Summations Only

In economics the question "How much is something worth?" has a simple answer: what someone is willing to pay.It is not worth what people think it should be worth or wish it should be worth or hope it will be worth someday. It is worth what someone is willing to pay.I was about to submit this topic when I thought I should find at least one other source that agrees with me. The first search item returned by Google turned out to suffice: Basic Concepts of Economic Value. Here's the first few paragraphs: --Percy

Hi Phat,Sure it's about the checker's pay, whether it's determined by a union or not. The value someone is willing to exchange for anything, whether it's a person's labor or a material object, is the definition of its value.--Percy

Yes, this is true. Until money actually changes hands, you don't know.The other things you talk about are subjective or qualitative or speculative and have no direct bearing on the definition of value in economics. Your definition of value or worth cannot be used to calculate anything and cannot serve as an objective underpinning. What people can persuade someone to pay them is their economic value. What they may someday be worth in economic terms is speculative. And what they're actually "worth" in other terms is not part of economics.--Percy

Hi Buz,You should probably find another thread if you'd like to discuss whether currency should be backed by gold or silver.If you'd like to discuss value or worth as defined in economics and it bothers you to think of value in terms of currency then think of it in terms of how many hours of your own labor you think something is worth.--Percy

In economics there is an answer: what someone is willing to pay. Yes, of course.It can even be different at the same time. You buy broccoli for $2/pound at Al's market while your friend buys broccoli across town for $1.80/pound at Jim's market.Even what one is willing to pay depends upon many factors. This past weekend we happened to be in Massachusetts (which has a sales tax), but we decided to buy some items there and pay the sales tax because the cost in gas to go out of our way on the way home in order to purchase the items in New Hampshire (which has no sales tax) would be more. Plus it would have taken more time.--Percy

Hi Vimesey,No, the definition doesn't break down at the boundaries. We can follow your painting from the process of creation to sale to resale.An eclectic artist buys a canvas for $10, a frame for $10, paint for $10, rents a monkey for $10, uses $10 in gas, and pays $10 for monkey treats. The monkey uses the paint to create a painting on the canvas. Total outlay: $60.The artist hangs the painting in his gallery with a price of $100. The actual value of the painting is unknown at this point.A millionaire driving by the artist's gallery is having an argument with his wife, who is belaboring him about his foolishness with money. He declares that it's his money and he will do what he wants with it. He see's the gallery and declares to his wife that he's going to walk into the gallery and pay a million dollars for the worst painting he can find.The millionaire enters the gallery and pays the delighted artist one million dollars for the monkey's painting. The painting is now worth one million dollars. The artist has created wealth or value in the amount of $1,000,000 (price he received for the painting) minus $60 (cost to produce the painting) which is $999,940.The next day the millionaire's wife decides she's going to teach her husband a lesson. She takes the painting and returns to the artists gallary and asks him how much he'll pay to buy it back. The artist tells her $60, and she agrees. The wife has now removed value equal to $999,940, which happens to be the exact amount by which the rich couple have reduced their net worth.The next day the millionaire decides he's going to teach his wife a lesson and goes back to the artist and buys it again for a million dollars. Things continue like this for several weeks and the artist becomes very rich. He buys the monkey and retires to his own Pacific island.--Percy

Hi Jon,All you're doing is enumerating some examples of the rationale people might go through in making a purchasing decision. But in economics when something changes hands the value is the amount paid.Even been to a flea market? You have to get there early because the good stuff goes *very* fast. And it goes very fast because the knowledgeable prey upon the unknowledgeable and buy up all the stuff that is marked too low. In short order the $5 plate from grandma's table is on the shark's table for $100, and later it is purchased for $80.It's easy to track this example. Assuming grandma's original acquisition of the plate is lost to history, grandma created value of $5, and the shark created value of $75. That's the way it works.Think of economics like bookkeeping. You can't have columns that don't balance. You can't have money changing hands while at the same time entering numbers in your spreadsheet that are adjusted by your estimate in dollar terms of additional benefit. Our shark is pretty sure he can sell the plate for more than $5, but until he actually does the plate is still worth just $5, the price he paid for it.--Percy

The system isn't closed. Value can be both created and destroyed.Here's an example of creating value. You buy a house for $200,000. You paid $200,000, and in return you received a house worth $200,000. If your net worth before was $200,000 before then it is still $200,000. You continue living in the house for five years while making various improvements costing you $40,000, after which you sell it for $300,000. You just created additional value of $60,000, and your new net worth is $260,000.Here's an example of destroying value. You buy a Big Mac at McDonalds for $3. You paid $3, and in return you received food worth $3. If your net worth before was $200,000 then it is still $200,000.Now you eat the Big Mac. You just destroyed $3 in value. Your net worth is now $199,997.--Percy

How can the amount people actually pay for things in the real world be disconnected from the "real-world value people place on things"? Except that it's not "pop-culture economics." It's just simple and straightforward Economics 101. It's basic stuff, foundational even. Here's a quote from the Wikipedia article on Value: --Percy

The winner is the fastest. The fastest is the winner.Those who survive are the most fit . Those who are most fit survive.Care to reconsider?You're fighting against a definition that is quite literally right out of Economics 101. I understand the point you're trying to make, that some things have value that can't be quantified and that isn't included in any measure of national or global wealth. There is one of your examples does not fall into this category: It is worth what someone is willing to pay for it.Another of your examples is about completely public information: No one would pay anything for the TOE because it is public information. But 200 years ago, how much might Lamarck have been willing to pay for it?I understand you're actually asking a different question, namely what would be the cost to the world if we still hadn't figured out the TOE, but items like the TOE do not turn up on any balance sheets anywhere. There's probably a formal economic term for the intangible value of concepts and discoveries and existing knowledge. That their value is intangible makes these things no less real, but that the value is unquantifiable means they can never appear in any tally of wealth or value. I didn't say it wasn't part of economics. I said that something's value is what someone is willing to pay for it. That is a simple and straightforward definition from Economics 101.--Percy

Until you discover the fraud you believe you have an item worth $300 and that the shop has $300 of your money. Everything seems fair and your net worth hasn't changed.But once you discover the fraud the iPod has to be written off, probably 100%. You've just lost $300 in net worth, and the wealth of the nation has declined by the same amount.There's another aspect to this that I'll address when I respond to Crash's question.--Percy

Hi Crash,We're called consumers because we consume things. That means we use them up, and after they're used up they no longer have value, or perhaps have very little value. We can no longer count their value as part of our net worth, certainly nothing close to their original value. Depreciation incorporates the concept of things being used up.You ate maybe somewhere in the neighborhood of $10,000 worth of food last year. Wherever it is now, it's worth whatever someone is willing to pay for it.--Percy

Hi Mr. Jack,The definition of value is not the answer to all questions economic and otherwise. It's a simple definition. I was hoping to resolve a confusion most people had about the sources and mechanisms of wealth creation.The setting of a price point can be a very complex and involved process, but it doesn't change the definition of value. Once you sell your home, the value is the money you received for it.If the buyers turn around and immediately sell the home for an additional $100,000 then that's the new value of the home.--Percy

I'm afraid it is. The definition of wealth creation goes all the way back to Adam Smith.Your thinking and many others in this thread is hung up on an intangible almost non-monetary definition of wealth. When talking about actual real quantifiable wealth in the context of economics, which is the relevant context if we're talking about incomes and tax rates and GDP and so forth like we were in the previous thread, then you guys have got the definition of value and wealth all wrong.--Percy

Yes, this is true. Value can often be fairly accurately estimated prior to sale. But once something changes hands then all prior estimates of value go out the window.The value of things often changes over time. This season's hot sneakers might sell for $150, and we can reasonably assign this price because kids are buying these sneakers for this price all across the country. We can be reasonably certain that a pair of these sneakers sitting on the shelf have a value of $150 because thousands of pairs of these sneakers are already changing hands for $150.But by next season any leftovers will be marked down to maybe $80. Say 10 pairs were leftover at a retailer's. He now has to write off $700 in inventory losses.In accounting there is often more than one way to do something, and the way you're tracking the change in the value of grandma's plate is fine. In my scenario the value of the plate was unknown, but in your scenario the value of the plate has already been established at $60, perhaps because it is listed in collectible catalogs. When grandma sells the plate for $5 she incurs a loss of $55, even though it is value she didn't know she had. Tha dealer who purchased the plate has an immediate increase in his net worth of $55. He hopes to sell the plate to some unwitting purchaser for $100, but at the end of the day is still happy to let it go for the $60 listed in the catalogs.But what if he does sell the plate for $100? There's two ways we could look at this. Perhaps this plate is on its way to increasing in value, something that will be reflected in next year's catalogs, and therefore the plate is now worth $100. Or perhaps we are certain the value is not changing and the catalogs are correct, and therefore the person who purchased the plate has just lost $40 in value. Prices are known to move up and down, and which way they're moving at any given time is a speculator's game, but there is more than one way to track value on a balance sheet.--Percy