on all sides by people and their totems – the public policies of the last 100 years have been driven by such.
A bit obtuse, but it serves as another example of the libertarian dilemma – we know full well how value judgements ought to be made. The relative nature of one use versus another, opportunity costs, subjective value systems of one person versus another, and how free markets and a broad cultural spectrum can best allocate resources. But the reality is we live in a world filled with people who can’t. And those who can’t typically resort to Force and fall so easily into ends justifying means. Sometimes it just isn’t enough to know you are right when the one who is wrong is routinely cracking you over the skull and can get away with it. Legality today is simply the undefeatable holders of Force and their mystic visions that draw them to the Power Supply in the first place.
Operationally, intrinsic value exists because it has effect.
To me, it is more valuable than its price. As valuable as its price? Absolutely not.
On that basis alone rests the miracle of free exchange which makes the world a better place though each thinks only of their own benefit.
For to the seller, the money was more valuable than the CD. As valuable? Absolutely not.
But in this way both seller and buyer are made better off (at least in their beliefs) and the world is made a better place by the sum of the differences in value gained by both buyer and seller.
I hasten to add (and to make my comment more appropriate to the thread) that if the world worked on intrinsic value, then all exchanges must have winners and losers and nothing on net would be gained by the exchange. Indeed, the more exchanges that are made, the worse we would be as exchanges are themselves costly.
But with relative value, free exchanges are always a positive sum game (in beliefs).
Porlock – I should accept your correction there: I spoke about price as if it were interchangeable with value received by the purchaser, and of course it is less by assumption. Were they equal, then as per Brian’s point, everybody would ideally be perfectly indifferent as to whether they ever bought anything or not!
If a price is, rather, the signal of exchange value over a trading community which is normally calculated by the market, and we can recognise when the signal is being overwhelmed by noise – what signal can we use for relative value then?
My amateur’s intuition is to assume that exchange value is no longer well-defined over that marketplace at all: “This is a bare bullshit market. Either I go in and play poker, or I buy and sell tulips solely on the basis of what they’re worth to me. Otherwise, I’ll come back again when people are talking sense.”
Of course this doesn’t work if the Government values the tulips on the basis of the bare bullshit price, and smacks me with a fat cat tax of £10,000 for every bulb that ends up in my humble border.
Can anybody offer a less… lazy… solution than mine?
Clean water has value to me, generally delivered at not more than 35 psi, subject to my control.
At certain times, I might want it delivered at 100 psi, and not much care how clean it is.
I’d not thank you for delivering clean water to my person as a jet of live steam, no matter how thirsty I was.
Gold also has value to me. I pay many thousands of dollars an ounce for it to be delivered. In the case of Gold, I like it as a very thin layer across bits of copper I’m also procuring. As with water, it has no value to me outside its desired delivery, and even less when delivered in an undesireable manner.
If NOTHING has intrinsic value then EVERYTHING has a value that is determined according to its place in teh market – which leads us amongst other things to slavery.
I understand that slavery happens, and that when it happens the price of slaves. like everything else will vary according to the balance of supply and demand. Are we to say however, ‘Well that’s market forces’ or do we act in some way against slavery?
If we act, then are we not attributing a value to a human body that does not come from it being traded in the market – which seems pretty close to having a sense of intrinsic value?
Whilst this topic is largely a matter of misplaced semantics; some refreshments may be appropriate:
As JP well knows, there is the very valid concept of Intrinsic Value in the field of securities (equity) investments.
Being a few years older (but a damn site less successful) than Buffet, and also a student in the same era of Graham, Dodd and Baker, but with a lot of M&A callouses – Yes, Tim, there are measures that justly bear the label of Intrinsic Value.
The use of that term in a critique of the error of equating it to Market Price, absent more, is not a dreadful or dreadable sin, really, is it?
As to Behavioral Economics, all Economics is behavioral. If not, that bit of light reading on the subject, Human Action by von Mises needs be struck from the Libertarian reading lists.
If NOTHING has intrinsic value then EVERYTHING has a value that is determined according to its place in teh market – which leads us amongst other things to slavery.
Only if you view humans as things. Humans are humans, and things are things. That remains a fairly clear distinction for now, though I suspect it may not remain so for long.
Dishman, good point.
Ian:
Ok.
If we act against slavery (presumably because we decide it is a social good to do so) then slavery, as such, is no longer a market or value question. George Osbourne is clarifying that ‘intrinsic value’ is nonsensical, when value is considered a snapshot of an exchange for goods or services.
Indeed. But you knew that already, didn’t you?
I’ve come to think that a basic difference in politics is between people who think in terms of needs and people who think in terms of incentives.
Ummm – seems to be more than a bit of folk being anti-semantic around this topic …
Your average chip shop black pudding has an intrinsic caloric value – as well as an intrinsic nutritional value – and the two may or may not be related …
An intrinsic value exists when something has a value in and of itself in a particular situation or context … no more, no less … (yeah, yeah, unless we consider meta-context, too … (sigh)) …
What is the intrinsic value of a libertarian’s integrity ? Pretty high, usually …
What is the intrinsic value of NuLabour’s integrity ? Is there a unit that small ?
I could suggest that very few things have intrinsic value which match their extrinsic value … a penny, perhaps ? Except even that fluctuates depending upon the then-current market value of copper, for example …
Dishman’s response to the slavery analogy is current – yet ignores the fact that, about 400 years ago, humans in many areas were simply just another commodity unless they were People of The Book … everyone else was some form of kaffir (and it didn’t mean “black”, except coincidentially) …
There is reasonably good reason to believe that, in certain parts of Africa even as we type and read, some human group of people is being treated as a commodity, merely things, by some other group of humans …
Is this all part of the relationship between wealth and money and value and price?
Getting back to basics, if I have a ten fish, nine of which will go bad before I can eat them and you have a hundred bananas, ninety of which will rot before you can eat them, I can swap you a fish for ten bananas and we both get something out of the deal. If Tim then comes along with ten coconuts then we’re starting to get a bit of a market going here. If Charlie the builder comes along and offers to build me a house for a regular supply of fish and Jack the electrician offers to install a fridge, calculate:
a) The price of fish.
b) The value of fish, (intrinsic and extrinsic)
c) How long before the village Chief starts taxing me.
Alasdair hits the nail on both semantics and slavery.
BTW, humans are still as much a commodity as anything else in the West as well. They have a market value, it is directly related to what we call ‘cost of labor’, among other things (like normal human relationships, such as marriage or friendship). It’s just that we have come to realize that in the modern context (technology not being the least of it) this particular commodity is more optimally utilized in ways other than slavery.
Alisa, human beings have something else intrinsically that no other candidate for ‘property’ has – they have the same kind of agency as their would-be owners. Other kinds of property are, to a first approximation, inert. Human slaves have their own agendas, and are capable of understanding their masters’ and screwing with them. The bravest and best of them are apt to be looking out for some chance to do so most permanently.
That makes ‘human slavery’ much more like a tradeable right to coerce certain targeted players at will, than the phenomenon of the other player’s themself being turned into a stake. The other sort of commodification you speak of – by voluntary contract – is maybe better likewise regarded as a limited right to enforce damages, if the ‘commodified’ party breaks a promise to use their agency to provide the labour-commodity agreed.
I realize you’re only using a common shorthand for these cumbersome things, but I think it’s a shorthand which has pernicious side-effects on both sides of the political/economic divide. I’d rather employers and employees got into the habit of thinking of themselves as buyers and sellers of promises, than as chosen masters on the one hand and wage-slaves on the other. Liberty and honour are hard sells to people whose livelihood and identity get all bound up with their opposites…
There is a word for a group of libertarians, on a thread about the presumed future Conservative Chancellor of the Exchequer, discussing slavery. I think that word is ‘ironic’.
It is fascinating to note how the commentators here can take two words out of the context of the use made of them in other discourse and proceed to structure other intensive and extensive meanings for those words.
Here, is the original context:
But perhaps most significantly, the crisis has finally put to rest the assumption, which underpinned Labour’s entire system of financial regulation, that individual behavior is always entirely rational and that market prices always reflect intrinsic values.
The statement is that there has been an assumption for purposes of financial regulation that market prices always reflect intrinsic values.
In the context of financial regulation, which generally deals with the conditions for the transferability of assets, use of the term intrinsic value as related or compared to market prices does not imply any other application of that term.
Would we stretch the statement: “Laws are clearly written in black on white;” to imply some racial application?
Those interested in Value Theory, a popular topic back in the ’40s, might enjoy The Realm of Values, by Ralph Barton Perry – probably as good a summary of that area of thought as anything that will appear here.
Those looking at the “markets” aspect might want to follow Tyler Cowen’s “Markets in Everything” entries in his blog Marginal Revolution.
That is the end of today’s pedantry from here.
Gray:
I’d rather as well. I’d rather people didn’t use drugs, but reality is hard to beat, isn’t it? Besides, the master-slave relationship you describe is by no means as prevalent as some would have us think, and certainly not what I was talking about. My point was that in all our relationships with other humans, we “rent out” some part or aspect of ourselves, to various degrees. The only way our rationality (agency) plays into this is that it makes these relationships truly workable when voluntary. It other words, and in response to Dshman: humans are things in that they have value. They are different from other things in that they are capable of rationality. This, of course, is a huge and crucial difference, but it has no bearing on the fact that they have value, and if anything, it tends to increase whatever value they would have had were they not rational.
Alisa: it’s an interesting idea that we rent out aspects of ourselves, but in my view it’s an attractive will-o’-wisp that tends to lead us into bad places. I think we are more like inalienably self-owned property, and that the value we give to others is better thought of as transferable goods and services – our intrinsic value being nothing but our own self-worth.
I have a truly excellent justification of this view, but unfortunately it is too large to fit in the margin of this Internet. I can only hope that one day I shall understand it so well that I can put it into one paragraph…
Nothing leads us to those bad places, we go there out of our own free will – we are agents, remember? And just because we don’t like an idea, doesn’t mean it’s not true – and vice versa.
You could say that about any other thing of value. You could say that it’s not the computer on which I type this that I value (at what is it these days, a few hundred bucks or so?), it’s the services with which it provides me (in this instance the service of enabling me to communicate with you) – and you would be correct. If the computer was a rational agent, buying it wholesale wouldn’t be as good a good deal, and I would have to buy the single services instead, kind of like those of a postman or a telephone operator in the not so distant past.
Just our self-worth, we subjectively value ourselves in the same way we value others – nothing intrinsic about that.
Gray, I would just like to refresh our memory regarding Ian’s original comment that prompted mine:
My point is that indeed nothing has intrinsic value and the value of everything is determined by the market. However, this is not what leads us to slavery. What leads us to slavery is ignoring the fact that humans are rational agents. Hope this clarifies anything in my POV that may have been unclear.
Alisa, I think we are indeed coming from different places, though to mostly similar destinations.
Firstly, we simply don’t agree on whether ‘renting out aspects of ourselves’ is a model which yields good predictions or bad ones. I think it will lead us to bad places for the same reason Ptolemaic astronomy or Keynesian economics will – because, though superficially attractive, it is wrong at a really fundamental level. Intuitively, I suspect the problem with it is more like the problem with geocentric astronomy – that it is a model which could be consistently used to get valid results, but that its perspective is so haywire that it generally won’t be.
But it’s frustratingly difficult to come up with a cogent account of why I believe this. I know I’m missing something, and I’m fairly sure it isn’t what you think I’m missing. So I’m compelled to beat a strategic retreat on this point, leaving you in possession of the field, but without being ready to surrender the cause.
On your second point: value is a function of each agent’s subjective preferences and not determined by the market – except in the sense of price’s being a public signal of transferable value over a trading population, which efficient markets tend to calculate accurately. Now, I think we’re using the words ‘intrinsic value’ in different senses. In your sense, as I understand it, there is no intrinsic value because agents with different preferences would get different values from the object. In my sense, there is just one kind of object that has intrinsic value even in the absence of a trading population, and that is an agent which has value to itself.
You’re right that self-worth is one instance of the valuation ability which enables the agent to value everything else. Which brings us back to my point that it isn’t like tradeable goods, precisely because it has a valuation system of its own. You say that is a rational reason not to own it: I say that is a rational reason to analyse it in terms of owning-subjects rather than owned-objects.
Your flattening treatment of my category distinction indeed leads you to a conclusion which is nearly the same as mine – but it does so in a way that feels deeply off-kilter. It is as if a chess-analysis were to treat pieces and players both as ‘chessmen’, and then sagaciously prove why White Queen to Black Eye One is a categorically bad move. It’s true, of course… and yet…!
You are all missing my point, which is that by resisting slavery (and even the idea of slavery), we are recognising that human beings have a value that is not set by the market. It is different to the value of a slave. The value of a slave is set because the slave owners do not recognise their humanity.
Fair enough, I’m sure we’ll have another opportunity to get to the bottom of this. I’ll just add a note: for the purposes of this discussion (as for many others) I am not concerning myself with good or bad, only with true or untrue.
It is much simpler than that: market=exchange of values. Values are not signals, they are the market. (Yes, they are indeed a function of each agent’s subjective preferences, but that is beside this particular point.)
All values are independent of the trading population. I value my PC at so and so, regardless of what the market says. When my evaluation of a commodity is more or less consistent with what the market says (i.e. the evaluation of the same commodity by others), then there may be a deal made, if not, then probably no deal. Another example: I might like this one guy who every other woman thinks is of as rather unappealing. I might even marry him. Everyone will say I’m crazy, but I happen to like him (no, not a true story:-))
But that in itself proves nothing, since every kind of commodity demands a separate valuation system: we don’t value oranges and apples through the same system we value cars or girlfriends (;-P)
Not only did I not flatten your category distinction, I fully acknowledged it. It’s just that in my view this distinction is relevant in ways different from the ones you (or maybe even most people?) think it is.
The reason I think that your chess analogy does not apply is because a chess game is not a free market: it is an interaction between two individuals, governed by arbitrary rules. (The fact that the two players entered into this interaction voluntarily does not change that).
Ian, I see your point, but there is a mistake in your statement: values are not set by the market, prices are. In any case, I apologize if my ramblings turn out to have nothing to do with your original comment – I still enjoy rambling though:-)
Alisa – you said “values are not set by the market, prices are” which is more or less my point – it is I think Tim Worstall and Johnathan Pearce who are equating them. See below:
“they cannot accept that the value of anything in a market is ultimately no more or less than what a person wants to pay for it”
I don’t think they are doing that, Ian. It’s not that values are absent from the market, not by any means. What I think TW and JP are talking about, at least in the quote you chose, is the point where price is determined by value. The two are closely connected (the former is the function of the latter), but they are not the same thing.
Oops, just reviewed the thread and found two contradictory statements by yours truly. The following one at January 31, 2010 12:42 AM begs for a correction:
The value of things is not determined by the market, but rather by individuals who participate in that market. It is the price of things that is determined by the market. Mea maxima culpa.
I suppose that values are like moral judgements, individual things. Even though prostitutes put a price on their bodies, I have inner spiritual values which mean that I have never paid this price, and I don’t think I ever will.
ECONOMIC value (we are not dealing with any other sort of value here) is indeed subjective.
Indeed the subjective nature of economic value is a basic OBJECTIVE economic law (no contradiction).
As for George Osborne – Mr Osborne is a mixture of ignorance and arrogance.
Either of these things is not fatal on its own. For example, I am an arrogant man (although I hide this under self mockery), but I am not ignorant – indeed I have spent decades in hard study of the matters we are dealing with.
On the other hand an ignorant man who does not pretend to knowledge causes no great harm.
But an arrogant man who is also ignorant – such a person is terrible.
Mr Osborne is such a man – but there is also the matter of the person who appointed him to his present position.
Mr David Cameron.
It occured to me that I should not be bigoted and (therefore) should read the article – even though I have read stuff from Mr Osborne before.
I wish I had not read the article.
The problem with the regulatory structure the Labour government put in place was that “assumes people are rational” . So the cause of the economic crises is not the increase in the money supply and how it was directed into the American housing markte products (both policies of government) – it was the animal spirits of investors (or whatever).
Oh dear.
And there are other such gems.
For example “obviously we are in favour of tax credits”.
I will not go on.
Alisa – Having spent a couple of highly profitable days thinking over your points, I must make a partial capitulation on substance. I still think commodified agency is philosophically a rotten concept, and therefore both false in fact and bad in general application. But I can no longer maintain that it’s bad in all applications.
Specifically, your use of it as a model for common market transactions was better than the model I was defending against it. Not only did it force me to (eventually!) come up with a much more coherent alternate account of servant and professional relationships than I’d begun with, but also it now seems to me a simple and fruitful way in itself to attack several rather important problems. Thank you for a very helpful conversation.
One misunderstanding only left to correct: I wasn’t at all suggesting that people weren’t like oranges because we have different systems for valuing each; but, conversely, because they each have different systems for valuing stuff. Specifically, that oranges have a boring null value-system and people don’t. That was my way of getting to the ‘player/pieces’ category distinction.
Well, I now accept that there are contexts in which unifying the two categories is a good way to discover some truths.
Thank you Gray, I enjoyed it very much, and it’s really nice to be agreed with by reasonable person:-)
I’m not sure it’s the agency that is being commodified in my model (although, at least theoretically, agency certainly can be commodified), but for some reason my brain refuses to refocus on the subject right now…Like I said above, I’m sure new opportunities to revisit it will present themselves in the future.