Prices are Like Words
By Bart Wilson
People who are troubled by markets tend to treat prices as the problem in a market. Whether the price of labor or agricultural commodities is too low, or the price of housing or healthcare or payday loans is too high, prices are the problem in need of a solution. Prices, however, are not the problem. If there is a problem, prices are literally a symbol of it.
If low wages indicate that a person has a bad life, low wages do not indicate it because the dollar number per hour is low. What indicates that a life is bad is that low wages are not good enough to have a good life. The trouble with low wages is not that they are too low to have a good life. It is that a life of low wages is bad. “Not good enough to have a good life” is not equivalent to “too low to have a good life.” “Too low” treats the wage as a sign that directly points to something known. “Good enough” treats the wage as a symbol that makes multiple indirect connections to the unknown. Prices are more like symbolic words than simple indicating traffic lights.
through ideas conveyed in a sentence. When a speaker uses the word “cow,” he has a lifetime of experience to draw upon. He may have owned cows, delivered calves, and read Hoard’s Dairyman. But the speaker cannot expect the receiver of the word to bring to his mind what is in the speaker’s mind concerning the word “cow.” The speaker must provide a context to the receiver to bring to his mind what the speaker wishes to excite in the receiver’s mind. This is done by the abstruse linkages of the word “cow” to the other words in the sentence and to the entire language. The word “cow” is not a sign because “cow” does not point directly to a known object
Now consider a wage of $7.25/hour. It is connected to both employees who receive it from employers and the concept of a wage. The concept of a wage is associated with the events and experiences with wages. As part of the market system for the product of work, the wage of $7.25/hour indirectly refers to an employee and employer through the circumstances that lead to an exchange. Indirectly? Indirectly, because the employer depends upon the customers who buy the product of the work. Indirectly, because the employee is contingently doing so based upon her alternatives. There are a myriad of unknowable linkages of a $7.25/hour wage to the larger market for labor, to all the other nearby wages and prices of time and place. The entire web of circumstances matters. The wage is not a sign because $7.25/hour does not point directly to a particular employee and employer.
How does the wage of $7.25/hour not point directly to a particular employee and employer? Does the employee not receive it and the employer not pay it? Yes, but that’s not pointing in the sense of a sign that the wage is too low. Consider the prices from an experiment with my class.
The red triangles are offers to work and blue triangles bids to hire. Where they meet is a voluntary transaction. The first transaction is at $4.00 and the last at a paltry 25¢, the minimum increment. The final offer to work is 25¢ and no employer accepts it. All we know as outside observers about the circumstances of this market is that the going rate of 25¢ exhausts the market. If we were to say that the low wage indicates the wage is not high enough for the workers to have a good life–it ought be higher, we distract ourselves from the real problem:
There are twelve people willing to work for as little as nothing and only eight jobs. (The red step function is the supply of labor and the blue step function the demand for labor.) The last wage of 25¢ and the last offer of 25¢ are symbols of the problem.
If prices are like words, then good policy is listening to what the words say is the real problem, using the context of the entire sentence and language. Bad policy is reacting to one symbol. Forcing the meaning of a word to mean what you want it to mean, though it doesn’t quite mean that, doesn’t work. Ask my students who insert words from the thesaurus into their papers to sound more scholarly. A word like “pyretic” sounds good by itself and feels good to use, but it doesn’t fit in any sentence we can imagine. The general use of language determines each word’s fit, so leave the word alone and work on the meaning of the sentence.
Likewise, leave the price alone. Forcing a price by law to mean what you want it to mean fits even more poorly within the entire web of exchange. It invisibly prevents some people from improving their personal circumstances, their lives, with a voluntary exchange. Raising the minimum wage or capping rents sounds good and feels like we’re doing good, but the mandated prices don’t fit just because we can imagine they fit. Prices are to good economics as words are to good literature.