As Long as Human Action has Desirable Results, The Pie can not be Fixed

I hate the metaphor which compares wealth to a pie.  Don’t get me wrong – I love pie.

If wealth is a pie, then no action will increase the size of the pie.  Either that, or you can’t eat any because the pie isn’t cooked yet.  And that can’t be the case if we are consuming any resources.  People don’t eat raw pie.  No one can eat more pie than is on the table – the pie is a fixed size.  If there are more people who will eat pie, then each person will get a smaller piece.  Since the human population and standards of living are higher now than in any other point in history, it seems to me that the pie metaphor is grossly inapplicable.  How are more of us eating larger pieces of pie?

This alone is not enough to dissolve the pie metaphor.  The fixed pie may still exist.  After all, is there not a fixed amount of stuff on earth?  We have been eating the pie all throughout human history and, recently, our rate of consumption has increased.  The pie is fixed.  We’ve just yet to eat it all!  And at this higher rate of consumption, we’re sure to run out sooner!!!  We’ll all starve without pie!

There are three things wrong with the pie metaphor.

1. It confuses the distinction between stuff  and value.

2. Prices increase value.

3. It assumes that human action has no effect on wealth.

1. It confuses the distinction between stuff  and value.  

There is in fact a fixed amount of stuff on earth. Fine.  But this is not the same as saying that the amount of value is fixed.  It may be that there are only enough resources on earth to build ten automobiles.  But we know that all resources have multiple uses.  So there is a trade-off between producing automobiles and computers, for example.  Most people would not prefer a world in which there are ten cars and no computers.  Most of us would prefer a world that has some combination of the two.  Implicit in this example is that some combination is more valuable than another.  All mixes of computers and automobiles can consist of all of the stuff in the world, yet some mixes make people happier than others.  Happiness is synonymous with utility, wealth, well-being, and value.  In this way, even if the amount of all of the resources in society are fixed, then the total value need not be fixed.

But maybe at some point in the future, we will have the optimal, that is, the most valuable mix of stuff in the economy.   We will have the perfect combination of  automobiles and computers such that no other combination would improve society’s happiness.  Is the value in society not fixed in this circumstance?

The answer is no.  Humans will never know everything.  And to the extent that we increase knowledge that can serve the desires of our fellow man, there is potential for increasing the total value enjoyed by man.  If value creation is dependent upon a knowledge, and we discount future value, then it makes sense that we would want to increase knowledge sooner rather than later. After all, if knowledge increases over time, then we might as well enjoy the increased value now rather than in the future [which is not typically reduced because knowledge relevant to desirable production is not typically reduced].

2. Prices increase value.

We want to increase knowledge.  Prices do this.  Because people always want more (More stuff, leisure, charity, time, etc.), if there is an opportunity to get more, then people do it.  In a world that is filled with voluntary interaction, then the easiest way to get more is to command the labor of others by enticing them with items which they value.  We can think back to the automobiles and computers.  How can we get more value in a world in which all of the resources are already used for their highest valued purpose?  The answer is simply to figure out more desirable purposes.  It might be true that the optimal number of automobiles and computers exist.  But what about laptops, Hyundais, tablets, air conditioning, or the holy grail of teleportation?  If we can garner the knowledge required for these things, and these things are more desired by others  than the current combination of resources, then individuals will be willing to pay more for these items than they do for the prevalent distribution of goods.  It is this payment which incentivizes production, which in turn requires knowledge, and entices the productive efforts of innovative persons.  People observe prices and interpret which actions are value increasing.

3. It assumes that human action has no effect on wealth.

Human action has an effect on wealth.  If wealth is getting those things which are desirable, then it is almost impossible to get desirable things without taking goal oriented steps toward achieving those ends.  This is why human efforts can increase the amount of  productive knowledge.  Obtaining that knowledge becomes one of the steps among the chain of desirable ends.

We can try to imagine a world in which action did not achieve value.  If this were the case, then ALL efforts to do anything would be costs futilely borne for no end which is apart from the results of inaction.  We’d be better off just doing nothing and avoiding the unnecessary costs of effort.  All of the desires which are satisfied by rolling out of bed, cooking, cleaning, researching, thinking, and travelling could be avoided if they had no effect on the amount of value which we enjoy.  Everyone would observe that this is not the case.  And if someone didn’t admit as much verbally, then their actions would betray their words and reveal the method which they judged most appropriate in garnering value.  Namely, their actions would reveal that they value action rather than inaction.  Action by someone is the only means to fulfill desire and, synonymously, increase value.

Conversely, we can imagine a world in which fulfilling desire did not require action.  People would never do anything.  If this were the case, then the  world would be as full of value when there are zero automobiles and computers as when there are non-zero quantities.  Anyone who refers to the things and activities which provide value would have a rough time compelling these things into existence without using a verb.

So the world is not a pie.  There is stuff in the world and that stuff is valuable.  We can use the price system to entice efforts which increase value by discovering and utilizing knowledge.  And this is predicated on the fact that intentional human actions can change the world and compel desirable ends.  The world is not a pie.  The world is not a cake, a tree, or seed corn.  The world, insofar as we value the things in it, is a complex series of individual human desires and actions which contribute to an ever variable level of satisfaction.

Apart from the above, there are actions which provide value and are neither intended provisions of value nor obviously value increasing. These actions are the result of emergent patterns of behavior by many individuals, all acting of their own volition, which are perpetuated because they provide value rather than because they are the goal of particular actions.   That is another post – or an entire book.

Tagged , , , , , , ,

Discussion is Welcome

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


MV=PY and other Identities

Debbie Tinez: Impulsando el Deporte

MV=PY and other Identities

Kids Prefer Cheese

MV=PY and other Identities


Small Steps Toward A Much Better World