Time is the most valuable commodity. We never seem to have enough of it. Everyone is time-strapped, time-poor, time-starved. Choose your cliché.
Most of us don’t make the most of our time. We wish we did. A self-help industry has flourished on the hope that even if we can’t make more time–the 24 hours in a day remain immutable–we can at least make the most of what we have. Yet even the most ardent makers of “to-do” lists fritter time away.
Which raises this question to fill an idle moment: Why don’t we value time as we do any other good or service? We could then decide what we do with ours in the most cost-effective way: rationally maximizing our “return on time invested” (ROTI), if you will.
First, we’d need to be able to price time. Any hackneyed consultant can repeat Benjamin Franklin’s advice to a young tradesman that time is money, and then tell you to divide your annual income by 8,760 to get a per-hour value (make the denominator 8,784 this leap year). More sophisticated versions adjust for taxes and cost of living.
But mostly, that just reveals a depressingly low number: An hour of labor from the average U.S. chief executive, based on Bureau of Labor statistics, is worth only $16.
An economist might approach the problem from the starting point of a paradox that baffled Adam Smith in the 18th century: We cannot exist without water, but can get by without diamonds–and yet we value diamonds so much more highly than water.
Later economists, notably Menger in Austria and Jevons in the U.K., found an explanation in the notion that value is not inherent but subjective. In other words, prices are determined by the ability of a product to satisfy a human want, not what it costs to produce. To be technical, the actual value of a product depends on how useful its least important use is, its so-called marginal utility.
A product that exists in abundance, like water, will readily be used in unimportant ways. As it becomes scarcer, the least important uses are abandoned, and greater utility, and thus value (and prices), will be derived from the new least-important use.
The marginal utility theory of value is the foundation of most pricing in free markets. The classic textbook example of this is the marginal utility of corn to a farmer who has harvested five sacks of it.
The farmer needs the first sack just to survive until the next harvest. The second sack will ensure he eats well. The third sack he would use to feed poultry to provide variety in his diet. The fourth sack he would use to make whiskey. The fifth sack he would use to feed pet birds.
In these circumstances, the value of the fifth sack of corn is low to the farmer (although not to the birds). If he lost it, he wouldn’t pay much to replace it, if at all. He would just stop the use that provides him with the least value–feeding his pet birds.
As the farmer loses each successive sack of corn, the value rises. By the time he has only a single sack of corn, its value–and its price–is extremely high. Losing it may mean that he starves to death.
Applying the theory of marginal utility to time would lead most of us to value it cheaply. Our least important use of time is to do nothing. In short, time is more like water than like diamonds.
Yet in another sense, time is more like diamonds than water. While it seems infinite, it is actually scarce. Each individual has a finite allocation–without ever knowing what that allocation will turn out to be. As William S. Burroughs said: “No one owns life, but anyone who can pick up a frying pan owns death.”
Time is a curious good economically in other ways, too. It is highly perishable. Were it a bank account, time would pay no interest, close itself out each night, carry over no balances, and allow no overdrafts. What does that mean for the value of time?
It is also tradable in particular ways. We can reallocate time, but we can’t increase our supply. I can shop for food rather than grow it myself (or order in dinner rather than cook), using the time I save to undertake higher-value activities that will let me pay for my outsourcing.
At least then I am making some attempt to determine the value of my time by reckoning its utility on an opportunity-cost basis. Franklin had a view on that, too: “He that can earn Ten Shillings a Day by his Labour, and goes abroad, or sits idle one half of that Day, tho’ he spends but Sixpence during his Diversion or Idleness, ought not to reckon That the only Expence; he has really spent or rather thrown away Five Shillings besides.”
A modern behavioral economist would take issue with Franklin, or at least argue that the subject of Franklin’s admonition was making a rational choice, albeit not one that fits the neoclassical economist’s view of utility-maximizing economic man.
The Homo sapien isn’t just homo oeconomicus. Human beings make apparently irrational decisions because they value “diversions and idleness”–activities lacking market prices. Time spent in cultural pursuits, playing games, chatting with a spouse is time well and wisely spent, even if it is difficult to put a price on it.
Or, as T. S. Eliot put it, “Time you enjoyed wasting is not wasted time.”
Source: Forbes Magazine