VALUE DEBATING COST, WORTH & RATIONALITY! by William B. Lindley Value is a difficult concept that has made trouble for theorists of economics for going on two centuries. Why should this be? Most of us think we know how to use the word. It's not the kind of word, like democracy, that we already know to be associated with ambiguities and pitfalls. Let's start with the dictionary. The first four definitions are all quite similar, expressing value in money terms and equating it to price. Then there is a nonmonetary definition, equating value to worth and offering as synonyms for "valuable": "desirable, useful, estimable, important, etc." The distinction is worth keeping in mind. Value in a monetary sense is assigned to those things or aspects of our lives that we are willing to trade — goods and services, skills and learning, etc.; the nonmonetary sense refers to that which we do not trade: heirlooms and other prized possessions, character and reputation, standards, etc. A frequently noted sign of moral trouble is: that (value) which should not be for sale is. There is a charming book by Michael Phillips titled The Seven Laws of Money. I discuss here only the first, which reads: "Do it! Money will come when you are doing the right thing." Everything we do we do with the intent of adding value to our lives. Sometimes we think economically, sometimes not. I translate Phillips' First Law as: "Keep on building value. As it accrues, some of that value will be tradable." Too often, when we are starting something new and ambitious, we worry about the financing, supposing that certain expensive things we lack must be in place in order to get started. Phillips says: not so, and he goes on to give examples of a number of successful enterprises, profit and nonprofit alike, that emphasized building value and letting aspects of trade take care of themselves. Back to the "dismal science." When economists tackle theories of value, the reading can indeed be dismal. Ricardo, back in the early 1800's, came up with something called the "labor theory of value"; it was adopted by Marx and is still influential in some circles. This theory states (an oversimplification, no doubt) that the value of a manufactured good derives from the labor put into it. Thus value is equated with cost. If you make widgets (or, as in the case of the Russian Communists, lousy shoes), try to sell them at a price that covers your cost, and nobody buys them, it is a mistake to say that their value is their cost. Their value is instead what people are willing to pay to own them. One of our favorite freethinkers, Richard Bozarth, has a charming way of destroying the labor theory of value. He calls our attention to great paintings (e.g., a Van Gogh) and to fads (e.g., hula hoops, pet rocks). In each case the value of the item far exceeds the cost of production. There is no way that the two can be rationally connected. The law of supply and demand determines the prices of goods and thus, in the world of economics, their values. One last question: is value objective or subjective? (I here refer to value in trade.) The Austrian school of economics emphasizes the subjectivity of value, that the value of a good is what a person is willing to pay for it, for whatever reasons that person might have. Other schools have tried to look "behind" prices, to find some objective or analytical standards for determining value. Still others have answered the Austrians by saying that buying decisions are not subjective after all. They are objective within the context of a rational person making decisions that maximize value for that person. The Objectivist movement, based on Ayn Rand's work, finds fault with the Austrian school, and particularly Ludwig von Mises' great work Human Action, in, I think, just this area. As both are passionate supporters of the free market and of laissez-faire economics, of, as Rand put it, "the separation of economics and state," I am puzzled and distressed at this split. I need to read von Mises' book (a huge job) and then review and understand the Objectivists' criticisms of it. A project for the future, to be reported here when completed. Table of Contents | 1995 Issues | Subscribe Truth Seeker | Feedback | Freethought.com Webmaster Credit card Orders call: 800-321-9054 or fax: (619)676-0433 Or send check or money order to: Truth Seeker / 16935 W. Bernardo Drive, Suite 103 / San Diego, CA 92127 $20.00 annual U.S. subscription ($35.00 international). Individual issues—$10.00 + $2.50 postage and handling Or be a committed freethinker and send $35.00 for a two year subscription. Truth Seeker is published by Truth Seeker Co., Inc. (ISSN 0041-3712) © 1996