Kruse Kronicle

The Value of a Person Versus the Value of Labor (Part 4)

(Part 1) (Part 2) (Part 3) (Index)

I concluded my last post with this summarization:

So summarizing to this point, human beings are made in the image of God. As such, we have intrinsic value apart from any economic consideration. Our labor and the goods we produce have instrumental value and that relative value is set by the community through exchange in the market place, incorporating subjective and objective information into a real-time feedback loop. The market is far superior to the alternatives in setting value but it is far from perfect. That means there is "noise" in the feedback loop. But from the standpoint of Christian ethics, market imperfection isn't the only source of noise in the market.

So what is the additional "noise" to which I am referring? Sin. I began this series noting that according to the biblical narrative, we were created for service as priests in God's holy temple (creation) and appointed vice-regents over creation, bringing the world to full flourishing. The vision is of a world where we are in communion with God and the whole community flourishes.

I have argued that the development of market exchange in creating a real-time feedback loop to coordinate human action beyond face-to-face communities is truly a remarkable achievement. What needs to be made explicit here is that the market greatly facilitates all varieties of human action … from the noble to the vile. The market system that efficiently eliminates famine through the efficient distribution of food is the same market system that makes pornography abundant and inexpensive. If the aim is a shalom-filled world, then clearly, this amplification of sin is "noise" in the system.

Sin manifests itself in other ways. Some people will game the system for themselves against others through deceit, theft, discrimination, and any number of nefarious tactics. Strong legal systems are needed to protect against this behavior. Yet those legal systems are frequently used by those with power to protect their interests from competitors and market forces. These also feed "noise" into the market feedback loop.

So we are left with a market system that, while a substantial improvement over any alternative we know to date, is imprecise. And as Harvard economist Greg Mankiw recently noted, the field of economics is where medicine was two hundred years ago. Economics gives us considerable insight, much more than we would have without it, but our understanding is so imprecise that it is not always possible to predict consequences with high levels of certainty. So there is an epistemological challenge.

We are also left with a market system that amplifies detrimental desires every bit as well as virtuous desires. This means injustice will be present. The impulse is to block undesirable behavior. But who ultimately decides which things are not acceptable? One person may support legal marijuana while wanting to ban genetically modified organisms. Others may support genetically modified organisms but think prostitution should be illegal. Yet others may think prostitution should be legal but nuclear power should be illegal. And on it goes. And even when a majority agrees about the undesirability of a particular practice, does banning it actually improve matters? Think prohibition of alcohol during the 1920s.

Jesus tells a parable about a farmer who sows wheat, but his enemy later sows tares in the same field. Wheat and tares are indistinguishable until they approach maturity, making it impossible to sort them out until the harvest approaches. Attempt to rip out the tares; you will likely destroy much wheat. Similarly, aggressive attempts to control behavior to make the market produce only "good things" by weeding out the bad stuff can often have destructive consequences.

This presents us with challenging moral issues. As G. K. Chesterton once wrote, we want to "… give room for good things to run wild." Freedom and innovation are critical to achieving greater shalom. Furthermore, virtue chosen and acted on freely is far more vibrant than virtue imposed. But freedom means the freedom to choose sin and oppression. It means the emergence of injustices, whether intentional or not. Do we just look the other way?

Adding to this moral challenge is that the Bible is from the time and culture of the advanced agrarian societies of the ancient Near East. Making direct application from biblical circumstances is problematic. Land and labor were the primary means of production. Productivity was virtually fixed, meaning the economy was a zero-sum game; someone's win was someone else's loss. Consequently, economic moral reflection was concentrated on consumption and generosity. The role of radically altering productivity, as occurred in the modern era, is not even in view. There was no "economics" in any modern sense of that word, with data analysis and theory being empirically tested. Their understanding was philosophical and pedestrian at best. How do we apply Scripture to modern economic concerns?

Then there are the technical issues. We know markets are a remarkable advance, but they are imperfect. The primary debate in economics is not over whether markets are seen as good. They almost universally are seen as such among economists. The question is over how well they work. Those with more conservative leanings tend to think that markets are very effective and will somewhat spontaneously resolve economic difficulties with minimal interference. Liberal economists are more inclined to see more substantial flaws in the market, needing more intervention from informed experts who can mitigate some of the more serious problems. (Personally, I think conservatives oversell the "invisible hand" notion of the market, but liberals overestimate the ability of experts to intervene in just and effective ways. That leaves me open to experimenting with options to improve market outcomes but deeply skeptical of grand schemes promoted by some liberals to restructure and manage the markets. Epistemological humility is the key. But I digress.)

So I return to the opening paragraph that began this four-part series:

On what basis should people be compensated for their work? Economists say the value of labor is a function of supply and demand. Wages should correspond to the economic value of work. Theologians often object. (Note: We are all theologians, but here I'm referring to those formally educated in theology.) They say it dehumanizes people. People are not faceless cogs in a machine to be differentially valued based on their economic contribution. Everyone is equal in God's eyes. Income and wealth should be shared equitably.

What are we to say?

I think what we must not do is resort to economism or trust in quasi-deities like an "invisible hand" to resolve all economic issues spontaneously. We must also refrain from theologism and quoting Bible passages rooted in the advanced agrarian societal context of the biblical era as prescriptions for economic policy today. The Parable of the Talents does not endorse capitalism any more than sharing things in Acts 2 is an endorsement of communism. Both are anachronistic readings.

I think we have to take seriously the objective reality of how prices and values are set. Having prices accurately reflect supply and demand, leading to an efficient allocation of productive resources, is more than an esoteric concern of economists. An accurate economic feedback loop is important to human flourishing. If we value justice and flourishing, we are not free to forcibly adjust prices to something we arbitrarily deem "fair."

I think we need to be ever cognizant that markets don't always work perfectly, and sometimes there are imbalances in power that may require intervention. Just because the market sets a price for a particular type of labor doesn't necessarily mean that price was justly achieved. We need to root out injustices and compensate when great imbalances emerge.

I think that seeking the common good means finding ways to empower those who cannot earn a living wage to do so or possibly to alter our business models so they create jobs that incorporate capacities that can command a livable income or at least open a path to a livable wage. And certainly, we must make provisions in society for those without the mental or physical capacity to support themselves.

So in concluding this series of four posts, I have aimed to advocate for a strong embrace of both economic understanding and theological reflection. Theologians bemoan theological illiteracy among economists. It is not without merit. They accuse economists of smuggling in values and representing them as science. That happens too. But economic illiteracy among theologians is at least as equally profound. Until the two camps are ready to stop tossing grenades across an intellectual wall at each other and begin engaging with each other to understand what is genuinely being said from both disciplines, the church has no hope of influencing the economy and culture.

(Part 1) (Part 2) (Part 3)

The Value of a Person Versus the Value of Labor (Part 3)

(Part 1) (Part 2) (Part 4) (Index)

Human beings were made in the image of God. Each person has intrinsic value. Our value is unrelated to the economy. But goods, resources transformed from their natural state to a more useful state, have instrumental value. The same is true for the labor used to make them. That was the subject of the first post.

In my second post, I said two factors influence the value of a good:

• The subjective value a community places on that good.
• The objective reality of the availability of that good.

The community places a value on a good through market exchange. The value fluctuates as collective priorities shift. The price mechanism creates a real-time feedback loop about community priorities.

Today, we need to look at the objective aspect of value. The availability of goods or specialized labor to accomplish some task impacts its value. Compare a bottle of water and a diamond. Water is far more important than diamonds. You cannot go more than a few hours without water, but you can live long without seeing a diamond. Yet diamonds are far more expensive. Why? Diamonds are far less plentiful and more difficult to procure than a few ounces of water. The limited demand for highly inaccessible diamonds makes the next diamond consumed expensive, while the universal demand for the next twenty-four ounces of abundant water does not.

I frequently hear conversations lamenting that teachers are paid so little while professional basketball players (CEOs, entertainers, or whoever you might want to insert) earn millions. Note that the underlying presumption is that salary should be correlated with the importance of work. What about the supply of workers who can do the work? Let us do a comparison.

The average annual salary for a schoolteacher is $56,000. Kobe Bryant, the highest-paid player in the National Basketball Association, has an annual salary of $30,000,000. Which of these two professions is more important to the life of our community? Most people say it is a schoolteacher. So if the value of the labor comes from the subjective value of the community, isn’t this compensation horribly out of line with what we say we value? Not necessarily. This is similar to saying twenty-four ounces of water should cost much more than a diamond.

There are 3.7 million schoolteachers in the USA. There are likely millions more people who could do a competent job educating children after receiving appropriate training. But each teacher can only serve a few dozen students a year. Consequently, finding one additional teacher is relatively easy, and adding one additional teacher to 3.7 million teachers has a marginal impact on the overall task of educating children.

In contrast, there are 150 positions for starting players in the NBA. Each player can potentially provide millions of people with a service (i.e., entertainment). Someone who can play exceptionally well can draw in more than the average player. The supply of Kobe Bryants (or his equal) is very scarce, and the contribution of a Kobe Bryant to the overall business is very large.

The divergence in salaries between teachers and basketball players is not because someone is more important and not because someone’s labor meets a more important need. It is driven by the labor supply to meet each type of need. Furthermore, reducing the size of NBA salaries will not lead to an increase in teachers’ salaries. The dynamics of a relatively large supply of potential teachers, with each additional teacher having only a marginal impact on the overall service, still doesn’t change.

In summary, then, the price of goods and labor is set by the collective value of the community as it interacts with the objective supply of these things. The fact that human beings have intrinsic value does not mean their labor has intrinsic value.

Furthermore, and this is key, the market system is the only mechanism we have that directly connects what gets consumed and produced in real time. In the past, the price was set by custom, some notion of intrinsic value, or to suit the appraisal of some official. These methods, as well as communist models that seek to eliminate the market, require some form of conjecture that inevitably leads to chronic oversupplies and shortages. The market system is unique and vastly more efficient in coordinating economic activity between countless participants.

Now it would be very easy to stop here, singing the praises of market exchange. Many do. But there is much more that needs to be said.

Markets are a poor substitute for face-to-face community where people know each other and can coordinate economic decisions incorporating personal knowledge. For instance, suggesting that all family interactions be conducted on a market basis is an inferior form of family decision-making. But once communities grow beyond a few dozen people (more than 100 probably stretches the limit), it is humanly impossible to maintain intimate connections. Markets allow for coordinating behavior between countless strangers.

Markets are a remarkable human achievement, but markets are far from perfect. Ideally, markets have complete transparency, participants have complete mobility, and there is no coercion. These qualities never perfectly exist. There are some circumstances where markets do not work well at all.

Public goods - Weather forecasting … incorporating satellites, radar, countless weather monitoring devices, computer technology, etc. … greatly benefits a whole community. But if one person specializes in this work, everyone benefits for free, and all the cost ends up on the one specialist. The practical way to overcome this is to assess a levy to the whole community to cover the costs.

Market power - Sometimes, there is inordinate market power in the form of monopoly (one seller, many buyers) or monopsony (one buyer, many sellers). Those with market power can distort the price of goods or labor because they know the other party has no alternatives.

Externalities - This is where part of the cost of a transaction fall on someone external to the transaction. When a factory dumps pollutants in a river, it degrades the river’s use for people who live downstream. The people downstream end up bearing part of the cost of a transaction between the factory owner and the factory’s customers, to which people downstream had no say or benefit. Alternatively, when my neighbor hires someone to landscape his yard, he increases the value of my home. His aesthetic improvements spill over to the value of my property. There is likely some measure of positive and negative externalities to almost every transaction. They are incidental in most cases, but they seriously distort valuation in some cases.

Information Asymmetry - Sometimes, one party has better information than the other just by the nature of the product or industry. That can lead to the less informed party making an erroneous valuation relative to what they thought they were getting.

Even with a world of perfectly virtuous people, the market alone would be insufficient for managing our economic processes. But it is equally true that we could have nothing approaching the modern world without robust market exchange. If we all lived in self-contained face-to-face communities of a few dozen people, we might know each other well enough to manage our economic issues without prices or currency. But when we talk about cooperation beyond face-to-face communities, there must be a dynamic information loop, and the market uniquely meets that need. Critics of the market are quick to point out market limitations. Fair enough. But they are not serious about economics or justice unless the critic can offer an alternative method by which a dynamic economy can function.

To summarize, human beings are made in the image of God. As such, we have intrinsic value apart from any economic consideration. Our labor and the goods we produce have instrumental value, and that relative value is set by the community through exchange in the marketplace, incorporating subjective and objective information into a real-time feedback loop. The market is far superior to the alternatives in setting value but far from perfect. That means there is “noise” in the feedback loop. But from the standpoint of Christian ethics, market imperfection isn’t the only source of noise in the market. (continued)

(Part 1) (Part 2) (Part 4)

The Value of a Person Versus the Value of Labor (Part 2)

(Part 1) (Part 3) (Part 4) (Index)

I began this essay by noting that humans have intrinsic value. However, goods (and the labor entailed in making them) do not. Goods and labor have instrumental value. Let us explore this in more detail. Two clarifications before we begin.

First, I want to distinguish between goods and natural resources. Goods are the things we use to meet our particular wants and needs. Resources are the materials, energy, plants, and animals we form into goods. Nearly all goods have an element of human labor contributing to their value. While natural resources are abundant, the quantity of goods is directly connected to humans' productivity, transforming natural resources (and, more recently, data) from less useful forms into more useful forms.

Second, there is a difference between the value of any particular good to a particular individual and the value of a category of goods to the community. The value attributed to a stapler may vary considerably from individual to individual at any given moment, but the market price tells us the collective value the community places on particular goods at a particular time. (More to follow.) For our purposes here, I'm concentrating on the communal value as reflected in a market price.

So what value do goods have? It has long been a confounding question. Some people have said that goods have intrinsic value and can be stated in terms of a market price. Other people have seen more subjective factors at work, believing the more important a good is, the more value it should have. Still, others have observed that the supply of a good is key to understanding its value.

Many thinkers have wrestled over the years with making sense of value's subjective and objective aspects but not to very satisfying conclusions. Since most economies before the seventeenth century were relatively stagnate and trade played a smaller role, life seemed to move along just fine without the precision of thought in this area.

From the late Middle Ages of Europe into the early stages of industrialization, thinkers began to appreciate that the value of goods and labor was not as fixed as previously thought. Economic data began to be collected and scrutinized. Accelerating Change in productivity, coupled with the Enlightenment's push to make rational sense of human affairs, pressed thinkers for a more precise understanding of how value is determined by the eighteenth century. Thinkers, most notably Adam Smith, saw labor as the key issue. One hour of labor by any person was seen as mostly interchangeable with an hour of labor by any other person. An hour of labor was understood to have intrinsic value. Price was not inherent in the thing itself; instead, the price of a good was set by the amount of labor applied to creating it. This was the labor theory of value. (Both Adam Smith and Karl Marx subscribed to this idea.)

However, by the late nineteenth century, a profound reality dawned on thinkers: The communal value of a good is whatever price the buyers and sellers agree to through exchange. This was not a new idea. Thinkers of the past had stumbled upon it. Several Scholastic philosopher-theologians had written about this, dating back to Thomas Aquinas in the 13^th Century, but they seemed to have little influence on economic affairs.

This revolution in understanding meant that goods, and the labor that produced them, have only instrumental value. Instrumentality is a subjective judgment. But these more recent theorists understood that an objective reality also influences a good's value. The intersection of two variables determines the general price of a good:

• The subjective value a community places on that good.
• The objective reality of the availability of that good.

This means that the value is dynamic. It is subject to the changing needs and wants of the community and the quantity of goods available for use. But when we understand the value of things this way, something even more remarkable occurs. Prices (i.e., value stated in terms of a currency) form a continuous feedback loop between buyers and sellers. Why is that important?

On any given day, each individual has a fixed number of hours, a fixed level of technological understanding, and a fixed number of resources available for producing goods. The latter two can be altered over time, but on any given day, they are all fixed. A community's productive capacity (whether a village or the entire planet) is the sum of these individual capacities. Priorities must be set because capacity is limited. Otherwise, we will end up with too much of some things and too little of others. Material resources and labor will be wasted, and needs will go unmet. This is a challenge for any society.

Management of economic activity may not pose a particular challenge in a face-to-face community of a couple of dozen people. If there is community solidarity, each individual is likely known to the others. All individual needs can be known and considered. It will be clear how well each person is working, who is incapacitated, and who is best suited for which jobs. It will be known who needs what and how much.

However, this natural information system breaks down when communities grow much beyond a few dozen people. There is no way to be well acquainted with hundreds of people, much less thousands or millions. Not only is it beyond our capacity to know so many people but each of us has economic priorities that are constantly shifting. Discerning and planning for the community becomes unmanageable. Prices derived through market exchange become the real-time communication channel through which we can coordinate our work with the world beyond our face-to-face communities to meet each other's needs. Distorted prices mean distorted communication.

Imagine we own a factory that makes toy wagons. Two workers make wheels. The workers are equally earnest employees who work the same hours each day. But one worker meticulously crafts perfectly square wheels while the other worker, with equal diligence, makes perfectly round wheels. Are we to say that each hour of labor has intrinsic value and each worker should be compensated the same? No.

The labor of the worker making round wheels is clearly offering something of value that the other worker is not, to us as the employer and ultimately to the consumer. While the square versus wheel example is an extreme case to make a point, the issue is that one hour of labor is clearly not identical to any other hour of labor. Compensating the workers according to the value of their work motivates them toward an activity that the community values and away from activity it does not. The maker of square wheels has the incentive to alter her labor to provide products that bring more value to others, while the maker of the circular wheels has the incentive to get even better at the craft and earn more.

If a genuinely open market exchange happens, then the price of goods and labor will reflect the community's priorities. Attempts to distort the prices up or down will lead to some distortion of what the community has said it values in favor of some individual or group, possibly leading to waste and poorly met needs.

Please note that I began the first sentence of the above paragraph with "if." That is a huge "if." Furthermore, are we saying that the community always values all things correctly? And what about those who simply can't offer labor that earns them enough to sustain life? All good questions, and we will come to them. But we first need to finish the discussion of value. I've opined on the subjective value component. Now we turn to the objective aspect of value. It adds a significant wrinkle to our discussion.

(Continued)

(Part 1) (Part 3) (Part 4)

The Value of a Person Versus the Value of Labor (Part 1)

(Part 2) (Part 3) (Part 4) (Index)

On what basis should people be compensated for their work? Economists say the value of labor is a function of supply and demand. Wages should correspond to the economic value of work. Theologians often object. (Note: We are all theologians, but here I'm referring to those formally educated in theology.) They say it dehumanizes people. People are not faceless cogs in a machine to be differentially valued based on their economic contribution. Everyone is equal in God's eyes. Income and wealth should be shared equitably.

What do you think? How do we sort this out? Is one right and the other wrong? My short answer is that human beings are created in the image of God. We have intrinsic value that transcends any instrumental purpose we might serve. The goods we produce do not have intrinsic value. Value is set by the interaction of a community's subjective desire for a good and the good's objective availability with an hour of labor. God sets the value of people, while the community sets the value of particular types of labor. The value of a person's labor is not an indicator of a person's intrinsic value. And that leads to some important theological and economic challenges. Let us unpack this.

Humans are unique. We have a hybrid existence. On one side, we are like creation and unlike God. We are material beings. We share much in common with other mammals. We have bodies subject to the laws of thermodynamics, just like the rest of the material world.

On the other side, we are like God and unlike creation. We are spiritual beings. We have the ability to love, to see beauty, to reason, to create, and to discern morality and meaning. We are meant for eternal life.

We are a body and spirit fusion. These two realities must be held together. We are not spirits inside of bodies. Ultimately, we believe in "the bodily resurrection," not transformation into spirits. In the language of Genesis 1:27, we are the image of God … eikons … in the created order. Not eikons in the sense of lifeless statues, but rather as God's agents, discerning and acting in ways so integrated with God that God's character and purpose are evidenced through us.

As agents, we have a mission. Genesis 1 and 2 give us the grand stories of creation that highlight that mission, but we often seem to miss the point due to our preoccupation with what these stories might say about origins. I'm persuaded that origin is not the driving subject of these stories. These stories aim to articulate God's sovereignty and our mission.

I think analogy is the best way to understand Genesis 1 and 2. Imagine creating a garden in your backyard. There are two phases. First, we take a plot of ground that is "formless and void" of the vision we have in mind. We remove rocks and weeds. We loosen the soil. We might add some fertilizer. We plant some seeds. Maybe we put a protective border around the garden and a fence to keep animals out. Having done so, we are done with the first phase, and we "rest" from "creating" the garden. But the garden is not done.

In the second phase, the garden must be continually weeded. The fence must be monitored and repaired as needed. Plants must be protected from hard freezes or hail. There will be occasional watering. Some plants may need regular pruning, and others will yield fruit that needs to be harvested periodically. Only when the garden has come to full flourishing can we say the garden is complete.

Genesis 1 and 2 are phase one of God's garden project. When God is finished creating, Genesis says God rested. Phase 1 was done. Now it was time to enjoy bringing it to fullness. In keeping with this narrative, Hebrews 4:1-11 says that God has been living in this seventh day of rest since creation. But this second phase of work is not work God has chosen to do alone.

At the end of the sixth day of creation, God creates eikons of God's self and gives them the mission of exercising dominion over creation. Despite various perversions of "dominion" as a right to do as you please, the idea here is that human beings are God's agents participating with God in realizing God's vision. I will not unpack this all here, but in view is humanity as God's vice-regents over creation and creation as God's temple in which we serve as priests. Human beings are intended for loving communion with God as they and God go about bringing "the garden" to its full potential.

Now I do not understand the early chapters of Genesis to correspond to historical events. They are stories that relate profound truths about God's vision and mission and humanity's role in that vision and mission. In short, God is sovereign over creation, and human beings are God's image-bearing agents in the world, participating with God and each other to realize God's ends. Genesis 3 and onward reveal humanity's sin and failure to embrace this mission. The biblical narrative is the story of God's redemption and reclamation of that vision, even as God continues to "work the garden" and bring us into that work. Revelation records that in the end, "You have made them [redeemed humanity] to be a kingdom and priests to serve our God, and they will reign on the earth." (Rev 5:10) Priests and vice-regents.

Let us return to the question of value. Value is subjective. Nothing has value without someone to do the valuing. This is true in all cases but one. God alone has intrinsic value. No one can set God's value. "There is one God who is father of all, over all, through all and within all." (Eph. 4:6) All value ultimately extends from God.

The biblical narrative tells us that God values creation, but humanity is valued in a way that is apart from the rest of creation. Human beings are God's image bearers, springing forth from the love and communion of the Trinity. Human beings have immeasurable value in God's eyes. Because God values human beings, we have intrinsic value, by extension. God intends that human beings, individually and corporately, should thrive. Consequently, the measure of a shalom-filled community is one where all members thrive together. All human beings are precious in God's eyes. As Christians thinking theologically and economically, a key end must be a community where all have resources and opportunities to thrive. Sharing in material abundance is a component of that vision. But it is not the only component. … 

(Part 2) (Part 3) (Part 4)