An analysis of value

This article by Dan Polansky looks at the concept of value. One inspiration is a note by Mandelbrot in his The (mis)behavior of Markets to the effect that the concept of value is mysterious, elusive or something of the sort. Another inspiration is the concept of Quality by Robert Pirsig, which Pirsig wants to leave undefined, but is somehow relating to goodness or value. I suspect that the resulting analysis is going to be weak and confusing. Perhaps Mandelbrot is right: the concept is elusive.

Let me start with an initial take at a definition of value:

• The degree to which someone is unwilling to part with something.

The something one may want to part with can be an object but also a state of affairs or being. The concept of being used here is perhaps somewhat untraditional, so let me elucidate a bit. Someone who lives is London has being an entity living in London or being a London inhabitant. If they move from London to, say, Edinburgh, they part with being a London inhabitant or with London-inhabitanthood. One may be unwilling to leave London, that is to say, to part with being a London inhabitant. And that degree of unwillingness is identical to the (subjective) value of that being. Havings are species of beings; that is, having is car is being such that one has a car. in this way, we may reduce all partings to parting with beings. Thus, instead of parting with a car, one parts with being one who has a car. This seems strangely technical, but it seems to have a theoretical or analytical significance or advantage. For one thing, one may part with an object only in part; for instance, a real estate owner renting the real estate does not part with being the rightful owner but does part with being the rightful user of the real estate. This all seems perhaps rather counter-intuitive and I hope to develop these ideas further in more detail later. Be it as it may, it is still meaningful to talk about the value of an object (a car, a golden piece, etc.) as a shortcut for the value of having the object (more technically, being the rightful owner of the object or other form of having).

The definition is doubly subjective. For one thing, the value of insulin for someone with diabetes will be different from its value to someone without. But additionally, someone with diabetes may happen to be in an unsound state of mind and be eager to part with insulin despite its obvious utility.

The definition seems to fail to differentiate value from an estimate of value. Since, appreciation of something is limited by its knowledge. If I have a box with unknown content, the value of the box depends on the value of the unknown content. Learning about the content would change my unwillingness to part with the box (and the content), but it seems strange that the value would change only based on change in knowledge of the valuing person.

The definition is made in terms of parting rather than acquisition. Whether it is the best option is unclear. At least, there are some things one does not acquire, e.g. hands. And for them, the relevant change is parting. Moreover, refusal to part generally does not require expenditure of attention, unlike a decision to acquire.

Use value vs. exchange value

The unwillingness to part may be driven by use value or by exchange value. Thus, someone with diabetes has use for insulin. By contrast, someone without diabetes does not has use for it, but can sell insulin or offer it to someone as a favor. Both cases match the doubly subjective definition of value, and this split seems to be meaningful.

The use of the word use in the name of the concept may lead to some confusion. One may argue as such: gold is useful as a means of exchange, and therefore, gold has use value. And thus, exchange value is a species of use value; to exchange something for something else is to make one particular use of it. I propose to reject this reasoning and exclude exchange from use, retaining use value and exchange value as contrast terms rather than subordinate terms.

One may futher ponder whether use can be contrasted to beauty. Things that are useful are sometimes contrasted to those that are merely beutiful. Thus, a beautiful painting would have no use value since one does not use it, merely looks at it. However, for the purpose of this conceptual distinction, deriving pleasure or changed cognitive state from looking at a beautiful picture would probably count as use, indicative of use value. Put differently, one may think of use value as that kind of value that remains when one ignores exchange value. This concern also has to do with the word utility, which I would think would mean something like usefulness, but in Millian utilitarianism and modern economics seems to be something slightly different. Like in the previous paragraph, we see that we need to carefully consider what concepts we are trying to indicate by means of partially misnaming concept names instead of relying on a naive or common-sense meaning of the words used in the analysis.

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In the remainder of this section, let me look at the historical literature.

This distinction is recognized by Smith: "The word value, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one maybe called "value in use," the other, "value in exchange." The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water; but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use: but a very great quantity of other goods may frequently be had in exchange for it."

This distinction is recognized by Malthus 1823: "It is generally allowed that the word value, in common language, has two different meanings; one, value in use, the other, value in exchange; the first expressing merely the usefulness of an object in supplying the most important wants of mankind, without reference to its power of commanding other objects in exchange; and the second expressing the power of commanding other objects in exchange, without reference to its usefulness in supplying the most important wants of mankind. [...] It is obviously value in the last sense, not the first, with which the science of Political Economy is mainly concerned."

This distinction is also recognized by The New International Encyclopædia: "VALUE (OF. value, value, fem. sg. of p.p. of valoir, from Lat. valere, to be strong, able). In political economy, a word that is most commonly used to designate the power of a commodity to command other commodities in exchange. The term is applied, however, to several other conceptions. The potential capacity of an object to meet human needs is sometimes called value — ‘value in use,’ in the terminology of the classical economists. In modern scientific economics, the term ‘utility’ has for the most part supplanted this use of the word value. Another meaning which the term value conveys is the significance of an object to an individual as the indispensable condition of a certain satisfaction. Value in this sense of the term is frequently called ‘subjective value,’ to distinguish it from ‘objective’ or ‘exchange’ value (the first conception noted above). Subjective value is of two kinds, ‘subjective use value,’ where the importance of an object is gauged by the direct satisfaction to be obtained through its consumption, and ‘subjective exchange value,’ where the importance of an object is gauged by the satisfaction it will yield indirectly, through exchange."

Further reading:

• Use value, wikipedia.org -- for some reason, largely devoted to Marx

Value vs. goodness

Goodness and value are two distinct concepts. A good knife may lose its value because of reduced demand on knifes, which may result from availability of cheap substitutes on the market. But the knife does not become any less good (in the sense of e.g. rust resistant, maintaining sharpness for long, etc.). Value has something to do with supply and demand. If the example of knife seems too contrived, one may think of factory machines that lose value as a result for loss of demand on the kind of product they are used to make or as a result of arrival of new technology requiring new machines.

One can nonetheless perhaps connect value to goodness as follows. The value of the knife is given by the degree of goodness of having the knife. Here, goodness of the knife is distinguished from the goodness of having (a good) knife. With changing market conditions, the goodness of the knife does not change, but the goodness of having the knife does change. One may object that this departs from the doubly subjective definition by an implied objectivity of the word good. This would need to be clarified. For one thing, the idea that the goodness of having insulin at disposal differs between a person with diabetes and one without is plausible enough; so far so good.

Value vs. price

A thing or state of affairs does not need to be for sale to have value. For instance, having healthy organs is of value in a country that does not allow people to sell their body parts for money. Moreover, having the purchased food at home rather than in the grocery store is of additional value since this is where one wants to have the food. This is an example of not only having the food but also having it in the right place being of value.

In some contexts, the value does seem to match the price. It is so at least linguistically: one talks about the value of the stock rising. And in so far as one mostly holds stock for the exchange value, the value is given by the price, although there is also the dividend income.

One also talks of good value for the money. This could refer to something like use value. However, it could also return to a future selling price, future exchange value. Thus, a tradesman who has no intent to use the things he trades in may consider to have gained good value for the money, or bought cheaply (or so I think; quotations of this kind of use would solidify the point).

Objective value

I would like to come up with something like objective value or intersubjective value. Alas, there is some difficulty.

One difficulty is something like inversion of value in transactions. Thus, when I buy e.g. bread for money, I indicate that the bread has more value to me than the money I give up. But for the seller, the relation has to be the opposite: the money must be of more value than the bread.

Nonetheless, something like objective value in market context makes sense. Thus, I may have a certain degree of unwillingness to part with money in the given market conditions. That unwillingness does not seem to be purely subjective: whatever I want to acquire, I will need money for that, so I naturally do not freely want to part with the money without gaining something in exchange. And this applies to other people as well. Sure enough, the unwillingness to part with a specific amount of money is different between a rich person and a poor person.

Be it as it may, one may reason as follows. There is more objective value in food, clothing and shelter since everyone needs those. There is less objective value is luxury items or various pieces of art whose trading resembles trading of bitcoin in certain ways.

Let us consider: did the Tulips during the noted speculative bubble have objective value? They seemed to since they had exchange value. That is to say, a holder of a tulip could exchange it for something of value and in fact something of high value during the peak of the fever. This is strange. This kind of concept of objective value does not seem to be anything like underlying value, whatever that would be. But excluding exchange value from the concept of value does not seem reasonable. A puzzle.

Personal value

Things can have nostalgic or other psychologically subjective or personal value. Someone may grow fond of old items and be unwilling to part with them as a result, regardless of availability of cheap new replacement items on the market. Someone may appreciate old letters from a friend or a romantic partner, and these same letters will have almost no value for anyone else.

Marginalism

Marginalism feartures the interesting idea of additional items having increasingly less value. Thus, additional items of food have increasingly less use value; when one is satiated, one cannot appreciate the additional food items so much.

Objective value 2

An attempt at objective value:

• The degree to which something contributes to the continuing existence of the value assignor.

This is very generic. The value assignor can be a human, an animal or a robot; perhaps even a plant. There is an element of objectivity: if someone who has diabetes does not appreciate insulin, he is objectively wrong about its value.

How this concept is going to interact with exchange value is unclear. It should probably involve it as part: money has this kind of value--indirectly--for its ability to purchase things of direct value, e.g. food or drinking water.

In a biological context, one may replace the objective of the continuing existence of the value assignor with the success of the genes of the value assignor. How this would translate into the case of robots would need to be figured out.

In this conception of value, there is no room for subjective preferences. It seems to be a very cold, as if Spartan concept.

We may modify the definition to be not in relation to continuing existence but to something like power or ability. Since, without modification, someone who is very rich does not gain much in terms of survival ability by earning additional huge sums of money, but it is implausible that these additional sums are of almost no value.

Things having value

At first thought, one may think that what is of value are objects, e.g. a loaf of bread or a silver coin. But it turns out that what is of value are beings (including havings), states of affairs. Even to speak of bread as having value seems to be a shorcut for saying that having bread is of value rather than e.g. its existence. And then, it is of more value to have the bread where one needs it rather than merely owning it; one spends effort to gain having the bread in the paltry.

Other beings and havings of value include having hands, having both kidneys, having good friends and associates, having a good reputation, having an educational certificate, having skills even if uncertified, etc. Sometimes it is not having something that is of value, e.g. in a game mentioned by László Mérő in which one of the truck drivers throws away the steering wheel and thereby wins the game (detail to be added).

Also of value may be negative objects, such as holes, lacks of fullness, etc. Thus, having pantry not completely full may be of value, or else one has no place for adding more items. Thus, getting rid of unnecessary items may be of value.

For workers, being subjected to state-enacted work safety regulations may be of value; it improves their negotiation power. Here, the reduction of freedom of contract is of value.

For some of the poorest people, being in a country such as the U.K. that has NHS (state-funded single-payer healthcare) may be of value.

Negative value

Some things can have negative value. Thus, one would prefer to get rid of them or even pay someone to get rid of them. Household waste is a case in point. Having dirt on the kitchen is another. Being ill is a being that usually has negative value.

Thus, not only is there willingness rather than unwilingness to part; there is also willingness to part with something additional that one would not want to part with otherwise, e.g. with the time required to take the household waste bin to a shared waste container.

Having items with low use and exchange value that take up valuable space may have negative value. For someone else with more than enough space, having the items can have positive use or exchange value. (Maybe there is a mistake here; I need to work out an example.)

Labor theory of value

This theory states that things have value to the degree of the amount of labor necessary to produce or acquire them. I find this theory wrong. It disregards the demand part: someone having spent a lot of labor in creating a useless thing does not automatically make the thing valuable. Furthermore, it disregards scarcity-driven value of natural resources. Sure enough, human labor is one key scarce resource affecting prices, resource most people have at disposal. But I see no reason why scarcity of other scarce resources should not affect prices or that it should not be reflected in the concept of value.

Another objection is that labor by an unskilled person is generally not necessarily as valuable as labor by skilled person. One could try to account for this by considering the skill to be a result of past labor, effort spent in acquiring the skill. But acquiring the innate talent, a capital asset, does not seem to be a result of labor; it is not acquired at all, it seems.

Further reading:

• Labor theory of value, wikipedia.org

The value of art

One may think the value of art has something to do with immediate utility or quasi-utility, which, in the case of paintings, would consist in production of pleasing aesthetic response as a result of looking at the painting. Alas, that does not match art prices. There seems to be some strange speculative element in art prices. A key property of art items is that they are not so easy to copy or copying is prohibited. The items share this property with money. There is a scarcity of talented painters or there is a scarcity of positive critical appraisals for paintings by respected critics. What kind of game is really going on I do not know. Some people apparently take pleasure in destroying property to demonstrate wealth. Why, then, would one not want to demonstrate wealth by buying arguably overpriced fundamentally useless items? Look how wealthy I am, I can afford to spend this incredible amount of money for something of no apparent utility, at least as narrowly understood. Conspicuous consumption is the keyword.

IEP takes a different view of the value of art.

Further reading:

• Value of Art, Internet Encyclopedia of Philosophy

The plural values

The plural values seems to refer to a different concept. Remains to be investigated.

Economic value

The term economic value sees some use. Intuitively, I would think that this concept can be split into use value and exchange value, no less than the doubly subjective concept of value. Since, having a machine useful for manufacturing has use value revealed in the manufacturing use as well as exchange value upon a sale to someone else who wants to use it for manufactuing. And both would seem to be economic value, as opposed to e.g. personal value, artistic value or cultural value. The term intuitively does not seem equivalent to the doubly subjective concept of value; especially personal value (resulting e.g. from an emotional attachment) would not be economic value.

Further reading:

• economic value, dictionary.cambridge.org
• Value (economics), wikipedia.org

Further reading

• Wikisource: The measure of value stated and illustrated by Malthus
• Wikisource: 1911 Encyclopædia Britannica/Value
• Wikisource: The New International Encyclopædia/Value (political economy)
• Value Theory, Stanford Encyclopedia of Philosophy -- despite the word "value", this seems to be about something else