and also
I don’t see the distinction between “value to me” and “actual value” (or “real, tangible value”). In the water bottle example, it seems like maybe you’re looking for an average value over time, i.e. I’m willing to pay $1000 for it after crawling out of the desert, but only $1.95 when choosing between bottled and tap.
And I think there’s a couple ways to look at this. In one version, your decision to pay $1000 is strictly irrational. Say we replace the water with food, and you’re on the brink of starvation from your time in the desert, and you are offered nutritious but bland gruel for $1, and equally nutritious but very flavorful steak for $1000. If you choose the steak, that’s probably irrational, because if you take the gruel you will survive and you can buy a steak for $12 later. Taking the steak is irrational in the sense that it isn’t consistent with all of your preferences, and you choose it because you’re blinded by hunger and not thinking clearly.
On the other hand, if the steak is the only option, and you die if you don’t take it, then $1000 is a steal, you’ll gladly pay $1000 to avoid death, and that choice is consistent with all your preferences and not a product of hunger-blindness.
In the first case, we should say that the value of the steak isn’t $1000, and in the second it is (or rather, that the steak is more valuable to you than $1000).
The fact that in different circumstances you would choose differently doesn’t mean that the exchange isn’t a real reflection of the actual value. “The” actual value is always just a value to a specific person in a specific situation. And all any transaction tells us is that one party values one thing more than the other, and the other party feels the other way. So, you might actually have been willing to pay $10k, or $1m for the steak, and the person selling it to you might have been willing to accept $12.
So too with an exchange for labor. The only reason the employer is willing to trade money for labor is because she values the labor more. The only reason the worker is willing to trade labor for money is because he values the money more. The actual spread between what the employer would be willing to pay and what the worker would be willing to accept is unknown. But it is known that the employer and the worker disagree about the value of the money and the labor, and that disagreement is what makes the transaction possible. If they both agreed, or if they were prohibited from accepting an exchange at anything but the maximum price the employer would be willing to pay (which is what it seems Promethean is suggesting), the transaction just wouldn’t happen.
Yes, given the constraints that were placed upon them. There were legal restrictions on where they could work, both on them and on employers, which suppressed demand on their labor. Cultural taboos and prejudices also restricted their options, but the legal and quasi-legal restrictions were the more pernicious (by quasi-legal, I mean enforcement of the status quo by groups like the KKK, which were not technically the law but operated with its tacit protection and blessing). Without these, the price of black labor would have been artificially low, and enterprising business owners could take advantage of the suppressed wages, which would work to counteract the prejudice and raise black wages over time (and simultaneously suppress wages of white laborers towards an equilibrium).
That appears to be what was happening, as evidenced by the introduction of minimum wage laws that were expressly advocated as a way to price out black laborers: because racism artificially reduced the value of black labor, requiring that the minimum amount that could be paid be above that value would eliminate competition. But if racism wasn’t creating opportunities for non-racist employers to get comparable labor at below-market rates, such a cartel wouldn’t have been appealing to the racist majority.
I’m not sure how to think of morality in the context of the market. A market economy takes values as inputs, so it seems like the concept of trying to decide our values about such a system generates the messy problems of recursion. What oughts can be offered about a system that takes oughts as inputs and generates is’s as outputs? That is not entirely rhetorical, but it is not something I have an answer for.
Suffice it to say that the market is as morally pluralist as its participants, that most of the outcomes are a-moral, and that rationality for the purpose of economic analysis is scoped to preference self-consistency.
While I agree with the general point that a certain amount of redistribution can improve the information the market generates, I don’t think it’s true that participants needs to be equals in order to generate a ‘real’ value. As I argue above to Karpel and Promethean, there is no such value independent of the participants, and economic exchanges require that the participants value the things exchanged differently. Decreasing inequality will decrease the spread between people, but only up to a point, so there are diminishing returns in terms of information. And redistribution is itself distorting, so significant redistribution to drastically reduce inequality will at some margin eliminate more information than it produces.
There’s a lot of wiggle room in “almost purely”, but to offer a small defense of advertising as a rational and pro-social enterprise: advertising reduces search costs, which benefits consumers by making it easier to find the goods they want to buy. The internet has obviated this a bit by decreasing search costs across the board, but advertising is still a reliable signal of legitimacy, it strengthens brands, which in turn incentivize quality. Where it’s intentionally deceptive, it’s bad, and you’re right that it can encourage irrationality even when it isn’t lying. But it is not without benefit for rational consumers.
I kind of agree with this, and in fact so do many of the most free market people I read. Libertarianism takes for granted that governments will be captured for the benefit of the rich, and proposes the solution of sharply limiting government powers, such that any action that exceeds the limit is immediately recognized as illegitimate. That prevents the rich from buying too much influence by capping the value of that influence.
The problem is that government needs to be the most powerful enterprise, it needs to be more powerful than every company it oversees, or else the rich can succeed in capturing society by capturing the largest companies. But if government is more powerful than every company, then it will always be worth capturing.
But I don’t see the alternatives doing much better here. Centralizing power away from the free market just seems to expedite the process. And other solutions seem to depend on the idea that people just magically won’t do that anymore. I think there is no solution, it’s a balance that must continue to be fought for.
This is an interesting suggestion, not at all what I had in mind but I can see the line of thinking and I think there’s some merit to it. When I think of high marginal utility spenders, I’m thinking of the people struggling to make rent or feed their families. An extra dollar to those people is very, very valuable. An extra dollar to Musk or Gates seems wasted, given how many dollars they’re sitting on. By moving excess dollars that lay idle with the rich (or that the rich use for another car or another vacation or another molecular gastronomy meal) to the poor who will immediately put it to use in ways that will measurably improve their lives, we can increase the effective value in the economy, and get better information about what things are worth.
But it’s true that some desperately poor people will put the money into drugs or gambling, and Musk has at times leveraged himself to the hilt to create multiple enterprises that have immense social good. Still, I think that’s the exception. Most successful people, even when they generally use money wisely, are also comfortable and consume wasteful luxuries. And most poor people, even when they generally make financial mistakes, will use more money in socially positive ways. On average, I would expect the marginal dollar to be more valuable in the hands of the poor than in the hands of the very rich.
See, this is why I think socialists are not as far from “taxation is theft” as you suggest. I would argue, and I think it’s consistent with capitalism (even required by pragmatic capitalism) that even when the split of the profits between two parties is absolutely fair, there’s perfect information and no asymmetry of bargaining power, taxation is still not theft, because the transaction is only possible in a world in which tax-funded institutions support market transactions.
Taxation isn’t punishment, and shouldn’t be thought of that way. As I pointed out to Silhouette above, we shouldn’t be blaming the lucky for making rational choices in the context of their luck. It should be used to price in the cost of market-supporting institutions and to price in harmful externalities (as with carbon and sin taxes), and more generally to raise the funds necessary to fund the commons and stabilize society. That’s not theft, it’s the cost of doing business, and it’s justified even when the business is as fair as it can be.
But both sides of the exchange lack that information. The exchange is labor for money. The employee doesn’t know the complete picture of how that labor will be used to generate profit for the employer, and the employer doesn’t know the complete picture of that money will be used to satisfy the employee’s preferences. Both parties to the transaction lack information. Moreover, they both know they lack information, and they voluntarily engage despite that lack of information. Perfect information isn’t necessary for a transaction to be voluntary.
Let me propose a similar situation that may get on what we actually disagree about. Consider two firms negotiating. One firm is buying services from the other firm. The buyer will use the services to turn a profit, the seller is turning a profit on the sale. They both know this, and they’re both OK with it. They don’t need to open the books to each other to make that exchange fair.
To me, this exchange is comparable to the employer-employee exchange. It does not seem so for you.
By this argument, the market doesn’t determine the price of consumer goods, since they come with a specific price tag and 7-Eleven doesn’t take bids for soda.
This seems to rely on the premise that CEOs don’t do anything, it’s not difficult, and/or the skillset is not rare, and anyone can be dropped in and do a good job. That isn’t obviously the case, CEOs have a lot of power and a lot of trust, the talent pool is small and competition is fierce.
Publicity puts the employer at an informational disadvantage. If CEO salaries weren’t public, hiring a new CEO at a drastic pay cut would be easier. Consider how business often (illegally) forbid employees from discussing their salary with each other. That helps keep wages down, because it lets business price discriminate in buying labor (paying worse employees less), and employees are less motivated to ask for more money because they don’t know they’re being hosed and no one else sees how little they make so they don’t lose face. CEOs know what their peers are making, so they know what a fair package looks like, and they’re motivated to bargain for more because they and everyone can see how they’re valued relative to their peers.
I agree. But to the extent that the argument against capitalism depends on the premise that managers don’t do anything, acknowledging that managers add something of value does weaken that argument and so supports capitalism.