November 29th, 2009


virtues and values in market exchanges

All appropriations and transfers of conventionally valued goods or services, be they consensual or coerced, are essentially self-regarding as regards their cost, but essentially other-regarding as regards their value. For consumable goods, the relevant distinction between their consumption and socially warranted dominium arises from Deuteronomy 23:24-25, as explained by John Kilcullen. To the extent that sex is valued conventionally rather than intrinsically, all varieties of sexual intercourse are likewise essentially other-regarding. In particular, while no one is qualified to speak for all sadomasochists, the following passage from a review by Charles Rosen is very much to the point:
When I was writing a review of Alban Berg’s correspondence, I remarked to an elderly and very distinguished psychoanalyst that I was surprised by how many of Schoenberg’s students seemed to enjoy being so badly treated and humiliated by him. She replied, “I have no time to explain this just now, but I can assure you that there are a great many masochists and not nearly enough sadists to go around.”
What is valued in all kinds of sex, as in all other kinds of conversation, is not the mere brunt of its experience, but also its mutuality.

Market exchanges of all sorts of goods or services are essentially other-regarding, not in regard of obtaining them at the lowest possible cost, but in regard of establishing and maintaining their value. In so far as an analogous situation obtains in communication, this is a matter of conventional values in the conventional Lewisian game-theoretic construal of convention as coordination. Notwithstanding any misgivings concerning the expense of spirit in a waste of shame, market exchanges are expected to leave each party with the impression that what they received in the exchange is worth more than what they gave up. In the normal course of events, a notional impression of increase in value would serve as well as, or even better than, an actual increase therein. Thus Max Weber’s criticism of Benjamin Franklin in The Protestant Ethic and the Spirit of Capitalism, that the appearance of honesty serves the same purpose as honesty itself, and hence an unnecessary surplus of this virtue would appear to Franklin’s eyes as unproductive waste. Weber concludes that Franklin purveys a strict utilitarianism, whereby the mere appearance of honesty (der Schein der Ehrlichkeit) is always sufficient when it accomplishes the end in view. But in the long run, such appearances can only be sustained by tacit collusion of both parties. The butcher who places his finger on the scale enters in a relation of mutual dependency with the carnivore who averts his eyes from this petty subterfuge. Likewise the wife who shores up her sex appeal with face paint and foundation garments, colluding with the husband who bears mute witness to her daily embellishments.

Consider sexual politics. In the context of a long-term romantic relationship, reciprocal constructive ambiguity manifests in the woman wondering whether the man is just using her for sex, while he wonders how long he can keep her guessing. The maintenance of this equilibrium depends on a delicate balance between competition and coordination, negotiated among the parties. This is where David Lewis’ analysis of convention may pay off. Lewisian conventions exemplify two main conditions:
  1. Convention is a strict Nash equilibrium with no gain realizable from unilateral deviation by any party thereto, and a loss realized by any deviating party, with an additional coordination proviso that all parties prefer universal compliance in the convention, on condition that at least all but one comply to it.
  2. Convention is arbitrary in having an alternative that could serve equally well in its place.
Consider the case of corporate employment, where the corporation is tasked with creating the appearance of improvement in the lot of its employees over the scenario of their free agency. As explained by Ronald Coase, this improvement is due to amortizing the transaction costs of their initial association. The appearance of extra value accruing to the employees in this association, depends on coordination among its parties in representing real or imaginary long-term benefits of sticking together. Correlatively, the appearance of extra value accruing to the employer from the employees is a matter of coordinating their appearance of hard work sustained through brown-nosing and back-biting, and relieved by the meremost minimum of discreet sexual harassment and persiflage around the water cooler. And so on.

A Microsoft employee takes several years to vest into his stock options. In exchange, he gives up the opportunity of higher wages in the free market. (That may no longer be the case in the current economy, but let us set that aside.) The value of this long-term benefit depends on the interim growth in the Microsoft stock price. This dependence yields a motive for all Microsoft employees to prefer universal loyalty to their employees amongst their colleagues, on which see the pep talks by Steve Ballmer, with their disparate reception among the faithful and the unaffiliated. At the same time, when and if Google gets big enough to buy Microsoft, with all outstanding stock warrants subject to universal conversion, all current Microsoft employees would prefer a universal shift in loyalty to their new employer amongst their colleagues. In short, their loyalty is stable in being motivated by a prospective gain dependent on universal compliance, but arbitrary in lacking an essential connection to the fortunes of the brand.

An analogous situation appears to arise with any construal of value motivating economic exchanges putatively benefiting both parties. Indeed, it is hard to conceive of an alternative to construing it as a matter of coordination in the foregoing fashion, given that the labor theory and other unfashionable imputations of inherent value are unlikely to yield the preponderance of the “win-win” scenario. As for the aspect of virtue playing its part in market exchanges, its role appears to be taken by Frankfurtian bullshit serving as the counterpart of the mere appearance of honesty claimed by Weber to be necessary and sufficient therefor.