Value, Utility, and Justification
In a recent post which is now unfortunately closed (“Something, Something … Petard”), James Hanley and I (and Shazbot!) engaged in a friendly dispute ostensibly about the meaning of the word “value” in economic contexts. The focal point of the discussion was a statement of mine regarding what I took to be the only relevant distinction between two types of individual actions. The first type of action is a cash exchange for a product at an amount which is so small as to be effectively meaningless to the producing firm’s survivability. The other is casting a vote for a candidate which in turn is also effectively meaningless to determining the outcome of an election. [This isn’t really relevant to the remainder of the post and apologies if this is confusing to anyone.]
In comments, I wrote that the only relevant distinction between the two scenarios is that “there’s an objective exchange of value in one and not the other. But it seems like all the libertarians on this site seem to take great pleasure in take great pleasure in explaining to me that value isn‘t objectively measurable”. Hanley’s response was that I don’t understand what the concept of value is. Shazbot’s response was that my concept of value isn’t standard but that the dispute between us amounts to a semantic dispute.
Personally, I think there’s a deep issue here, one worth getting clearer on.
So let me first say that I disagree with Shazbot’s view that the dispute reduces to semantics (tho I want to recognize and applaud the effort to resolve a titchy issue between James and I!) I fully grant that James’s conception of value is correct, namely, that value is subjectively determined. My criticism – one I’ve made repeatedly on this site in exactly similar situations – is actually quite different than both James or Shazbot believe it is.
Let’s get technical. Let’s define value in terms of subjectively determined utility expectations and/or gains which justify individual actions. A person would then be justified in taking action X (exchanging chickens for medical services or cash for cars, whatever) if they believed that their subjectively determined utility is increased by doing so. Given that, it follows that since only individuals can determine whether they derive more utility from trading chickens or cash for medical services or a car, value is subjectively determined.
Fair enough. (Or … I hope it is. If the above’s not right then we need to hash it out, but I think even it isn’t the rest of the post would stand independently.) Given all that, can value be objectively measured? Well, presumably not. Values are inherently subjective and therefore (logically!!) inaccessible to observation or measurement. They exist as real, but completely internal properties of individuals.
But it seems to me that that conclusion leads to all sorts of problems. I’ll discuss two of them, arguments that people who’ve participated in some of the discussions I’ve had with others here might recognize.
The first problem I see is that a theory of political economy based solely on the concept of subjectively determined value cannot be objectively justified in terms of total utility since there is no way of knowing whether subjective utility (and therefore total utility) is actually increased (or maximized or optimized) wrt any particular policy or economic arrangement. And the reason, as I said, is that hypothesis value is not objectively observable or measurable.
This type of objection, however, strikes me as having a pretty obvious response: in a system which maximizes free and voluntary exchanges individual’s subjectively determined utility will be maximized as a matter of course since people will only engage in transactions or activities which they believe (rationally, let’s suppose) maximize their utility. And a system in which people actually can act on their own utility functions will be one which permits them – and therefore society as a whole – to maximize utility. So, by permitting people an option between A and B rather than only B, a person who freely chooses A is effectively revealing their preference for A, and is therefore maximizing their utility (relative to the two options, of course).
Now, here’s where I start having trouble. As I understand the concept, what I just described would be an instance of a “revealed preference” (or close enough…), where the consumptive act of exchanging X for A rather than B reveals individual preference rankings and relative value assignments. One thing to mention is that a revealed preference is observable and measurable (that’s the purpose of introducing and using the concept, in fact). Another is that by revealing a preference a consumer is actually demonstrating their value assignment (relative, to be sure) between a range of options as well as the marginal limit of their value assessments since there exists a price at which the exchange isn’t worth engaging in (null or negative utility).
But rather than push that line (which I think is interesting enough) I want to focus on another, more philosophically oriented, problem. It seems to me that a theory of political economy based on subjective utility functions cannot (non-circularly) be justified without introducing an objective and independent criterion. So consider: certainly it’s true that institutional policies which maximize the expression of preferences will also maximize subjectively determined individual utility (given some pretty non-controversial background claims). But that’s just the expression of a tautology since revealed preferences are defined in terms of subjective utility functions. What isn’t justified – and I don’t think can be justified without invoking objective evidence or some type of objective standard – is that maximizing the expression of subjective utility functions leads to maximizing total utility relative to competing policies or theories of or political economy. To justify that claim would require identifying objective metrics according to which the argument can proceed, something in addition to but independent from subjectively determined utility functions.
And that’s my complaint. In total. Personally speaking, I don’t think it’s a trivial one. In fact, it seems to me that libertarians invoke objective standards all the time to justify their views, and in particular, objective measurements of value. Hanley and I went ’round the maypole some while ago regarding his view that the middle class is better off now than it was in the 1950’s. My question then was: Better off according to what metric if not an objective determination of utility?
So, bringing it all back home, how does this relate to the original comment which Hanley took exception to? A common libertarian objection to the act of voting is that it’s irrational. A common libertarian response to value is that it’s subjectively determined. On the one hand, the rationality of doing X is an objective property which applies to individuals. On the other hand, the rationality of doing X is a utility function subjectively determined by individuals. That’s the inconsistency (one of them, anyway) I’m trying to point out.