A valuable philosophical essay, which you made available to me at *very* low cost, whatever it cost you to produce it. It provokes thoughts about measurement: costs are routinely measured in monetary terms—easy for items with a *market value*, though there may sometimes be substantial non-market costs of obtaining them. But markets seem irrelevant to values; nevertheless, can the latter also be measured in money?
I’d wondered if he would make the link to the fact that information is an example of immense value with trivial cost, then I got to the end. Nicely done 👏
To be fair, many cities have water meters. Water is usually not free. But it is incredibly cheap.
As for pasta, surely you can't live on that long term. If you ate that, just that, every day, for years, surely you would be lacking some important nutrient and you'd die.
Caplan is not claiming that anyone can subsist only on pasta. Only that the value far exceeds its cost. Those extra nutrients have value that also exceeds their cost.
Water is of course not free to everyone. Someone has to pay for it. But it's available for free in most commercial buildings throughout the developed world.
Furthermore the difference between the cost of a product compared to its selling price can be called its “scarcity premium”
as the products approaches economics of scale that premium approaches zero.
This Lens can be applied to housing.
The cost to build housing in upstate New York and New York City is equivalent, but the prices are a lot higher in New York City, why?
Bc production is more heavily restricted (relative to demand) in New York City than upstate New York, leading to less economics of scale and a persistent premium for tenants.
I am not an economist. In fact, I have never taken a course in economics. So please do not be too hard on me if the following question is stupid. I understand that from the examples in the post that cost is not equivalent to value, but do not (at least some) people (maybe even some economists) use cost as a proxy for value? If people are willing to pay a huge some of money for one piece of art but nothing for a second, might some people say that art collectors value the first piece of art more than the second?
The more scarce a resource is, the most likely its cost is to approach its value.
Water cost close to nothing in Canada bc their is a lot of it, but if their was only one bottle of water left on earth even Elon musk would have to finance it to get a sip.
TLDR: Yes cost can be used as a measure of value but only when said resource is very scarce
(1) We might be interested in investigating how much people value something. In order to make cardinal (how much) comparisons across people, we can ask each of them to equate their valuation of the thing to some quantity of another thing which they value equally.
For example, suppose I know that the value Bob and Alice place on oranges is equal. I can ask Bob and Alice separately how many oranges they consider equal in value to one apple. A comparison of their answers reveals how much more or less (in terms of oranges) they value apples relative to one another.
Note that the number of oranges equal to the value of one apple is the same as the number of oranges one would sacrifice to obtain one apple. In this sense, the value of the hypothetically sacrificed oranges appears to represent a "cost," but it's really just the value of the apple expressed in terms of something else, such that we can make comparisons. "Willingness to pay" (in terms of oranges, or dollars, or anything else) is not a cost, but a particular expression of a valuation.
(2) For things of which you can consume more or less, one will naturally continue increasing consumption until one's valuation of an additional amount of the thing is equal to its cost. Beyond this point, there is of course no net benefit to additional consumption.
Since people will naturally stop their consumption when the benefit of additional consumption is equal to its cost, it must be the case that the cost of something is always equal to its value to its consumer. If the cost were smaller, then the person would consume more, and vice versa. Given this reasoning, and since costs are more easily observable than values, economists use the cost as a proxy for value.
How can it be that value is equal to cost, when Bryan says it is not? Because it is only the value of an *additional* unit of consumption that equals its cost. In practice, we are often concerned with evaluating changes to a system; in these contexts we care specifically about the value of an additional unit, so it is appropriate to apply our reasoning and to equate cost and value. But the value of our consumption in total will generally not equal cost.
I have lots of food in my fridge. I'm approximately indifferent between buying a bit more food or a bit less, so we could say that the cost of additional food is the same as its value to me. But my total valuation of the food I have is much more than what I paid for it.
I believe a good understanding of economics itself can help one live worthy life. Beyond the economic lesson I get from currently reading Man, economy and state, it at times makes me feel like I'm reading a self help book that might help me navigate my life.
"provide" was the wrong word for me to use. Something like "enabled" would have been better. A huge portion of the infrastructure that enabled clean drinking fountains and $1 pasta is provided by the government
How does this fit in with Marx' notion of value, use-value, exchange-value, and socially necessary labour time? I know you are anti-Marxist but I think there is a danger of equivocating on the term value. Unless we can agree on a definition then we cannot say if the labour theory of value is meaningless, wrong, tautological, ill-defined, true, or some other category. Can you set out how your definition differs if at all and if that has an impact on empirical tests for the labour theory such as looking for a correlation between unit price and labour time per unit for a basket of commodities.
It is not hard to find thorough refutations of Marx's labor theory of value. I recommend Thomas Sowell's book, Marxism, for that and for a thorough consideration of Marxism overall. (Sowell was a Marxist when he was young.)
Eating a $1 box of pasta is going to be rather difficult without a means of cooking it. A place to cook it. A pot to put it in. The fuel to cook it .These costs are not trivial.
Fuel? Rent? Clean water? I think I understand the point of Bryan's comment. Value and cost are not the same thing. His example though, does not work for far too many people in this country and the rest of the world.
If you pay $100 for gas every week and that allows you to make $1k at you job. That is tremendous value. Clean water is cheap - you can get 4 gallons for $5.
The reason housing is expensive is because of artificial scarcity
The overall consensus is that the essentials of life are a tremendous bargain
(whole foods and water rarely make it within the top 5 of personal expenses for individuals)
$2 worth of peanut butter has a day's worth of calories and requires no preparation. The reduced-fat/extra-carb versions have a pretty good mix of macronutrients.
Also, you're going to fall ill and eventually die from inadequate micronutrients. Eating poorly is cheap, eating a whole foods balanced diet is still cheap, but less so.
Value to cost comparisons are great, especially in the political sphere. Government policies often carry huge costs, while being value subtractive.
A valuable philosophical essay, which you made available to me at *very* low cost, whatever it cost you to produce it. It provokes thoughts about measurement: costs are routinely measured in monetary terms—easy for items with a *market value*, though there may sometimes be substantial non-market costs of obtaining them. But markets seem irrelevant to values; nevertheless, can the latter also be measured in money?
Shots fired at the labor theory of value! 😂
As they say, “the best things in life are free.”
Not literally true, but the phrase still contains lots of wisdom.
I’d wondered if he would make the link to the fact that information is an example of immense value with trivial cost, then I got to the end. Nicely done 👏
To be fair, many cities have water meters. Water is usually not free. But it is incredibly cheap.
As for pasta, surely you can't live on that long term. If you ate that, just that, every day, for years, surely you would be lacking some important nutrient and you'd die.
Caplan is not claiming that anyone can subsist only on pasta. Only that the value far exceeds its cost. Those extra nutrients have value that also exceeds their cost.
Not pasta, but you can apparently live indefinitely on just potatoes!
Water is of course not free to everyone. Someone has to pay for it. But it's available for free in most commercial buildings throughout the developed world.
Furthermore the difference between the cost of a product compared to its selling price can be called its “scarcity premium”
as the products approaches economics of scale that premium approaches zero.
This Lens can be applied to housing.
The cost to build housing in upstate New York and New York City is equivalent, but the prices are a lot higher in New York City, why?
Bc production is more heavily restricted (relative to demand) in New York City than upstate New York, leading to less economics of scale and a persistent premium for tenants.
The cost of building is not equivalent. Absent any regulation building in NYC would still cost a lot more than in a greenfield site 30 miles away.
to build a house in new York : you need 200 nails and 200 pieces of wood
to build a house in greenfield: you need 200 nails and 200 pieces of wood
to build a house in new Mexico: you need 200 nails and 200 pieces of wood
....
I think i get the generally idea you have though
It's far more expensive to build in New York City, because you have to get workers to New York City to have them do the building.
I guess you're saying there ARE no workers already IN, or near New York?
Whether they're local or imported, don't you have to PAY them, too?
I mean, you have to pay them more, whether they're already there or not.
I am not an economist. In fact, I have never taken a course in economics. So please do not be too hard on me if the following question is stupid. I understand that from the examples in the post that cost is not equivalent to value, but do not (at least some) people (maybe even some economists) use cost as a proxy for value? If people are willing to pay a huge some of money for one piece of art but nothing for a second, might some people say that art collectors value the first piece of art more than the second?
The more scarce a resource is, the most likely its cost is to approach its value.
Water cost close to nothing in Canada bc their is a lot of it, but if their was only one bottle of water left on earth even Elon musk would have to finance it to get a sip.
TLDR: Yes cost can be used as a measure of value but only when said resource is very scarce
Thank you, that makes sense. I think you meant scarce rather than scare.
There are two answers to your question:
(1) We might be interested in investigating how much people value something. In order to make cardinal (how much) comparisons across people, we can ask each of them to equate their valuation of the thing to some quantity of another thing which they value equally.
For example, suppose I know that the value Bob and Alice place on oranges is equal. I can ask Bob and Alice separately how many oranges they consider equal in value to one apple. A comparison of their answers reveals how much more or less (in terms of oranges) they value apples relative to one another.
Note that the number of oranges equal to the value of one apple is the same as the number of oranges one would sacrifice to obtain one apple. In this sense, the value of the hypothetically sacrificed oranges appears to represent a "cost," but it's really just the value of the apple expressed in terms of something else, such that we can make comparisons. "Willingness to pay" (in terms of oranges, or dollars, or anything else) is not a cost, but a particular expression of a valuation.
(2) For things of which you can consume more or less, one will naturally continue increasing consumption until one's valuation of an additional amount of the thing is equal to its cost. Beyond this point, there is of course no net benefit to additional consumption.
Since people will naturally stop their consumption when the benefit of additional consumption is equal to its cost, it must be the case that the cost of something is always equal to its value to its consumer. If the cost were smaller, then the person would consume more, and vice versa. Given this reasoning, and since costs are more easily observable than values, economists use the cost as a proxy for value.
How can it be that value is equal to cost, when Bryan says it is not? Because it is only the value of an *additional* unit of consumption that equals its cost. In practice, we are often concerned with evaluating changes to a system; in these contexts we care specifically about the value of an additional unit, so it is appropriate to apply our reasoning and to equate cost and value. But the value of our consumption in total will generally not equal cost.
I have lots of food in my fridge. I'm approximately indifferent between buying a bit more food or a bit less, so we could say that the cost of additional food is the same as its value to me. But my total valuation of the food I have is much more than what I paid for it.
I believe a good understanding of economics itself can help one live worthy life. Beyond the economic lesson I get from currently reading Man, economy and state, it at times makes me feel like I'm reading a self help book that might help me navigate my life.
We can think of the concept of willingness to pay.
This is similar to how trade creates wealth.
I have something that's worth $5 to me and $10 to you.
You have something that's worth $5 to you and $10 to me.
If we trade, we're both $5 better off. $10 in wealth has been created!
Most of those are cheap-to-free because governments provide them 🤔
The $1 box of pasta and drinking fountains in the grocery store are not provided by the government where I live!
"provide" was the wrong word for me to use. Something like "enabled" would have been better. A huge portion of the infrastructure that enabled clean drinking fountains and $1 pasta is provided by the government
But the person who sells a day's worth of pasta for one dollar-- he is valuing one dollar more than the pasta, is he not?
What about his costs? one dollar - minus his profit (a few cents perhaps). So his costs are close to the value of one dollar he gets?
Value is subjective. The dollar is worth more to him, the pasta more to you. Total value increases when the two change hands.
How does this fit in with Marx' notion of value, use-value, exchange-value, and socially necessary labour time? I know you are anti-Marxist but I think there is a danger of equivocating on the term value. Unless we can agree on a definition then we cannot say if the labour theory of value is meaningless, wrong, tautological, ill-defined, true, or some other category. Can you set out how your definition differs if at all and if that has an impact on empirical tests for the labour theory such as looking for a correlation between unit price and labour time per unit for a basket of commodities.
It is not hard to find thorough refutations of Marx's labor theory of value. I recommend Thomas Sowell's book, Marxism, for that and for a thorough consideration of Marxism overall. (Sowell was a Marxist when he was young.)
This reminds me of the ancient Epicurean Tetrapharmakos:
Don't fear god.
Don't worry about death.
*What is good is easy to get*
What is terrible is easy to endure.
Eating a $1 box of pasta is going to be rather difficult without a means of cooking it. A place to cook it. A pot to put it in. The fuel to cook it .These costs are not trivial.
To be fair a pot cost about $5 and can last you a lifetime.
Similarly a stove is around $1000 and can last 30 years
Both have tremendous value (what you get) compared to cost (what you give).
His point stands
Fuel? Rent? Clean water? I think I understand the point of Bryan's comment. Value and cost are not the same thing. His example though, does not work for far too many people in this country and the rest of the world.
If you pay $100 for gas every week and that allows you to make $1k at you job. That is tremendous value. Clean water is cheap - you can get 4 gallons for $5.
The reason housing is expensive is because of artificial scarcity
The overall consensus is that the essentials of life are a tremendous bargain
(whole foods and water rarely make it within the top 5 of personal expenses for individuals)
$2 worth of peanut butter has a day's worth of calories and requires no preparation. The reduced-fat/extra-carb versions have a pretty good mix of macronutrients.
Plumpynut
Also, you're going to fall ill and eventually die from inadequate micronutrients. Eating poorly is cheap, eating a whole foods balanced diet is still cheap, but less so.
Yes, that is implied