24: Measuring Agents and their Products
The author posits that we "evidently" need a universally usable measure of values for labor, capital, and products. We typically measure each of these things in terms of money, but without asking what that money ultimately represents. To say that a man has a hundred dollars is meaningless without considering what that amount of money will buy. In some societies that amount of wealth would enable a man to live in lavish style for decades, whereas in others it would provide a meager existence for a day.
Double the wages of every worker, double the returns of every investor, and double the prices of every product - and the net result is nothing. Nothing more is produced in that market, no greater benefit enjoyed by anyone. And in comparing the performance of different economies, the disparity is also a problem - even if they use the same currency, prices and wages are different. Without a universal standard, there is no meaningful answer to the questions of how great is the wealth of a nation, or whether the national economy is better this year than last.
Wealth exists in the benefit of owning things that provide utility. A man who has a barrel of flour has the means to feed himself for a given amount of time and may focus his effort on other things. Take a barrel of flour from a man who has one and he must abandon other desires and focus his effort on gaining food. At the most basic level, "wealth" represents the means to survive. Once the means of survival are secured a man may seek other thins - but the things that give a man pleasure are subjective: he may value a bottle of whiskey, a good book to read, or a few spare hours to relax and do nothing.
Political economists have focused on "social utility," setting aside what each person may value to consider what kinds of consumption are valuable to a society. However, this is a backward approach - as it is socially useful for people to consume things that others produce so that the producers may have a livelihood. In this sense the social duty of the consumer is to pay for things they do not need or want to provide profits to others. There is also the sense that it is useful for a society, like a person, to produce what they are most efficient at producing, but this again ignores the notion of utility because people may be highly efficient in producing things that are not wanted by anyone. And in general, the idea of "society" is most attractive to those who wish to appoint themselves as the voice of society, not the actual interests of the people themselves.
The author again considers the complexity of modern production. In simpler times a house produced for its own needs - it raised the sheep, harvested the wool, spun the thread, wove the cloth, and sewed the clothing. There was no argument that anyone else was owed a share of the clothing produced in their house, as they made it by their own effort. Nor was there any sense of a need to interfere in the affairs of a house, to tell them what they ought to produce or ought to consume. This is unnecessary and unwanted.
He also considers the problem of systems that measure wealth as the product of work. Not only do these suffer the same flaw (assuming that something has value simply because it was created), but it also treats work as being a commodity. A single man-hour does not create a uniform amount of value regardless of the product or the productivity of the worker. There is also the problem of "disentangling" labor from capital - the work that is done to make tools that are use in the work to make products. The value of the woodcutter's work, on an hourly basis, differs depending on whether his product is sold as firewood or made into a house.
At the same time, "work" is the main currency of the autistic economy: where a man must produce things for himself, he must decide whether the time and effort of producing them is worth the benefit of consuming them. But men are highly idiosyncratic. Depending on their skills, it may take one man more time than another to accomplish the same task. And depending on their proclivities, one man may find a task more onerous and unpleasant than another.
The author provides the example of a single man working for a single day. If he behaves rationally, he will make his first tasks those that provide for his necessities, then move on to those that provide him convenience and luxury, until he at last decides that he values leisure time more than the things he might have by continuing to work. If he follows this scheme, then it can be said that his first tasks provide the greatest value or utility to him, as sustaining his life is valued above all other things; then the second tasks provide less utility, comfort and happiness being desirable but less useful than survival. And within each set, it would be rational to rank the tasks accordingly, performing those that contribute most greatly to his survival or pleasure over others than contribute less.
It's suggested that a man will most readily part with the items that are of the least importance to him - at one point, choosing idle time as being worth more than the effort, however small, to have an item. If this last item were removed - for example, if he received it as a gift, there is some question as to whether the man might invest the time in obtaining something else. Would he be willing to work another hour, or would he add that hour to his leisure? At some point, there is a disutility of labor, beyond which point the individual values things less than time.
On the greater level, the work of a society is similarly prioritized - it is the aggregate of the desires of all men. A society provides itself of the necessities first (food, water, shelter, clothing, etc.) and then seeks to obtain luxuries. At the extremes, there is the society that is struggling for mere survival (as societies who produce less do not survive) compared to the society that has everything it might wish for (or more accurately, that it desires enough to invest effort in producing). Particularly when it comes to the luxury items, individual consumers will rank different things according to their own preferences - but the societal aggregate provides a general perception of the value of items to all members of a society. This social aggregate is no less subjective than an individual's ranking of values - it merely reflects the coincidence of opinions.
Where the role of producer and consumer are separated, values become distorted. Independently, we will only undertake the effort to produce something if we want it. Socially, we do not care how much pain others have undertaken to produce something, but are concerned with our own inconvenience in obtaining the means to purchase it. An affluent person may earn enough in an hour of his work to purchase a good that required ten hours for someone else to create. The buyer does not consider the pains of the seller - nor for that matter his ease if the seller is getting the better deal in terms of hours of labor invested in an exchange. So when a person seeks to enter into an exchange, he considers the exchange in terms of his own "sacrifices" and "enjoyments" rather than those of the other party.
The value of thing is the measure of effective service that it renders, be it to a person or to society as a whole. This is always estimated subjectively, according to what a person feels is most desirable for himself and for others. It is generally accepted that an individual is best fit to decide for himself how much effort he will undertake to gain that which he wants, but the estimation of what is acceptable on a social level is hotly debated, particularly when the pleasure of some requires the pain of others who are not compensated for nor sometimes even willing to make personal sacrifices for the benefit of others.
In free markets, the burden of creation has no fixed relation to the compensation it will receive: a man may labor greatly to produce a thing that is utterly unwanted, or for which a consumer will not pay much. Instances in which work does not earn sufficient reward is at the basis of the argument of exploitation of labor - but a worker chooses his employment, just as a producer chooses his product, and will suffer the consequences of making an unwise choice. The only way to reward producers of unwanted products to their liking is to compel consumers to purchase things they do not want and prices higher than they could get elsewhere. When the state interferes in economic matters, this is typically the result.
Clark does concede the exception of the monopoly - in which a producer has no competition and sets production levels to his own advantage. If he makes too few, he is accused of profiteering and gouging the consumer by not making in sufficient quantity to be able to satisfy demand and the consumers' desired price, though the premium on pricing enables him to compensate his workers lavishly. If he makes too many, he is accused of exploiting his labor and failing to pay them sufficiently for their effort, ignoring that the fruit of their labor sells very cheaply to the consumer. But much of this is moot, given that a true monopoly is merely a figment of theory and does not persist in real markets.
He considers this thesis: "the prices of goods corresponds with the amount of efficiency of the labor that creates them." In a competitive market, competition among sellers causes prices to gravitate to the minimum amount at which a seller can cover the costs of production - and this minimum amount is defined by the most efficient producer. Since all competitors have access to the same capital resources, the difference in efficiency is generally attributable to labor. The more that employees can create with the least cost, the greater the profit of the firm and the greater its ability to offer better compensation to workers and lower prices to customers.
The way in which we measure the efficiency of a worker is by considering the revenue generated by his efforts over a fixed period of time, all other things being equal. The revenue he generates is a factor of the quantity and quality of his product. One who generates a hundred bolts of rough cloth may be compensated less than one who generates a single bolt of very fine cloth, depending on the prices the consumer is willing to pay. If we consider revenue in money, then we can compare the value created by workers of dissimilar types: the work of the farmer and the miner may be evident in wheat and ore, but the value is expressed as the amount of money for which that product sells. This approach ranks workers comparatively - we can see that one carpenter generates twice as much as the next, or four times as much as a farmer, over the same span of time. To quantify this, we may consider the product of the least productive worker to be "one" and asses the value of other workers accordingly.
Because the value of a product is set by the market, we can say that this is also a social value of labor - as the amount a consumer is willing to pay for something reflects the value he places upon that item, and the aggregate amount that all consumers spend represent the amount spent by society, hence the degree to which society values a given commodity of average quality.