Economics Should Study Value, Not Choice
Modern economics pretends to study value, when in fact it obliterates it via choice.
Last week I took my sweetheart to our favorite restaurant. Due to the special occasion (her birthday), we ordered the tasting menu. The curated portions of different flavors, textures and specialties kept coming without our prior knowledge of what would come next. We enjoyed every bite until we couldn’t eat any further. When we ordered the check, I looked at the prices and began to think about what decisions I would have made had we maintained our privilege of choice.
For example, the oysters were delicious, yet also expensive—about $15 a piece. For the same price, we could have purchased two shawarmas that would have sufficed for an entire meal. On the other hand, the oysters were a unique and savory experience, in a way that a shawarma isn’t. Among the courses we also received four small portions of soup of exquisite flavors. If our goal was to experience special culinary tastes—four soups for $30 versus two oysters for $30—surely the former would’ve been the better choice?
This form of decision-making characterizes the consumer of the modern economy. Modern economics has even made it its focal point of study. The consumer deliberates how he should spend his money for the satisfaction of his different ends, weighs which goals are more important within his material limits, and acts accordingly. Which corresponds neatly with the conventional definition of the science as “the allocation of limited resources for the satisfaction of wants.”
The problem is that this has little to do with economics.
Economics today tries to eat its cake and have it too. On the one hand it studies consumer choice, but on the other, claims to be ethically neutral. Humans can prioritize their conduct according to urgency, ambitions, indulgences, habits, tradition, or any mixture of these elements—or even lack purposeful behavior altogether. To suggest that humans tend to choose according to some formula already implies psychology or ethics. If economists reject this by saying that they only attempt to predict choice given established ends, then they undermine their predictive capacity by refusing to study the valuations upon which choices are made.
Still worse is the consequence of this approach, which blurs the distinction between choice and value. The two have different cognitive roles: one cannot choose which values to pursue without first recognizing them as values.
Recall the restaurant scenario. All values were already given. The prices were given. The goals (e.g., expectations of taste) were given. The only thing not given was the choice itself. Value isn’t formed in this scenario; it is presupposed before decisions are made.
Choice does not determine value. Value is a mental recognition of material things that are useful for human beings. It is a relationship between an individual and an object. If one chooses to purchase shawarmas instead of oysters, that doesn’t create the value of the former. Value depends on existing facts and the conscious recognition of those facts. Choice at the consumer level enters after the values of goods and services have been conceived.
Most people take economic evaluations for granted; perhaps because they are somewhat easier to establish and are less observed introspectively than the process of decision-making.
But the premise that decisions affect values in the market simply doesn’t make sense. Material values are created by producers and are recognized by consumers. Choice cannot affect value—even in the form of demand. Demand can’t change the useful capacity of, say, a computer. The value of a computer to its user is what it is, regardless of choice.
A concept that integrates choice and value is “price,” which both recognizes value and asks or offers a reciprocal reward. But note that choice in the context of price cannot be reduced to comparisons with other prices. This implies circularity without a causal anchor. Value must serve as the foundation of price, upon which comparative elements are built.
To summarize, there are three layers that modern economics fails to identify and properly delimit:
The economic value of goods and services (represented as prices in the market).
The individual’s established goals and priorities (a subject for ethics and psychology).
Choice in the context of given economic values and personal goals.
Economics today assumes the second, obsesses over the third and evades the first, which is its proper and exclusive field of study.
Ultimately, economics is about trade (and production)—not trade-offs; it is about creating and recognizing value—not comparing hypothetical values. Economics is a special branch within ethics, but its boundaries must be carefully demarcated so as not to overstep its bounds.
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For a deeper exploration of the first layer—the nature and definition of economic value—read my long-form essay on economics.
What Is Economics?
In the 19th century, John Stuart Mill wrote that economics is concerned with man “solely as a being who desires to possess wealth[1].”