In economic science there is one secret place. Knowing about it, you can easily evaluate the statements and prescriptions of politicians, economists, experts and other such folks. This place is called “value.” The secret lies in the fact that mainstream economists, not to mention politicians, always skirt around it. And this is not surprising, since here lies the root of the deepest contradiction between reality and the economic science that tries to comprehend it on one hand, and the shamanic dances of political actors on the other.
This comes down to two points. The first is that value is subjective. It exists entirely within the consciousness of the subject—and today he values something one way, tomorrow completely differently. The second is that value cannot be measured. In any way. Value can only be compared, and again, only within the framework of one individual’s activity. Exchanging an apple for a pear, I value the apple less than the pear. Here and now. The guy with whom I exchange, again at this particular moment, has the opposite hierarchy of values. That is exactly why we exchanged.
Let me remind you of Kyle Macdonald’s story—he exchanged a paperclip for a house within a year through a chain of exchanges. In this story (everyone would agree that Macdonald won, right?) not only did his wealth increase—he got a house he didn’t have—but everyone who participated in the transactions in this chain also won. This is exactly the process of wealth growth, of course in an extremely simplified form, since here we are talking only about exchange itself, bypassing production, savings, capital and much else besides.
So mainstream economists pretend this does not exist. That is, if such an economist is cornered, he will of course agree that value is subjective and cannot be measured—this is, after all, the foundation of his science, if he didn’t skip the lectures. But stepping out of the corner, he returns to his old ways.
Why? The answer is obvious. What can one say about wealth growth for some group of people living on some territory, knowing the nature of value? Only this: “the fewer obstacles on the path of free production and exchange, the greater the wealth growth.” But this is no good. This cannot be sold to the owner of that territory. There is nothing to manipulate here, nothing to build systems of equations and logarithmic series on.
Therefore, mainstream economists operate with prices. More precisely, they substitute value with price. However, the subjectivity of value and the impossibility of measuring it in exchange does not disappear just because prices exist. The internet costs 100 hryvnias per month. I buy the internet because it is more valuable to me than 100 hryvnias (more precisely, more valuable than other alternatives). For a grandmother in the village, 100 hryvnias per month is a huge sum, and the internet is useless to her even for free. And deals will be made—or not made—not because of the “equality” of the internet price to my needs, but precisely because of their inequality. I choose greater value in exchange for a lesser one. And that very inequality is the very increase in my wealth. But this increase cannot be counted or accounted for in any way.
That is, the very cause, the prime mover of the entire economic process, submits to no accounting or expression.
This conclusion, I repeat, is not suitable for the purposes of mainstream economists, since it is not suitable for the purposes of government regulation. How can one show the steady increase in “the percentage of fats in oil” if there is an order for this from the wise government? For this, one needs to explicitly or implicitly substitute value with price, and interpret the inequality of value in exchange as equality. Yesterday “we” produced 100 hryvnias’ worth. Today—120. Is this growth? Growth! That, in essence, is the entire course of reasoning. Whether those 120 mean actual wealth growth for a group of people who, by the twist of fate, found themselves within the jurisdiction of some state is a big question.
Monetary calculation, double-entry bookkeeping—wonderful and indispensable tools in the hands of an enterprise or household. But utterly unsuitable for some mental fiction called the state. The reason is simple, and it is exactly what we are discussing in this column. An enterprise (in the person of its decision-makers), a household (in the person of the same decision-makers), or even a single individual perfectly understands which goals will increase their wealth. They themselves make decisions about which goals to abandon in order to achieve more valuable results. For a “country” or “state,” none of this works, because they are an arbitrary set of people and enterprises pursuing their own goals. Countries do not sell, do not buy, cannot evaluate goals, since they don’t have any.
Essentially, modern economists, especially “macroeconomists,” suffer from an ancient ailment—anthropomorphism. As our ancestors identified the forces of nature with certain persons, so these people identify a set of people with different goals with a certain entity called “the state.” And this entity, according to them, sells, buys and increases its wealth. Knowledge of the nature of value helps us not to become victims of this deception.
This deception (which, I will repeat for the thousandth time, is not the result of some conspiracy, but the result of “the march of things”) is not a matter of purely academic interest. Totalitarians of all countries worked precisely on this problem—how to impose identical goals on all people. And one of the reasons for this work was the activity of economists who reasoned about economics within the frameworks of states and abstract aggregates, ignoring the fact that only the activity of individuals increasing value is the cause and meaning of all economics.
Recently I came across an example that I want to use to conclude this column. This example shows how conceptions of reality change under the influence of various myths, legends and the anthropomorphism accompanying them. Adam Smith, speaking about the tasks of “police” (that is, government intervention), among other things mentions “the establishment of cheapness.” You will also find this recognition of cheapness as a good in many other works of 19th-century economists. And this is obvious if one remembers the nature of value (although Smith himself was quite confused on this issue). Any housewife knows that cheapness directly contributes to wealth growth.
Smith lived in an era when “police” was only beginning its victorious path. Therefore, his opinion was formed not by the needs of “police,” but by a fairly independent analysis. However, over time, when economists became a variety of bureaucrats, the attitude toward cheapness changed. This is not surprising, since for successful reporting we need to produce 100 today and 120 tomorrow. What room is there for cheapness. And you will not find today politicians and economists who would directly set as their goal the cheapening of goods. On the contrary, price increases are considered by some schools as a direct sign of wealth growth. The worst thing here is that progressive public opinion thinks so too. Admittedly, it itself strives to buy cheaper, but as public opinion it will tear throats proving the “harm of deflation,” for example, understanding by deflation the fall in prices due to production growth. And this opinion, gleaned from near-government experts, the public will carry to the polling station, and after the elections will be surprised that “everything is getting more expensive again.” And all this—from a small difference between value and price.