Thursday, March 04, 2010

Economics and value

Roger Ebert is trying to monetize his site. In a comment, I suggested that he's in a position to challenge the dominant social and economic idea that without exception everyone "ought" to be paid according to the value they produce, regardless of their overall economic position.

This idea sounds not just good, but intuitively obvious. It is, however, incorrect; it's very obviousness prevents us from examining the idea critically.

The first problem with this idea is that a free market is not intended to and does not exist to distribute reward commensurate with value produced. A free market distributes costs according to the relationship between scarcity and value (i.e. use-value).

Consider an ordinary automobile. There are lots of components of an automobile that have marginal use value. A car with cheap vinyl upholstery still has real use-value; a car with rich Corinthian leather* has more use-value; the difference is the marginal use-value. But a automobile is only reducible so far; at its core is an irreducibly complex** system: a frame, an engine, fuel, a transmission, wheels, brakes and a control system. All of these elements add the "marginal" use-value between a working car and a hunk of scrap; their contribution is clearly not additive. Furthermore, the labor involved in manufacturing a car — both the irreducibly complex core as well as the components that add marginal value — is irreducibly complex: from the collection and processing of the raw materials, the production of the components, their transportation and assembly, and the administration and coordination of all of these efforts. Again, take out one piece and you do not have any automobile at all. Furthermore, the addition of marginal value (i.e. rich Corinthian leather) to an automobile occurs only when that marginal value exceeds the value of producing another basic automobile.

**The argument (such as it is) in evolutionary biology is
not whether or not present-day biological systems are irreducibly complex; the argument is whether or not irreducibly complex systems can evolve non-teleologically, which they can.

If a free market were really concerned about distributing reward based on value, we would expect everyone to be paid more-or-less the same, since everyone is always (or so the theory goes) producing whatever is of the most value. But this is clearly not the case. There are enormous differences, six or more orders of magnitude of difference, between income. It is implausible that people intrinsically vary a million-fold by their value-producing ability; we must believe that Bill Gates could by himself produce more than a large city full of African subsistence farmers.

Furthermore, the capitalist system is not a free market; it does not even behave as we logically expect an ideal free market would behave. In a free market, individuals bend their efforts to eliminating or mitigating every scarcity. If oil is in short supply, individuals in a free market look for more oil or in create alternatives. If there aren't enough engineers or administrators, individuals train more engineers and administrators, automate their tasks, or create alternatives to get the job done with talents and abilities more prevalent in society.

But everywhere we look, we see instead of being eliminated, we see scarcities being artificially and intentionally preserved. From the egregious and gratuitous "nickel and diming*" of the working class, the social barriers to entry into the professional-managerial middle class, and the obstacles placed in the way of the middle class accumulating capital**, we see a system that preserves and maintains scarcities for the privilege of those who control them.

*See Barbara Ehrenreich's book, Nickel and Dimed.
Bait and Switch and Fear of Falling, also by Ehrenreich.

Fundamentally, we "should" not reward individual for the value they produce because in an organized, industrial society we cannot measure the value any person — from janitor to CEO — individually produces.

1 comment:

  1. Really enjoyed your post on Ebert's blog. Very thoughtful.


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