Dr. Doug Cardell
An Eclectic Economist Explains Evidentiary Economics
Clear Thinking in a Complicated World
“Ideology asks for acceptance—Intelligence asks for evidence.”
Why Socialism Struggles
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The responses to my last article, 'Do You Create Value?' indicate that many of you love the idea but misunderstand value as a concept. I have discussed this concept in two other articles, 'What Is It Worth?' and 'Value and Worth'. I write about it often precisely because it is so misunderstood. The misunderstanding occurs because people tend to believe that the value of things—material objects, services, or ideas—is intrinsic; they are a property of the thing, like shape, color, or time spent. This belief is a fallacy. Value results directly from the values people hold because what people consider essential, desirable, or meaningful shapes how they assess worth. Rubies and other gemstones are inherently no different than gangue minerals. Gangue minerals are valueless minerals found alongside valuable ore minerals in a deposit. These minerals are essentially the "waste" material during mining and processing. Common gangue minerals include quartz, calcite, dolomite, feldspar, and various sulfides, sulfates, and oxides. What's the difference between valuable minerals and gangue? Sometimes, it's beauty—itself a subjective term. We rank rubies as being more beautiful than copper sulfide. Why? Who knows? It probably has something to do with color, shape, structure, and reflective properties, but scarcity also affects it. Many of the gangue minerals produce crystals that many would argue are just as beautiful as rubies, but they are far more common. My wife has an extensive collection of beautiful minerals, most of which she has collected on hikes and trips. She hasn't found any rubies. Rubies are more valuable than gangue minerals because they are both more desirable and more rare. People assign value based on their needs, preferences, emotions, and cultural influences. People often ignore the importance of cultural influences. Consider the difference between India and the US. In the US, cattle are a staple of the American diet; however, in India, generally, the consumption of cow meat is restricted and often prohibited due to cows being considered sacred in Hinduism, the religion of the majority of the population. Which culture is 'right'? In India, cows are so valuable that people cannot kill them for food; in the US, they are valuable precisely because they can be food. Human values are complicated. Oftentimes, things have symbolic value. People will die to protect the flag but don't hesitate to throw out a decorative banner. A family heirloom might have no economic value but immense emotional worth. A brand-name handbag gains value because people value status, identity, or belonging. The object's meaning, not its utility, is what counts—driven by human values like memory, identity, pride, or love. To further complicate things, these values change over time, even in the same individual. How many of us have the same values we did twenty years ago? A few decades ago, the Izod alligator on a shirt was a status symbol; today, things like that are passe. Every time I moved, I was careful to pack my extensive library; now, except for a few rarities or out-of-print books, my library's on my phone. The following paragraph is a compiled quote from previous articles. I don't like repeating myself, but I can't say it any better. In its simplest form, a market economy is a trade between two people. For example, Jim has something that Sue values more highly than he does, and Sue has something that Jim values more highly than she does, so they swap. In a free market, every exchange is voluntary. Trade occurs solely for acquiring something you want more than something you have. We use money to facilitate these exchanges. So, when we work, we trade our time and effort and the value we have created for money that we use to buy things of greater value to us than the time and effort we spend. When someone says something is too expensive, they are not making a statement about the world but their values. It may be true for them, but no one else. Nothing is valued solely for only practical reasons. Think about pencils; an internet search will return thousands of different kinds. They all write on paper. There are thousands of different ones because people have other criteria besides "does it write." Some people like thick lead, some people like thin, some like red, some blue, and some are looking for a particular aesthetic, feel, or weight. Some are looking for fashion, others tradition. The simple choice of a pencil requires variety to address the diverse wants and needs of the populace. That is what a free market provides. As a result, the price of things—their value—emerges from what people are willing to pay, not the property of the thing—people and society value things differently based on priorities, beliefs, circumstances, and biases. A bottle of water in the desert is worth far more than a bottle in the neighborhood store. In a market economy, the demand curve is nothing more than the aggregated values of consumers. It reflects the proportion of the population that values practicality, the proportion that values status, the proportion that values sustainability, and so on. This value-driven demand leads to the rise and fall of entire industries. Changing demand created organic food stores and killed VHS and DVD rental shops. Another thing affecting value is marginal utility; the times when the usefulness or utility of something is affected by increased supply. Your first bite of your favorite dish may be wonderful, but it gets less wonderful with every bite, and at some point, it becomes undesirable. Finding a great deal on a piece of furniture for your home doesn't imply that you should buy fifty of them. Anything beyond what you can use has less value. Prices in a market system act as signals of societal values. Watch the stock market; if clean energy stocks go up, it suggests that society is putting more value on sustainability. If housing prices rise in walkable cities, it reflects changing values about lifestyle and work. The market teaches us how personal values become social values—how what individuals want alters what the market prioritizes. In summary, value is not inherent in goods, services, or anything else. It's created by what people care about—their hopes and desires, fears and aspirations, and societal and cultural values. Markets reflect priorities. Prices reflect what people believe is worth paying for. In the long run, what people value is responsible for economic changes. This precept is one of the many reasons free markets are superior to controlled ones. Only in free markets do free people get to vote for their priorities with every purchase. Their values create the value of everything!
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I've read this article as well as the previous one and I want to start doing that but I need a more in depth explanation of how to do so.