Economists got value wrong: value isn’t completely subjective


Some time ago I had a discussion with an economist friend — a very intelligent man, you can find his own blog here — about some of his most basic economic premises: that is, what is value and how is it created. Nevertheless, on this occasion I felt there was a failure to discern nuance in such an extent that it could be called, as a certain Nobel winner of economics coined the phrase, theory-induced blindness: that one is so inured by a an authoritative theory that one can’t discern the simple reality behind it anymore. Thus I’m swayed to give it a closer inspection.

“Free trade, in which both parties in their own volition give something away to procure something of greater value in return, is a guaranteed demonstration of value being created.
Economical analysis does not discern psychological motives or goals. It takes the individual’s personal, and momentary, preferences as a given, and then only estimates what kind of means are used to achieve those goals. It’s not in the sphere of economics to judge a person for drinking beer instead of milk.
It’s important to understand how preferences change over time. A man may regret his choices of yesterday, and he may, again, go and repeat them later today. That doesn’t mean, though, that he wouldn’t experience value at the time being.”

Two sentiments were made that I don’t agree with:

  1. Trade always creates value without an exception, and…
  2. we can estimate value without taking any kind of moral stance.

Trade creates value, there’s no way getting around that

I start by saying what I agree with. I believe, that as a general principle, it most definitely is true that when people trade freely, it creates value. For example, let’s look at the thousand year period in Europe, when time was frozen still, and no social, political or scientific progress was made. An average person was born into a world that, to him, comprised one village. There he toiled the fields in slavery as a subject of the local baron until the day he died. I mean the Middle Ages, of course. And why was this so? Because the game of life was utterly rigged by a single, toxic idea promoted by the prevailing ideology of the time, Christianity:

Making profit is avarice. This was best epitomised by Jesus when he said: “I tell you, it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God.”

Imagine a world where you can’t take a loan, start projects and create a better life for yourself and your village, because that would go against the very moral fabric of your world. The only people who were free of this rule were the jews. So for most people this created a zero-sum environment: if you wanted to make things better for yourself, the only way to do that was to take by force. And that’s exactly how the world worked.

The kings and the noble knights we know from fairytales are just that, a myth. These people were actually better called warlords. Just like the ones fighting for power in today’s conflict zones in parts of Africa, for instance. War was the way of life, not something you declared. There were no maidens and no glamour. Simply violence.

This only ended when the people in power realised that war, as a matter of fact, was totally stupid. And not only stupid in a moral sense but stupid in a purely selfish way as well. This is because war isn’t cheap. War costs money. And, as we now know, it’s actually far more efficient to let your enemies have their infrastructure and businesses and simply trade with them the things you want instead of going to war. Instead of zero-sum environment this created a positive-sum environment: you’re not only sharing pieces of a limited cake, you’re making the cake itself bigger!

When people trade, they generally are better off. That’s the reason we’re no longer in the Middle Ages. All that surplus wealth gave us those few extra hours of leisure during the day, for us then to go sit in a coffee shop and invent philosophy and science — both which then, alongside a growing economy, gave us everything else we take for granted in a modern world.

But does that mean, that no matter what, a transaction always creates value, or that it should, by definition, be thought to create value. No. It doesn’t.

But does trade, without an exception, create value?

It is generally regarded that we people aren’t perfectly coherent agents, but rather we have a myriad of conflicting desires in different levels of worthiness. You’d want to be the kind of person who never eats that extra piece of cake. You’d want to be the kind of person who can quit smoking. You’d want to do a lot of things, read books, go to school, fall in love to the right people instead of the wrong ones… But you also don’t.

That is why we use the better angels of our nature, when they’re in power, to put systems in place, that then make it easier for us to do the right thing later; the thing we know is better for us, but which we simply don’t find the willpower for in our default environment. If you want to quit smoking, you will maybe have to quit going to that local pub with your smoker friends, for instance. The biological truth is, organisms don’t exist in a vacuum, but every organism is one half it’s genetics and one half it’s environment. Depending on where you plant a flower, it will be something very different. And that brings us to this next point.

Let’s think that free trade always without an exception creates value. The beauty industry, which spends billions of dollars in assuring young people that they’re disgusting, creates value. The cigarette companies which spend billions of dollars in getting people addicted to a substance they can’t get a day without, and which kills 50% of its users in related diseases, creates value. We attack people psychologically through their environment by creating false images of success and by getting their brains hooked on chemicals, and that is value according to some economists.

But we can also assume that value doesn’t have any real world manifestations as, say, more stable, happy and fulfilled people. We can postulate, that by definition, whatever we choose is always of value. We can do that. But what on earth would be the useful application of such a theory? A man loses his temper and in the heat of the moment kills his wife — apparently he just created value for himself. It’d be totally looney, so that interpretation I’ll just leave at that.

we can also assume that value doesn’t have any real world manifestations as, say, more stable, happy and fulfilled people […] We can do that. But what on earth would be the useful application of such a theory?

Theories of value: subjective and objective

So what we were discussing there in the earlier paragraph was called the subjective theory of value. The proponents of it claim that value is inherently arbitrary, just like your enjoyment of all things, like shoes, is. If you’re willing to pay your month’s salary for a nice pair of Manolo Blahnik heels, who’s to say your tastes are somehow wrong? It is then taken as a given that your purchase must be of value, to you, more than the money you paid for it.

The opposite of this would be an objective theory of value. If you’re a religious person, you might think it’s God that gives things their true value outside of market forces. But, for seculars, the most eminent proponent of the objective value theory was probably Karl Marx, who tried to show, that products and services are actually worth only the work and resources required in making them, but not a cent more. No profit, remember.

This has the obvious problem of not adhering to the basic laws of price and demand. You can’t value the Mona Lisa simply by its wood, fabric and paint. There’s only one Mona Lisa, but there’s countless rich art connoisseurs vying for it, and the market price goes up. So there’s no objective value at least in the sense that Marx wanted to.

But is there truly nothing objective about value? Nothing that our science and philosophy could say on the topic? In any situation?

Theories of morality: subjective and objective

Just like in economics, where we have the two competing theories for value, in ethics we have two competing theories for morality: moral relativism and moral objectivism. Is morality completely and absolutely a subjective experience? Or is there something we could say about right and wrong, maybe not the last word, but some kind of general idea that’ll get us in the proper direction?

Well, what is ethics? Ethics is the branch of philosophy that studies morality, the extent which something can be considered good or bad. Morality itself seems to bound itself in biology. We are not born as blank slates, but we are part of the same human species, we aim to live meaningful lives and experience well-being instead of suffering. And these things can’t be completely arbitrary.

You and me are genetically 99% related — unless you happen to be a platypus, of course. If our moral experiences are a genetic adaptation, they have somehow increased our fitness in evolutionary terms. That would make them intimately connected to our well-being, which is a system to guide ourselves towards fitness as well. It could then be said that morality is a cognitive heuristic for creating… What? Value, I say.

Value from the perspective of ethics and biology

If we put supernatural thinking and gods aside, if we say that something ought to be done, because it’s right, how does it differ from saying, that everyone seems to be better off if we do a certain thing rather than the other? A fast thought experiment: imagine a culture where every newborn is rendered blind by piercing its eyes with a needle. Could you really say that you have nothing against that morally? That’s it’s just a one way of arranging one’s culture, and it’s not in any way worse than ours? Or would you be tempted to argue that because that clearly and only entails colossal amounts of human suffering, everyone would really be better of, if the practice would end — that ending the practice is the right thing to do?

if we say that something ought to be done, because it’s right, how does it differ from saying, that everyone seems to be better off if we do a certain thing rather than the other?

We don’t, of course, know what is the absolutely right thing to do in life. But we also don’t know what life is, exactly. There’s no black-and-white way to conclude that someone is dead, for instance, so it’s left to the doctor’s own judgement. That’s why dead people sometimes come back to life. Or what is intelligence exactly? Opinions vary. But just because there’s ambiguity, nobody’s saying we can’t study health or intelligence. We accept ambiguity as part of science.

then that same notion also guides us what comes to value. In this sense reaping profits from addicts doesn’t create value, it diminishes it.

So if we accept that morality has something to do with human flourishing, that it’s good to have people who live happy and meaningful lives, and in reverse, it’s bad to inflict meaningless pain onto others, then that same notion also guides us what comes to value. In this sense reaping profits from addicts doesn’t create value, it diminishes it. In this sense, making people hate their bodies with the sustained effort of psychologically scarring add campaigns, also does the same. We don’t know the specifics or morality, but we can also avoid the nihilistic cop-out that there’s nothing to be said at all.

Buddhism: skilful action

At this point I’d like to point out how Buddhists look at morality. You’d be hard-pressed to take it, but there’s actually no morality in Buddhism, as you and I understand it. Buddhists believe in karma yes, but rather than as an arbiter of righteous justice they take it as a natural force: if you create suffering, that suffering will come around to you in one way or the other. Just like if you hit your head in a wall, you will experience pain. It’s not right or wrong to hit your head in a wall — it’s stupid.

But then there’s the concept, I feel, would make thinking about morality lot more clearer to us seculars as well. The concept is skilfulness. Rather than saying something is right or wrong, which implies a lot of irrational things, like, moral judgement and superstition, skilfulness is simply how much a given action will affect your long-term well-being and fulfilment in life. For example, if you get a good long night’s sleep, you’ll enjoy life a lot more than what you’d get from that extra hour. Or if you succumb to a moment’s passion and regret it for the rest of your life, that’s not skilful action.

We try to act like we’re these impartial, rational adults and we always know what’s best for us. But we aren’t. In the end of the day, we’re all looking for well-being. And as we’re all part of the same species, it’s not completely arbitrary what brings us that well-being. If you buy yourself a horse, and you read online that horses like to run outside and eat grass in order to be happy, you have no problem believing that. Running outside and eating grass are both skilful actions for a horse.

So, at the end of the day, we’re all looking for well-being, and some of us are better at it than others. When we’re children we try to find well-being by eating popcorn in our beds. Our mothers try to warn us that it’s not a skilful action. We do it anyway. And then the rest of the week we’ll find itchy and scratchy popcorn all over our sheets. We should stay mindful of the fact, that some things are simply better. Or more skilful, that is.

What creates the divide between objective and subjective? Politics.

It might be worth looking into why people are so divided between these two moral outlooks. The strongest theory for human morality in empirical science, at least that I’ve come across with, is the Moral Foundations Theory. It argues that we humans have evolved six distinct modules in our minds to judge the morality of a given action. They’re like moral taste receptors in our brain, which then go on and dictate to which kind of moral violations we are sensitive to, and in reverse, for which we aren’t. Here they are explained below with the ones that interest us marked in bold:

  • Care/harm: This foundation is related to our long evolution as mammals with attachment systems and an ability to feel (and dislike) the pain of others. It underlies virtues of kindness, gentleness, and nurturance.
  • Fairness/cheating: This foundation is related to the evolutionary process of reciprocal altruism. It generates ideas of justice, rights, and autonomy.
  • Loyalty/betrayal: This foundation is related to our long history as tribal creatures able to form shifting coalitions. It underlies virtues of patriotism and self-sacrifice for the group. It is active anytime people feel that it’s “one for all, and all for one.”
  • Authority/subversion: This foundation was shaped by our long primate history of hierarchical social interactions. It underlies virtues of leadership and followership, including deference to legitimate authority and respect for traditions.
  • Sanctity/degradation: This foundation was shaped by the psychology of disgust and contamination. It underlies religious notions of striving to live in an elevated, less carnal, more noble way. It underlies the widespread idea that the body is a temple which can be desecrated by immoral activities and contaminants (an idea not unique to religious traditions).
  • Liberty/oppression: This foundation is about the feelings of reactance and resentment people feel toward those who dominate them and restrict their liberty. Its intuitions are often in tension with those of the authority foundation. The hatred of bullies and dominators motivates people to come together, in solidarity, to oppose or take down the oppressor.

Here are few diagrams about how our sensitivity to certain types of morality affect our political leanings. The diagrams are for the three major political groups: there’s the left wingers (called liberals in the USA), there’s the right wingers (called conservatives in the USA) and then there’s classical liberals (called libertarians in the USA).

As you can see, for the left the highest value of all is to try and protect people from harm. Free market adherents, like classical liberals, on the contrary have very little sensitivity to that axis of morality; they are, on the other hand, tremendously sensitive to not being oppressed, not having their individual liberties stifled.

So as you can see, as moral and thus political creatures we’re hopelessly biased. A left winger, like Marx, has a huge stake in believing the objective value theory, because he has a moral need to protect the less fortuned from themselves. But, then again, the classical liberal has a huge stake in believing the subjective value theory, because he has the moral need to protect his rights from the left wingers, who want to inhibit them for the reason already stated.

So this is why it’s so hard for us, as political creatures, to differentiate nuance on this topic and realise, that maybe both of these outlooks are a bit one-eyed. And for the record, I don’t know what is the correct balance between care and liberty, but what comes to human flourishing, the general happiness and well-being of people, there probably is one — or even several. We simply have to find out what they are.

My argument in a nutshell

Value, for it to be a meaningful concept, must be bound to reality somehow. Morality, for it to be a meaningful concept, must be bound to human well-being somehow. If value is to make people better-off, value has a moral dimension to it. If that, indeed, is the case, no matter how ambiguous, science has something to say about the subject. Thus I’m arguing that value can’t be this arbitrary thing without any objective merit, but some things are simply more skilful than others. And thus, no matter how politically incorrect it is to say, some opinions are more enlightened than others.

But I am willing to concede, that as a general rule of thumb, the subjective theory of value can work as a useful fiction. Especially in politics. We can’t act like we’re all overgrown babies. That would not be a fulfilling society to live in. At some point people will have to take certain responsibility of their own lives. But, while we do that, we need to make sure that we don’t let that theory blind us from the reality we actually live in.


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