Applying Diax’s Rake to Theories of Objective Value

May 22nd, 2013   Submitted by Michael Hendricks

RakeDiax’s Rake is a phrase coined in Neal Stephenson’s novel, Anathem:

Diax’s Rake: A pithy phrase. Uttered by Diax on the steps of the Temple of Orithena when he was driving out the fortune-tellers with a gardener’s rake. Its general import is that one should never believe a thing because one wishes that it were true.”- (Anathem p. 895)

While this idea already exists in our world, to my knowledge there is no other succinct phrase to express it.

It is important to realize that the human mind will readily accept inputs that support its preconceived notions. This is a natural phenomenon and not necessarily the act of an intellectually dishonest person; it is merely human nature. Because of this nature it is important that people apply Diax’s Rake, and consciously examine claims to insure that they are accurate, in order to have the most consistent world view both internally and with reality.

I became an anarchist not because of Austrian economic thought, but because of ethics; anarchy is the natural conclusion to the Non-Aggression Principle (NAP), and the least coercive system is one where the initiation of coercion is never legitimate. In the words of Roderick T. Long, “a consistent peace activist must be an anarchist.” An individual who holds the NAP as the pillar of their ethics must be an anarchist for the exact same reason.

As a result of this conversion I’ve found myself diving into the Austrian school, which is a classic situation where I need to apply Diax’s Rake. I want to believe the Austrians because their ethics and mine are very similar.

The tendency to confirm biases and engage in motivated reasoning is not unique to any one philosophy, so all of us must take care that we diligently examine arguments presented to us. If there is a temptation for libertarians to uncritically accept Austrian economics due to its political implications, so too is there a strong motivation for Statists to follow Keynesian or Marxist economic thought. However, the fact that this tendency exists does not mean that all Statists fall victim to it. Advocates of Keynesian and Marxist economics may simply be reaching a different conclusion without motivated reasoning, whether they are reasoning based on flawed premises or their perspectives are distinct from ours. This is another opportunity to apply the Rake, since it is easiest for libertarians to assume that the Statists are guilty of intellectual fallacies, giving us a way to easily dismiss their arguments.

Keynesian Economics  

If we look at the dominance of the Keynesian school in the government, the accusation can arise that government officials are not applying Diax’s Rake because they desire a “scientific” backing for their power. Let us examine the claims of the Keynesians to ensure that we are remaining intellectually honest. In other words, let us take the Rake to our own reasoning.

An essential factor of the Keynesian view of the economy is that the private sector can sometimes lead to inefficient outcomes, and that in order to correct this behavior the State needs to intervene with monetary and trade policy. This intervention is necessarily directed by some officials, and it’s supposed that these officials will have the best interests of the nation at heart. While it may not be the case that supporters of the government are supporting a theory that conveniently grants them (or their democratically elected proxies) power, the possibility should not be overlooked or dismissed out of hand.

The problem with this basic tenet of Keynesian economics is a simple step of logic. Even though the Keynesians are right, and the private sector (with the most immediate information) is capable of causing inefficiency in a macro setting (an inevitability because humans are imperfect), how is a government agency (operating with less information) going to make better economic calculations? If private actors are fallible even when they are experts in their field, comparable to commanders on the ground, how are the “armchair generals” of central planning immune to the same fallibility?

Keynesians are right. Business people are imperfect, and it leads to economic inefficiencies. And business people feel the consequences of their poor decisions. However, Keynesians are wrong to conclude that central planning can remedy these consequences, because bureaucrats are imperfect, and it leads to economic inefficiencies on a grander scale. Their logic is demonstrably flawed.

Here’s the Rake. Because I prefer Austrian economics, I am predisposed to reject Keynesian claims. That’s why it’s important for me to double check their premises, their logic, and their evidence to ensure I am not confirming my own bias. I apply the Rake to check myself, and when the Rake snags on their logical errors my suspicion of Keynesian error is confirmed.

I wonder if the Keynesians are as diligent when debunking Austrian claims?

Marxist Economics

Marxism, and by extension all other strains of communism, rely on the Labor Theory (LTV) of Value to give them something objective and measurable for central planners to calculate. This puts them in direct conflict with the Austrian school, which claims that value is subjective.

The LTV claims that the value of a product is based upon the labor that was put into a product. If we examine this Marxist theory, a glaring problem presents itself immediately, one of circular reasoning. If the value of an item is based upon the labor used to create it, what’s the value of the labor? If the value of the labor is determined by the value of the resulting product, than we have reasoned in a circle.

A claim that you’ll hear coming out of the communist camps is that all labor is equal. If we suppose that this is true what is the result? An individual that spends their time idly sanding a block of wood for eight hours creates a product which is equal in value to that of a Macbook, if the time spent building the Macbook is also eight hours. The idea is absurd.

It seems clear that one of two things is happening here. Either Marxists are deliberately ignoring the circular reasoning and absurdity in their theory, or it hasn’t occurred to them, and they are uncritically accepting the theory that supports their desired outcome. In other words they aren’t applying the Rake. Neither is acceptable.

If they are ignoring flaws in their theory then they are being intentionally deceptive and intellectually dishonest. If they are accepting the theory uncritically the reason is simple: because the LTV claims to provide an objective measure of value, which lends itself to idealized modeling, and supports a centrally controlled economic system.

Austrian thought specifically claims that accurate modeling of the economy is not possible, which makes it the antithesis of what someone who believes in the benevolence and necessity of the State, or who believes that the market is coercive, wants to believe. In light of this, it is obvious that whether these individuals are ignoring the flaws in their theory, or unaware of them, they are being intellectually dishonest.

Austrian Economics

Austrian economic thought on the other hand posits that value is subjective which contrasts with the claims analyzed above. Saying that value is subjective removes the issue of circular reasoning present in the Marxist LTV, however it raises issues of its own. If value is subjective it necessarily means that it is impossible to model, which makes the Austrians directly at odds with legislators. Because people are not omniscient it is impossible for one to know the contents of another’s mind, so it is impossible to know what another person values. It is impossible to build rational legislation on uncertainty. Acknowledging this fact completely invalidates the State’s monetary and trade policy.

The subjective nature of value acknowledges that people are individuals and that their experiences and perspectives are all different, an indisputable fact. It explains why some people like Dr. Pepper, while others like Coke, and why still others do not like soda pop at all. The claim that value is subjective is consistent with reality.

A debate that is taking place in the Austrian school is whether or not money has an use value. Ludwig von Mises makes the claim that it is necessary for money to have a utilitarian base; in his own words:

“The price of money, like other prices, is determined in the last resort by the subjective valuations of buyers and sellers. But, as has been said already, the subjective use-value of money, which coincides with its subjective exchange value, is nothing but the anticipated use-value of the things that are to be bought with it. The subjective value of money must be measured by the marginal utility of the goods for which the money can be exchanged.

It follows that a valuation of money is possible only on the assumption that the money has a certain objective exchange value. Such a point d’appui (fulcrum) is necessary before the gap between satisfaction and “useless” money can be bridged. Since there is no direct connection between money as such and any human want, individuals can obtain an idea of its utility and consequently of its value only by assuming a definite purchasing power. But it is easy to see that this supposition cannot be anything but an expression of the exchange ratio ruling at the time in the market between the money and commodities.” (The Theory of Money and Credit)

The first paragraph seems to be making the claim that the one factor taken into account when an individual is deciding on the value of money is the utility of the good that money purchases. This claim is completely logical; it makes sense for an individual to take the utility of an item into account.

The first sentence of the second paragraph makes the claim that because it makes sense for the utility of future purchased items to be taken into account, money must be assumed to have an objective exchange value. This reasoning is erroneous. Just because it makes sense for someone to take the utility of purchased items into account when determining what it is worth doesn’t mean that they must. How can we say that money must have an objective value because a subjective use-value coincides with a subjective exchange value? This is the exact same issue that the Marxist LTV contains. The idea that the process of valuation of money must take into account the utility, therefore money must have a utilitarian base, misses the point and adds a useless step. The utility of money is determined by the subjective value scale of the actor in question, and is not a factor unto itself. It is based on the subjective nature of value.

The fact remains that value is purely subjective; the idea of objective value is logically inconsistent and therefore cannot exist. At the end of the day no one is infallible, it is possible even for the giants to make mistakes! This is why one must always apply the Rake, and never appeal to authority!

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24 Responses to “Applying Diax’s Rake to Theories of Objective Value”

  1. Seth KingNo Gravatar says:

    Well said!

    Too many people in the Austrian school want to bring up the regression theorem when debating whether or not Bitcoin is money. I say fooey! The Subjective Value Theory answers that question.

    The truth is, Bitcoin is money if you value it as such. And if you don’t value it as such, then it’s not money. So, really, if you are a student of the Austrian School of Economics, and you can clearly see the UTILITY of Bitcoin, but haven’t come to value it is money, the only thing stopping Bitcoin from BEING money is you, and you alone.

    Without the SVT I don’t think I ever would have wrapped my head around Bitcoin as money.

    http://dailyanarchist.com/2011/10/02/i-was-wrong-about-bitcoin/

    • Michael HendricksNo Gravatar says:

      I am pleased that you liked it Seth!

    • HReardenNo Gravatar says:

      People can value anything as money. They can value buckskins as money. Thus the slang word buck for dollar. People value FRN’s and thus it is money. FRN’s are not money because the Fed says it is, it is money because people accept it as such in exchange for goods and services.

      $

      • Michael HendricksNo Gravatar says:

        I have my doubts about how long FRN would last without the fear of the cage to keep people using it. In that sense it is valued because the FED say so…

        • HReardenNo Gravatar says:

          That is a good point. I have wondered and nobody I have asked knows how long it took for all the bank notes issued by banks prior to the creation of the Fed to be removed from circulation after the Fed began issuing FRN’s. Ther had to be a period in which FRN’s and bank notes printed before the Fed were being used at the same time. I wonder what the process was for removing the existing bank notes from circulation. How was that done? When bank customers depoisted bank notes did they get replaced by FRN’s? Was a date set and after that date bank notes would be declared worthless and only FRN’s would be money? Has anyone else wondered about this? It seems to me that there has to be a period of some time in which both bank notes issued by banks before the Fed and FRN’s were being used as money.

          $

  2. Zell FazeNo Gravatar says:

    “A claim that you’ll hear coming out of the communist camps is that all labor is equal. If we suppose that this is true what is the result? An individual that spends their time idly sanding a block of wood for eight hours creates a product which is equal in value to that of a Macbook, if the time spent building the Macbook is also eight hours. The idea is absurd.”

    The Macbook is more valuable even under the LTV. You missed out on some crucial points.

    How much labour went into making the block of wood to be sanded? How much labour went into making the material components for the Macbook?

    • ErvNo Gravatar says:

      I believe that the argument posited is that labor applied for different purposes cannot be valued equivalently. If I spend 8 hours sanding a block of wood on Monday, then on Tuesday I spend 8 hours building an apparatus that can achieve the same result in 1 hour, then proceed to spend the next 3 days sanding 8 blocks of wood per day, I have “devalued” Monday’s labor by a factor of 8. While some would argue that Tuesday’s labor was “wasted”, I had an 8x return on investment in the first day.
      With the apparatus that I have built, my 8 hours of labor is now “worth” 8 times as much as the other guy who is still sanding wood “old school”. This is how the LTV self-destructs and I believe the point that the author was trying to make with the single sentence.

    • Davi BarkerNo Gravatar says:

      Right, but you’re not taking into account the labor required to grow the tree, chop the tree, and produce the wood block… either way the LTV is still silly.

      • Davi BarkerNo Gravatar says:

        It’s like asking, which is more objectively valuable, a pencil or a pen?

        Well, the pencil required labor to grow trees, and mining to acquire graphite, and paint. And the pen required labor to assemble pieces, and factories to manufacture them. And you could probably calculate a total labor value for each one and put a price on it, but the fact of the matter is that doesn’t make one more objectively valuable than the other.

        A sketch artist prefers a pencil because it’s good for shading. A comic artist prefers a pen because it has that hard graphic quality. An astronaut prefers a pencil because pens don’t work in space. An entrepreneur signing a contract prefers a pen because pencils can be erased.

        All subjective. I can’t even say for certain that all artists, astronauts and entrepreneurs have those preferences.

    • HReardenNo Gravatar says:

      Josiah Warren believed in the idea that all labor was equal and operated a store in Ohio in which the goods were priced by the amount labor it took to produce them and they could be purchsed with labor notes. the cost of labor does effect the price of a good but the bottom line is that a good is worth what someone is willing to pay for it. An expert can apraise the value of an antique or collectable item but that doesn’t mean that you can find someone to pay you what the expert said was it’s value. At an auction the expert is the last guy to raise his hand. The purchaser or consumer has a say in what the price of a good is regardless of what the cost wa to produce the good. This is why there are stores like Big Lots in part. If retailers are not able to sell enough goods at the price they want sometimes they sell it to Big Lots for far less and then Big Lots sells it at a price people are willing to pay.

      $

  3. JamesCarlinNo Gravatar says:

    Fantastic article. I was hoping that you’d go further, and catch your rake on several other interesting things.

    Another place this ‘rake’ catches is on Hoppean Argumentation Ethics, and similar approaches. Since Hoppean-A.E. agrees with much of what voluntarists/AnCaps desire, it is often not critically questioned enough. I only started questioning it recently as a result of it’s ‘side-effects’ have begun to manifest more strongly as of late, such as dogmatic-behavior and dogmatic-arguments.

    • Franz MachNo Gravatar says:

      I am an AnCap novice and have just started reading Hoppe. Thank you for your comment, James. I will be deploying the ‘rake’ during my studies. Having retired from the US intelligence community, we had to resist similar problems that ‘the rake’ was designed to catch: ‘mirroring,’ which means a combination of confirmation bias with the assumption that the intel target’s reasoning would be similar to our own if placed in a similar situation. Most intel analysis failures are traced to mirroring.

  4. MacianoNo Gravatar says:

    Value can both objective & subjective.

    1) Bitcoin is objectively valuable, because it is cheaper to transact in it than other alternatives. Everytime one doesn’t transact in bitcoin, but, say, PayPal, there are opportunity costs. Also, the bitcoin architecture gurantees maximum competition, driving the overhead down; margin-cutting middlemen are by bitcoin code design unlikely.

    2) Value can thus be subjective. It’s a fact that bitcoin got used as a reward in games. Winning in games -> status. Many bitcoins indicated status, this gave it some value. But only for those, who believe in status through gaming.

    Bitcoin also makes trading in blackmarket goods possible and anonymous, this is a tremendous value-inducing element. People who want/need such goods will want to buy bitcoin because it gives them access. (Not saying this is good or bad, but value in itself isn’t good or bad. Just what experience as valuable.)

    3) I’m also somewhat partial to the idea, Amir Taaki coined this recently in a Max Keiser interview, that we don’t know what bitcoin “is” exactly. Is it gold 2.0, money or something else? That would make it a bit harder to use the regression theorem and not be able to apply it, because bitcoin might be a different concept than money in itself — maybe bitcoin is money 2.0 or exchange 2.0?

    4) What is the most unappreciated part of bitcoin, by the masses, is its OS nature. I keep hearing people saying, well, bitcoin can be replaced by something better. Like Ripple or whatever new will come — as if it is a passing fad like the app du jour. No, bitcoin is a technological concept and its OS code can be improved continously. Gold and fiat are what they are and will be what they are, bitcoin is not limitedly by institutions, laws/mores or physical form.

    • AuNeroNo Gravatar says:

      “Bitcoin is objectively valuable, because it is cheaper to transact in it than other alternatives”

      Just because something is cheaper doesn’t mean people will want it more. I remember reading a study a while back that showed that as the price of a Mercedes Benz car increased, the demand increased as well because people saw it as a status symbol.

      You’re inserting your own values when you claim that if something is cheaper — everyone must value it more.

      • SavageNo Gravatar says:

        For example I know the benefits of bitcoin. But I still value hard currency more. I will always value the ownership and use of gold and silver over bitcoin any day. There are many reasons for this, but cheapness of utility is clearly not one of them with the price of bullion these days.

    • Michael HendricksNo Gravatar says:

      The determining factor of the value of utility is the value scale of the actor in question.

  5. Martin BrockNo Gravatar says:

    Your LTV is not Marxist. It is more nearly classically liberal (from Smith and Ricardo), and this classical LTV is a decent first approximation to the subjective theory of value, i.e. people subjectively value what people produce more than they value natural resources untouched by human labor.

    Petroleum is valuable, but the price of petroleum is a small fraction of the price you pay for gasoline, because the cost of gasoline is a large fraction of the price you pay for it, and the price of petroleum is small fraction of the retailer’s cost. Most of the retailer’s cost is the cost of labor at various stages of production, including the labor producing gasoline pumps and such.

    Most of the exchange value of goods in a sufficiently free market is the value of labor, i.e. the total price of all final goods exchanged for money is roughly (say less than twice) the value of the total price paid for all labor during a period. If we can agree on “sufficiently free market”, that’s an empirically testable assertion. Of course, an empirical test must account for what entrepreneurs pay themselves for their own labor.

    Marx explicitly denies the LTV as you state it. He asserts that wealth can be the product of nature, without the influence of human labor, and also the product of dead human labor, and he emphasizes “use value” which is closer to subjective value than to the value of labor in the LTV as you state it.

    That’s not a defense of Marxism. I am not a Marxist and have no sympathy with Marxism, but applying the Rake to our opinion of Marxism requires raking what Marx actually asserts. We can only apply the Rake to our own thinking. We can’t apply it to other people’s thinking.

    • Michael HendricksNo Gravatar says:

      “Marx explicitly denies the LTV as you state it. He asserts that wealth can be the product of nature, without the influence of human labor, and also the product of dead human labor, and he emphasizes “use value” which is closer to subjective value than to the value of labor in the LTV as you state it.”

      This is even more absurd than I originally thought…

  6. ShawnNo Gravatar says:

    Michael, this is a very good article. Austrians can certainly be as guilty as anyone else of becoming entrenched in “dogma.” I favor Austrian economics because, not only does it recognize that indivduals have different value systems and therefore are unpredictable, it uses high level formal logic to deduce its conclusions, and is the most sound of any school I’ve studied. But the problem is, while the likes of von Mises and Rothbard and others have set a very good foundation, they are not the end all of discussion on the matter, and no one has perfect knowledge. ANY economic theory should evolve and be recontemplated as new understanding comes along, rather than people holding fast to what the “original masters” had to say. Again, good job. :)

    • Michael HendricksNo Gravatar says:

      Thank you Shawn! I’m glad that you liked the article!

      Natural Selection never stops working but what we select for changes. We must be mindful to always select based on merit and not based on authority.

  7. FreeRadicalNo Gravatar says:

    Hey Michael, I agree completely that we need to be constantly aware of our biases but I don’t think your reading of Mises was on point.

    When he talks about the assumption that money has a certain objective exchange value he’s not arguing against the subjective valuation of money. In the preceding paragraph he states point blank that “the price of money, like other prices, is determined in the last resort by the subjective valuations of buyers and sellers”. His argument isn’t so self-contradictory as to then argue for an objective basis for the valuation of money.

    A major stumbling point seems to be what Mises means by “objective exchange value”. An objective value is necessarily a numerical expression of quantity, whereas a subjective valuation is a qualitative judgement. To say that a cow is objectively worth $5000 is nonsense – it might be worth that to you, but nothing at all or twice that much to someone else. That’s a subjective valuation. On the other hand to say that one thousand dollar bills has the same objective exchange value as ten one-hundred dollar bills makes perfect sense. (In the same way labeling something as “hot” is a subjective valuation, whereas 92 degrees Farenheit is an objective heat value.)

    To say that money has an objective exchange value is not the same as saying that it has an objective worth.

    Another problem with your evaluation is in the area of utility. Of course the valuation of money has a utilitarian basis – money is used for exchange and in order for me to be willing to exchange anything for money I must assume that I will be able to later use that money in exchange. (Granted, there can be other factors in my valuation of money – like it’s potential use in producing other goods, how cool I feel waving around my full money clip, or its purported use as an aphrodisiac. But generally speaking money is valued for its use in exchange, and these other factors are utilitarian as well. The only way that the valuation of money is not tied to it’s use is in the case of irrational actors, which Austrian Economics specifically does not deal with.)

    Also, when Mises talks about utility he isn’t arguing that money needs to have a utility other than as a means of exchange. That much is clear when Mises states that “there is no direct connection between money as such and any human want”. (This is true even though money might have uses other than as money – Mises is specifically talking about money “as such”, and not in terms of any other uses a particular money might have.)

    • Michael HendricksNo Gravatar says:

      “On the other hand to say that one thousand dollar bills has the same objective exchange value as ten one-hundred dollar bills makes perfect sense. (In the same way labeling something as “hot” is a subjective valuation, whereas 92 degrees Farenheit is an objective heat value.)”

      The use value of the hundred dollar bills is less than the one dollar bills because of the fact that not everywhere you go is going to accept the hundreds and it is not even a garuntee that a business is going to keep enough small bills in the register to change for a hundred.

      On the matter of the Objective; it must necessarily be an observation it cannot be a valuation.

      “To say that money has an objective exchange value is not the same as saying that it has an objective worth”

      It’s not? Please clarify.

      “Another problem with your evaluation is in the area of utility. Of course the valuation of money has a utilitarian basis – money is used for exchange and in order for me to be willing to exchange anything for money I must assume that I will be able to later use that money in exchange”

      The assumption and speculation of the utility of money is a value judgement on your part it is not an objective fact. Saying that it is: non sequiter.

      • FreeRadicalNo Gravatar says:

        “The use value of the hundred dollar bills is less than the one dollar bills because of the fact that not everywhere you go is going to accept the hundreds and it is not even a garuntee that a business is going to keep enough small bills in the register to change for a hundred.”

        Mises isn’t talking about the use value when he says “objective exchange value”. If you take one thousand dollar bills into the bank and deposit it in your account you’ll have the same balance as if you take ten one-hundred dollar bills and deposit them. This is what is meant by “objective exchange value”. The “exchange value” of a ten dollar bill is $10, and that doesn’t depend on the observer (thus “objective”).

        You might object to this use of the term “objective”, but that’s how it is being used.

        “On the matter of the Objective; it must necessarily be an observation it cannot be a valuation.”

        Correct – valuations, by definition, aren’t objective.

        If I measure my weight on a scale I end up with a numeric value in some unit (say 200lbs). This is an objective measurement which gives me an objective value (not valuation).

        “To say that money has an objective exchange value is not the same as saying that it has an objective worth.”

        Let’s take the example of a ten dollar bill. It has an objective exchange value of $10 – the same as ten one dollar bills, two fives, or a five and five ones. I might be able to buy ten chocolate bars from one retailer with that ten dollar bill, but twelve from another retailer. It is not objectively worth ten or twelve chocolate bars, but it does have an objective exchange value of ten dollars.

        “The asumption and speculation of the utility of money is a value judgement on our part it is not an objective fact.”

        Exactly – our subjective value judgement is based on the speculation of the utility of money. Speculation on the utility of money is only possible under the assumption that the money we are trading for has an objective exchange value (i.e. the ten dollar bill has a value of $10).

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