Wednesday, March 25, 2009

On Techniques

An essential characteristic of man is that he acts. Action is purposeful behavior, that is the behavior of rationally utilizing means for an ends. We call means that have material embodiment “technology.” We call means that do not have material embodiment “techniques”. Mankind has always been a rational animal, therefore he has always used technology and/or techniques.

When a bee constructs a beehive, the method of construction is not a technique. Nor is the beehive itself technology. This is because the bee itself does not “act”, strictly speaking. It exhibits behavior, but the “purpose” in the behavior is that of its genes, and not of its mind. Only mental purpose (rationality) makes a behavior an action. Most animal behavior is irrational.

Much human behavior is irrational too. When a human unthinkingly blinks, he does not “act”. The behavior has purpose (to clear out particles), but the purpose is that of his genes, not of his mind. Moderns tend to call what we consider ill-decided action “irrational”. For example, we often would call rain dances irrational. This is not so. Rain dances (as strange as it is to say) are rational. They are behavior with mental purpose. The rain dancer is utilizing means (the dance) for an end (rain). Of course it erroneous rationality, but it is rationality nonetheless.

Rational animals are always choosing between means to their various ends: “Do I fight, or do I run?”. The means of fighting and and the means of running are themselves mostly instinctual. But the choice between the two is rational. Rational animals are often choosing between means/techniques which they already know. But some rational animals can also invent new means/techniques.

For example, chimpanzees are known to strip branches of their leaves, and lower them into logs to harvest termites. They do not instinctively know how to do this. Therefore, some chimpanzee long ago must have figured it out, and other chimpanzees learned from observing him. That means the behavior is mentally purposive, and the stripping of the leaves qualifies as technique, and the stripped stick itself qualifies as technology.

While the non-rational behavior of instinct is passed on through heredity, technique is passed on through learning. Though it may dismay educationalists to hear this, learning doesn’t necessitate teaching. It only necessitates observation and reason. The learning chimpanzee sees(observation) the inventive chimpanzee utilize his new technique, and through his rationality becomes aware that the new technique could be a means to his end of eating termites.

Thus throughout the history of rationality in animals, technique was passed from one individual to another, and from one generation to the next, solely through observation until the development of spoken language. Spoken language enables the human animal to express his own ratiocinations to other humans using only sounds. This widened the range of techniques which could be passed on. Through speech, humans could pass on techniques such as “how to get a wife”, which they couldn’t pass on through observation. Through speech, techniques could be passed across great distances, especially in the memorable form of song (as in the agricultural poetry of Hesiod).

The development of the written language widened the possibilities yet further for the propagation of techniques. It made the verbal transmission of techniques more exact and less prone to loss. Writing also enabled people to invent techniques which required the use of arithmetic and geometry. In ancient Phoenicia, merchants used written arithmetic to improve their business practices. In ancient Mesopotamia, priest-bureaucrats used written algebra to improve their grain management techniques. And in ancient Egypt, priest-bureaucrats used written geometry to improve their land-surveying techniques.

Technique is a sub-class of means, and it is also a sub-class of knowledge. All new knowledge is attained in one of the following ways:

  1. Instinct: Instinctive knowledge is knowledge that arises within the mind without any observation or ratiocination.
  2. Authority: Belief in accounts told by other humans
  3. Observation or Empirical Knowledge: Belief in sensory impressions
  4. Induction: Finding patterns in facts and anticipating that that pattern will continue
  5. Deduction: Finding necessary implications of certain facts

Techniques, by definition, are not instinctive (see above). Techniques also cannot be considered solely observational knowledge. Thinking, “That chimpanzee is getting termites with that stick” is observational knowledge. But thinking, “Perhaps I could get termites with a similar stick as well” is induction. Thinking, “When I planted seed this time last year I got a huge harvest” is observational knowledge. Thinking, “Perhaps if I do so again, I will get another big harvest” is induction.


Monday, March 16, 2009

Menger's Value Scale

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 3.

Previously in this series: Mengerian Marginalism

A chief insight of Menger's value theory is the recognition that, it is not enough to simply ask the question, "which good is more important?", which is basically asking "which satisfaction of a need that particular goods provide is more important?".  For example, the question implied in the "value paradox", namely "which is more important, bread or diamonds" is basically asking, "which is more important (1) the satisfaction of a man's need for bread or (2) the satisfaction of a man's need for diamonds?"  This question makes no sense stated so simply, because different DEGREES of satisfaction have different levels of importance.  Ignoring questions of general scarcity, and ignoring questions of saving for the future, if an individual man has already engorged himself on bread, obviously the tiniest speck of diamond, used only for ornament for a single day, would be more valuable to him than a whole pantry of bread made available for that same day.  To model this, Menger invented the value scale, which is presented below.

In the above scale, the Roman numerals signify certain satisfactions.  Each descending step below the numeral represents one more "unit" of satisfaction.  The Arabic numerals indicate the ordinal utility ascribed to that particular degree of satisfaction.  For every satisfaction, the ordinal utility diminishes with each marginal increase in satisfaction.  This represents the obvious fact that, the more one consumes of something, the less valuable is the next degree of consumption.  In general, acquiring a 10th slice of bread to eat is less important than acquiring the second one was.  And acquiring the 10th diamond to adorn oneself with is less important than acquiring the second one was.  This is now known as the law of diminishing marginal utility.

Menger presents an example in which column I represents satisfaction for a man's need for food; column V represents satisfaction for his need for tobacco.  The first "degree" of satisfaction of his need for food is ranked at 10 (which is the highest possible rank).  This makes sense, because the first degree of satisfaction for food represents bare sustenance.  The first degree of satisfaction of his need for tobacco is given the rank of 6.  10 is greater than 6, so that first bite of food will be more valued than that first drag of a cigarette.  So will the second degree of food satisfaction, because it is ranked at 9, which is still greater than 6.  It is only at the fifth degree of satisfaction (where the value is ranked at 6) for the man's need for food, when the man will consider another bite of food equal in importance to a first drag of a cigarette.  But once satisfaction for his need for food is attained beyond that degree, he would value a first pinch of tobacco over ANY increase in his consumption of food.

Next in this series: Menger on Multi-Purpose Homogenous Goods

Vain Intellectuals and Wise Workers

All professions have a tendency toward self-importance. So it should be no surprise that historians have a distinct bias towards eras in which their own forerunners (ancient chroniclers and historians) were existent and employed. Thus, societies without chroniclers are termed “dark ages”. Of course these ages are dark, as in “obscure”, since we necessarily know little about them. But too often, this “darkness” is also given a decidedly judgmental connotation. To many historians, an absence of their own kind must signal social despair and economic desolation. However great the recent dividends of literacy, however, for most of history, literacy has actually been largely a tool for elite domination. It was the literate classes who lorded it over the non-literate classes, using the written language as a class barrier and a tool for greater efficiency in their criminal statecraft.

Another bias of historians is one which they share with all “academics”: one favoring the non-practical studies over the practical. Thus, mankind only really achieved “glory” in the world of thought when they began to contemplate the stars as did the ancient Babylonians or tried to discover laws of nature as did the ancient Greeks. Never mind that the Babylonian priest monitoring constellations did so fed by grain forcefully extracted from a hard-laboring serf. And never mind that the fruits of the astronomer’s labor never resulted in any actual increased prosperity for ancient man. The careful thinking and experimentation of the working man who improved his tools and techniques, thereby increasing his prosperity, is the realm of “science” which did, by far, the most good for mankind; i.e. the woman who figured out a better way of stiching a grain pouch, or the man who judged, based on profit-loss calculations, what was the best price for his wares.

According to these biases, the oppressive regimes of Chinese emperors are glorified because glorious philosophers staffed their mandarinates. The economic stagnation of the Roman Empire is seen as a glorious time of order when the literate classes held their rightful place at the top of the heap. And the amazing industrial revolution of the medieval era which resulted in a tremendous increase in the standard of living, is falsely seen as a dark time of superstition and squalor, since the only deep thinkers of the age (priests and monks) were humiliatingly cloistered.

The cogitations of the learned classes throughout history have been largely vain or pernicious. It is the hard-thinking of the common man trying to improve things for himself and his family (which, in aggregate ends up improving things for everybody) that should be honored.

Practical Education

What is the point of all this formal learning we expect schoolchildren to do: the endless assignments and tests?

One stock answer to this question is that it teaches them how to get things done. That would obviously be learned better in the real world than in school.

The somewhat more plausible answer generally given is that schools are “teaching students how to learn and how to think.” Those skills are also better learned in the real world.

The only thing that formal schooling is good for is learning an academic topic itself. But why must every student learn Algebra through Calculus? Why must every student learn how to deconstruct Catcher in the Rye? If a student finds in learning basic math that he would be interested in pursuing it further, then it would make sense for that student to learn higher math in order to possibly use it in his career. The same goes for literary studies. But this would not be the case for everybody.

Intellectuals who consider educational goals are too enamored with their own interests. And those interests generally do not include producing something the market, when left to itself, highly values. (That’s why they’re always lobbying for policies which create artificial markets for their services.) So educationalists are none too interested in business savvy. But business skill and knowledge are the most productive sets of skills and knowledge in the world. The most important information are (as Friedrich Hayek showed) profit-loss facts on the ground that inform the billions of price decisions that make an economy maximally prosperous. So real-world outside-of-school education is not only much better for a young person’s character; it makes the young person smarter in ways that are actually beneficial to the student (and to others in society).

Rich, rewarding, prosperous lives need not (and should not) start in one’s mid-20s. Education and productivity should be intertwined and mutually reinforcing strands that run throughout a person’s entire life. They should not be compartmentalized the way they are now.

Sunday, March 15, 2009

The Watchmen: Moral Philosophy Face-Off

Stories featuring super-heroes, like the ancient myths featuring gods, can be an excellent medium for exploring broad issues through allegory. The super-human characters can personify competing ideologies and forces. The movie Watchmen, as well as the comic book by Alan Moore which it was based on, is a superb example of this. I will explore some of the competing ideologies portrayed in the film as a conflict between the characters who are the chief representatives of those ideologies.

Comedian vs. Nite Owl: Nihilism vs. Belief in Good

Nite Owl wants to be a hero’s hero. He believes in the American dream: doing good in the world, and establishing peace through justice. When he sees his attempt to quell a riot descend into a savage beating of the rioters by the Comedian, he wonders aloud what happened to the American dream. The Comedian responds that, what happened was that it came true, and that he’s looking at it. The Comedian derives his name from his “realization” that the story of humanity was one long joke. When Ozymandias professes his ambition to save the world, the Comedian scoffs. He proclaims that humans have been trying to kill each other off from the beginning, and that now that they had nuclear weapons, they had the means to “finish the job.” For the Comedian, the inevitable nuclear armageddon was going to be the punchline of the joke that is humanity. The “humor” which pervades the joke is that, for all their moral pretenses, in the Comedian’s mind, humans are thus basically savages. He seems to use this “insight” as justification for his own misdeeds: murder, attempted rape, etc.

To my mind, Nite Owl is right to be concerned with justice; but he is wrong to put his faith in the American way, or the “way” of any;state, which, by its nature is antithetical to justice. As for the Comedian’s philosophy, while it is true that many humans throughout history have been murderous, that by no means defines us. We can rise above our self-destructive tendencies. We might not. We may destroy ourselves in the end. But it would be irrational and pointless to assume that we will and resign ourselves to our fate. And it makes to sense to use lapses in morality as evidence for the non-existence of the very morality it is a lapse of.

Silk Spectre vs. Dr. Manhattan: Anthrocentrism vs. “Scientific” Humility

When the Silk Spectre tries to convince Dr. Manhattan to save the world from nuclear annihilation, he responds that he feels no need for that. He uses the example of Mars (on which the conversation takes place) to argue that humanity bears no special importance. He notes that Mars does perfectly well without life. Why should not the Earth? Dr. Manhattan finds the subtleties he can see in the fabric of the universe far more interesting than the petty squabbles of humans. When confronted with the possibility that he may have led to the death of one of his former friends, he notes with “scientific” detachment that a dead body has exactly as many atoms as a living one.

We can see this “scientific” detachment in many people today. It is a banal habit of scientists and science enthusiasts to muse on how brief and boring is human history when compared to the history of the earth and the universe entire; and how tiny and “meaningless” our little lives on our little orb is when compared to the vastness of the cosmos. Such self-indulgent idleness even gets book length treatment, as in Alan Weisman’s The World Without Us, in which the author speculates about how the earth would quickly “recover” from humanity like a bad flu, should we go extinct. This kind of self-conscious anti-anthrocentrism is a key undercurrent for the environmental movement, which in its most benign public faces only seeks to preserve nature for the sake of preserving a home for humankind, but which, under the surface contains a virulently anti-human Gaiaism which goes so far as to think of humanity as a disease afflicting the earth.

All this is pure nonsense. Humans who eschew anthrocentrism are only (A.) putting on airs to gain kudos as novel and interestingly iconoclastic thinkers (B.) furthering their own careers by fostering a false morality which will promote their own organizations and professions or (C.) both. We as humans have no inherent tendency to espouse non-sentient nature for its own sake. Any such useless moral code would have long ago been cast aside by Darwinian forces. It makes no sense to attach greater “meaning” to things like stars and galaxies, simply due to their greater size, age, or complexity in comparison to us mortals. “Meaning” itself is a purely subjective and rational concept; and as such, it can only be honestly given to the subjective concerns of rational beings. It makes no sense to say that a universe or a planet without rational beings has “meaning”. Meaning to whom? To what?

Rorschach vs. Ozymandias: Deontology vs. Utilitarianism

Ozymandias, at the end of Watchmen, kills millions to “save billions”. This is an excellently illustrative case of utilitarian ethics. Outright mass murder can be justified, if the “utility balance” is greater than it would have been otherwise. In the movie, Ozymandias’ plan seems to work, and global peace does seem to be in the offing. But of course this is a work of fiction. Unfortunately killing millions to purportedly save billions is a very real world concern in that America has been doing this for a whole century. Utilitarian ethics has always been a chief justification for war. The problem is that our political leaders are not perfect geniuses like the fictional Ozymandias. Indeed no man is. So, even if you accept utilitarian ethics, we have no way of knowing if our military ventures are actually resulting in greater utility than would have a peaceful foreign policy. Rorschach embodies the very opposite of utilitarianism. For Rorschach, morality is act-based, not consequence-based. If he kills a man, it is not to work toward maximizing global utility, it is to enact justice. To Rorschach, Ozymandias’ mass murder is not a necessary evil; it is simply evil.

Utilitarianism is bankrupt; it is nothing more than a toy model for moral philosophers, and a powerful tool for the elite. Who is to say “maximal utility” is the “best” goal, and why? What justification is there for it? As I argue elsewhere, David Hume was right in pointing out that it makes no sense to “reason” a morality into existence. Moral principles are either in us emotionally or are not. “Maximal utility”, needles to say, is not a natural moral end to be found in the human psyche. The moral precepts of “don’t murder,” and “it is justified to kill those who murder innocents” are to be found naturally residing within us, however. According to Wikipedia, Jackie Earle Haley, the actor portraying Rorschach in the movie, “‘almost went nuts’” trying to reconcile his understanding of complex human behavior with Rorschach’s moral absolutism, stating the character made him wonder if people generally just make excuses for their bad actions.” People in government and in the voting booth who use utilitarianism to justify murder, theft, and enslavement are doing just that.

The Abdication of Parenthood

We as a society have abdicated parenthood. We have handed parenthood over to the state. The prime responsibility of raising children to become decent, humane, and successful adults has been given over to state schools.

Kids' lives are dominated by school. They spend about 6 hours a day at school, and then about 1 hour on homework. The parent's daily role has been relegated to hectoring their child into meeting the demands of the school: to "wake up, get dressed, eat breakfast, and brush your teeth so you can get to school on time"; and to "get all your homework done, and study for that test, so you can get good grades at school." The only daily meaningful interaction between parent and child is relegated to dinner: a tiny sliver of time in the day in which parents are enjoined to ask their kids, "How was your day at school."

This grip that the state has over the lives of kids not only strangles the parent-child relationship, it heavily proscribes nearly any other non-school-related fruitful relationship the child can have. The state, through laws and the overwhelming demands of the school, does not allow the child to work or to freely pursue extra-curricular passions.

And what is the effect on our children of the state's utter domination over their lives? In short, in makes our children improvident, shallow, incurious, and often immoral.

And it's no wonder. Instead of the vibrant, multi-layered, rich and loving relationships that a child would have if he were enmeshed in the world of his parents, relatives, friends-of-family, and business-parters-of-family, the child is stuck in the pernicious modern-day relationship of schoolteacher-and-student. This relationship is characterized by indolence, apathy, and impotence. The indolence and apathy comes from the fact that teachers tend to have the mentality of the bureaucratic sinecure-holder. They don't have the overwhelming Darwinian drive to improve the lot of their students that family members naturally have. And, in their padded and privileged role, neither do they have any entrepreneurial or competitive drive to maximally satisfy their customers. The impotence comes from the very format of the formal school. For the bulk of every day, each child gets 1/20th - 1/30th of the attention of one adult. No matter how "innovatively" you reform it, such a format is pure pedagogical poverty. And the rest of the day (recess, after-school hanging out, etc) is a "Lord of the Flies"-type scene of unguided, poorly-raised children reinforcing the worst aspects of each other's character.

Life in such a dysfunctional camp is an unnatural life of no meaningful consequences. The real-world realm of helping out parents, friends of parents, and other employers with work and home affairs gives a child a true sense of accomplishment ("look at how awesome this room looks now"; "alright, son, business is booming!") and a true sense of consequences ("Sorry, kid, if you don't do the work, I can't keep you on"). The artificial, unnatural realm of the school only has faux-accomplishments and faux-consequences. And kids (especially as they get older) see right through them. That is why they become apathetic about accomplishment and responsibilities, and completely shallow regarding the real world, caring only for friends and play.

In his highly important monograph Education: Free and Compulsory, Murray Rothbard tells the history of how (and why) the state progressively weaned us off parenthood: through compulsory schooling laws and an intra-school movement toward "educating the whole child". As should be entirely manifest to anyone with a shred of skepticism regarding pro-state-schooling propaganda and an open eye to local and world news, the state has made for a wretched parent. It is time we take our children back.

Thursday, March 12, 2009

Mengerian Marginalism

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 3.

Previously in this series: Further Mengerian Insights on Value

The most important opening shot of the Marginal Revolution was fired with the following passage:

careful examination of the phenomena of life shows that these differences in the importance of different satisfactions can be observed not only with the satisfaction of needs of different kinds but also with the more or less complete satisfaction of one and the same need.

Less complete levels of satisfaction are always MORE important than more complete levels of satisfaction.

Let us imagine that a man lost in the desert, on the verge of dying of thirst, and carrying a pouch of diamonds comes upon a caravan. The man begs for water, but the caravan leader, seeing the diamonds, demands to be paid for it.

A first cup of water, necessary to keep the man from expiring right then, would obviously be tremendously important to him. That is the LEAST complete level of satisfaction possible for the man's need for water, and, as it is extremely important, he would be willing to give the caravan leader anything for it if necessary : even a pouch full of diamonds. Thus the great importance translates into great value.

A second cup, necessary to keep him from suffering permanent damage to his health, would also have great importance. That second cup is a more complete level of satisfaction than the first, and thus is less important, as not dying is a more important than avoiding permanent damage. Thereby, it would have less value: he might be willing to exchange the whole pouch minus one diamond for it (perhaps, to him, keeping that one diamond to keep his family out of destitution is worth the damage to his health).

Say a third cup of water would cure him of a small portion of the pain currently afflicting him; perhaps he would only pay one diamond for this yet more complete level of satisfaction.

Now let us say that any more than ten cups of water would actually harm the man's health. Thus, the tenth cup of water would provide the MOST complete level of satisfaction possible, and thus would have the LEAST importance and value possible. Perhaps he wouldn't pay any of his diamonds for a tenth cup, but only the spare change in his pocket. An eleventh cup would have no value whatsoever.

Though Menger himself never termed it thus, this insight is now known as the "law of diminishing marginal utility".

Next in this series: Menger's Value Scale

Tuesday, March 10, 2009

Further Mengerian Insights on Value

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 3.

Previously in this series: Menger and Value-Free Universals

Utility is not Use Value

All goods have utility, because, by definition, goods have the ability to satisfy needs. But non-economic goods, do not have use value, because we are not dependent on our command of concrete quantities of them to satisfy our needs. Nobody values, in the economic sense, a cubic foot of air. An idle fellow in reverie might muse on his appreciation of air. But acting man does not assign economic importance to it.

Value is Subjective

A thing’s value, like its goods character, is completely dependent on man’s awareness of the thing’s ability to satisfy his needs. Value is not an inherent quality of a thing. Value… is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. (emphasis added)

Relative Values

A good’s value is the importance a man gives to certain quantities of it. That importance is based on the importance the man gives to the satisfaction which the good provides. Some things are more valuable than others. The relative values of goods depend on the relative importance a man gives to the satisfaction each good provides.

Next in this series: Mengerian Marginalism

Monday, March 2, 2009

The State as Inimical to Man

The state is inherently inimical to man.  Human beings are characterized by the fact that they act. As Ludwig von Mises pointed out, we are just as much homo agens as homo sapiens. To act is to behave with purpose: that is, to deliberate upon and choose between means to achieve our ends. That part of us which deliberates is called our reason. That part of us which chooses is called our will.

Dead things don’t reason, choose, or act. They just react. They are mindless assemblages of particles which only respond slavishly to the impulses given them.

Dumb animals don’t reason, choose, or act. They just behave. They are non-rational expressions of genes which only serve reflexively the end of propagating those genes. 

Humans and any other animals who have evolved reason are also assemblages of particles; and we are also expressions of genes. But crowning all of this, we also have reason, will, and action. 

The raison d’être of the state is to crush action by supplanting individual ends with its own, to crush the will by supplanting individual choice with its own, and to crush reason by supplanting individual thought with its own. The necessary corollary to the rise of the state is the fall of humanity: for man to effectively devolve into dumb animals (livestock) and finally into dead machines (tools). Since the state is all about destroying all that is human, it is inherently anti-human. For humans, therefore, the state is inherently evil.

Menger and Value-Free Universals

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 3.

Previously in this series: Value Theory Before Menger

To understand Menger's insight into value (and the Classical School's lack thereof), it would be useful to brush up on some Aristotelean logic. In the Categories, Aristotle explains his "fourfold division" in which expressions that represent things, as parts of propositions, are classified according to :

  • whether they are (A.) general (a class, or in philosophical argot, "a universal") or (B.) distinct ("a particular") and
  • whether they signify (1.) an entity or (2.) a non-entity.

According to Aristotle's examples, and using the alphanumerical scheme I give above, the expression "man" would be classified as A1, "knowledge" or "whiteness" as A2, "that man" or "Socrates" as B1, and finally "that knowledge" or "that whiteness" as B2.

Technical terms for the above classifications are:

  • A1: Essential Universals, or Secondary Substances
  • A2: Accidental Universals
  • B1: Essential Particulars, or Primary Substances
  • B2: Accidental Particulars

Through his fourfold division, as in much of his work, Aristotle tried to clear up a confusion present in the writings of his teacher Plato. Plato insisted that universals like "horse" and accidents like "fineness" were actual entities, which he called forms. For Plato, essential particulars (distinct and concrete things) were pale shadows of these forms. The forms were primary and most fully "real", and the essential particulars only "emanations" from them.
Aristotle found that to be nonsense. To him, essential particulars (that man, that horse, that table) were the things that were fully "real" and existed of themselves: that is why he called them primary substances. Universals were merely groupings of, and accidents merely aspects of those concrete things. It was the "forms" whose existence depended upon distinct and concrete things, not the other way around.

When Classical economists ever since Adam Smith considered the value paradox, they were comparing "essential universals": Aristotle's secondary substances (the class "bread" and the class "diamonds"). Therein lay their confusion. Sure, if you ask a fellow whether bread-in-general or diamonds-in-general are more important to him, he will answer that bread is, because it sustains his life, while diamonds are a luxury. But in deciding his actions, man does not assign importance to such classes. He only assigns importance to "essential particulars": Aristotle's primary substances (that loaf of bread, those three diamonds). Say a man's house is being submerged in a flood, and he must decide whether to save the loaf of bread in his pantry, or the three diamonds in his lock-box. He does not ask himself, "what class of thing is more important to my life, bread or diamonds?" like some unmoored philosopher. He considers (if it takes any thought at all) whether those particular three diamonds are more important than that particular loaf of bread.

Thus, value, according to Menger, is...

the importance that individual goods or quantities of goods attain for us because we are conscious of being dependent on command of them for the satisfaction of our needs.

Plato obscured things greatly with his theory of the forms. Aristotle took great care in clearing up that obscurity more than 2,300 years ago. Yet for thinkers like Adam Smith it was to no avail, as they fell into exactly the same kind of crime-against-common-sense that Plato repeatedly fell into with his undue emphasis on universals. It should not be surprising that an Aristotelean insight would be beyond Adam Smith, and yet self-evident to Carl Menger. Smith was part of a succession of thinkers who liked to pretend to be above the "old school" of Aristotelean Scholastic thought. This attitude was particularly acute in Protestant countries (like Smith's Scotland), where anything associated with the Catholic Church (as Aristotelean Scholasticism was) was considered archaic and backwards. Menger on the other hand, as a scholar in Catholic Austria of the 19th century, was steeped in Aristotle.

Next in this series: Further Mengerian Insights on Value

Sunday, March 1, 2009

Value Theory Before Menger

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 3.

Previously in this series: Menger on Wealth and Prosperity

What is it that gives a good its value? Throughout the history of thought, there have been two kinds of theories regarding this question: intrinsic and subjective theories of value. Intrinsic theories of value regard value to be inherent in the objective nature of the good, and how it came to be. For subjective value theorists, just as beauty is in the eye of the beholder, value is in the mind of the evaluator.

The Franciscan monk Pierre de Jean Olivi (1248-98), pioneered the subjective value theory known as the utility theory of value. He wrote that value was determined by usefulness (virtuositas) and desiredness (complacibilitas).

Another Franciscan, John Duns Scotus (1265-1308), conversely, developed a branch of intrinsic value theory: the cost-of-production theory of value. He claimed that value is determined by the producer's outlay, labour, and risk. This theory anticipated that of Adam Smith.

David Ricardo placed the key importance on one part of the cost of production in his labour theory of value:

"The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production."

Karl Marx followed Ricardo in adopting a similar labour theory of value.

But the French economist Frederic Bastiat absolutely devastated all intrinsic theories of value with the following scintillating argument:

We can give the general name of obstacle to everything that, coming between our wants and our satisfactions, calls forth our efforts.

The interrelations of these four elements—want, obstacle, effort, satisfaction—are perfectly evident and understandable in the case of man in a state of isolation. Never, never in the world, would it occur to us to say:

"It is too bad that Robinson Crusoe does not encounter more obstacles; for, in that case, he would have more outlets for his efforts; he would be richer.

"It is too bad that the sea has cast up on the shore of the Isle of Despair useful articles, boards, provisions, arms, books; for it deprives Robinson Crusoe of an outlet for his efforts; he is poorer.

"It is too bad that Robinson Crusoe has invented nets to catch fish or game; for it lessens by that much the efforts he exerts for a given result; he is less rich.

"It is too bad that Robinson Crusoe is not sick oftener. It would give him the chance to practice medicine on himself, which is a form of labor; and, since all wealth comes from labor, he would be richer.

"It is too bad that Robinson Crusoe succeeded in putting out the fire that endangered his cabin. He has lost an invaluable opportunity for labor; he is less rich.

"It is too bad that the land on the Isle of Despair is not more barren, the spring not farther away, the sun not below the horizon more of the time. Robinson Crusoe would have more trouble providing himself with food, drink, light; he would be richer."

Never, I say, would people advance such absurd propositions as oracles of truth. It would be too completely evident that wealth does not consist in the amount of effort required for each satisfaction obtained, but that the exact opposite is true. We should understand that value does not consist in the want or the obstacle or the effort, but in the satisfaction; and we should readily admit that although Robinson Crusoe is both producer and consumer, in order to gauge his progress, we must look, not at his labor, but at its results. In brief, in stating the axiom that the paramount interest is that of the consumer, we should feel that we were simply stating a veritable truism.

How happy will nations be when they see clearly how and why what we find false and what we find true of man in isolation continue to be false or true of man in society!

Intrinsic value theories, then, clearly fly in the face of common sense. So why have economists adopted them? Some economists have resorted to them as a desperate solution to the "value paradox." The value paradox seemed to sunder exchange value and use value. Bread is more useful to humans than diamonds. So then why do people pay more for diamonds? Surely, thought intrinsic value theorists, something besides utility must be behind exchange values. Perhaps diamonds have a higher exchange value because they require more labor (labor theory of value) or more resources (cost-of-production theory of value) to mine.

Bastiat, in the above passage, showed the folly of intrinsic theory in 1850. What was still needed, however, was a clear exposition of a complete subjective theory alternative. This was provided by Menger in his 1871 Principles; and it is the most famous of all of Menger's contributions to economic thought (and will be the topic of my next post).

Next in this series: Menger and Value-Free Universals