Tom Woods has written some excellent posts on recent protests by fast-food workers here and here. He covers a lot of ground in these, but I just wanted to elaborate on one particular issue that stood out to me.
Question: What is a new Mercedes Benz worth? How about a 12-pack of Coors Light? An original Picasso? Answer: About $40,000 (depending on the model), about eight bucks (depending on the merchant), and about $100 million (depending on the piece).
How did I determine the answer? By referring to recently observed market prices for the goods in question. When we are dealing with physical, tangible, property, this is a widely accepted mechanism for determining the value of objects. Democrats and Republicans, Austrians and Keynesians, Socialists and AnCaps alike generally accepting that this process is a fair method of determining the value of such items.
New Question: What is a sunset on the beach worth? How about a child’s laugh? Your sense of accomplishment after a hard day’s work? Answer: Impossible to determine. When discussing feelings and experiences that are quite rarely purchased or bartered for, we are wholly unprepared to define them in terms of monetary “worth.” This also is not controversial; people from all backgrounds would think it silly to attempt to attach a dollar value to a child’s laugh or a sense of pride and satisfaction.
Final question: What is an hour’s worth of unskilled labor in a fast food restaurant worth? Answer: Aha! Now we get the controversy! In this case, answers to the question will vary wildly, and will almost certainly be influenced by the respondent’s views on economics and politics. The political left is currently quite insistent that the answer is $15 an hour. “Moderate” Republicans and Democrats would probably tell you the answer is $7.50 an hour. Libertarians would probably say something like “Impossible to determine currently, but certainly less than $7.50.”
So, what’s the deal with all the inconsistency here? Why is it that if you ask someone “How do you determine what something is worth?” you’re likely to get three entirely separate answers (observing market prices, it’s impossible to know, and “whatever I determine is fair”) depending solely on the category of item we’re referring to? This indicates that there’s a great deal of cognitive dissonance going on for most people when they consider the concept of “price” and “worth.”
Anyone who has studied economics at all should be familiar with the concept of subjective value. This concept is generally not controversial; it simply states that the true value (or worth) of something varies from individual to individual. Value and worth are not inherent, unchangeable properties of any particular item. Rather, they are determined by the preferences of the buyer and seller of any particular item.
A classic example involves a glass of water. For me, as I write this piece, water is worth very little. A few steps from me is a faucet that provides a supply of water far in excess of what I could possibly consume, for a very low cost. If I had to choose between one gallon of water and say, an ounce of gold, I’d take the gold in a heartbeat. It’s worth more. But consider a caravan trader stranded in the desert. He has an entire satchel of gold coins, but has run out of water. If he doesn’t obtain water quickly, he will die. He would happily trade one of his gold coins away for a gallon of water. The same gallon of water that, to me, is worth less than a dollar is worth $1300 to the guy in the desert. This is subjective value.
And yet, we have no problem saying that a case of beer is “worth” $8. Even though intuitively, we know that some people don’t drink alcohol and wouldn’t purchase it for any price, while other people (say, those attending a baseball game) might be willing to pay $8 for a single bottle. When we discuss the “worth” of items in day-to-day speech, we aren’t using the term literally. We know that “worth” is really subjective, so what we are really discussing are recently observed market prices. Based on recently observed market prices, we determine that $8 is likely to be the price at which a case of beer will be exchanged. We cannot say that the case of beer is objectively “worth” $8 any more than we can define the “worth” of a sunset or of a first kiss, but we can use information regarding past prices to infer what the monetary worth of any good commonly exchanged for money is likely to be in the future.
But for some totally unexplained reason, this entire phenomenon is supposed to be ignored when we consider labor. When it comes to an individual’s labor, the political left insists to us that the “value” and “worth” of someone’s labor is not subjective at all. They treat it as an objective fact that unskilled labor is “worth” more than is currently paid for it. Not only do they ignore the fact that value is subjective (so in the literal sense, we cannot determine the “worth” of an hour of unskilled labor any more than we can determine the “worth” of a child’s laugh or a case of beer), but they also treat recently observed market prices as a completely irrelevant point of information, to be discarded along with your recycled beer cans. This is completely bizarre.
The left seems to calculate what an hour of unskilled labor is “worth” by simply imagining a list of things they think an unskilled laborer should be able to buy, determining what hourly wage would allow someone to buy all of those things, and then simply declaring that said wage must be the true value of an hour of labor. This obviously is completely outside the realm of economics, and replaces a free market and voluntary exchange with some kind of fantasy land where goods and services are exchanged based on what things “should” be worth, rather than what they actually are, as reflected by voluntary trade occurring within a free market.
Recently observed market prices, imperfect though they may be, are far and away the best information we have that can be used to determine what something is worth, and the only point of data that could possibly be considered objective. The value of all things is subjective, but a recently observed market price gives you a pretty fair idea of just how much society as a whole values any particular thing. In this case, it’s quite clear that society as a whole does not value unskilled labor at $15 an hour. Anyone who insists that unskilled labor is “worth” more than it currently receives in compensation has absolutely zero basis whatsoever for this claim. No labor is inherently “worth” anything, but the fairest place to look for a hint is probably what someone actually makes.
I once asked a business owner about our states’ automatic “CPI based minimum wage increases”. He mildly said that it would be nice if he could provide raises to his best employees instead of giving them to his least experienced and least productive ones.
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