Garnering Value Coercively and Consensually
In the Paleolithic era of humankind there were 2 broad ways of garnering value. The first way was for a person to simply exert some effort and grab something from the wilderness. John Locke called this combination of resources and labor a ‘mixture’. He considered Labor and the other ‘stuff’ to be ingredients which make up the final product. The resulting product of the mixture is expected to be of greater value, to the agent, than the sum-value of the separate ingredients. As in an earlier post, fruit in the hand is much more valuable than fruit on a tree. Fruit gets to the hand through the investment of effort. It is entirely possible that the sum value of the ingredients is greater than the value of the product. And unless the agent is insane, he will abstain from such mixtures in the future. Theoretically, it is conceivable that value can be garnered with zero effort by an agent. It is possible that sustenance and all of the physical necessities are provided to the agent through no effort of his own. The cases of this existing outside of the social context are nonexistent. Every human that has succeeded during the Paleolithic era chewed, walked to, drank, and grasped the objects around him in order to contribute to his own survival.
The second way to garner value was through interaction with another agent. Interaction with others can be further divided into 2 varieties: Coercive and Consensual. Coercive is easiest to describe. Let’s imagine a two person world populated by Bob and Dan. Bob values something in the possession of Dan and then steals it – or worse, physically harms Dan and steals it. We can not immediately say that the society of two people has a greater or lesser aggregate garnered value once the theft has taken place. Especially in the Paleolithic era, there was no way to measure value in a product beyond the knowledge that it was likely greater than the sum of the ingredients. Maybe Bob the thief valued the object more than the victim Dan. If this is the case, then the aggregate value of the instant before the theft will have increased after the theft. Since value is agent dependent and immeasurable by other agents, it is not helpful in such a world to attempt a measure of aggregate value.
The consensual method of garnering value does not require investment by both agents. It may be that Dan enjoys the fact that Bob exists and is willing to contribute value – invest value – in order to continue garnering the value of enjoyment. In this situation, Bob is getting as close to a free lunch as is possible. He needs to invest no extra effort concerning Dan and needs only to ensure his own survival. Dan is essentially subsidizing Bob. So long as Bob values the investment made by Dan, at some level, he will gladly accept it. But this situation is most often the case only with intimate relations. In reality, if Dan is going to invest value in Bob, then he’s going to want to receive something more substantial than the knowledge that Bob exists. The same is true for Bob. Both Dan and Bob want to invest less value then they receive. And in consensual transactions, the garnered value most often comes from some object that is possessed by the other agent.
The potential to garner value through consent may at first seem unlikely since both agents want to invest less than they receive. But, since the valuations of the two individuals are distinct, it is probable that they value the same objects at different levels. If this is the case, then trade can occur in situations that garner greater value for both agents to the transaction. An example will best illustrate the logic, but first we should revisit the measure of value by the individual agent.
The individual values objects in terms of the return on the invested value to obtain that object. For the moment, we can call this cost ‘effort’. We could measure effort by multiple scales but none are specifically important. We could measure in terms of calories expended, sweat exerted, time spent, etc. The point is that an agent can ordinally prioritize the values that he assigns to objects. Additionally, since values are subjective and within the mind of the agent, it may appear to an impartial spectator that little in an agent’s situation has changed while the agent has garnered greater value. Fruit nearby is of greater value than fruit far away.
When we consider Bob and Dan, we have to consider two sets of circumstances. The first is the real world situation. Let’s say that Bob has an apple in hand and that Dan has an orange. In the instant, the objects in the world are fixed. We can list them on one hand: Dan, Bob, orange, and apple. The second set of circumstances that must be considered is the valuations of both agents. This is where the levels and prioritization of value affects the garnering of value. Again, we don’t care why the two agents have the set of priorities that they do. We just know that they do in fact value all objects at SOME level. But in our example, let’s assume that we can know the valuation sets of the two agents.
Bob values an apple in hand at 2 and an orange at 3 (Again, the units don’t matter. The values are ordinal). Dan values an apple in hand at 3 and an orange at 1. If Bob has an apple in hand and Dan has an orange, then the aggregate value among the two person society is 3. Through consensual trade, the aggregate value can increase 7. They can increase each of their valuations of what they have in hand without actually having increased the number of objects in their circumstances. Bob now has an orange in hand which he values at 3 and Dan has an apple in hand which he values at 4. Of course, either Bob or Dan can choose to coerce the other for aggregate values of 5 in either case.
The advantage of consensual interaction is that it is desirable for BOTH agents. If coercive means were used, then it is unlikely that either agent would again inform the other of what is in their hand. Indeed, coercion leads to numerous anti-social behaviors [which are not the subject presently] that deter the willingness to engage in future trade. Further, if trade can increase the garnered value for both agents, they have an incentive to reproduce similar circumstances of valuation and items on hand at later times [in order to trade again].
But in observable transactions, we don’t know the valuations of the agents. We can’t say, before a trade has occurred, that there is room for increasing the aggregate value through consensual interaction. But we do know that trade will not occur if it would result in less expected value for either agent. This infers only that trade makes no agent worse off. If transactions are costless, then people would be indifferent to trading the same identically valued items back and forth ad infinitum. The reality is that consensual transactions do have a cost. Since agents will only invest value with a positive expected return of value, then agents will not engage in transactions, at whatever cost, in order to receive no greater value. They only invest when there is a return. Therefore, trade indicates that garnered value is greater than it was before the transaction. That is, when agents engage in trade, they must be better off than before the transaction occurred.
We should be careful here. Unknown factors influence the valuation of agents. We can not say that trade will occur if one of the agents has no increase in garnered value. We might be tempted to argue that the knowledge of Bob having garnered more value is enough for Dan to engage in trade which results in an unchanged level of value. After all, Dan is a good guy. But such a claim ignores the concept of subjective value. It neglects to include, in the total of Dan’s value, that value which he garners from improving Bob’s lot. If Dan does value Bob’s lot, it should be reflected in Dan’s total valuation of “an apple in hand through the means of putting an orange in Bob’s hand”. This can be considered an externality of value. Dan has garnered value through the transaction with Bob other than the apple that is newly in his hand. Where did this value come from? Bob didn’t lose any object of value. The mere performance of a transaction is an investment of some level of effort. The result of that effort was the rearrangement of objects. Our description of circumstances included Bob, Dan, an apple, and an Orange. We didn’t increase the number of objects. The agents merely rearranged them in order to change the levels of garnered value. Focusing on Dan’s value of the apple alone ignores the new arrangement of Bob and the orange and their relation to Dan and his apple. The effects of the various parts of the arrangement on Dan’s value can each be either negative or positive – though the net value garnered for both agents must finally be positive once all accounts of value have been made – if the trade is to occur.