Value
potatohead
Posts: 10,261
I had made some economic based comments in this discussion thread: http://forums.parallax.com/showthread.php/159928-Is-it-time-to-re-examine-the-P2-requirements
Value came up, and I have some thoughts about it that are complex enough to put elsewhere. Some forum members contributed this:
This is good. But, I think it's worth some more first principle type thinking.
First, wealth is defined in terms of time.
Wealthy people have more of their time for their purposes. Poor people have very little of their time for their purposes.
Take a single person. They have a burden to exist. They need shelter, food, etc... Most of their labor is purposed for them. It's all about meeting those basic needs.
Where does wealth come into this?
Say they are joined by others. Now there is a group. They can share resources and distribute labor to free time. There is wealth in numbers. When they work together to meet basic needs, they end up with more time they can purpose for something other than surviving. This allows for culture, stories, entertainment, science, etc...
Say a single person takes a risk. They decide to labor extra hard, potentially getting too tired, injured, or sick, to meet their needs in advance and free up time. They have now funded that risk, yielding time, to which they can apply understanding and perhaps make a tool. This tool improves the output of their labor, freeing more time in the future. They are now more wealthy than they were before as they now have more time for their purposes than they did before.
Now, let's say the one who made the tool happens to meet with a group. The group has exploited their wealth in numbers and have resources stocked up, tell stories, entertain one another, but didn't necessarily find it necessary to make a tool. They were wealthy enough, for the sake of discussion.
Once they understand the tool, they may want their own, so they decide to trade. So far, there is no money. How to deem it a worthy trade? Equitable?
This is the question of value.
Things are worth what people will pay for them.
These early peoples will see value according to their needs and desires. The solitary person may value a store of food to free his time to make more tools, for example. Or he may seek entertainment. The group tells stories, offers the dynamics of friendship, etc... His sense of value comes from his life, priorities, needs, wants.
To the solitary person, that tool has high value. It lowered his risks and costs (time), making life easier and more robust. He took a risk to make it, and that risk could have presented serious costs or consequences too. It's a high value item. It may be that some of that risk time spent was invested in seeking materials appropriate for the tool. These might not be easy to find, etc...
To the group, their value perception is going to be very different. They already have a modest labor burden, and enjoy a wealthy state similar to the solitary person, lower risks and costs, etc...
Value is linked to demand in this way.
So the two will share their value perception and agree to trade. The solitary person will need to get something in return for the tool sufficient for them to render another one at a lower risk than the first, or it makes no sense to give up the tool. Materials may be rare, or they may elect to keep their tool and instead share how to make one. All sorts of outcomes are possible here.
There is a concept of adding value. I use this phrase a lot. Adding value boils down to somebody taking a risk of some kind, and the most basic risk is just time and easily had materials, adding labor to yield something. It could be understanding. Could be beauty. Could be utility, like a tool. Whatever. It could be as simple as choosing to purpose our time for the purpose of trade instead of relaxing, family time, entertainment, etc...
When we make products, we are adding value. Each entity in the chain from raw materials to finalized product we buy, adds value. Raw ore gets processed into materials. Raw materials get shipped and are stocked to be available. Manufacturers can work the materials into forms. And so forth.
Every labor related to a product adds value. Combining products can add value. The design or beauty of a product can add value.
Adding value is done with the expectation of others experiencing value recognition.
Value recognition boils down to meeting some human demand. The basic demands are comfort, time, beauty, entertainment, etc... They are always present. If a product doesn't actually meet a demand, it has no meaningful value perception even though value was added to realize it.
Luxury goods vs non-luxury goods.
We must spend our time somehow, we must eat, we must have shelter, and so forth. These are needs. Meeting needs presents as demand. Demand can be met with labor, machines, trade, etc...
Value perception around needs is typically low because needs are constant. This leads to commodity goods and services. To get a high value perception associated with ordinary basic needs, one must present a way to meet that need on an ongoing basis, or for a long period of time, or be enabling one to meet their needs faster, easier. Again, this all boils down to time. Free time, and people experience a wealthy state and can entertain optional things, hobbies, culture, or they themselves may choose to take risks, make investments.
Wants can present a very high value perception! They are optional, and the demand varies according to individual desire and motivation. A beautiful or really fun thing has very high value for the experience it can provide, or the status it can convey. Again, we must spend our time, and spending it in highly gratifying ways leads to high value perception.
I've kept money out of this on purpose. Value isn't directly associated to money. We use money to trade because it's easy and it makes our trade liquid. Without money, trade has a lot of friction. We may have something to trade, but we may find it difficult to find somebody else with a need or desire that makes for an equitable trade. We may have to use an intermediary, one who accepts trade, stocks things, and can help buffer the lack of trading partners. This all is time consuming, labor intensive, and generally inefficient.
Going back to these peoples for a moment, they will value in terms of their labor and experiences. They may be willing to labor for a day to get a tool that makes their labor less on future days. The solitary person may well labor to make a tool to enjoy some evenings, or an evening of food, entertainment, friends.
These days, it's about buying power per hour worked. Take fast food. What value does it have?
The food isn't likely to be very good in a nutrition sense, but it may save us time, or be available when we find it difficult to prepare food. Thinking about cheese burgers in terms of hours of labor per cheese burger tells us a lot of how people value things. A minimum wage worker may labor an entire hour for a fast food meal, where a working professional may labor 10 minutes.
Both will save a basic and similar amount of time and meet a basic need with the food. Those things are very similar for both parties.
Value perception comes down to time, needs, resources.
The minimum wage person labors a lot to meet needs. They are poor and have very little free time for their purposes. Fast food saves a person a small amount of time, and that fraction of time in terms of free for our purposes time is much larger for the minimum wage laborer than it is for the professional. The value perception will vary in the same way. Freeing up a few hours of food preparation can be more important to one who has little time, and it's negligible to one who has a lot of free time.
Price in these modern times is a value statement linked to money, which is in the end, linked to time. Money quite literally is time as time is required for labor and labor is the source of all wealth and means to add value.
It is important to understand value is not an entirely scientific thing. We can reason and understand the dynamics, but a very significant influence on actual valuations boils down to human states. We all live in states, and have needs and wants. These directly impact value recognition.
An example of state might be a professional with heavy debt, forcing a lot of labor despite a high buying power per hour worked. Their value perception of fast food may be more similar to a minimum wage person due to their particular state.
Properly valuing something means properly understanding the people and their behaviors, needs and wants. For many basic things we can arrive at rather consistent expressions of value. New, or innovative or luxury things vary far more considerably.
Most notably, value is not directly linked to the value added as I defined above. It is only actualized in trade and through value recognition. How an item is presented has as much to do with its value recognition as the more easily quantified labor and materials do.
I didn't want to put this on the other thread.
Hope it improved your understanding of the dynamics related to value.
Value came up, and I have some thoughts about it that are complex enough to put elsewhere. Some forum members contributed this:
Price = the amount of money a vendor thinks a product is worth.
Value = the amount of money a buyer thinks a product is worth.
This is good. But, I think it's worth some more first principle type thinking.
First, wealth is defined in terms of time.
Wealthy people have more of their time for their purposes. Poor people have very little of their time for their purposes.
Take a single person. They have a burden to exist. They need shelter, food, etc... Most of their labor is purposed for them. It's all about meeting those basic needs.
Where does wealth come into this?
Say they are joined by others. Now there is a group. They can share resources and distribute labor to free time. There is wealth in numbers. When they work together to meet basic needs, they end up with more time they can purpose for something other than surviving. This allows for culture, stories, entertainment, science, etc...
Say a single person takes a risk. They decide to labor extra hard, potentially getting too tired, injured, or sick, to meet their needs in advance and free up time. They have now funded that risk, yielding time, to which they can apply understanding and perhaps make a tool. This tool improves the output of their labor, freeing more time in the future. They are now more wealthy than they were before as they now have more time for their purposes than they did before.
Now, let's say the one who made the tool happens to meet with a group. The group has exploited their wealth in numbers and have resources stocked up, tell stories, entertain one another, but didn't necessarily find it necessary to make a tool. They were wealthy enough, for the sake of discussion.
Once they understand the tool, they may want their own, so they decide to trade. So far, there is no money. How to deem it a worthy trade? Equitable?
This is the question of value.
Things are worth what people will pay for them.
These early peoples will see value according to their needs and desires. The solitary person may value a store of food to free his time to make more tools, for example. Or he may seek entertainment. The group tells stories, offers the dynamics of friendship, etc... His sense of value comes from his life, priorities, needs, wants.
To the solitary person, that tool has high value. It lowered his risks and costs (time), making life easier and more robust. He took a risk to make it, and that risk could have presented serious costs or consequences too. It's a high value item. It may be that some of that risk time spent was invested in seeking materials appropriate for the tool. These might not be easy to find, etc...
To the group, their value perception is going to be very different. They already have a modest labor burden, and enjoy a wealthy state similar to the solitary person, lower risks and costs, etc...
Value is linked to demand in this way.
So the two will share their value perception and agree to trade. The solitary person will need to get something in return for the tool sufficient for them to render another one at a lower risk than the first, or it makes no sense to give up the tool. Materials may be rare, or they may elect to keep their tool and instead share how to make one. All sorts of outcomes are possible here.
There is a concept of adding value. I use this phrase a lot. Adding value boils down to somebody taking a risk of some kind, and the most basic risk is just time and easily had materials, adding labor to yield something. It could be understanding. Could be beauty. Could be utility, like a tool. Whatever. It could be as simple as choosing to purpose our time for the purpose of trade instead of relaxing, family time, entertainment, etc...
When we make products, we are adding value. Each entity in the chain from raw materials to finalized product we buy, adds value. Raw ore gets processed into materials. Raw materials get shipped and are stocked to be available. Manufacturers can work the materials into forms. And so forth.
Every labor related to a product adds value. Combining products can add value. The design or beauty of a product can add value.
Adding value is done with the expectation of others experiencing value recognition.
Value recognition boils down to meeting some human demand. The basic demands are comfort, time, beauty, entertainment, etc... They are always present. If a product doesn't actually meet a demand, it has no meaningful value perception even though value was added to realize it.
Luxury goods vs non-luxury goods.
We must spend our time somehow, we must eat, we must have shelter, and so forth. These are needs. Meeting needs presents as demand. Demand can be met with labor, machines, trade, etc...
Value perception around needs is typically low because needs are constant. This leads to commodity goods and services. To get a high value perception associated with ordinary basic needs, one must present a way to meet that need on an ongoing basis, or for a long period of time, or be enabling one to meet their needs faster, easier. Again, this all boils down to time. Free time, and people experience a wealthy state and can entertain optional things, hobbies, culture, or they themselves may choose to take risks, make investments.
Wants can present a very high value perception! They are optional, and the demand varies according to individual desire and motivation. A beautiful or really fun thing has very high value for the experience it can provide, or the status it can convey. Again, we must spend our time, and spending it in highly gratifying ways leads to high value perception.
I've kept money out of this on purpose. Value isn't directly associated to money. We use money to trade because it's easy and it makes our trade liquid. Without money, trade has a lot of friction. We may have something to trade, but we may find it difficult to find somebody else with a need or desire that makes for an equitable trade. We may have to use an intermediary, one who accepts trade, stocks things, and can help buffer the lack of trading partners. This all is time consuming, labor intensive, and generally inefficient.
Going back to these peoples for a moment, they will value in terms of their labor and experiences. They may be willing to labor for a day to get a tool that makes their labor less on future days. The solitary person may well labor to make a tool to enjoy some evenings, or an evening of food, entertainment, friends.
These days, it's about buying power per hour worked. Take fast food. What value does it have?
The food isn't likely to be very good in a nutrition sense, but it may save us time, or be available when we find it difficult to prepare food. Thinking about cheese burgers in terms of hours of labor per cheese burger tells us a lot of how people value things. A minimum wage worker may labor an entire hour for a fast food meal, where a working professional may labor 10 minutes.
Both will save a basic and similar amount of time and meet a basic need with the food. Those things are very similar for both parties.
Value perception comes down to time, needs, resources.
The minimum wage person labors a lot to meet needs. They are poor and have very little free time for their purposes. Fast food saves a person a small amount of time, and that fraction of time in terms of free for our purposes time is much larger for the minimum wage laborer than it is for the professional. The value perception will vary in the same way. Freeing up a few hours of food preparation can be more important to one who has little time, and it's negligible to one who has a lot of free time.
Price in these modern times is a value statement linked to money, which is in the end, linked to time. Money quite literally is time as time is required for labor and labor is the source of all wealth and means to add value.
It is important to understand value is not an entirely scientific thing. We can reason and understand the dynamics, but a very significant influence on actual valuations boils down to human states. We all live in states, and have needs and wants. These directly impact value recognition.
An example of state might be a professional with heavy debt, forcing a lot of labor despite a high buying power per hour worked. Their value perception of fast food may be more similar to a minimum wage person due to their particular state.
Properly valuing something means properly understanding the people and their behaviors, needs and wants. For many basic things we can arrive at rather consistent expressions of value. New, or innovative or luxury things vary far more considerably.
Most notably, value is not directly linked to the value added as I defined above. It is only actualized in trade and through value recognition. How an item is presented has as much to do with its value recognition as the more easily quantified labor and materials do.
I didn't want to put this on the other thread.
Hope it improved your understanding of the dynamics related to value.
Comments
That definition has kept me pondering for 30 or more years. Why so? You just can't have someone else determine valuation. You decide for yourself.
My patronage of an enterprise is based on a more complex model.
A. getting a good value for what I pay.
B. support of what the enterprise stands for and how it does business.
C. the size of the purchase.
Convience stores get a bit of my business reguardles of poor value and seeming to only care to exploit customers. That's the price of convience. But I remain selecting as to how much I choose to patronize them.
There is an old Armenian saying, "Spend money with a purpose." And of course, Benj. Franklin had a lot to say about the topic. It is up to each of us to not play the fool when shopping, or accept the results.
It seems that youth are wooed into shopping for fun, but as one matures and actually has to earn money, what we spend our earnings on become more cautious. Thus, advertisers focus heavily on the young.
++++++
Discussing human needs and motivations can lead you into deep thought and not much in the way of a conclusion. People are emotional and when the money comes easily, they waste money. When it is earned with difficulty, they are more careful.
According to your ideas, children must be the wealthiest people in the world as that have the most time. Paradoxically, a busy man with a rich family life and many friends might consider himself wealthy without much time of his own.
I was a poor kid. Poor in terms of dollars, but I was extremely wealthy in terms of my time. I've never again been able to blow off serious amounts of time as I did as a kid learning something. I made clear choices to make investments in skills that have paid me well in life so far. I have many peers who partied their youth away and this did not serve them well in life. The dollars available had very little impact on this dynamic.
Compare and contrast that to business owners who may choose to manage their company well, or blow the profits on hookers and drugs, gambling, etc... They too, as wealthy people, have the freedom to purpose their time and make choices, and they live with those in many of the same ways the child does. Maybe more seriously, compare the business owner consistently reinvesting and growing the business compared to the one who just takes money out for other purposes. Each has it's merits, and each has it's impact on the business and their wealth over time too.
Give some deeper thought to wealth as time. This is the most basic, human, first principle definition. It has strong implications, and it has a lot of potential to sort out the dynamics of people, how they trade, why they trade, etc... It's one of the most basic and important things I've ever learned, which is why I put it here.
A busy man, can only be so busy before he does not have a rich family life. Choosing to spend time with family is purposing his time. A poor man cannot choose family over labor, as the labor required is necessary to fund the family.
There is also blending labor and life. Some lucky fraction of us figure out how to do this, and are wealthy for it. When we can end up doing what we would do anyway, and get paid, we are wealthy regardless of the dollars involved, so long as doing that can fund basic needs and keep time purpose freedom intact.
This:
...really isn't accurate.
It's mutual. And very serious differences in value perception and recognition mean trade becomes impossible. Go and watch an episode of "American Pickers" for an absolutely great example of this in action. A good trader could get you to reconsider your valuation, and if they do, that risk and time investment pays off nicely as you sell for less than you would have otherwise.
The collectors have strong emotional bonds with the junk they've collected. Great pickers learn how to see how and why this is so, and figure out equitable trades. Often this involves hearing their stories, or identifying with that emotion just as much as it does the bargain of price and the need for margin on the part of the pickers when they themselves pass it along, potentially and optionally adding value themselves, such as a restoration, or clean up / minor repair.
You know people buy from others they like, and that's part of value. People will sell to people they like too, equally a part of value. Compare and contrast the straight up sale, formal, with little dialog with the sale strongly associated with making a real difference in the world. The same item could be involved in both, yet the value perception will be very different.
This could be worth a lot of money to you on your next new car, for example. I pulled $15K out of the last one I bought, and it was a $45K car that I got for $30K and some small change. Understanding these dynamics is worth a lot, if you use and apply them. That also involves information, which is a topic for another day, but in short, I minimized my value perception at a time when their need to trade was maximized. And yes, I knew that before entering into a purchase process.
What I wrote above are the dynamics of value. If you want to trade, part of the process of establishing value is what the trade partner, or buyer in modern times, is willing to pay.
Because it's mutual, it's not absolute either.
Say the trader fails to meet your value. You have options!
1. Refuse to trade. You've not lost any value, but then again, you didn't trade either. This may be acceptable to you.
2. Present more value to the trade partner. Again, go and watch the pickers do this. An old sign has one value. An old sign with a killer story has another. An old sign that has a signature on it yet another. You could talk to the trade partner about the quality and care and labor of love you put into the item, and ask them to recognize it so that trade is possible. This is a simple, human, reasonable request, but you won't get, unless you ask. A good picker will hear the story, so they can pass it along, and then deal on a lower recognized value, potentially bundling to capture that story value for their sale later on, for example.
3. Bundle with other things so that the value perception of the whole is greater than any individual things. Differences in value perception can lead to an equitable trade on the bundle despite there being a failure to mutually establish trade value otherwise.
And there are others, but maybe this helps better establish the dynamics.
As for emotions? If you can understand those and link them to high value recognition, you can make an awful lot of money. Understanding people in general means making more than those who don't in almost every instance. No joke.
Look at fashion as one example. Emotions run high, names, status, and all sorts of popularity contest, people type stuff going on and it consistently generates billions every year, nearly all of which plays off of high value recognition, emotion and so forth.
Steve Jobs did the same damn thing with computers and electronics at Apple computer, with nearly the same results too. When Jobs passed away, who did Apple hire? Somebody from fashion, among others. Notable isn't it?
Do not dismiss these things. They matter.
Well, actually that's harsh. Let me put it this way: Dismiss them as you will or not. However, do not be surprised to see another give them weight and see benefit from them, nor be surprised to encounter one who will ask you to recognize value more fully than you may prefer.
Here's a short real estate story for you:
I had two houses I wanted to sell to fund a larger one. My first attempt at this did not generate a value worth doing business on, so I still had two houses.
I hired two very savvy women who move real estate. They spent ONE DAY at the places, spiffed 'em up, and framed it all in an entirely different way.
Not only did value recognition go up, but they cultivated a bidding war and I got top dollar, over and above my expectations. Got the bigger house easily.
The difference?
They understood the dynamics above and were very adept at exploiting them for maximum value recognition. I had set a value, and it's what I needed, but nothing happened until the buyers also recognized at least that much value, and that work was very easily worth the commission I paid them. They quite literally funded doing the deal, paying for themselves easily and then some.
I set my value based on a lot of things, but mostly what it would take to get the larger home. They understood people will pay for value they recognize and they maximized that. Learned a lot that day. And yes, I pay attention and rarely forget experiences like that.
I could have also gone to that seller and attempted to whittle their value perception down too. Less money all around that way. In the end, I did get a nice spiff and it was my daughter. She loved the place, and the sellers felt so good about it they were more than willing to sell at a comfortable price, because they felt very good about a little girl growing up in a wonderful home. Seriously. That was worth a low 5 figures. !!! Learned a lot that day too.
Interesting how things work. It's not cut 'n dried at all.