On Sat, Jul 26, 2003 at 11:51:17PM -0400, John Pedersen wrote:
> Hi Paul, it was pointed out to me off-list that my last example, with
> Jennifer being a programmer, might be a bad example. I did cover my
> butt by specifying that only tables and shoes constituted tangible
> assets (besides cash), but intuitively we both know that sometimes
> programmers produce a tangible RE-saleable product; as opposed to
> maintainance programming and such. Instead of worrying about whether
> this is a "quasi-service" job, just change the example to any "pure"
> service job: a car repairman, insurance sales, hairdresser, dentist,
> broadway actor, restaurant worker, checkout clerk, on and on. Use
> these as examples of "service" and the example will be crystal clear.
>
> I know that I'm a terrible explainer, so I went googling to see if I
> could find something better for you. I found an article titled
> "Wealth of This Nation" by Diane Alden. Here's a snippet:
No, you're not a terrible explainer. I would have dropped this thread
long ago, had that been the case.
But I don't believe the resalability of a service is what gives it
value. That's just a convenient way to make the point that it _does_
have value (when you can re-sell it).
"Value" is a rather subjective concept, when it comes down to it. We
measure it in terms of dollars, but there's more to it than that. If you
make me a table for $100 today, and I sell it ten years from now for
$1000 as a prime example of the quality craftsmanship of the now-defunct
Pedersen Table Company, how do we determine what its value is in the
interim (between purchase and sale)?
Then there's the matter of Jennifer selling me her program. What if it's
a completely vertical application, not fit for any other company, and
thus not resellable? If she sold it to me for $10,000, she got $10,000
out of the deal. But I got an asset worth potentially far more than
$10,000 out of the deal, whether I can sell it or not. It's possible
that this program is so good, that it allows the Foster Table Company to
10x its table output in a short period of time-- a lot of extra wealth
and value created. Or it it could similarly assist the Foster Travel
Agency to cut more deals faster for a similar result.
But let's take a more pedestrian example, one you mentioned. Let's take
Salvatore the barber. He cuts hair for $10 a pop (I remember when there
were real barbers and a haircut was $2!). Sal cuts my hair for $10. He's
$10 richer. But I've also gotten something of value that I want-- cut
hair. That haircut was worth $10 or I wouldn't have paid $10 for it. I
could always get the cute blonde down the street to do it for $5 or for
free (depending on what I did for her, wink wink nudge nudge ;-). But
Sal does a better job, and I like to sit around and shoot the breeze
with the guys in the barber shop. That's part of what I pay for-- the
experience of being "one of the guys" in the barber shop. And in that
barber shop, I may well have met an old friend who has a multi-million
dollar business idea he needs a partner on. We go into business and make
a fortune. How much was that haircut worth now? Probably more than I
paid for it. And if I were feeling very generous one day, I might go in
and plop down a check to Salvatore for $1000, just to say thanks for
helping make my fortune possible. Sal's richer by $1000, and all he had
to do was keep his barber shop open.
Again, nothing you've said convinces me that value and wealth only comes
from tangible, manufactured objects. Since we're quoting things, I'll
give you something obliquely relevant (since I don't want to spend years
trying to find just the right quote). From the aforementioned _Economic
Way Of Thinking_:
"The cost of obtaining anything is the value placed on whatever must be
sacrificed in order to obtain it." Or "Cost is the value of
opportunities foregone."
I could have purchased five cups of coffee for the price of Sal's
haircut, but I don't drink coffee. I could have bought three bags of
Doritos, but I don't want Doritos. I want a haircut. I could have
purchase half a pedicure with that $10, but why? I don't need one, in my
opinion. What I "need" is a haircut. I could just chuck it all an go
fishing for nothing, but I'd rather go get a haircut.
The point here is that the concept of valuation is relative to the view
of the participants, and may or may not have much to do with how many
dollars change hands. Likewise, it has little relation to what tangible
manufactured goods are involved.
Marx tried to reduce all economics to basic principles in _Das Kapital_.
He worked it all out so that the fundamental concept of economics was
labor. Nice theory, but it didn't square with reality. And I have no
doubts that someone did a similar thing in economics related to
manufactured goods. Not being a student of economics history, I can't
say who that would be. But both of them were wrong, because value
depends uniquely on what a person believes is valuable, whether it's a
table or a travel package.
Paul
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