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Value Vs. Price

July 24, 2010

Greetings,

As a detached but fascinated observer of the world of high finance and all things finance in general (money after does make the globe spin, or so “they” told me), a very key observation came to me the other day. Or was it the other night?

Are there nights anymore? Or just poor people’s nights and rich people’s everlasting light?

Anyways, in times of crisis and peril such as these, we begin to notice the unraveling of trends that held the existing paradigm together and the birth pangs of trends that will stitch together what is to come.

Trends are of course the obvious expression of the subtle currents that drive all large agglomerations (of anything). Trends are powerful expressors of what, on an obvious scale, can remain hidden from all but the most astute amongst us.

In fact, all study of our history can be viewed from the perspective of trend-spotting. Trends build upon trends, feed or destroy each other, go resonant with one another. Very powerful. Even great social experiments are brought about by instigating a trend.

Much grist for the mill in general with this trend business.

I’ll stick with one of the key ones now, since it is impacting us in every aspect of our lives.

We are living a time when the trend is moving away from value and moving towards price.

Is that important? Extremely.

But first, why is it happening?

Value comes in two flavours, intrinsic and collectively agreed upon.

Intrinsic value is best understood with an example like clean air or potable water. They have intrinsic value. We would die without them. Food and the rest of the “needs” matrix clearly have intrinsic value.

Value is defined as a concept of worth. So, even within “needs” and must-haves, value can vary. A seal-skin coat will have different “value” to an eskimo compared to a Masai, as an example.

Point I am making is that value is intrinsic. Utility makes the value greater or lesser.

Price on the other hand is a whole other animal. Price, first of all, is a complex  derivative of value and demand. It can fluctuate based on many variables.

It’s a long topic, so let us just say for that value is intrinsic and price is extrinsic.

And that is quite a realization and a mirror for the world we live in today.

We live in a world which has become blind to value and beholden to price.

Some examples:

1. A professional sportsman makes of the order of a 1000 times the money a school-teacher makes.

2. An old person has no value in society anymore. They have been reduced to “price” needed to keep them clothed and fed in old-age-homes.

3. The stock-market used to be about gleaning  the value of a company to determine it’s stock-price. Value led to price-discovery. Now, it’s a price arbitrage game. Value is meaningless (almost, soon to be completely).

4. The idea of “Branding” is born from the divergence between intrinsic value and perceived value. The greater the divergence, the more it distorts price.

5. We can put a price on anything in our lives. Value and Values in general are becoming hard or even impossible.

6. Value is garnered over time, like an egregore. Price is determined in the split-second (NOW!).  In this age of tera-floppers, only price matters, value be damned.

I can think of many more, anyone care to jump in?

And if the above premise is true, then we’ve reached quite the place eh? We tend to “price” everything. As said in Dune somewhere, we are all firmly in the trap of the Suk (marketplace) mentality.

The most common question asked before we do anything is:

“Is it worth it?”

In fact, a tragi-comic vision just came to me, where everything we saw around us in the world had a little price-tag attached.

Want to talk to me?

That’ll be 10 Rupees please!

22 Comments leave one →
  1. istappar permalink
    July 24, 2010 8:21 am

    I believe in the example with the sportsman, it has to do with bubbles. Many people come together around soccer etc. and tell each other that this is a really important activity, and they go to the games and pay high prices for tickets. This makes the clubs rich which means that the best players or those perceived to be the best can be objects for a price-raise, hence a bubble. To have any sort of price-bubble there needs to exist at least some overflow of resources in parts of the society. Otherwise, everyone would spend all the money on necessities.

    • July 24, 2010 8:35 am

      Hi Istappar,

      Those are astute observations, but actually add an interesting twist to the question.
      You see, players nowadays are purchased at “perceived future value”. Hmmmmmm….. something to think about?
      Plus, professional sports in the way we have them now, did not come about as a response to societal surplus. They came into their current form to soak-up said surplus.

      Does that make sense? We’ve played them for a long time. Even till the 60’s, the professional sportsman (save a few) lived on the fringes of society. Totally different now, they are in the heart of it.

      The cult of celebrity, like the branding example I mentioned, is a major price distorter.

      • July 26, 2010 2:10 pm

        “Plus, professional sports in the way we have them now, did not come about as a response to societal surplus. They came into their current form to soak-up said surplus.”

        I don’t understand the difference.

        • July 26, 2010 2:23 pm

          What I meant to say was which came first? Surplus or the means to absorb the surplus? Who was borne of whom? Sports was “professionalized” in the last 40 years ( at an accelerated pace, to where now poker players are on ESPN prime time) to create the cult of celebrity around verticalized skill and body worship. That cult of celebrity helps distort price by increasing perceived value vs. intrinsic value.

          Why does a brand “inflate” value?

          Does that make more sense?

  2. Straykitty permalink
    July 26, 2010 11:39 am

    The art drew me in. I’m old. I’m woman. It’s painful to have lived life and have the blinders fall from history when you’re old. The BIG PLAN…it was always there, in our innocence we were part of the machinery. This knowledge is the value you speak of. This knowledge hurts, but would I have come down this far on the thread of my life and wished to not have seen?

    No. The challenge is to tread through the rest of my days and still believe in something. You see, I remember life before the first big bombs were dropped. My memories…our first electric light bulb hanging from the ceiling on its cord…um. Now my days are spent building strawbale geothermal and laughing at the wonderful soil I can “grow” with my compost piles. I weed through Internet traffic for clues. Somestimes I despair.

    Days go by and my body doesn’t awaken free from pain any longer. I know I have “peaked.” But still I continue to re-examine the history. I watch bigger bombs being dropped. I keep searching for clues. But I do still laugh. And I very much like the taste of “eye candy” from your wonderful colors.

    Thank you.

    • July 27, 2010 1:58 am

      🙂 No words here Straykitty. Do write in more as you feel called. Strawbale Geothermals and compost piles sound like fun!

  3. Marco permalink
    July 26, 2010 2:15 pm

    Your consideration of value vs. price is in line with my own mulling. I see the Global Credit Crisis as an attempt by the planet to seek a new homeostasis, after easy credit had inflated price bubbles surrounding all manner of intrinsically valueless … stuff! So, perhaps optimistically, I see current deflationary trends (outside of India, of course) as healthy revision of the intrinsically nonsensical value systems society has slipped into.

    True values remain constant, and (as the credit card campaign paradoxically reminds us) priceless: quality, life, truth, love. Brands however, like tulips in the 18th century Amsterdam crash, will wilt. Here is a crude yet funny example of how the Apple brand is blinding consumers to intrinsic worth … http://www.youtube.com/watch?v=FL7yD-0pqZg&feature=player_embedded

    • July 26, 2010 2:24 pm

      Welcome Marco. Thanks for the insightful observations.

      I’m on dial up here, so no youtube for me. I’ll definitely give it a look when I’m some place….. fasterrrr…..

    • d2thdr permalink
      March 20, 2011 8:52 am

      Deflationary trends. hahaa…you’ve got to be kidding.

      Hyperinflation is baked in cake. Already. USD is and anglosaxon block is doomed, because they will never live an affluent life like they have in the past 60 years.

      http://flowofvalue.blogspot.com/2011/03/its-value-stupid.html

      http://fofoa.blogspot.com/

  4. tommus permalink
    July 27, 2010 7:12 pm

    Price is the communication of value. It makes trade possible. Price is a mathematical abstraction of value. This makes it very useful for some things and useless for others.
    Value, in this complex reality, is a fleeting datum and very hard to pin down. It is a subjective quality. The objective quantity of price obviously has to do as a stand-in if trade, growth, movement is to occur. Is this a bad thing? Only if the price/value relationship becomes too distorted. But what creates the distortion? Only a shift in values of course, since price is a function of value.

    Why do you assume that there is something broken in a system that determines that a sports star gets paid 100o times a schoolteacher? Maybe to “society” he really is 1000 times more valuable. Maybe old people really are liabilities, etc. As a thought experiment, try and justify this “skewed” price reality to yourself and see what you come up with. It’s hard, because value is, as you said, very difficult to discern. It’s even harder to discern how much you *don’t* value something. The collective (un)conscious must have some sort of calculus behind the price/value it projects. What is it, I wonder?

    Basically what you are saying is that since prices are at a variance with your personal value system, then the price mechanism must be screwed up. But price is objective and extrinsic, so maybe the reverse is true! (This is not meant as a personal attack, you seem like a decent fellow, but only as a rebuttal to the idea that “something is horribly wrong with the world”)

    The only thing worse than attaching a price to everything in the world would be to attach a value to everything in the world. That would be total insanity, just ask Buddha!

    • July 28, 2010 2:10 am

      Hi Tommus,
      Nicely said.

      As for the thought experiment, I lived it while in the US. Saw what the drivers and motivators for it were and once I felt uncomfortable enough (water in my pot got hot), I left. In my mind, “society” is currently on a path to great schism/fracture because it’s bedrock, “culture” is unraveling. Same culture that deems the sports star/teacher salary disparity to be “correct”.

      So yes, the post came from a place of finding value and price discovery at variance (opposition even) from my personal value system. Truth though, in my perspective again, is that we are coming to an extremely fluid time (full of volatility, motion, displacement etc.) where, paradoxically our inner core convictions have to become firmer, more grounded within ourselves. A rather black and white time if you will.

      And the place I wrote the post (and the rest of the blog) from is where I stand.

      🙂

    • Tim permalink
      July 21, 2011 8:28 pm

      I agree that price is for trade only, I also agree that price is ‘take it or leave it.’ I think the point here is that value is being overlooked. The example of the sports star salary compared to a school teacher is very telling about the state of our society and possibly human nature at its basest level. I for one think that we need to move from trend pricing to value pricing in order to save what is truly valuable in this world. Otherwise the money we use to pay the price will become (eve more) worthless.

      • July 22, 2011 3:26 am

        Value IS where it is at Tim. I’d add that values are being overlooked/skewed/forgotten at a very fractal level too.
        Thanks for sharing.

  5. July 27, 2010 11:47 pm

    I think that your observation that we are moving from value to price, particularly in the case of securities markets, is right on the mark.

    In fact, I think this trend has been going on for a very long time, at least since 1967 when Warren Buffett closed down his partnership and moved on to become a long-term investor in Berkshire Hathaway.

    Another way to indicate this trend is described in an article about the Inefficient Market Hypothesis: http://capital-flow-watch.net/hlgim

    • July 28, 2010 3:56 am

      Greetings John, thanks for the thoughts and the link.

      I’ll delve in. Is it your writing?

    • July 28, 2010 4:20 am

      John,

      Nice article. Interesting overlaps with how I feel. IMH is true. EMH is a fantasy.

      • July 28, 2010 6:52 am

        Thanks. As you can see, I think that the EMH has done a lot of damage and, although largely discredited in professional circles, still seems to have many followers.

        • July 28, 2010 6:59 am

          True John,

          And in a fractal view of the world, the same applies to other aspects of our lives too.

          Too many distorters sitting between true value and our perception of it.

  6. Sid Kipper permalink
    August 2, 2010 6:54 am

    You say “A seal-skin coat will have different “value” to an eskimo compared to a Masai, as an example.”

    Then you say “value is intrinsic” … despite having just given an example of how it is not intrinsic. Don’t worry, you’re in illustrious company – Karl Marx makes the same error in volume 1 of Capital.

    Even food is not necessarily of intrinsic value: to a farmer with a good harvest and a barn full of wheat, the wheat will soon be worthless because it will start to rot after enough time passes. He can trade it for some iron nails, and so they are more valuable to him than the wheat. To the fellow who makes the nails, he can’t actually eat the nails, so he needs some food, and he has a lot of nails to sell; to him, the wheat is worth more than the nails.

    If people agreed on an intrinsic value for commodities there would never be any trade. A trade occurs because the two trading partners disagree on the relative values of what they are trading.

    • August 2, 2010 9:20 am

      Good eye Sid, I thought about that even as I wrote it, the inherent di-chotomy.

      Trouble is, in trying to express the deepest meaning of anything, words start failing and semantics etc. leaps in.

      Food for thought though, these points of in-expressibility.

  7. January 31, 2011 10:58 pm

    It seems like when one tries to express the profundities involved in Reality using language, paradox appears quickly.
    Let’s say I get frustrated trying to express something that I seem to find has a lot of “complicated details” to somebody that doesn’t have the patience or the interest to hear me out. So I just say angrily, “Look Buddy…NOTHING IS SIMPLE!”
    And then I notice what I just said and think, “Hey, that is a pretty SIMPLE formulation there…”

    There seems to be an urge to summarize within the language-mind. Like there is an urge to tell a secret. That pressure may give an interesting hint about Reality. So does the existence of humor…

    Sid, I think you would shed more light on the nature of trading and value and exchange, etc., if you were to describe in detail some of your actual trades, what you found satisfying/dis-satisfying, and why, how do you address the matter of quantifying quality in the trades that you make. Your statements so far are a little too general to be convincing but it is fun to consider them so far…

    I’m really interested in the topic because I work with my hands, and I like a lot of detail, which takes a lot of time to make. And along with William Morris I have a beef with industrial society because it’s products are often not beautiful. I would like to see a lot more Taj Mahals and Hagia Sophias going up than I do around here.
    I would say that there is such a thing as “intrinsic value” –at least those words are trying to point at something that is Real. They may not “corral” IT, tie IT up and command IT or deliver IT, but I feel an IT there.

  8. Stephen Baze permalink
    July 21, 2011 5:42 am

    Yes , words start failing . I have had that same experience as interpretations can be taken out of context when you get to a higher level of trying to communicate between humans. It is very frustrating on an intellectual level, but I suppose we must try ? I have found that if I give examples of what I am trying to express it helps convey understanding of sometimes complex points that are easily misconstrued. Beside the fact that we and whoever we are trying to speak with may have vast vocabulary differences. The discussions about violence and gays/lesbians comes to mind. Many people simply turn you off if they don’t want to hear what you have to say even if it makes total sense and is obvious, simply because they are already mind effed by PRAVDA and don’t acknowledge or know it. It is easy to spot though and therefore you can stop wasting your time !

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