Brookfield Basics

A column about history, culture, policy, and things in between.

Minimum Wage - Human Action - and the Subjective Theory of Value

Ludwig von Mises was the founder of the Austrian School of Economics.   The great scholar's epic treatise, Human Action, was so named because be believed that, when stripped of its graphs, charts, and metrics, economics is the study of how human beings make decisions.  In his forward to the book, he explained how the totality of tens of millions of individual, subjectively based decisions are expressed in aggregate by the dynamics and operation of markets.  In that preface he told us, "Only the individual thinks, only the individual reasons, only the individual acts"; a statement he deeply explored in his work on the Subjective Theory of Value.

Mises believed that the worth of any particular good or service is determined by the value people ASSIGN to and will PAY FOR that same good or service.  It was his conjecture that in this task of assigning value, consumers put little consideration into the amount of time, energy, and labor required to manufacture or provide that good or service.  Instead, he believed their decisions are driven by all manner of subjective criteria.

My brother and I have very different views of the value of attending a Neil Young concert.  Whereas I assign significant value to obtaining a good seat, he would not attend if provided with free access and a chauffeured ride to the event.  Whose opinion is correct?   The obvious answer is that they BOTH are, and that the validity of each opinion is based on the SUBECTIVELY DETERMINED worth of the experience.   This is the subjective theory of value at work at the individual level.  Ultimately, the price Mr. Young and his promoters are able to command for tickets is determined by the collective representation of millions of such subjectively determined decisions, that aggregate determination reflected in the price of tickets.

The United States Congress holds the power to legislatively require employers to pay an arbitrarily determined minimum wage.  But it does not have the power to suspend the immutable laws of economics and human conduct; such things operate independently, and are outside the reach of their legislation.  And while law makers will always be able to require employers to pay a certain amount of wage, they will never be able to force employers to subjectively assign a certain VALUE to that labor.  Small business owners (the engine of American jobs), will always determine for themselves what the labor of a given position is worth to his or her enterprise.  And as surely as Shakespeare's night followed the day, they will either pay that value or they will not, when deciding whether to replace or add a position.  They will no doubt comply with the law in terms of what they pay their employees.   But they will always obey the higher laws of human action, when determining whether or not the labor they seek to hire is WORTH that amount to their enterprise.

People value all manner of things subjectively - concert tickets, automobiles, wine, housing, fashion - everything.  We do so because it is how we are "wired up", and no law emanating from inside The Beltway can change that. 

And no matter how much our D.C. legislators may huff and puff, I do not believe they will ever blow down the house of von Mises' Subjective Theory of Value.

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