Economics: What is Value?
I study economics in university, philosophy is just part of my free time. But the first economists were all philosophers, like Hume and Adam Smith; I think you guys are able to understand my point in bringing this economic discussion to the forum; nevertheless, value is a very important subject, not just in economics, but so in philosophy.
What is value? Is it ontologically independent of mind, or not?
To give you guys some of history of this discussion:
Smith was the first one to really study the economy; he wrote The Wealth of Naitons in 1876, in the end of the mercantilism. Mercantilism ideas said that the most gold and others precious metals you have: richer you are. Hume contested it with his Quantitative Theory of Money, saying that the more metal and money there's in market, more elevated is the prices; the inflation in Spain caused by the great quantity of gold found in South America, in XVI century is as well an argument. Differently, Smith said that the Wealth of Nations does not derive from the quantity of gold you have, but from work. In his book, he comes up with the idea that the work is which gives value to a certain good.
David Ricardo developed his ideas.
And Karl Marx did it so, but to criticize the liberals (classical liberals, which would be like libertarians, since liberal nowadays is used to referee to left-people) like Smith and Ricardo, grounding by that his surplus-value theory.
Notwithstanding, after Marx, the marginalists: Javons, Walras and Carl Menger theorized that the value of a certain good is not proportional to the quantity of work done on it, because the value is subjective. It means that, though a diamond is very expensive and it is supposed as a good whose value is high, if you are in a desert and someone ask you if you would prefer a diamond of a glass of water, you would choose the latter if you do not want to die of thirsty. The value, then, is not in the good, but it is the result of a subject and object processes.
So, in economic thought, the value discussion ends here; I would say, not because the discussion is really ended: no, there's too much to discuss; but economics became less philosophical with Keynesianism and modern theories. Actually, a fun fact, economics was called Political Economy; the econometricians and positivists economists were who changed the name to Economics, to make it more scientific.
:D
Thanks
What is value? Is it ontologically independent of mind, or not?
To give you guys some of history of this discussion:
Smith was the first one to really study the economy; he wrote The Wealth of Naitons in 1876, in the end of the mercantilism. Mercantilism ideas said that the most gold and others precious metals you have: richer you are. Hume contested it with his Quantitative Theory of Money, saying that the more metal and money there's in market, more elevated is the prices; the inflation in Spain caused by the great quantity of gold found in South America, in XVI century is as well an argument. Differently, Smith said that the Wealth of Nations does not derive from the quantity of gold you have, but from work. In his book, he comes up with the idea that the work is which gives value to a certain good.
David Ricardo developed his ideas.
And Karl Marx did it so, but to criticize the liberals (classical liberals, which would be like libertarians, since liberal nowadays is used to referee to left-people) like Smith and Ricardo, grounding by that his surplus-value theory.
Notwithstanding, after Marx, the marginalists: Javons, Walras and Carl Menger theorized that the value of a certain good is not proportional to the quantity of work done on it, because the value is subjective. It means that, though a diamond is very expensive and it is supposed as a good whose value is high, if you are in a desert and someone ask you if you would prefer a diamond of a glass of water, you would choose the latter if you do not want to die of thirsty. The value, then, is not in the good, but it is the result of a subject and object processes.
So, in economic thought, the value discussion ends here; I would say, not because the discussion is really ended: no, there's too much to discuss; but economics became less philosophical with Keynesianism and modern theories. Actually, a fun fact, economics was called Political Economy; the econometricians and positivists economists were who changed the name to Economics, to make it more scientific.
:D
Thanks
Comments (119)
Value and its quantification is dictated by the scarcity of the commodity or service with respect to demand.
My condolences to you, filipeffv. Good luck with your de facto math studies. At least the math you have to learn might be useful in real life.
Quoting filipeffv
With value I would add also the term "utility" to this philosophical debate as value and utility have a lot in common whereas "price" is a totally different thing related to the market mechanism. Value and utility aren't exactly synonyms, but they come close. So you could also ask, what is "utility"?
Referring to the objectives of economics, I think that the 19th century economists were far more honest about their field of work when they referred to the historical term "Political Economy". Today modern Economist try to remove this obvious link to politics and ideology by focusing on mathematical models and the obstinate aspiration or desire to make economics "scientific" as umm...physics. At least the economic models and the rhetoric are close to that for the ordinary person trying to read an article in an economics journal.
And if economists forget the political part of economics, they will surely forget the philosophical part of economics.
Actually, I kind of like maths, and philosophy of math... hahahaha
Quoting ssu
That's is really sad... Notwithstanding social sciences evolved to a academic assumption concern to its epistemological nature, it is weird to think people want to reduce human action and social interaction to predictable rules...
Quoting ssu
So, what is it?
Also a good or service that fulfills a need is more valuable than a useless one. Food given to starving people is significantly more valuable than food given to the already rich. It gains it's value by the virtue (moral virtue) it serves.
So both labor and goods are not equal but derive their value from the beautiful, the good and the virtous. Monatary value is a crude estimatation of the value of these goods and services. True value is how well an object or service embodies the absolute Good.
Social sciences are inherently something else.
Quoting filipeffv
I guess you wouldn't be happy with a dictionary definition, but they are handy. In economics I remember it was Daniel Bernoulli that made use of the term (utility) and applied it to be the satisfaction received from consuming a good or service. That satisfaction is measurable by choices that people make (just like the marginal utility of a cup of water goes down... once you have had enough water not to be thirsty, the next cup likely won't be so enjoyable anymore as the first cup).
Value, on the other hand, is well, lets take first some definitions from the usual places first:
(Wikipedia)
(Investopedia)
(Merriam Webster)
Especially the Investopedia definition is philosophically quite interesting. But it's obvious that it is a slippery slope just what that benefit, merit or satisfaction behind it all is.
My simplistic answer is that it depends on the question at hand and sometimes one actually does have to think if the value of something is constant through time or if the underlying value of a good or service changes. If the value does change, then the price doesn't obviously tell the whole story.
I see a lot of people using the term value differently in this discussion. Maybe we should, like Marx, distinguish between value and exchange value and use value.
"The value of any commodity, therefore, to the person who possess it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labor which it enables him to purchase or command".(SMITH, 2003, The Wealth of Nations, p. 43)
"The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it". (SMITH, 2003, The Wealth of Nations, p. 43)
And et cetera.
Smith said it. Ricardo, who is kind of his successor, developed it better. Marx took the Ricardo labor-value theory, and developed it even more and used to his critic. It is not originally from Marxists, but today only marxists support this theory, because in this theory is grounded the exploitation of capitalism
But "utility" is not a good definition. I could value useless things...
Quoting filipeffv
Are you saying that economists disagree with Marx on an ideological ground? I.e. they don't want to suggest (for ideological reasons) that capitalism is exploitative in its very essence so they do not support the labour theory of value?
Regarding the island example you gave. The kind of value you depict was aptly termed 'use value' by Marx (and perhaps others). In terms of economic value there is Value, Exchange Value, and Use Value. Value is "objective" and is average social labour, Exchange Value is kind of "objective" too and also includes supply and demand, and Use Value is more "subjective". Marx details how these different aspects each influence one another dialectically... Very interesting....
Why not? What's so bad about it?
Don't we all value things that others don't give such value?
Preferences after all differ from people to people. Just like utility isn't just hedonic satisfaction, as one might first think it to be. A rich man giving money to a charity can be satisfying to him in many ways. Just as monk can get satisfaction from abstaining from consumption and materialism and devoting his life to God.
And what should be noted that economics tries first to give an accurate model of the World. Only then can you go on towards normative policy advice, what is good or bad.
Not sure I understand how you'd do that. If something is useless, then it is not useful, it lacks utility.
While I don't think utility is the entire answer, it is an important concept for normative values. Norms suggest which values one ought to strive for, so yes you can value useless things, but they would not have normative value.
Also the concept of utility when plied with an efficient market theory enables quantification of the market, (and a lot of equations) which is an idealization of the market that assumes that all investors had equal information in a free market.
And god forbid that anybody should call capitalism "exploitative" when every school boy knows that capitalism is merely the maximization of opportunity... per certain august philosophers here.
Quoting filipeffv
I prefer this term. What a few billion individuals choose to do in relationship to the market place can hardly be anything but political.
Do you think the individual always acts to maximize benefit? Maybe a few people do, but most people trade off very short term pleasures for long term benefits--I confess as much myself. That individuals know how to maximize benefit a hundred times a day seems to be a doubtful proposition at best.
It would appear that tycoons and Federal Reserve bankers are just slightly better than the man-on-the-street at predicting the future. Crashes are rarely foreseen until they smash into the headlines.
I think:
Quoting filipeffv
Quoting filipeffv
Quoting ssu
Quoting Posty McPostface
Quoting ssu
Quoting MysticMonist
Are all bullshit. These are vague and empty nonsense so long as it cannot be quantified scientifically.
Value is equivalent to production & means of distribution. So if machines produce, they are valuable. If workers produce, they too are valuable, etc.
Quoting Bitter Crank
Which ones? >:)
Value is whatever can be quantified scientifically in monetary terms.
Marketing and Sales services are the easiest to think about. Their value is whatever sales they generate. But most work can be converted into an economic value. The work a CEO does can be converted in economic value - reductions of cost, contracts acquired, etc. The worth of a website can be analysed scientifically in terms of the revenues it can generate for a client.
This means that some things are not valuable. Poetry, art, etc. Of course, they matter to us and are important, but they're not valuable in an economic sense - they're not productive.
You can look at the posts linked below (and the respective threads and discussions) for more details. The above was a very sketchy and cursory summary with many holes in it, but I've described this in more rigorous detail many times in the forum. After you read through these remarks, I look forward to your questions.
Quoting Agustino
Quoting Agustino
That's nonsense. It only works for one individual case. Put two or more such cases together. All three now are producing websites faster than individuals, right. Now one of them uses some of that profit to reduce its prices. The others have no choice but to follow suit. Now the amount of money the individual could earn goes down (no one is going to pay him more than the going rate) so his "fair wage" under your valuation scheme goes down too. Now the product is even cheaper, the CEO can take more of a cut (because he's paying his workers less). But a small amount of that cut he sacrifices to lowering prices. The cycle starts again. It basically continues until the workers strike (which is how things happen in the real world) at which point a limit is put on the company's ability to continue doing this.
That's not even to mention the effect of monopolies, the interaction of service industries (which don't own the means of production) with manufacturing industries (which do), the application of capital to force markets, the effect of futures trading on investments...
I'm afraid it's not as tidy as your capitalist fantasy might like it to be.
Agustino,
If you reject moral or "spirtual" beauty as a grounds for value than all religious items and services are worthless and not only are not worth spending resources but not even worthy of respect. Why can't I use conscreated wine at a strip club or wipe my backside with clerical robes? Because they have special value.
This might not seem like it relates to economics but it does. I can think of two ways, one is in simple use of funds. Why donate to churches or charities if they have no economic value? If they have no value we should revoke all tax exemptions.
Second, due to opportunity cost and limited resources of time and energy, we need to spend our time and effort only on things of value. So if good and truth have no value then none of us should be on this forum, except if it's only because they like to argue. Oh wait... That is this forum.
Yes, that's why they're all going to go bankrupt, because they're idiots. This is a textbook example of economics which actually doesn't reflect reality at all, and I've seen many small business owners make precisely this mistake. I actually don't understand why this idiocy was ever taught in textbooks (and actually continues to be taught), it has cost me many thousands of hours lost, not to mention money.
You should run away from competition on price (and price wars) as if you were running away from the devil. This is absolutely possible for most businesses and industries - there are some exceptions, though I have personally never encountered them so far. I imagine highly commodified goods, like sugar, where all brands have pretty much the same product, though even there I imagine you could do something creative or imaginative in terms of marketing. Also industries like farming - I imagine all corn is the same, etc. - but even there, you can have non-GMO corn without additives and chemicals, 100% pure natural corn like you remember from your grandmother kind of thing ;)
Now let me explain what would actually happen if one of them slashes prices, by, say 30%. That will be a reduction in his profit margin by 30% (scenario 1) unless he also starts reducing costs (scenario 2), and paying people less.
In scenario 1, I have a 30%+ profit margin over him. That means for every $1 he spends in client acquisition, I can spend $1.3, and that's without being willing to cut into my own profit margin more than he does. Who do you think will acquire more clients? The one who spends more in acquiring them, quite obviously. And 1 client for me is worth more than 1 client for him since I have higher prices.
In scenario 2, taking an extreme that he slashes prices and passed all the expenses unto his workers in the form of 30% lower wages, then first of all, his business will (1) have a higher employee turnover than mine (hence higher costs with labour) and (2) his best workers will come to me, who am paying them 30% higher - meaning the quality of his services will reduce. So now he has somewhat higher costs than me (say 5%, but likely much more), his people don't like working for him, and his services are of lower quality. I will keep my prices high, and if anything change my marketing strategy and increase my customer acquisition costs (and use better strategies). The asymmetry will still be there - 1 customer gained for me is worth 30% more than 1 customer gained for him. So for every customer I get, he needs to get 1.3 customers, with a lower profit margin than myself. Of course, worst comes to worst, I can also reduce wages (though not as much as my competitor), but prices would definitely remain the same. But really, when you have a high-profit margin, you really don't care about relatively tiny costs so that people love working for you and hate working for your competitor - you can afford this luxury.
So yeah, this price slashing doesn't work well as a form of competition in most industries. You get hurt, your (smart) competitors don't. The real place where the competition is, is over quality and over distribution (which includes sales and marketing). Distribution is especially important - that's why everyone is seeking to get a strangle over distribution channels, then they literarily own that industry. Supermarkets can be like this. You don't like their terms, your product doesn't get sold by them.
Quoting Inter Alia
They're not necessarily bad or invincible for that matter. They just require a different strategy to combat - and usually that strategy is not competing with them, until you grow to a sufficient size.
Quoting Inter Alia
What difference does it make?
Quoting Inter Alia
:s - what's that got to do with value?
Quoting Inter Alia
Oh too bad, I'm not a capitalist.
The difference with Marx is that he looks at value from his own theory, the labour theory of value. The idea is that the value of a good or service is defined by the work put into it. Notice the value isn't defined by the person willing to buy the good or service and the whole thing an interaction between supply and demand. Hence there's the fundamental difference between Marxism and mainstream economics.
It's noteworthy that Adam Smith has a similar view as he said in Wealth of Nations "Labour, therefore, is the real measure of the exchangeable value of all commodities". Marx went forward from this and built is own economic theory. The problem with the Marxist idea of value is that it's fixated on the cost (or labour) of something and isn't interested in the demand side of the equation. Hence if there's a profit from selling a good or service, it basically has to be then that the owner steals from the workers labour, not that consumers suddenly fall in love with the good or service and are willing to pay a higher price for it.
Hence mainstream economics which focuses on supply and demand has a different take on things.
Anyway, In my view Marxist economics is an attempt to academically theorize income and wealth distribution and otherwise isn't the best model of the economy out there.
Not necessarily - workers who pray more, meditate more, are more spiritual, etc. may be more productive. Why do you think Google, Facebook, etc. are investing so much in mindfulness retreats, etc.? So the worth of these services could be measured in economic terms.
Quoting MysticMonist
Right, but their special value is not economic value - there's a big difference there.
Quoting MysticMonist
You know why? Because they are important spiritually, not economically. So I give money to the church without seeking an economic return from it, because the Church is spiritually valuable to me. But it's not a business - it doesn't provide economic value, for the most part.
Quoting MysticMonist
This is true, but in order for people like you to have the time to spend on things of value (spirituality, art, etc.) there must be businessmen who make sure you get all your needs taken care of. That's why I like the Renessaince model - rich families sponsored artists and basically ensured that all their needs were met so they could do what they loved and what was so extremely valuable. I think it's the businessman who makes the poet & philosopher possible, and not the other way around. Philosophy is hard to do properly, and it's best done when all your worldly needs are already taken care of. So quite the contrary, we must invest those limited resources in economic production, so that we can sustain our poets, our musicians, our artists, etc.
And how is that above scientific?
And your definition btw. ignores the value of things produced and basically anything else than production tools.
I think both systems are stupid. Defining value merely in terms of work makes no sense, since machines can also do useful work, and obviously, in Marxist terms, you ought not pay them a wage for it. Also some may do work faster than others.
Defining value in terms of the willingness of people to spend is also stupid. That's why we say that the market overvalues or undervalues things - because we have a real value in mind. You say Bitcoin is a bubble. Why? Because you have some idea of the price it ought to have in mind. That real value obviously cannot be calculated by the willingness of people to spend - people can be idiots.
So that real value is calculated by knowing the financial return that people get out of that respective good / service.
If you read my longer posts you will see that this is not the case. A website isn't a production tool. Its value can be calculated. Marketing and sales services aren't production tools - their value can be scientifically calculated. And so on so forth.
Same idea with stocks - why do you bother to do a DCF analysis if all that matters is the price people are willing to pay for it?! Clearly, when you do that, you're trying to determine what it's REALLY worth, regardless of what people are willing (right now) to pay for it.
If you actually look at the praxis of setting prices and deciding if things are worth it or not, you will see that it's actually quite a scientific process of value quantification. It's nothing vague like "uhhh what people are willing to pay for it" or textbook economics nonsense.
Well,
Hopefully we agree that price depends both on demand and supply and is the amount when the seller and buyer agree to make the transaction.
As value is different from price, I would say that when defining value, both sides of the coin should be take into consideration.
Quoting Agustino
Oh actually they are. Just look at how economically important they are. If your neck of the woods would have great art museums with World renown art, famous Theaters and a Disney World, I would suspect that the masses of tourists visiting your place would be extremely important economically for the local economy. After all, tourists are only tolerated because they bring money to the local economy.
Yes, I've been to talk by the mindfulness coach for Google. You know what Buddhists think of corporate mindfulness? Its a massive threat to real meditative practice. Bikhu Bodhi the famous Buddhist translator is leading a movement for more socially active Buddhism. Mindfulness can be improperly used as sedative to make people more complacent to the unjust status quo and to detach and thus enable continued corrupt social structures. I'm not an activist, politics is a cheif example of a corrupt structure. But I do think spirtual practice exists to liberate us from the world not be more productive in it.
The problem with rich patronizing the arts is then only the art that doesn't challenge the rich becomes funded. You see this is in church today, pastors cater to getting people in the pews and to give pledges. They are obsessed about attracting young families and encourage growth. They forget the role of the church is not to pad it's membership rolls and it's budget but witness to the Word of God even if it's only to a parish of ten old people.
Plotinus says in the first ennead
"So, we may justly say, a Soul becomes ugly- by something foisted upon it, by sinking itself into the alien, by a fall, a descent into body, into Matter. The dishonour of the Soul is in its ceasing to be clean and apart. Gold is degraded when it is mixed with earthy particles; if these be worked out, the gold is left and is beautiful, isolated from all that is foreign, gold with gold alone. And so the Soul; let it be but cleared of the desires that come by its too intimate converse with the body, emancipated from all the passions, purged of all that embodiment has thrust upon it, withdrawn, a solitary, to itself again- in that moment the ugliness that came only from the alien is stripped away."
Our souls loose their purity and become ugly by association with worldly pursuits. As Jesus says you can't serve two masters.
Okay, obviously in some cases, their value can be economically quantified. My main point was that in many cases this cannot be done. If I start writing poetry, those poems have no economic value, and may never have any economic value (or they may indeed have it - depends how well they do). My point isn't that these distinctions are clear-cut. Just that in some cases, it's very easy to quantify value, and in other cases not so easy. Very easy case are marketing and sales services - whatever extra revenue they generate, that is their value.
Quoting ssu
Supply and demand are empty abstractions to me. When I've helped a client modify his prices, or when I set my own prices for my services, I don't consider supply and demand at all :s . I never need to.
Can you quantify supply and demand? I've seen some people draw some charts based on some usually extrapolated data, but the whole procedure seems so unscientific, it's like empty guesswork for me. When I've tried to actually apply that theory in reality, I found that it has nothing to do with reality. I don't actually use supply and demand when deciding on prices.
Quoting ssu
Why?
I am aware of that, and I agree. The way mindfulness is taught to employees is different to the way it's learned and practiced by the likes of Steve Jobs, Zuckerberg, etc.
Quoting MysticMonist
Yes! Excellent point.
Quoting MysticMonist
And what do we do once liberated?
I think being more productive in the world is good. But this more productive is different for each person. The way Zuckerberg, or Steve Jobs, etc. use mindfulness is that they're using it to better understand their aims, what they really want to do, and how to get there - it allows them to live more active lives. Whereas the way this is taught to employees, it makes them more passive - such that they just keep working, instead of re-assessing if this kind of work is what they really want to be doing with their lives, etc.
Actually your example is a great one for the thread.
Yes, you might think your poetry has no economic value, but if you write a poem let's say to your mother, for her it can have a lot of value. If some stranger would ask her to sell the poem, usually mothers wouldn't agree to sell it. Now if you go and try to sell your poems, then you obviously get a price to the poem (assuming you can sell one). A friend of yours might buy your poem just because, well, your friends. Yet even then the value of that poem might likely be higher even for him or her than the price paid as the poem is a reminder of you (and the crazy things you do, like write poems and try to sell them to your friends). Hence on many occasions the price the a good or service changes hand does show the value of the good or service, but in some occasions it doesn't.
Quoting Agustino
Well, you'll see the price mechanism work on the demand side if you tommorrow multiply the price of your services by 100. I presume you won't find any customers.
And on the supply side? Well, there's only so many hours in a day that you can work.
Quoting Agustino
Ok.
Easy example: any individual stock in the stock market. There you will see the prices and the quantities that market participants are willing to buy and sell a stock. Aggregate of all those buy offers are the demand of the stock and the all those sell offers are the supply at the present moment.
I agree, that's why I also mention that not all things have ECONOMIC value. But I thought we're meant to discuss economic value in this thread, not other kinds of value (and I admit they do exist).
Quoting ssu
How do I go out to sell my poem? To sell it, I must figure out a way to get clients - a distribution channel. So will I print my poem? Put it in a nice letter? Make a website where it can be accessed provided the customer pays a fee? That must be decided - all these things can be value-adds, changing the price. Then I actually must decide a price for it. How can I sell it if I don't pick a price? So how will I go about picking this first price? You can't be selling something without a price - customer will ask you what it's worth.
The fact here is that picking a price doesn't mean I'll be able to sell the poem. Selling is a skill - and it includes knowing what price to set, and also what's the best way to get customers. So really, this doesn't function at all like the economics textbook pretends it does. That's why I think this supply-demand system is outdated with regards to how most business is happening.
Quoting ssu
No, that doesn't work. I set my prices based on the value that I create for my customers. I refer you to this previous post of mine:
So to raise my price 100 times, I must produce 100 times as much value for that customer. If I can do that, I'm 100% sure I will be able to sell at x100 the price - why would anyone refuse? Figuring out how to do that though, isn't very easy.
So to raise my price I either start looking for big clients and narrow down my advertising budget to those, or I increase the value I add for existing customers.
As I already said, I don't set my prices based on supply and demand. I set them based on the mechanism I've described above. I think supply and demand only makes sense for commodities.
Quoting ssu
So what exactly am I supposed to do? Read the volume of all asks at $90, $95, etc. and then all the bids at $85, $80, etc. and draw two curves through them?
Okay fine. Suppose I do that. How's that helpful? I still don't know whether that stock is worth whatever price it's trading at - so how do I know if I'm supposed to buy it or short sell it, etc.? And knowing the shape of the supply and demand curve won't tell me if those curves are what they ought to be in the first place (if the stock isn't overvalued or undervalued).
So to cut the chase, my question to you is how do I determine the value of an asset? The REAL value, not the market value.
And supply and demand also ignores the fact that there isn't one point of equilibrium, but MANY. In fact, the more efficient your business is, the more market segmentation you use. Meaning you charge those 60 people willing to pay $100, $100 and you charge the remaining 30 people willing to pay $120, $120.
That's how things actually work. That's why companies have multiple different offers, at different price points. You're supposed to grab as much area under the demand curve as possible. So in football, some people are willing to pay $100,000 to watch a match of football. So I have a special place for them to watch, where they get massage, champagne and whatever other services. Others are only willing to pay $10 - so they have the regular seats. Etc.
I think the real question of this thread is how is REAL economic value determined (that will show us what it is too - just like the process of genesis of a triangle will show us what a triangle is). I've proposed a mechanism that I think is scientific and fully applicable to the market.
The Marxist theory and the supply-demand theory are lacking.
Marxist theory ascribes value based solely on the work that went into production. So if I do the same work making a website for an oil tank producer and a website for the local coffee shop - and spend the same time on both, according to Marx, their value is equal since the same amount of work went in both. But in practice, we see that this isn't the case - people don't behave according to this assumption.
While supply-demand takes real value to be identical to market value (and we know that this isn't the case, because it is frequent that the market overvalues or undervalues assets). And yet supply-demand and market economics presuppose this real value, because the equilibrium market value is expected to approach this real value in the long run.
Actually, Smith talked about this problem in Wealth of Nations...
That's cause you don't comprehend what "subjective" really means, besides its common-sense definition. Insofar as subjective properties are concerned, a subjective property is such that no proper conception of how a thing X possesses it can be supplied except in terms of how, under appropriate conditions, such a thing affects a sentient being, a subject. In this way, there is no reason to think that opinions, for example, are subjective, unless in the case of being led by an enormous confusion with the common sense, i.e., to equate "personal" with "subjective". Having clarified this, nothing that is subjective can turn out to be objective. And then, to claim something subjective of common defense to be intersubjectivity is to confuse two different senses of subjective. Only what an object produces in a subject (qualia, for example) can be subjective. Never intersubjective (unless we share our consciousness), so that the intersubjective concerns what exists because of the complex relationships between various subjects. It is also necessary to say, perhaps, notwithstanding that it is not the relations of common defense, to base a subjective idea, which is to make this same idea intersubjective, to be, in fact, a similar idea and not of exact same or common defense: however, it is quite simple to understand why this is wrong. Differentiating the common sense from the abstract sense used in epistemology and theory of perception, a subjective property can only exist in relation to a subject and *only* in relation to a subject. There is no such thing as making intersubjective because perceptual content is not shared among people (no one has the power to enter into the mind of the person and to perceive what his phenomenal consciousness presents). Intersubjective properties are not phenomenologically qualitative. And, moreover, we do not talk much in terms of intersubjective properties but in terms of practical properties and intersubjective knowledge. It is quite illogical to think that subjective property x will become intersubjective if, and only if, all members (or most members) of the human species come to perceive such property X. This is phenomenologically false not only because of the impossibility of sharing phenomena of the inner (absurd) sense, but also because it is already a truism that most subjective properties are universal among humans (since we share the same cognitive-perceptive architecture). It's not the case. Speaking of subjective properties in the sense that it is used in the theory of perception and epistemology, no subjective property can become objective or intersubjective. Indeed, what common sense calls "subjective" is in fact the opposite of "completely divorced from purely personal conceptions and tied to some putatively scientific parameter of adequacy" ... But opinions are, by nature, intersubjective because they can be shared. Opinion is nothing more than a proposition whose truth-value is not strictly determined by the speaker (for lack of evidence with some minimum rigor, for example). Therefore, value is not a mere opinion about a certain good.
And I can't really follow what point you're trying to make. I never mentioned subjective in the text that you quoted so I'm not sure what you're trying to suggest. Perhaps you could clarify.
Contemplate virtue and beauty of course!
But you are right we also need to actually practice virtue not just contemplate it. That's why even monastics still focus on work of some kind and almost all religions put emphasis on compassionate action.
What I object to is the modern assumption that meditation and prayer are not "doing" anything. Not that you necessarily believe this but there is a definite rejection of monastic and ascetic practices today. Protestantism is partially to blame.
But if you believe that God is real and is good then prayer is of very high value. If reality has a spirtual component, then meditation has the ability to transform it. It's simmilar to your discussion on transubstantiation. We see only the outer appearance and discard the inner, true reality. Prayers don't generate profits, but profits are worthless to our soul. In which kingdom should you invest?
I agree with you, but I don't think there exists this discrepancy between the material side and the spiritual side. I think, along with the likes of Socrates, that ironically, the one who "wins" spiritually also wins materially if that's his aim - but the converse isn't true - the one who wins materially isn't necessarily able to also win spiritually.
Like take me for example. If I neglect the spiritual side, then I am depressed and unmotivated, and so I can't be very productive. It's true that prayer, reading Scripture, meditation, contemplation, etc. don't bring me more business. But without doing those things, I don't have the motivation and mental strength required to do the things which do bring me more business. Humans aren't robots, and without taking care of the spiritual side, you fall apart it seems to me.
Fair enough, I'm glad that balance works for you. I also try to balance work and family and prayer and philosophy. Becoming a monk or getting a PHD aren't good ideas for me. We are meant to make a difference where we can.
I'm taking back up the role of resident Platonist here so my posts are going to be less about what I personally think (since I'm not sure). Rather, I'll try to respond as Plato or neoplatonists would as a self teaching tool. It's rather fun. So feel free to correct me on my Platonism.
Your Platonism might require you to change your identity, from "Mystic Monist" to "Mystic Dualist".
*Note that in the Nichomachean Ethics, Aristotle tells us that if there is not something valuable, desireable, in itself, then our life is in vain.
Typically the invisible hand does that for you.
Haha. I'll have to respond in another thread. Thanks for the food for thought!
I'm saying this from a Marxist perspective. If everything you said is true then it follows that the difference between Marxism and mainstream economics is that the latter does not discuss value as such. What Marx calls value has nothing to do with supply and demand as you say, however, within Marxism the price of commodities is somewhat determined through supply and demand. Marx terms this 'value' of the price of commodities 'exchange value'. To me, from what you say, it seems like mainstream economics only wants to discuss 'exchange value' which they term 'value'. Am I confused, or are there many ambiguities here?
In Marx's view machines don't create new value like human labour power. Machines (that were all originally created through human labour power, and thus have value) merely transfer a portion of their value into each commodity they help produce until they have become used up or obsolete. Human labour power can produce new value over and above its labour price unlike machines which merely transfer value.
Quoting Agustino
This quote sounds Marxist to my ears. I'm thinking of a website like a machine. Like a machine, eventually the website will become redundant and need to be overhauled. Like a machine, contained in the website's value are the labour power (your qualifications and genius), the raw materials (software/hardware in this case), and the value transferred from other technologies (e.g. google analytics, etc). Like a machine, the website can be used in conjunction with fresh human labour power (in this case perhaps a marketing department?) to create new value over and above the value of the actual machine or website.
Quoting Agustino
I might have misread you, but this example you gave makes your website pricing look arbitrary. Marx looked at the economy from a socially average perspective. So for example, within our economy there are millions of website designers all trying to sell their product. The basic idea is that competition (and supply and demand) among website designers in conjunction with their socially average labour power (value) will determine a socially average exchange-value; not value but exchange-value. I feel like I'm ranting sorry....
Okay but then 10 hours of a software developer's time is worth more than 10 hours of a taxi driver's time? This does lead us to a situation where labour power is vastly different from one job to another.
Quoting bloodninja
Agreed.
Quoting bloodninja
Depends on what you mean by "arbitrary". It's not arbitrary in the sense that I pick any number out there that meets my fancy and call that my price. But it is arbitrary in the sense that my price depends upon who is buying even though the work for client A and client B may otherwise be similar from a technical point of view. What they intend to do with the work is more relevant though - they're mostly looking to get clients through websites. So if I can better help one client with that, he will get charged more, since it's a slightly different service that way. I generally calculate a return value that my services will bring to my client, and then charge somewhere between 10-1% of that.
Quoting bloodninja
And that's the problem - Marx seems to apply the one-equilibrium idea from supply-demand economics. But things don't trade at one equilibrium since they are more valuable for some people than for others. Return to my example:
Quoting Agustino
So I might charge the coffee shop somewhere between $200-1000 depending on their size. If I charge them $1000, then they need to sell roughly 200-300 cups of coffee through the website to recover that investment - from there, it's all profit for them.
On the other hand, the oil tank producer is targeting B2B and 1 client will be worth $1,000,000. So if my website gets him just 1 client, he will get $1,000,000 in sales. So I can charge him much more - I can ask him for $30,000 for the website - that's 3% off 1 sale.
So the same work-time (roughly) can get me $1000 in one case, or x30 in another. Think about the downsloping demand curve. According to supply-demand economics, the way the demand curve functions is that sales happen at the price where supply = demand regardless of who the customer is. But market segmentation changes this. To the customer who is willing to pay $30,000, will get charged $30,000. And to the customer who is willing to pay only $1000, will get charged only $1000. The reason they're willing to pay more or less has to do with how much value the website brings to them, since there may be slightly different uses for the website. One client may need a different marketing strategy to be deployed through the website, etc. For an oil tank producer, the website brings a lot more value - 1 sale for him is worth x200,000 compared to the coffee house. So it's only reasonable that he's willing and able to pay more.
You may ask, why doesn't he just find a developer for $1000. He could, but that person will not be able to guarantee quality to the same extent, and it may end up being a bigger headache for themselves. So they feel much better in setting a big price to one good developer (a price that is still relatively pennies for them) and know that good quality work is being done, that will need very little effort from their side.
Now I only have limited time. So naturally, I will gravitate towards the oil tank producer types of clients. With them, for the same work time, I get paid x30. Of course, those clients are rarer, so I will also have some of the other, smaller clients.
The presence of smaller clients is good for people who are looking to enter into web development. It's a training ground. Everyone starts there. As you get better and more confident since your time is limited, you'll have the courage to move up the demand curve.
Quoting Agustino
So putting your two arguments for the calculation of value together, what value does the boss in the first example use to determine what his employees 'could' earn on their own, if what a website designer 'could' earn is not a fixed rate anyway? Does he use the wage they 'could' earn by selling to oil tank producers or the one they 'could' earn by selling to coffee shops?
Generally to coffee shops. To sell to oil tank producers you don't have to be a good developer, you have to be a good salesman. Those are two different skills. In the case where you're the independent developer, you can combine sales skills with development skills - you cannot just assume that someone who would work independently as a developer also has the sales skills. Most don't. Sales skills are actually the ones which are worth the most.
The other way is to think of an average they can earn in a year. The may get 1 oil tank producer and 100 coffee shops @ an average of $200. So that would be $50,000 per year. You may calculate a salary based on that.
Sure, soon you're going to tell me that the invisible hand also puts money in my pocket :-}
When people don't understand how something happens, they postulate non-scientific entities like "invisible hands", "powers" (opium having sleeping powers), and the like, thinking they have explained the matter, while actually they left things as unexplained as before.
But, you pay for the bread at a similar average amount every week, don't you?
No, there's more expensive and less expensive types of bread. And as I previously said, the closer a product or service is to being a commodity, the more real value approximates market value, meaning that the market does not overvalue or undervalue it.
As said, Marx bases his theory of value on the total amount of necessary labor required to produce a good, rather than by the use or pleasure its owner gets from it. And it's Marx that is forgetting demand.
Yet Here Marx is confusing: if he bases his theory labour theory of value (LTV), he yet then does admit that if some good is useless, there's "no countable labour" in it. I still think that a useless good has to be made and does need labour. Here's a quote from Marx:
(Karl Marx Capital,the quote in the end of section 1 here)
This utility that Marx is talking about is basically what constitutes demand of a good: if someone wants to buy the produced good. Usually goods that have a lot of demand and people willing to buy them have utility for the buyers. The labour put into making the good doesn't at all define how much people are going to buy it or not. Hence taking into consideration the demand side makes sense.
So to answer your question, if you think that mainstream economics is interestend only exchange value, that "exchange value" has lot more to it than the Marxian fixation on labour. And of course mainstream economics doesn't think about it in the Marxian-Smithian way anymore. Economics has moved on from the late 19th Century. On the most elementary level economics uses marginal utility theory and the Marshallian supply and demand scissors. Those weren't around when Marx was making his theories.
Now is the Marxist approach reasonable? It's quite reasonable if you want to make the statement that employers and capitalists steal from the workers, but otherwise it is problematic and a lousy model on how the economy works.
There are also those people who are ignorant of some academic field of study and proclaim it to be non-scientific and wrong and consider the truth of it to be how they think and operate themselves. ;)
Isn't this where the gurus like Warren Buffet come in handy?
I think there are intrinsic values behind the extrinsic-relational values we see in the market, but these base values are very hazy, and context driven....there's a huge time component in economic valuation and the investors with the best forward vision have the best sense of intrinsic value IMO.
There is also the idea that investors like Buffer set the market. Berkshire Hathaway traded at $300,000 US yesterday.
Sure there must be. And they're probably right usually. Practice beats theory in economics. But in my case, I have studied my fair share of economic theory - was it helpful for anything? Nope. What use that I understand the relationship between maximising profitability and making my marginal revenue = marginal cost, etc? In fact, economics is one of the most frustrating sciences precisely because it is so useless in its current form. That is evidenced by nobody from the supply-demand side in this thread being able to answer my questions and charges.
Really, I think economics is the field most in need of a revolution at the moment. People are stuck in absurd ways of thinking, that literarily don't have much to do with reality anymore.
How is arbitrage possible then?
Arbitrage is buying one good from one market, and selling onto a different market at a higher price.
If I buy a water bottle at my local supermarket, and then get it to the billionaire lost in the Sahara desert who is dying of thirst, I'm sure I can pocket hundreds of millions for that bottle of water (and getting him to safety).
What makes this possible? The fact that in one place the person needs water much more than in the other AND he is capable to pay for it. So the price I can sell once I bought the water depends on two factors: (1) how much do the people of the market I want to sell on need it?, and (2) how much can they afford to spend on it?
So people lost in the Sahara need water much more than you, who lives in the city, where you have a lot of water around you. And billionaires lost in the Sahara can pay millions for it. If you're lost in the Sahara, I can only sell the water to you for a maximum of your entire wealth - I cannot sell you for 100 million dollars, if you don't have 100 million dollars. You may be willing to pay me 100 million, but you can't.
So arbitrage is possible because needs differ from market to market, and possibilities of payment also differ.
Yeah, and that's what makes prices stable over time also, what you didn't mention. And that would be important in how a price gets determined not just based on specific cases but as a normalization of aggregate needs, wants, and preferences (say you like Italian bread more than wheat)
So it is with any other good. The value of the good must be cashed out in financial terms for the person in question given his situation. The same good can be worth a lot to someone, and very little to another, depending on their circumstances.
Quoting Posty McPostface
Again, this applies to commodities, not to other goods. Commodities do tend to have the same price for everyone. If I'm dying of thirst in the city and go to the supermarket, I'll buy a water bottle for the same cost as the person who has already drunk 3L in the day. For commodities, market value is equal to real value (for the most part). This isn't necessarily the case for other goods - and the farther away they are from commodity status, the least this is likely to be the case.
If we have a supply shortage of water, prices will go up. But over time they will come back down. What determines the level they climb to, and the level they go back to over time? I'd say the level they go up to is determined by the market. The level they go back down to is the real value (which the market approximates in the long run).
Yeah but your only talking about supply and demand. I really don't get what's the issue. Maybe you would prefer a econometric explanation but I can't help with that.
I would enlarge that to other social sciences as well.
I think one underlying fact that fundamentally makes social sciences different is that the object of study, how humans behave in a society, changes also. How we think not only of the economy, but also about the society has clearly changed during the centuries.
The issue is that for non-commodities real value is often not the same as market value. So how can we scientifically calculate this real value? For example, someone is saying that XYZ stock is undervalued. To say it's undervalued means that the market price isn't the same as the real price, and the real price is actually greater. In the long run, the market will approximate the real price. So you ought to buy the stock. Right?
So for every asset out there, we must be able to distinguish between market value and real value - we must be able to determine what something should be worth, given a particular situation, not only what it is worth.
Umm, service goods or products offered obey the same relationship a commodity good does based on supply and demand. There should be no confusion with that.
My personal belief is that people have not only wants but needs. So, some commodities have, in my opinion, an inherent worth.
But that's irrelevant because again it's all about supply and demand. Value doesn't come before that and then bargained in the marketplace.
The whole efforts of sales and marketing are (1) to make sure the goods that are sold are as far away as they can be from commodity status, and (2) the market can be segmented as much as possible (hence multiple offers at different price points). The opposite of a commodity good is a unique good. So we're trying to sell, as much as possible, unique goods. To give an example:
I was discussing with ssu the act of selling poems. When I start a poem selling business, I don't have a price. I need to determine one. I can look at an average price poems sell at on the market. Let's say this is $5. But now I want to move away from that price. So how do I do that? I need to clarify what needs my poems can meet, and attempt to quantify the value of those needs. That means I need to narrow down on my ideal customer - who would buy those poems.
So why might you buy a poem? Let's see, you want to give a special gift for your significant other, not some cheap sleazy common good that everyone gives them when asking them out. You want something personal that will showcase your love for them. You want it to be unique, effective, beautiful, and get the job done - ie get them to be impressed and say yes.
So now suddenly I'm selling personalised poetry that helps you get the girl of your dreams (expecting most of my customers to be men). How much is that worth? Well, who do I want to sell to? If I want to sell to millionaires it's going to be worth something different than if I want to sell to average people. If I sell average, I will look at the average wages of my market. Say that number is $4,000/month. So I will put my price at 10% of that. So $400/poem. So that will be one offer.
But I'll also have a super-premium offer, poems written by some of the best published poets in the world, combining psychological persuasion techniques with effective and sensual words. Get the girl of your dreams, or 100% money back guaranteed. There we go. How much is that worth? Well, say my intended audience is people who make $20,000/month or more. So I set my price at $2,000/poem.
The above is to illustrate how prices would be set. Of course, after those initial prices, you'd need to test them, and see how the market reacts. Meaning you send highly targeted advertising and marketing to whoever the ideal customer is, and see what kind of results it gets. You test $2,000 for the premium, $1,500, etc. and see whichever gets better (and more profitable) responses. Then you stabilise the price. But quite likely, those first prices will work - they may not be absolutely optimal, but they will get decent results, because they were built up based on some relatively simple (not in a bad way) and firm reasoning - that a man is willing to spend 10% of his monthly income to get a gift that could secure the girl of his dreams saying yes to his request to go out with her.
Quoting Posty McPostface
So why is it possible to sell one website for $200 to a client, and another for $10,000, even though the same work goes in both, and they are essentially the same good? Why the price difference? The market doesn't have a single equilibrium or what?
Depends on many factors. How much you customer is willing to pay above market price and why would they do that, how your product or in this case service differs from the rest of the competition, reputation, etc. Too many to list but you get the idea, no?
And what determines what the customer is willing to pay?
What matters is the value of the website to them - what results they can get with it. That's what determines the cost of the website for them, and what they're willing to pay. If the website will get them $1,000,000 in sales (through a single client for example), clearly they're going to pay a lot more than if it will get them just $10,000.
Supply and demand. If your the only guy in town then you can charge what a monopoly charges for their goods and or services. If your code is impeccable and reliability is a concern and that's what you do best, then you can charge more over what others have to offer. It's not that complicated, qualitative wise, quantification of wants and needs is another matter.
It can't be supply and demand when the same good gets sold at about the same time to two different clients at wildly different price points. Supply and demand gives only one equilibrium.
In the case you seem to be describing is a service that has an equlibrium set not by the market but by individuals. That would be a contradiction in terms, no?
No, in the case I'm describing there isn't one equilibrium point at all, but rather multiple equilibrium points, all along the demand curve. So some person is willing and able to pay $10,000 for a website since the website is worth more to him (because of his business model and what he is selling) than someone else who is only willing to pay $200.
So draw a demand curve. At Q = 10 you have P = $10,000 and at Q = 50,000 you have P = $200. That means that 10 people are willing (and able) to pay $10,000 for the website, and 49,990 are willing and able to pay less than $10,000.
The idea is that if you could segment the market such that you can charge every person what they're willing to pay, then you'd be able to get the whole area under the demand curve as Revenues, instead of just the rectangle Peq * Qeq (well almost, to be mathematically correct, you'd be able to get all the area under the demand curve that emerges when you integrate with a step size dx = 1).
And the more your good is unique, the more you're able to do this.
Yeah, and a guy who throws a ball for a living can make more than a brain surgeon. That's just how preferences work.
But, you seem to have a very special product or service if you can charge 10000 to one company or individual and at the same time charge 1000 to another company or individual. I'm afraid we're in the twilight zone if this is taking place continuously in the market with other competitors. Either that or you're some benevolent monopoly for the type of product or service you offer.
Yeah that's what I meant to tell you. So this is another way in which some markets can operate, with transactions happening all over the actual demand curve. If the products sold are unique and there exists high differentiation amongst the participants along with the possibility of market segmentation this can end up happening. Market segmentation is possible because, for example, one of your clients does not know how much you charge the other.
Clearly the supermarket cannot do this, because they can't price discriminate (it's illegal, since their goods are commodities). But if you sell unique goods, oh well, then you're basically always price discriminating.
None of your examples seem to be the same product, the poem you sell to the rich is a 'better' poem, the website for the rich firm is a 'better' website, in a free competitive market, how would you propose to out compete your competitors who can set a lower price than you're doing?
Why is it better? It's as good technically and in all other ways as the other one. The only difference is that they will be advertising to different groups of people. And of course they'll have different designs, since, well, they are different websites. And possibly slightly different functionality too.
Psychologically speaking, if my company is selling $1,000,000/product through that website, I will want that website to be good. I'm not a web developer or a web expert though. But I will be okay paying what is still relatively little to me in order to ensure that it's as good as it can be. Paying $200 for it would be disgusting - I will feel like I'm getting a bad deal, and would much rather have the certainty of paying more to ensure good work. Relatively low prices are always associated with bad quality.
website for $200
website for $1000
website for $2000
website for $5000
website for $10000
I don't even bother looking at the first one, because it seems too low, I will say that's low quality work - I automatically make that assumption. I will associate the 10K one either with a rip off, or with premium quality. So I will look into it. If I can easily afford all of them, just on a psychological basis, I will choose one of the top 2 by highest price in this case.
Quoting Inter Alia
The "good" and "bad" are psychological associations made based on price. The $200 one may be as good as the $10,000 one in reality.
Quoting Inter Alia
No, I'd just agree to charge his whole wealth and split it with the other water salesman. Why fight, when we can cooperate and make the most?
That 'feeling' can only be established relative to a competitors product.
Yes and no. It's also relative to what you perceive your own worth to be.
Actually, it would be in your both interest to collude being the only two guys with the water, unless you two were like mortal enemies or something like that.
Warranted the person is an idiot.
He doesn't have to, it's just basic psychology.
Yeah, rational agents aren't all that rational. Too bad, or good, depending on whether you're a consumer or producer.
>:O
It was an example, not meant to be taken literally, but it's why in the real world monopolies and market fixing are illegal. The point is, presuming they are in competition with each other, they would not both work out what the price 'should' be and then "may the best man win", they undercut each other to get the sale until the lowest possible price was reached.
This might interest you:
https://en.wikipedia.org/wiki/Economic_calculation_problem
Thanks, I will be having a look :)
Hmmm... are they really illegal, or are there in truth legal and illegal forms of the same thing? For example, take airplane seats. Business class gets a slightly bigger chair and slightly different food. Is that worth +$1,000 compared to economic class for a 2 hour flight? I don't think so. So clearly this is market segmentation - a legal form of what is very similar to price discrimination.
I'm not sure if this is true; but, most business entrepreneurs aim for being a monopoly. Sometimes it's the most efficient means of resource allocation for some specific type of good or service. This is particularly true for the technology sector. Don't quote me on that.
>:) - Peter Thiel wrote a good book on economic philosophy and monopolies called Zero To One.
The fact that they're psychological doesn't alter the demand hypothesis. If more people wanted green cars than red ones, you could price green cars higher because the demand is there, there's nothing better about green cars than red ones, it's just a psychological preference, but they're still two different products (one green, one red). The £1000 shirt has something about it that makes it a different product from the £5 shirt, maybe a label, maybe the prestige of being associated with a famous person, the demand is not created by being rich (poor people would like one too, they just can't afford it). The point is, no matter what the difference is, it's still a different product. even a rich person would not buy the same product for a hugely inflated price for no reason, there still has to be something about that product that makes it in high demand.
I think it's wrong to think that this would represent demand. I think rather that poor people would want one at the price they can afford one. That's where they are found on the demand curve.
Quoting Inter Alia
Oh sure, but psychologically what really makes it a different product is its higher price :P
Quoting Inter Alia
It doesn't make it "high" in demand. Rather that, if you go back to the basics of the demand curve, you see that some people (fewer people) are willing and able to spend more for Tshirts, and some people (more people) are only willing and able to spend less for it.
In America the Sherman Antitrust Act 1890 prohibits restraint of trade and abuse of monopoly power. In the UK the Competition Act 1998 does much the same thing but with more restrictive powers, but in both cases, yes it would be illegal to do what you're suggesting the water salesmen do.
Again these are grey waters here. In some situations and in some forms this is illegal, in others, it isn't. Maybe we don't agree on it, but rather the salesman and I become partners in a new LLC, and that LLC sells the water. What's the problem then? Or maybe we each sell one water at the price of half his wealth each.
There are different ways to do the same commercial act. Typically the entrepreneur decides what act to do, and then accountants and lawyers figure out the way to legally do it.
Well we've reached the end of this discussion then, I just don't agree with you. I don't agree that poor people don't also want the expensive shirt, I don't agree the the higher price is what makes the difference and I don't agree that the 'something' about the shirt isn't what makes it 'high demand'. Unless you can furnish me with some evidence to support your assertions I see no reason to just take your word for it.
They do want the shirt, at a price they can afford. I'm not talking about fictive and impossible wants now, but real ones. And I'm sure economists do much the same.
Quoting Inter Alia
Psychologically this seems to be the case. If you study consumer psychology, you'll understand that we're quite certain that it IS the case in fact.
https://www.psychologytoday.com/blog/ulterior-motives/201111/price-quality-and-value
Quoting Inter Alia
You're confusing things. It doesn't go at a higher price because the demand for it is higher than the demand for the other shirt. For all intents and purposes, the demand could be the same, for instance, but the supply curve would be lower. Or it can be psychological as I've explained.
That just sets them back to the example of one salesman in the desert. As I said, it's just an example, in the real world there are thousands of water salesmen, and thousand more ready to pick up a market they see available, they're not going to all join forces, and even if they tried, that's what the monopolies laws are in place to prevent.
Quoting Agustino
You keep saying that but I'm not getting your evidence for it. What are you using to come to that conclusion? I get that it's a possibility, what I'm not getting is why you think it's definitely what happens.
I don't mean it always happens for all products. In the example I gave though, it's absurd to say that the demand for one shirt is greater than the demand for the other based on Bayesian probability. They're the same kind of shirt afterall. It's more likely that the difference is psychological given that they are the same kind of shirt than that one is demanded more than the other.
Now take something like diamonds and water. The demand for water is probably far greater than the demand for diamonds. And yet diamonds are more expensive than water. Why? Low supply of diamonds.
That's your presumption, I've not seen any examples in the real world. All the expensive shirts I've seen have either been made of better materials, associated with some famous designer, worn by a famous actor. I've never seen two identical shirts, one in mayfair selling for £50 and one in the supermarket for £5, not the same shirt. Not unless the supermarket is deliberately taking a lss to draw people in, or some other temporary marketing ploy (a sale or the like).
Also I'm missing the point of the article you linked. It doesn't (on my reading) say anything like "people think more expensive stuff it better just because it's more expensive", nor does it say "rich people will buy the same stuff for more". All it says is that people use price to judge value, but that it can work both ways and depends a lot on other factors. All they're doing is estimating the quality of the product using price, if a product turns out not to be the quality they were expecting it will very soon lose sales and become a loss for the company, they will reduce it's price to meet the actual demand for such a low quality product.
I think you're confusing people estimating what the value will be (when the combined effect of supply and demand have had time to influence the market) with people actually setting the price. Your 'undervaluing stocks' scenario, for example. It wouldn't be of any interest to the investment firm that the stocks were undervalued unless they expected them to soon return to the value they expect. All that's happened is the company (or perhaps a group of early investors) responsible for setting the starting (or current) price have made a mistake in their estimate of what the market value is. They're not accessing some mathematical calculation for 'real' value, they're just guessing what the market, supply/demand led value will be, sometimes they get that guess wrong, but it soon becomes apparent.
Consumers too have to guess whether a product is the sort of thing they want (demand). It might turn out not be of the quality they were expecting for the price, it might turn out they don't like green after all, but again, this will soon become apparent and the price will alter to reflect real demand for the product's actual real qualities. You might sell a £1000 website to your oil tank firm, despite the fact that it's the same one as the £5 coffee shop site, but if they buy it they will be doing so expecting it to be of sufficient additional quality to justify the investment. When it turns out it's no better than the £5 coffee shop version they will not buy from you again. enough such transactions and you will either have to lower your price or raise the actual quality of your premium version.
The importance of all this (my interest and area of expertise anyway) is in ethics. It is because price is dictated by supply and demand that there is an ethical problem with the actions companies take to artificially inflate demand and restrict supply (especially in essential commodities). Companies exploit the momentary gap between the consumer's estimate of value and their realisation of it, they exploit the monopolies law to artificially restrict supply, they trade in commodities without using them which artificially inflates demand. All these things have ethical consequences, but they're missed if you presume there's some 'real' value that's just a mathematical certainty.
But then I suspect (from your other posts about wealth) that that's exactly what you intend to do because it acts as a crutch for your fantasy that everyone can be rich if only they try hard enough, and the rich deserve their wealth because they're so very clever and generously supply us with just what we want at the price we want it.
Or: it's a society-wide reflection of the aggregate of all individuals' economic exchange decisions, each exchange being made on the basis of subjective preference rankings.
Because there are certain commonalities (e.g. all human beings need food of some kind) then there are some generally predictable common values - but those are still at bottom the result of individual preferences (one doesn't prefer "food" in the abstract, one prefers cherries to potatoes, or whatnot).
From the subjective point of view, value is "that which you act to gain/keep"; in the trading relationship, you exchange something for what you want to gain/keep. The thing you exchange is a thing you value less than the thing you anticipate getting in exchange.
For example, if you are employed, then unless you just drifted into employment mindlessly, that means you value the abstract purchasing power of a certain quantity of money over the value of the other things you could have been doing during those working hours. More specifically, it means that the value to you of what you can do while employed in your job is higher than the value you could have gotten out of other uses of your time. (e.g. you might enjoy weaving baskets, and be damn good at it, but if you can make as much money - again, abstract purchasing power - in 1 hour on the stock exchange as you could have done in 8 hours of weaving baskets, it's a no-brainer to go for 8 hours at the stock exchange, and weave baskets as a hobby just for its own intrinsic pleasure - which can be a value to you too. Generally, the more you can do with less, the more you have left over to do other things with. This is the core meaning of "economy" in a context where resources are intrinsically scarce in relation to human wants, which are potentially unlimited.)
Billions of exchanges go on every day, with each individual exchange, and its confrontation of two independent scales of preferences, in some small way affecting all others across the entire web of exchange, and economic values (prices, etc.) are the objective precipitate of all those individual subjective evaluations.
Well sure, if you count the presence of a brand name written on it as being a different T-shirt... As I said, technically different, but really the same. I for one don't count a branded product to be different from a non-branded product just because there's a name on one and there's no name on the other.
Quoting Inter Alia
Exactly. That's all that matters. We're in the business of getting sales. Getting their attention is the first step. This isn't to say that you don't have to follow up with the quality, but the quality is irrelevant if you cannot get their attention to begin with. So price of $200 loses in the scenario provided previously. Regardless of the quality that the person could provide - it may be the best quality out there, doesn't matter.
Quoting Inter Alia
There are lots of industries where "theft" is common. In the internet world, SEO optimization companies will many times take your money and you'll never hear from them again.
But yes, you must deliver what your marketing says you will deliver, otherwise, it's false advertising and it would be against the law in most countries. But there are ways that companies use to get around this, while still getting the benefits of certain marketing. For example, say they're selling a weight loss product. They may, for example, say that "(their product) may help you lose weight faster than any other option out there". So, see what's happening? The marketing gets the point across that this is the best product for losing weight, while leaving an exit with the "may" so if it doesn't work for you, oh well, it only said that it MAY work.
Consumer psychology reveals that most people cannot keep track of whether the "may" is there or not. So the sentence "(their product) helps you lose weight faster than any other option out there" and "(their product) may help you lose weight faster than any other option out there" are identical in terms of persuasion, especially for those who are peripheral thinkers.
But anyway, honesty pays off in the long run and it's easier than being dishonest - so you should always be honest in business anyhow. Delivering super high quality isn't hard so long as you're closing contracts and getting the money. So why not do it? You've got the hard part (sales) done, and you can't get the easy part (quality)?
Quoting Inter Alia
It's almost the fundamental assumption of market economics that the market will correctly value stocks (and other assets) in the long run. So everyone takes this on faith, more or less.
Quoting Inter Alia
:s I've never seen nor heard about an investor or a businessman "guessing" what the supply/demand led value will be. These are very abstract concepts, investors tend to use more practical tools in decision making. There are also different types of investing. Value investing is certainly interested in whether an asset is undervalued or overvalued for example. Looking at balance sheets, P&L statements, DCF analysis, and other such tools may be used to determine whether a stock is undervalued or overvalued. Certain forms of stock trading may, on the other hand, simply be interested in different forms of technical analysis that may reveal price patterns that can be exploited in the short-run.
So what were you thinking of when you said "guessing"? I'm quite certain that investors and businessmen who guess end up bankrupt.
Quoting Inter Alia
Nope. It doesn't work that way. The quality of the website is really irrelevant since they just want to use it to get clients. Getting clients is what's relevant. So the website can be as bad as it gets (within reason of course). The employer wouldn't give a damn in this case - so long as his results are coming. So the value isn't in the quality of the website - it's about getting clients. In the end, that's all a business cares about - sales. If that's going well, everything else can be fixed.
Now, this isn't to say you shouldn't deliver quality websites to such clients. Only that the real value isn't the technical quality at all. Average quality will do, so long as your salesmanship, your availability, your marketing strategy, etc. are excellent. People tend to work with people they like in the end anyway. Business is not as rational as economics would want to have it.
Quoting Inter Alia
From my experience, this is not how businesses function for the most part. I won't say that there aren't such businesses, but by all means, these are not the majority, nor are they the most successful businesses. Honesty is important in business success.
Evidence
1. Deceptive financial practices. The Consumer Financial Protection Bureau fined Citibank $700 million for the deceptive marketing of credit card add-on products.
2. Cheating depositors. Citizens Bank was fined $18.5 million by the CFPB for pocketing the difference when customers mistakenly filled out deposit slips for amounts lower than the sums actually transferred.
3. Overcharging customers. An investigation by officials in New York City found that pre-packaged products at Whole Foods had mislabeled weights, resulting in grossly inflated unit prices.
4. Food contamination. In a rare financial penalty in a food safety case, a subsidiary of ConAgra was fined $11.2 million for distributing salmonella-tainted peanut butter.
5. Adulterated medication. Johnson & Johnson subsidiary McNeill-PPC entered a guilty plea and paid $25 million in fines and forfeiture in connection with charges that it sold adulterated children’s over-the-counter medications.
6. Illegal marketing. Sanofi subsidiary Genzyme Corporation entered into a deferred prosecution agreement and paid a penalty of $32.6 million in connection with charges that it promoted its Seprafilm devices for uses not approved as safe by the Food and Drug Administration.
7. Failure to report safety defects. Among the companies hit this year with civil penalties by the Consumer Product Safety Commission for failing to promptly report safety hazards were: General Electric ($3.5 million fine), Office Depot ($3.4 million) and LG Electronics ($1.8 million).
8. Workplace hazards. Tuna producer Bumble Bee agreed to pay $6 million to settle state charges that it willfully violated worker safety rules in connection with the death of an employee who was trapped in an industrial oven at the company’s plant in Southern California.
9. Sanctions violations. Deutsche Bank was fined $258 million for violations in connection with transactions on behalf of countries (such as Iran and Syria) and entities subject to U.S. economic sanctions.
10. Air pollution. Glass manufacturer Guardian Industries settled Clean Air Act violations brought by the EPA by agreeing to spend $70 millionon new emission controls.
11. Ocean dumping. An Italian company called Carbofin was hit with a $2.75 million criminal fine for falsifying its records to hide the fact that it was using a device known as a “magic hose” to dispose of sludge, waste oil and oil-contaminated bilge water directly into the sea rather than using required pollution prevention equipment.
12. Climate denial. The New York Attorney General is investigatingwhether Exxon Mobil deliberately deceived shareholders and the public about the risks of climate change.
13. False claims. Millennium Health agreed to pay $256 million to resolve allegations that it billed Medicare, Medicaid and other federal health programs for unnecessary tests.
14. Illegal lobbying. Lockheed Martin paid $4.7 million to settle charges that it illegally used government money to lobby federal officials for an extension of its contract to run the Sandia nuclear weapons lab.
15. Price-fixing. German auto parts maker Robert Bosch was fined $57.8 million after pleading guilty to Justice Department charges of conspiring to fix prices and rig bids for spark plugs, oxygen sensors and starter motors sold to automakers in the United States and elsewhere.
16. Foreign bribery. Goodyear Tire & Rubber paid $16 million to resolve Securities and Exchange Commission allegations that company subsidiaries paid bribes to obtain sales in Kenya and Angola.
17. Wage Theft. Oilfield services company Halliburton paid $18 million to resolve Labor Department allegations that it improperly categorized more than 1,000 workers to deny them overtime pay.
Where's yours?
Evidence of what? I thought we were talking of artificially inflating demand (didn't know that was illegal) or artificially controlling supply. We certainly weren't talking about not meeting certain regulatory standards with regards to environmental pollution, marketing tactics, etc.
And regardless 17 cases out of what? Trillions of cases of fair practice? :s
You said "honesty is important in business success" and "but by all means, these are not the majority, nor are they the most successful businesses."
So I listed the top 17 crimes in 2015 all perpetrated by some extremely successful businesses. These are just the top crimes in one country in one year. At the very least they disprove your argument that dishonest and unethical businesses are not the successful ones, but I also think they go some way to indicating what general practice is in big business.
Right, but that was mostly with regards to what I was responding to.
Quoting Inter Alia
So out of trillions of transactions, your evidence is that there are illegal practices in 17 of them - and that's what you use to combat my claim that "these are not the majority [of business practices]".
Also please keep in mind that doing something illegal - according to the judgement of a certain government - isn't necessarily being dishonest. For example, if I throw my garbage in the river, I'm not being dishonest by that act, just disobeying the law.
I see your faith in the American dream is as unshakeable as your faith in the church, it was a mistake to bother discussing the matter. If you really can't see how the fact that within seconds I can list 17 major crimes by some of the biggest companies in the world, indicates that business is not about honesty and integrity but about making as much money as possible by whatever underhand, deceptive and cutthroat means available, then there is little point in continuing.
You're basically saying that unless I can list more than a trillion crimes there's no case to answer. We should just presume the best. That's as ridiculously self-immunised an argument as your stance on religion.
That's a fallacy called selection bias in philosophy (or alternatively cherry picking). You've shown to be quite proficient at that. But you have to look at the overall number of crimes, vs the overall number of non-crimes which could have been crimes.
Quoting Inter Alia
It's not about listing them, it's about telling me what the proportion is of crime to non-crime.
The reason I prefer capitalism over communism is that in capitalism, it is capital that dictates the distribution & allocation of resources. So, in capitalism it doesn't matter who you are - whether you're from the King's family or you're just a peasant. If you have money, then you can decide how resources get allocated and distributed. So under capitalism, pretty much anyone can, through their own intelligence, wit and ingenuity, garner the capital they need to change the direction of society in whatever way they deem right.
Whereas under communism, it's being able to fulfil the interests of the other elites that matters - if you can do that, they will let you hold power. So to change the allocation of resources in communism, you need to be a good slave to others, bow your head, till you grab the reigns of power. That seems much like a system for slaves to me, not one for free men. That's why I dislike it. In one you climb up through ability, in the other, you climb up through social manipulation.
Price: the financial reward from selling x
Value: what x is worth to your customer
As you can see, value can't be quantified as easily as the other two.