Re: Objective vs Subjective: Two approaches to money value.

["Harry Veeder" <veed0001@xxxxxxxxxxxxxxxx>]

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>From: "Jack O'Donnell" <jackodonnell@xxxxxxxx>
>To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
>Subject: Re: Objective vs Subjective: Two approaches to money value.
>Date: Wed, Apr 14, 1999, 9:30 pm
>

>Harry Veeder wrote:
>>
>> ----------
>> >From: "Jack O'Donnell" <jackodonnell@xxxxxxxx>
>> >To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
>> >Subject: Re: Saving and economic development
>> >Date: Thu, Mar 18, 1999, 4:46 pm
>>
>> >Money only affects the ability of people to exchange what the[y]
>> >own/control and its effectiveness in accomplishing that purpose is
>> >substantially affected by the confidence people have it will hold its
>> >value in the future.
>>
>> This is what I call the objective theory of money value which says the value
>> of money is affected by individual expectations or perceptions of a value
>> that is objectively "given". Instead of actively measuring and defending (or
>> attacking) value, they passively percieve and react to value. This objective
>> value is commonly called the purchasing power of money. However, if
>> producers and consumers  can impress their will on prices to favour their
>> respective positions,  what is to stop them from similarly making and
>> defending their *own* measurements and calculations of money value?
>> (Such measurements are based on an individuals own standards and criteria
>> and can never be evaluated by economists).  I call this the subjective
>> theory of money value.
>
>You're mixing the subjective nature of all individual economic
>valuations [i.e. -- The price at which each individual is willing and
>able to buy/sell whatever it is they are evaluating.] and the market
>determined value of things [Money, stuff, services etc.] that is the
>weighted average of all the actualized [i.e.  -- Actual measurable
>trades.] subjective evaluations. These are not different theories, they
>are just different applications of the same thing.

No, they are two distinct approaches to understanding the origin of money
value. (My use of the terms "objective" and "subjective" may be confusing.
A better choice of terms might be market value or purchasing power for
"objective" and exchange value for "subjective"). To say they are
applications
of the same thing, is

1) to claim that only expectations matter in determining the
(exchange) value of money.

2) to confuse market value of money (the purchasing power of money)
with the individual exchange evaluation of money.

Measuring the purchasing power of money does not tell us how
the value of money is determined at the exchange level. For that you need a
dedicated theory (or two theories as I argue). Conventional economic
theory recognizes that individuals have bargaining power which
can affect market outcomes *except* when it comes to the market value
of money itself. An individual's role in directing the market value of money
is seen merely to be reactive or anticipatory, rather than active or
willfull. The individual is not recognized as having any bargaining power in
relation to the exchange value of money.

[ Under normal circumstances (ie. absent hyper inflation)
most people worry very little, if at all, about the future exchange value of
money except if they have money in the stock market where it is their
job to worry. ]


>> As Keynes and Davidson have shown expectations can have no rational basis
>> whatsoever since the future is fundamentally uncertain.
>
>Without concurring or denying the sources you assert, the difference
>between the uncertainty of the future and the reliability of maintaining
>money to a standard by positive actions of the monetary authority in
>response to whatever occurs affecting that value is just as rational as
>adjusting the controls that affect the speed and direction of your car
>whenever the unpredictable environment alters the desirability of the
>outcome of the settings you initially make.

This is true and potentially useful, but only if one has a proper
understanding of the underlying causes of inflation. I actually believe it
would work well in economic environment where the exchange value of money
was dominated by individual subjectivity (ie. by individual bargaining
power). It may not work in an economic environment where the exchange
value of money is dominated by individual objectivity (ie. determined by
expectations).

>> However, unlike a
>> state of expectation,  a state of appraising involves *setting* a price.
>> When idividuals appraise the value of money, they are not worried about its
>> future value, they are setting its present value as a means of exerting
>> their will on the world to conform to their judgements of their past
>> experience. Rationality is preseved and animal spirits and/or bounded
>> rationality are transcended when we exert our will-to-power on the value of
>> money.
>
>No. The value of money involves measuring the actual outcomes relative
>to an established standard.

Yes, but this only tells us how to measure a particular market outcome, the
market value or purchasing power of money. Such information may be used in
feedback system for maintaining the purchasing power of money, but it does
not tell us anything the underlying micro causes of changes in the
purchasing power of money.

>It is the voluntary choices made by
>individuals in selecting that which they accept or reject as to the
>relative desirability of keeping what they have or trading what they
>have for something they don't that determines the value of money.

I would agree with this if it includes the possibility, at the exchange
level, of the value of money being a tradable or negotiable asset.

Harry Veeder