As of yesterday afternoon, a nonstop round-trip flight from New York City to Los Angeles on Independence Day weekend cost $484. That the price is so low is an incredible story in itself, one that is more important than most of what our children are taught in their history classes and one that we should not fail to appreciate, but it is a subject for another day. Consider, though, that that $484 is a messy number; it isn’t an even $500 or rounded to $480 or $485. Messy numbers are a sign of real calculation, and they are the opposite of political numbers: the first 100 days in office, the five-year plan, the $15 minimum wage.
That $484 is easily expressed in non-U.S. dollar contexts: €445.08, £ 314.56, ¥ 5,9573.87, 2.0349 Bitcoin. (Damn!) On the commodities market, that’s 745.54 pounds of cotton or 338.5 pounds of coffee. It is 0.00000268888 of a Les Femmes d’Alger, the Pablo Picasso painting that recently set a new auction record at Christie’s.
There is no reason, in theory, that one could not buy a Picasso masterpiece and pay for it in coffee, or in coffee futures, or in barrels of West Texas Intermediate crude. But most sellers, and most buyers, prefer currency — a restaurant in Austin has a sign proclaiming that it “proudly does not accept the American Express Card, Visa, MasterCard, checks, chickens, or pesos.” Dollars do not have any inherent value; as my favorite presidential candidate, the mighty Cthulhu (“Why Vote for a Lesser Evil?”) put it, dollars are merely “pieces of green paper backed solely by religious dogma.” (Cthulhu’s fiscal policy? “He permits his devotees to collect as much paper in as many colors as they happen to like.”) Dollars have value because of the things for which we can trade them: Picasso paintings (or, ideally, paintings by some superior artist), coffee, cotton, cheeseburgers, sofa beds . . . checks, chickens, or pesos. This is an aspect of what in economics is known as Say’s Law, which holds that goods are paid for in goods — i.e., that we manufacture widgets or grow tomatoes or write novels because we wish to consume shoes and poached salmon and Buicks. The dollar or the euro is just a way to avoid the difficulties of trading a truckload of chickens (or a convoy of them) for Les Femmes d’Alger.
Money is a medium of exchange, and prices are a form of communication. What do prices communicate? How much we value certain things relative to other things.
Money is a medium of exchange, and prices are a form of communication. What do prices communicate? How much we value certain things relative to other things. This is really helpful: Everything in the economy is in reality priced in terms of other things — everything is relative to everything else — and price tags would look like the Library of Congress if we had to list the price of an airline ticket in wheat, coffee, gold, Bitcoins, signed Andy Warhol prints, Hermès scarves, etc. The underlying hierarchy of relative preferences does not change if you go from U.S. dollars to Swiss francs; you can play with the means of exchange all you like, but you’ll never arrive at a place at which people value a No. 2 pencil (the miraculous No. 2 pencil!) as much as they do a Rolls Royce automobile.
Right now, we are embroiled in a deeply, deeply stupid debate over whether to raise the statutory minimum wage to $15 an hour. (I write “statutory minimum wage” because the real minimum wage is always and everywhere $0.00 an hour, as any unemployed person can confirm for you.) Because everything in the economy is in reality priced relative to everything else, using the machinery of government to monkey around with the number of little green pieces of paper that attaches to an hour’s labor manning the register at 7-Eleven or taking orders at Burger King is, necessarily, an exercise in futility. The underlying hierarchy of values — the relative weighting between six months’ work washing dishes and six months’ tuition at the University of Texas — is not going to change. Prices in markets are not arbitrary — they are reflections of how real people actually value certain goods and services in the real world. Arbitrarily changing the dollar numbers attached to those preferences does not change the underlying reality any more than trimming Cleveland off a map of the United States actually makes Cleveland disappear.
Real people simply want things that are different from what the planners want them to want, a predicament that can be solved only through violence and the threat of violence.
Dollars are just a method of keeping count, and mandating higher wages for work that has not changed at all is, in the long run, like measuring yourself in centimeters instead of inches in order to make yourself taller, or tracking your weight in kilograms instead of pounds as a means of losing weight. The gentlemen in Washington seem to genuinely believe that if they measure their penises in picas they’ll all be Jonah Falcon — in reality, their interns won’t notice any difference.
Bernie Sanders, the Brooklyn socialist who represents Vermont in the Senate, generated a great deal of mirth on Tuesday when he wondered aloud how it is that a society with 23 kinds of deodorant and 18 kinds of sneakers has hungry children. Setting aside the fact that we must have hundreds of kinds of deodorant and thousands of choices of sneakers, Senator Sanders here communicates a double falsehood: The first falsehood is that the proliferation of choices in consumer goods is correlated with poverty, among children or anybody else, which is flatly at odds with practically all modern human experience. The reality is precisely the opposite: Poverty is worst where consumers have the fewest choices, e.g., in North Korea, the old Soviet Union, the socialist paradise that is modern Venezuela, etc. The second falsehood is that choice in consumer goods represents the loss of resources that might have gone to some other end — that if we had only one kind of sneaker, then there would be more food available for hungry children.
Lest you suspect that I am distorting the senator’s words, here they are:
You can’t just continue growth for the sake of growth in a world in which we are struggling with climate change and all kinds of environmental problems. All right? You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country. I don’t think the media appreciates the kind of stress that ordinary Americans are working on.
This is a very old and thoroughly discredited idea, one that dates back to Karl Marx and to the anti-capitalists who preceded him. It is a facet of the belief that free markets are irrational, and that if reason could be imposed on markets — which is to say, if reason could be imposed on free human beings — then enlightened planners could ensure that resources are directed toward their best use. This line of thinking historically has led to concentration camps, gulags, firing squads, purges, and the like, for a few reasons: The first is that free markets are not irrational; they are a reflection of what people actually value at a particular time relative to the other things that they might also value. Real people simply want things that are different from what the planners want them to want, a predicament that can be solved only through violence and the threat of violence. That is the first reason that this sort of planning leads to gulags. The second is that there are no enlightened planners; men such as Senator Sanders imagine themselves to be candidates for enlightened leadership, but put a whip in his hand and the gentleman from Vermont will turn out to be another thug in the long line of thugs who have cleaved to his faith. The third reason that this sort of planning always works out poorly is that nobody knows what the best use of resources actually is; all that the would-be masters know is that they do not approve of the current deployment of resources.
Markets adapt to political changes, and the hierarchy of values that distinguishes between an hour’s worth of warehouse management, an hour’s worth of composing poetry, an hour’s worth of brain surgery, and an hour’s worth of singing pop songs is not going to change because a politician says so, or because a group of politicians says so, or because 50 percent + 1 of the voters say so, or for any other reason. To think otherwise is the equivalent of flat-earth cosmology. In the long term, people’s needs and desires are what they are; in the short term, you can cause a great deal of chaos in the economy and you can give employers additional reasons to automate rote work. But you cannot make a fry-guy’s labor as valuable as a patent lawyer’s by simply passing a law.
This is not a matter of opinion — that is how the world actually works. One of the many corrosive effects of having a political apparatus and a political class dominated by lawyers is that the lawyerly conflation of opinion with reality becomes a ruling principle. Lawyers and high-school debaters (the groups are not alien to one another) operate in a world in which opinion is reality: If you convince the jury or the debate judges that your argument is superior, or if you can get them to believe that your position is the correct one, then you win, and the question of who wins is the most important one if you are, e.g., on trial for murder. But if you shot that guy you shot that guy, regardless of what the jury says — facts are facts. Galileo et al. were right (or closer to right) about the organization of the solar system than were Fra Hieronimus de Casalimaiori and the Aristotelians, and the fact that Galileo lost at trial didn’t change that.
Senator Sanders may insist on living in the dark ages, and his view is not without its partisans. But those views are crude, they are backward, and they are, objectively speaking, incorrect about the way the economic world works. They are barely a step above superstition, and they merit consideration for only one reason: “Voters — all they gotta be is eighteen.”