Tuesday 18 February 2014

Subjective luxury

This essay was published in Luxury Briefing in February 2014


Value and subjectivism
by Alexander Gallé
February 2014

The idea of "enchantment-augmented" products certainly seems to have hit home with a few readers, judging by the unusual number of positive reactions to my last article.

Despite this, the value of the emotional connection as a core aspect of luxury brands seems to have not been captured in its full depth.  As a result, it is being thought of as just the icing on the cake, the core of the luxury industry being some kind of more intrinsic quality of the products.

There are two ways to approach this argument.  The first is to look at the exponential trend in technology, which I've been doing here at Luxury Briefing for a few years now.  The other is to look at the importance of subjectivity, and of subjective experience in other areas of our lives.

The first approach is, in my view, uncontestable.  I was born in the early 70s, when computers the size of your house only had a fraction of the computing power of your iPhone.  You only have to follow the evolution curve to understand that, in about 20 years, computers the size of your white blood cells are going to be 1,000 times more powerful than your iPhone.  The connectivity between them will be so complex that new levels of artificial intelligence will emerge out of their systems to create things that are as magic to you and me as today's iPhones would be to Isaac Newton.  What was a luxury item to the world's wealthiest man in 1913 is today available to billions of people around the planet.  What is a luxury item to the world's wealthiest man today will be available to billions of people around the planet in 2033.

The second approach takes a little more thinking about what it is that makes us happy, and what it is that makes us act, and interact.  Which provides me a happier and more memorable experience?  The plane journey that takes me to Lima an hour faster, or the plane journey that offers free broadband Wi-Fi access, great food, great wine, great coffee, polite stewardesses and courteous airport security?  Look at the online feedback and be blown away, as all customer comments are about subjective experiences: my seat was scruffy, my stewardess rude, my food tasted bland, my seat had no TV screen, we had no internet access and couldn't find out why our plane was delayed, etc.  The Stoics had it right: it's all about the effect experience has on our emotions.  Happily, there are a million things one could do in this field at a fraction of the cost of a faster plane.  For suppliers, therefore, luxury turns out to be the cheaper option.

The subjectivist approach goes much deeper, and there is, in my view, nobody who went deeper in our understanding of human interaction than the economist Ludwig von Mises did in his book "Human Action".  For Mises, all trade is based on subjective value.  In human affairs, there is no value other than subjective value.  The reason I trade my tie for your shirt is not that there is an equivalence between these two products, as classical economists would argue, it's that there is subjective improvement on both sides of the equation. Your shirt is more valuable to me, my tie is more valuable to you.  The money I earned working for you is more valuable to me than the time I lost, the product of my labour is more valuable to you than the money you paid me. 

All this aggregate value derived from millions of human interactions forms a matrix - a mesh as it were - of information that is, in its aggregate, objective.  For example, it'll tell you the market price of anything as defined by its comparison of value with everything else.  But the matrix's fabric, the stuff it is made of, is subjectivity.  Greater value is subjective value, and the greater price of luxury products reflects this.  Luxury is subjective.