Peter Friedman
Associate Professor, Legal Analysis & Writing
Case Western Reserve University School of Law
Ruling Imagination: Law and Creativity
We know the price of everything and the value of nothing.
A couple of weeks ago I quoted from Tony Judt’s critique of free market ideology. Raj Patel, in “How Free Market Delusions Destroyed the Economy,” goes into considerable depth about the stupidity of our faith in markets, but this brief point makes clear the wisdom underlying the entire article:
There is a discrepancy between the price of something and its value, one that economists cannot fix, because it’s a problem inherent to the very idea of profit-driven prices. This gap is something about which we’ve got an uneasy and uncomfortable intuition. The uncertainty about prices is what makes the MasterCard ads amusing. You know how it goes — green fees: $240; lessons: $50; golf club: $110; having fun: priceless. The deeper joke, though, is this: The price of something doesn’t measure its value at all.
February 2nd, 2010 at 3:30 am
I’d argue that those who think that price is an indicator of value didn’t do very well in their economics classes.
I think lots of people *misinterpret* economics in this manner, but we shouldn’t blame basic economic principles for how people misinterpret them.
In economics, price is the intersection of supply and demand. Value is a component of the demand curve. People will buy if the value is greater than the price. The price itself is not the final indicator of price.
The problem here isn’t free market economics, it’s those who believed in a cartoony version of the efficient market hypothesis. And it’s really bizarre that anyone would/should believe in such a hypothesis, because one of the first things you learn in econ 101 is how you need a perfectly competitive market to make a perfectly efficient market. But I guess a lot of people simplified things and forgot to take that assumption into account.
But I wouldn’t blame fundamental economics. Just a lot of people misinterpreting it. Unfortunately, many of those people were setting policy.
February 2nd, 2010 at 4:03 am
Thank you, Mike. You’re right, of course, but the problem from my perspective is precisely how influential the cartoony version of the efficient market hypothesis is in law. Not to mention how influential it is in politics, but at least I know that “cartoony” is a good way to describe the level of almost all discourse in politics.