Conceptions of value

I ripped on Half Sigma’s conception of value earlier in the week. I think it would be helpful to explain various conceptions of value, as misconceptions of value cause most of the worlds’ economic problems.

Let’s keep using the same example that HS used. Assume that Professor Mankiw gives an economics speech and is paid $1000.

Mainstream economists: Mainstream economists say that the value of the speech is $1000. Note that this allows them to do all sorts of fancy calculations and modeling exercises. Marvelous consequences follow from the belief that economics speeches = $1000. Unfortunately, this belief is incorrect.

Marxist economists: Marxist economists believe that the price paid is not the true value. For these economists, the price paid represents the value and profit. Such economists would have some way (which they generally don’t define) of determining what portion of the $1000 is "profit." Generally, they would grant that Professor Mankiw’s time spent giving the speech and preparing for the speech is worth something of value. The rest is profit, which represents a loss to society.

Half Sigma: His conception of value transfer is basically the Marxists’ conception of profit. However, HS goes further and does not allow that Professor Mankiw’s time spent writing the speech, for example, is worth anything. Presumably, under this methodology, if Professor Mankiw gave a speech for free, HS believes that no one would come – after all, the value of the speech is zero. (I suppose if a person’s only other alternative activity had a negative value, such a person might attend a free Mankiw speech. However, my point is that if HS was correct, we would expect to see no one attending Mankiw speeches).

Austrian economists: For Austrians, value is ordinal. So, from the speech example, all we can conclude is that Professor Mankiw valued $1000 more than not giving a speech. Similarly, the person that paid for the speech valued a Mankiw speech more than $1000. From this, we cannot conclude that speech = $1000 (or $1001, etc). The professor may have been willing to give the speech for $900 and the organizer may have been willing to pay $1200. Also, we cannot conclude that $x of the $1000 is profit. We simply do not have enough information to make such a conclusion.

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7 Responses to Conceptions of value

  1. Matt says:

    Of course you can compute what portion of the $1000 is profit. Profit is the difference between the price to the consumer and the cost to the provider.

    But, unless you’re a profit-hating Marxist (or Professor Mankiw, who’s the one who benefits from that profit and thus presumably has a motive to measure it), it’s hard to imagine why you’d care. (Which is good, seeing has how the overwhelming majority of the “cost” of giving a speech is composed of intangibles and foregone opportunities, rather than actual expenditures.)

    • Foseti says:

      But you can’t know the “cost” to the provider. Again, all you can know is that Mankiw prefers $1000 to not giving the speech. We can’t know what the “cost” of his not giving the speech is.

      Similarly, the price to the consumer can’t be known. The consumer was willing to pay $1000. That doesn’t mean the price was $1000, it means that the consumer preferred a speech to $1000.

  2. I think Half Sigma’s definition of value could be summarized as: “The price of the speech, minus the profit that comes as a result of winner-take-all-effects, zero-sum status effects, superstar effects, first-mover effects, path dependency effects, rent seeking, corruption, etc” So only profits that are a result creating a uniquely valuable product/service are profits from value creation, everything else is profits from value transference.

    Since Half Sigma believes that Mankiw’s speech is not uniquely valuable, and that he’s only getting that fee do to a superstar/status/winner take all effect, then HS thinks the profits from the speech making result from value transference.

    • Foseti says:

      I understand that line of reasoning, but it’s based on the notion that “price” and “profit” are equal to something when in fact they are not (or at least we do not have enough information to write such an equation).

      If you can’t overcome that objection – most eloquently laid out by Rothbard – then you’re wasting everyone’s time.

      Finally, nothing determines whether a product is “uniquely valuable” other than individuals’ subjective valuation. There is no other independent source of valuation. A computer is not uniquely valuable in an objective quantifiable way that a speech is not.

  3. Genius says:

    This is excellent. I often try to make labor theory of value jokes (eg, is a three-legged table 75% as valuable as the same table, properly constructed, with four legs?) but it’s rare that anyone is willing to engage.

  4. […] Foseti – “HBD: Evidence for and Against“, “Mainstream Libertarians Do Not Understand Democracy“, “Half Sigma is Retarded About Value“, “Civil Servants Run the Country“, “Conceptions of Value” […]

  5. Cauthon says:

    Nailed it. I stopped reading Half Sigma because of his neo-marxist economics.

    “Value transference” can be interpreted as this: HS doesn’t see the value provided by bankers/lawyers/athletes/professors/persons who are more successful than he is, therefore HS thinks the value doesn’t exist and and those people extract rents through some other means. It is cynicism.

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