So in effect, when you say "supply and demand" you're only pushing the question further. The real question (supposing market value is real value) is why is the demand curve such that 90 people are willing to pay $100 and 60 people are willing to pay $120? How do those people RATIONALLY make the decision "I'm willing to pay $X for this?"

And supply and demand also ignores the fact that there isn't one point of equilibrium, but MANY. In fact, the more efficient your business is, the more market segmentation you use. Meaning you charge those 60 people willing to pay $100, $100 and you charge the remaining 30 people willing to pay $120, $120.

That's how things actually work. That's why companies have multiple different offers, at different price points. You're supposed to grab as much area under the demand curve as possible. So in football, some people are willing to pay $100,000 to watch a match of football. So I have a special place for them to watch, where they get massage, champagne and whatever other services. Others are only willing to pay $10 - so they have the regular seats. Etc.

Your account of the marginalists leaves me unimpressed. Marx anticipated the diamond in a dessert scenario, which illustrates the difference between use-value and exchange-value.

I think the real question of this thread is how is REAL economic value determined (that will show us what it is too - just like the process of genesis of a triangle will show us what a triangle is). I've proposed a mechanism that I think is scientific and fully applicable to the market.

The Marxist theory and the supply-demand theory are lacking.

Marxist theory ascribes value based solely on the work that went into production. So if I do the same work making a website for an oil tank producer and a website for the local coffee shop - and spend the same time on both, according to Marx, their value is equal since the same amount of work went in both. But in practice, we see that this isn't the case - people don't behave according to this assumption.

While supply-demand takes real value to be identical to market value (and we know that this isn't the case, because it is frequent that the market overvalues or undervalues assets). And yet supply-demand and market economics presuppose this real value, because the equilibrium market value is expected to approach this real value in the long run.

Your account of the marginalists leaves me unimpressed. Marx anticipated the diamond in a dessert scenario, which illustrates the difference between use-value and exchange-value. — Sapientia

Actually, Smith talked about this problem in Wealth of Nations...

Okay, I don't know much about Smith. And besides, that makes it even worse for the marginalists, based solely on what you've told me.

Defining value in terms of the willingness of people to spend is also stupid. That's why we say that the market overvalues or undervalues things - because we have a real value in mind. You say Bitcoin is a bubble. Why? Because you have some idea of the price it ought to have in mind. That real value obviously cannot be calculated by the willingness of people to spend - people can be idiots. — Agustino

That's cause you don't comprehend what "subjective" really means, besides its common-sense definition. Insofar as subjective properties are concerned, a subjective property is such that no proper conception of how a thing X possesses it can be supplied except in terms of how, under appropriate conditions, such a thing affects a sentient being, a subject. In this way, there is no reason to think that opinions, for example, are subjective, unless in the case of being led by an enormous confusion with the common sense, i.e., to equate "personal" with "subjective". Having clarified this, nothing that is subjective can turn out to be objective. And then, to claim something subjective of common defense to be intersubjectivity is to confuse two different senses of subjective. Only what an object produces in a subject (qualia, for example) can be subjective. Never intersubjective (unless we share our consciousness), so that the intersubjective concerns what exists because of the complex relationships between various subjects. It is also necessary to say, perhaps, notwithstanding that it is not the relations of common defense, to base a subjective idea, which is to make this same idea intersubjective, to be, in fact, a similar idea and not of exact same or common defense: however, it is quite simple to understand why this is wrong. Differentiating the common sense from the abstract sense used in epistemology and theory of perception, a subjective property can only exist in relation to a subject and *only* in relation to a subject. There is no such thing as making intersubjective because perceptual content is not shared among people (no one has the power to enter into the mind of the person and to perceive what his phenomenal consciousness presents). Intersubjective properties are not phenomenologically qualitative. And, moreover, we do not talk much in terms of intersubjective properties but in terms of practical properties and intersubjective knowledge. It is quite illogical to think that subjective property x will become intersubjective if, and only if, all members (or most members) of the human species come to perceive such property X. This is phenomenologically false not only because of the impossibility of sharing phenomena of the inner (absurd) sense, but also because it is already a truism that most subjective properties are universal among humans (since we share the same cognitive-perceptive architecture). It's not the case. Speaking of subjective properties in the sense that it is used in the theory of perception and epistemology, no subjective property can become objective or intersubjective. Indeed, what common sense calls "subjective" is in fact the opposite of "completely divorced from purely personal conceptions and tied to some putatively scientific parameter of adequacy" ... But opinions are, by nature, intersubjective because they can be shared. Opinion is nothing more than a proposition whose truth-value is not strictly determined by the speaker (for lack of evidence with some minimum rigor, for example). Therefore, value is not a mere opinion about a certain good.

This is very difficult to read - you should break it into paragraphs.

And I can't really follow what point you're trying to make. I never mentioned subjective in the text that you quoted so I'm not sure what you're trying to suggest. Perhaps you could clarify.

And what do we do once liberated? — Agustino

Contemplate virtue and beauty of course!

But you are right we also need to actually practice virtue not just contemplate it. That's why even monastics still focus on work of some kind and almost all religions put emphasis on compassionate action.
What I object to is the modern assumption that meditation and prayer are not "doing" anything. Not that you necessarily believe this but there is a definite rejection of monastic and ascetic practices today. Protestantism is partially to blame.
But if you believe that God is real and is good then prayer is of very high value. If reality has a spirtual component, then meditation has the ability to transform it. It's simmilar to your discussion on transubstantiation. We see only the outer appearance and discard the inner, true reality. Prayers don't generate profits, but profits are worthless to our soul. In which kingdom should you invest?

Prayers don't generate profits, but profits are worthless to our soul. In which kingdom should you invest? — MysticMonist

I agree with you, but I don't think there exists this discrepancy between the material side and the spiritual side. I think, along with the likes of Socrates, that ironically, the one who "wins" spiritually also wins materially if that's his aim - but the converse isn't true - the one who wins materially isn't necessarily able to also win spiritually.

Like take me for example. If I neglect the spiritual side, then I am depressed and unmotivated, and so I can't be very productive. It's true that prayer, reading Scripture, meditation, contemplation, etc. don't bring me more business. But without doing those things, I don't have the motivation and mental strength required to do the things which do bring me more business. Humans aren't robots, and without taking care of the spiritual side, you fall apart it seems to me.

If I neglect the spiritual side, then I am depressed and unmotivated, and so I can't be very productive — Agustino

Fair enough, I'm glad that balance works for you. I also try to balance work and family and prayer and philosophy. Becoming a monk or getting a PHD aren't good ideas for me. We are meant to make a difference where we can.

I'm taking back up the role of resident Platonist here so my posts are going to be less about what I personally think (since I'm not sure). Rather, I'll try to respond as Plato or neoplatonists would as a self teaching tool. It's rather fun. So feel free to correct me on my Platonism.

So feel free to correct me on my Platonism

Your Platonism might require you to change your identity, from "Mystic Monist" to "Mystic Dualist".

The answer to the question "What Is Value?" needs to focus on Intrinsic Value. Utility is only extrinsic value. Something is useful only if it leads to something (intrinsically) value*. The question raises the concern that the only thing(s) that are intrinsically valuable are certain human experiences, and thus "Value" has no "objectivity". On this view, the value of a work of art, e.g., is not how much we are willing to pay for it, but whether experiencing it gives us aesthetic pleasure. Like the sound of the falling tree, we can ask whether the sunset would still be beautiful is no one was there to appreciate it. Objectivists might say "yes", while Subjectivists "No".

*Note that in the Nichomachean Ethics, Aristotle tells us that if there is not something valuable, desireable, in itself, then our life is in vain.

Can you quantify supply and demand? I've seen some people draw some charts based on some usually extrapolated data, but the whole procedure seems so unscientific, it's like empty guesswork for me. When I've tried to actually apply that theory in reality, I found that it has nothing to do with reality. I don't actually use supply and demand when deciding on prices. — Agustino

Typically the invisible hand does that for you.

Mystic Dualist — Mitchell

Haha. I'll have to respond in another thread. Thanks for the food for thought!

value isn't defined by the person willing to buy the good or service and the whole thing an interaction between supply and demand. Hence there's the fundamental difference between Marxism and mainstream economics. — ssu

I'm saying this from a Marxist perspective. If everything you said is true then it follows that the difference between Marxism and mainstream economics is that the latter does not discuss value as such. What Marx calls value has nothing to do with supply and demand as you say, however, within Marxism the price of commodities is somewhat determined through supply and demand. Marx terms this 'value' of the price of commodities 'exchange value'. To me, from what you say, it seems like mainstream economics only wants to discuss 'exchange value' which they term 'value'. Am I confused, or are there many ambiguities here?

I think both systems are stupid. Defining value merely in terms of work makes no sense, since machines can also do useful work, and obviously, in Marxist terms, you ought not pay them a wage for it. Also some may do work faster than others. — Agustino

In Marx's view machines don't create new value like human labour power. Machines (that were all originally created through human labour power, and thus have value) merely transfer a portion of their value into each commodity they help produce until they have become used up or obsolete. Human labour power can produce new value over and above its labour price unlike machines which merely transfer value.

So to raise my price 100 times, I must produce 100 times as much value for that customer. If I can do that, I'm 100% sure I will be able to sell at x100 the price - why would anyone refuse? Figuring out how to do that though, isn't very easy. — Agustino

This quote sounds Marxist to my ears. I'm thinking of a website like a machine. Like a machine, eventually the website will become redundant and need to be overhauled. Like a machine, contained in the website's value are the labour power (your qualifications and genius), the raw materials (software/hardware in this case), and the value transferred from other technologies (e.g. google analytics, etc). Like a machine, the website can be used in conjunction with fresh human labour power (in this case perhaps a marketing department?) to create new value over and above the value of the actual machine or website.

So if I make a website for an oil tank producer, where one sale is worth $1,000,000 on average, that is entirely different than if I make a website for a local coffee shop, where one sale is worth $5. I will charge the oil tank producer a lot more, even though it's about the same amount of work for me. — Agustino

I might have misread you, but this example you gave makes your website pricing look arbitrary. Marx looked at the economy from a socially average perspective. So for example, within our economy there are millions of website designers all trying to sell their product. The basic idea is that competition (and supply and demand) among website designers in conjunction with their socially average labour power (value) will determine a socially average exchange-value; not value but exchange-value. I feel like I'm ranting sorry....

In Marx's view machines don't create new value like human labour power. Machines (that were all originally created through human labour power, and thus have value) merely transfer a portion of their value into each commodity they help produce until they have become used up or obsolete. Human labour power can produce new value over and above its labour price unlike machines which merely transfer value. — bloodninja

Okay but then 10 hours of a software developer's time is worth more than 10 hours of a taxi driver's time? This does lead us to a situation where labour power is vastly different from one job to another.

This quote sounds Marxist to my ears. I'm thinking of a website like a machine. Like a machine, eventually the website will become redundant and need to be overhauled. Like a machine, contained in the website's value are the labour power (your qualifications and genius), the raw materials (software/hardware in this case), and the value transferred from other technologies (e.g. google analytics, etc). Like a machine, the website can be used in conjunction with fresh human labour power (in this case perhaps a marketing department?) to create new value over and above the value of the actual machine or website. — bloodninja

Agreed.

I might have misread you, but this example you gave makes your website pricing look arbitrary. — bloodninja

Depends on what you mean by "arbitrary". It's not arbitrary in the sense that I pick any number out there that meets my fancy and call that my price. But it is arbitrary in the sense that my price depends upon who is buying even though the work for client A and client B may otherwise be similar from a technical point of view. What they intend to do with the work is more relevant though - they're mostly looking to get clients through websites. So if I can better help one client with that, he will get charged more, since it's a slightly different service that way. I generally calculate a return value that my services will bring to my client, and then charge somewhere between 10-1% of that.

Marx looked at the economy from a socially average perspective. So for example, within our economy there are millions of website designers all trying to sell their product. The basic idea is that competition (and supply and demand) among website designers in conjunction with their socially average labour power (value) will determine a socially average exchange-value; not value but exchange-value. I feel like I'm ranting sorry.... — bloodninja

And that's the problem - Marx seems to apply the one-equilibrium idea from supply-demand economics. But things don't trade at one equilibrium since they are more valuable for some people than for others. Return to my example:

So if I make a website for an oil tank producer, where one sale is worth $1,000,000 on average, that is entirely different than if I make a website for a local coffee shop, where one sale is worth $5. I will charge the oil tank producer a lot more, even though it's about the same amount of work for me. — Agustino

So I might charge the coffee shop somewhere between $200-1000 depending on their size. If I charge them $1000, then they need to sell roughly 200-300 cups of coffee through the website to recover that investment - from there, it's all profit for them.

On the other hand, the oil tank producer is targeting B2B and 1 client will be worth $1,000,000. So if my website gets him just 1 client, he will get $1,000,000 in sales. So I can charge him much more - I can ask him for $30,000 for the website - that's 3% off 1 sale.

So the same work-time (roughly) can get me $1000 in one case, or x30 in another. Think about the downsloping demand curve. According to supply-demand economics, the way the demand curve functions is that sales happen at the price where supply = demand regardless of who the customer is. But market segmentation changes this. To the customer who is willing to pay $30,000, will get charged $30,000. And to the customer who is willing to pay only $1000, will get charged only $1000. The reason they're willing to pay more or less has to do with how much value the website brings to them, since there may be slightly different uses for the website. One client may need a different marketing strategy to be deployed through the website, etc. For an oil tank producer, the website brings a lot more value - 1 sale for him is worth x200,000 compared to the coffee house. So it's only reasonable that he's willing and able to pay more.

You may ask, why doesn't he just find a developer for $1000. He could, but that person will not be able to guarantee quality to the same extent, and it may end up being a bigger headache for themselves. So they feel much better in setting a big price to one good developer (a price that is still relatively pennies for them) and know that good quality work is being done, that will need very little effort from their side.

Now I only have limited time. So naturally, I will gravitate towards the oil tank producer types of clients. With them, for the same work time, I get paid x30. Of course, those clients are rarer, so I will also have some of the other, smaller clients.

The presence of smaller clients is good for people who are looking to enter into web development. It's a training ground. Everyone starts there. As you get better and more confident since your time is limited, you'll have the courage to move up the demand curve.

So suppose each person can produce 10 websites by himself in a month, and each website costs $200. So that means, if they were to work individually, they would make $2000 assuming they could source the work themselves. — Agustino

So if I make a website for an oil tank producer, where one sale is worth $1,000,000 on average, that is entirely different than if I make a website for a local coffee shop, where one sale is worth $5. I will charge the oil tank producer a lot more, even though it's about the same amount of work for me. — Agustino

So putting your two arguments for the calculation of value together, what value does the boss in the first example use to determine what his employees 'could' earn on their own, if what a website designer 'could' earn is not a fixed rate anyway? Does he use the wage they 'could' earn by selling to oil tank producers or the one they 'could' earn by selling to coffee shops?

So putting your two arguments for the calculation of value together, what value does the boss in the first example use to determine what his employees 'could' earn on their own, if what a website designer 'could' earn is not a fixed rate anyway? Does he use the wage they 'could' earn by selling to oil tank producers or the one they 'could' earn by selling to coffee shops? — Inter Alia

Generally to coffee shops. To sell to oil tank producers you don't have to be a good developer, you have to be a good salesman. Those are two different skills. In the case where you're the independent developer, you can combine sales skills with development skills - you cannot just assume that someone who would work independently as a developer also has the sales skills. Most don't. Sales skills are actually the ones which are worth the most.

The other way is to think of an average they can earn in a year. The may get 1 oil tank producer and 100 coffee shops @ an average of $200. So that would be $50,000 per year. You may calculate a salary based on that.

And the one who does have the sales skills, well, he very likely will not work for me, or for anyone for that matter. He can make more than enough alone, and he surely, if he wants, could open his own agency.

Typically the invisible hand does that for you. — Posty McPostface

Sure, soon you're going to tell me that the invisible hand also puts money in my pocket :-}

When people don't understand how something happens, they postulate non-scientific entities like "invisible hands", "powers" (opium having sleeping powers), and the like, thinking they have explained the matter, while actually they left things as unexplained as before.

But, you pay for the bread at a similar average amount every week, don't you?

But, you pay for the bread at a similar average amount every week, don't you? — Posty McPostface

No, there's more expensive and less expensive types of bread. And as I previously said, the closer a product or service is to being a commodity, the more real value approximates market value, meaning that the market does not overvalue or undervalue it.

I'm saying this from a Marxist perspective. If everything you said is true then it follows that the difference between Marxism and mainstream economics is that the latter does not discuss value as such. What Marx calls value has nothing to do with supply and demand as you say, however, within Marxism the price of commodities is somewhat determined through supply and demand. Marx terms this 'value' of the price of commodities 'exchange value'. To me, from what you say, it seems like mainstream economics only wants to discuss 'exchange value' which they term 'value'. Am I confused, or are there many ambiguities here? — bloodninja

As said, Marx bases his theory of value on the total amount of necessary labor required to produce a good, rather than by the use or pleasure its owner gets from it. And it's Marx that is forgetting demand.

Yet Here Marx is confusing: if he bases his theory labour theory of value (LTV), he yet then does admit that if some good is useless, there's "no countable labour" in it. I still think that a useless good has to be made and does need labour. Here's a quote from Marx:

nothing can have value, without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value.

(Karl Marx Capital,the quote in the end of section 1 here)

This utility that Marx is talking about is basically what constitutes demand of a good: if someone wants to buy the produced good. Usually goods that have a lot of demand and people willing to buy them have utility for the buyers. The labour put into making the good doesn't at all define how much people are going to buy it or not. Hence taking into consideration the demand side makes sense.

So to answer your question, if you think that mainstream economics is interestend only exchange value, that "exchange value" has lot more to it than the Marxian fixation on labour. And of course mainstream economics doesn't think about it in the Marxian-Smithian way anymore. Economics has moved on from the late 19th Century. On the most elementary level economics uses marginal utility theory and the Marshallian supply and demand scissors. Those weren't around when Marx was making his theories.

Now is the Marxist approach reasonable? It's quite reasonable if you want to make the statement that employers and capitalists steal from the workers, but otherwise it is problematic and a lousy model on how the economy works.

Sure, soon you're going to tell me that the invisible hand also puts money in my pocket :-}

When people don't understand how something happens, they postulate non-scientific entities like "invisible hands", "powers" (opium having sleeping powers), and the like, thinking they have explained the matter, while actually they left things as unexplained as before. — Agustino

There are also those people who are ignorant of some academic field of study and proclaim it to be non-scientific and wrong and consider the truth of it to be how they think and operate themselves. ;)

The answer to the question "What Is Value?" needs to focus on Intrinsic Value. Utility is only extrinsic value. Something is useful only if it leads to something (intrinsically) value*.

Isn't this where the gurus like Warren Buffet come in handy?

I think there are intrinsic values behind the extrinsic-relational values we see in the market, but these base values are very hazy, and context driven....there's a huge time component in economic valuation and the investors with the best forward vision have the best sense of intrinsic value IMO.

There is also the idea that investors like Buffer set the market. Berkshire Hathaway traded at $300,000 US yesterday.

There are also those people who are ignorant of some academic field of study and proclaim it to be non-scientific and wrong and consider the truth of it to be how they think and operate themselves. ;) — ssu

Sure there must be. And they're probably right usually. Practice beats theory in economics. But in my case, I have studied my fair share of economic theory - was it helpful for anything? Nope. What use that I understand the relationship between maximising profitability and making my marginal revenue = marginal cost, etc? In fact, economics is one of the most frustrating sciences precisely because it is so useless in its current form. That is evidenced by nobody from the supply-demand side in this thread being able to answer my questions and charges.

Really, I think economics is the field most in need of a revolution at the moment. People are stuck in absurd ways of thinking, that literarily don't have much to do with reality anymore.

How is arbitrage possible then?

How is arbitrage possible then? — Posty McPostface

Arbitrage is buying one good from one market, and selling onto a different market at a higher price.

If I buy a water bottle at my local supermarket, and then get it to the billionaire lost in the Sahara desert who is dying of thirst, I'm sure I can pocket hundreds of millions for that bottle of water (and getting him to safety).

What makes this possible? The fact that in one place the person needs water much more than in the other AND he is capable to pay for it. So the price I can sell once I bought the water depends on two factors: (1) how much do the people of the market I want to sell on need it?, and (2) how much can they afford to spend on it?

So people lost in the Sahara need water much more than you, who lives in the city, where you have a lot of water around you. And billionaires lost in the Sahara can pay millions for it. If you're lost in the Sahara, I can only sell the water to you for a maximum of your entire wealth - I cannot sell you for 100 million dollars, if you don't have 100 million dollars. You may be willing to pay me 100 million, but you can't.

So arbitrage is possible because needs differ from market to market, and possibilities of payment also differ.

Yeah, and that's what makes prices stable over time also, what you didn't mention. And that would be important in how a price gets determined not just based on specific cases but as a normalization of aggregate needs, wants, and preferences (say you like Italian bread more than wheat)