Summations Only

Where on this planet are things "freely available for all to take?" My descriptions of the relationship between price and value are in the context of capitalism. I can tell you're not a fan of capitalism from your comments: But I'm not trying to get you to like capitalism - I'm just explaining how it works. In the end it's fine with me if you still believe capitalism is evil, I don't care. I'm not trying to get you to like it, just understand it.If capital had not been available in the form of a loan, then the farmer would not have been able to obtain a loan for the purchase of the land and two things would not have happened:

1. The land would not have been farmed and would have lain idle.
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2. The farmer would not have increased his wealth by $311,000 over 10 years.

--PercyEdited by Percy, : Grammar.

You sound like a creationist declaring that science is wrong because it rules out God.Mainstream economics doesn't rule out concepts like actual value or inherent value. Different ways of thinking about economics have different concepts of value. Actual and inherent value are concepts of different systems of economic thought than neoclassical economics. Just as when I argue for evolution I am not implying anything about the existence of God, when I describe how capitalism and mainstream economics works I am not implying anything about other economic systems. Naturally I have opinions about them, but they are not what we're discussing.--Percy

But value in use assigns an infinite value to air, and to any nutrient essential to human survival such as calcium, iron and vitamin C. An infinite value in use of vitamin C is useless for determining the market price, which happens to be a few cents per milligram, not infinity.About the price/value ratio, I originally typed a few paragraphs trying to explain it again, but having done that I realized it mostly works against me because it is somehow giving you a false impression of how I think of value. Just forget the value/price ratio and let's try again.Price and value are related to one another. Price affects people's sense of value which in turn affects price which in turn affects people's sense of value, and so forth. It's a feedback loop. The higher the price relative to a person's internal valuation for a good, the less of that good the person will buy. Conversely, the lower the price relative to a person's internal valuation for a good, the more of that good the person will buy. And sales volume gives merchants a sense of the public's valuation of a good relative to the price at which it's being offered, and this sense of the public's valuation causes them to adjust their prices. Yes, exactly right, up until the last two sentences. Value not only influences price, price also influences value. They influence each other. You might think the value of a bag of peas is $1.00, but after a year of never finding a price below a $1.10 you would adjust your sense of the value of peas accordingly. If this weren't true I would still think a candy bar was worth 5¢. Again, price and value influence one another. What we see in the range of prices available influences our valuation of what something is worth, and what merchants see in terms of sales at a given price point influences their sense of how customers are valuing the good which in turn influences their setting of prices.--PercyEdited by Percy, : Spelling.Edited by Percy, : Missing dBCode.

The example you were responding to was of an immigrant from Brazil starting up an office cleaning business with the assistance of a loan. The free things you mention aren't even remotely relevant to starting the business, and only one of them is really free anyway (sunlight). But even if they were all free, in order for your response to make sense you must explain how free water, wildlife, wood, stone and sunlight can take the place of the loan our immigrant needs to start up her cleaning business.The availability of capital in the form of loans allows people to better leverage their labor by enabling them to marshal resources in the pursuit of making money, i.e., creating wealth. Instead of working at a job for a relatively fixed salary people can work at building a business, thereby creating wealth on a grander scale. Value is not 'average price'. While explaining the mainstream economic view of value and price to Crash I described how merchants might use an average weighted by sales volume (rather than by supermarket) to get a sense for how consumers value a good in their area. It's a rough measurement tool, not a definition.You're right that capitalism isn't the topic, but creating wealth (creating value) is part of capitalism, and that's what Straggler wants to talk about (this subthread began when you replied to one of my responses to Straggler). I have no objections to talking about creating value, since value is this thread's topic, though it is value in a different sense then I intended when I began the thread. When talking about value and price, value is the subjective sense of consumers of how much something is worth. But when talking about creating value then this is the kind of value that is subject to the value added tax and that contributes to profits and so forth, and it is represented by objective numbers that can be written down in accounting ledgers.We got off on the topic of capitalism when you asked (back in Message 261), "So what value does ownership actually add to a resource? To a finished product?" and then provided the example of the two farmers, so I gave you the answer that over 10 years the farmer creates $311,000 in value that did not previously exist, and all because capital was available in the form of a loan. You responded with criticisms of capitalism, but I don't care if you like capitalism or not. I'm just hoping you'll understand it.--Percy

Since both price and value are denominated in currency I don't think I could agree that they're "two completely different things," but as I've been saying throughout this thread, they're not the same thing. This is pretty much what I said to Crash. The graph I used to illustrate the effect of price on demand was this one: The demand curve is in part a reflection of the wide array of values people place on the same good.About the rest of your message, I like the way you're talking about value and price. It sounds pretty much like mainstream economics and I see no reason to quibble with it. There are still areas where we disagree, such as how people's perception of value changes, but it doesn't seem worth arguing about.--Percy

No, I'm not missing your point, you're just confusing total revenue with net income. Expenses are deducted from total revenue to get net income, and a loan is an expense. Assuming our business owner generates the same amount of total revenue either way, he will have lower net income with a loan.Let us say the total revenue is $1,000,000, that non-loan expenses are $900,000, and that loan expenses are $50,000. Without the loan he has net income of $100,000, while with the loan he has net income of $50,000. In other words, without the loan he creates wealth in the amount of $100,000, while with the loan he only creates wealth in the amount of $50,000.Let's further say that interest on the loan was $40,000. The holder of the loan has therefore created wealth in the amount of $40,000. I know you prefer to describe this in other terms. I know that you would prefer to say that the business owner created this wealth and that the loan holder is a leech sucking the lifeblood out of the business owner. But the fact of the matter is that the $40,000 in income appears on the loan holder's income statement, not the business owners.The obstacle to your understanding is in believing that people own the product of their labor no matter what the conditions of their employment or their business agreements (such as loans). If you make a chair for your employer the value you added in making the chair does not belong to you, it belongs to your employer. If you create value with the help of a loan the portion you pay in interest does not accrue to your bottom line but to your loan holder's.Another way to arrive at the same answer is to ask who pays taxes on what money. The loan holder pays taxes on the $40,000 of the business owner's net revenue that the business paid in interest. It would be truly cockeyed if the business owner had to pay both the $40,000 interest payment and the taxes on it, but if your argument were actually correct that he created that $40,000 in wealth then he would be responsible for the taxes on it.I think what you're continuing to miss is the rationale I've supplied several times now for why the loan holder deserves anything for making his money available, for why the availability of capital is itself a means of creating wealth. If the loan holder's capital instead sat in mattress then our business owner would never start a business and would instead just draw a salary somewhere. Making capital available in the form of a loan makes it possible for our business owner to leverage his labor into a more productive form. Interest is what is earned for making the business possible in the first place. This is a service of incalculable value to an economy. It's why capitalist economies so fantastically outperform communist economies. For the sake of discussion let us assume that I completely bollixed up my explanation involving the price/value ratio. How long are you going to continue to ignore the attempts to clarify to you what I was trying to say? Again, I proposed the price/value ratio as a rough measurement tool for merchants to judge the competitiveness of their pricing. Your arguments against it were as silly as, "Oh, you've invented the wheel? Well, let me try to use it as a hammer. Gee, that didn't work, what a completely stupid invention!" Or as silly as, "Oh, you've invented the formula for the area of a circle? Well, let me try to use it for a square. Gee, that didn't work, what a completely stupid formula!"But as I said before, this example is working as an obstacle to understanding so I'd prefer to drop it. I actually think we largely agree about value because I agree with a characterization you provided earlier. I agree with you that consumer impressions of value are reflected in the demand curve. I think they are influenced by many factors, though I include a factor you don't, the observed range of existing market prices. But this seems a minor difference in the grand scheme of things.--Percy

Let's say you're well off and have a million dollars in the bank. You want to help local businesses, so you begin making small business loans with no interest. You figure each time a business pays back their loan you'll loan the money back out and keep helping the community, and this will go on forever.But after a while you discover that not all the businesses are successful and that your million dollars is gradually being drawn down and that within 20 years there will be nothing left. So you begin becoming more careful about which business proposals you approve for loans, and you begin charging a small amount of interest to cover the risk that some might fail so that the million dollars remains a million dollars.But evaluating the business proposals takes time and effort, as does administering and collecting on the loans, so you increase your interest rates again as payment for your own labor.Do you now realize that you're arguing that you shouldn't be paid for your labor because all you're doing is loaning money? Basically your argument is that people shouldn't be paid if they manage money instead of something else.--Percy

You sure did make such an argument. The only thing I changed was that you're making the loans instead of the evil capitalist bastards. You are both the owner of the capital and the investor of the capital.I think the point you're trying to make is that if someone personally loans out their own money then that's okay, but if someone pays someone else to loan out their money then they're an evil capitalist bastard.Jon, do you own any CDs? Doesn't matter, you understand how they work, right? You're giving the bank your money to administer for you so that it can collect interest. The bank accomplishes this by loaning out your money and collecting interest on it, and then they pay a lesser amount of interest out to you, keeping the difference as a fee for their labor. How about that, you're an evil capitalist bastard! I think they tried that in Russia and the rest of the eastern bloc.Making capital available for economic investment is the way capitalism works. Capital is even in the name. Face it, you're just an anti-capitalist.--Percy

Really? Here for everyone's edification and enjoyment, Jon's thoughts on capitalism that make no moral judgments: I could go on, but why bother.You liken capitalists to hijackers, thieves, hostage takers and layabouts, but you're not making any moral judgments. Jon, face it, you're a communist.--Percy

My gosh, such sincerity.Since we're done with capitalism why don't we move on to irony. Here's the first sentence of the entire thread: And here's you after arguing for who knows how many posts: Priceless!--Percy

Hi Jon,I appreciate that you're trying to put a fine point on your position, but in Message 1 I wasn't trying to put a fine point on mine. I wasn't trying to distill the several ideas about how best to think about value from within neoclassical economics. Your perspective on value fits right in with neoclassical ideas and I have no problem with it, but none of these ideas are without their problems. That's why there are debates about value even within mainstream economic circles.The opening post was intended primarily as a counterpoint to the ideas from a predecessor thread that a book containing an idea that earns $100,000 is worth a $100,000, or that value means what someone would pay were you to threaten to take it away. These views are clearly outside the neoclassical perspective that is the dominant paradigm within mainstream economics today.Let me address one of the problems with your position that price doesn't influence value. Someone who doesn't shop much might not know the value of a bag of peas, but it wouldn't be very hard to find out. He would go to several supermarkets and check prices, and that's how his impression of value would be established.If you need to know the value of something rare like a flintlock from the early 1800s then you need someone who knows the prices at which such rare items change hands (an expert for lack of a better name), and it is those prices that determine value. But it is still people's willingness to pay various amounts that is used to determine value.Technical definitions involving marginal utility and so forth have analytical value because they can be plugged into equations and used in economic models, but people aren't usually very analytical about purchasing decisions until the prices get interesting. In most day-to-day life very little thinking goes into purchasing decisions. I need gas to get to work, so whatever the price of gas is today, that's what I pay.Analytical economists can claim that the price I paid exceeded the value I assigned, but nothing like that was going on in my head, and when they do studies of actual purchasing behavior they find that such simplistic models, convenient as they are, only capture part of what is really going on.For instance, one of the interesting effects of price is that it can be seen as an indicator of quality. For some goods increasing price can actually increase sales. Go to the pain reliever aisle of any pharmacy and watch for an hour. Some people will choose the name brand, some the store brand, of the various pain relievers. The pain killer is the same, but marketing has influenced perceptions of quality and maybe safety, too, and have affected perceptions of value and consequent purchasing decisions.I think the biggest problem we've had in this thread is an insistence that one's position is correct to the exclusion of any other position, no matter how minor the differences might be. The fact of the matter is that within mainstream economics price and value are closely related, but once you get into the details there is a great deal to discuss. I wish we could have had a more enlightening discussion.--Percy

Hi Straggler,You didn't respond as to whether you wanted to call it or not, and I didn't want to respond if all it did was continue the silly repetition of arguments, so what I've come up with is a few observations.Scientists, be they Galileo, Newton, Pasteur, Einstein or lesser lights, make their contributions to science.Companies can use the current state of scientific knowledge to create wealth.Companies that create wealth report it on their income statements.The salaries of company officers that are paid out of company income have risen much, much faster than median income.The share of taxes paid by the wealthy has declined over the past few decades.This is a pretty clear trail of dollars.We're not disagreeing on what has happened. We're only disagreeing on how to describe it.--Percy

You have a conception of value that is, literally, of no value. Staying with the example of our hypothetical non-shopper, let us say he is willing to pay 5 minutes of work for a bag of peas, but finds they are charging 10 minutes of work. So he decides to buy a bag of corn which he also values at 5 minutes of work, but finds they are also charging 10 minutes of work for corn. He checks the prices of all the frozen vegetables and discovers the same thing. He looks for other foods and finds they're all priced higher than the value he assigns. But he has to eat, so in the end he pays a price higher than his value. So where's that leave this claim of yours: Either our hypothetical non-shopper has just violated your inviolate rule, or he has adjusted his internal sense of value to better accord with the prices actually being charged. I can see how someone still trying to find infinity on the supply/demand curves might think this.--Percy

Interesting. Is it your view that nothing ever affects the values an individual assigns to things, and if not, what are the circumstances under which they would change? You apparently don't recognize your own logic. This is you in Message 264: Value in use assigns an infinite value to air. Let us know when you find infinity on the demand curve.--Percy

You are so contradictory. I've given you a chain of evidence measured in dollars showing how the money is getting to the rich, and you say it isn't meaningful. Yet you post a chart delineated in dollars as evidence for your claims that the rich are taking more than their fair share. Make up your mind. Do dollars count as "meaningful" in your world or not?I think you just like the sound of saying, "The rich are taking an unfair share of the benefits of the productivity gains from ideas and innovation." The fact of the matter is that money is fungible, and the rich are taking an unfair share of money from all contributors to the means of production. Breaking it down into how much from each contributor, such as air, gravity, wind, oil, roads, Boyle's Gas Law, thermometers, the internal combustion engine, GPS, a reliable currency, etc. and so forth, just isn't possible, not even remotely.--Percy