Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Counterfactual Theory of Value

perell.com

Post reply on HN
Print view View original

31–40 of 59 posts

Re: Counterfactual Theory of Value

#31

Post by CryptoPunk »

roenxi wrote: post #5

> In startups, why do the founders receive such a disproportionate percentage of equity? There is a really straightforward answer to this - equity isn't distributed according to a theory of value and nobody ever claimed it was. I own some equity in the Australian company CSL. It is unfair to claim I've ever added any value whatsoever to the company at any point, so obviously I don't get that equity because of a value…

>>It is unfair to claim I've ever added any value whatsoever to the company at any point, so obviously I don't get that equity because of a value theory.

You don't receive any profit, realized or otherwise, unless the company appreciates in value, and if the company appreciates, that means you provided capital to what was an undervalued company, or a company that could produce a positive return on the investment of that capital.

Either way, your investment would likely have a net positive economic effect, and so the profit you received would be earned.

Re: Counterfactual Theory of Value

#32

Post by MaybeItsMia »

Tesla would exist without Elon Musk. Elon Musk literally simply just bought the company, along with the right to call himself the "founder". Sure without Elon Musk Tesla might be more accurately valued, IE valued significantly less, but it's unclear how much social value is actually created by his showmanship. There's a difference between exchange value and use value.

Re: Counterfactual Theory of Value

#33

Post by thaumasiotes »

HPsquared wrote: post #28
thaumasiotes wrote: post #25

Earlier quoted context omitted.

> The problem I have with this is that it presupposes that you can change 1 thing and view the difference. You should have other problems with it. Value that would be lost in the absence of a thing is unrelated to the value gained by its presence, because you have more choices than "pay for the thing" or "do without". The theory of value espoused in this post would tell you that you should pay more for the oxygen you…

You'd be willing to pay more for the oxygen than the computer (its value is very high) but the price is low (it's free). Usually when you buy something, the value (to you) is greater than the price, which is greater than the cost (to the seller).

I am no more willing to pay for the oxygen I breathe than you are. It's not just free, it's also worthless. Paying for it would only make sense in a context like scuba diving, where I'd be in an environment in which finding my own oxygen was difficult.

Re: Counterfactual Theory of Value

#34

Post by cassepipe »

Isn't the first paragraph of this article what every introduction to the labor theory of value says it is not?

This is the "mud pie" argument. You may disagree with the theory but please check what it is first .

Re: Counterfactual Theory of Value

#35

Post by VictorPath »

There might be some phenomenon he is pointing out here, but his logic in doing so makes no sense. Even his internal logic makes no sense.

He starts out by talking about the value of a product (commodity) determined by the labor theory of value. Then he jumps to how much someone is compensated in salary. Then he jumps to a company's value and the ease at which someone at the helm can raise capital.

In terms of comparing two systems of value, this is jumping all over the place. How value is added to a specific nascent commodity going through an assembly line is a different thing than the ability of one person versus another to raise capital and how that affects a company market cap and is different than what they should be compensated.

People like Eugen von Boehm-Bawerk wrote well-reasoned arguments against the labor theory of value, which might be right or wrong, but at least they have a clear line of reasoning. This piece talks about value but jumps all over the place. There might be an interesting phenomenon being pointed to, but there is no well reasoned argument.

Re: Counterfactual Theory of Value

#36

Post by sokoloff »

lifeisstillgood wrote: post #26
runeks wrote: post #15

Earlier quoted context omitted.

> Since then, pricing using a replication portfolio in this way has been a cornerstone of financial maths - the price of a thing and a perfect hedge/replacement for the thing must be the same. And the reason for this is arbitrage. If you can perfectly hedge your position in Asset A using Asset B (and vice versa), then you can make a profit by simultaneously buying the lower-priced asset while selling the higher-price…

Is the implication here that if we had a Black/Scholes/Merton method for salaries we would see a readjustment of salaries across the board as people could identify their value as wins above replacement - probably a huge shock to CEOs. Is it possible that automation provides that arbitrage opportunity?

The gap between the perfect fungibility of two contracts for asset A or B and the hopelessly imperfect fungibility of two employees is too wide for this to hold. (I think.)

Re: Counterfactual Theory of Value

#37

Post by dredmorbius »

roenxi wrote: post #5

> In startups, why do the founders receive such a disproportionate percentage of equity? There is a really straightforward answer to this - equity isn't distributed according to a theory of value and nobody ever claimed it was. I own some equity in the Australian company CSL. It is unfair to claim I've ever added any value whatsoever to the company at any point, so obviously I don't get that equity because of a value…

Adam Smith's commentary on wages and the considerations in their assignment is interesting.

In Book 1, Chapter X, "Of wages and profit in the different employments of labor and stock", "Inequalities Arising from the Nature of the Employments Themselves":

The five following are the principal circumstances which, so far as I have been able to observe, make up for a small pecuniary gain in some employments, and counter-balance a great one in others: first, the agreeableness or disagreeableness of the employments themselves; secondly, the easiness and cheapness, or the difficulty and expense of learning them; thirdly, the constancy or inconstancy of employment in them; fourthly, the small or great trust which must be reposed in those who exercise them; and fifthly, the probability or improbability of success in them.

It's an interesting set of factors, one that many economists and markets-advocates seem wholly unaware.

It does not reflect other arguments, notably marginalist analysis, or power dynamics as mentioned elsewhere in this thread. Still, it's worth some consideration, and explicitly references the roles of both risk and training.

https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/...

Re: Counterfactual Theory of Value

#38

Post by HPsquared »

thaumasiotes wrote: post #33
HPsquared wrote: post #28

Earlier quoted context omitted.

You'd be willing to pay more for the oxygen than the computer (its value is very high) but the price is low (it's free). Usually when you buy something, the value (to you) is greater than the price, which is greater than the cost (to the seller).

I am no more willing to pay for the oxygen I breathe than you are. It's not just free, it's also worthless. Paying for it would only make sense in a context like scuba diving, where I'd be in an environment in which finding my own oxygen was difficult.

The cost is very low (it's everywhere), which drags down the price to zero. People do value oxygen a lot though, it's essential to survival. If someone was to take away all the oxygen,we would see how much people value it: they would go to great lengths to obtain some. This is not usually put to the test, of course.

Edit: this question was raised by Adam Smith, known as the diamond-water paradox, or paradox of value:

https://en.m.wikipedia.org/wiki/Paradox_of_value

Re: Counterfactual Theory of Value

#39

Post by prometheus76 »

VictorPath wrote: post #35

There might be some phenomenon he is pointing out here, but his logic in doing so makes no sense. Even his internal logic makes no sense. He starts out by talking about the value of a product (commodity) determined by the labor theory of value. Then he jumps to how much someone is compensated in salary. Then he jumps to a company's value and the ease at which someone at the helm can raise capital. In terms of compari…

Here's my argument against the labor theory of value: if you spend one hour making mud pies, and I spend one hour making sandwiches, then our products have equal value according to the labor theory of value.

Re: Counterfactual Theory of Value

#40

Post by MichaelBurge »

MaybeItsMia wrote: post #32

Tesla would exist without Elon Musk. Elon Musk literally simply just bought the company, along with the right to call himself the "founder". Sure without Elon Musk Tesla might be more accurately valued, IE valued significantly less, but it's unclear how much social value is actually created by his showmanship. There's a difference between exchange value and use value.

Exchange value is use value for the company, because it can make stock deals to obtain things for the same nominal(dollar) amount while giving up much less equity.

Similarly, if the stock is undervalued, it becomes more costly to raise capital in public markets. So hiring a CEO with poor market perception limits a company's options, even if they're internally very effective.

Post reply on HN