Now you eat the Big Mac. You just destroyed $3 in value.
But you gained $3 in nutrition and calories. Net worth: $200,000.
It's the food you can't eat that lacks value. You spend $3 on a Big Mac that turns out to be spoiled. Net worth: $199,997.
Or maybe, as you say, it's the reverse. Frankly, "value" is the least convincing aspect of economics. Better to talk about price. Money, despite being fake, is real. "Value" is just a simulacrum of price.
We can no longer count their value as part of our net worth, certainly nothing close to their original value.
Imagine two people, exactly alike in every way with the exact same amount of wealth to their name, except one has a full belly and the other is hungry.
No rational person would say that one is not better off - richer, if ever so slightly - than the other. If it was truly valueless to nourish oneself with food, nobody would pay money for food or, if they did, it would be irrational to consume it - people would stockpile fruits and vegetables as they starved to death.
You ate maybe somewhere in the neighborhood of $10,000 worth of food last year.
Sure. I converted $10,000 of my money into $10,000 worth of nutrition and calories. (Looking at my waistline, it seems like I got my money's worth.)
Productivity gains do not come from workers working harder. That's simply not sustainable.
"Harder" just means "more productive", and the evidence is actually pretty clear that the GDP gains in the past 60 years are, in fact, from worker productivity (not "shareholder" productivity.)
I don't see what's unsustainable about it. Workers can always get more productive if the value of what they produce increases.
There's a simple answer to the wealth creation contributed by the public sector research scientist: it is equal to his total compensation, which is decided by the market for such services.
I think this is the part where people are getting hung up. Why would "the market" assign, as compensation, the total value of the research scientist's wealth creation? Why wouldn't it be, in fact, quite a bit less? Why wouldn't it be, in fact, the bare minimum you could pay such a scientist before he stops creating any wealth at all?
Your contention, I think, is that a worker's wealth creation and a worker's compensation have to be identities, but you've not made an argument that that is the case. Those are very obviously two separate things, just as the value of something and its price are not identities, as proven by the fact that things don't become valueless simply because they're stolen (i.e. "purchased" for a zero price.)
A worker's compensation is not an identity with his wealth creation. In a perfect free market economy with an infinite number of employers and a scarcity of workers, they approach identity. In our economy, they do not, and this is answer to your earlier question: that's how the rich have appropriated all the gains.
Too simple, I would suggest, since "the market" does not, in fact, determine salaries.
Employer and employee are not buyer and seller. Employees don't renegotiate their wages every day or every hour; they're usually on contract. And those contracts are subject to constraint from other parties, as well as a cultural constraint that you can't cut someone's pay, you can only give them a raise or fire them altogether. The "stickiness" of wages is well-known:
quote:Many firms, during recessions, lay off workers. Yet many of these same firms are reluctant to begin hiring, even as the economic situation improves. This can result in slow job growth during a recovery. Wages, prices, and employment levels can all be sticky. Normally, a variable oscillates according to changing market conditions, but when stickiness enters the system, oscillations in one direction are favored over the other, and the variable exhibits "creep"-- it gradually moves in one direction or another. This is also called the "ratchet effect". Over time a variable will have ratcheted in one direction.
That doesn't describe a market system, because if a variable only moves in one direction, it can't be said to be determined by the market. Compensation can't be an identity with value of labor because compensation only moves in one direction, but value can move in both directions.
That proves they can't be identities - they're subject to different constraints.
If the employee makes a widget that the company pays him $10 for, and then the company sells the widget for $25, how much wealth has the employee created
$25.
and how much wealth has the company created?
$25.
This is just nonsense.
No, it's not, Percy.
employees have always had the same value: what employers are willing to pay, which is determined by the current market. On the flip side, employers have always had to assign employees the same value: what employees are willing to accept, which is determined by the market.
But these are prices, not identities with value. As the Wikipedia article on Value (Economics) says:
[quote]An economic value is the worth of a good or service as determined by the market.[/qs]
The worth, not the price. Or as it continues to say:
Value is linked to price through the mechanism of exchange.
Value is linked to price. It is not an identity with price. You're substantially misrepresenting the content of your sources even as you quote them, because you mistakenly view price and value as identities.
But the relationship between value and price is not a simple one. Walk into 10 supermarkets and you'll likely find 10 different prices for Rice-A-Roni.
I'm talking about mainstream economics which derives from versions of neoclassical economic theory that largely equate value with price.
Your Wikipedia quote doesn't say that mainstream economics equates value with price, only that they link value with price.
I don't think anybody here disputes that value is usually linked to price. But value and price are not identities; not even your wikipedia article (currently) makes that assertion.
The part of the Wikipedia quote I was working with was, "In neoclassical economics, the value of an object or service is often seen as nothing but the price it would bring in an open and competitive market."
Well, that quote doesn't say that value equals price, either. "Open and competitive market" is a critical condition that you're frequently overlooking.
That's why I used the term "largely equates". I could as easily have said "linked", and in other places Wikipedia uses either precisely that term or a synonym.
I don't think "largely equates" and "linked" are in any way synonymous, and eliding the difference between them is, largely, where you're going off the rails.
For instance while the value of one's employment may wax and wane, the price of one's employment - one's wage or salary - is known by economists to be sticky, in that it increases but does not readily decrease.
Two variables under completely different constrains cannot be identities, they cannot even "largely equate" each other, because if the value of employment "largely equated" the price of employment, the value of employment would be about as sticky as the price of employment.
But it's obvious that it isn't. That alone is proof that value cannot "largely equate" price.
When people start quibbling over word usage it's an obvious sign of deep skepticism, but I am not making things up, at least not on purpose.
I don't want you to think I'm quibbling about word usage, because nothing is more boring to me. I'm quibbling about idea usage; "largely equates" and "is linked to" are two different ideas about how two variables can be related to each other. "An open and competitive market" is a different idea than "the market economy of the United States in 2000-2012." You're getting ideas from your Wikipedia sources that are not actually present in them. That's the quibble, here.
Or explain why, if this owner of the book values it at $100,000, he jumps at your offer of $1000 for it.
Because you can't pay or be paid the value of something. You can only pay or be paid the price.
Watch an episode of the History Channel's hit series Pawn Stars sometimes, and in a 26-minute episode, you'll see this situation happen approximately three times:
Customer: Hi, Rick, I've got this Civil War-era rifle I'd like to pawn. Been in my family for generations; great-great-grandpappy carried it at Gettysburg. Rick (proprietor of the pawn shop): I've got a guy that appraises this stuff, let me bring him in. Appraiser: This is an excellent piece. Walnut stock, original mechanisms, and if you look here, you'll see the hallmark from Virginia Arms Co. I'd value this at approximately $15,000. Rick: I'll give you $3000 for it.
About half of the time, people who have just been told by an expert what the value of their merchandise is take a tiny lowball offer from Rick, because they know that price and value aren't the same thing. It's not even a matter of the rifle having a different value for the customer and for Rick; we know that they value the antique exactly the same because they've just been informed of what the value is. But the customer can't sell the antique for its value. They can only sell it for the price. Rick would be out of business immediately if price and value were the same thing, since his business is based on buying things for a lower price than their value.
Since this is the case, where, exactly, does classical value fit in in terms of money changing hands? The answer: nowhere. It plays no role in day-to-day economic life whatsoever.
Right. It seems to me that the best answer to that is concentrate on what does fit in with the notion of money changing hands: price.
If the value of a bag of frozen peas is $1 then you'll likely find it in supermarkets selling for prices ranging from $.80 to $1.20.
But out of the range of 40 different values between .80 and 1.20, only one of those is coincidentally the value of the bag of peas: 1.00 dollars. Sure, you might pay a price identical to the exact value, or you might pay a price identical to your exact birthday. Those would both be coincidental, not evidence (say, in the latter case) that the price of something could be equated with the birthdate of the purchaser.
Now, of course, the price is not completely unrelated to the value but I've already proven they can't be equated since they're not subject to the same constraints.
As Wikipedia says about value, "Many neoclassical economic theories equate the value of a commodity with its price, whether the market is competitive or not."
But we understand that this is a simplification, like "assume a spherical cow."
By the way, your gun sale example made no sense. When you pawn something it's considered a loan secured by the object you're pawning, not a sale unless and until the pawner defaults on the loan. I think you need an example involving an actual sale.
You need to watch the show, I guess. Rick's pawn shop does both loans and outright purchasing. But, look, now who's quibbling about words?
Apparently we both agree that the classical definition of value is useless
I think basically all definitions of value are useless, in economic terms anyway, because there's no way to rigorously connect them to any tangible quality. In our own day to day experience, we intimately grasp the concept that price and value are only loosely related.
If you recall, you objected to "equated" and argued that "linked" is a better term for the relationship between value and price, and I agreed, but now you're using "equated." What gives?
What gives, I guess, is that you keep agreeing that price and value are not identities, but you keep treating them like identities and supplying quotes from Wikipedia articles that equate them.
But they can't be equated. Which means that your very first line in the thread:
quote:In economics the question "How much is something worth?" has a simple answer: what someone is willing to pay.
is wrong. "How much someone is willing to pay" is the price, not the value. And the price cannot be the answer to "how much is something worth?" if price and value are only broadly linked.
The $100,000 *classical value* of the book of an earlier example is completely divorced from both reality and price, but if the value of the book, using value as defined by mainstream economics, were actually in the neighborhood of $5 then one could reasonably expect to see prices in a range around that value.
And yet one can quite reasonably expect to see prices in a wide range around something's assumed "value"; that's the basis of comparison shopping, looking for deals, going to auctions, etc. Everybody is intimately acquainted with these behaviors because we expect that the price of something might vary quite widely around our perception of its value.
So what we see is that as price increases relative to value (increasing y-axis) that quantity sold decreases (decreasing x-axis).
We see that on an imaginary graph? Percy, I'm truly at a loss for words - I could imagine and describe a graph that showed the exact opposite, that as price rose relative to value, sales volume increased, but what on Earth would that prove? It would be an imaginary graph!
I'm not a student of economics, exactly - I'm more of a student of students of economics - and I wonder to the extent that this sort of thinking - "look, here's a graph produced by a mathematical model I created; thus, the truth of my model is demonstrated" - is endemic to economics. Of course, I could find examples to support my model, such as the time online clothing retailer Banana Republic advertised a price increase,, or a dozen articles on how raising your prices can actually increase your sales volume.
Those would be anecdotes, but at least they would be real anecdotes as opposed to showing me the decaying exponential function and asking me to imagine axis labels.
No, I don't need to watch the show
No, you should. It's entertaining. It's up on Netflix.
And, you know, it might get you to chill out long enough to pull the stick out of your ass.
If the gun were really changing hands at prices in the general neighborhood of $15,000 then the guy would sell it for $15,000 instead of to Rick for $3000.
Seriously, Percy, watch the goddamn show. It's practically the catchphrase - "You just heard my expert tell you it was worth $1000; I'll give you $300 for it." You can watch people literally go agape at Rick's lowball offer literally seconds after they've just been told what it's worth. It's such a frequent feature of the show that it's an Internet meme.
Now, is it really worth $15,000? Like I said, that's what the expert says, and he's says he's basing that off what he's seen at auction. Maybe he's lying, but it stands to reason that if he was going to put a finger on the scale, it would be to Rick's benefit, not the benefit of the random customer, and that therefore his appraisal would be low, if anything. I don't see why Rick's "buddy who's an expert on things like this" (that's usually how the expert is introduced) has any incentive to overvaluate something Rick is trying to buy.
If the expert you mentioned was assigning a value based on the market for the gun where guns in its condition are changing hands in the neighborhood of $15,000, then Rick would just be out of luck.
Except that, 3 out of 4 times, Rick isn't out of luck. He gets the $15,000 gun for $4000. (Usually he gets negotiated up a bit.) And then the item goes on sale for more than double what he paid. Clearly your "neoclassical economics" is utterly foundering on how this real-world behavior can be explained, but The World-Famous Gold and Silver Pawn Shop was apparently an incredibly successful business even before the show started.
but you *do* need to learn not to say "pawn" when you mean "sell".
In point of fact, I didn't say it; the customer did. (It's not infrequent in the show to cut to an aside by Rick about the statutory difference between pawn and sale in the state of Nevada, or to show Rick's efforts to deal with nonpayment of the loan, or the inventory management necessary to make sure they don't sell pawned merchandise until the loan is in arrears.)
It is possible to have a vertical demand curve, where absent market controls, the market-clearing price for something approaches 100% of one's worldly possessions and a lifetime of indentured servitude.
Implicitly, we understand why this is - when you need medical care, you have to pay what they're asking for or you die. The nature of the transaction gives providers incredible power to extort higher prices. Historically, medical care has always commanded a premium price but it's only been in the past century that medical care has actually delivered nonzero value to the consumer. "Medicine" used to be synonymous with "prayer."
I realize you've got your hands full dealing with the rest of the crew, and they're largely working the same angle so I'll cover only the last bit of your post:
Seriously, Crash, a reality show? Really? This is where you're learning your economics? Did you know that at least some reality shows are in part planned/scripted? Do you know for a fact you can trust everything you see on this show?
Obviously portions of the show are contrived - it's usually the case that somebody shows up with an antique, and then Rick says "let me call my buddy, he's an expert in things like this" and then in the next cut, the expert is there; obviously that elides a timespan of hours or days where the expert's appearance is arranged, the customer comes back in, etc. But the people and their goods are real, because you can really go to the World Famous Gold and Silver Pawn Shop and see these people and buy and sell to them. They were a functioning pawn shop for years before they were on TV.
I don't claim I can "trust everything I see on the show" but these are obviously real customers with real antiques making real decisions about whether or not to take Rick's lowball offers.
So you're telling me that the expert tells the customer the gun is worth $15,000 and that the customer knows he can get $15,000 (or heck, even just $10,000) by selling it on eBay or traveling to the auction, but he instead sells it to Rick for $4000. What aren't you telling me here?
There's nothing I'm not telling you. You're just burdened by your own version of Morton's Demon, here; I'm telling you something that directly contradicts a cherished belief, and as a result you refuse to accept it or investigate it further. (Hence your angry denial that you don't have to watch even an episode of the show.)
Come on, get real.
How about you get real:
Civil War sword, authenticated by an expert and valued at auction for as much as $4000. Rick offers the guy $1000 and he takes it.
Here's the frame of a Shelby Cobra, valued as-is at $60,000 by an expert right in front of the guy; Rick and his dad (they jointly own the shop) offer $30,000 and the guy takes it.
That's what I could find on YouTube, anyway. Watching "Pawn Stars" will rapidly disabuse you of the applicability of "Homo economus" to real-world financial transactions.
You're confusing "value" with "market-clearing price."
Advertising can influence perception of value, making it more likely a good will be purchased.
Perception of value? Under your model, more people buying Chevy's would raise the price of a Chevy (higher demand), and you would be forced to conclude that the real, not just apparent, "value in trade" of a Chevy had increased.
So I don't understand on what basis you would claim that advertising can influence perception of value. Under your model, you would have to conclude that successful advertising actually does increase the value of the item advertised.
™ Version 4.2
(1)