Interesting. If value isn’t determined by supply and demand, what is value?
I was distinguishing between the price paid for the product a worker produces and the price paid for the worker’s labour. These are both determined by supply and demand but are independent. A factory with large quantities of high-tech equipment may be one of very few factories in the world capable of producing a product. This product may be in high demand but limited in supply due to the capital intensive nature of its production. The sophisticated machinery may only require low skilled labour however and the factory may be located in an area where such labour is amply supplied. In such a situation the price of labour (wages) will be low but the price of the product will be high. Think iPads manufactured in China.
Alternatively, in the case of FAI research, demand may be low due to lack of interest or awareness and also perhaps because it is not a very scalable problem (would Eliezer prefer an army of 10,000 random grad students or 10 geniuses?) At the same time supply may be high since a relatively larger number of people think it would be an interesting or important research project. This may lead to lower wages for an FAI researcher than a store clerk if the economics of store clerks push their wages up even if the FAI researchers ultimately produce great value.
It is also true of course that price (exchange value) and value are not the same thing. If they were we would have no trade. Value is subjective. Trade occurs when both parties ascribe higher utility to the post-trade state of the world than to the pre-trade state of the world. When money is the medium of exchange the price reflects that one person values the money more than the item traded and the other values the item more than the money.
Enlightening, thank you. Do you think that inability to obviously and intuitively make such economic distinctions is likely to hurt my rationality? (That is, would it be better to read a computer programming textbook or a microeconomics textbook if I wanted to be a master rationalist?)
It’s a little difficult for me to give a good answer to this. I feel I reached the point of diminishing returns some time ago with computer programming textbooks (I’m a professional programmer) and have only relatively recently taught myself some economics. Both are valuable to a rationalist but I’m not sure which has higher value. I think learning some basic economics may have more instrumental value than learning programming if you’re not going to make a living as a programmer however.
I was distinguishing between the price paid for the product a worker produces and the price paid for the worker’s labour. These are both determined by supply and demand but are independent. A factory with large quantities of high-tech equipment may be one of very few factories in the world capable of producing a product. This product may be in high demand but limited in supply due to the capital intensive nature of its production. The sophisticated machinery may only require low skilled labour however and the factory may be located in an area where such labour is amply supplied. In such a situation the price of labour (wages) will be low but the price of the product will be high. Think iPads manufactured in China.
Alternatively, in the case of FAI research, demand may be low due to lack of interest or awareness and also perhaps because it is not a very scalable problem (would Eliezer prefer an army of 10,000 random grad students or 10 geniuses?) At the same time supply may be high since a relatively larger number of people think it would be an interesting or important research project. This may lead to lower wages for an FAI researcher than a store clerk if the economics of store clerks push their wages up even if the FAI researchers ultimately produce great value.
It is also true of course that price (exchange value) and value are not the same thing. If they were we would have no trade. Value is subjective. Trade occurs when both parties ascribe higher utility to the post-trade state of the world than to the pre-trade state of the world. When money is the medium of exchange the price reflects that one person values the money more than the item traded and the other values the item more than the money.
Enlightening, thank you. Do you think that inability to obviously and intuitively make such economic distinctions is likely to hurt my rationality? (That is, would it be better to read a computer programming textbook or a microeconomics textbook if I wanted to be a master rationalist?)
It’s a little difficult for me to give a good answer to this. I feel I reached the point of diminishing returns some time ago with computer programming textbooks (I’m a professional programmer) and have only relatively recently taught myself some economics. Both are valuable to a rationalist but I’m not sure which has higher value. I think learning some basic economics may have more instrumental value than learning programming if you’re not going to make a living as a programmer however.