Arguing for Intrinsic, Objective Value and Moral Markets

[caption id="" align="alignright" width="300"]<a href="http://commons.wikipedia.org/wiki/File:Riskpremium2.png" target="_blank"><img class="zemanta-img-inserted" title="Utility function of a risk-neutral person: CE ..." alt="Utility function of a risk-neutral person: CE ..." src="http://upload.wikimedia.org/wikipedia/commons/thumb/e/e3/Riskpremium2.png/300px-Riskpremium2.png" width="300" height="267" /> Utility function of a risk-neutral person: CE - Certainty equivalent; E(U(W)) - Expected value of the utility (expected utility) of the uncertain payment; E(W) - Expected value of the uncertain payment; U(CE) - Utility of the certainty equivalent; U(E(W)) - Utility of the expected value of the uncertain payment; U(W 0 ) - Utility of the minimal payment; U(W 1 ) - Utility of the maximal payment; W 0 - Minimal payment; W 1 - Maximal payment (Photo credit: Wikipedia)[/caption]

This post will argue for intrinsic and objective value, but that is not to say that I don't acknowledge <a class="zem_slink" title="Subjective theory of value" href="http://en.wikipedia.org/wiki/Subjective_theory_of_value" target="blank" rel="wikipedia">subjective value. Both exist, but objective or <a class="zem_slink" title="Intrinsic value (ethics)" href="http://en.wikipedia.org/wiki/Intrinsic_value%28ethics%29" target="_blank" rel="wikipedia">intrinsic value is the superior choice for market morality and efficiency. This discussion grew out of a <a href="https://bitcointalk.org/index.php?topic=204508.0">forum discussion on bitcointalk a while back.

When a person takes an action, such as a purchase or sale, they indicate a preference over all other possible actions. When we try to measure that level of preference we call it utility or value. <a class="zem_slink" title="Utility" href="http://en.wikipedia.org/wiki/Utility" target="_blank" rel="wikipedia">Utility and value, used interchangeably, are defined as measurements of a person’s perception of the degree of the <a class="zem_slink" title="Morality" href="http://en.wikipedia.org/wiki/Morality" target="_blank" rel="wikipedia">morality of an action. Morality, in turn, is defined as what should be done. Morality is also a perceived thing.

Let us suppose that an ideal morality exists. A moral actor is an actor whose preferences reflect ideal morality. When an actor’s preferences reflect ideal morality they will better value actions, goods and services in order to maximize objective utility.

When all actors in a <a class="zem_slink" title="Market value" href="http://en.wikipedia.org/wiki/Market_value" target="_blank" rel="wikipedia">market value are moral actors then the market becomes a moral market and all <a class="zem_slink" title="Price" href="http://en.wikipedia.org/wiki/Price" target="_blank" rel="wikipedia">prices yielded in the market are moral prices. Moral prices are intrinsic and objective prices. In other words, moral, intrinsic or objective prices are the prices that a market should assign to a good or action.

One might argue that maximizing subjective utility is preferable to maximizing objective utility and therefore a <a class="zem_slink" title="Free market" href="http://en.wikipedia.org/wiki/Free_market" target="_blank" rel="wikipedia">free market is preferable to a moral free market. Quite opposite that idea, a central caeconomic hypothesis is that objective utility and subjective utility move together. For now I am content to posit that claim at the market aggregate level, but I think I may eventually even posit that claim at the micro or even transaction level. To put the hypothesis another way, ceteris paribus a moral free market will have both maximized objective utility and subjective utility levels which exceed the subjective utility levels of a less moral free market.

Measuring objective utility and <a class="zem_slink" title="Value theory" href="http://en.wikipedia.org/wiki/Value_theory" target="_blank" rel="wikipedia">moral value are key concepts of caeconomics. We have talked about that some but will be doing so much more later on. Stay tuned! I will also be discussing moral markets and objective utility more over time.