Principles of Market Fundamentalism, No. 1: Value

Call us what you like. But those who appreciate the economic way of thinking know that dismal science, too, cannot suspend certain realities.

Published in Underthrow Series .

In the spirit of self-government, if we are to develop a comprehensive doctrine of decentralization, we cannot overlook basic economics. However, as economic science can take us to disciplinary depths rather quickly, we must set out a set of grounding principles. These can double as institutional design heuristics. The Nine Principles of Market Fundamentalism in this series should equip us to see through much of the fiction that passes for analysis, particularly as the dark spells cast on ordinary people are based on inscrutable maths and models. Such hides legerdemain or omits critical aspects of reality. At the very least, we can go forth into the world armed with principles that, when abandoned, indicate a theoretical house of cards. So equipped, we can begin to apply the economic way of thinking.

Through the ages, the world’s finest minds have built entire theories on the idea that value is objective. They thought it was possible to use, for example, labor and capital inputs to derive value. But they were wrong. The cost of the inputs doesn’t simply add up to value. From Adam Smith or David Ricardo—to any number of contemporary thinkers—the idea of objective value supplies a foundational premise. Remove that foundation, and the rest of the theory risks collapsing.

Consider this simple illustration.

Two different manufacturers make two shirts, each producing the shirts using the same labor hours, materials, and dyes. In other words, the inputs are exactly the same. The only difference is that there is a picture of Karl Marx on one shirt. On the other, a picture of Carl Menger.

There is no such thing as intrinsic value, according to Menger. And he’s right. Despite the fact that Menger was right about the nature of value—and Marx was wrong—we can use Mengerian insights to predict that then, as now, Marx is far more widely known and sadly more fashionable. So, the Marx shirt is likely to fetch a higher price. The inputs are simply immaterial to the question of value.

Why? Value is always in the eye of the beholder.

If circumstances change, one’s valuation might change. For example, if Taylor Swift were to wipe her glistening brow on the Menger shirt, the market value of the Menger shirt might change. Indeed, it only cost the celebrity sweat, so if the market value of the shirt went up by a factor of a hundred, we wouldn’t be able to argue that the celebrity or the shirt manufacturer exploited anyone’s labor. It would simply be the case that someone was willing to pay for a celebrity-sweat-soaked Carl Menger shirt.

Again, the costs of the inputs are wholly irrelevant to market valuation.

What about a basic resource such as water? Surely, that is objectively valuable due to our universal need to hydrate. I may want to take that water bottle and put it to my parched lips to survive. You may want to load your squirt gun. I’d pay a hundred dollars for that water in the right circumstances, for example, after a jog in the desert. You might only be willing to give a buck. Maybe we can agree that the circumstances of time and place can prompt us to value things differently.

But matters run deeper. We are different, you and I—on the inside. We will likely value any given thing differently, even in identical circumstances.

Happily, that impels us to trade—your Crème Brûlée for my Mousse au Chocolat.

Jack Sprat could eat no fat,
His wife could eat no lean.
And so betwixt them both,
They licked the platter clean.

Despite the cries of lettered economists, there will never be any such thing as intrinsic value—at least not in the deepest philosophical sense.

There might be intersubjective agreement about value, but that is ephemeral. Value does not inhere in things. It never can. It never will. Value is a feature of our subjectivity. And the relevant unit of analysis is choice in a particular time and place.

Max Borders is a senior advisor to The Advocates. He also writes at Underthrow.

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