Value -- The Soul of Economics

William H. Pitt

[First appeared in Good Government, May, 1968; Reprinted from Progress, July, 1976]

A Subjective Origin

There seem two stages in the formation of 'value'. It seems to start with a subjective, personal, evaluation, by, individuals, of the usefulness of an article for the satisfying of their desires. Some of us, having a particular desire for an article, make this subjective evaluation of it hi deliberate fashion; others, lacking the particularity of that desire, or perhaps not requiring the article quite so urgently, make only subconscious measurement of its usefulness, that is, of its utility.

Basis for Price

The second stage occurs when those with immediate purpose for the article cast around for the means of acquiring it. A few will manufacture it for themselves, even though this, in terms of tune and effort, is probably the most expensive process. Others, economising a little, will combine their effort in a co-operative production. But most of us, on desiring something, but not being in such desperate need of it as to warrant our manufacturing it for ourselves, will get it 'in the market', doing so by exchanging for it some other article or service for which our regard, as vendor, is not at that moment so high. While those manufacturing the item for themselves may seem to have but little effect upon 'the market', their outlays in tune and effort are nevertheless seen and noted by everyone and form the ultimate base for the price structure; were is no concern for the reasons, whatever they be, that activate individuals to expend their effort; the concern is for the amount of our effort, were we manufacturing the article for ourselves.

The Excellent Mechanism

In deciding upon an exchange in the market, we commence from our knowledge of the cost in time and effort were we to make the article for ourselves, either individually or co-operatively. But being rational, intelligent humans, we seek always to satisfy our desires with tile least expenditure, whether of time, effort, money or to other commodities or services. Therefore, we seek out those who, with an abundance of the article, or having a facility greater than our own for its production or, having a desire greater than our own for the commodity or service which we can provide in exchange, will offer the article we desire at a price that will give us a saving hi our exertion. When there are several who will thus offer us the article, the desire to minimise our exertion induces us to seek the best offer, thereby testing the market to its limit and attaining the greatest possible saving. The market is thus a mechanism for the economising or conserving of human energy - the most excellent mechanism of all, not only in that it permits the immediate conservation of energy, but also to that, by acting as a register and indicator, it steers the whole community towards a constantly increasing conservation of energy. It thus promotes the maximising of results and the minimising of effort.

The Objective Expression

In order properly to appreciate the functioning of the market, there has to be recognition of the fact that everyone who 'goes to the market' and participates to the exchange of goods and services, does so to order to save himself effort. Any proposed transaction must offer a benefit to both vendor and purchaser, otherwise it will not take place. This is so even when an article or service is offered at a price well below 'true value'. In every case the offerer is satisfied that to making the deal he is receiving a benefit and is achieving something that he otherwise could not He may regret that he takes his decision at a time when the article or service with which he is parting will bring him less to return than it might at some other time: but at the moment of decision he sees it to be advantageous that he should sell. The advantage is that failure then to make the decision could involve him subsequently to a greater exertion. The market, thus, is a place where goods and services are evaluated, subjectively, by individuals, the evaluation then being made evident, objectively through price, to others. Price, one might say, is the indicator, the objective expression of and the evidence of value: and value roots to, and is at every stage concerned with, the saving or economising of effort.

Money, the Ultimate Refinement

That this view of value is correct receives support from the everyday meaning that attaches to the word 'economics'. Where this word occurs on its own, it is, to general, used to its deepest and widest meaning and, concerned for the prosperity of the community as a whole, deals with the fruitfulness of the overall activity and therefore with the overall economy of effort. But when specific fields of activity are to mind, an appropriate definitive is used: we talk, for example, of "the economics of the sugar industry" and conclude that prospects for the industry here to Australia will be good if, or even because, the political or climatic conditions to other sugar areas are disastrous and throughout the world there will be deleterious effect upon both other sugar producers and all sugar consumers. In either the particular case or the general, it is the maximising of results through the economising of effort that is the concern. It is our instinct for economising effort that has led to the use of one or another particular commodity as a unit for the measurement of values. Through the subsequent use of tokens for these commodities, what we now call 'money' has developed and it is its potency to the economising of time and effort that makes money the ultimate refinement to the mechanism of the market and the greatest of all our servants.

Not the Some Thing

'Price' cannot be the same thing as 'value'. It is the measure of value and the objective indicator for the monetarily acceptable figure, dictated by all the varying individual evaluations, at or around which transactions customarily occur. It is a characteristic of 'price' that it allows of a benefit for both the vendor and the purchaser, being above the evaluation of the vendor and below that of the purchaser, each of whom, necessarily, approaches the market in search of different satisfactions. Like all mechanisms, the market, with its function for the economising of tune and effort, is servant alike to the good, the compassionate and the perceptive as well as to the evil, the inconsiderate and the oblivious. We interfere with it at our peril, for the interference is interference with the economising of time and effort, the penalty thus being automatic, widespreading and assured. This is the lesson of the ages as well as of immediate logic.

The Rational Enquiry

In an enquiry into economics we must commence with the question as to just what it is that we are economising. Clearly, the answer is that our enquiry concerns the process whereby human beings economise in their time and effort, i.e., in their exertion, for the economising of tune and effort is the mainspring of rational intelligent human activity. Thus we can accurately determine what value is and how it is to be measured, what price is and how it is expressed, what the market is and how it operates, what the true rights of property are and how these rights are not only violated by long established legal wrongs but also threatened by further legalistic damaging of the automatic processes of the market. These processes are those of a free-running, frictionless machine and the insertion of anti-economic frictions into the mechanism amounts in my view to the most dreadful act of vandalism.

The Essential Prerequisite

It seems to me that correct theorising in the realms of economics is an essential prerequisite to the preservation and growth of freedom in its beautiful entirety or in any of its sparkling facets. Until there is a widespread understanding of the essential simplicity of each section of the market mechanism, there cannot help but be unending attempts at interference with the market. These interferences can, of course, never be such as wholly to destroy the market (and freedom) but they can never fail to harm it. Understanding of the processes of the market can come only with appreciation of two facts, the one that the science of economics has as its concern the economising of our time and effort, and the other that value, which the most percipient perhaps of my friends calls "the soul of economics", can have reference not to cost in terms of labour or effort, not to either of utility or gain, not, although the relationship gets closer, even to scarcity, but only to the saving or economising of effort.

Future Conserved Effort

Summarising, then: articles of trade are evaluated, subjectively, according to the amount of exertion which their possession will save for the possessor: and their price, manifested objectively in the market, must always be above their desirability as evaluated by the vendor and below their desirability as evaluated by the purchaser. Exactly the same processes of subjective evaluation and objective pricing occur with services: - In the case of services the outcome of exertion is intangible and is promptly dissipated, whereas in the case of articles of trade (commodities), where the exertion is applied to material substances, its outcome is for a time stored up in tangible form. In each case, both practitioner and client, both vendor and purchaser, first consider the effect of past exertion and then aim to conserve future exertion.

The study of this and then the teaching of it to those who determine national policies, seems to me to provide the only base from which a campaign for the securing of freedom can successfully be mounted.

In the estimation of future conserved effort, lies the core and centre of Value.