Comment on Bruce Edmond on ‘Economic Value is NOT Price’
Blog-Reference
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 precision 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 agents' brains. 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
Kakarot-Handtke, E. (2011b). The Pure Logic of Value, Profit, Interest. SSRN Working Paper Series, 1838203: 1–27. URL
Kakarot-Handtke, E. (2014). The Logic of Value and the Value of Logic. SSRN Working Paper Series, 2399550: 1–20. URL