Tuesday, March 13, 2012

My Child Answers the Difference Between Value and Price


The original feeling I had was that any attempt to explain the distinction between the concepts of Value and Price to any people is a wasteful thing to do, no more than just a regurgitation of what's already obvious, isn't it? Come on. People must not be that utterly ridiculous to ever ask what's the difference between Value and Price. But, I somehow convinced myself that I was wrong on my original impression. Some people, and disgustingly not so few, specially in a land of so much socialists who still idolize Karl Marx and his Labor Theory of Price Value, think Value and Price are just the same.

They are not. So what's the difference? Ask a child.

My 3-year old daughter, as all other children,  don't know anything about prices. But my little girl must have caused  a slight headache to her mom when she's on tantrum when her mom refused to buy her favorite doll. She really like to have the doll no matter what. My question is: What's in the doll that made my daughter cry for it? Certainly, there is something. And also, what's in the doll that made my wife refused to buy it? Certainly, there is something too. What are they?

Definition of Value and Price

Price is the sum of money a sum offered for the capture of a criminal dead or alive. Well, I mean to joke. That is true but it is not the kind of definition to use in front of a hard-core, often irrational socialist. We need a definition in economic context.

Price is the amount of money assigned to a commodity. This is the same as the amount you need to pay in exchange for something like food, furniture, medicine and many more.

Value, on the other hand, deserves a lot more explanation than in terms of mere monetary units. Value is a phenomenon in the mind resulting from the impulse of automatic, spontaneous, and personal valuation  of how important or unimportant a certain commodity is. It is automatic because, as what child does, this what appears to be so. It is spontaneous because value changes along the degree of urges. It is personal because you don't have to go over some rules other than the suggestion of your automatic and spontaneous response.

 Value or Price: Which one came first?

The concept of price is an alien idea for a child. It is a concept so irrelevant to a young ager. But a child, as any individual of any age, has an inseparable nature to pick and choose. Same is true with a dehydrated man stranded on a desert. Between a few drops of dirty water or a shiny Gold bar, what would he choose?

Pricing schemes exist on the attempt of human civilization to implement exchange of goods in a quantified manner. And since economic activity commences off the unstable valuation felt by each person about his needs, which is just an internal impulse (a feeling or emotion), a numerical representation, therefore, must necessarily occur for an economic exchange to materialize in a manner of rigid mathematical computations.

Feelings and emotions, which are subjective in nature, don't have numerical equivalents on their own. There is no tag price assigned to personal feelings like happiness. Nevertheless, there must be a remedy to somehow  fulfill it. That includes the knowledge of prices of the things you felt the need to acquire to have your happiness. In a sense, though feelings and emotions present economic ambiguity, they can be, in a limited way, attended to in terms of prices assigned to the goods of perceived importance.

However, there is a phenomenon more primate than Price. The Value. This is the degree by which you feel how valuable or not-valuable, relevant or irrelevant, important or unimportant, necessary or unnecessary a certain commodity is. Value is not a numeric like Price. Value is the prejudice felt on things. It's the personal impression on any object which solely depends on the automatic and spontaneous feeling arising from the mind. It's the product of urge, of desire, of perceived inadequacy, or of anticipation.

Price is a representation of Value at all times. While Value is not at all the times a representation of Price. A child clings to his toy not that he/she has a knowledge about its price. Rather he/she wanted to have it for a reason or reasons only known to him/her. Same with the dehydrated man in the desert, he will definitely choose the Gold Bar......No? That man must be a really thirsty man.

So any one who believes Value and Price are the same must ask a child for an enlightened answer.

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