Saturday, May 15, 2010

The Reality of Value & Price

Last week we discussed the legend of Value and Price; this week, I would like to try some non-fiction regarding the same subject.

I am sure that studies have been done regarding fair-market-values and prices, and I would love to read or skim any of those studies you would like to post in the comments below, but I am talking about societal value, like Adam Smith was talking about in Wealth of Nations. As our world economy continues to struggle, we make changes to the system, slowly but surely. While we're at it, we should look into what works, what doesn't, and why.

In the days before instant communication and fast transportation, communities were mostly manageable sizes, and a free-market economy in these manageable communities did a fantastic job keeping Price and Value comparable.

Globalization changed the game, though, and we have tried to ignore it. Now, instead of pricing goods and services based wholly on their value, we are valuing goods and services based partly on their price. Originally, items and services were priced so that supply-and-demand niches would be filled. Now supply-and-demand niches are being manufactured so that items and services can be priced. While the value-to-price model makes for strong economic health, the wheels fall off of the price-to-value model.

For years, Americans have complained that "everything is made in China." People still say that, although the truth is clearly counter to that statement:
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Also in the old days, occupations that did the most good made the most money: farmers, doctors, clergy. Today, farmers have to be paid subsidies, the medical industry makes less money than the insurance industry, and schools across the country and around the world are laying off good teachers and canceling extra-curricular activities. Today more than half of the American GDP is made up of interest and banking fees. The changes have been mostly gradual (although studies will show that certain leaps [e.g. the telephone, the radio, the television, the assembly line, the computer, the internet, email, cell phones] occurred), and has been mostly invisible to those living through the changes. Comparing today's prices and values with those of a century or two ago, the differences are both visible and astounding.

As a kid, when I would want to buy something frivolous, my parents would tell me, "You need to learn the value of a dollar!" I think that advice is something we should all work on figuring out these days.