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July 29, 2011


Tim Worstall

"Conversely, there’s one area where very many rightists - including lots of libertarians - do believe in objective value.
I refer to the stock market. It is still common to speak of the “value”"

Not me: the value of a share is what you can get for it. Which isn't subjective in itself: although what people will offer you for it most certainly is.


I would think the last paragraph is the obvious answer.

Of course there can't be an objective measure of value when there is no objective model of future price movements.

Is this seriously a subject of debate?

Luis Enrique

I don't understand. If you arrive at a money value for an asset, isn't the subjective bit how you value money? Separately, it may or may not make sense to talk of objective money values for assets as distinct from what somebody is currently willing to pay for it.


Value works best in relative terms, and this has more applicability wrt financial assets than most because they are more often more reliably comparable (being claims on future cashflows) .

So we can come to an estimate for how one bond should price relative to another. But as to absolute value? No chance. Discount rates represent a relation between money now and money later, which is surely subjective. And then there's the question of the uncertainty in all the variables.

On my phone, so sorry for incomprehensiblity/garbledness


Hhmmm... interesting stuff.
I think Buffett would argue that something like DCF calculations provide the true value of an asset - but require assumptions regarding the future cash flows, etc., - and the true value may never be realised anyway.
Whereas the "free-market value" of, say, my weekly groceries could potentially be worked out in a similar way but the inputs are just too complicated to work out.
Isn't this the point though - the free-market price system does all the heavy lifting for us and works the price out for us.
When Buffett or some other value investor says that some asset is undervalued they're really sayibg that they believe the growth rate will be higher than the average market participant believes - end of.
The rubber meets the road with things like housing - do you value it like a financial asset, or by some sort of subjective means.
Anyway, what I really want to know more about is alternative methods of "arranging our economic affairs" (CD Quote!). Such as worker ownership or customer ownership - like Bayern Munich say, or maybe Railway lines.
Anyone know of any good value (i.e. free) sources for this stuff (not 6th former rants)


Rightish economic views that do conform to the Guardian's stereotype are the efficient market theory and much of what gets called law and economics by, for example, Posner and Bainbridge.

Isn't marginalism not a theory of value but a theory of what you can deduce about other peoples theories of value from market prices?

Mr. Worstall comes across a bit like John Gummer talking to Chris Morris -- the Guardian is drawing a conclusion about the behaviour of consumers that he appears to agree with and getting called stupid for its troubles. Imagine the fury if it had disagreed with him. Not that the article is really about economics

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