Towards a new theory of value

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The value of a thing, as I argued in my last post, is the price it ought to exchange at. Different people may assess the value of a thing differently, but to reach agreement on values, they need to offer explanations of those assessments in terms that other people can find reasonable. Usually this means that they will need to invoke socially acceptable standards of value to justify their assessments.

I call these standards lay theories of value, and this post introduces this concept.

Lay theories of value lie across a broad range of levels of sophistication. Let me begin with an extremely simple illustration. Typically we believe that a new item should be valued more highly than an otherwise comparable second hand item. Despite its simplicity, this case illustrates a range of important points about lay theories of value.
  • First, and this is a fundamental difference from the Marxist and neoclassical theories criticised in my previous postthey do not typically purport to provide a complete determination of the value of an item or even of one person’s assessment of it. In practice, when people assess the value of a thing, they take account of a range of factors and a number of interacting theories of value. Being second hand in itself is not enough to completely determine the value of a thing but it is one of the things that people take into account when they value it.
  • Second, they are not necessarily universal in their applicability. Thus, for example, while second hand clothes are considered less valuable than new ones, second hand houses generally are not. Like other norms, lay theories of value are contextual – they apply in some circumstances and not in others.
  • Third, they may not be accepted, or at least given the same weight, by different parties to a transaction. Their contextual character means, for example, that there is scope for dispute over whether they apply to a specific case. Is the value of a classic car, for example, diminished by it being second hand?
In many ways, lay theories of value resemble valuation conventions, as advocated by the French economy of conventions school and in particular by Andre Orléan, in his excellent book The Empire of Value. Valuation conventions are collectively shared standards or rules about how to make judgements about monetary value, which emerge and develop in the process of making judgements, and which sometimes become widely accepted to the point where they are taken for granted by the actors. Like valuation conventions, lay theories of value are normative, socially produced, and influence the prices people are willing to pay for things. As far as I am aware, however, the conventions tradition does not see any given valuation as being influenced by multiple interacting valuation conventions.
Although lay theories influence value assessments, this is not the same as determining actual prices. Nevertheless, they do contribute to explaining price determination. Broadly speaking, there are two kinds of case: set prices and negotiated prices.
In the case of set prices, such as those we see on supermarket shelf edge labels, the price is determined by the seller’s pricing decision. This in turn depends on a large range of interacting factors such as the material features of the product, the other product offerings of which the seller is aware, the cultural and marketing positioning of the product, and so on, but these are only relevant in so far as they are picked out by the factor we are focused on here: the lay theories of value employed by the seller. If the seller adopts the theory, for example, that the price of a product should be reduced when the packaging is damaged, then she will take account of the condition of the packaging. The seller will balance the implications of the various lay theories she considers relevant in determining her offer price for the product. Whether or not a customer actually buys at this price depends in part on whether their valuation is lower or higher than the offer price.
The case of negotiated prices is more interesting: in these cases the potential buyer and the potential seller discuss the price to be paid, and typically they deploy theories of value as part of the negotiation. Imagine a transaction in which a classic electric guitar in roadworn condition is for sale. The buyer may argue, for example, that the item is damaged and thus the price should be lowered; the seller may argue that the wear enhances the value of the guitar because it gives the player extra credibility. These are two distinct lay theories of value, and the debate is over which should apply, and to what extent, to the case in hand. There is a clear parallel, incidentally, to the processes of negotiation over principles of justification or orders of worth documented by Boltanski and Thévenot in their book On Justification. If the buyer and seller succeed in coming to an agreement the implication is that they have each accepted a price that seems reasonable in the light of the theories of value deployed.
There is a vast array of lay theories of value, some that are accepted and applied quite broadly, such as damaged goods being worth less, and others that are much more localised, such as road wear on a Strat being a sign of credibility. The cases mentioned so far are all rather simple, though actual pricing decisions depend on balancing a potentially complex mix of such theories, but in other cases the individual theories themselves can be very complex. For example, financial derivatives have often been priced using the Black-Scholes-Merton option pricing model, a complex piece of mathematics which functions as a lay theory of the value of derivatives (see Donald MacKenzie’s book An Engine not a Camera.
In a way my argument here could be called a meta-theory of value: it is a theory about the theories of value that people actually deploy in their buying and selling decisions. But a meta-theory of value must go beyond identifying lay theories of value and how they are used. In particular, it must consider how lay theories of value come to be established. While some theories of value (like ‘damaged goods are worth less’) may seem self-evident, most are themselves complex cultural products (like ‘roadworn guitars are a sign of credibility’) and others have been invented by academics (like the Black-Scholes-Merton option pricing model). Furthermore, many theories of value are the product of extensive discursive work by interested actors, such as the many variants of the belief that products used by high status individuals are worth more. The establishment of such beliefs depends on the exercise of what François Eymard-Duvernay called valuation power, and we need a politics of value (the phrase comes from Arjun Appadurai) to examine the ways in which social and discursive power has been used to shape our theories of value.
A worthwhile meta-theory of value, then, must be not only economic but also sociological, and not only sociological but also political.
 
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2 thoughts on “Towards a new theory of value”

  1. Pingback: Conventions and the value of financial assets – Dave Elder-Vass: Materially Social

  2. Meta theory of value it is, rather, I think, than something we can use to substitute the price / Nash equilibrium practice of the formal economy. One idea to find a more morally justifiable price is to use John Rawls’s trick of the ‘veil of ignorance’ one has to judge e.g. the hourly rate for domestic care – ignorance is not knowing if one is to be the funder or the recipient of the pay. The practical problem is putting it into practice, though citizen juries etc. may be useful to inform policy, if we accept policy led pricing for labour.

    Some years ago, I ‘updated’ Marx’s theory (based on human work) after realising that information was what made a thing what it is (in a deep sense, following Floridi’s definition, and Aristotle’s ‘form’, not in an information technology sense), so e.g. a hand-made thing embodies more information because it has all the little details of the craft within it. This could work for objectively valuing nature* (rather than using willingness to pay surveys). But we could end up with complicated things like flies being valuable and nobody wanting them.

    Classical economics was designed to overcome that problem by judging value by what a person is willing to give up in order to have the object being valued, assuming that was of equal ‘utility’ which in the early days meant how happy it made them. The fault with modern (neo-classical) economics is that it has neglected utility in the broad and humane sense and turned the Nash equilibrium from a clever mathematical model into a doctrine that must be obeyed. It seems to me we need to knock that off its pedestal and start again. A meta theory of value is jolly useful in that endeavour.

    * Functional complexity: The source of value in biodiversity
    KD Farnsworth, O Lyashevska, T Fung. Ecological Complexity 11, 46-52. 2012.

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