Summations Only

It isn't a special definition. As I've said many times in this thread, I'm using the definition of value from mainstream economics where value and price are closely related. The price people are willing to pay for a good will vary according to their perception of its value. You mean in the sense of getting people to pay money for the same air that's freely available all around us? Sure. Can you imagine a circumstance where anyone would pay money for air? If you can get someone to pay you for air then congratulations, you could sell snow to penguins. If you explain where you see contradictions then I will clarify. Air is not an economic commodity because it never changes hands for money for the purposes you mention like breathing or burning coal. Changing hands for money is the definition of an economic commodity. Oxygen for hospitals or space stations or oxy-acetylene torches is an economic commodity because it changes hands for money.Air is not an economic commodity but a natural resource that is ubiquitous and in virtually infinite supply.--Percy

This thread is suffering from a confusion between two ways of looking at value. The most significant problem is the steadfast denial by many that my way of looking at value is valid or even exists within economics. I'm hopeful that the following quotes will set this thinking to rest.Here is an exerpt from the Wikipedia article on Value in Economics, I've provided this one before: Note the last part of the last sentence: "If there is no market to set a price then there is no economic value."Here are some excerpts from the Wikipedia article on the Subjective Theory of Value: Note that last sentence: "Any goods that are in unlimited supply would have no value."This is from a random blog, techdirt: This is from a slide set for a presentation about executing on ideas Execution Counts, Ideas are Not Enough: This is from an article titled The Economic Way of Thinking Part 1 that actually uses air as its example: Pay particular attention to that last paragraph where it draws a distinction between value in use versus value in trade. Using their terminology, in this thread I've been talking about value in trade.I don't know if their terminology is universal, but it is so useful in the context of this discussion that I shall adopt it. CS and I are talking about value in trade, and we've been very clear about that. The rest of you are talking about value in use, and further claim that no other way of thinking about value exists or makes sense, but there is little support for this position.Hopefully the distinction between these two ways of looking at value is now clear and we can move on to focus on the discussion of value in trade, the context I originally intended when I began this thread.--PercyEdited by Percy, : Typo.Edited by Percy, : Grammar.Edited by Percy, : Grammar.

Hi Jon,I think you'll find that Message 239 answers your concerns.--Percy

You say this as if it was just me, but it isn't. I'm using the same view of value and price as mainstream economics. I've quoted from a number of articles describing this or very similar views of value and price, and none of them consider the terms to refer to the same thing. I recognize that the use of the word "equate" by one of the articles seems to imply otherwise, but they're using "equate" in the sense of a relationship rather than an equality.Value and price are not synonyms. Value is a sense of what something is worth in terms of some measure of value, usually a currency like dollars. The more someone values a good the more they'll pay for it. Price is what is paid when a good changes hands.Here's an example of a possible way to obtain an aggregate measure of value for a region that I described to Crash in Message 210. In a small community of 3 supermarkets that don't use promotions the price of a bag of peas is $.90, $1.00 and $1.10. During a given week the supermarket sales are represented in this table: The lower the price relative to value (the price/value ratio) the more likely it is someone will buy a good, or the more of it they will buy. Conversely, the higher the price relative to value the less likely it is someone will buy a good, or the less of it they will buy.Advertising can influence perception of value, making it more likely a good will be purchased. For example, Chevy truck ads attempt to raise the perception of their value in consumers minds in order to make it more likely they'll buy Chevy trucks instead of Fords.--Percy

No, you're wrong, we agree on that, too. Wealth from all sources, including productivity gains, is becoming increasingly concentrated at the top. The methods of accounting cannot be anything but what they are because of the requirements that the plus and minus sides of the ledger have to balance. Let's not add accounting to your confusion about who created wealth belongs to.When you work for yourself the wealth you create belongs to you. If you make a chair in your wood shop and sell it for $100 then the wealth you create is $100 minus the cost of materials and any other expenses.If you decide to instead make chairs for a company who pays you $25/chair then the wealth you create is $25/chair. You agreed to that valuation of your labor when you took the job. If the company sells the chairs for $100/chair then the wealth the company creates is $75/chair. That $75/chair is not wealth you created, it is wealth the company created. You contributed labor to the end result of selling the chairs for $100/chair just like everyone else in the company, but none of you have any right to that created wealth. That created wealth belongs to the company. (AbE: In reality, of course, the wealth the company creates is $100/chair minus expenses, which includes your $25/chair salary plus all other expenses - in other words, created wealth is the same as profits)Does anyone here think the wealth you created and that is rightfully yours should actually be $100/chair, which would be the $25/chair they're paying you plus the $75/chair additional in the sales price? To those who think so then consider the contributions from other parts of the company. The purchase and delivery people bring you the raw lumber, you no longer have to fetch that yourself. The maintenance people maintain and repair your machines, you no longer have to do that. The company's purchasing department buys the machines, you no longer have to do that. The company owns the building with the shop floor, you don't have to maintain a workshop anymore. The janitors keep the workshop clean, you no longer have to use your time sweeping up sawdust and so forth. The sales and marketing departments handle advertising and relationships with retailers, something you no longer have to do if you ever did. The delivery people transport the chairs to retail establishments, something you no longer have to do.What the company has made possible in this case is specialization. You're a craftsman, and now all your craftsman skills are being dedicated to your craft, which is making chairs. You no longer have to drive around buying lumber and delivering chairs, you don't have to fix and maintain your machines, you don't have to clean the shop, you don't have to pay a mortgage on a building, etc., etc., etc.The company takes advantage of specialization in all other areas. People who are good at driving but not at making chairs can drive. People who are good at cleaning but not at driving can keep the building clean. People who are no good at cleaning but are good at making pitches can market and sell the chairs. People who are not particularly good at any of this stuff but are good at organizing and leading run the company.Company's own the profits from their efforts because they do the work of bringing together and coordinating all the people and infrastructure necessary to producing a product.Everyone gets a salary, and how the company's money is divided among the employees is decided at the Board of Director level, not specifically of course, but generally. They need the salaries they pay to be competitive, but they don't want to overpay. Rapidly increasing salaries for those at the top versus stagnating salaries for those outside the top is a result of competitive pressures. Companies who are able to maintain a competent workforce at a given salary level are not going to increase salaries, particularly in the highly competitive markets we see today.But apparently top flight talent for running companies is in short supply, and so salaries for company officers keep rising and rising. I can only speculate about why that is. I think it is partly an old-boy network type of thing, that they're all rich and sit on each other's boards and keep voting each other increasingly extravagant salaries. There may also be a perception thing going on, where they're perceiving value in talent that isn't really there.--PercyEdited by Percy, : AbE.Edited by Percy, : Grammar.

Bingo.--Percy

Hi Crash,Yes, I'm talking about perceived value, not actual value. Here's the Wikipedia paragraph I provided about actual value once before, the one with the example of the $100,000 book: Actual value in this sense plays no role in anything I'm saying, and I don't view actual value as a useful concept, or at least I can't think of a context where I would find it useful.Perceived value differs from individual to individual, and will vary over time for each individual. Everyone experiences these facts everyday. You buy a particular snack that your friend says you would have to pay him to eat, showing that different people have different perceptions of value. Or let's say you think TGI Friday's is a terrible restaurant, but then you see an ad on TV that changes your mind, or maybe a friend tells you about their new menu or perhaps just a new menu item, and your perceived value of TGI Friday's rises.--Percy

I'm not the one who defined value as used in mainstream economics. I'm just the one trying to explain it. If I'm doing a botch job of explaining it then visit a couple webpages and help me get the explanation right.One webpage that might help is the Wikipedia article on Subjective Theory of Value which begins: It continues with something I quoted earlier: This is the concept of value I'm trying to explain. It's also the one I've always held. If my explanations have varied it is only because there's no point repeating explanations that have failed previously. I've never forgotten the grad assistant I once had for a course who when he had trouble explaining something would keep repeating the same explanation in the same words in a louder and louder voice until we stopped asking questions. This made clear to me very early in my career the importance of seeking new ways to explain things until something clicks.Another source of confusion is that people often use the words value and price interchangeably, even in economics discussion except where the distinction is significant.--Percy

If you agree that accounting cannot be any different than it is, that's it's just the toting up of numbers plus and minus, how do you explain this comment? Sure looks like you're accusing accounting of painting a very biased picture: Even worse, this comment is dead wrong. The number of shares outstanding takes up only a line or two on income statements, and only a couple lines on the balance sheet unless there are employee stock plans, in which case you need lines for those, too, because they have to be carried as liabilities. No, the confusion is all yours. You're using the hard numbers of GDP and productivity figures to argue about contributions they don't measure and that you have no numbers for. You're also operating under the false premise that capital all by itself can't create wealth.I have by now provided a large number of examples in this thread, but here's another. A hard working native of Brazil arrives on our shores and gets a job cleaning office buildings at night. She'd like to start her own cleaning business but lacks the money, so she works hard and tries to save but just can't get ahead. After 10 years she's still working for someone else and has still saved virtually nothing.Now let's modify the scenario slightly. A hard working native of Brazil arrives on our shores with capital borrowed from family on which she's agreed to pay 10% interest. Part of the money goes to getting settled and acclimated and just figuring things out, but she soon buys a cleaning business. After 10 years she has paid back the loan and is worth a million dollars.10 years and no loan yields nothing, 10 years and a loan yields a million dollars. That's how capital creates wealth. Until you understand that capital can create wealth you're doomed to misunderstand some of the most important aspects of economics. You're incredibly persistent at misunderstanding some things. The contribution to the world economy of innovations like the integrated circuit isn't something we can measure, but that doesn't mean it has had no effect, and no one has raised this argument that you're attempting to rebut.The point you should actually be trying to make is that Noyce and Kilby's invention has contributed far more to the world economy than they ever received in compensation in the form of salary and the Nobel Prize. I agree the contribution is invaluable, but you must agree that it is unquantifiable. Noyce must have made a lot of quantifiable money because as co-founder of both Fairchild and Intel he would have had a great deal of equity in the form of stock in both companies. Kilby appears to have been a salaried employee all his life and so probably made much less.Can you make a numerical argument for your position about who creates wealth? I think if you start trying to plug some numbers in that the problems will become much more apparent to you.--Percy

You're still confusing value in use with value in trade. Remember, value in use causes you to assign an infinite value to air when in reality no one would ever pay money for air. I'm talking about value in trade, which is the amount people would be willing to pay for a good.Different people assign different values, and the aggregate measure of value I proposed was for deriving a single value for a good in a local area. If a grocer knew the aggregate value for peas in his area was $.90 while he was charging $1.10 then he would know his price was too high and that to sell more peas he would have to find some way of lowering his prices.If the grocer had this aggregate value information for many goods then combined with sales volume information he could make decisions about how much profit he wanted to make on each one and balance his overall pricing so as to maintain satisfactory overall profit levels while maximizing the draw to customers.About your modification to the grocery store example, in the real world sales decline as prices increase. People would start switching from peas to some other vegetable. If there being only a single grocery store in a small town was an important part of your scenario then it isn't very useful in this discussion. We already know monopolies can be abusive. You applied the aggregate measure incorrectly since it's meant to be applied over a region for a time period, not on a daily basis in a single store, which is not useful and makes no sense. The rest of your scenario of the grocer telling people they should be happy because the price they got yesterday was better than the price today is a bit far fetched.--Percy

And I'm glad we finally agree on this, but if you'd bother to read what you responded to and actually took the trouble to quote, I was referring to your characterization of accounting as biased. You said it overemphasized the contributions of ownership to wealth creation when the reality is that ownership gets only a few lines on the accounting sheets. Leave it to you to pick a stupid interpretation and go with that. Do I have to say everything from scratch in every message? As I said earlier in this thread, unless someone keeps their money in a mattress, money gets invested. And who in this thread is arguing that only capital has a role in wealth creation? You pulled this once before, and in reply I declared that both labor and capital have a role in wealth creation. I've provided examples in this very thread of labor creating wealth, like the man building a chair. So tell us just who, exactly, you're arguing with who is claiming that only capital has a role in wealth creation? And if he really does exist, could you please keep your replies to him out of your replies to me. You pulled this one once before, too, back in Message 141, so I'm going to call you on it this time. What I actually said was this: Oh, gee, look at that, I was comparing the public and private sectors, not the rich versus the rest of us. Quite a difference, what? Why not both? Many companies have employee stock plans.So if you work on a productivity boosting technology that is successful then you get your salary and maybe a nice bonus. And if you also buy stock (thereby risking your capital) and the stock increases in value because of your work, it's like a double bonus.Of course, if the productivity boosting technology doesn't pan out then at least you still have your salary, but if you also bought stock and the stock tanks then, well, too bad. You risked your capital and you lost. I meant at the income statement level. Try to find a place on an income statement for this scientist's contribution to national productivity.If you want to have a discussion about trickle-down economics, propose a new thread. This thread already has a topic.--Percy

Uh, okay. Do you live on this planet? The "free land" part of this is highly unrealistic, so let's change this a little bit. One farmer owns his land free and clear because his uncle left it to him in his will, the other had to buy his land. I'll fill in a few real values to help make the comparison.First of all recognize that all other things being equal the farmer with the loan cannot compete in terms of profit with the farmer with no loan. He has to deduct his loan payments from his revenue which will always reduce his profits.So let's say the farmer who bought his land puts 10% down ($25,000) and borrows the rest ($225,000) at 5% per annum to be paid over 10 years. Let's say that proceeds for each from the sale of their crops each year is $1,000,000, and that the cost for each to run their farm each year is $900,000. Here's the comparison: That loan makes quite a difference. The farmer without the loan nets almost $30,000 more that first year. If he decides to put that extra money back into the farm, next year he'll make more than the farmer with the loan.Now, what about the investor who loaned the farmer the money? He made roughly $10,000 in interest on his $225,000 investment. Over the course of the 10 years of the loan he'll earn a total of around $61,000 in interest. Instead of just $225,000 he'll have $286,000, just for sitting there doing nothing except deciding where to invest his money.Was it a good deal for the farmer who needed the loan? In monetary terms (in other words, we'll ignore how much he likes being a farmer and all that) it depends somewhat on what he could have earned elsewhere and what his other opportunities were for investing his $25,000 stake, but look at it this way. He started with $25,000, and in 10 years he'll own a 50 acre farm that is worth $250,000 today but that if it appreciates at 3% a year in 10 years will be worth $336,000. He's leveraged his $25,000 into $336,000 in only 10 years, which is a return in the neighborhood of 30% per year, while drawing an income all at the same time.We can't compare it to what would have happened had the farmer been unable to get the loan because we don't know what other job opportunities he had or what investments he could have put his $25,000 into, but by any standards you'd have to say the loan worked out very well for him, and it worked out pretty good for the investor, too, who only made a little money but since land is pretty safe also didn't risk much. Well, like I said once before, if I'm talking to communists then please let me know so I can stop wasting my time. You might to be able to reach some approximations, but you can't really measure it because the specific contributions of various technologies to a company's bottom line do not appear on their income statements.--Percy

We seem to be arguing in circles, cycling through the same sequence of arguments over and over again. Would anyone object if I threw this thread into summation mode? Keeping it open is fine, too, I'm not trying to force anything, but we could come back to this another time, maybe next year, and see if we can make better progress.--Percy

I think several of us have made a considerable investment in this thread - abandoning it wouldn't be good form. And in any case, CS says he's been looking for a chance to post some responses, so the thread should stay open.But 300 messages is the normal closing time, and we're only 30 messages away from that. I haven't set the limit yet - how many more messages do people think we need? In answering this question I think people should consider whether they believe any minds are going to be changed at this point. Is there any important information that still needs to get out there? I wouldn't mind coming back to this another time, it just seems we've exhausted the topic this time around.--Percy

So do you think it's time to call it?--Percy