Power & Market

Subjective value is not objective. Sounds obvious, but the distinction is lost on most — scholars and practitioners alike.

People seem to think subjective value is simply a person's 'willingness to pay' a price. Well, it's not. Subjective value cannot be expressed in dollars and cents, because that would simply mean subjective value is an expression in terms of objective market purchasing power.

If value is subjective, however, that purchasing power too is subjectively valued, in terms of what subjective value it can provide (through the actual goods and services the money can purchase). And, in any market-like setting, willingness to give up purchasing power for a good only indicates that the person subjectively values that purchasing power (however it is appreciated by him/her) less than the value expected from the good that can be purchased.

Willingness to pay, expressed in the dollars and cents that in turn can command goods and services, only means the buyer expects to be better off from going through with the exchange. In terms of value theory, there may be no connection between the value of that which is forgone and that which is gained in return, other than them being valued differently (the former higher than the latter). 

Scholars should know better than to confuse these things, but they're obviously quite confused. 

Instead of thinking about the meaning of what they say, they adopt a practical shorthand used to get a dollar amount on a customer's valuation. This makes some sense from a practitioner's perspective, where a customer's willingness to pay for one's good is a rough estimate of what money price could potentially be charged for the good. 

It's not accurate, however, which is why entrepreneurship models suggest that entrepreneurs should make sure to charge a price lower than customer's stated willingness to pay (if it can at all be trusted). 

Also, the actual willingness to pay depends on offering the actual good along with the argument for why it would be valuable for the customer to have/buy it.

In a different time and place, and with different messaging, this 'willingness' changes both with how the good is subjectively appraised and with the other opportunities available to the customer. I might value a hamburger, but I value a hot dog more. 

Consequently, if there are hot dogs my willingness to pay for hamburgers is practically zero; if there are no hot dogs in sight, my willingness to pay for hamburgers may be significant. See how this works?

One's willingness to pay is not about the [subjective] value of the good itself (that is, the satisfaction experienced, or in any case expected), but is contingent on alternatives available. Practitioners who are careful can gain insights from willingness-to-pay estimations. But it is still a very blunt tool, since what actually matters is the subjective valuation of a good and the subjective valuation of alternative goods (the comparison/tradeoff). 

That scholars equate subjective valuation with objective money prices should be considered severe professional misconduct. For those who are in the business of thinking carefully about things, there is no place for conflating things. 

Or, as in this case, mistaking (interpreting, really) subjective value for being objective. This is inexcusable and should disqualify you from the academy.

Originally published on Twitter @PerBylund

Words are funny. Strung together, they can have multiple meanings depending on the perceived context and reader’s viewpoint. I can make a statement with the intent to convey argument A, but the reader interprets my statement as not-A.

An example: Trotsky, in “What Next? Vital Question for the German Proletariat” (published as “How Mussolini Triumphed,” in Fascism: What it is and how to fight it, 1944), disparaged the Italian socialist, Turati, for saying, regarding the political battle with Mussolini’s fascist movement, “One must have manhood to be a coward.”

Given the context, it appears Turati spoke with a sense of irony, defending his political strategy. Trotsky subjected those same words to close reading in order to bolster his argument that the Italian socialist was retreating before the fascists. Turati claimed he had manhood, while Trotsky insinuated Turati was a coward.

Forgetting the internecine war among socialists, let’s examine Turati’s prescient claim in another context: the draft.

During my high school years , “Jimmy Carter signed Proclamation (Registration Under the Military Selective Service Act) in response to the Soviet invasion of Afghanistan in the previous year of 1979, retroactively re-establishing the Selective Service registration requirement for all 18- to 26-year-old male citizens born on or after January t, 1960.” This made me eligible for the draft upon turning 18.

But who was I going to fight – who was I supposed to slaughter, burn, maim, etc.? In 1981, as my eighteenth birthday approached, it looked like a hot war in Nicaragua or elsewhere was possible – actually, likely. That meant I could have ended up in uniform shooting peasant farmers whose political worldview disagreed with the then-current policies of the US government – policies that changed with elections. Today’s enemy could be tomorrow’s ally.

Regardless of the side, I could have been required to do the bidding of those in power, to bloody my hands and taint my soul. As a quasi-radical, or what went for a quasi-radical in middle class, suburban Pittsburgh in the early 1980’s, I would have none of it.

In those days, I was a Deadhead – a fan of the rock group, the Grateful Dead. Each Sunday evening, a true public radio station (i.e. non-government funded) had a show that replayed recordings of the band’s concerts. Either before that show or after it (l no longer remember) was another show where antiwar activists discussed the evils of US interventions overseas – this is back when there was a strong antiwar left. That program greatly influenced me. And when there was talk about conscientious objection to war, I listened.

Initially, upon turning 18, I refused to register. However, based on information from the radio show, as well as consultations with my church minister and the antiwar mother of a friend, I learned my best chance to not being forced to point a gun – ironically, at the point of a government bayonet – was to register, but register as a conscientious objector.

However, I did not write this article as a guide to registering as a conscientious objector today – there are many resources on the internet. Instead, I wrote it to discuss the Turati-Trotsky rhetorical divide and answer the question of whether it takes manhood to be a coward. My article is also meant to encourage today’s youth to stand for peace and not war.

To answer the coward question in the context of this article, I revised Turati’s statement to read, “One must have manhood to object to war.” Sadly, that is a true statement, with an unwillingness to fight perceived by many as a sign of cowardice. This is especially so given the lack of any antiwar movement outside of libertarianism.

If the government institutes the draft and your number comes up, are you prepared? If you believe war is wrong, you need to begin documenting those beliefs well in advance of a draft. That documentation will be the primary evidence on your side as you stand before the draft board. 

Nevertheless, if your number comes up, you will be called to “serve.” And you may not get that deferral. You may end up being forced to fight. lf you choose not to, you will likely end up in prison, which is not a coward’s path. Additionally, where you would have probably been placed in a non-frontline position (most soldiers are not even near the frontlines, never coming face to face with a person in a different uniform), your objection may put you on the line as an unarmed medic. Again, not a coward’s path.

Nevertheless, folks will call you a coward. But it also takes manhood to hold your ground in face of social pressure.

Luckily, there was no draft in the 1980’s and I never had to find out whether I would have held true to my ideals – whether I truly had manhood. But you, youth of today, may not be so lucky. Plan ahead. Political positions change. War may be nearer than thought. These words, spoken by former Prime Minister Henry Palmerstone in the British Parliament in 1848, are as true in the US today, “We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.”

And those interests may indeed lead to war.

Ask yourself whether you are willing to kill in an unjust war, whether decrees from the US government can provide sufficient moral justification for you to slaughter folks in Afghanistan or Nicaragua (in my day), or anywhere, and whether being called a coward is more frightening than selling your soul, so to speak.

For me the answer is no, but I am long past the draft age. What is your answer?

Think, consider, and act today!

Democratic socialists in America are trying to introduce their ideology as something new, when in fact, they are only retreading old-fashioned ideas that history has already disproven. They are ideas that have led to the economic devastation of every country in which they have been implemented.

Having seen the effects of this ideology on our home communities in Venezuela, we feel compelled to warn Americans that if they allow socialism to spread in the United States — as it has done in Venezuela — they will condemn their country to a future of misery.

We know that young people, sometimes, grow enamored with utopian ideals. The movements that cater to them are often labeled as many different movements, whether “social democrats,” “ social Christians ,” or “progressives.” These movements work hard to address their speeches and campaigns to the youth.

There’s nothing new about this. Even Friedrich Hayek admitted he believed once in this system as a young man, noting “Socialism promised to fulfill our hopes for a more rational, more just world… we have been looking for improvement in the wrong direction.”

Now young Americans are hearing and believing in promises similar to what Venezuelans did in the 50’s, and well into the period of Chavismo, that began in 1998 . The promises include “free healthcare,” “free education,” “a right to a job,” “free housing,” “gun control,” and, of course, that old-fashioned socialist motto “a state that works for you” (which really means, “ supports you”)

It is evident that a new generation of politicians want to be elected on this basis, and they have found a way to win by mobilizing people who agree with their ideas. So, they will continue promoting a climate of confrontation and division because they have no interest in convincing others who do not already think like them.

As with Hugo Chávez in his moment , this new generation of American politicians has the support of almost all mainstream media, some economic elite, and the academic world. They have been invited to appear on many of the most important TV shows, which gives them an excellent platform and increase their media presence, and generally they are treated with a soft and delicate indulgence. While other politicians have to fight for open their own spaces in the media and handle rude and non-friendly interviewers, these socialism-friendly politicians have had everything, as we say in Venezuela “served on a silver platter.” It is a true that second-hand dealers of ideas still do their work, as Hayek stated.

Finally, Americans have to be sure of something. The devastation that comes with a socialist political victory will not occur immediately. In our country, 40 years of progressive eradication of our economic freedom — before the Chavismo — were needed to reverse the great economic success of the “Economic Miracle” we enjoyed from 1950 to 1958. The problem is that the groundwork of this movement in the United States is sowing the seeds of a cultural and educational change — as was done from 1958 to 1998 in Venezuela. It won’t happen immediately, but eventually, the idea of getting something for nothing could come to dominate and in that moment — as is currently in Venezuela — it will be almost impossible to recover the freedom through a democratic system. At that point, it would become necessary replicate the Singapore experience.

I have known Guido a long time, and when he was working on the book, I used to goad him by asking frequently, “When are you going to finish that Mises book?” I had no idea what a tremendous project that research was or what magnificent fruit it would bear. After reading it, I wrote to Guido as follows:

“I have finally finished reading your great book about Mises. When I use the word ‘great,’ I mean not simply that it weighs at least a kilo and contains more than 1,000 pages. I mean most of all that it is a magnificent scholarly achievement. I can’t remember when I have taken more pleasure from a book. It is a joy to read, in every way. The English is precise and polished, and everything is put just right. The research is amazingly broad, yet deep, too. The judgments are sensible and mature. The coverage–from the personal details to the content of Mises’s ideas to the context in which he lived and worked–is extraordinary, and the organization puts everything into comprehensible order. The bibliography is more than impressive. All in all, the book is simply an amazing accomplishment, and a fitting tribute to its great subject.

The Mises Institute deserves great credit, too, not only for its support of your work on this project, but also for producing a book that is a fine example of the publisher’s art: the typeface is clean and clear, and large enough to permit effortless reading; the layout is spacious and proper; the footnotes are where they should be, and they, too, are large enough to be read without a magnifying glass; the illustrations are splendid complements to the text; and the indexes are terrific. The work is thus not simply beautiful intellectually, but beautiful physically, as well.

If I had ever written anything half so wonderful–and I recognize that I lack the abilities to do so–I would consider my career a complete success, and feel myself justified in taking my ease, to rest on my laurels. I do not perceive that you have this plan in mind for yourself, and therefore the world will be the better, not only for your great book on Mises, but also for all the great achievements that lie in your future. I salute you, my friend, not without a touch of envy, but with my whole heart.”

(Hardcover and Audio book available now at the Mises Bookstore.)

h/t  LewRockwell.com