Value and Worth
by Dr. Doug Cardell
I've had several requests to expand a bit more on my article "What Is It Worth?" about the nature of value and what things are worth. Daily I am confronted by folks insisting that this or that is valuable just because it is and other folks who insist that some things are just more valuable than others. While some things are more valuable than others, the value is not in the things; it's a result of how people think about them. You may have heard the saying, "A bird in the hand is worth two in the bush." It means that the value of something you have is greater than the value of that same thing beyond your grasp. The concept has been around since early in human history. If the value were inherent in the bird, its position would not matter. What is the value of a bale of hay to a cow? Well, the bale 100 feet away is more valuable to the cow than the one 500 feet away; that's why it chooses that one. The cow must have calories to live, but the cow also values availability. Therefore, the cow will find the most accessible supply of the calories it demands. The bale 500 feet away uses five times the calories burned walking to it. Of course, the cow is not mathematically computing calorie use and consumption, but its instincts have been developed over millennia to find the supply that costs the least. The cow instinctively knows that the hay bale 100 feet away is of greater value than the one 500 feet away. At this point people usually bring up gold or diamonds and insist that those things have innate value. Gold has no intrinsic value; it's just a hunk of metal. It's valuable because people like it and choose to value it and because the amount available is limited. All the gold in the world would fill about 18 average American homes. Let's try a thought experiment. Now imagine that a 140-mile wide asteroid, like Psyche, which is estimated to contain iron, nickel, and gold with a value of about ten quintillion dollars at today's prices, breaks up in our atmosphere. So it drops 75,000 times the total value of the entire world's economy in iron, nickel, and gold. The headlines on several websites said such an event would make everyone on earth billionaires. But that reflects a complete lack of understanding of economics. Assume Psyche drops trillions of one-ounce gold nuggets worldwide, multiplying the earth's gold supply by tens of thousands. Everyone's backyard is littered with them. How do you think that would affect the value of gold? People would pay others to collect the stuff and get it out of their yards. To many people, it would have negative value; they would pay to get rid of it. Gold has no intrinsic value; its value is created by human perception. It might be handy for some things to have that much gold available, and people might still value it for its beauty, but its value would undoubtedly drop dramatically, and many would indeed pay to have it cleaned out of their yards. The value of everything is set by human perception, not by some innate quality it possesses. Pretty much any material exists in considerable quantities in the universe, but it's like the bale of hay 500 feet away. Even here on earth, pure gold is valued differently by different people in the monetary sense. Some gold bars sell for 10% more than plain gold bars for the same weight of gold. Some folks are willing to pay the extra ten percent to get prettier ones. Some people don't care what they look like and buy the cheapest gold bars they can get. People value different things. Even necessities like food, clothing, and shelter are no different. Do you buy food only for its nutritional value? That's all you need. No, of course, you don't. Some people go to the store and buy nothing but generic or store brands. Other people only buy more expensive organic food. Some purchase lots of less expensive, highly processed foods, while others avoid highly processed foods as much as possible. Some people only eat at restaurants and are happy to pay others to cook the food for them. If you cook it yourself, a quarter-pound hamburger might cost a dollar or two in 2022 dollars, but some fast food places charge as much as $10 for the same thing, and some restaurants charge a hundred dollars or more. They all have approximately the same nutritional value, proving that more than nutritional value affects the price. So what is the "true" value of a hamburger? The same is true of clothing. Some people pay a lot for designer jeans, while others shop at thrift stores. And wristwatches can go from $10 to tens of thousands, and they all tell the time. The value of shelter is no different. Land in the US can sell for as little as $50 per acre, and tiny homes start at about $10,000, so for $10,050, you can own a home on an acre of land, or you can buy an average house on a quarter acre in San Francisco for a little over $1,000,000. You could buy a Manhattan townhouse costing ten million with no land at all and some for ten times that much, and some mansions in Los Angeles can cost twice that much at 200 million. So what is the actual value of shelter? Does 200,000,000 keep you warmer and dryer than $10,050? This concept is critical to understanding economics. Most, if not all, economic misunderstandings come from misunderstanding value. One of the most significant errors in this regard was made by Karl Marx in "Das Kapital." Marx believed that value derived from labor and labor alone. He thought that all material value derived from work and that non-material value, like religion, which he called "the opiate of the people," were distractions that kept people from focusing on labor. In his ideal world, everyone would contribute all of their talents and ability to the use of society as a whole, and everyone would take from society whatever they needed. His summary phrase was "from each according to his ability, to each according to his need. Marx valuing that kind of world is not wrong; he's free to value whatever he pleases; however, putting that idea into practice poses many difficulties. First, who decides what abilities and needs are involved? If I am tall with a good voice, should I be made to play basketball, sing or work in the salt mines? Who makes that choice, the person, society, or the state? Who decides what each individual needs? Marx thought that if someone 'needed' religion, that was not something they would be allowed. Marx thought non-material needs were distractions. In Marx's view, art, music, leisure, and the like were not 'needs.' What about material needs? Is a flat-screen TV a need? A radio? Exercise equipment? A bathing suit? Who decides what each of us needs? It's an individual choice. Try an internet search on the ten most essential values, and you will get various answers. Number 1 on one list won't even be on the following list. If you choose ten random lists, you will probably find fifty different things listed on at least one of the lists. Some top choices I've seen are happiness, community, health, honesty, courage, wisdom, wealth, loyalty, and so on. Look at all the people who eat junk and never exercise, and it's clear that health is not their top value. And there are lots of people who live more isolated lives because they want to avoid community. How we value both material and non-material things is affected by our upbringing, our religious and ethical views, the customs we follow, the beliefs and behaviors of those around us, our habits, our ideas of beauty, and many more. Each of our lists of values is as unique as our DNA; no two are alike. For this reason, people like Marx, who think everyone should have the same stuff, don't understand the idea of value. Accepting that we all have different values ultimately creates the economics that most people think of. So if you have something as 7th on your value list, and I have the same thing as 3rd on my list, and I have something else ranked 8th on my list, and you have that same thing ranked 4th on your list, it is in our best interests to trade since we both get items that are more important to us and give up something of less importance. If you and I are at dinner, and you like bread better than salad, and I like salad better than bread, it makes sense to swap my bread for your salad. That is the basis of trade and markets, what most people think of when they think of economics. Understanding economics is impossible without understanding that we all have different values, and that allows us to help each other by trading. If we all had the same values, we would never have a reason to trade, and we would all be stuck with whatever we had. Trading like this has no winners and losers, only winners. It might be true that the menu price of the salad is greater than the menu price of the bread, but that doesn't matter because you got the salad you wanted, and I got the bread I wanted. We both won. I don't see how it is possible for any of us to be happy if we all had the same things. Should society, a committee, or a government official make a list of values and say everyone should get these things, no more, no less? Then, everyone would be forced to take something they did not want at the expense of things they wanted. Is that the ideal world? Try this experiment - think of 5 close friends or extended family: Are you all of the same religion? Do you all own identical vehicles? Do you have all of the same activities? Do you all like the same music? Would you be happier if you were forced to have what they have, do what they do, and live the way they live? Would they be happier if they were forced to live as you do? Marx and other socialist theorists think they can devise a list of values everyone agrees on. But, like many socialist ideas, it assumes they can do the impossible. Making a list acceptable to two people would be hard enough; ask any married couple. Markets exist because it's the only way we can each satisfy our unique wants and needs. It is not possible for government or anyone but ourselves to choose what is best for us.
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Responses
Great explanation!
You know that'right!