TRANSACTIONS
AND VALUES
[The subject of transactions and values is treated in Modes of the Finite, Part 6, Section 2, Chapters 4, 5, and 6.]
At the end of the preceding chapter, we had disposed of the initial ownership of things. But what of those born after everything is distributed?
What we saw in the preceding chapter was that, because initial ownership is established by simply making a claim (and not by any effort), and since ownership exists to allow people to lead human lives, a person has a right to the bare minimum for subsistence, and this is to be supplied by civil society.
In that sense, "the world owes me a living"; because otherwise civil society is in effect killing me--and I have the right to life. Nevertheless, what civil society owes me is only a bare living; only enough to keep from in effect killing me. And, in fact, if I can get what I need and somewhat more by working and serving others, then by the Principle of Subsidiarity, civil society would be taking away my self-determination even by giving me the bare minimum, and so would be dehumanizing me in so doing. That is, civil society is not in effect killing me if I can keep myself from dying by working, and I refuse to do so; in that case, I am in effect committing suicide, and civil society has no obligation to force me to live in spite of myself. Hence, as St. Paul said, "One who does not want to work is not to be fed."
Therefore, civil society's obligation applies really to those who can't in practice work: those who are too young, those who are incapacitated, those who can't find work. But since human beings are self-determining, which means setting goals for oneself and pursuing them, then it follows that those of us who do work to "make a living" must be capable of doing more than barely survive, or the people we are working for are dehumanizing us even though we keep breathing. Civil society, whose function it is to see that no citizen's rights are violated, must therefore see to it that by our service to other people we can get beyond the bare minimum.
So what we are now talking about, really, is how I get more than bare subsistence. I must somehow get it from people who already have it, and who have no obligation to give it to me.
It is also the case, however, since those who own things can will them to whomever they choose, it might be that my parents have willed more than a minimum to me, and so I can start out determining myself with a surplus, which I can then use to reach goals over and above bare survival.
In any case, we may assume that in a just arrangement of things, everyone begins with at least the minimum necessary to stay alive.
10.2. Self-determination and values
Human self-determination, of course, is all about our making ourselves into a distinctive example of humanity: developing certain aspects of ourselves and leaving others undeveloped or less developed, so that the person we become is different from other humans, and is definitely more than barely human.
Let us give a couple of definitions which will be useful for clearing up these matters.
DEFINITION: Essential properties are those aspects of ourselves (those acts we perform) which are the minimum necessary for being human at all.
Life, the ability to see, and minimal health would be examples of essential properties of human beings.
DEFINITION: Necessities are the means to being able to exercise (or have) essential properties.
Thus, breathable air, basic health care, enough food not to be malnourished, basic shelter and clothing, are necessities.
Necessities are what we have a claim against civil society for, since without them we cannot live a human life.
DEFINITION: Goals are those aspects of ourselves (acts we perform) which we freely choose as distinctively "ours."
The set of goals we have is the standard of living we try to achieve.
DEFINITION: values are the means toward achieving the goals we set for ourselves.
Strictly speaking, a value is a property of some object or act (the "valuable" object or act) which makes that object useful for achieving the goal; the value is its "usefulness." Thus, rain-protectingness is the value in an umbrella, which is a valuable object. But the umbrella, in a loose sense, could also be called a "value," in that it keeps rain off us.
NOTE WELL
Beware of confusing values and morals. What is morally right and wrong deals with what is consistent or inconsistent with your humanity. Values lead you to a goal you have chosen, and aim at what is "good."
NOTE FURTHER
Values are necessary for the achievement of the goal they lead to; but they are not for this reason necessities.
Refer back to section 2.1. if you need to refresh yourself on the distinction between values (goodness) and morals. The point is that values lead to success and therefore happiness, when you are what you choose to be. As to the second point, values are "hypothetically necessary": that is, necessary if you want the goal; but you don't have to want the goal, since it is freely chosen. I am now distinguishing them from necessities, which keep you from dehumanization, and are therefore "categorically necessary": that is, necessary without qualification, something that every human being must regard as necessary (because without them he is a living contradiction).
How do we know whether one object or act is more valuable or more necessary than another?
DEFINITION: One act or property is more essential than another if there is greater dehumanization in not having it.
DEFINITION: One necessity is greater than another when the harm in not having it is greater than the harm in not having the other.
That is, essential acts are "measured" against each other in terms of how much worse off you are without them. Necessities are measured against each other by the degree of dehumanization involved in being deprived of the essential acts they enable you to perform. Thus, life is more essential than sight; and one in general would give up his eyes if they were infected and he had a choice of being blind or dying. Similarly, enough water to keep you from dying of thirst is a greater necessity than an operation to keep you from going blind.
The general idea here is that the necessity is greater depending on how much harm its lack does to you: the "degree of dehumanization" you suffer when deprived of it.
Necessities "start," as it were, from the minimum of human existence and go downward to greater and greater dehumanization and finally death.
DEFINITION: Importance is the ranking of freely chosen goals.
DEFINITION: Something is more valuable than something else if it leads to a more important goal.
One goal is more important than the other if we would give up the other in order to achieve the one.
Notice that here there is no notion of deprivation; we may want the important goal very much (in fact, that is the meaning of saying that it is "very important" to us); but we are not dehumanized if we don't get it. For example, you may make being a doctor the whole meaning of your life; so that for you, "life is not worth living" if you aren't a doctor. Still, you have no human right to be a doctor, and you are not less than human if you can't be a doctor. Being a doctor is important; it is not essential.
By the same token, a course in medicine is more valuable for you than a course in business ethics if your goal is to be a doctor; and a good course in medicine is more valuable than a poor one.
Of course, our "goal" is not simple; we in fact have a whole set of them, and often have to trade one off in order to get other ones. So that in the case above, a person might find a course in business ethics more valuable than a lot of other things, though perhaps not as valuable as a course in medicine.
And this gives us a clue to how we in fact rank things in order of value and importance. Things in general are of different kinds; the problem is to put quantitative tags of "more important/ valuable" and "less important/valuable" on what is qualitatively different. Can you compare apples and oranges? Sure, we do it all the time.
Goals are in practice ranked as more or less important by pretending that we can't achieve all of them, and then discovering which ones we will give up in order to have the others.
Values are ranked by the same procedure. When you see your schedule, you know that you can only take so many courses offered. Which ones do you decline to take? These are the ones that are less valuable to you than the ones you choose.
Values "start" at the minimum of human existence, and go upward to the limit of the freely chosen goal.
It might be thought (and in fact for a while I did think) that one object might be more valuable than another if it led more efficiently to the same goal as the other; but this is so only if you have as your goal getting to the goal as quickly and with as little effort as possible. Some people in traveling, for instance, like to take the "scenic route," so that they can enjoy themselves along the way; getting to the destination most efficiently is not a goal for them, and the expressway, therefore, is less valuable than the slower road. Hence it is the goals themselves and their importance which determine the relative value of one means as against another.
But what is to be noted here is that there is no objective meaning to "more important" or "more valuable." Since they depend on freely chosen goals, they vary with the goals each one chooses.
Do not be misled, then, by prices, which make things seem objective. Prices do not reflect either the "true" or the "objective" or in fact any value of what is offered for sale. There is no such thing as the "real value" of anything. Yes, I am using "value" in the economic sense, which has a relation to price; but the relation is complex, as we will see, and you have to get the fundamentals straight before you can avoid being misled.
10.2.2. Values vs. necessities
One of the things that has not been done by economists of any stripe is to make a clear distinction between the functioning of values and necessities; and this, I think, is crucial, not only for a realistic economic theory, but especially for straightening out the ethics involved in economic activities such as transactions.
The following differences, then, between values and necessities should be noted:
1. We have a human right to necessities; we have no human right to values.
Without necessities we either die or are dehumanized; without values, we can't be what we want to be, but are still human.
2. Essential properties are not important; goals are important.
Essential properties (since they deal with what is minimally human) are what we presuppose in our lives; hence, they have no importance for us. We don't want very much to be able to breathe; we take it for granted that any human being can breathe, and claim a right to be able to breathe.
3. We cannot morally choose to give up necessities; we can morally give up values.
That is, since a necessity keeps us from being dehumanized, then if we gave it up, we would be choosing our own dehumanization (i.e. we would be deliberately contradicting our nature), and this would be immoral. But giving up a value is not dehumanizing; it just means we can't achieve the particular (free) goal it leads to.
We can give up a necessity only when, by the Double Effect, we do not choose the resulting dehumanization. Thus, a person may have his arm cut off (and be deprived of the power to pick up things) only when not having it cut off would be worse for him--such as if the arm is gangrenous, and he would die.
But necessities may never be morally given up to obtain a value.
Thus, if you are asked to cut your arm off as the only way you would be allowed to get a medical education, you could not do it morally; the end does not justify the means--even when your life would not be worth living as not a doctor.
Values, on the other hand, may be given up to obtain other values (and of course must be given up if the alternative is giving up a necessity). Thus, each value is finite: it is greater or less than the other values we have, and we can (by pretending to give up one to get the other) "measure" values against each other.
4. Necessities cannot be classed with values; they have either zero or infinite value, but cannot be said to have a finite value.
That is, if you have a necessity, it isn't valuable at all, because it is presupposed (as, for example, your having two arms is). If you don't have it, then you would give (and, as we just saw, would have to give) all values to get it. If you were about to lose your arm, and you could save it by giving up your chances for a medical degree, you would have to give up the degree.
Thus, necessities are not very valuable. They are necessary. They are either more or less than valuable at all--which is another way of saying that they belong to a different class altogether.
NOTE WELL
Necessities cannot be categorized with values; they are incommensurate with them.
This is another way of saying that no amount of values can "compensate" for the deprivation of any necessity. How many trips to the baseball game are equal to the loss of one eye? This is like asking, "How many automobiles are equal to the sound E-flat?"
It is precisely this that has been ignored in economic theory, whether traditional Capitalist, Marxist, or Austrian. Capitalism assumes, when you look at its underpinnings, that everything is a value; Communism assumes that everything is a necessity. Capitalism assumes that necessities are just "very valuable" values; Communism assumes that values are just "less necessary" necessities. Both of these "reductionisms" lead to contradictions and dehumanization.
The key, as I said in the beginning of this part, to economic activity is the transaction. It is the way we "redistribute the wealth of the world" and get from what we started with to the goal we want to achieve.
DEFINITION: A transaction is an exchange of values or necessities.
To get at the morality of transactions is going to be complicated; so let us approach things gradually. Let us first take the kind of transaction which is a bartering or "swap" of one object for another.
In such an exchange, there are four value/necessities involved: Each giver sees the value he is giving up in the object he is giving, and each receiver sees the value he is getting in the object he is receiving.
If, for instance, I swap an apple I have for an orange of yours, then let us say I don't like apples, and so its value for me is nil, and the value for me of the orange is 3 pears (since if I had any pears, I would give three, but not four, pears for it); while the value of the apple for you is 2 pears, and that of the orange is one pear. Of course, we use pears only for convenience here. The point is that there is no "real" value of either the orange or the apple, or for that matter, of the pears; each depends on how useful each finds each for his own purposes. Hence, the value of the apple is different for each of us, and so is the value of the orange. So both of us are gainers; I gain the equivalent of 3 pears, and you gain the equivalent of one pear.
Does this make the swap uneven? No. There is no such thing, really, as an "even swap," because neither one would swap one thing for another if he didn't want the other one more than the thing he was giving up; hence, for each of the two parties, the swap is uneven to his own advantage.
Or again, when the English gave the trinkets to the Indians for Manhattan island, the English attached practically no value to the trinkets and great value to the land, while the Indians were giving up a little place to roam around in for things that no one had ever seen the like of.
We tend to think that the English cheated the Indians, because the land was "actually" worth a great deal more than they paid for it (I will put aside a kind of--perhaps unwitting--misrepresentation in that the Indians might not have been aware that they would have to stay off the island. The point here is that of the value of the objects exchanged); but as I said before, there is no "actual" worth of something. The fact that the English could cheaply obtain copies of the trinkets was not really relevant to the Indians, who could not. After all, the English thought that diamonds were very valuable, because they were pretty and scarce. This was exactly what the case was with the Indians and the trinkets. So again, both parties gained by the transaction.
Supposing no necessities to be involved, it is perfectly moral for each party to the transaction to try to gain as much for himself as possible, looking to what he thinks is the upper limit of the value the other party sets on the object exchanged.
That is, given that there is no "real" value which, by differing widely from, I could be said to be cheating the other party, then any bargain that is struck between the two is presumed to be to the advantage of each; otherwise, why would the two have agreed on the exchange?
Of course, you can cheat by misrepresenting what the object is, as if, for example, I offered you what I knew to be a rotten apple in exchange for your orange, and it looked all right and so you thought you were getting a healthy apple. What I am saying here is that I can't misrepresent the value of the object I am exchanging, because it has no value to anyone except what that person gives it in relation to the (subjectively defined) importance of his goals; and this is bound to be different for different people. And obviously you know what the value of the object is to you; and its value to anyone else is irrelevant.
True, if you shopped around, you might be able to get a comparable object (one with the same value: one that would get you to the same goal) by giving up less in exchange, because you might find someone else who values what you have more than I do. Perhaps most people value what you have more than I do. But that still doesn't make our exchange unfair; you still gain by the transaction, or you simply won't make it. Ten tons of subjectivity do not make one ounce of objectivity; and so even if everybody else would make you give up less in exchange, that's just an interesting psychological fact (which could change, by the way, in an instant) and does not establish the "real" value of the object.
Therefore, it is all right for me to give up as little as I can get away with for as much as you are willing to give in exchange. Neither party is coerced in this situation.
10.3.1. Exchanges involving necessities
Cheating is possible in the kind necessities of transaction we are now talking about, however, if one of the objects is a necessity.
Suppose I have an orange, and you are sick with scurvy. I have the only thing that will save you from dying of scurvy; and you have a great deal of meat, which I happen to like. I then tell you that I will swap my orange for three years' supply of meat.
Here, you will agree to the swap, because you have to. The orange is a necessity; and, as we saw, you cannot morally give it up for any value; and so, no matter what I want in exchange, you will have to agree to it--up to the point at which you are more deprived by what I demand than by not having the orange and being sicker or dying.
Economists would say that your "demand" for the orange is "inelastic." You want it no matter what is to be given up for it. Probably, insofar as an orange would be a necessity, you would want only what would save you from scurvy; and beyond that you wouldn't give anything for it. Demand is perfectly inelastic when a certain amount is wanted, and only that amount is wanted, no matter what is to be given in exchange.
Inelastic demand is a sign that what is wanted is a necessity to the one who wants it.
It is not an infallible sign, but a very good one.
Notice that there are only three values in this exchange: the value of the orange to me (which is, let us say, one pork chop), the value of the meat to me, and the value of the meat to you. Since we haven't introduced money yet, let us say that I would give up 10 acres of land for that much meat, and you would give up 5 acres of land for the same amount. The orange, to me, is something I would give up a square foot of land for, no more. But the orange is not worth a finite amount to you; you need it; you do not really want it at all. If you weren't sick, you wouldn't give anything for it.
Now then, I have given up something that has a certain value to me, but is nearly worthless, for something you need. But since you can't put any number on "how much you value it," and since, no matter how high I make the conditions, you will pay them, I can no longer base the exchange on the "upper limit" I can get away with, because that upper limit is actually greater dehumanization than being deprived of the orange. Hence, for me to use your notion of the "value" of the orange as my criterion of what to ask is dehumanizing.
In all exchanges involving necessities, then, the value asked in exchange for the necessity cannot be based on the "willingness" of the needy person, but must be based on the value as seen by the person giving the object.
In the case above, then, I would be unjust to you if I asked for more than a pork chop or so for the orange; because that is its value to me--and that in this case is its only value. If I demand more from you, I am taking advantage of the fact that you can't bargain with me.
No matter what I ask for, I am forcing you to pay me what I ask, because you can't morally not get the orange. But the force is legitimate and not coercion only when I ask no more than its value for me; because then I can justify the force on the grounds that otherwise, I lose by the transaction.
Thus, a person who is exchanging a necessity for a value has a right not to lose by the transaction, but no right to do more than make up what he would lose.
DEFINITION: Exploitation is gaining from the necessities of others.
It is "threatening" others with dehumanization if they do not advance our personal goals. Others then become mere tools for our own advancement, not beings with rights.
Two things would seem to emerge from this analysis: First of all, if you want to get rich quick, and you don't care about morality, then supply necessities to other people. Your only concern will be competition from other suppliers (and you may be able to avoid this by careful collusion). But as far as the consumers are concerned, you can charge what you please, and they'll be "willing" to pay--and if in addition, you demand that they give you respect and honor, you can have that too, or at least the outward show of it. They'll have to give you whatever you ask.
Secondly, if you care about your eternal happiness, necessities are a good area to stay away from if you also want to get ahead in this life. When you are dealing with necessities, then morally speaking you can prevent yourself from losing by the transactions, but you can't morally gain by them. As soon as you try to become a net gainer, you are doing it by coercing someone; by threatening him with greater deprivation unless he pays what you ask.
Notice that there is nothing wrong with gaining by exchanges with other people; but this only applies to exchanges where no necessities are involved; where no one is threatened with dehumanization unless he makes the exchange. It is even perfectly all right to become fabulously wealthy by exchanging with other people; but only if the exchange involves values on both sides. Only then does the gain not involve the exploitation of the other party.
But suppose I don't have anything beyond the necessities for my life (which is, as I said, the position most of us are born into). Is there any way I can get from you something you have that I want? If I can't give you anything I have, I can do something you want done.
DEFINITION: A Service is an action of value or necessity to another person, performed in exchange for a value or necessity.
DEFINITION: Compensation is the value exchanged for the service.
A slave serves his master, but does not really perform a service in the sense above, because no compensation is given him for his act. He is fed, to be sure, and clothed, and given the necessities of life; but this is because the master "owns" him and is simply maintaining his possession in good condition. The slave does what he does because if he does not he will be punished or killed. Thus, a slave is by definition exploited by his master.
Notice that the slave "freely chooses" to be a slave, in that he can refuse to obey if he wants; but in that case, he will be whipped. This kind of "freedom" is not practical self-determination, because it is a choice between greater levels of dehumanization, not between one human lifestyle or another.
Note also that the person who does something out of love for another (and who expects no compensation) is not serving the other person either, strictly speaking; because in this case, the act (from the lover's point of view) is purely gratuitous; he is not interested in whether he gains or loses by it, but is solely interested in the benefit to the recipient. Hence, the receiver receives it as a gift, for which it would be insulting to the giver to offer payment. Thus, in love, even though it is the recipient who benefits, it is the lover who is in control; and hence, it is not really a service to the recipient.
Note that a service is not necessarily the same as "work," or actually exerting physical effort. It is any act that a person performs (such as investing money, for instance) which benefits another person.
This is one of the mistakes of Marxist economics, based on the "labor theory of value." The assumption of Marxism is that a person is doing something "valuable" only if he is transforming some material object--with the result that those who invest their money (when they could be doing something else with it) would not be doing anything valuable. But they are performing a service, because someone else benefits from the money while it is invested.
10.3.3. Value, cost, and price
Hence, service is only service when it is and price compensated. But how are we to deter-mine in a given case how much the compensation should be? What is the value of the service?
A service, like an object, has two value/necessities in a transaction: the value (or necessity) from the point of view of the performer, and that from the point of view of the recipient. Neither is the "true" value (or necessity).
Again, there is no such thing as the "true" or "objective" value of a service.
DEFINITION: The seller-value of an object or service is its value from the point of view of the one who gives or performs it.
DEFINITION: The buyer-value of an object or service is its value from the point of view of the one who receives it.
DEFINITION: The cost of something is what is given up to get it.
DEFINITION: The price of something is what is exchanged for that something.
Things to note: First of all, the cost is not necessarily the money; because you may have to give up more than money to get something (e.g. in addition to the price--the money--you may have to stand in line for an hour, and thus give up free time. That's an additional cost). What I am calling "cost," then, is what economists call "opportunity cost." There really is no other cost; price is generally only part of the cost of anything, and so to confuse it with cost is to obfuscate something already not terribly clear.
Secondly, the cost may be less than you would be willing to give up; in which case, you have gained by the transaction. You are ahead of where you would have been if the thing or service had cost the limit of what you were willing to pay. Of course, if the cost is too high, then you simply don't make the transaction.
It is in this sense that the Libertarian view of transactions considers all transactions as "free" and says "let the market determine the cost." No one loses by a transaction involving only values, because if he perceives that he is going to lose, there is no transaction--simply because it costs more to get the object or service than its value to the person.
The trouble with this is that some transactions involve necessities, and when one must pay more than enough to prevent a loss on the other side, then one has in fact lost, and the market is no way to determine the cost. The cost can be too great when a necessity is involved, and the person will pay it anyway.
Thirdly, the way a seller determines the seller-value of a service is to pretend he was not performing the service and doing what he wanted. This is what he is giving up in performing the service.
Note that the seller's value for the service is the same as its cost to him; because when he performs the service, he actually gives up the other act he could be doing.
The buyer's value, on the other hand, is measured by what he is willing to give up to have the service performed for him; but this may not be the same as the cost, because he might be willing to give up a great deal more than the two actually agree on.
The point is that the buyer-value and the seller-value of any object or service are not the same; hence, the buyer and seller must come to an agreement on what is to be exchanged for what.
Fourthly, the price is not exactly the same as the cost; it is what is actually exchanged. Thus, if I agree to wash your car for a bushel of apples, the cost to me is the movie I could be watching, but the price I pay for the apples is the car-washing. In your case, the cost of the service is the apples, which is also the price you pay. I don't give you what I have given up (so that my cost is not in the price), but you give me what you have given up (and so for you, the cost and the price are the same thing).
Notice that I might be willing to give up two movies for that bushel of apples, and you might be willing to give two bushels not to have to wash the car yourself; so we are both gainers. How did we come to this arrangement? You told me, "I'll give you a half a bushel of apples if you'll wash my car," and I replied. "Nope. Not for less than a whole bushel"; and you said, "It's a deal." We could have haggled farther, but we didn't; and that's perfectly all right.
Fifthly, the price is not the same as the value of the object or service, either from the seller's or the buyer's point of view. The value for me of the apples is two movies; the cost is one movie; and the price is the act of washing the car. The value of the washing for you is two bushels of apples; the cost and the price are one bushel.
Sixthly, the price does not "measure" any value that is involved in the transaction. This is a mistake of economists; they think that the price is the measure of the "exchange value" of the transaction, and is something objective, as if it were what the objects and services were "really worth" in that case. It isn't at all; it is simply the compromise between what each of the parties wants and is willing to give up.
Barter, of course, is a nuisance, because you might have something I want or need, and I have nothing you care anything about. Money was invented to take care of this problem; it stands for an abstraction, but it is quantified.
Money is not the same as "cash" or legal tender; that is something that has to be accepted as money (to oversimplify somewhat); but it is not the only kind of money. A check is money for the person who will accept it, and so is a credit card (though the credit card does not have a definite amount marked on it), and the "debit cards" that banks offer.
DEFINITION: Money is a socially defined "common denominator" for transactions, so that all persons can measure costs and values in terms of the same thing.
That is, when I said earlier that I valued an orange at 3 pears, and you valued it at 2 pears, we were using pears as a kind of money, so that we could compare the value I set on the orange with the value you set on the orange.
It is not necessary to do this in order to make a swap; but with any kind of complicated system of exchange, especially of services for objects, some single something that everybody can measure against is in practice indispensable.
It also happens that if exchanges are going to take place freely in society, then everybody should agree on what is going to be used for money; otherwise, you and I will compare apples and oranges to pears, and someone else and I will be comparing them to plums, without any reference to pears, and the social system of exchange will be a mess.
Money has to have the following characteristics:
(1) It must be capable of division into units small enough to accommodate the least valuable transaction. If not, people aren't going to be able to use it to measure values against each other.
(2) It must be something that can ordinarily be obtained only by means of a transaction. (a) If people can just go and pick it up like autumn leaves, then no one is going to accept it in payment (because anyone who wanted any could get it from his own back yard). (b) If it is something that people use a lot, then its function as a measurer against things conflicts with its use.
Money, therefore, does not have to be something most people regard as valuable in itself, like gold, which is beautiful and lasting. In fact, the use of gold in jewelry, for instance, makes it less desirable as money, not more. As long as people have reason to believe that the money will stay money, it doesn't matter what it is: paper, sea shells, gold, tobacco, whatever. The reason gold is so popular is that it has been money for millennia, and the likelihood that it will stop being money is very small. You can always measure things against gold; you may not always be able to do it against greenback pieces of paper.
The idea here is that money is supposed to have value only as something you can turn in for other things you really value; its value as such is purely as a means for obtaining other values, not something that of itself promotes a goal of mine (as an umbrella keeps me dry).
(3) Money must be relatively stable. That is, what people are generally willing to give (of other things) for a certain amount of it must not have wild fluctuations.
The reason for this is that, when I receive it for performing a service, I have to measure the value of my service against it, which means what I think I can turn it in for. Since it has value as a means for obtaining other values, I have to know how much of the other values I can get with it.
But this means how much of it other people will accept, which in turn means how much of what they want the money I give stands for--which means they are doing just what I am doing.
Hence, there has to be a kind of double measuring going on: you measure things against money, but money is, as it were, socially measured against things-in-general (i.e. so many dollars for so many bushels of wheat in "the market," and so on). Individual prices, of course, will fluctuate, even drastically; but there should be a basic stability, so that most people agree that a certain amount of money stands for a certain amount of a rather large number of things; and this ratio lasts pretty well over time (or alternatively, varies in a predictable way--but this is not the place to go into great detail economically).
Therefore, one of the functions of civil society is to define what is to be used as money in that society.
One of the major moral duties of society is to keep the money stable.
If the society does not keep the money stable, so that people who thought they were getting the equivalent of ten oranges find that they are getting the equivalent of five, then the society is falsifying the transactions, and is thus lying to its citizens.
Inflation as a policy of government is morally wrong. The only time it can be permitted is by using the Double Effect, when it is the only way to correct worse harm to the citizenry.
Deflation, by the way, is no less wrong. In that case, the person paying the money thought that he was paying the equivalent of five oranges, and finds that he is paying the equivalent of ten. It sounds better than inflation only because we think that it is nice to pay less than what you used to; but the reverse of that coin is that you get less than you used to for the same service.
It doesn't follow, of course, that inflation or deflation is always caused by government, or even under the control of government; but insofar as it is, government must try to correct it and provide a stable currency--always supposing that to do this does not produce worse harm to the people.
We have almost got the pieces of our economic puzzle before us. But so far, we have talked about exchanging what we own for other things that people own, or for services. But there is one interesting thing that people do in addition to this.
DEFINITION: Production is the transformation of objects into a form that has a greater value for someone.
That is, some things that are just there in the world are valuable. We can gather nuts and berries (or pay someone to do it for us), and we can live in caves.
But there are other things that in their raw state do not lead toward our goals, but which can be changed so that they do. Trees, for instance, can be cut down and sawn into boards and put up as houses; and this makes better living quarters than caves ever did; and so on.
Hence, production increases the buyer-value of the objects transformed by it. But since production involves the act of transforming, then production implies a greater seller-value in the product than the raw materials had.
If production could ever be made totally automatic (the way trees grow by themselves, without even any cultivation), then the increase would produce greater buyer-value, but there would not be any greater seller-value in the products (i.e. no one would have used up any time or effort in making them). In that case, the product could realistically be priced in terms of its seller-value only; but then, of course, no transactions would take place dealing with it (since even the selling is a service); it would have to be freely available to everyone. That is the ideal of Communism, in fact.
But it seems unlikely that that state will ever be reached; and realistically, any product will have one value for the producer (or producing team), a value that represents the activity the producer gave up in producing it and making it available to the consumer. It will have another (and a different) value for the consumer, a value that represents how much he would give up to have it.
Both of these can be measured in money. How much money will compensate the producer for his loss in making the product? That is the seller-value. What is the upper limit the consumer will pay for it? That is the buyer-value.
The actual price of the product will be a compromise agreed on, and in general, it will more than compensate the producer (or he won't be bothered producing it), and will be less than the consumer would have paid if he had been pressed hard enough (or he might decide to spend his money on something else).
The idea that the price is the "marginal value" or "marginal utility" of the consumer is false. What that would mean is that the consumer is willing to give up that much and no more; so that if you added a penny, he wouldn't pay it.
We are speaking here of the individual consumer. What the "market price" for the product or service is will have to wait to subsequent chapters.
As human beings, we have a right not to be harmed; therefore, we have a right to necessities if we can't get them plus somewhat more by working; and civil society must see to it that we get the minimum necessary to avoid dehumanization. But if we can work and refuse to, civil society has no obligation to force us to stay living by providing necessities.
Essential properties are those without which we are not human (breathing, eating, etc.) Necessities are the means to such acts. Goals are acts we freely choose as what distinctive kind of human we want to be, and values are those aspects of objects which by which the object leads to a freely-chosen goal. Values are not the same as morals; what is right or wrong deals with consistency of the act with the agent, not with leading toward a goal. Values are "necessary" only if you choose the goal they lead to; necessities are necessary for everyone to avoid being in a self-contradictory state.
Acts are more or less essential depending on the degree of dehumanization; necessities are greater or less depending on how essential the act they enable is. Goals are more or less important depending on how the act "fits" our notion of our "real self"; something is more or less valuable insofar as it leads to a more or less important goal. There is no objective meaning to "more important."
Values differ from necessities in four ways: (1) we have a human right to necessities, but not to values; (2) essential properties are not important, but presupposed; goals are important; (3) we may not morally give up necessities except to avoid greater deprivation; we may freely give up values and their goals if we want; (4) necessities are incommensurate with values; they either have no value (if we have them) or are of "infinite" value (if we don't), because we would have to give up all values to get them.
A transaction is an exchange of values and/or necessities. If only values are involved, then, since no object has any real value, any exchange is morally legitimate, and each party gains (gives up what is less valuable to him than he gets, or he wouldn't swap).
But when necessities are involved, things change. Necessities can be discovered by inelastic demand (which is the same regardless of price). Since the necessity cannot morally be given up for any value, then the one giving up values to receive necessities is under a threat of harm if he does not engage in the transaction; and it is morally wrong for anyone to gain by threatening another. Thus the one giving up the value may ask in exchange what is equal to its value to him, but no more.
A service is an action performed in exchange for a value or a necessity; compensation is the value exchanged for the service. Uncompensated "service" is either slavery (when the person is threatened with harm if he does not perform the service) or love (if the person wants no compensation).
Price is determined by the compromise between the buyer-value and the seller-value; there is no "objective" or "real" price for anything. The seller-value is what the seller is giving up in performing the service; the buyer-value is how important the goal is that the service leads to. Cost is what is actually given up in the exchange, and may not be equal to the value (what one is willing to give up). It is not the same as price, which is what is actually exchanged, because it can involve things like time and inconvenience. In an exchange involving objects, the price (what is swapped) is below the value of the one who receives it and above the value of the one who gives it up.
Money is a socially-defined "common denominator" for transactions, so that everyone can measure costs and values in terms of the same thing. Hence, a person can give a "money figure" to what he is giving up (or receiving) based on what other things he could acquire with the same money. Money allows us to compare apples and oranges in terms of their potential value to us. It must be divisible into units small enough to cover the least valuable transactions; it must be ordinarily obtainable only by way of a transaction; and it must be relatively stable. One of the functions of government is to define what money is, and one of its duties is to keep it stable.
Production is the transformation of objects into a form that has greater value for someone. It increases the buyer-value for someone (adds value that wasn't there before); but since it involves working on the object, it also adds a seller-value to the raw material.
Exercises and questions for discussion
NOTE: These questions are to be answered on moral grounds, not legal ones. We are not interested in what the law is here.
1. If government gives more than the minimum for survival to people (in order for the poor to "live decently") what would you predict would happen with respect to the numbers of people who are poor? How do you think government can provide the necessities for those who must have them without creating incentives to be a mere recipient?
2. Does the "market value" of a product or service have anything objective about it? The "market value" is the price at which all the buyers who want the product at that price can get it and all the sellers willing to sell it at that price can sell all they have. HINT: The market value of "pet rocks" was a couple of dollars a decade ago; now it is nil.
3. Is a doctor's time really worth five hundred dollars an hour, even if he could get twice as much for it if he wanted to? Why can he get this amount for his service, and is it just for him to ask for this compensation? If so, on what grounds?
4. When we speak of a nation as "very wealthy" if it has many natural resources such as minerals, are we speaking accurately? That is, are raw materials in their "raw" state of any value whatever?
5. Given that the motivation society uses for its members is threats of punishment, then this implies that it is the avoidance of harm, not the pursuing of goals, that motivates people when government commands them. What kind of economic activity would you expect among the people, then, if the government runs the economy?