Economics and Non-Pecuniary Values

by Don Boudreaux on April 6, 2011

in Dinner Table Economics, Economics, Seen and Unseen, Work

Here’s a letter to the Baltimore Sun:

Describing University of Maryland economists’ efforts to devise a sensible system for use by the state government to buy back dormant commercial crabbing licenses, you write “Economists acknowledge that while money matters to watermen, there are some factors, such as the desire to work on the water, that their models can’t capture” (“A new theory of ‘crabonomics’,” April 6).

Yes and no.  Even the best economic models fail to capture many (one hopes economically insignificant) aspects of reality.  But the most foundational of all economic models – supply and demand – in fact does capture many non-monetary human sentiments, such as “the desire to work on the water,” that non-economists wrongly assume are missed by economics.

The non-monetary pleasure that watermen enjoy from working on the water makes the supply of waterman higher because, at any given wage, more people are willing to work at pleasant jobs than at unpleasant ones.  So, as a result, the model of supply and demand predicts that watermen’s monetary pay is lower than it would be if working on the water were less pleasant.  Part of watermen’s pay comes in the form of the non-monetary pleasures they derive from their jobs.

In reality the economy is certainly not all about money, and economics – when done properly – captures this reality.

Sincerely,
Donald J. Boudreaux

P.S. Should the watermen’s non-pecuniary pleasures be added to their pecuniary incomes when calculating their taxable incomes?  What about when calculating figures on income ‘distribution’?

Show me a good economist and I’ll show you someone who never supposes that money, money prices, and monetary wealth are all that matter – in fact, someone who understands that, at the end of the day, money is never (save in the psychopathic cases of misers) what ultimately matters to anyone.

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{ 26 comments }

steve April 6, 2011 at 4:18 pm

Agreed. The converse is also true. You need to pay more for undesirable jobs. Kind of like the combat pay you need to pay city school teachers vs the lower pay private teachers are willing to accept in the nice, safe, ivy covered schools where they work.

Steve

Slappy McPhee April 6, 2011 at 4:32 pm

I have been waiting for a post like this — thanks

*question though, during the “buy american” debate, the psychological aspects seemed to be dismissed as irrelevent, why the “change” of heart, or am I making an assumption?

Don Boudreaux April 6, 2011 at 5:00 pm

No change of heart. If people wish to buy American for whatever non-pecuniary joy they derive in doing so, that’s fine. But it remains fair game to point out that these people are mistaken IF they believe that they help the American economy more by buying American than they do by buying not-American.

Slappy McPhee April 6, 2011 at 5:17 pm

In the crab fisherman example, does the economy suffer because of the intangible benefit of working on the water? Or does the economy benefit from the lowered price and the worker benefit from the psychological tradeoff? Would the economy be better off if the crab fisherman worked in a job that compensated him in actual trade for the intangibles?

Economiser April 6, 2011 at 11:01 pm

Why are you focusing on “the economy” in the aggregate? The aggregate is nothing more than the sum of the personal decisions of millions of people. Perhaps more stuff would be produced if the fisherman took a more dreary job. Perhaps more stuff would be produced if the fisherman were required to labor 18 hours a day with no days off in a stuff-making factory. Neither of these possibilities are relevant to the personal decisions of the fisherman and how he chooses to spend his time.

Slappy McPhee April 7, 2011 at 10:47 am

Ok — maybe I am asking the wrong question. Is it a poor economic decision for the fisherman to accept compensation in the form of “enjoy being on the water”? Why isn’t this an opportunity cost?

lamp3 April 7, 2011 at 11:01 am

@Slappy
A fisherman’s choice to live with the water, his love, will be a poor economic decision if there is, in the fisherman’s point of view, a better choice he could have made. That is, if he had to give up a choice whose value to himself was even greater — whether it is more wealth, peace of mind, future consumption, or whatever else — in pursuing his love of water.

If his total compensation for working hard to fish for crabs was peace of mind, I would expect it to be a poor economic decision. If he can do so and get what he needs to live the way he wants, then it isn’t. The opportunity cost of his being on the water would be the next best thing, in his view, that he could’ve done.

Daniel Kuehn April 6, 2011 at 5:24 pm

This answer always seems to be different depending on whether the position is solicited or unsolicited.

kyle8 April 6, 2011 at 5:12 pm

Money matters a whole lot, but only insofar as what it represents. Security, need, hope for the future, prestige, ease of life. etc.

Daniel Kuehn April 6, 2011 at 5:25 pm

Very good letter.

Dallas Weaver April 6, 2011 at 7:45 pm

As fish and crabs are part of the “commons” and have the usual problems with over exploitation, the government should auction off the harvest of the commons at MSY (maximum sustainable yield) and forget about quotas and rights for the existing crabbers and their government permits. If crabbers and fishermen want the enjoyment of being on the water, they would factor that into how much they would bid at the auction.

Such auctions of the fisheries would separate the real fishermen with a real love for the water from the rent seekers. With modern communications, it could be easy to obtain a take permit for what you caught before you get to the dock. If you catch a ton of crabs, you need to buy a tons worth of permits on-line.

If you are talking about unused existing licenses, most are being held not for a “love of the water” but for the love of the money they will get when bought out or converted to a ITQ (individual transferable quota — a rent seeking permit). If the love the water is real rather than PR, they can go sports fishing like the rest of us.

Observer_Guy1 April 6, 2011 at 9:37 pm

@DW
What if instead, the government (presumably) allowed the “commons” to be sold to private citizens. Entrepreneurs would then determine the MSY, not government. The fisheries would be cared for just like land, and the private sector would replace the bureaucrats as decision makers for what’s best for the fisheries.

Richard Stands April 6, 2011 at 11:30 pm

Idle, Cleese, and Palin (the other one) on money.

Don Boudreaux April 6, 2011 at 11:58 pm

I deeply, truly, oh-so-heartily love Monty Python! Thanks.

geckonomist April 7, 2011 at 4:42 am
Eduardo April 7, 2011 at 6:42 am

Excellent!!

kc April 7, 2011 at 1:20 am

Deckhands here in crabland make up to $4000 a day. Seems like price might be a bit low.

kc April 7, 2011 at 1:22 am

Guess who buys these crabs — China.

Troy Camplin April 7, 2011 at 1:51 am

My favorite way to shock people: telling them “Economics has nothing to do with money.” When the shock wears off, I then tell them that economics deals with values, of which money is but one measure.

Nick Heath April 7, 2011 at 6:28 am

I’ve only just seen this post, it seems we agree!

Nick Heath April 7, 2011 at 6:28 am

I think that’s one thing that many anti-fre-marketeers fail to understand: economics is not about money, it’s about value. Money is simply a way of comparing the relative value of apples and pears.

Eduardo April 7, 2011 at 6:46 am

I give you here the explanation from Bernard Lietaer, a Money specialist:
What is money?
“Most people tend to regard money as “a thing” because that is usually the way it appears to us (as paper, coins, checks, credit cards etc). And yet, stranded on a desert island, we would quickly discover that while our knife remains useful as a knife, whatever cash or checks we carried would now be totally useless. It would remain paper, but it would no longer be “money.” For any “thing” to act as money, it requires a community to agree that a particular object has a certain value in an exchange.”
more here : http://www.lietaer.com/2010/09/what-is-money/

Sam Grove April 7, 2011 at 12:15 pm

Money is accounting.

vikingvista April 7, 2011 at 12:57 pm

Does that mean accounting is the root of all evil?

Economiser April 7, 2011 at 1:33 pm

“So you think that money is the root of all evil?” said Francisco d’Anconia. “Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?”

(sorry, couldn’t resist)

vikingvista April 9, 2011 at 3:38 pm

Great quote.

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