Factors of Subjective Value: Using Market Entrepreneurship to Advance the Free Market

0:00Economics explains the act of trading. Psychology explains motivations for trade. Entrepreneurs seek to fill an unseen desire for trade. Typically, these topics are covered within the context of their respective disciplines. Economists seek to understand how the individuals act. Psychologists seek to understand why or what compels individuals to act. And entrepreneurs may or may not care about the how, the why, or the what. Typically, they just want to make a profit. I cover the convergence of these respective disciplines and roles in regards to subjective value theory. Furthermore, I appropriate insights garnered from the sustainability and green marketplace to advance understanding and development, advancement of the free market itself.

0:53Economics provides insights into the theory of value. There are typically two types of explanations. One is the labor theory of value and the other is the subjective theory of value. One of these are right and the other is wrong. You can take your pick. The Hayekian Triangle is typically used as a pedagogical device for understanding the Austrian business cycle theory. For the purposes of this presentation, I use the triangle to help visualize the production period. As an aside, reference William Barnett and Walter Block on Hayekian Triangles and also Roger Garrison, Hayekian Triangles and Beyond for the debate of the efficacy of this triangle. By the same token, I use the consumption triangle to visualize the consumption period.

1:43Here we have the yellow line which represents time. The green triangle represents the production phase and the blue triangle represents consumption. The line where the triangles share the same side is where exchange takes place. If you're not a big fan of the triangles like Dr. Block, just imagine that they are not there. How does an individual value goods? Classicists propose the paradox of value, otherwise known as the diamond-water paradox. Diamonds have a low use value, yet have a high exchange value. Water, on the other hand, has high use value in that it quenches human thirst, yet has low exchange value. Why? Adam Smith suggests, what everything really costs to the man who wants to acquire it is the toil and trouble of acquiring it. Smith thought that value is set by the aggregated labor costs during production. In case you didn't know, this This theory is wrong. Carl Menger states, goods always have value to certain economizing individuals and his value is also determined only by these individuals. Austrians suggest

2:59that value exists in the mind. It lacks extensive objective property because value does not exist outside the human mind. Suffice it to say, in a room full of Austrians, this is When I was doing research into the factors of value, I put out a question to Mises Lister asking, given time preference, marginal utility and scarcity, what are the factors of a good that make that good desirable or valuable for a given individual? Samuel Bostaff and many others on the board responded in a similar manner. This is a psychology question, not an economic one. He further states, Physical science can explain the act of throwing a baseball without reference to motivation of throwing it, just as economic science can explain the act of trading without respect for the motivation for a trade.

3:53They are correct. Economics, and namely Austrians, are interested not in the motivations of individuals, just the actions, human actions. However, psychologists and entrepreneurs alike are interested in the motivations. Entrepreneurs in particular are especially interested so they know what to produce in exchange for a profit. In Human Action, Mises states, he does not ask whether these factors are nature-given of the product or production process accomplished in the past. The flawed labor theory of value may exist not as theory but as factors or motivations of value. The labor theory of value is in fact a labor factor of value.

4:39This is consistent with subjectivity because it is up to the individual mind to decide the value of labor in his or her own mind. Suffice it to say, the list of factors and motivations can be endless with respect to individuals. Let's delve into a topic that all Austrian libertarians love and are strong advocates for. Okay, maybe just one Austrian libertarian in particular, sustainability. The sustainability movement seeks to change the bottom line of profits, profits, profits into the triple bottom line of people, planet and profits. Sustainability folks find value in the planet. They find value in the equity of people.

5:24And this is fine with the stipulation that seeking and achieving the triple bottom line is done privately and voluntarily. The triple bottom line in sustainability is not value itself, but it is a factor of value. Let's take a look at several examples. Diamonds. The typical factors of value for diamonds are color, cut, clarity, and caret. These are the four C's and for some it might not even cover their factor of value. Mises says, he values the available means exclusive from the aspect of the services they can render him in his endeavors to make future conditions more satisfactory. So purchase of diamonds now makes someone satisfied for the future.

6:14Brilliant Earth sells diamond rings. These aren't your normal De Beers, Tiffany or Cartier diamonds. They may look like a diamond, feel like a diamond, but it's no ordinary diamond. These are conflict-free diamonds. They are certified conflict-free diamonds. Conflict-free diamonds are guaranteed to originate from ethical, environmentally responsible sources, supposedly free from violence, free from human rights abuses, and they claim they are produced with minimal environmental impact. On the flip side, conflict diamonds have funded devastating civil wars in Africa and in millions of lives. These conflict diamonds are also known as blood diamonds. Why does this matter? It's the labor factor of value, not the labor theory of value. Individuals that purchase these diamonds find value in the type of labor or lack thereof that was used to produce the diamond. The entrepreneur and in this case brilliant earth found a need in the marketplace for conflict free diamonds and fill that need in the Marketplace. In essence, this is a market-based approach to human rights.

7:26Coffee. Some factors of value of coffee. Roast, do you like it light, medium or dark? Preparation, do you want a latte, Americano or drip? Cream, sugar, black? Size, do you want a small, medium Mises said, action always aims at the removal of future uneasiness, be it only the future of the impending instant. The action of obtaining and drinking coffee removes whatever uneasiness the individual may feel. Starbucks has jumped onto the bandwagon of incorporating the triple Starbucks is the biggest buyer of fair trade. Fair trade is an organized social movement and market-based approach to empowering developing country producers and promoting sustainability.

8:27Starbucks saw an unmet need and filled it with fair trade coffee. People from the sustainability movement that were once disenfranchised by corporate coffee now find value getting Starbucks coffee. An individual's uneasiness is sequestered because they freely exchanged with a company that is protecting the planet while providing jobs at a fair wage to people while making a profit. The triple bottom line of people, planet and profits. There are similar arguments for computers. There are multiple factors of value. One of the definitions of sustainability is to meet the needs of the present without compromising the ability for future generations to meet their own needs.

9:18Apple has taken the initiative in creating greener computers. While the computers meet the needs of individuals who buy them, they are designed to be recyclable rather than to be thrown away. Each component of the notebook was created without toxic chemicals that are harmful to the environment. Just the other day, I had a fellow cohort in my school ask me, doesn't Apple make a green laptop, while she was searching for a new laptop. To her, the environmental sustainability for the future was just as important as using the laptop in the present. Being able to recycle or reuse rather than discard is an important value for her, factor There are people who are concerned with only the impending instant.

10:06There are other people whose provident care stretches far beyond the perspective length of their own life. That's a quote from Mises. In the case of diamonds and coffee, labor factor of value looked back to the past. In this case, my classmate is valuing something beyond her lifetime. How do you know if a product is sustainable or not? They are labeled independently by a third party. Most of these are done voluntarily and were created in the marketplace. Anyhow, what do these sustainability labels do? The labels take sustainability from being a mere concept to something tangible.

10:53You can see sustainable diamonds, you can taste sustainable coffee, you can touch a sustainable computer. Now, how do we apply this to advancing the free market? You can freely exchange goods and services with individuals you want in the free market. There are no governmental barriers to entry in the free market, and government wouldn't subsidize entry into the market. Another factor is that there would be free exit. Firms would be allowed to fail. Government wouldn't subsidize failures. AIG, JP Morgan, Citigroup, among others would be allowed to fail. Wall Street would be allowed to fail. The car makers would be allowed to fail. These are all factors of value of the free market.

11:42One problem about the free market is that the free market is not easily tangible. It is merely but a concept. To many folks, the current market structure with governmental intervention, with central banking, with mandated monopolies, is the free market a work? Obviously they are misinformed. How can we inform individuals about the true definition of the free market? How can we share the factors of value created in a free market? What can we do to get the got dialogue going. So why not take a page out of the sustainability? What if we made the free market more tangible? What if we can take an idea from something you can grasp, take an idea to something you can grasp with your hand? Why not label and certify free market goods just like the sustainability folks label and certify sustainable goods?

12:34There is unfilled need for understanding the free market and the free market of goods. Perhaps labeling and certification is one way to do it. Or on the flipside, perhaps labeling and certifying interventionist goods would be another way to do it. Mandated monopoly, federal subsidy, restricted market, or maybe others. As Lew Rockwell cited Murray Rothbard yesterday, it's always been a fight between power and market. Understanding and acting on factors of value, as in an entrepreneur, uses a market based approach. Let's let the power of markets work. As Mark Twain once said, don't let school get in the way of your education. In the same vein, don't let power get in the way of markets.

13:23Thank you very much.