Some thoughts on price and value

The relationship, or lack thereof, between wages and the value of work has seemed a particularly pertinent question lately. Many of the workers whose salaries are below the threshold for tier 2 visas are the very same workers deemed 'essential' during lockdown.  There are some quite familiar arguments as to why wages often do not seem to reflect 'value'; these include different levels bargaining power, positive and negative social externalities of some work, and the impact of established norms and expectations about what kind of wage or salary a certain profession should receive.But I'd be tempted to go further than this: even if we were to imagine a world with equality of bargaining power and without significant economic externalities, we should not expect wages to approximate some kind of absolute value distinct from price, simply because value, as a quantifiable or quantified entity is itself an emergent phenomenon of systems of exchange and distribution.

Imagine a simple exchange relationship between two individuals. Individual A gathers food, and individual B plays music to entertain A. A easily can gather enough food for both individuals to survive, so there is really no need for them both to do so. Perhaps we imagine this pair to be mercantile enough to come to some kind of arrangement: B plays music for A for a certain amount of time a day in exchange for food. You could imagine a ratio between the two: 1 meal for 1 hour of music. Perhaps some days A doesn't feel like listening to music, some days B is less hungry than others, and instead sticking to some bartering ratio, they instead denominate both things in terms of some third item both have scarce supplies of it takes some effort to replenish.

We could then start to think about something called 'price', this being the ratio at which each item is exchanged for this third, common denominator. But what would this 'price' have to do with 'value' in an absolute sense? Life might be boring without music, and life couldn't continue without food. These are different kinds of value, for which there is no quantifiable means of comparing, except in terms of exchange ratios for which they are exchanged, or price. And it is fine to refer to those quantities associated with each thing, so long as we remember that all we are really describing by that quantification is volumes of exchange. This does not mean that this ratio would not be informed by value: if A didn't like B's music, A wouldn't be happy with this relationship. And the ratio of exchanges would have to be such that the volume exchanged did not exceed what A or B was willing to part with in exchange for what the other offers. But the ratio doesn't quantify how much better off A and B are for carrying out these exchanges, just that they are better off, and that they occur in a ratio that both are willing to agree to.

If we extend this to real world transactions, the fact that one person is willing to pay £10 for something might show that they prefer having that thing than having £10, and by extension, other things they could have spent that £10 on. But it doesn't tell us much about the value of that preference being satisfied in relation to some other person's preference being satisfied of an equal monetary value (£10 extra spending money is obviously worth more to someone who is broke and might need the money to pay a landlord than someone who is very wealthy, but can we quantify how much more?).

But does this mean prices tell us nothing about value? No, they do tell us something. They you what transactions people are willing to enter into. They allow you to make extraordinary predictions about what you can expect of a vast array of economic interactions with agents you know little, or nothing, about. This is in and of itself of great value- it makes societies 'legible' to observers, and allows for the coordination of economic activities and the division of labour without central planning. But this is not the same as reflecting 'value' in an every day sense. Prices, and by extension wages, do not allow for the worth different individuals attach to things to quantified by a universal common denominator. Rather, they allow us to predict what agents are willing to do for them, and the ratio in which these actions will occur. This is true before we even get into thinking about inequalities of bargaining power in the labour market.