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Source link: http://archive.mises.org/15585/subjective-value-and-market-prices/

Subjective Value and Market Prices

February 7, 2011 by

Precisely because value is subjective, voluntary trades are win-win situations. At the same time, market prices are objective measures of wealth, and these allow for rational economic calculation. FULL ARTICLE by Robert P. Murphy

{ 49 comments }

Dave Albin February 7, 2011 at 10:37 am

Printing money or selling government bonds makes us all poor – printing money increases the money supply relative to goods and services, causing inflation; government bonds suck resources from the private sector when they are cashed in (there is no bond account somewhere to pay for them). Gold takes care of the printing money problem – what can be done about bonds? I’m afraid that the government will always find some way to fund what it wants to do. They can always increase taxes, too, if they must. Taxes just make us poorer sooner rather than later.

Shay February 7, 2011 at 11:14 am

Furthering your point, at the end of the article the author asks:

Perhaps it would help gold bugs abandon the dream of resurrecting the past to find the future by pointing out one simple fact: if we’re going to peg everything to gold, what is it that we’re going to peg gold to?

Gold is inherently pegged to the fact that there is a relatively stable amount of gold in existence, which has only gradually increased over the centuries.

nate-m February 8, 2011 at 6:22 am

Gold is a commodity and in that has it’s own intrinsic value beyond simply being money.

That is now Gold has value, but it’s not a money currently. People use it to barter and use it as a investment, but that is the same with all sorts of other commodities. The value of Gold is ‘pegged’ as a commodity with relative market value to all other commodities. It’s desirable for jewelry, electronics, decoration, and all sorts of other things beyond just being a common medium of exchange.

Any material good (like Gold) that can be universally accepted as medium of exchange in the marketplace has a strong chance to become money. I don’t see why we need Gold to be the _only_ money out there. There are lots of potential sources for exchange. With modern technology and world wide commodity markets it’s now much easier to do effective accounting with many different types of commodities.

The old boogie man against using Gold money is ‘What would happen if a society ran out of Gold?’ ‘What if a economy grew faster then the supply of Gold?’. The idea that Gold becomes so scarce and so expensive that it’s no longer practical to use as exchange and it’s value becomes inflated (or the money becomes so deflated) that vanishing small amounts are required for proper exchange. If we are running around exchanging flakes of gold dust then that’s obviously not going to work out.

But I don’t think that is something we need to worry about anymore, if ever it was a issue.

F. Beard February 8, 2011 at 2:49 pm

The old boogie man against using Gold money is ‘What would happen if a society ran out of Gold?’ ‘What if a economy grew faster then the supply of Gold?’. nate-m

It’s not a boogie man. It’s absurd that an economy should depend on the mining rate of a precious metal. But if you counter that gold approximates a fixed money supply then there are problems with that too:

1) Assuming that all money is put to work at all times collecting interest then where shall that interest come from?

2) Assuming that all loans entail risk then why should anyone invest when a fixed money supply and a growing economy imply a risk-free return for hoarding? But if no one loans out their money then how shall there be economic growth? So economic stagnation is to be expected with a fixed money supply.

Furthermore, “commodity money” is a contradiction. If used as a commodity then it is not money and if used as money then it is not a commodity.

The only real hope for gold as money is some sort of government sanction (privilege) for it. But since the raison d’être for gold as money is to escape predation via government fiat then that hope is a hypocritical one.

RS February 8, 2011 at 3:56 pm

1) interest is the clearing rate between consumption and savings, zero consumption is physically impossible as people who live in the real world (as opposed to floating in the clouds of abstractions) have to eat.

2)see answer to #1

money is a medium of exchange. medium as in intermediate. exchange as in swapping of things. put them all together and you have money as the intermediary used to exchange things that people produced that other people want.

next time, use a dictionary before posting such silliness

F. Beard February 8, 2011 at 4:14 pm

1) interest is the clearing rate between consumption and savings, zero consumption is physically impossible as people who live in the real world (as opposed to floating in the clouds of abstractions) have to eat. RS

So people consume, what of it? What will happen to the money they spend to consume? Will it not go from one interest paying account to another interest paying account? So where will the interest come from with a fixed money supply?

money is a medium of exchange. medium as in intermediate. exchange as in swapping of things. put them all together and you have money as the intermediary used to exchange things that people produced that other people want. RS

It could also be a store of wealth. Common stock is ideal for both purposes and needs no government privilege as gold does.

RS February 8, 2011 at 5:08 pm

“What will happen to the money they spend to consume?” F. Beard

The money is returned to the investors who used it to produce and distribute the consumed goods. they in turn can either re-invest it or consume it.

All this is very basic. May I suggest you read Economics in One Lesson by Henry Hazlitt? I believe mises.org has it in pdf for free or you can buy it new on amazon. I highly recommend as I am sure anyone else on this site would as well.

Matt C. February 7, 2011 at 10:47 am

I still want to know if economist believe in transfinite utility.

Phinn February 7, 2011 at 10:52 am

>>>There is, however, one exception to this rule. Curiously enough, it involves a standard that is as old as weights and measures themselves.

There is a reason that the Currency Clause is located in the Constitution at its particular spot. Here’s what it says in full:

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures

What does the value of money have to do with weights and measures? Everything! The value of money is as much a matter of weights and measures standards as are gallons of whiskey or pounds of tobacco leaves or a cord of wood.

The “value” of a coin is a literal, scientific, objective assessment of the physical quantity of the given metal in it. That’s it. That’s all it is. It’s no more complicated than that.

Because metals are alloyed, however, in order to evaluate the actual content of the given metal in the coin, you need two dimensions — weight and purity. The less pure the mixture, the more it needs to weigh in order to arrive at the desired quantity of the desired metal. So, when it comes to coins, we need a binary weight-and-measurement, but it’s still a matter of objective weighing and measuring. In coins, this is called assaying. It’s a function of metallurgy, aka chemistry.

The reason I cite the Constitution is not that I am promoting it, or think it’s authoritative in any way. The reason I cite it is to show that this weights-and-measures definition is what “value” used to mean in the 18th century.

So, in a strict, literal sense, the term “value” makes sense ONLY when applied to coinage and bullion. When we talk about the “value” of a shirt or a pair of shoes or a parcel of land, we are not literally talking about it’s value (i.e., it’s chemical composition), but rather a kind of metaphorical value — how much bullion (of a given chemical composition) it might be possible to trade the non-coin thing for. (Which, of course, people only want because they can trade that bullion for something else later.)

Over time, this metaphorical meaning of “value” became the primary meaning. But it’s not. The use of the term in its metaphorical sense (i.e., as to markets or trading) assumes that there is only one objective trading price for the thing in question, just as there is only one correct chemical value for a coin. It implies that the price of things in the market is an objective, scientific property, as opposed to a matter of preferential social action.

However, when one gets back to the actual, literal meaning of the word “value,” money makes a lot more sense — it’s just another physical commodity, with weight, capable of being measured, not some abstract word-bound concept.

The literal meaning of “value” also does not require us to rely on terms like “subjective value.” The use of the term “subjective” here is merely a means of un-doing the metaphorical, non-literal, abstract use of the word “value.” What we are really talking about when we say “subjective value” is something akin to “desire” or “preference,” which everyone instantly understands is inherently subjective.

But to say “subjective value” is to both accept the metaphorical, pseudo-objective meaning of value (misleadingly applied to things that cannot have a chemical value), and to also try to undo that misuse of the word by calling it “subjective.”

I suppose one could talk about “subjective value” as long as everyone understands we’re not talking about value at all, or anything remotely as objective as value (a chemical property, capable of objective measurement), but rather something like “desire” or “preference,” but that seems to me to be the long way around. I think we ought to get away from the use of the word “value” altogether, and reserve it for what it actually means.

RS February 7, 2011 at 11:26 am

@Phinn

So does this mean that you merely “desire” or “prefer” making claims to know what all these things truly mean or does your knowledge come from something other than your “preference” for knowing things over not knowing them?

Anyone writing or commenting on this post needs to tell me how the “preference” or “desire” for knowledge becomes both subjective and true at the same time???

Phinn February 7, 2011 at 11:48 am

Before I get into the meta-discussion you are raising, I mean “preference” literally as well. I mean it in the sense of a person who wants some resulting state of affairs more than some other result. It is a matter of comparing two potential outcomes of some action, and making an assessment based on their relative merit, as perceived by the person making (or not making) the action.

This is what Austrians call subjective value — there’s no way to know what a person actually prefers until faced with the choice of at least two alternatives. As a result, preferences are not cardinal, but ordinal. Desires are unlimited, but resources are finite. So, choices have to be made.

Preferences are true and subjective. They are unique to the individual, they change in reaction to changing circumstances, and they are unverifiable, except through self-reporting and the evidence of the action that the person actually takes. If he is of sound mind, a person can be said to prefer whatever he actually does, as to whatever the options were to him at that time.

In the context of trade, a purchase of a good can only occur when the buyer prefers to have the good while losing the money more than the alternative (not buying, and thus saving the money for something else), and the seller prefers to have the money and lose the good more than the alternative (not selling).

In other words, for the trade to occur, the two parties’ preferences must be asymmetrical.

I simply think “asymmetrical preferences” is a more meaningful term than “subjective value,” considering what government has done to our money.

RS February 7, 2011 at 1:59 pm

Phinn,

You wrote: “It is a matter of comparing two potential outcomes of some action, and making an assessment based on their relative merit, as perceived by the person making (or not making) the action.”

Such an assessment presupposes the choice of the outcomes as well, what is left unstated is which outcomes are desirable or undesirable. Austrians refuse to acknowledge the teleological nature of such a choice. Yes, values are ordinal, but they are also teleological and contextual and none of these necessarily will make values subjective, they can be, but they do not have to be. it is a matter of choice.

So, you have in front of you a choice between two possible “states”, one where you choose to observe the world and gain knowledge and one where you do not. Is your “preference” for the former greater than the latter? Do you value learning truth or learning falsehoods (or not learning at all)? Is that a “subjective” preference? If you “prefer” one over the other then you must also “prefer” the outcome, which means you have knowledge of some teleological end you wish to achieve which you are using to “assess” i.e. to measure against. If you do not “prefer” either, if either truth or falsehoods have equally the same outcome then one would not have to choose? But, since they do not have equal outcomes it is tacitly assumed that one is “preferable” over the other but that fact is explicitly ignored by people who like to categorically assert that their choice of truth over falsehood is subjective.

F. Beard February 7, 2011 at 3:07 pm

When enthusiasts say that gold is “real money,” and that it provides a “solid foundation” for the economy — in contrast to fiat paper — what they mean is that commodity money emerged spontaneously out of the free market as traders placed a premium on goods of higher liquidity. In contrast, it took coercion for governments around the world to wean their subjects off of gold and silver and to foist paper notes upon them. Robert Murphy

Then it would be pure hypocrisy for gold-bugs to seek government sanction for gold such as the government accepting it for taxes. Yet some notable gold-bugs such as Gary North do.

The great virtue of commodity money — and the great vice of government paper money — is that the former cannot be easily produced. Robert Murphy

With an ethical money creation process that so-called virtue would be seen as a weakness. Suppose common stock was used as a private money form. Should a corporation need to dig up gold or some other commodity in order to issue new stock?

Its stability is dependent on physical constraints rather than the mere discipline of central bankers. Robert Murphy

What is needed is a true free market in private money creation with free market exchange rates between government and private monies. Under those circumstances, the government would only hurt itself and those who depended on its money (government workers, SS recipients, government contractors, etc.), not the private sector. In fact, government over issue would make taxes EASIER to pay.

RS February 7, 2011 at 3:36 pm

F. Beard,

There is a difference between a government accepting a commodity as wealth and government sanctioning a commodity (or not). Government needs to function in the real world just like the rest of us so it follows that it would need to accept the same form of payment that is generally accepted by the market, whether it be gold or garbonzo beans.

F. Beard February 7, 2011 at 3:53 pm

Government needs to function in the real world just like the rest of us RS

False. Government is FORCE. Pure fiat is thus the only non hypocritical money form for it to use. Any other choice is to favour some private interest.

so it follows that it would need to accept the same form of payment that is generally accepted by the market, whether it be gold or garbonzo beans. RS

Since your premise is false your conclusion does not follow. Plus, if the government accepts a particular money form then it confers by fiat additional exchange value to that money form thus insuring that it will be a major (but no longer private) money choice.

RS February 7, 2011 at 4:02 pm

F. Beard,

Government is force. ok. But not all force is necessarily bad. self defense involves force, is it hypocritical to defend yourself? no? then a proper government is one that acts as your agent of self defense, it is properly a “reactive” force only. If that premise is true then it must effect that defense through some means, which means it must accept payment for its services, services that are provided by people that live and breath in the real world, not some fantasy balloon world of floating abstractions.

F. Beard February 7, 2011 at 4:17 pm

If that premise is true then it must effect that defense through some means, which means it must accept payment for its services, services that are provided by people that live and breath in the real world, not some fantasy balloon world of floating abstractions. RS

Yes, the government must tax. But how shall it do so fairly and without distorting the
private sector? Either the government must accept ALL private money forms equally or it must choose NONE of them. Obviously “ALL” is impractical. So, the government MUST use its own fiat exclusively.

Gold and silver are for the private sector only, should they be able to survive there.

RS February 7, 2011 at 5:32 pm

Either the government must accept ALL private money forms equally or it must choose NONE of them. F. Beard

This is a false dichotomy. There is no reason why a government’s acceptance of one commodity or another will endow it with any special property that the market does not already grant. such is the case with gold. in accepting a commodity as value received for tax purposes it is only acknowledging what the market has already shown, it does not by itself grant that value by fiat, which is exactly what your system would make it do.

babybell February 8, 2011 at 4:40 am

A true free market in money which includes a government money?!! Do you seriously think that such a “true free market” will remain free for any reasonable amount of time? Pity the poor politicians, how will they feed their families?

F. Beard February 8, 2011 at 5:56 am

A true free market in money which includes a government money?!! babybell

I said a true free market in PRIVATE money creation. And as long as we have government then that REQUIRES a separate government money supply.

Do you seriously think that such a “true free market” will remain free for any reasonable amount of time? babybell

Yes, because if we ever obtain it will only be because a broad consensus will have been obtained beforehand. It should benefit everyone including the government.

Pity the poor politicians, how will they feed their families? babybell

Honestly for a change.

Phinn February 7, 2011 at 4:37 pm

>>>not all force is necessarily bad. self defense involves force, is it hypocritical to defend yourself? no? then a proper government is one that acts as your agent of self defense, it is properly a “reactive” force only.

If this agent imposes taxes, then it is not reactive. Taxation is aggression, by definition.

If this agency were reactive and non-aggressive, then it would accept as payment whatever it chose, but if there were potential customers who wanted to pay in some other way, then it would have opened a profit opportunity for a competitor.

RS February 7, 2011 at 5:36 pm

“If this agent imposes taxes, then it is not reactive. Taxation is aggression, by definition.” Phinn

Not so. A tax tied to a service would be voluntary, one example would be the document stamps people pay for recording deeds and titles or to certify a contract. you could choose to exchange property or deal on a handshake but the state courts would not recognize such in any dispute brought for resolution.

Peter Surda February 9, 2011 at 12:54 pm

Well then, if you make this assumption, the next logical step is that providers other than the state would also get the idea to offer similar services (arbitration, contract enforcement, defining standards and so on) for remuneration. Here, you have two choices. Either the government suppresses them, and thereby demonstrates it’s territorial monopoly on the initiation of force. Or the “government” does not suppress them and has to compete with them. In which case it would not be a government but a DRO and you’d have anarcho-capitalism.

RS February 9, 2011 at 2:06 pm

yes, but with one exception, which makes the whole difference between anarchy and the rule of law. private arbitration and contract enforcement would not have the option to use force, that would remian in the sole province of the government. no private company could force you to make good on renumiration but a state court could enforce its verdict. that makes the use of force a choice agreed to in advance, by paying the tax. dont pay the tax and the state has nothing to say or do for or against either party.

Peter Surda February 10, 2011 at 7:04 pm

There are multiple problems with that position.

First of all, in order to implement it, the government needs to violate the rights of people. They would require government’s approval to defend themselves or to hire others to defend them.

Then there is the problem of economic calculation. Without a free market, i.e. pressure from competition, the monopolist cannot rationally determine how to act to satisfy its consumers’ needs. This would in the better case lead to stagnation, in the worse to price increases and quality decreases.

Then there is the problem of how to determine the territory boundaries. Admittedly though, proposing a worldwide government fixes that. However, that makes the economic calculation problem worse, because there would be no more competition among states and no way of changing providers by moving to a different country.

Then there is the problem of non-sequitur. If force is bad, why is a territorial monopoly on force an improvement over the absence of such a monopoly?

Last but not least, it is a positive, not a normative argument. It explains how a government should behave, rather how it does behave. It assumes apriori that the government is the good guy. If the government is the bad guy, the system leads to a self-contradiction. And since the government does not consist of people with superhuman abilities and morality, it cannot beat the economic calculation problem and does not have to adjust its behaviour within competition, there is nothing preventing it from acting badly.

In summary, it’s a nonsensical position. Other than wishful thinking, I see no reason to take it. The government is either unnecessary or clearly harmful.

greg February 7, 2011 at 4:47 pm

The butcher is free to charge what ever price he wants for his ham, but if he wants to stay in business, he must charge the price the market sets for ham which is set by the current spot price of hogs. If he is paying the spot price for hogs, there will be sometimes he will make more and sometimes he will loose money. This is why many businesses lock in a price for hogs for a year to bring some stability to the prices. In the past, agricultural products fluctuated around the harvest cycle and you could easily predict future prices. However, today with increased trading activity in these markets, we are seeing wide price swings that the butcher has to deal with. And please, wait until the spring planting forecast are out before you say the recent run up in commodity prices is the result of the Fed’s easy money policy. Just like oil running up to $150 and falling to $40, commodity prices will do the same.

And this is the problem with gold, the price is set on the futures markets and it fluctuates simply on the trade imbalances. Plus you will pay $100 an ounce more for gold than you will get if you are selling it. If you are selling your gold ring to the dealer in a mall, you will only get about $800 an ounce. To me, this means gold is not a liquid asset. Whereas i can buy an sell stock in a company with a 1 cent spread and a $7 commission.

For me, i accept that the market as a whole sets prices and I make a living buying and selling stocks and commodities on these market prices. It is more about the psychology of the masses than the value of the individuals that gives you the price swings you can trade on.

F. Beard February 7, 2011 at 5:45 pm

in accepting a commodity as value received for tax purposes it is only acknowledging what the market has already shown, it does not by itself grant that value by fiat, rs

False. It is an old trick of bankers to win government acceptance for their private monies in order to add exchange value to them. That is how the BOE became so powerful.

which is exactly what your system would make it do. rs

Also false. Government money should be pure fiat, true, but only legal tender for government debts not private ones.

It’s all about counterfeiting, folks. Just as government should not create money that is de jure or de facto legal tender for private debts neither should private monies or private money forms be accepted by government since that amounts to private counterfeiting of government money.

And it’s not my idea. It comes from Matthew 22:16-22

RS February 7, 2011 at 6:23 pm

sounds like a scheme to get something for nothing. well, I guess that is nothing new….

F. Beard February 7, 2011 at 6:42 pm

sounds like a scheme to get something for nothing. RS

Many are seeking a windfall via government remonetization of gold. I’ve seen figures up to $27,000/oz.

well, I guess that is nothing new…. RS

It’s sad that many of those I thought were libertarian are, in fact, in favour of a different form of tyranny via government.

RS February 8, 2011 at 9:41 am

who ever said only libertarians can post comments???

Phinn February 7, 2011 at 5:54 pm

“Not so. A tax tied to a service would be voluntary, one example would be the document stamps people pay for recording deeds and titles or to certify a contract. you could choose to exchange property or deal on a handshake but the state courts would not recognize such in any dispute brought for resolution.”

I don’t care what the State arbitrarily chooses to recognize. Its authority is wholly imaginary and false.

The State has no idea what to charge for the
recording of documents because that “service” only exists for the convenience of state tax collectors and state courts. In the absence of the state’s unilateral commandment that only its own recording agency shall be deemed adequate, it would have considerably less income, and would have to offer an independently valuable service at a competitive price established by the market for it.

RS February 7, 2011 at 6:29 pm

If you choose to pay the tax then its “authority” would not be imaginary would it? If both parties “chose” to be “arbitrated” by the state then its authority is not “unilateral” and unlike a private non-binding arbitration, a person who did “unilaterally” break an agreement by fiat (wrong by your own standard) and caused harm to the other parties would not be able to just walk away without penalty as they would be able to do in any anarcho fantasy land.

Phinn February 7, 2011 at 11:24 pm

“If you choose to pay the tax then its “authority” would not be imaginary would it? If both parties “chose” to be “arbitrated” by the state then its authority is not “unilateral””

You have a perverted sense of what “choice” means. It doesn’t mean “compliance out of fear of retaliation.” If a man hands an armed robber his wallet, it’s rather disgusting to then hear the criminal (or his toady friends) say that the victim chose to pay.

It’s obvious that the important question is what happens to the people with sufficient self-respect and intelligence to see that the state is a mafia racket and thus refuse to genuflect before its

Eric February 8, 2011 at 12:19 am

I don’t think I buy the ordinal vs. cardinal aspect of subjective value. Let’s use the example in the article, a picture vs. a calculator.

I think that if you asked the owner of the photo how much more they value the photo than the calculator, one could measure it in this way:

Which would you value more, the photo or 1 calculator, or 2 calculators, or N calculators. At some point, there might be some number of calculators that are valued more than the photo and that would then answer the question of how much more do you value the photo over the calculator.

If we ask, which would your prefer, a photo or N-spoonful’s of cereal for breakfast, we might even be able to break free of the price one would get by selling the calculators. After all, 1 spoonful of cereal for breakfast is not very satisfying, while many (say, equal to a bowlful) might be more satisfying than the photo. It’s still subjective and depends on who you ask, but I believe it’s possible to determine a cardinal value, not just an ordering of value.

RS February 8, 2011 at 9:31 am

Eric,”Value” presuposes an “end” or “goal” to be achieved, the “value” one places on any choice of action, good, or service is in fact, contrary to the article, a measurment estimation that relates the concrete object (such as a photo or a calculator) against the abstract end or goal chosen by the actor. The abstract end or goal serves as the standard against which the concrete is measured against. The degree to which the concrete advances or frustrates the achievement of the goal determines the value one places on it and in relation to any known alternatives, usually in an ordinal estimation. that is why values are teleological, heirarchical, ordinal and contextual. Moreover, also contrary to the austrian theory, the choice of ends does not necessarily have to be subjective, it can be (and usually is), but it does not have to be. People are free to choose subjective or objective goals or ends, the subjective or objective status of the values derived will follow accordingly.

Colin Phillips February 8, 2011 at 9:39 am

Wait, if you’re “free to choose subjective or objective goals” – doesn’t that imply you need to make a subjective value judgement of which goals you want to work towards? Is there a way of objectively preferring one subjective value over another? I don’t think so.

RS February 8, 2011 at 9:57 am

This is like asking “is there a way to choose an objective or subjective standard to measure length or weight”? there is no fundamental difference in choosing a standard of measurment to determine a physical lenght of wood or a standard of values to determine a choice of action. both are done by observation and inference of facts. if the purpose of any measurement is to gain knowledge of reality, then the objective status of the standard is determined by how well its results correspond to reality. the same holds true for any standard, including a standard of values. ask yourself “what is the goal or purpose of actions taken by any living entity”? all living entities act to survive, life is the purpose so life is the standard, that determines all values to all living entities. humans have the unique attribute of volition that enables them to act against their own life, which many take as proof that there is no relation between is and ought. but that is just an evasion of the facts.

Colin Phillips February 8, 2011 at 10:40 am

I don’t agree. You seem to be arguing that
a) every act can be objectively measured along a scale of “does this make me live longer”,
b) that people actually work this way, rather than having preferences for, say, tea instead of coffee
c) there is no difference between a preference for one configuration over another, and a measurement of a configuration.
I don’t see any justification for those assertions either.

In Eric’s example above, do you think at each question the owner was making a measurement estimation of “which is most likely to keep me alive, this photo or 5 calculators” ? I think it’s far more likely that humans each have a unique (changing) constellation of needs and desires (some might say a “hierarchy of needs”), and that they try to maximise satisfaction of each of them at the lowest possible opportunity cost for satisfying the others. At least, that is a useful model that actually helps explain something. That’s what is meant by “subjective” – it’s a personal valuation against a personal standard, a standard which is, to some extent individually chosen. There is no objective way to determine what that personal standard *should be*, unless you’re in a ridiculously simple scenario (“Should I shoot this axe-murderer or not?”), and even then, it can get complicated (“No, because she’s my wife”).

RS February 8, 2011 at 11:23 am

a) No, its more like, “does this choice/action improve/advance/fulfill my life as an end in itself or will it harm/detract/reduce my life”. of course “my life” means the whole life in its entirety, not just one moment or short term gain at the cost of long term loss. value is something that one acts to gain and/or keep, it does not exist apart from the living entity that acts to acquire it for some use or purpose. you would not claim that “time” or motion exists apart from entities that move, well, “value” does not exist apart from living acting entites.

b) + c) personal preferences are unique to the individual just like fingerprints but that does not make them subjective. on the contrary, acting to fulfill those personal preferences because they are personal can be objective with thin larger context as long as they do not frustrate the ultimate end. so a personal preference for tobacco or sugar can both be objective values as long as they are used withing the larger context. a failure to apply the stanard properly will result in cancer or obesity while a personally calculated moderate and measured use allows for a lifetime of satisfaction. most people call this excercising personal judgement and respnsibility and recognize this as a proper virtue, they do this because it is inherently an objective and rational practice.

J. Murray February 8, 2011 at 11:50 am

Some individuals may not be concerned with maximizing the length of time of life, so stating there is an objective standard behind sugar and tobacco is incorrect. Many notable individuals found it preferrable to live fast and die young, like Freddie Mercury (see his song “Who Wants to Live Forever?”) or Jimmi Hendrix. Many individuals do conclude that consuming sugar, drugs, tobacco, etc, are superior to the end-result effects because they place a higher priority on the here and now than in the future.

Subjective means that the set of criteria is different between individuals. Objective means it’s a universal set of criteria. Saying a television screen is 50″ is objective, saying a 50″ television screen is optimal is subjective. You may be able to rationalize the purchase of a 50″ screen (viewing distance, budget, etc), but that doesn’t mean someone else can equally rationalize away a larger or smaller screen in identical circumstances.

RS February 8, 2011 at 1:59 pm

@ J. Murray,

You wrote: “Subjective means that the set of criteria is different between individuals. Objective means it’s a universal set of criteria. ”

I would agree as that is the basis for my argument however, it does not follow that a choice of criteria necessarily disqualifies it as a universal i.e. objective. Objective is a universal set of attributes, life and volition are both universal attributes of man, they are not mutually exclusive. Establishing the length of a TV requires the selection of some standard. So does establishing values. Just as lenght is an attribute of any physical object, life is THE attribute of any living organism and volition is an attribute of man. They are all universals. Once can “choose” to measure lenght by weight or color or shape just as one can “choose” to measure values by family, god, race, color, community, tribe or country but that does not make it true nor will the expected outcomes match reality. Most people undersand that the color of an object has nothing to do with its legth but there are many racists in the world who view the color of a persons skin as indicative of thier values. In both cases the result is wrong because it is subjective.

Colin Phillips February 8, 2011 at 9:36 am

I don’t think so. In your calculator example, you would only know that the photo is worth less to the person than N calculators, or N spoonfuls of cereal, but it doesn’t necessarily follow that the photo is worth less than 1/N times the value of 1 calculator or 1 spoonful. To do that, you’d need to know the ratio of subjective value between 1 calculator and N calculators, which is not necessarily 1:N.

Eric February 8, 2011 at 1:19 pm

Even if the values are only approximate, I think it’s possible to say that I want something much more than another thing, vs. Hmmmm, I think this is a tough choice. I know that I would prefer (or value) a new car many times more so than a new pair of socks. This choice vs. a choice of a new pair of red socks against a pair of white socks seems more than simply an ordering of choices. If this isn’t a measure of cardinal preference, then I don’t know what to call it.

Now when you throw in the cost of each item, I think it makes a difference, because then your are comparing N dollars to M dollars. But let’s say my house and garage are on fire, I know that I would much prefer to save the car over the socks. If it got down to the color of the socks, I don’t think I’d be able to say the same thing.

I’m only arguing that I don’t think that cardinal is completely irrelevant (or impossible) as do Mises, Rothbard, and now Murphy.

Colin Phillips February 8, 2011 at 5:15 pm

You might prefer a car to a pair of socks, but since you can’t express your desire for socks in terms of your desire for cars, it is ordinal – there are some needs that cars can satisfy that socks cannot, and vice versa. To say that X socks provides the same satisfaction as 1 car implies that the two goods are valuable to you for meeting the same need, at different rates per unit. There are hundreds of other products as well, and millions of combinations of these products. Each combination will be more or less effective at meeting a variety of needs. Therefore, you could theoretically rank each combination according to preference. But to assign a cardinal value to each preference implies that multiples of each combination should provide multiples of that cardinal value. Preferences just don’t work that way. If you need a car to drive to hospital to treat your burns, no amount of socks will convince you otherwise.

Allen Weingarten February 8, 2011 at 8:02 am

Subjective values are obtained from ordinal values (placing individual preferences in a hierarchy), while objective values are given by cardinal values, deriving from subjective values by supply & demand. One can simply watch children trading baseball cards, marbles, and coins, to see how this occurs.

George February 8, 2011 at 3:07 pm

Why does it make no sense to say that she values the photo twice as much as the calculator? The author seems to be saying that such a statement is impossible to make, but people do it all the time…

Allen Weingarten February 8, 2011 at 4:42 pm

George, if she would pay $10 for a calculator, but $20 for a photo, it is sensible. However, if the price of the calculator became $5 or $15, the same relation need not hold. Moreover, the values at a given point in time fluctuate, as does the ratio of their values. In the end, the way that supply & demand operate is not by using those ratios, but by the relation between the individual preferences.

Also, would you say that you like Shirley twice as mush as you do Jane, even if you said you would spend $50 on Shirley, but only $25 on Jane?

F. Beard February 8, 2011 at 5:23 pm

The money is returned to the investors who used it to produce and distribute the consumed goods. they in turn can either re-invest it or consume it.

All this is very basic. May I suggest you read Economics in One Lesson by Henry Hazlitt? RS

Been there, done that. In fact, I designed my own banking/production simulator based on those basic principles. I discovered that fractional reserves are almost unavoidable, btw, unless one uses common stock as bank money in which case it is not even an issue.

But in any case, debates about money are something the free market could settle assuming the PM bugs don’t win government privilege for their shiny metals.

Andy Updegrove March 21, 2011 at 12:59 pm

Robert,

I think that you may have taken my essay a bit too seriously, thereby missing the main point (which is, I think, the same point that you make in your essay at greater length). Value by definition of subjective, and any effort to use gold as a means of adding objectivity is doomed from the outset.

We can become more theoretical about how value is determined in the free market, and why perceptions of value change, but ultimately we can’t avoid the issue that there are no turtles to follow “all the way down.”

Andy

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