Commenter “The Javelineer” takes me to task:

I believe that almost everything you have written is false.

…then goes on to lay out what might be called the “Libertarian fork” of the strategy that gives problems. In the course of doing so, he(?) makes the same fundamental error everyone, Left and Right alike, seems to commit, and which distorts the result. Go Read the Whole Thing (as they say in blogland) and see if you can spot the problem. I’ll wait.





Here you go:

Water is extremely valuable, but it is also plentiful, and so it’s price is low.

(and no, the problem isn’t the Grocer’s Apostrophe).

Consider the following three cases:

  • Albert, stranded in the Sonoran Desert with an empty canteen
  • Betty, desperately dog-paddling in the middle of Lake Superior with no boat or even a block of Styrofoam within reach
  • A (notional) Universe completely devoid of people

So, what is the value of water?

The answer is wildly different for the three cases. Albert would be willing to pay high for a sip; Betty would pay as highly for somebody to take the water away; and in the empty-of-people Universe there is simply no way to establish value.

See what’s happened there? Javelineer, perhaps unconsciously, has fallen into the trap of assuming an intrinsic value (which is “high”) for water. Since that error underlies the rest of the analysis, the argument(s) must necessarily be flawed.

Now, I know what my error is, if it is an error (I don’t think so; others disagree). I am a human being, and I live in a human society. The only value anything has is in relation to human beings and human society. The Great Nebula in Andromeda is a galaxy, larger than the Milky Way Galaxy we live in, composed of stars and planets and black holes and drifts of stardust in near-incomprehensible quantities; but it has no value (except, perhaps, as something pretty to look at, which gets into some very complex matters). This makes me anthropocentric. There are people who consider that an error. Effum.

(Parenthetical aside: for purposes of this discussion, the (notional) intelligent octopoids of Arcturus IV-B are “human”. We don’t have a good general term for “sapient creatures” — having no other examples, perhaps we don’t need one, or don’t need one yet; the closest we can get is “people”, and using it leads to tangled syntax.)

Price, so Javelineer tells us, is a function of supply and demand, and has little or no relation to value. This, again, requires that the abstract “value” be a fixed star. I tried very hard, in the previous essay, to avoid those concepts, because they are both fundamentally flawed and emotionally and politically loaded. That subject is large, and I won’t address it here beyond pointing out the flaw: both “supply” and “demand” are functions of both value and cost, among other variables — “cost” is the expenditure of resources necessary to acquire the good, and considering cost alone leads to the Labor Theory of Value, which is not just wrong but wrongheaded.

Feeding the output of a function back into the same function for another iteration is the basis of fractals, and the essence of a fractal is that the output of any particular iteration is “random”, that is, not easily predicted from the output(s) of the previous steps. Since supply and demand are both calculated from the same inputs, any calculations based on them lead to a system with fractal behavior. That is what happens, but it only confuses when trying to squeeze the fundamentals out.

“Price”, “supply”, and “demand” are useful simplifying concepts at the early stages of analysis, in the same way that massless strings and dimensionless masses are useful when starting out to teach physics. You can’t build a coherent theory around them, though, any more than you can order a massless lever of infinite strength from McMaster-Carr and build a machine based on it. To be useful, a theory must be as simple as possible but no simpler — and price theory is too simple to explain what’s going on.