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Author Topic:   Economics: How much is something worth?
Jon
Inactive Member


Message 241 of 330 (663924)
05-27-2012 8:43 PM
Reply to: Message 239 by Percy
05-27-2012 5:24 PM


Re: The Value of Air 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.
What's the point of having a separate term'value in trade'if you're just going to equate it with a term that already exists'price'?
Edited by Jon, : No reason given.

Love your enemies!

This message is a reply to:
 Message 239 by Percy, posted 05-27-2012 5:24 PM Percy has replied

Replies to this message:
 Message 243 by Percy, posted 05-28-2012 4:03 AM Jon has replied

  
Dr Adequate
Member
Posts: 16113
Joined: 07-20-2006


(1)
Message 242 of 330 (663960)
05-27-2012 11:50 PM
Reply to: Message 239 by Percy
05-27-2012 5:24 PM


Re: The Value of Air in Trade
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.
And to prevent any further ambiguity, confusion or dissent, you could use the term price instead of value, since that is apparently what you mean by it.
Unless, of course, the creation of ambiguity is necessary to your argument.

This message is a reply to:
 Message 239 by Percy, posted 05-27-2012 5:24 PM Percy has seen this message but not replied

  
Percy
Member
Posts: 22929
From: New Hampshire
Joined: 12-23-2000
Member Rating: 7.2


Message 243 of 330 (663969)
05-28-2012 4:03 AM
Reply to: Message 241 by Jon
05-27-2012 8:43 PM


Re: The Value of Air in Trade
Jon writes:
What's the point of having a separate term'value in trade'if you're just going to equate it with a term that already exists'price'?
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 $1.10. During a given week the supermarket sales are represented in this table:
Supermarket #1Supermarket #2Supermarket #3
Price of a bag of peas$.90$1.00$1.10
Number of bags of peas sold300200100
Total paid$270$200$110
Value of a bag of peas($270+$200+$110)/(300+200+100) = $.97
Price/value ratio.9281.031.13
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

This message is a reply to:
 Message 241 by Jon, posted 05-27-2012 8:43 PM Jon has replied

Replies to this message:
 Message 246 by Dr Adequate, posted 05-28-2012 7:48 AM Percy has seen this message but not replied
 Message 248 by crashfrog, posted 05-28-2012 8:23 AM Percy has replied
 Message 256 by Jon, posted 05-28-2012 10:58 AM Percy has replied

  
Straggler
Member (Idle past 314 days)
Posts: 10333
From: London England
Joined: 09-30-2006


Message 244 of 330 (663972)
05-28-2012 6:04 AM
Reply to: Message 233 by Percy
05-26-2012 7:34 AM


Re: Price And Value
Percy writes:
Ideas, innovation, new technologies, they're all reflected in GDP measures.
The beneficial economic effect is indeed reflected in productivity gains, company profits and thus GDP. We all agree on this. It is who these gains are being received by that is the issue.
Percy writes:
If you want to see how the returns from these investments are being funneled to the wealthy then you have to follow the money trail. When you do you'll find it leads through company board rooms.
Thus the benefits of increased productivity end up in the hands of those who own rather than those who contribute to wealth creation through innovation or activity. Because the methods of accounting put the emphasis on ownership to the exclusion of near all else.
Which means the wealthiest are receiving more wealth than they can claim to be creating and thus wealth is trickling up rather than down.
That's the point.

This message is a reply to:
 Message 233 by Percy, posted 05-26-2012 7:34 AM Percy has replied

Replies to this message:
 Message 247 by Percy, posted 05-28-2012 8:04 AM Straggler has replied

  
Straggler
Member (Idle past 314 days)
Posts: 10333
From: London England
Joined: 09-30-2006


(1)
Message 245 of 330 (663974)
05-28-2012 6:07 AM
Reply to: Message 232 by Percy
05-26-2012 7:20 AM


Re: Mainstream Economics
You are just conflating cost and value at ever greater length and in ever more contrived ways.
I want to know what the value to the US economy is of having an educated, rather than an uneducated, population.
More specifically I want to know what the return is on the investment made in educating people at public expense over the last 30 years in terms of the effect this has had on the productivity (and thus GDP) of the United States
Can you show me where I can find this information on your balance-sheets?

This message is a reply to:
 Message 232 by Percy, posted 05-26-2012 7:20 AM Percy has seen this message but not replied

  
Dr Adequate
Member
Posts: 16113
Joined: 07-20-2006


Message 246 of 330 (663980)
05-28-2012 7:48 AM
Reply to: Message 243 by Percy
05-28-2012 4:03 AM


Re: The Value of Air in Trade
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.
So does "value in trade" mean "average price within a region"?
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.
So ... if by advertising Chevy only increases their volume of sales, while leaving the price of one of their trucks the same, have they increased the "value in trade" of a Chevy truck?

This message is a reply to:
 Message 243 by Percy, posted 05-28-2012 4:03 AM Percy has seen this message but not replied

  
Percy
Member
Posts: 22929
From: New Hampshire
Joined: 12-23-2000
Member Rating: 7.2


Message 247 of 330 (663982)
05-28-2012 8:04 AM
Reply to: Message 244 by Straggler
05-28-2012 6:04 AM


Re: Price And Value
Straggler writes:
The beneficial economic effect is indeed reflected in productivity gains, company profits and thus GDP. We all agree on this. It is who these gains are being received by that is the issue.
No, you're wrong, we agree on that, too. Wealth from all sources, including productivity gains, is becoming increasingly concentrated at the top.
Thus the benefits of increased productivity end up in the hands of those who own rather than those who contribute to wealth creation through innovation or activity. Because the methods of accounting put the emphasis on ownership to the exclusion of near all else.
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.
--Percy
Edited by Percy, : AbE.
Edited by Percy, : Grammar.

This message is a reply to:
 Message 244 by Straggler, posted 05-28-2012 6:04 AM Straggler has replied

Replies to this message:
 Message 253 by Straggler, posted 05-28-2012 10:09 AM Percy has replied

  
crashfrog
Member (Idle past 1715 days)
Posts: 19762
From: Silver Spring, MD
Joined: 03-20-2003


Message 248 of 330 (663983)
05-28-2012 8:23 AM
Reply to: Message 243 by Percy
05-28-2012 4:03 AM


Re: The Value of Air in Trade
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.

This message is a reply to:
 Message 243 by Percy, posted 05-28-2012 4:03 AM Percy has replied

Replies to this message:
 Message 249 by Percy, posted 05-28-2012 8:32 AM crashfrog has replied

  
Percy
Member
Posts: 22929
From: New Hampshire
Joined: 12-23-2000
Member Rating: 7.2


Message 249 of 330 (663985)
05-28-2012 8:32 AM
Reply to: Message 248 by crashfrog
05-28-2012 8:23 AM


Re: The Value of Air in Trade
crashfrog writes:
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.
Bingo.
--Percy

This message is a reply to:
 Message 248 by crashfrog, posted 05-28-2012 8:23 AM crashfrog has replied

Replies to this message:
 Message 250 by crashfrog, posted 05-28-2012 8:47 AM Percy has replied

  
crashfrog
Member (Idle past 1715 days)
Posts: 19762
From: Silver Spring, MD
Joined: 03-20-2003


Message 250 of 330 (663986)
05-28-2012 8:47 AM
Reply to: Message 249 by Percy
05-28-2012 8:32 AM


Re: The Value of Air in Trade
Bingo.
Well, ok, "bingo", but what you said was "perceived value", not "actual value."

This message is a reply to:
 Message 249 by Percy, posted 05-28-2012 8:32 AM Percy has replied

Replies to this message:
 Message 251 by Percy, posted 05-28-2012 9:20 AM crashfrog has replied

  
Percy
Member
Posts: 22929
From: New Hampshire
Joined: 12-23-2000
Member Rating: 7.2


Message 251 of 330 (663992)
05-28-2012 9:20 AM
Reply to: Message 250 by crashfrog
05-28-2012 8:47 AM


Re: The Value of Air in Trade
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:
Wikipedia writes:
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 or the extended lifetime value earned by the consumer. This is value calculated by actual measurements of ROI instead of production input and or demand vs. supply. No single unit has a fixed value. Value is intrinsically related to the worth derived by the consumer. [Burke(2005)].
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

This message is a reply to:
 Message 250 by crashfrog, posted 05-28-2012 8:47 AM crashfrog has replied

Replies to this message:
 Message 252 by crashfrog, posted 05-28-2012 9:49 AM Percy has replied
 Message 257 by Jon, posted 05-28-2012 11:02 AM Percy has seen this message but not replied
 Message 273 by xongsmith, posted 05-30-2012 1:21 PM Percy has replied

  
crashfrog
Member (Idle past 1715 days)
Posts: 19762
From: Silver Spring, MD
Joined: 03-20-2003


Message 252 of 330 (663993)
05-28-2012 9:49 AM
Reply to: Message 251 by Percy
05-28-2012 9:20 AM


Re: The Value of Air in Trade
Yes, I'm talking about perceived value, not actual value.
Well, ok, except that you "bingo'd":
percy writes:
Advertising can influence perception of value, making it more likely a good will be purchased.
crash writes:
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.
percy writes:
Bingo.
crash writes:
Well, ok, "bingo", but what you said was "perceived value", not "actual value."
percy writes:
Yes, I'm talking about perceived value, not actual value.
I'm at a loss, I guess, and you're certainly not doing anything to insulate yourself from the charges that you're playing fast and loose with the definition of the word "value."

This message is a reply to:
 Message 251 by Percy, posted 05-28-2012 9:20 AM Percy has replied

Replies to this message:
 Message 254 by Percy, posted 05-28-2012 10:18 AM crashfrog has replied

  
Straggler
Member (Idle past 314 days)
Posts: 10333
From: London England
Joined: 09-30-2006


Message 253 of 330 (663996)
05-28-2012 10:09 AM
Reply to: Message 247 by Percy
05-28-2012 8:04 AM


Re: Price And Value
Percy writes:
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.
Have I said differently?
Percy writes:
Let's not add accounting to your confusion about who created wealth belongs to.
The confusion here is yours and it pertains to who is creating wealth. I am simply saying that the wealthiest are receiving more wealth than they are creating and thus wealth is trickling up rather than down.
The accounting view you are advocating as the be-all-and-end-all measure of economic value gives a warped and unrealistic view of wealth creation. If we simply look at wealth creation from this purely accounting perspective we will conclude that those who benefit from productivity gains and those who are the "wealth creators" are necessarily one and the same. Because in accounting terms the ownership of increasing assets is what qualifies as "wealth creation". Thus if we want to create wealth in society and we are too blinkered to see beyond accounting restrictions we would conclude that focusing financial resources at the wealthiest is justified because they are the "wealth creators". This is of course the flawed premise behind trickle down economics.
However if we look past simplistic accounting we will conclude that focusing resources on those that cause productivity to rise and assets to appreciate is the way to best create wealth. Focus it on those who innovate, educate and act in other ways that significantly improve productivity.
The problem is that this doesn't fit neatly on a balance-sheet. I don't know (for example) what value the invention of the microchip has added to the world economy. I doubt that on any company balance-sheet you will see a figure pertaining to "productivity gains as a result of using microchip technology". But the idea that the use of microchip technology hasn't boosted productivity and added value to the economy simply because it isn't listed as an item in this way is absurd.
Conflating the necessities of accounting with the realities of wealth creation is a road to nowhere but plutocracy.
Percy writes:
Wealth from all sources, including productivity gains, is becoming increasingly concentrated at the top.
In a capitalist economy where productivity gains are allocated on the basis of ownership to the exclusion of all else this is all but inevitable. Without some form of re-distributive counterbalance the sort of malfunctioning, plutocratic, undemocratic, monopolistic, too-big-to-fail, socialised-risk-privatised-profit capitalism we have today is going to happen.

This message is a reply to:
 Message 247 by Percy, posted 05-28-2012 8:04 AM Percy has replied

Replies to this message:
 Message 258 by Percy, posted 05-28-2012 11:25 AM Straggler has replied

  
Percy
Member
Posts: 22929
From: New Hampshire
Joined: 12-23-2000
Member Rating: 7.2


Message 254 of 330 (663997)
05-28-2012 10:18 AM
Reply to: Message 252 by crashfrog
05-28-2012 9:49 AM


Re: The Value of Air in Trade
crashfrog writes:
I'm at a loss, I guess, and you're certainly not doing anything to insulate yourself from the charges that you're playing fast and loose with the definition of the word "value."
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:
Wikipedia writes:
The subjective theory of value, also known as the theory of subjective value, is an economic theory of value that identifies worth as being based on the wants and needs of the members of a society, as opposed to value being inherent to an object.
It continues with something I quoted earlier:
"Value" here is partially separate from exchange value or price, except insofar as the latter is intended to help identify the former; the value of any good or service simply being whatever someone would trade for it in the present.
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

This message is a reply to:
 Message 252 by crashfrog, posted 05-28-2012 9:49 AM crashfrog has replied

Replies to this message:
 Message 255 by crashfrog, posted 05-28-2012 10:24 AM Percy has seen this message but not replied

  
crashfrog
Member (Idle past 1715 days)
Posts: 19762
From: Silver Spring, MD
Joined: 03-20-2003


Message 255 of 330 (663998)
05-28-2012 10:24 AM
Reply to: Message 254 by Percy
05-28-2012 10:18 AM


Re: The Value of Air in Trade
This is the concept of value I'm trying to explain.
Then you might want to step back, look over your posts in this thread, and think about why everybody who reads them comes away believing that you're explaining that value is an identity of price.
Another source of confusion is that people often use the words value and price interchangeably
"People"? You're the one that's doing that. The rest of us are trying to explain to you why "value" is not the same thing as "price."

This message is a reply to:
 Message 254 by Percy, posted 05-28-2012 10:18 AM Percy has seen this message but not replied

  
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