This link isn't a direct topic about productivity but I thought we could also get the ball rolling on a somewhat unorthodox direction that is often ignored which is plain human nature.
It says that the value to a person of any good or service, water for example, is the usefulness (subjective utility) of the last unit of it she obtains.
Do you guys & gals agree or disagree?
Now I don't claim to understand economics but to me this quote simply means that if I was an athlete who got injured and had to rehab myself, it would easier for me to get back in shape. Not just because of my lifestyle but because of my subjective value. (Which I think should not be interpreted as analysis of my subjective habits but truly about our own individual intrinsic value.)
In contrast, if I was an unathletic unproductive person, it would depend on how my past actions have accumulated to determine my present destiny in the absence of a system aimed at improving my productivity.
If sheâ€™s dying of thirst in the desert, the last or marginal liter of water probably (though not necessarily) has very high value to her because it is likely the first and only liter she commands and so would be useful in satisfying her most urgent want â€“ presumably to sustain her life for another hour or so. A second liter would also be very useful in this sense, though it would satisfy a want a little less highly ranked than the first and so less subjectively valuable to her. And so on.
This applies more to basic economics but I feel this is notable in that it defies the common usage of "prioritization" that we all have come to expect from productivity software despite the fact that, at least to me, the above makes more sense. It made more sense back when I was a child and it makes more sense then what we have today in productivity lingo.
Back in civilization, water would probably have much less value to her because she would have a lot of water at her fingertips (sometimes literally); so another liter of it would be useful only in satisfying a want that is very low on her scale of wants.
Finally, does anyone feel that the above highlights why human needs are important or does it just sound like something that's too obvious?
I mean it's one thing to look at this from an economic or motivational perspective, I think for productivity systems in particular this area is still a vast uncharted concept in terms of systems trying to claim it can reproduce this phenomenon outside of bonking your head repeatedly on the "turn this into a habit NOW NOW NOW" sign.
Then there's this food for thought:
Note something else important here: Value is not something disembodied; it depends on the end to which a particular person puts the good or service, be it water or labor.
The rest of the history lesson for those who'd rather not waste time clicking the link (skip this if you want):
|The Labor Theory of Value|
|In time, SMUT-based economics replaced the edifice of classical economics, which was based on the so-called labor theory of value.|
In itâ€™s simplest terms, the labor theory of value, or LTV, states that the value of any good or service depends on the amount of labor that goes into its production. While it makes some intuitive sense â€“ the more labor we put into something the more valuable the output seems to be â€“ it encounters all sorts of problems.
For example, if the LTV is true, spending four hours digging a hole and then spending another four hours filling it back up would be worth eight labor hours of value. It should therefore trade for, say, a wooden table that took eight hours of labor to manufacture. But Iâ€™m guessing that it would be to very hard find anyone willing to trade the latter for the former, although as P.T. Barnum is credited with saying thereâ€™s a sucker born every minute.
Also, putting in a lot of hours in a job that doesnâ€™t produce anything useful, such as building houses when housing demand is slack, doesnâ€™t make those houses more valuable. In fact, it makes houses in general less valuable. No, we would work hard building houses only if we expected those houses when theyâ€™re finished to be subjectively valuable enough (to us or someone else) to cover the (subjective) costs of their manufacture.
|The macroeconomics of mainstream pundits is essentially a rejection of SMUT. Although not exactly the same, itâ€™s still a throwback to the discredited labor theory of value. Let me explain.|
In simple terms, their theory says gross domestic product (Y) consists of three aggregate variables: private consumption spending (C), private investment by businesses (I), and government spending (G). This gives the widely used formula for the entire macroeconomy as
Y = C + I + G.
The problem, according to simple Keynesian macrotheory (and that seems to be the predominant version guiding public intellectuals these days), is that Y is in the doldrums because the private sector, C + I, just isnâ€™t growing. So itâ€™s up to government to increase spending to raise G and stimulate Y.
(Actually, according to the data, C has been doing pretty well since the beginning of 2010. See the Robert Higgsâ€™s analysis of the data in â€śOne More Time: Consumption Spending HAS Already Recovered.â€ť)
Now, increasing G is supposed to â€ścreateâ€ť more jobs. What kind of jobs are the best to do this â€śstimulatingâ€ť? The answer, according to one Nobel-Prize-winning economist, is that it doesnâ€™t really matter (as this YouTube video strongly suggests): war, natural disasters, fighting space invaders, anything. Creating jobs, any jobs, is an end in itself.
|The Kind of Jobs Matters|
|From the point of view of SMUT this is all pretty nuts. Remember, the value of anything, including labor and what it produces, is never disembodied: It is always valuable to someone for something.|
For instance, unless you at least recognize that value issues from the subjective perception of individuals, the idea of economic efficiency goes out the window. Economic efficiency depends on benefits being greater than costs, but again itâ€™s never benefits and costs disembodied from purposeful action. Benefits and costs are always benefits and costs for someone from doing something.
Likewise a job is a job for someone to do something. Building a house or a bridge or a car has to have a value to someone, expressed in terms of a market price someone is able and willing to pay that will cover its cost. Otherwise building it is a pure waste. Unfortunately, macro-pundits donâ€™t care about efficiency or producing value in this sense. Itâ€™s just jobs, jobs, jobs!
Really, itâ€™s the modern equivalent of digging a hole and filling it back up again, the modern version of the LTV, and itâ€™s just as wrong as the old one.
|Nice explanation of SMUT theory, but I think youâ€™re misstating the classical LTV. The LTV and other classical cost theories of value didnâ€™t attribute inherent or essential value to goods. It was an empirical prediction of the natural equilibrium value to which the price of reproducible goods would gravitate over time. The laws of supply and demand were the actual mechanism by which the process worked. Some political economists stated this explicitly. Others, despite using language that sounded essentialist at times, implicitly assumed supply and demand as the operative mechanism.|
And of course this long-term process governed by supply and demand included such things as writing off as sunk costs the products of labor which turned out to be socially unnecessary. None other than Marx himself informed Proudhon, in Poverty of Philosophy, that the worker learned after the fact â€” from the market â€” whether her labor had been â€śsocially necessary.â€ť
As James Buchanan pointed out re Smithâ€™s beaver-and-deer illustration, the illustration assumes that the ratio of exchange tends toward the ratio of embodied labor because both parties are rational utility maximizers. They will make make-or-barter decisions based on whether it takes more labor (say) to acquire deer by hunting them or to acquire the same number of deer by trapping beaver and exchanging for them.
Itâ€™s more accurate IMO to describe the law of marginal utility as a theoretically elegant model for describing the mechanism by which the classical theory of value operated, rather than a refutation of it. As Jevons himself pointed out, marginal utility varies with the number of units, and the number of units varies over time in response to price signals â€” so the supply brought to market will fluctuate over time till the utility of the marginal unit to the consumer equals the marginal disutility (effort) of producing it.
Price â€” at any given snapshot of spot conditions in time â€” will reflect the subjective utility of the marginal unit, without regard to production cost. But once you bring in the factor of time and view marginal utility in terms of a dynamic process, it essentially says the same thing the classicals did. Itâ€™s more a complement than a refutation.
|A thought about digging holes and the equation Y = C + I + G|
â€śGâ€ť comes essentially from taxes on â€śCâ€ť and â€śIâ€ť, so itâ€™s not an extra source of growth to the GDP (â€śYâ€ť): what G gives to the economy in transfer money, it takes away in the initial taxes from Consumers and Investors. Instead of â€śplus Gâ€ť, then, we get â€śminus G, plus Gâ€ť, as the governmentâ€™s efforts cancel themselves out. (This fact is incomprehensible â€” or inconvenient â€” to fiscal liberals.)
Meanwhile, it costs lots of money to do all this transferring via the Federal bureaucracy. That cost could be called â€śAâ€ť, for â€śadministrationâ€ť. Itâ€™s this â€śAâ€ť component that amounts to digging and filling a hole for eight hours a day. The equation should now read:
Y = C + I (- G + G) â€“ A
The two Gs cancel out, and you get:
Y = C + I â€“ A
(There must be a joke in there somewhere about the CIA, but I canâ€™t think of it.)
Note that, the larger â€śGâ€ť grows, the larger becomes the hole being dug by â€śAâ€ť.
Just a heads up for those who might miss the parallel between administration and productivity. Personal Administration Anyone? aka Getting Origamized Experiment
On with the comments:
|I, too, love the piece. Thanks, Sandy.|
Iâ€™m not a studied economist (yet), however, I am surprised by Mr. Carsonâ€™s attempt to characterize the labor theory of value as something more noble and useful than it isâ€¦
It seems to me that a given product has production cost consisting essentially of labor + material inputs. It may be often be true that labor is the dominant cost factor, or one might view material inputs as reducible to labor.
Either way, the basic problem with the LTV would seem to reside in itâ€™s conflation of investment (production cost) with market price (cost to purchase). The LTV-derived â€śvalueâ€ť is never going to be relevant as a market price, even as a theoretical equilibrium.
No matter how much â€śtimeâ€ť you give it, there is simply no way that digging-a-hole-and-refilling-it is ever going to be worth anything on the market. Of course, in real life no one would try to sell this â€śservice,â€ť and no one except perhaps the government would solicit it. But many realistically conceivable investments and purchases present themselves that are uneconomical in a less obvious manner, and individuals cannot be modeled as perfect â€śutility maximizers,â€ť or perfect anything else. The LTV has nothing to say about how such subtly uneconomical expenditures are minimizedâ€¦
The SMUT _is_ a refutation of the LTV insofar as it is a complete replacement for it that better models observed behavior. Market-discovered prices manifest as snapshots of the constantly evolving aggregate of consumersâ€™ subjective marginal valuations, which we just observed to bear no systematic relationship to production costs.
Often, competition â€śpushesâ€ť prices down to a minimum, which tends to be some profit-motivating amount higher than production cost. Products that donâ€™t fetch at least this price are not sustainable, and are not produced (for long), while products that do continue on the market. This is mere physical necessity, not a validation of the LTV.
It seems to me that the LTV is nothing more than a historical mistake, while the SMUT exposes in a very clear manner the mechanism by which the market system discourages uneconomical productions.
|E.W.: Thank you for your comment. I defer, however, to Mr. Carsonâ€™s superior knowledge of the LTV. Marx and the Classical Economists did realize that utility is relevant to valuation, but they hadnâ€™t developed the right conceptual tools to solve problems such as the â€śdiamonds-water paradoxâ€ť(why diamonds, which are less useful than water, fetch higher exchange values). In my essay I used an overly simplified version of LTV to make my point that, I realize now, could have been even better made had I used the more sophisticated version. My wise editor, Sheldon Richman, tried to explain this to me and advised that I drop the LTV section before publication. I should have followed his advise!|
|Jim Hull: Thank you for your comment. Youâ€™re puzzlement with Keynesian macroeconomics is understandable and your solution is creative. Now, I think a Keynesian would say that in normal, non-recessionary times consumers (C) would only spend a portion of every dollar they earn, say $.80, and save (S) the rest. To a Keynesian S is a leakage out of the system and reduces current GDP (Y). If the government (G) taxes consumers $1 it will spend all of it and save none of it, increasing the Keynesian â€śmultiplierâ€ť and boosting Y. During a recession like the one weâ€™re experiencing now, consumers are saving an even larger proportion of their income (Bob Higgs in the article I link to above addresses this notion), so that a $1 transfer from C to G will have an even greater multiplier effect; moreover, businesses (I) arenâ€™t investing either so taxing them and spending all the proceeds will also boost Y.|
There are all kinds of things wrong with this explanation, such as treating savings as unproductive and aggregating C and I to such a high degree, but I believe thatâ€™s the logic of the simple model.