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?

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Gifts are for the Givers

Christmastime is the season of giving. It is the season of charity. It is the season of gifts. But it is not the season of “pure altruism.” That is because, like Santa Claus, pure altruism is not real.

In both charity and gift-giving, the giver always gives to get something in return. We know this because all human action is a choice between alternatives and every action, as Aristotle teaches, “is thought to aim at some good; and for this reason the good has rightly been declared to be that at which all things aim.” So no charitable act is committed for its own sake, but with an aim at some good.

Only a cynic would opine that the good aimed at by giving gifts is getting gifts in return. And that explanation could scarcely account for charity, especially anonymous charity. One could certainly argue that the good aimed at is the good of the recipient of the gift. But that does not appear to be a satisfactory answer. Economic principles are applicable to all human action, as has been shown by a number of philosophers. And no voluntary transaction is conducted at an absolute loss, because there would is no incentive to do so. (Of course, parties occasionally make a bad deal and lose. And occasionally parties will take a loss now in the hopes of gaining more later.)

As Ludwig von Mises points out, every action is a form of exchange. Barter between individuals is an exchange of the most obvious type, but there are also “autistic exchanges.” An “autistic exchange” is one that an individual makes with himself. For example, if I go to the gym, I exchange my time and energy for perceived health benefits. Gift-giving and charity are other examples of an autistic exchange. “Where there is no intentional mutuality, where an action is performed without any design of being benefited by a concomitant action of other men, there is no interpersonal exchange, but autistic exchange.” The value of the gift is exchanged for the good feelings that come from making other people happy.

Like all exchanges, the autistic exchanges are only undertaken where the participants perceive that the value received is commensurate with the value given. I go to the gym because I perceive that that time and effort is worth the health benefits. I smoke a cigar because I perceive the health hazards and cost are worth the pleasure. I give a gift because I perceive the pleasure of gift-giving (and, to the extent that I expect anything in return, the possibility of gratitude and/or reciprocation) to be commensurate with the thought and value of the gift. Gift-giving, like all other human action, is essentially selfish.

And that’s ok! This is not an indictment of giving or of charity. Quite the opposite. It is in our best interest to give generously. We rightfully perceive that we get value from giving, even when we do not expect a gift in return. Gifts are for the givers, so be a giver this Christmas!
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Beer of the week: Fistmas Holiday Ale – This winter seasonal offering from Chicago’s Revolution Brewing Company is a real treat. This pretty amber brew has hints of ginger and cinnamon, without being over-spiced as many spiced winter beers are.

Reading of the week: The Errors of Santa Claus by Stephen Leacock – As noted last week, Leacock is one of the greatest gifts that Canada has given to the literary world. Whether he wrote for money or for his own pleasure makes no difference to us. (In the words of Mises, “a genius may perform his task for himself, not for the crowd; however, he is an outstanding benefactor of mankind.”) This cute little story shows another way in which gifts are given for the sake of the givers.

Question for the week: This economic analysis works for gift giving, but seems to fall apart at self-sacrifice, even to the point of death. Does such self-sacrifice revive the notion of altruism?


Necessarily Evil?

Government is by its very nature violent. Consider what happens if you do not obey government dictates, even if your disobedience is non-violent itself: a man with a gun will come to your house. Consider the so-called “no knock raid“: if you are suspected of disobeying the government, they may simply break in to your house in the night and kill anybody who, startled and terrified, puts up any resistance to these unidentified, armed intruders.

But the same is true of all government action, not just law enforcement. Does the government run a school? Well you had better pay your school taxes or a man with a gun will come to your door. Your children had better attend or a man with a gun will come to your door.  As Ludwig von Mises observed, “Whatever a government does it is ultimately supported by the actions of armed constables.”

Max Weber wrote that the state is the organization that holds a monopoly on legitimate use of force. But this begs the question. The force is only “legitimate” because it is being exercised by the state. It would be more accurate to say that the state is the organization that has a monopoly on violence.

But for all its violence, it appears that government is necessary. Thomas Paine wrote that “Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one.” Mises went further: “it is not an evil, but a means, the only means available to make peaceful human coexistence possible.” Without government (consolidated force), there can be no freedom because each individual is at the mercy of any stronger individual who comes along. “If we take into account the fact that, as human nature is, there can neither be civilization nor peace without the functioning of the government apparatus of violent action, we may call government the most beneficial human institution. ”

Even so, the government does not deal in freedom; it deals in violence. “It is the opposite of liberty. It is beating, imprisoning, hanging.” Only by strictly limiting and circumscribing the sphere in which the government is allowed to operate can freedom exist. A government that touches every facet of life is one that controls every facet of life. This is because government, regardless of intentions, can only touch violently.

Slyfox 113 Photo credit dad

Sly Fox Route 113 IPA – The name of this beer has two origins. The first and most obvious is Pennsylvania Route 113 (a highway built and maintained with funds collected from the local population with the threat of force,) which passes by the Sly Fox Brewhouse. But the beer is also named for its level of bitterness, measuring 113 International Bitterness Units. I rather enjoy this local, amber colored beer. There is a hint of caramel in the aroma and the full malt body of the beer is backed nicely by peppery hops.

Reading for the Week: Liberty and Property by Ludwig von Mises – In this section of a lecture delivered at Princeton University, Mises defends free markets as the only source of prosperity and freedom. A government that controls the markets is one that does not allow any freedom and can never advance society. After all, “there is no record of an industrial innovation contrived and put into practice by bureaucrats.”

Question for the week: Mises’ personal motto (seen in part on the above beer glass) was “Tu ne cede malis, sed contra audentior ito”, which means something like “Do not give in to evil, but proceed boldly against it.” In this week’s reading Mises says that government is not an evil at all, but he also says that government is nothing but “beating, imprisoning, hanging.” So if beating, imprisoning, and hanging are not evil, what is?