Marginal Value

A reader recently asked me what price she should be willing to pay for cheap beer by the case. When buying beer at the liquor store (or “beer distributor” if I happen to be in Pennsylvania) I expect “sub-premium” beers (such as Hamm’sPBR, Miller High Life, Keystone, etc.) to be about $15.00 per 30 before tax. When buying slightly better beers, I regard it as a good deal if I can get beers at under $1.00 each. And, of course, one must be willing to pay more for better beers.

But it bears repeating that value is not intrinsic. So I repeat, in the words of Ludwig von Mises: “Value is not intrinsic, it is not in things. It is within us; it is the way in which man reacts to the conditions of his environment.” We may attempt to assign value to something, but those values mean nothing without human action. Either we buy at a given price or we do not. If we say “Pabst is not worth $25.00 per 30” but then still make that purchase, we are clearly mistaken. It is only the act of the sale that tells us anything concrete about value.

What’s more, values change relative to each other based on each individual’s hierarchy of wants. “If a man is faced with the alternative of giving up either one unit of his supply of a or one unit of his supply of b, he does not compare the total value of his total stock of a with the total value of his stock of b. He compares the marginal values both of a and of b. Although he may value the total supply of a higher than the total supply of b, the marginal value of b may be higher than the marginal value of a.” This helps shed light on the classic question of why gold is more prized than water, even though water is essential for human survival while gold is not. The answer lies in the fact that under most circumstances, the marginal value of a unit of water is less than the marginal value of a unit of gold. This is because water is generally plentiful enough to supply our basic needs. But it is equally true that in the severest drought, one would not part with a unit of water for any amount of gold; the marginal value of each has changed with the circumstances.

Beer of the week: Casablanca Premium Lager – Among the many conditions that factor into valuing beer is location. In Morocco one may expect to pay slightly more for a beer than one might expect given the prevailing exchange rates. The marginal value of the stock of beer is somewhat higher for its relative scarcity. (That is not to say that it is hard to get beer in Morocco; it is just a smaller market.) Casablanca, Morocco is one of the largest economic centers of Africa. It is also the source of this aptly named beer. Casablanca lager is clear and pale, with a very faint and dry aroma. It is a very standard micro, but plenty refreshing.

Reading of the week: Human Action by Ludwig von Mises – Later in this, his chef d’oeuvre, Mises writes: “The moralists’ and sermonizers’ critique of profits misses the point. It is not the fault of the entrepreneurs that the consumers–the people, the common man–prefer liquor to Bibles and detective stories to serious books, and that governments prefer guns to butter. The entrepreneur does not make greater profits in selling “bad” things than in selling “good” things. His profits are the greater the better he succeeds in providing the consumers with those things they ask for most intensely.”

Question for the week: Do the common people truly prefer liquor to Bibles and detective stories to serious books? Is it not simply true that the marginal value of a second Bible is quite low compared to the marginal value of a second drink?



This is the second in a series on Franklin’s moral improvement plan, the rest of the posts will be available here.

TEMPERANCE:  Eat not to dullness; drink not to elevation.
– Franklin

As applied to food, the notion of “all things in moderation” is sorely abused. There are certainly some foods that one can healthily do without entirely. Indeed, there are foods that one ought to live without. So recommending that all foods be consumed in moderation is not quite right.

For example, one can eat candy from time to time without any serious threat of injury. But it would be absurd to recommend consumption of a moderate amount of candy. A better recommendation would be the total avoidance of candy, and if one does eat candy, to keep it at a minimum.

Because of this distinction, it is important to be able to tell between those foods that should be avoided, but may be consumed in small quantities, and those foods that are salubrious, but should be consumed moderately.

In Marlowe’s Doctor Faustus, the character Gluttony describes his lineage: “My grandfather was a Gammon of Bacon, my grandmother a Hogshead of Claret-wine; my godfathers were these, Peter Pickleherring, and Martin Martlemas-beef.” And Gluttony’s godmother was Mistress Margery Marchbeer. The choice of food and drink associated with Gluttony is quite interesting: cured pork, pickled fish, and dried beef, together with red wine and märzen beer. (To say nothing of the fact that the meat is masculine and the drink is feminine.)

Because the play is from the late 16th century, it goes without saying that there was no refrigeration. So during much of the year, preservation of meat through curing, pickling, or drying was essential if one was to have meat at all. Additionally, beer and wine both served as valuable dietary supplements, and were recommended for a great number of health benefits. So to Marlowe, gluttony is about the over-consumption of healthful foods, not the consumption of foods that are inherently bad for you.

Then again, Marlowe could hardly have imagined the concoctions that pass for food these days.

Beer of the week: Flag Spéciale – This Moroccan beer is brewed in Fez, and is ultimately uninspiring. It is pretty darn bland. On the plus side, the only ingredients are water, malt, and hops; no refined sugars, or anything that should be avoided altogether. Boring though it may be, it is refreshing. And when combined with a bit of atmosphere on a hot day, it is even delightful. And because it comes in a 24 cl bottle, there is little chance of “drinking to elevation.”

Reading of the week: The Tragical History of Dr. Faustus by Christopher Marlowe, Scene VI – In this scene, Lucifer introduces Dr. Faustus to the Seven Deadly Sins. Faustus says to Lucifer that seeing the Sins in their true form “will be as pleasing unto [him], As Paradise was to Adam the first day Of his creation.”

Question for the week: The proposed distinction between foods that are salubrious and foods that should be avoided entirely is clearly problematic. For example, vegans say all meat should be avoided. Teetotalers say all alcohol should be avoided. Are their any truly clear divisions than can be made?