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Source link: http://archive.mises.org/19685/value-is-subjective-a-case-study-with-a-lesson-on-productivity/

Value is Subjective: A Case Study, With A Lesson on Productivity

December 5, 2011 by

I’ve said before that being a father has made me a better person and a better economist. Over the summer, it taught me (in a very vivid way) that value is subjective.

My three-year-old son loves his stuffed panda, Gerard. Gerard was a gift from a friend; I didn’t realize how much Gerard had cost, but it turns out that to get another, identical stuffed panda would cost us $36(!!). Over the summer, we were driving from Memphis to Great Barrington, Massachusetts where I would be spending a few weeks as a Visiting Research Fellow at the American Institute for Economic Research. We made a few stops along the way, including a stop at a McDonald’s in Harrisonburg, Virginia, where I wrote this post. We stopped for the night in Hagerstown, Maryland. As we were getting everything ready, we made an important (and horrifying) discovery.

Gerard was missing.

And so it turned out that, as we were leaving the McDonald’s in Harrisonburg, I had apparently placed Gerard on top of the car so I could buckle Jacob into his car seat. I had forgotten about Gerard as we sped off for Maryland.

With Google, it wasn’t too difficult to find phone numbers for all the McDonald’s locations in Harrisonburg, Virginia. Miraculously, someone who worked at the McDonald’s we had patronized had found Gerard in the parking lot.

It was decision time. Gerard was safe, but he was about a 90-minute drive away. At $0.50 cents/mile for gas and depreciation, going to get Gerard would probably cost about $100 round trip, to say nothing of the inconvenience of driving when I would rather be sleeping, all else equal.

As all else was most definitely not equal, the decision was obvious: I hopped in the car, made the trip, and retrieved Gerard. According to a very narrow calculation, we could have gotten a very close substitute for Gerard for $36 plus shipping. As anyone with kids knows, though, it wouldn’t have really been Gerard–and I wasn’t about to lie to Jacob and say that it was. Suffice it to say Jacob was very happy to be reunited with the genuine article. So what is Gerard really “worth?” The calculation would certainly be different in a lifeboat situation, but on a normal day I wouldn’t sell him to you for $10,000.

To reinforce the point, here’s Don Boudreaux on subjective value:

And now, the lesson in productivity: I thought “hey, I have a few minutes and a bit of inspiration; I’ll write a blog post!” I did, but if I hadn’t, I probably would have been more focused on what I was doing and saved myself the cost of going to get Gerard. I wouldn’t have this story or the lesson, of course, but I do wish that hadn’t happened.

Obligatory Disclosure: I’ve received no valuable consideration from McDonald’s, Google, the manufacturers of stuffed pandas like Gerard, or AIER in exchange for mentioning them in this post.

{ 20 comments }

Peter Surda December 5, 2011 at 11:41 am

Pseudo-austrian Bitcoin detractors who heavily misrepresent the Mises Regression Theorem should watch the video. Kramer, Nielsio, Smiling Dave, Clayton, what do you say?

Tyrone Dell December 5, 2011 at 9:04 pm

They would probably say what Menger would have said: A money needs to have first been an actual commodity on the market — not only that, but a money needs to have been the most saleable commodity on the market.

Peter Surda December 6, 2011 at 5:22 am

Even if that was a correct representation of Menger, that’s not my point here, rather that the aforementioned gentlemen insist that goods that do not have “intrinsic” value cannot establish a market share.

integral December 6, 2011 at 5:48 am

Then your point is not well made. If we take ‘intrinsic’ value to mean that a majority of people subjectively value it to some extent, are you attempting to say that a good that noone or very few people subjectively value will establish the same market share as a good that everyone or almost all people subjectively value?

But who cares, right? There are some people out there who aren’t fawning over your pet social experiment, so obviously they cannot be ‘true austrians’.

Peter Surda December 6, 2011 at 6:17 am

Then your point is not well made.

My point is addressing the arguments made by the people I listed.

If we take ‘intrinsic’ value to mean that a majority of people subjectively value it to some extent,

The whole concept of “intrinsic value” is completely bogus.

… are you attempting to say that a good that noone or very few people subjectively value will establish the same market share as a good that everyone or almost all people subjectively value?

No. That would be an entirely different argument.

But who cares, right? There are some people out there who aren’t fawning over your pet social experiment, so obviously they cannot be ‘true austrians’.

I care about finding contradictions in arguments. I have been doing this within the topic of IP for several years now. Before that I was doing that about anarchocapitalism, and before that about libertarianism and before that about linux. Lately I became interested in Bitcoin. One day I’ll decide that my curiousity is satisfied and that the people I argue with are going to insist on making self-contradictory statements. Then I’ll move on to other interesting topics.

integral December 6, 2011 at 7:01 am

So the people listed by you have been making contradictory statements? That is your point? Or is your point to ‘address’ their arguments with a vague reference to some information or argument that ‘may’ have come up in the video linked to in the article? (Didn’t hear it explicitly mentioned.)
Because from what I’ve read of Smiling Dave in the forums he’s pretty much straight out of Murphy and Rothbard on his take on the Regression Theorem. I see he’s even addressed how bitcoin works when taking the RT into account.

Peter Surda December 6, 2011 at 8:29 am

So the people listed by you have been making contradictory statements?

Correct.

Or is your point to ‘address’ their arguments with a vague reference to some information or argument that ‘may’ have come up in the video linked to in the article? (Didn’t hear it explicitly mentioned.)

Also. The people listed make the argument that goods (money in particular) must have “intrinsic value”. This is just something they made up, there is no basis for this in the books of Austrian authors.

Because from what I’ve read of Smiling Dave in the forums he’s pretty much straight out of Murphy and Rothbard on his take on the Regression Theorem. I see he’s even addressed how bitcoin works when taking the RT into account.

Smiling Dave (and Nielsio and Clayton) dodge debate whenever their fallacies are exposed. I spoke to about nine Austrian economists about the topic. Even though they do not share a common interpretation of the Regression Theorem among themselves, I do not think that any of them support the arguments in the form these Bitcoin detractors are making. There is no such thing as intrinsic value, nor are the physical characteristics of goods the only factor affecting value. That’s completely made up. If it was true, we would have no immaterial goods and no service sector. But these gentlemen know better. According to them, most of our economy simply does not exist.

integral December 6, 2011 at 1:32 pm

Apparently we have been reading different forum threads, because I haven’t seen any examples of what you describe here.

Derek December 6, 2011 at 1:10 pm

Still, when you are talking about money you are talking about a probability play. Even with gold, you are simply betting that it will retain its value and be treated with the subjective value of a monetary premium because most of history has demonstrated that will be the case.

That being said, ANYTHING that is voluntarily adopted as a medium of exchange and account, and as a store of value, can be considered money. I agree that the general “rule” of money is that it is always a commodity within that society first, and even in the case where individual productive businesses started issuing their own money, that money would be backed by their production (a market commodity).

I don’t think the future for bitcoin is bright, but there might be a place for it as we see fiat currencies start rolling over around the world and people try fleeing to alternatives. Also, remember that cooperation and emulation come before competition. If there is a great enough need for money in this digital age, someone at some time is going to come up with a way to introduce actual decentralized money that can be transferred across the world in seconds and is backed by a tangible asset, while being decentralized and out of the control of the nation-states of the world.

Bitcoin’s greatest strength is also its greatest weakness – you can’t put a commodity backing on it because there is no central holding facility or even a network of banks that can hold a commodity against it, but this also negates the worry that a violent state can just come along and appropriate all of the money for itself. It’s a catch-22 and I’m excited to see if the market can overcome this some way.

Peter Surda December 6, 2011 at 2:29 pm

Of course, in the end, it’s an empirical question. We don’t know what the future holds.

Physical commodity basis is merely a historical datum, because (according to the Austrians at least) monetary transactions evolved from physical exchange of goods. This is not true anymore. Even if we somehow got rid of fiat and it was replaced by gold or a different physical commodity, the vast majority of transactions would be conducted with money substitutes. This leads to excessive control of the issuers of these substitutes over the economy (particularly if digital), FRB and so on. Purely virtual medium of exchange like Bitcoin does not suffer from this problem. Sure, there are lot of potential issues with it, but the potential benefits are enormous. If not Bitcoin, then eventually something similar will probably succeed.

Sebastian December 5, 2011 at 12:10 pm

Really interesting discussion about the global economy with Chris Martenson and GoldMoney’s James Turk: http://djia.tv/james-turk/chris-martenson-and-james-turk-talk-about-europe-and-the-global-economy/

Jim December 5, 2011 at 2:14 pm

In a free country, that disclosure wouldn’t have been obligatory.

Mark December 5, 2011 at 3:54 pm

Regarding productivity: what we now call “multi-tasking” we used to call “not paying attention.”

RTB December 5, 2011 at 8:43 pm

Reminds me of the movie “Vacation” with Chevy Chase. Grandma’s dog wasn’t so lucky.

Bala December 5, 2011 at 9:18 pm

“I’ve said before that being a father has made me a better person and a better economist. Over the summer, it taught me (in a very vivid way) that value is subjective.”

Amen to that!! It’s amazing how many economic principles may be seen in action by just observing children closely. I was thinking about the same point observing my 4 year old daughter ever since she started talking.

One more point you can observe (which I suspect you or Robert Murphy have spoken about) is a child’s extremely high positive time preference. One of the biggest challenges I face is to get my daughter not to insist by saying “I want it NOW!!!!”. Another interesting observation I have made is the response to the offer “It’s either cartoons for 10 minutes now or cartoons for X minutes tomorrow”. It’s always “cartoons for 10 minutes now” irrespective of how big X is.

Thanks for bringing a smile to my face.

JFF December 6, 2011 at 8:23 am

Art, one more point, from my own experience with myself when I was little:

Even if you did choose to buy a replacement stuffed friend for your little one, there was no guarantee that he’d accept it. I know when such a thing happened to me, I absolutely didn’t.

And that, folks, is the subjective theory of value in a nut shell.

James December 6, 2011 at 8:37 am

This is probably the only thing I disagree with the Austrians on, the so-called subjective value. I would first like to refute the example he made on the way Marxists determine value because they believe that the value of the object is ‘relative’ to the amount of labor that was mixed with the object, but this is not a case for a fixed objective value of the object that is inert from outside influences (labor). Plus, how can this possibly be consistent with a Gold-’Standard’, isn’t Gold a generally fixed currency? If it was subjective, then how can we possibly determine a standard for paper money? The only reason why anyone should be for a subjectively valued economy is to promote the freedom to choose and make mistakes but philosophically it is the purpose and use of the object which determines its value because it is ‘that’ object which is valuable not our minds.

pravin December 6, 2011 at 3:18 pm

gold standard is not an austrian prescription.because it still involves govt control .an austrian position would be free currency competition.it is a compromise many austrians can live with though.
you are unnecessarily playing with words here: when boudreaux says value is in the mind,he implies,the same as you -ie.value is the purpose and use of the object to YOU.

Daniel December 7, 2011 at 12:56 am
RG December 6, 2011 at 9:29 am

If $0.50/mile is realistic in your own vehicle, why would shipping of the item be a third (I can get it for less than a quarter) of the price? Interesting that you would include a government mandated price control in your subjective value example.

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