[mum]

I'm starting this thread on behalf of another.
As an libertarian I disagree with the above statement, however it is an interesting conversation topic nonetheless.
I also ask for further clarification on why this opinion is held.

In a free market I think both are valued correctly since the forces of supply and demand always find the "right" price. If something is not valued "correctly" then this will encourage more buyers or sellers until the clearing rate is reached.
I do however suspect this "proper value" that should be assigned these things is simply an opinion of what ought to be.

[mikema63]

I do however suspect this "proper value" that should be assigned these things is simply an opinion of what ought to be

It is, after all valuing the efficiency of a market price (assuming at the moment that it is), is a value judgment saying that efficiency and effectiveness are more important outcomes than whatever else.

Of course there are problems, like one sided knowledge. The seller generally having more knowledge of what their selling than the buyer. (being more familiar with it and often this is between a large organization with lots of specialists, and just some guy)

Then there is bargaining power problems, an individual worker is often much more interchangeable for the company that the job is for a worker. The employer is often much better organized as well.

[Technology]

I'm not sure what "fully value" means. It implies that there is some abstract and objectively perfect evaluation.

[Oxymoron]

Can markets quantify strategic,religious and nationalistic interests? I doubt it.

[Voluntarism]

Can markets quantify strategic,religious and nationalistic interests? I doubt it.

Don't individuals simply quantify the value of sacred things? Presumably some objects would never be sold while some may be sold but only to parties they deem trustworthy. Consequently, I am guessing you specifically mean buyers who - although they would readily pay far above their value - are actually unable to afford to pay more than the underlying alternative use value that others in the market are willing to pay. If so, the question would be how such a religious artefact/place came to be outside the hands of those who deem it sacred in the first place. Invariably this entails (non-market) theft or aggression of some sort.

I don't understand what you mean by strategic interests. Presumably you don't mean a company valuing the strategic benefits of guaranteeing supply chains by being vertically integrated or companies like BHP targetting (and paying premiums for) assets that they deem strategic to their long term interests (ie high quality, long lived targets with operating costs in the lowest quartile or exposure to a diversity of commodities to better manage natural volatility). So what do you mean? Military interests?

Nationalistic interests is also odd. Do you mean protecting a nation from outside aggression?

[Eran]

Markets don't "value" things. Rather, markets offer a process whereby the prices people are actually willing to pay (and which, therefore, reflect the subjective value to the buyer and seller) can be discovered and disseminated.

Only goods and services which are traded can have prices and thus be subject to market process price discovery. Therefore, religious, nationalistic interests, or, for that matter, personal relationships, cannot be "priced".

Then there is bargaining power problems, an individual worker is often much more interchangeable for the company that the job is for a worker. The employer is often much better organized as well.

Bargaining power can only determine where, between the seller's lowest selling price and the buyer's highest buying price, the transaction will be consummated. When the difference between those prices is relatively small, bargaining power is immaterial. It certainly does not depend on the size of the two sides.

An excellent example is the food-buyer/supermarket relationship. The supermarket is much bigger than most shoppers, yet nobody seems concerned about their supposedly superior bargaining power.

[Technology]

the prices people are actually willing to pay (and which, therefore, reflect the subjective value to the buyer and seller) can be discovered and disseminated.

Varying with the extent to which it is a competitive market, of course.

[lucky]

In a free market I think both are valued correctly since the forces of supply and demand always find the "right" price. If something is not valued "correctly" then this will encourage more buyers or sellers until the clearing rate is reached.

Define "correctly", "right price", "fully value". You use many terms interchangeably and it's still not clear what you're talking about.

You refer to "the clearing rate" being reached. If all you mean is that the markets clear, then it's close to the truth: markets do clear for the most part.

But it vaguely sounds like you are making a stronger claim of market prices being optimal in some sense of economic outcomes.

There is a theorem, often called the "first fundamental theorem of welfare economics", which basically states that if you have an equilibrium in a set of perfectly competitive markets, the outcome is Pareto efficient. It sounds like this is perhaps what you are alluding to.

But first of all, Pareto efficiency is not by itself what most people are going for. There many different Pareto efficient outcomes, some may be more preferable than others.

In the markets for land and labor in particular there are also certain deviations from Pareto efficiency, because of course the markets are not exactly perfectly competitive.

In labor, the wages are very sticky. For example, there is a well-known phenomenon where people are very reluctant to receive a pay cut: they'd much rather make less to start with, or have earnings eroded by inflation, or even quit and make less somewhere else, rather than receive a nominal cut in a wage. This comes from psychology: evident "loss", no matter how small, is disproportionately avoided. Losing $100 seems to feel much more painful than gaining $100 feels pleasurable, for most people. See "loss aversion". This has huge implications in monetary policy.

In land markets, there are bigger issues that sometimes cause the market to deviate from the competitive ideal. There are information imbalance problems. There are "holdout" problems in large projects (the knowledge that somebody is buying up land for a railroad causes a rational owner of the last small but necessary parcel to inflate the price because he becomes a monopolist in a sense). There are externality problems. There are surplus capture problems (a private "national park" would not be able to capture the full benefit of the park to the public via fees or whatnot, since they can't for example charge different prices to different people). There are transaction costs. Etc etc. Hence, special policies on land prices, like eminent domain, enter the picture to alleviate some of these problems.

[Eran]

lucky,
You are, of course, absolutely right to point out that markets are generally not perfect. In fact, no market is perfect, as a perfect market comes with internal contradictions.

What is far from obvious is what some people take for granted, namely that such "imperfections" can best be corrected through the political system.

However imperfect markets are, it is very easy to demonstrate quite how less perfect "political markets" are.

Whether it is information asymmetry (how much do law-makers understand the consequences of a given government policy in a particular industry, relative to industry insiders and lobbyists?), "price stickiness" (have you looked at the turnover rate of US Representatives?), "holdout problems" (how often do pork projects get funded to satisfy the demands of the last holdout legislator?), etc, etc.

You cannot logically advocate some political intervention in markets without addressing the question of avoiding these political "inefficiencies".

It is far from enough to demonstrate market imperfection. You have to also demonstrate that the obvious imperfections of the political system do not make problems much worse. Generally, I contend, they do.

[Technology]

It would be interesting to see a fully economical analysis of modern political structures.

[lucky]

Eran, I said nothing about markets being "perfect" or not. I referred to "perfect competition" which is not a value judgement but the name of specific mathematical model that is used in a theorem I mentioned. Another name is "pure competition".

I also wasn't really "advocating" anything here, just trying to answer the question in OP.

[Eran]

I used "perfect market" as synonymous with "markets with perfect competition". I understand that "perfect competition" is a theoretical construct, rather than a value judgement.

You did suggest, I believe, that when competition isn't perfect (i.e. always), it is possible to improve on the functioning of the market through judicious government intervention. This is the view of all mainstream economists, to one degree or another.

What mainstream economists tend to underestimate if not ignore altogether is that once government intervention is legitimised, there is no mechanism that would restrict such intervention only to those circumstances in which it is indeed beneficial.

They also tend to ignore the information problem associated with identifying and "tuning" government intervention.

[lucky]

I used "perfect market" as synonymous with "markets with perfect competition".

So when you said:

However imperfect markets are, it is very easy to demonstrate quite how less perfect "political markets" are.

you actually meant to say that politics is not well modeled as a perfectly competitive market? What kind of absurd strawman is that? Who has ever suggested that politics should be modeled as a market, perfectly competitive market to boot? Certainly I never did, nor have I heard of anybody else suggesting anything as absurd like that.

You did suggest, I believe, that when competition isn't perfect (i.e. always), it is possible to improve on the functioning of the market through judicious government intervention.

No, I didn't. Another strawman.

This is the view of all mainstream economists, to one degree or another.

No, it's not. I don't know what you are talking about. It's not true that "most mainstream economists" want to have the government intervene in all markets to improve their functioning.

[Eran]

you actually meant to say that politics is not well modeled as a perfectly competitive market? What kind of absurd strawman is that? Who has ever suggested that politics should be modeled as a market, perfectly competitive market to boot? Certainly I never did, nor have I heard of anybody else suggesting anything as absurd like that.

Sorry - I can see how my words can be confusing. While "perfect market", in my mind, was associated with the economic-mathematical model of "perfect competition", the words "imperfect markets" in the sentence above merely related to the frequent criticism of markets as exhibiting numerous different failures, imperfections or, in other words, opportunities for improvement through judicious government intervention.

So, I have not argued that politics is modelled as a perfectly-competitive market. However, it is the case that many advocates of political intervention promote such intervention under the presumption that even as markets exhibit failures, a prescribed political intervention can be perfectly affected.

No, I didn't.

Maybe I misunderstood you again. Didn't you advocate government-imposed price-caps on "natural monopolies"?

[lucky]

Maybe I misunderstood you again. Didn't you advocate government-imposed price-caps on "natural monopolies"?

No. Nobody even mentioned the concept of a natural monopoly in this thread. Besides, most markets aren't even close to a natural monopoly.

This thread is about land and labor. You're totally chaotic, pasting random anti-government talking points into every thread.

[sooty]

Finally in to the forum! So I’m the one mum posted the topic for and by the looks it definitely needs some clarification.

Firstly, when I say “fully value” I do not mean that markets do not place a high enough value on land and labour. I understand that supply/demand will determine the value so I am not attempting to place a preconceived, subjective value on land and labour. I do believe however that land and labour have values that make them essential to life even if the market does not determine them to have such value.

Markets work by people expressing their preferences. How their preferences/values are formed is reliant on information and communication. It is a legitimate possibility that preferences/values will not necessarily be based on science.

Whether they are privately or publicly owned land, water and air are commons in the sense that every person needs these to live. Rather than view and manage these resources strategically to ensure everyone maintains access to these life supporting systems, it is conceivable that people, in not necessarily basing preferences on science, could express preferences for land uses that will destroy life supporting systems.

That is, even if people do not believe their existence depends on land, water and air, does not mean these resources have less value as life supporting systems. This is what I mean when I say markets can’t fully value land.

Additionally, it may not be the case that people are convinced that they can live without land, water or air, but they can be convinced that the loss of one river, or the loss of one forest, will not mean the end of world or civilization as we know it. Because land use is decided in the market at the level of arbitrarily defined private property boundaries, when people express their preference for the use of the lot, they are not able to express their preferences for strategic management of natural resources. For example, you cannot express the preference to pollute this privately owned part of the river on the condition that other separately owned parts of the river do not engage in river polluting land uses.

[Voluntarism]

Hi Sooty. Welcome to the forum (mum got me in as well).

I still don't understand your question. Their isn't any shortage of "natural resources". There's a scarcity of natural resources that that human intelligence has identified as possessing properties capable of serving human needs and wants and over which human beings have gained the power actually to direct to the satisfaction of their needs and wants, and to do so without expending inordinate amounts of labor. That is, there is a scarcity in the supply of economically usable natural resources and these are what are valued by the market. The price (and hence the observable market value) is dependent on the quantity of these economically usable natural resources versus their value in the economy. If "destruction" of these resources occur as part of the market processes then their market clearing price will increase. As any market approaches a point where the resources with life sustaining properties are becoming scarce, pretty much all secondary markets will evaporate with all available resources are turned toward their preservation and extension and/or bringing new natural resources into the economic realm.

[Eran]

I do believe however that land and labour have values that make them essential to life even if the market does not determine them to have such value.

Welcome, sooty.

The way you express yourself above, you make a distinction between faceless, heartless, uncoordinated, unscientific and somewhat arbitrary "markets", and your personal belief and, more broadly, scientific understanding of "value".

A market is nothing but a process whereby people's individual preferences and values get expressed in efficient ways (by efficient I mean that resources flow to those who value them most; the value of a resource climbs to the highest price anybody is willing to pay for it, etc.).

Assuming your beliefs aren't unusual, assuming that many people, like you, understand the peculiar value of land and labour (or water and air), then markets will express those very values as well.

[sooty]

Thanks Voluntarism and Eran. Voluntarism - I will respond to your post separately, I am still mulling it over in my head.

Eran - My issue is with the information on which people base their preferences and values.

I believe there would be many people that don't understand natural systems, I definitely wouldn't consider myself an expert.

For me the equivalent of the market (or the collective population by way of preference) deciding what to do with life supporting systems, is like giving a vote to every person in the world on whether I should have heart surgery or whether I should cut out my heart to sell. I didn't mean that to be so dramatic so let's say the choice is between heart surgery and medication instead. You get the idea.

I think people with expertise in any area, not just the environment, can and should be valued and used in societal decision-making. So perhaps either explain to me why you would disagree with this premise, or how markets (in the absence of intervention) could result in well informed decision-making? Cheers.

[lucky]

For example, you cannot express the preference to pollute this privately owned part of the river on the condition that other separately owned parts of the river do not engage in river polluting land uses.

I don't know about privately owned pieces of rivers, but you can definitely express such preferences in a market. Here is an example of just such a solution from this month:
http://wfpl.org/post/market-based-water ... iver-basin

Market-Based Water Pollution Trading Begins in Ohio River Basin

Three energy companies are the first participants in a new program to trade water pollution credits in the Ohio River Basin.