Thursday, May 6, 2010

The Legend of Value & Price

While Value and Price may once have held a strong correlation to one another, these two concepts have grown apart. The concepts have surely been separated, and there are even rumors of their divorce.

This story, like many good old-fashioned American stories, begins in the Eighteenth Century anno Domini. In the same year that Thomas Jefferson’s United States Declaration of Independence was published, Adam Smith’s The Wealth of Nations was published. Smith’s writings have been astoundingly influential. One would be hardpressed to find someone to genuinely argue against the proposition that Adam Smith is the father of modern economics.

The Declaration of Independence was followed by the Articles of Confederation, the Constitution of the United States of America, its twenty-seven (to date) Amendments, and countless other documents of varying importance to define the United States of America. Likewise, Wealth of Nations has been followed by The Communist Manifesto, The General Theory of Employment, Interest and Money, Steady State Economics, The Roaring Nineties, and countless other works of varying importance to define economics. Somehow the Eighteenth Century documents have held their influence.

A lot of this influence comes from genuine quality of thought and writing. Some of the influence, however, seems to come from legend. Jefferson and Smith were certainly extraordinary individuals. Attend to their respective cult statuses, though, and one would think these men were gods, or at least demigods.

While these impressive writings are among the most accurate philosophical writings of their time, we seem to forget that these writings are dated. Although much of the writings of these - perhaps of any - great philosopher are timeless, some material is time-sensitive and does not make sense in another era.

Transportation and communication are both indispensable tools of the businessperson, and these two domains function entirely differently than they did in the Eighteenth Century. Jefferson and Smith, the great thinkers of their day and place, could likely not even imagine the Internet or commercial air transport. They could imagine unimaginable changes, though, and both men wrote of the need for adaptation and cautioned of maintaining habitual philosophies.

We need to examine Economics through the lenses of our own era and see that Free-Market Capitalism does not by itself effectively fit the world of wide contact, fast travel, and instant communication. Value and Price can still save their marriage, but they need counseling. They need us to look at their relationship, see what works, what doesn't, and offer them advice for relating in the modern Twenty-First Century world.