Economic Value is NOT Price
from: Bruce Edmond
One of the areas that classical economics has been very weak is in the modelling and understanding of the value of goods and services.
Mostly it is assumed that price is a good proxy for value – this makes things a lot easier. However this formulation is clearly inadequate if given a moment’s thought – if the price was the value nobody would be bothered to sell anything since the value they gained (whether directly or indirectly via the IOU of money) would be the same as what they lost. The reality is this: the value to the buyer is greater than the price, so that they actually bother to buy the item or service, whilst for the seller the opposite is true (so they want to sell). Some of this is due to diminishing returns – the increase in value from none to one apple is greater than from 1000 to 1001 apples (even if the apple has the same price). However diminishing returns are only part of the story of value.
The other move is to represent value as a 1D measurable utility. This is definitely an advance on price, since this can be different for different people etc., however this is either meaningless (there is no mapping from the details of the situation/state/ownership and utility) or unrealistically limited (e.g. a utility function is assumed with certain properties). For example, it is not clear that value can be reduced to a 1D measure – the amount of love we receive, the amount we contribute to society and the money we have may not be commensurable. That is, there may be no meaningful ‘exchange’ rate between these. Yes one may make comparisons when one has to make a decision, but this may be so sharply context-dependent that this comparison is not usefully formalisable or measurable.
Leave a comment
—– look inside —– $5.94 / $20.00
—– look inside —– $4.90 / $8.00
—– look inside —– $15.99
—– look inside —– $5.99 / 12.99
—– look inside —– $5.93 / $12.99
—– look inside —– $4.97 / $9.90
—— Ugarteche, Puyana and Madi ——
Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
The first thing to consider, IMHO, is the distinction between use value and exchange value.
Here are the basic versions of the twin formulas for converting heterogeneous use value (prioritized utility for households, bottom-line profit contribution for business customers) to the customer version of exchange value.
For households: Exchange value = price of customer’s next best alternative + difference in use value / opportunity cost of household’s funds.
For business customers: Exchange value = price of customer’s next best alternative + difference in use value
(Sorry for replying late, but I did not see this post before today.)
This is a very compelling approach and I think pretty much along those lines. It has a limited scope, however. Because we have to ask:
What determines the price of the next best alternative?
Also I think in the end we have to find a dynamic model of price setting.
ICYMI
The ‘dynamic model of price setting’ you are looking for is already part of the new heterodox curriculum:
Essentials of Constructive Heterodoxy: The Market. SSRN Working Paper Series, 2547098: 1–10.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2547098
See also the cross-references for the complete curriculum
http://axecorg.blogspot.com/2015/04/new-curriculum-cross-references.html
Egmont, I found this much more helpful than your previous versons. Incidentally, I thought the longer of your contributions on “Finance as warfare” to be very fine.
Since you object to metaphors, may I draw your attention to the difference between metaphoric and iconic language? [C.f. “The Image” by economist and organisation theorist Kenneth Boulding (1954, ann Arbor paperbacks)].
A metaphor generates a structural image applicable to both to the exemplar and the explicandum, whereas mathematics uses arbitrary symbolism to try and avoid conveying misleading structure, but fails because, cet. par., operator symbols like + convey the arithmetical meaning, implying that the associated objects have arithmetical structure. When the maths applies to an economic flow, therefore, you need to convey the structure of a flow separately.
In the iconic symbolism of directed graphs, flow channels are represented by a line and directions by arrow heads. In the case of continuous flows the line becomes a circuit. This is definable in Euclidian space, Euclid having proved that three points are necessary and sufficient. The Euclidian constraint can then be relaxed to form a topological circuit such as a triangle with the points providing for input, a transformation process and output. The question then you need to ask yourself is how many circuits are there in your model, and the outputs of which circuits provide the inputs of the others?
The former is real, the latter imaginary.
I don’t understand. Why would the exchange value be imaginary?
Nominal values are not imaginary but are rather the price of goods in units of currency units. Since these are market prices they have very real impacts upon consumption.
Larry, denial is not an explanation; nor, I admit, was what intended as a thought-provoking joke. (I’m into discussion and argument rather than laying down the law). Did you ever get down to my explanation below, on June 27 at 10.46 am?
Very good comment by Paul Schächterle above. I have done so and will put that work onto this site in late September. There is absolutely no reason for either the Marshallian or Mengerian assumptions that benefits from consumption are correlate or reflected by the price system.
ICYMI I recommand
The Logic of Value and the Value of Logic. SSRN Working Paper Series, 2399550: 1–20. URL http://papers.ssrn.com/sol3/papers.
cfm?abstract_id=2399550
Value — the Bermuda triangle for economic theories
Comment on ‘Economic Value is NOT Price’
“Repeated reflection and inquiry have led me to the somewhat novel opinion, that value depends entirely on utility.” (Jevons, 1911, p. 1)
Since Jevons and the other Neoclassicals utility and equilibrium have been the two pillars that support the whole theoretical superstructure of standard economics. It is common knowledge that standard economics is a failure. And it is pretty clear why. Utility and equilibrium are nonentities, green-cheese assumptions, much too swampy and muddy to build anything more upon than a shaky proto-scientific construct.
Because of this, the new heterodox curriculum will certainly not mention these concepts except as an example for orthodox incompetence, or worse. By the way, that utility is not such a good starting point for a serious theory of value is known since Cournot.
“The abstract idea of wealth or value in exchange … must be carefully distinguished from accessory ideas of utility, scarcity and suitability to the needs and enjoyment of mankind …. These ideas are variable, and by nature indeterminate and consequently ill suited for the foundation of a scientific theory ….” (Cournot 1897, quoted in Mirowski, 1995, p. 208)
What is more, as already Ricardo saw clearly, the theory of value cannot be based on exchange alone but must include production.
“In speaking the of commodities, of their exchangeable value, and of the laws which regulate their relative prices, we mean always such commodities only as can be increased in quantity by the exertion of human industry, and on the production of which competition operates without restraint.” (Ricardo, 1981, p. 12)
Marx developed this idea further in his analysis of surplus value. This goes in the right direction because the ultimate goal of value theory is the explanation of profit.
“But in the act of exchange viewed as a whole, equals are in general always exchanged for equals, individual variations being canceled out. How then, are profits made, for, obviously, they are made?” (Kirkenfeld, 1948, p. 35)
As real-world economists, the Classics and Marx had an objective value theory in mind while Jevons ended in subjective wish-wash. In a nutshell, this is his value theory.
“The truth is that pearls are valuable because there are so many ladies who have not got pearl necklaces, and who would like to have them.” (Jevons, see Google-Books)
This slipslop counts as explanation among orthodox economists. Or take Samuelson’s entirely tautologous solution of the so-called water-diamond paradox.
“In other words, how is it that water, which is essential to life, has little value, while diamonds, which are generally used for conspicuous consumption, command an exalted price? Although it troubled Adam Smith 200 years ago, we can resolve this paradox as follows: ‘The supply and demand curves for water intersect at a very low price, while supply and demand for diamonds are such that their equilibrium price is very high’.” (Samuelson and Nordhaus, 1998, p. 90), see also (2011b)
Note well that supply and demand curves, too, are nonentities because they are ultimately based on utility. So, on closer inspection, economics has no acceptable value theory.
I think that there can be no doubt that a lot of New Economic Thinking is required for Heterodoxy to develop a superior value theory — without ever mentioning utility again (for a start see 2011a).
Egmont Kakarot-Handtke
References
Jevons, W. S. (1911). The Theory of Political Economy. London, Bombay, etc.: Macmillan, 4th edition. URL http://www.econlib.org/library/YPDBooks/Jevons/jvnPE.html.
Kakarot-Handtke, E. (2011a). The Pure Logic of Value, Profit, Interest. SSRN
Working Paper Series, 1838203: 1–27. URL http://ssrn.com/abstract=1838203
Kakarot-Handtke, E. (2011b). The Value of Water and Diamonds: Back to Square
One. SSRN Working Paper Series, 1954047: 1–19. URL
http://ssrn.com/abstract=1954047
Kirkenfeld, T. (1948). The Paradox of Profit. Science & Society, 12(1): 33–41. URL
http://www.jstor.org/stable/40399873.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Ricardo, D. (1981). On the Principles of Political Economy and Taxation. The Works and Correspondence of David Ricardo. Cambridge, New York, NY, etc.: Cambridge University Press. URL http://www.econlib.org/library/Ricardo/ricP.html
Samuelson, P. A., and Nordhaus, W. D. (1998). Economics. Boston, MA, Burr Ridge, IL, etc.: Irwin, McGraw-Hill, 16th edition.
Egmont, how did this sneak in? It wasn’t there when I posted my response t(below) to Bruce!
Anyway, while I am sympathetic to what you say, the abstraction ‘utility’ of course goes back to Bentham’s 1776 Fragment on Government, and the basis of it to Hume’s 1739-40 Treatise on Human Nature. What you might look again at is fuzzy logic, which can draw definite conclusions from merely ordered data, using operators such as ‘greater than’ and less than’ rather than ‘equals’. J S Mill at least attempted this in his slogan “the greatest happiness of the greatest number”.
It is not the fuzziness which is the problem with ‘utility’: it is the one-dimensional, merely quantitative interpretation of it, when the reality cannot even be ordered by subjective feelings, it is two-dimensional or ‘complex’ in being dependent on objective context.
References
Warnock, Mary (ed)(1962). Utilitarianism [a reader in J Bentham, J S Mill, J Austin], n.4 on p.37 [Bentham’s (1789) An Introduction to the [i.e. Hume’s] Principles of Morals and Legislation, Chapter 1, Of the Principle of Utility]. London & Glasow: Collin’s Fontana Library.
Hume, David (1962,1972). A Treatise of Human Nature: Being an attempt to introduce the experimental methiod of reasoning into moral subjects. [Book 1(1739) on Scientific Method, Book 2 on the Passions, Book 3 on Morals]. London & Glasow: Collin’s Fontana Library.
https://en.wikipedia.org/wiki/Fuzzy_logic
Bruce’s reflections on the price/value nexus surely deserve less summary treatment than we have given them so far. [Yes, the word ‘nexus’ felt appropriate but I had to look it up to be sure]!
My own quip, simply relating it to the 2-dimensional structure of complex numbers, hoped to convey the relationship (symbolised by a right angle) of complete difference (i.e. of type) as against greater than or less of the thing labelled ‘value’. That mainly related to and agreed with Bruce’s second paragraph. However, his first para offered an interesting argument about value being relevant to both the buyer and the seller. The assumption that ‘price is a good proxy for value’ is “clearly inadeqate”, so what would be adequate?
Coming from the perspective of my “credit card” economy, it occurs to me that value of something to the would-be user is relevant to what’s left of his budget, i.e his credit limit – itself properly determined by his rate of earning. Let us call that CL (t) and the price asked P. In the case of a supermarket the manager is told P and Bruce’s discounts for quantity, but often has freedom to reduce P for perishables approaching their sell-by date. Thus when CL(t) >> P a consumer is likely to buy what he likes the look of; when CL(t) -> P he is likely to shop around or buy at P(ts).
For the would-be merchant, however, the motivation is quite different. The wholesaler hires CL at interest rate dI/dt and buys in at what is for the primary seller P(ts) as much he thinks he can make look good enough to sell to retailers at P(r) >> P(ts) + I. The motivation of retail sellers is similar except that the finance is largely derived from retained earnings, but any saving is off-set by distribution costs; for small numbers P >> P(r) + D, which favours quasi-wholesale supermarkets in densely urban areas over shops and shoppers in widely distributed villages. What retailers will stock depends on what’s available and what customers want and can afford, given clever wholesale packaging and retail presentation: wants and affordability being what Bruce’s use and exchange values amount to in practice.
The theory of this system thus hinges on wholesalers buying at end-of-sell-by date prices, thereby minimising the incomes of independent primary producers, however great their skills and efforts. In the right proportion these might be thought to be those who would clear the shelves in the supermarkets, but primary production requires land, and care of the land involves living on it, so they are not by the supermarkets; which the theory doesn’t account for but is obvious in practice.
Nor does it account for how tenancy (holding) of the land one works was transformed into “ownership” by monarchs in exchange for arms and the raising of armies, and money to buy it with transformed into credit controlled by banks in exchange for constitutional (pensioned off) monarchy and budgetary control of armed government. Nor does it account for the fact that its buyers represent households and by extension local and national communities, so the fact that banks cover their own mistakes by imposing “austerity” on households by cutting their incomes and selling off what they have thereby been able to bankrupt, appears nowhere in the theory.
Which is why I say the neo-classical theory of supply and demand is not economics, it is a remnant of merchantilism; nor is the classical theory of political economy one of economics, for it is more a theory of production and distribution. The pre-Henry VIII management of household and [religious] community and national defence has simply been sidelined, by now for almost 500 years, so it is no wonder our economists and politicians are so ignorant.
Prof. Edmonds,
“The reality is this: the value to the buyer is greater than the price, so that they actually bother to buy the item or service, whilst for the seller the opposite is true (so they want to sell).”
Your argument is admirably concise, simple, clear, and understandable.
However, I’m afraid it’s also wrong and it’s easy to see why: exactly the same result obtains if you assume that the value for the seller is less than the price.
Why should anyone assume your reasoning instead of this second one?
Cheers.
I did not only assume the former. In fact both could be (and probably are) correct. There is not, and can not be one value for any traded item.
All economists together now: Solow’s Swan Song
Comment on ‘Economic Value is NOT Price’
The wonderful thing about economists of all shades is that the only thing they can convincingly explain is why they know nothing.
“Economics is a strange sort of discipline. The booby traps I mentioned often make it sound as it is all just a matter of opinion. That is not so. Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. . . . There are always differences of opinion at the cutting edge of a science, . . . . But they last longer in economics . . . and there are reasons for that. As already mentioned, rival theories cannot be put to an experimental test. All there is to observe is history, and history does not conduct experiments: too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, . . . You can’t even count on a long and undisturbed run of history, because the “laws” of behavior change and evolve. Excuses, excuses. But the point is not to provide excuses.” (Solow, 1998, pp. x-xi)
Those who hallucinate being at the cutting edge of science, please take notice.
“… suppose they [the economists] did reject all theories that were empirically falsified … Nothing would be left standing; there would be no economics.” (Hands, 2001, p. 404)
By the way, the exchange value in the pure production/consumption economy is fully determined by the OBJECTIVE factors market clearing, budget balancing, and zero profit (2011). Utility drops completely out of the equation. All subjective approaches since Jevons have predictably ended in folk-psychological blather.
Pace Solow: there is no such thing as ‘laws of behavior.’ Orthodoxy started on the wrong foot. “But the point is not to provide excuses.” Yes, and today is the perfect day to start with it.
Egmont Kakarot-Handtke
References
Hands, D.W. (2001). Reflection without Rules. Economic Methodology and Contemporary
Science Theory. Cambridge, New York, NY, etc: Cambridge University Press.
Kakarot-Handtke, E. (2011). The Pure Logic of Value, Profit, Interest. SSRN
Working Paper Series, 1838203: 1–27. URL http://ssrn.com/abstract=1838203
Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The
Academic Scribblers. Princeton, NJ: Princeton University Press, 3rd edition.
“… the exchange value in the pure production/consumption economy is fully determined by the OBJECTIVE factors market clearing, budget balancing, and zero profit (2011)”.
Would that this were so reassuringly true, but surely the concept of a market is subjective, with production clearing having to take account of advertising use? Whose budget – and since inflation exists, when? Isn’t the point of exchange to make a real profit or minimise monetary loss?
ICYMI
Please go back to the post’s References, click the link, download the paper, read until Section 5. Then you will understand that the zero profit case is the limiting case of profit ratio equalization which in turn is the limiting case of non-equalization. It’s a clever scientific strategy to proceed from the elementary to the complex. This is why physicists started with the mechanics of the lever and only much later turned to quantum mechanics. As a rule, economists and other layperson do not understand this methodological principle.
I’ve understood the application of this to economics since 1953. It is what got me interested in mathematics. But I now see it as pure maths being applied to economics to approximately predict optimum production quantities. Profit is the name of an arithmetical monetary variable, with the numerical values of the money itself being “imaginary”: symbolic of a complex and dynamic relationship generating side effects rather than a countable thing.
What we have is complex and dynmaic. The clever scientific strategy involves starting with abstracting from what we have until all we have left is what we are assuming, which includes the dimensionality of the universe and in my case that energy exists and performs work – having to work on itself in order to account for the evolution of what we have (and possibly might have, if we are prepared to help it happen).
It is not good believing something just because it is the best we can currently achieve… even if that means junking a whole ‘science’. Phrenology was a science of determining personality from the shape of someone’s skull. It was 100% wrong. To make progress in economics we will have to junk what seemed hopeful, but turned out to be inadequate, however much we have to throw out. It strikes me that many theories of value capture some small aspects of value but are just too inadequate to really be of use.
Exchange theories of value allow a comparison of values to buyer and seller of the good and what is exchanged for it (usually money). This is usually characterised as a number, a price. This is quite apart from the fact that rarely does one price exist, and might well be different for different buyers or sellers or times or contexts. However, this does not necessarily relate to any other aspects of value, such as use value – just because the price goes down does not make onions (those one is going to cook with) less valuable.
Utility theories of price link value of something to its utility. However this does not say anything much since it just shifts the problem of value to utility, which could be as context-dependent and subjective as value. All this really achieves is a mapping into a particular kind of decision-making procedure – via utility comparison. However given people only rarely do this kind of decision making, this is not very helpful.
Labour theories link value to the labour needed to bring it about, but this means that something that does not work (a tractor that easily breaks down) would be as valuable as one that does. Anything made by a robot would have no (direct) value – or one would have to ascribe the value of all the things the robot made to the person who made the robot.
Use value has some attraction, but this is necessarily quite complex. A tool which facilitate the production of lots of other things – a kind of catalyst (e.g. a spade) has a different kind of value compared to substrate which is used up (e.g. water for agriculture). A particular tool might be mostly useless without a particular combination of other tools – thus use value is, at least, highly context dependent. For example, it may well depend on what knowledge one happens to have (how to use a spreadsheet).
The point about value, is not that it is necessarily completely intangible, but might be an emergent feature, coming from other features and processes. It may come out that some views on value might (in the short term in certain contexts) be measurable in a meaningful way, but it may not be in others. This would explain why its easy to prove a negative about it (e.g. value is not price). The fact that money happens to be countable and is (for most consumers) conserved, means that it is attractive to map other things to (such as value), but for this to be helpful this mapping has to capture something useful about what is being mapped to it.
Thanks for this review, Bruce. What I am myself fishing for – and I admit I haven’t yet caught – is something along the lines of value being like power, which with electricity is measured not as volts or amps but as the product of these, like the area of a wall being the height times length: the imaginary dimension times the real in complex number terminology. For a given value, the more something is needed the more the price of it should be affordable, so the seller of surplus should be bringing his price down to what he can afford, not “raising the voltage” or “lowering the amps” thinking that way he will add value. Somehow, the price-value relationship has not only become one-dimensional but has got inverted.
I find your comment on abandoning phrenology misleading relative to energy, and indeed better quietly forgotten about when discussing human intelligence, which like value is two-dimensional: our using language only becoming of value as we gain visual (or more generally multi-sense) experience and understanding of what it refers to. Mainstream physics has this problem with energy: it refuses to believe in what it can’t see and measure, but because we can only detect energy by changes in it (like the waves in light) it cannot detect “dark matter”: energy which has no waves in it, or no motion relative to us. It was perhaps a mistake to abandon the concept of “ether”, for it can be conceived not as “dark matter” but as mass-less motion not yet captured as matter.
How to get out of psychology/sociology/wish-wash
Comment on ‘Economic Value is NOT Price’
At the end of the day value theory has to explain the exchange value expressed as the price relation P1/P2, P1/P3, and so on. This is what can be observed and measured with the accuracy of two decimal places.
Somehow the agent must translate preferences, utility, expectations, targets, physical needs, budget restrictions, cultural norms, and what not into a subjective valuation price which is comparable with the market price and this helps him to decide whether to buy/sell or not. This process of translation is opaque. We can only speculate about it or turn to introspection. All this psychologism is a waste of time for the economist. Nothing useful follows from this exercise.
Prices and exchange relations are an objective result of all interactions of the whole economy including production.
The first important distinction for value theory is between primary and secondary markets (2011a). Already at this juncture neoclassical theory and all subjective value theories run into the wrong direction.
For the most elementary economic configuration exchange value is given by P1/P2=R2/R1, that is, the price relation is the inverse of the productivity relation. This is an objective and testable proposition. It can be generalized to: the price structure, i.e. relative prices, are determined by the productivity structure. To recall, this holds for the most elementary economic configuration (2014; 2011b).
The beauty of this solution is that there is absolutely no need to speculate further about what goes on in the brain of the agents. It has long been known that this leads to nowhere.
“It is possibly very encouraging for the economist to hear that compared with the natural scientist the psychological method saves him “ages of laborious research” but it is curious and a pity that this huge start has not enabled him to formulate any considerable body of reliable prognoses such as the natural sciences have managed to achieve.” (Hutchison, 1960, p. 132)
The structural-axiomatic approach yields a testable proposition. So, let us get out of wish-wash and proceed to testing.
Egmont Kakarot-Handtke
References
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory.
New York, NY: Kelley.
Kakarot-Handtke, E. (2011a). Primary and Secondary Markets. SSRN Working
Paper Series, 1917012: 1–26. URL http://ssrn.com/abstract=1917012.
Kakarot-Handtke, E. (2011b). The Pure Logic of Value, Profit, Interest. SSRN
Working Paper Series, 1838203: 1–27. URL http://ssrn.com/abstract=1838203.
Kakarot-Handtke, E. (2014). The Logic of Value and the Value of Logic. SSRN
Working Paper Series, 2399550: 1–20. URL http://papers.ssrn.com/sol3/papers.
cfm?abstract_id=2399550.
What a great example of an astronomer who thinks he’s a geologist.
I don’t know who Richard Harmer is referring to, but Egmont, please don’t let yourself get carried away by your own eloquence. So you can measure P1/P2 with an accuracy of two decimal places, but what is the point of that if it is not capable of expressing, never mind explaining exchange value? So an arabic number can express a length to infinitely more decimal places than one can measure, but what is the value of that if what you are trying to express is a directed motion? It can’t express the branching family tree of life; it can’t express the activities of the crew trying to steer a ship affected by the externalities of wind, tides and passing traffic, nor predict the exact path of the ship at any given time as against its intended course.
The point is, knowing what you can’t or don’t know is as much a part of science as knowing what you can rely on, and knowing that you cannot rely on statements which are lies, mistakes, contain typos or change before you can act on them is very much a part of science. The part which deals with what is known about how to measure, locate and correct such misinformation was called Information Science when its possibility first became apparent, but even respectable academia has remained wedded to unchanging structures and the ancient logic of the syllogism and excluded middle, unaware that logic is about language rather than the realities it points to, and of Boolean algebra’s showing that, given differing expressions of the same reality (e.g. it is true or not true that x), not just one or the other must be true but possibly, also, both or neither. Like much of economics, including value theory, it can be a red herring.
What can be objectively measured is not value but need in particular circumstances. What the explicitly information-based cybernetic logic of control enables one to predict is that one can achieve one’s goals if one learns how to correct quickly enough the errors in one’s aims revealed by changing knowledge and circumstances.
Unfortunately aims can be malign as well as life-enhancing, so in that sense the economic science of the invisible hand is inevitably not just an anticipation of cybernetic logic but also about political aims: the philosophical choice between Bacon’s “the glory of God AND the relief of Man’s estate”, or Hume’s “all I can know is me”, so all that really matters is that “I’m all right, Jack”.
In case Richard Harmer is presuming I’m being presumptious in daring to have a simpler explanation of subatomic particles than superstrings, I’d better explain that I was initiated into physics via superconductivity (perpetual motion) and semiconductor physics (fundamental chemistry), live in the real world of people etc and countries with diverse capabilities and ailments, and after working with control and information systems ended up observing and experimenting with the development of computer logic, logic languages, automation and computer assisted operating systems. The ablity to think outside the box we have been assigned to may be unusual these days, but it still happens.
At lunch in a sunny corner of the faculty dining room, several geologists are noodling over some new findings about the relative strengths of different terrestrial mechanisms and processes that drive tectonic shifts.
They’re joined by an astronomer. He listens a bit, then announces “This is all flapdoodle. You’re wasting your time. All you need to understand here is that the earth is an infinitesimal dot with mass of 6.580 sextillion kilograms (World Book of Facts, 2003).
In truth, that conceptualization may work for Mr. Astronomer when he does analyses at the solar system level. But it’s a fatally stunted conceptualization for almost every analysis one might consider doing at the earth level.
The hyper-abstracted value conceptualizations that work for analyses at the general equilibrium level generally fail miserably for analyses at the level of actual purchase transactions. But it’s at the transactional level that the twin exchange values (customer and seller) actually emerge and do their thing in cause and effect processes.
http://customervaluecenter.org/deck/11.html
What theorists put forward as exchange value at the general equilibrium level of analysis is analogous to that 6.580 sextillion kilogram dot. It’s an analytic toy, stripped of critical attributes that could make it even a half-way decent reflection of reality at rubber-hits-the-road level where exchange values kick in.
Thanks for the clarification, Richard. I agree with you on the limited amount that even correct theory can contribute to knowledge, as against understanding; e.g. electric circuit theory doesn’t tell you a lot about what kinds of circuits there are. My argument (which I’ve just discovered is more or less that of Descartes) is that theory doesn’t tell you what’s there, it tells you where and how to look. The problem with general equilibrium theory is that it suggests you don’t need to look, likewise the claim that economics is only about trading transactions suggests you don’t need to look further, whereas dynamic PID control theory suggests that if you want to achieve ongoing equilibrium you have to provide the necessary corrective feedbacks.
With full respect, within certain constraints not to be elaborated here, a society’s goal should not be “to achieve ongoing equilibrium,” it should be to keep the Schumpeter Cycle working in **disequilibrium** to help bring ever more prosperity to all.
http://customervaluecenter.org/deck/14.html
Pretty graphics at Customervaluecentre, but they ignore the fact that the world is finite and can digest silk but not nylon stockings. I am extremely conscious that each new generation coming through needs to be challenged, but that in itself is sufficient to generate disequilibrium. The challenge now needs to be at the level of ideas and reliably sharing the prosperity only some of us now have, reducing waste so as to bring resource use within the regenerative capacity of nature, and by maintenance and recycling learning to understand, appreciate and enjoy the insights and skills of our forefathers and elders. In short, I’m talking about achieving ongoing equilibrium with nature, as against Schumpeter’s equilibrium state of monetary disequilibrium, which is guiding mankind onto ecological rocks. We have a by now stark choice between disequilibriating that and listening to any musicians still playing as the ship goes down.