From the book The Alpha Strategy by John A. Pugsley.
The Price-Value Link
When we trade, we are demonstrating conclusively that we value what we want more than we value whatever we are offering to trade. If I pay the baker fifty cents for a loaf of bread, it is not because the bread has an intrinsic, measurable value of fifty cents. It is because I have fifty cents and I value the bread more at that moment than I value the fifty cents. On the other side, the baker values the fifty cents more than he values the loaf of bread. Once I have the loaf of bread, I may not want another at the same price. The second loaf may have less value for me. It follows then, that value is relative to the quantity of a thing I already possess as well as to the point in time at which a judgment is being made.
Our wants are endless and each time one is satisfied it disappears and another pops up to take its place. We each have a scale of values and everything in our individual worlds arranges itself in an order of priority on that scale. Whenever we notice something we don't have is higher on our scale than something we do have and we find someone who has the reverse situation, we make an exchange. Things are constantly rearranging themselves on our scales. Thus, values fluctuate for us as our situations change. One moment we are willing to pay one price for something, the next moment perhaps more or less. In the marketplace, the prices of goods merely reflect the average values individuals place on the goods and services produced. Looked at in this way, it should be obvious that there can be no such thing as a fair or an unfair price. Price is a result of values and values are individual judgments.
My wants aren't "endless." I never quite get this assumption behind all Economists' theorizing. I know what "enough" is, and I often choose NOT to get as much as I could because it would be more than I could handle. In fact, I'd be so daring as to say, just about everyone knows these simple skills. There are very few dysfunctional hoarders out there who just get more more more no matter what, like the dragon in Beowulf. Rather, many of us actually choose NOT to do economic activity a LOT of the time. Imagine that!
ReplyDeleteI think for most people the end of desire is reached through the limit of energy, long before the end of appetite.
ReplyDeleteThe Roman world was different. If Latin "satis" means enough, then an English speaker would think that the negation -- "non satis" or "nimis" -- would mean less than enough. But the Romans thought of the world as full of limitless possibilities, replete with resources. "Nimis" means too much.
ReplyDeleteWhat a remarkable change of perception, to say that some amount which can be identified as "not fulfilling the criteria that would define it as enough," is equivalent to saying that it is "excess."
This is about the iPhone, isn't it?
ReplyDeleteThe early adopters who feel that Apple lowering the price to $399 somehow devalues their own $599 iPhone, weren't just paying for a phone. They were also paying for bragging rights, and a sense of superiority to those who couldn't afford to throw $599 at a phone. Someone said that there would have been no complaints if the price had dropped $50 -- no complaints, because you'd still be in a fairly exclusive neighborhood -- or if the $200 price drop had come after six months. I guess $200 is a fair price for six months of smug superiority, but too much for only two months.
Quite right, Michael.
ReplyDeleteAlthough for once I was not thinking of any Apple product. :)
The book simply gave me a much deeper and a much more useful understanding of what a Price is.
Or simply said: a price is the outcome of supply and demand.
ReplyDeleteThis seems to be a universal law, even observeable in the animal world. A hungry creature is willing to invest even its own life to get the pray, whereas a spoilt cat won't even lift an eyelid to worry about the filled food box in front of her.
"price is the outcome of supply and demand"
ReplyDeleteRelated, of course, but not quite the same. The above is mostly understood (by me anyway) to related to the market as a whole, not individual decisions and desires.
"Or simply said: a price is the outcome of supply and demand."
ReplyDeleteUnless, of course, the government interferes. Which it has so many ways of doing.
Just imagine: There's a willing seller and a willing buyer. What if they could just - gulp! - do the deal! Just the two of them. Without having to report to anyone. Without having to pay any 3rd party. Without having to prove anyone your not part of a cartel, or privy to "inside information". Without having to become "licensed", fill forms, be over "minimum wage", properly "insured" and following zoning laws.
The thought boggles the mind.
Might be a dreadful thing. Just imagine, a man with guns who has a posse of people that defend the only safe water supply within a 200 mile radius. A desperate population of starving farmers. One man has a product and wants to sell, many buyers have (some) money and want to buy. Would you recommend that nothing but the free market dictate the price of water? I certainly wouldn't. I'd advocate government intervention.
ReplyDeleteTTL,
ReplyDeleteIt's because of dangerous liberals like you that the US government is now considering a tax on barter.
:-/
Yeah, I've just been eddicated about theft like this in the book The Alpha Strategy.
ReplyDeleteGovernment is used as a way for one citizen to legally steal from others.
Hmmm, it seems I hijacked this thread for libertarianism.
ReplyDeleteTo get it back on track (at least momentarily), Seth Godin offers interesting ways on how Apple could have handled the iPhone early buyer screw-up better.