WEBVTT NOTE Factors of Subjective Value: Using Market Entrepreneurship to Advance the Free Market 1 00:00:00.000 --> 00:00:02.840 Economics explains the act of trading. 2 00:00:02.840 --> 00:00:06.960 Psychology explains motivations for trade. 3 00:00:06.960 --> 00:00:11.760 Entrepreneurs seek to fill an unseen desire for trade. 4 00:00:11.760 --> 00:00:16.800 Typically, these topics are covered within the context of their respective disciplines. 5 00:00:16.800 --> 00:00:20.800 Economists seek to understand how the individuals act. 6 00:00:20.800 --> 00:00:25.440 Psychologists seek to understand why or what compels individuals to act. 7 00:00:25.440 --> 00:00:29.800 And entrepreneurs may or may not care about the how, the why, or the what. 8 00:00:29.800 --> 00:00:33.120 Typically, they just want to make a profit. 9 00:00:33.120 --> 00:00:37.520 I cover the convergence of these respective disciplines and roles in regards to subjective 10 00:00:37.520 --> 00:00:38.720 value theory. 11 00:00:38.720 --> 00:00:44.880 Furthermore, I appropriate insights garnered from the sustainability and green marketplace 12 00:00:44.880 --> 00:00:53.920 to advance understanding and development, advancement of the free market itself. 13 00:00:53.920 --> 00:00:57.200 Economics provides insights into the theory of value. 14 00:00:57.200 --> 00:01:02.560 There are typically two types of explanations. One is the labor theory of value and the other 15 00:01:02.560 --> 00:01:07.280 is the subjective theory of value. One of these are right and the other is wrong. You 16 00:01:07.280 --> 00:01:14.360 can take your pick. The Hayekian Triangle is typically used as a pedagogical device for 17 00:01:14.360 --> 00:01:19.360 understanding the Austrian business cycle theory. For the purposes of this presentation, 18 00:01:19.360 --> 00:01:25.800 I use the triangle to help visualize the production period. As an aside, reference William Barnett 19 00:01:25.800 --> 00:01:31.080 and Walter Block on Hayekian Triangles and also Roger Garrison, Hayekian Triangles and 20 00:01:31.080 --> 00:01:36.440 Beyond for the debate of the efficacy of this triangle. 21 00:01:36.440 --> 00:01:43.560 By the same token, I use the consumption triangle to visualize the consumption period. 22 00:01:43.560 --> 00:01:48.120 Here we have the yellow line which represents time. 23 00:01:48.120 --> 00:01:53.600 The green triangle represents the production phase and the blue triangle represents consumption. 24 00:01:53.600 --> 00:01:58.600 The line where the triangles share the same side is where exchange takes place. 25 00:01:58.600 --> 00:02:04.600 If you're not a big fan of the triangles like Dr. Block, just imagine that they are not there. 26 00:02:04.600 --> 00:02:10.600 How does an individual value goods? 27 00:02:10.600 --> 00:02:15.600 Classicists propose the paradox of value, otherwise known as the diamond-water paradox. 28 00:02:15.600 --> 00:02:20.600 Diamonds have a low use value, yet have a high exchange value. 29 00:02:20.600 --> 00:02:25.120 Water, on the other hand, has high use value in that it quenches human thirst, yet has 30 00:02:25.120 --> 00:02:33.440 low exchange value. Why? Adam Smith suggests, what everything really costs to the man who 31 00:02:33.440 --> 00:02:38.600 wants to acquire it is the toil and trouble of acquiring it. Smith thought that value 32 00:02:38.600 --> 00:02:44.560 is set by the aggregated labor costs during production. In case you didn't know, this 33 00:02:44.560 --> 00:02:53.280 This theory is wrong. Carl Menger states, goods always have value to certain economizing 34 00:02:53.280 --> 00:02:59.200 individuals and his value is also determined only by these individuals. Austrians suggest 35 00:02:59.200 --> 00:03:04.360 that value exists in the mind. It lacks extensive objective property because value does not 36 00:03:04.360 --> 00:03:10.040 exist outside the human mind. Suffice it to say, in a room full of Austrians, this is 37 00:03:10.040 --> 00:03:40.040 When I was doing research into the factors of value, I put out a question to Mises Lister asking, given time preference, marginal utility and scarcity, what are the factors of a good that make that good desirable or valuable for a given individual? Samuel Bostaff and many others on the board responded in a similar manner. This is a psychology question, not an economic one. He further states, 38 00:03:40.040 --> 00:03:53.040 Physical science can explain the act of throwing a baseball without reference to motivation of throwing it, just as economic science can explain the act of trading without respect for the motivation for a trade. 39 00:03:53.040 --> 00:04:03.040 They are correct. Economics, and namely Austrians, are interested not in the motivations of individuals, just the actions, human actions. 40 00:04:03.040 --> 00:04:09.540 However, psychologists and entrepreneurs alike are interested in the motivations. 41 00:04:09.540 --> 00:04:13.960 Entrepreneurs in particular are especially interested so they know what to produce in 42 00:04:13.960 --> 00:04:17.620 exchange for a profit. 43 00:04:17.620 --> 00:04:23.020 In Human Action, Mises states, he does not ask whether these factors are nature-given 44 00:04:23.020 --> 00:04:27.580 of the product or production process accomplished in the past. 45 00:04:27.580 --> 00:04:33.300 The flawed labor theory of value may exist not as theory but as factors or motivations 46 00:04:33.300 --> 00:04:34.900 of value. 47 00:04:34.900 --> 00:04:39.420 The labor theory of value is in fact a labor factor of value. 48 00:04:39.420 --> 00:04:44.140 This is consistent with subjectivity because it is up to the individual mind to decide 49 00:04:44.140 --> 00:04:49.660 the value of labor in his or her own mind. 50 00:04:49.660 --> 00:04:53.580 Suffice it to say, the list of factors and motivations can be endless with respect to 51 00:04:53.580 --> 00:04:57.020 individuals. 52 00:04:57.020 --> 00:05:02.820 Let's delve into a topic that all Austrian libertarians love and are strong advocates 53 00:05:02.820 --> 00:05:03.820 for. 54 00:05:03.820 --> 00:05:09.340 Okay, maybe just one Austrian libertarian in particular, sustainability. 55 00:05:09.340 --> 00:05:14.100 The sustainability movement seeks to change the bottom line of profits, profits, profits 56 00:05:14.100 --> 00:05:19.420 into the triple bottom line of people, planet and profits. 57 00:05:19.420 --> 00:05:22.420 Sustainability folks find value in the planet. 58 00:05:22.420 --> 00:05:24.960 They find value in the equity of people. 59 00:05:24.960 --> 00:05:29.400 And this is fine with the stipulation that seeking and achieving the triple bottom line 60 00:05:29.400 --> 00:05:34.240 is done privately and voluntarily. 61 00:05:34.240 --> 00:05:40.800 The triple bottom line in sustainability is not value itself, but it is a factor of value. 62 00:05:40.800 --> 00:05:43.880 Let's take a look at several examples. 63 00:05:43.880 --> 00:05:45.740 Diamonds. 64 00:05:45.740 --> 00:05:51.900 The typical factors of value for diamonds are color, cut, clarity, and caret. 65 00:05:51.900 --> 00:05:59.260 These are the four C's and for some it might not even cover their factor of value. 66 00:05:59.260 --> 00:06:04.060 Mises says, he values the available means exclusive from the aspect of the services 67 00:06:04.060 --> 00:06:08.820 they can render him in his endeavors to make future conditions more satisfactory. 68 00:06:08.820 --> 00:06:14.020 So purchase of diamonds now makes someone satisfied for the future. 69 00:06:14.020 --> 00:06:16.580 Brilliant Earth sells diamond rings. 70 00:06:16.580 --> 00:06:20.900 These aren't your normal De Beers, Tiffany or Cartier diamonds. 71 00:06:20.900 --> 00:06:25.340 They may look like a diamond, feel like a diamond, but it's no ordinary diamond. These 72 00:06:25.340 --> 00:06:31.220 are conflict-free diamonds. They are certified conflict-free diamonds. 73 00:06:31.220 --> 00:06:35.460 Conflict-free diamonds are guaranteed to originate from ethical, environmentally responsible 74 00:06:35.460 --> 00:06:40.780 sources, supposedly free from violence, free from human rights abuses, and they claim they 75 00:06:40.780 --> 00:06:46.700 are produced with minimal environmental impact. On the flip side, conflict diamonds have funded 76 00:06:46.700 --> 00:06:51.820 devastating civil wars in Africa and in millions of lives. These conflict diamonds are also 77 00:06:51.820 --> 00:06:59.640 known as blood diamonds. Why does this matter? It's the labor factor of value, not the labor 78 00:06:59.640 --> 00:07:04.960 theory of value. Individuals that purchase these diamonds find value in the type of labor 79 00:07:04.960 --> 00:07:10.260 or lack thereof that was used to produce the diamond. The entrepreneur and in this case 80 00:07:10.260 --> 00:07:16.300 brilliant earth found a need in the marketplace for conflict free diamonds and fill that need 81 00:07:16.300 --> 00:07:26.500 in the Marketplace. In essence, this is a market-based approach to human rights. 82 00:07:26.500 --> 00:07:33.300 Coffee. Some factors of value of coffee. Roast, do you like it light, medium or dark? Preparation, 83 00:07:33.300 --> 00:07:40.680 do you want a latte, Americano or drip? Cream, sugar, black? Size, do you want a small, medium 84 00:07:40.680 --> 00:07:55.120 Mises said, action always aims at the removal of future uneasiness, be it only the future 85 00:07:55.120 --> 00:08:00.600 of the impending instant. The action of obtaining and drinking coffee removes whatever uneasiness 86 00:08:00.600 --> 00:08:06.560 the individual may feel. Starbucks has jumped onto the bandwagon of incorporating the triple 87 00:08:06.560 --> 00:08:20.240 Starbucks is the biggest buyer of fair trade. Fair trade is an organized social movement 88 00:08:20.240 --> 00:08:27.080 and market-based approach to empowering developing country producers and promoting sustainability. 89 00:08:27.080 --> 00:08:33.800 Starbucks saw an unmet need and filled it with fair trade coffee. 90 00:08:33.800 --> 00:08:38.560 People from the sustainability movement that were once disenfranchised by corporate coffee 91 00:08:38.560 --> 00:08:41.440 now find value getting Starbucks coffee. 92 00:08:41.440 --> 00:08:46.460 An individual's uneasiness is sequestered because they freely exchanged with a company 93 00:08:46.460 --> 00:08:51.120 that is protecting the planet while providing jobs at a fair wage to people while making 94 00:08:51.120 --> 00:08:52.280 a profit. 95 00:08:52.280 --> 00:09:01.060 The triple bottom line of people, planet and profits. 96 00:09:01.060 --> 00:09:03.720 There are similar arguments for computers. 97 00:09:03.720 --> 00:09:09.440 There are multiple factors of value. 98 00:09:09.440 --> 00:09:14.320 One of the definitions of sustainability is to meet the needs of the present without compromising 99 00:09:14.320 --> 00:09:18.200 the ability for future generations to meet their own needs. 100 00:09:18.200 --> 00:09:22.800 Apple has taken the initiative in creating greener computers. 101 00:09:22.800 --> 00:09:28.520 While the computers meet the needs of individuals who buy them, they are designed to be recyclable 102 00:09:28.520 --> 00:09:30.760 rather than to be thrown away. 103 00:09:30.760 --> 00:09:36.600 Each component of the notebook was created without toxic chemicals that are harmful to 104 00:09:36.600 --> 00:09:38.180 the environment. 105 00:09:38.180 --> 00:09:42.760 Just the other day, I had a fellow cohort in my school ask me, doesn't Apple make a 106 00:09:42.760 --> 00:09:46.680 green laptop, while she was searching for a new laptop. 107 00:09:46.680 --> 00:09:51.920 To her, the environmental sustainability for the future was just as important as using 108 00:09:51.920 --> 00:09:54.060 the laptop in the present. 109 00:09:54.060 --> 00:09:59.200 Being able to recycle or reuse rather than discard is an important value for her, factor 110 00:09:59.200 --> 00:10:06.720 There are people who are concerned with only the impending instant. 111 00:10:06.720 --> 00:10:13.060 There are other people whose provident care stretches far beyond the perspective length 112 00:10:13.060 --> 00:10:14.060 of their own life. 113 00:10:14.060 --> 00:10:16.720 That's a quote from Mises. 114 00:10:16.720 --> 00:10:22.840 In the case of diamonds and coffee, labor factor of value looked back to the past. 115 00:10:22.840 --> 00:10:35.640 In this case, my classmate is valuing something beyond her lifetime. 116 00:10:35.640 --> 00:10:38.520 How do you know if a product is sustainable or not? 117 00:10:38.520 --> 00:10:41.020 They are labeled independently by a third party. 118 00:10:41.020 --> 00:10:44.600 Most of these are done voluntarily and were created in the marketplace. 119 00:10:44.600 --> 00:10:47.800 Anyhow, what do these sustainability labels do? 120 00:10:47.800 --> 00:10:53.800 The labels take sustainability from being a mere concept to something tangible. 121 00:10:53.800 --> 00:10:58.600 You can see sustainable diamonds, you can taste sustainable coffee, you can touch a 122 00:10:58.600 --> 00:11:02.600 sustainable computer. 123 00:11:02.600 --> 00:11:10.160 Now, how do we apply this to advancing the free market? 124 00:11:10.160 --> 00:11:16.440 You can freely exchange goods and services with individuals you want in the free market. 125 00:11:16.440 --> 00:11:20.200 There are no governmental barriers to entry in the free market, and government wouldn't 126 00:11:20.200 --> 00:11:25.900 subsidize entry into the market. Another factor is that there would be free exit. Firms would 127 00:11:25.900 --> 00:11:31.780 be allowed to fail. Government wouldn't subsidize failures. AIG, JP Morgan, Citigroup, among 128 00:11:31.780 --> 00:11:36.080 others would be allowed to fail. Wall Street would be allowed to fail. The car makers would 129 00:11:36.080 --> 00:11:42.640 be allowed to fail. These are all factors of value of the free market. 130 00:11:42.640 --> 00:11:46.520 One problem about the free market is that the free market is not easily tangible. It 131 00:11:46.520 --> 00:11:52.040 is merely but a concept. To many folks, the current market structure with governmental 132 00:11:52.040 --> 00:11:57.200 intervention, with central banking, with mandated monopolies, is the free market a work? Obviously 133 00:11:57.200 --> 00:12:03.000 they are misinformed. How can we inform individuals about the true definition of the free market? 134 00:12:03.000 --> 00:12:07.720 How can we share the factors of value created in a free market? What can we do to get the 135 00:12:07.720 --> 00:12:17.600 got dialogue going. So why not take a page out of the sustainability? What if we made 136 00:12:17.600 --> 00:12:23.920 the free market more tangible? What if we can take an idea from something you can grasp, 137 00:12:23.920 --> 00:12:28.760 take an idea to something you can grasp with your hand? Why not label and certify free 138 00:12:28.760 --> 00:12:34.760 market goods just like the sustainability folks label and certify sustainable goods? 139 00:12:34.760 --> 00:12:39.560 There is unfilled need for understanding the free market and the free market of goods. 140 00:12:39.560 --> 00:12:43.960 Perhaps labeling and certification is one way to do it. 141 00:12:43.960 --> 00:12:51.160 Or on the flipside, perhaps labeling and certifying interventionist goods would be another way 142 00:12:51.160 --> 00:12:52.160 to do it. 143 00:12:52.160 --> 00:12:58.880 Mandated monopoly, federal subsidy, restricted market, or maybe others. 144 00:12:58.880 --> 00:13:05.900 As Lew Rockwell cited Murray Rothbard yesterday, it's always been a fight between power and 145 00:13:05.900 --> 00:13:11.440 market. Understanding and acting on factors of value, as in an entrepreneur, uses a market 146 00:13:11.440 --> 00:13:18.880 based approach. Let's let the power of markets work. As Mark Twain once said, don't let school 147 00:13:18.880 --> 00:13:23.760 get in the way of your education. In the same vein, don't let power get in the way of markets. 148 00:13:23.760 --> 00:13:25.760 Thank you very much.