Against Money as Measure between Prudential Values

Money is not a good common measure for prudential values in one-person cases. When considering opportunity costs in daily decisions, watching Dr Who vs watching Inspector Lynley, it fails quickly to meet the standard we would need in a viable theory of value. I begin the rationale for this by introducing the informed-desire account, move on to the resulting problem of incommensurable values and their measurement. I then propose money as solution to those problems. Afterwards I will discuss three counterexamples from investment, consumer rationality and money as social relation which will lead this post to conclude that although money has merits in explaining how to measure prudential values, it ultimately cannot overcome the counterexamples.

Let me begin by introducing an informed desire-fulfilment account to the answer of what makes a life go best: This account differs for instance from hedonism in that there is not one “common strand” of value that helps us rank different objects and activities by the pleasure they bring to an agent, but rather something is valuable, because it is desired (Griffin, 1977: 43; 1986: 27). This however does not make anything that is being desired valuable. For example, drugs are not ad hoc valuable to an addict. Something is valuable iff it is desired in an informed manner. What this means is that desire occurs under “ideal conditions” (Griffin, 1986: 98) when the agent has all relevant facts to the repercussions of fulfilling a desire. (For the purpose of this essay I shall ignore general worries about his account, see Crisp, 2008: 4.2.)

This idea now presents us with a problem. If the referents of different informed desires are valuable, then could it be the case that these values are incommensurable? Let me give you an example. I have the choice between watching two TV programs: Inspector Lynley or Doctor Who. I have informed desires to watch both, therefore they are valuable. To begin, we would need to claim that these values are at least somewhat measurable (Griffin, 1986: 75). Strong incommensurability will arise iff the programs cannot be compared at all, i.e. no amount of any will be of greater, less of equal value to another (Raz, 1985: 117). Let me however discuss the more moderate claim of weak incommensurability, according to which “a certain amount of this [Lynley] is more valuable that any amount of [Doctor Who]” (Griffin, 1986: 77). To approach this claim let me argue that there are many scales onto which these programs can be fitted, and that measurement problems arise when comparing the scales. We shall introduce two scales to evaluate each program according to its 1) insightfulness and 2) thrill. Doctor Who may be thrilling but not as insightful as Lynley and vice versa. In both respects they are comparable, however, the scales must not be proportional, so watching just a little less Doctor Who in favour of Lynley reduces the thrill, but not necessarily by the same amount as it increases insightfulness. Weak commensurability is found iff at some point on the scale our ranking fails when increasing the amount of one programme has no more effect on the values.

This can be expressed more practically with the even weaker claim of rough equality where we will at some point encounter a grey area when the values of each get “close” to each other (Griffin, 1986: 93). Diagrammatically, at any point on either indifference curve, both Doctor Who and Lynley are equally desirable in terms of insightfulness or thrill. In order to bring about the amount of thrill T, either Q1 and Q1*; or Q2 and Q2*; or any other quantity of every program along the curve is required. However, since the marginal rate of substitution for both scales differs, the scales cross in an area that we cannot clearly account for. This grey area is not jet a form of incommensurability. However, this “rough equality” between the values inside the grey box points towards difficulties in comparing the prudential values between objects at certain quantities (Griffin, 1986: 81). In other words, it becomes difficult to mathematically make sense of these curves if a chunk in the middle is missing. What we lack is completeness in our explanation that results in an area of “indistinctiveness” (Griffin, 1986: 96). For example, if completeness holds, then inside this area the result is that for any given Quantity of Doctor Who, it must be the case that TDW≥TLYN. However, under rough equality, TDW roughly equals TLYN, so that if we add noticeably more Lynley, the relations could still be roughly equal (Griffin, 1986: 97).  This is problematic because we are not allowed to make judgements about any relationships within that area. For many commodities in daily life however there may only be a choice within such an area. Therefore this poses a problem to the philosopher. (It is also possible that beyond a certain amount of Doctor Who, any amount of Lynley will outrank Doctor Who no matter how much more Doctor Who is added. However, for the purpose of this essay I shall ignore these cases of discontinuity.)

So far we have been dealing with ordinal scales, i.e scales that attach numbers to quantities of for instance T in order to make it rank-able. Still, one measure that cannot be captured so far is the strength of an informed desire. We may to an extent say how thrill and insightfulness interact between TV shows which helps me in making up mind mind, but to the philosopher this is can only be part of the picture unless I know the weight of my preferences. Depending on how strong my desire for either thrill or insightfulness is, I will make a different choice. Therefore we are also looking for a cardinal scale that measures the power of my wishes.

Suppose I have 200 minutes of spare time. I am willing to spend 100 minutes watching Doctor Who and 200 minutes for Inspector Lynley. This means that I am willing to give up twice as much time for Lynley than for Doctor Who. From this we can plot an indifference curve: I will value 100 minutes of Lynley as much as 200 minutes of Doctor Who. In other words, I will have to watch 400 minutes of Doctor Who to come to the same value as 200 minutes of Lynley. I furthermore have a time constraint given by the length of my break, which can also be graphically represented. In order to maximise out the time I have to spare, we need to find the point where the farthest possible indifference curve intersects the time constraint, which is at 200 minutes of Lynley. This gives us a simples cardinal scale between the informed desires of watching either show. (see Griffin, 1986: 99; Besanko & Braeutigam, 2005) (for the purpose of this example I ignore the length of individual episodes.)

This is more powerful than the previous ordinal scale since it captures more of the informed-desire account. If something is valuable because it is desired, and if desire is measurable, then any system of value -ranking that is cardinal has much more strength than an ordinal scale. There is a big problem though: most of the things that we desire cannot be measured in terms of giving up time. For instance, how much I desire a better quality loo cannot be inferred from the amount of time that I am going to spend on it. For our example between TV shows, it is a lucky coincidence that consumption requires a certain amount of time. What about works of art or friendship. Of course we could ask how much time I would be willing to spend in a museum as opposed to a sterile room, however this system does not have the philosophical power we seek.

So what do we need for our project? We started with the informed-desire account and noticed that there is the possibility for incommensurability, even under the very weak claim of indistinctiveness. This is problematic since if values cannot be measured and compared, then it seems difficult to make sense of what it is to desire something, i.e. give it value. What we hence require is some scale to rank commodities by their prudential value through looking at the strength of our desire by a common measure. Let me propose money.

Substituting money for the time I would give up, we get an image wherein the strength of my desires is measured in terms of the money I am willing to spend on its fulfilment, for instance to rent the show online. Now let us replace my time constraint with an income constraint of £2, hence I can either spend £2 on Lynley and nothing on Doctor Who or vive versa or any other combination that does not exceed £2. For instance I could spend my income equally with £1 between the shows, spend 50p and £1.50 on the shows or more interestingly spend 50p on the Doctor, 50p on Lynley and have £1 left over. Since in our example watching is always more prudentially valuable than not watching, we will spend all our income. The indifference curve tells us that I am willing to spend double the amount of money on Lynley than on the Doctor. In other words, I would have to spend £4 on Doctor Who to get the same value as £2 of Lynley. (Value here means the prudential value that is assigned by being desired, not price.)

The reason this would be a very desirable picture of prudential value is that it allows us to cardinally measure our desire in monetary terms. If I want to know how much I want something I merely need to ask what I would be willing to spend on it. This is not just immediately accessible to the agent, but also objectively measurable with consumer behaviour by the outsider.  It solves the problem of measurement and of incommensurable values since it gives us a common measure for all prudential values even if there are areas of indistinctiveness, so without knowing how thrill and insightfulness interact, we can still make judgements about the value of a TV shows as a whole. Moreover, it is even possible to ascertain how I would rank thrill and insightfulness by questioning me about my predicted spending on all kinds of TV shows. In other words, knowing the income constraint of a person, I can measure that persons desires by her spending, ceteris paribus. (In order to keep the definitions straight, I shall speak of purchasing power when economists would describe the value of a currency and only use value to mean the philosophical concept.)

This leads us to our fist counterexample, which is that this image assumes that the consumer is not saving and maximising out her income constraint. In essence saving cannot have its own prudential value. After all, if money is merely what we measure other commodities against, then any consumer with informed desires, i.e. perfect information about the workings of a market will not hold on to money, which is “an intrinsically useless and unbacked asset” (Weil, 1987: 1). How can we explain our desire to hold on to our money?

My own theory would ask this: ‘How much money we are willing to spend in order to hold on to money?’ This however will not get us anywhere. Another possibility is that we horde money as the “reflected [value] of future consumption” (Tobin, 1961: 26), that is to say that our saving is the amount of money we are willing to give up on commodities in the future. However, if that were the case, than consumers would have to invest in other property and not save money (that through inflation steadily loses purchasing power). We could argue that the consumer does not have all information to see that. However, under Griffin’s informed desire account, we have to assume that the consumer has all information readily available. According to Tobin, a far more likely explanation is that consumers like being wealthy for the convenience of ready cash and its safety, all of which are common examples that my account of prudential value in money cannot capture.

Our second counterexample shall elaborate on this behaviour by looking more closely at consumer rationality which is a hidden premise in Griffin’s informed-desire account. Rationality presumes that consumers take into account all readily available information about alternatives when ranking their preferences. Rational consumers then choose the highest alternative on their ranking (Gravelle & Rees, 1981: 6-7). Since this is a concise explanation of what it is for a desire to be informed, Griffin concedes that consumer rationality must hold for his account (Griffin, 1986: 102). Unfortunately there is much evidence that this premise is false even under ordinary circumstances (see Besanko & Braeutigam, 2005: 68, 96; Sloman, 1998: 189-90; Knetsch & Sinden, 1984: 507). Let me give you an example: Suppose I buy a Doctor Who DVD for £2 and take it home. Before unpacking it, I am told by the store that I can return in exchange for £4. The rational consumer will do it, most people however would not (Besanko & Braeutigam, 2005). There are many more examples in the Philosophy of Psychology that underline that agents are in many cases not rational and subconsciously make decisions that they cannot explain or even access the way Griffin’s account requires us to (see exemplary Nisbett & Ross, 1980: 136, 207). To bring this back to money: As soon as a monetary value is attached to a commodity, consumers will interact differently than when they encounter it without being aware of a price (Brookshire & Coursey 1987: 554). This means that money cannot give us an accurate measure of prudential values as it itself distorts our relationship to what we desire.

This brings us to a final point about the unsuitability of money as objective common measure of prudential values. This account of prudential value would seem to indicate that money is the “supreme value” (Williams 1993: 103; in Griffin, 1977: 52) against which all others are measured. As Griffin, I am not sure whether this follows, however the alternative is no more attractive: Let us assume that the function of money is to measure the purchasing power of goods according to its own exchange rate (Menger, 2005: 265). What follows is that it is a concept of “social relations” since it is dependent on a market (Ingham, 1996: 507). A currency represents how 2 hours Doctor Who are worth 4 hours Lynley, yet the price is not derived from the prudential value of the TV shows, but rather their relationship to supply and demand (Menger, 2005: 246). If the price rose, my desire would not change, but my behaviour would. In other words, measuring value in monetary terms is inconsistent, since knowing that a Lynley DVD is worth ¥400 is useless unless I already know the prices of all other goods in the economy to give context. Money as just another commodity (Wright & Kiyotaki, 1989) is hence not able to do the job of measuring prudential values since it is unstable as a social relation.

 In essence, under the informed-desire account, incommensurable values cannot easily be measured against each other with money. Although as cardinal scale it has many merits, ultimately it is very problematic as a measurement. Hence, the question arises, whether there is something else that has a constant exchange rate towards all other goods that would be able to fulfil this role. That search however shall be left for another post.

References

Besanko, D. and R. R. Braeutigam. 2005. Microeconomics. John Wiley.

Brookshire, D. S. and D. L. Coursey. 1987. Measuring the Value of a Public Good. The American Economic Review 77: 554-66.

Crisp, R. 2008. Well-Being. Stanford Encyclopedia of Philosophy. URL: [http://plato.stanford.edu/entries/well-being/]. accessed [22.03.2012].

Griffin, J. 1977. Are There Incommensurable Values? Philosophy and Public Affairs 7: 39-59.

Griffin, J. 1986. Well-Being, Its Meaning, Measurement and Moral Importance. Oxford.

Gravelle H. and R. Rees. 1981. Microeconomics. Longman.

Ingham, J. 1996. Money is a Social Relation. Review of Social Economy 54: 507-29.

Knetsch, J. L. and J. A. Sniden. 1984. Willingness to Pay and Compensation Demanded: Experimental Evidence of an Unexpected Disparity in Measures of Value. The Quarterly Journal of Economics 99: 507-521.

Menger, C. 2005. (trans Campagnolo, G.) Money as Measure of Value. History of Political Economy 37: 245-61.

Nisbett, R. and Ross, L. 1980. Human Inference. Englewood Cliffs, NJ: Prentice-Hall.

Raz, J. 1985-6. Value Incommensurability: Some Preliminaries. Proceedings of the Aristotelian Society 86: 117-34.

Sloman, J. 1998. Essentials of Economics. Prentice Hall.

Tobin, J. 1961. Money, Capital and Other Stores of Value. The American Economic Review 51: 26-37.

Weil, P. 1987. Confidence and the Real Value of Money in an Overlapping Generations Economy. Quarterly Journal of Economics 102: 1-22.

Williams, B. A. O. 1993. Morality: An Introduction to Ethics. Cambridge University Press.

Wright, R. and N. Kiyotaki. 1989. On Money as a Medium of Exchange. Journal of Political Economy 97: 927-54.

Advertisements

Leave a comment below if you like.

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

WordPress.com Logo

You are commenting using your WordPress.com 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