Chapter Content
Okay, so, value. What *is* value, right? It's like, you could teach a parrot to squawk "supply and demand," and, you know, some people would say you've got yourself a top-notch economist! But seriously, it's a much deeper question. There's this quote, and it goes something like, "A cynic is a man who knows the price of everything and the value of nothing." Hits hard, doesn't it?
Early economic thinkers, like Adam Smith, they figured value was kinda baked into the thing itself. Like, it was about the labor that went into making it. You know, the effort, the sweat, the hard work. If you were making pins, you could *see* the people doing the work, so the value was obvious, right? Like it was a tangible thing, because of all the direct and indirect human effort put into it.
But then you start thinking about it, and it gets tricky. You know, some people put a ton of effort into stuff that just isn't valuable to anyone. Or think about the diamond-water paradox. Water keeps you alive, diamonds just sparkle. So how come diamonds cost way more?
So, some folks came along and said, "Hold on, it's not about the effort, it's about what people *want*." It's all subjective, right? It's about the use or pleasure that the consumer gets from it. If nobody wants it, it's worthless, no matter how much work you put in. Okay, but that's not the whole story, either. I mean, that explains the Sisyphus example, but it doesn't explain diamonds.
The thing is, both sides are right, in a way. Value can't be more than what someone's willing to pay for it. No one's buying a boulder rolled up a hill! But the cost of making something also matters. Diamonds are sparkly, yeah, but they're also rare and hard to get. Water's easy to get, so even though we *need* it, we don't always value every last drop, we use it wastefully. It’s the difference between what’s on average important versus what's important at the margin.
And think about this: even in a perfect world, diamonds, the Mona Lisa, the Grand Canyon...they're valuable because they're wanted *and* they're scarce. It doesn't matter what kind of government you have. If something is both beautiful, or useful, and scarce, it'll have value. People in power will always want to hoard that stuff. But that scarcity makes a difference.
Look at the Salvator Mundi painting – crazy money for it, right? It's a mix of things. Some say that Leonardo da Vinci produced around thirty similar paintings from his workshop. And then the question comes up, you could buy a print of the Mona Lisa for like twenty bucks. Even get a reproduction for a few hundred. But it's not the same, because it's not the *real* thing, is it? It's not scarce. The real Mona Lisa? That's priceless and scarce. The economist Fred Hirsch called things like old paintings "positional goods". Their value is totally tied to the fact that not everyone can have them. The interaction of supply and demand, the cost of production, and the utility to the consumer... that's modern economics in a nutshell. And you know, it's important to look critically at things.
But there's something else, right? Like, value is tied to how much you *can* pay, not just how much you *want* to pay. A poor person might value bread more than a rich person values art, but they can't afford that painting. One of the world's richest men can drop millions on art, and that is based on circumstances, not that they were somehow more deserving.
And in a market, price tells you about values and costs. As we get older, we start dealing with budgets and prices. The beauty of a competitive market is that it's supposed to be "incentive compatible," as they say. Meaning, if you're honest about what you want and what you can pay, things work out best for everyone.
Of course, it's not always that simple. I mean, look at the pharmaceutical industry. The price of a drug isn't always a good reflection of its value. Doctors aren't paying for the pills, patients usually aren't either, the insurer is. The situation gets even more complicated when you have something like obesity drugs, where you need to keep taking them. Or orphan drugs that are only needed by a few people but are life-saving. What's a fair price for those? It's a tough question. Like the Hepititis C drug SOVALDI. It saves lives, for sure, but the cost…wow. That is why organizations like NICE have to determine whether to pay for such drugs.
So, yeah, prices are important, but not *everything* valuable has a price. Most of the stuff that really matters doesn't. And not everything with a price is valuable, either. Think of, you know, bad securities, or the opioid crisis.
Prices and markets, we need them. But we can't worship them. We need to think critically about what we value as a society. Production is not just about getting stuff, right? There's more to life than just consuming. But consumption is a big deal, and production takes up a lot of our time. And just think about how well those societies that decided what to produce centrally did. Yeah, I think we can all remember the costs associated with those times.