Jon writes:
Each step in the production process of a finished good or service presumably adds some value to the good or service.
Not in utility terms.
But we're not talking about utility termsat least we shouldn't be. What matters is selling price; selling price is the benefit to the company of producing some good/service; it is the 'value' as considered by the company.
quote:
Note that economic value is not the same as market price. If a consumer is willing to buy a good, it implies that the customer places a higher value on the good than the market price. The difference between the value to the consumer and the market price is called "consumer surplus". It is easy to see situations where the actual value is considerably larger than the market price.
Value in the most basic sense can be referred to as "Real Value" or "Actual Value." This is the measure of worth that is based purely on the utility derived from the consumption of a product or service. Utility derived value allows products or services to be measured on outcome instead of demand or supply theories that have the inherent ability to be manipulated. Illustration: The real value of a book sold to a student who pays $50.00 at the cash register for the text and who earns no additional income from reading the book is essentially zero. However; the real value of the same text purchased in a thrift shop at a price of $0.25 and provides the reader with an insight that allows him or her to earn $100,000.00 in additional income is $100,000.00.
I've said this in another thread; and while it's all good and true it is also completely irrelevant here.
Jon writes:
Each step is also presumably essential.
All essential steps are required to derive any value at all in terms of utility from the good or service.
To derive utility, yes, but not to derive a selling price. Let's consider a very simple example: A man purchases a block of wood for $10. He then asks someone with a hammer and chisel to shape the block of wood into a carving that sells for $50. The value our wood carver adds to the product is $40the selling price of the output minus the selling price (cost) of the input.
What utility he adds is, of course, irrelevant; the benefit he provides for the original purchaserhis 'value' to the purchaserof the block of wood is the increased selling price he creates by reshaping the wood.
What is the ‘real value’ to the business of the labour that is being withheld by the striking workers?
Who cares? Businesses don't exist to create 'real value'. They exist to make money. A business without any income that produces the cure for cancer will fail; a business with positive net income that produces condiment-sized packets of airworthless crapwill succeed.
The 'real value' of the good/service being produced is irrelevant to the company in determining whether additional inputs (which is what labor is) are justified by their contribution to overall income.
The book in the example above can be said to have utility worth of $100,000.00 not because the author, the book binder, the printer, the bookshop owner etc. etc. etc. each added a calculable percentage that adds up to 100. That isn't how utility works.
Again, who cares? We aren't interested in utility to the consumer. We are interested in the selling price of the final productthe benefit to the company.
What is the ‘real value’ to the business of the labour that is being withheld by the striking workers?
No one cares about 'real value'. We are talking about money and only money.
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