Not many people understand that no thing HAS a monetary 'value'. Every thing HAS 'properties', which may be grouped under special names, like geometric, chemical, physical, etc.
But 'value' is never inherent in a thing (not even a piece of gold); only a person can PUT a value ON a thing, and various people can (and do) put different 'values' on the same thing. Even one solitary person can change their opinion about their 'value' for a single thing over time, though the thing retains all it original 'properties', unchanged.
So 'value' of any thing is only ever, and always, inside a person's head. It's a 'personal opinion' about the relative importance of that thing to the observer; it's entirely dependent on the whims of the person holding that opinion.
In case you're waiting for the answer to the question, 'how do people know how many pounds to offer (or insist on) in exchange for other things?', I decided that this was getting too deep for now, so I'll be addressing it later. But if you can't wait, I can recommend Per Bylund's description in his book 'How to Think About the Economy':
(By the way, I wouldn't call myself an Austrian economist. I think they are excessively concerned about banks creating money. But I do like the Austrian school's emphasis on there being no free lunches).
Money is a device intended to measure one thing only: The "Exchange Value" of any thing capable of being "owned", commonly called an "asset". Though the current 'value' of any given asset inevitably varies from time to time and from person to person, every asset does acquire a precise "exchange value" each time it 'moves' from one owner to the next.
Unfortunately, mankind has yet to devise a unit for money which is 'invariable', like the inch, pound or second. Until we can devise such a unit, or one approaching such stability, we are doomed to use the equivalent of an 'elastic tape measure' to effect and record our asset exchanges.
All currencies in the world presently have legally defined unit (and sub-unit) 'NAMES' only and no legally defined "Exchange Value". I may one day publish an article about how I believe that deficiency can be overcome at my Substack [https://patcusack.substack.com/]
I tend to leave questions of price to people who are interested in psychology. The key insight of the One Lesson is that the economy is fundamentally simple---almost as simple as barter---and many things in economics can be explained without even considering prices. The broken window fallacy is a good example of this, where discussion of prices, supply and demand only serves to obscure what's happening rather than clarify it. Another is the understanding that banks need to charge fees or interest in order to remain solvent.
That was quick! I quite like the Austrian school of economics, but I think they get hung up on money creation as being inherently bad. The One Lesson shows that there's absolutely nothing wrong with making a promise *as long as you can keep it*. If you own a kilogramme of gold or a tonne of wheat (and have no liabilities yet), you can write an IOU to someone for $20, and as long as you can sell some of your gold or wheat for $20, you can pay what you owe and nobody is harmed.
The real problem comes when people, or more importantly large corporations (think banks and governments), become insolvent, having made huge numbers of promises they can't keep because they don't have enough assets.
I'm retired - lots of free time, :). I enjoyed the interlude. A lot of sound reasoning there, but I highlighted one sentence for discussion: "So, they exchanged *because* Adam values the milk higher than the apple *and* Beth values the apple higher than the milk." [p.29, * * = Bylund's italics].
I say, Bylund can't know this! Neither can he know whether "they both expected to be *better off* with what they received in exchange". That is mind-reading, not objective observation. This appears just after he finished saying [on p.28] economic data can't show the *cause* of the exchange. You need to be very careful with what he calls "a priori understanding". He means, "a priori assumptions".
Why not say "≥" (instead of ">")? The limiting case of "=" would surely be true. Anything less than "=" and the exchange (probably?) wouldn't happen without some element of "unfairness", e.g., coercion, etc. In fact, I'd go so far as to say that the "=" case is the ontological definition of a "fair trade", in which neither Adam nor Beth "gains" nor "loses", but both "profit".
For what shall it "profit" a man, if he shall "gain" the whole world, and "lose" his own soul? [Mark 8:36, my added ""]. Therefore, profit ≠ gain.
I'm guessing he believes that the minor inconvenience of doing the exchange wouldn't be worthwhile if each was just as happy with what they already had as what they would get from the exchange.
In my own analysis, I don't assume anything about people's motivations or decision-making. I just say, if person A decides to do this, the effects are X and Y.
My (unpublished) idea of price was, like Bylund's, the ratio of the perceived values of what is given and received in an exchange. Where Bylund says that ratio is always > 1 for *both* parties, I think he needs to clarify his point, because I actually defined a "fair exchange" as one in which both parties agreed that the "price ratio" was ≡ 1.
One of the problems with price is it's not just a property of a product, or even a product & a potential buyer & a potential seller. If Alice has 10kg of flour, and Bob has 10kg of cheese, and both particularly like cheese pies (ingredients 1kg flour, 1kg cheese), I'd expect both would prefer to have 5kg of each, and that they would consider paying more for the first 5kg than for subsequent kgs. Can we even define a price ratio between flour & cheese for that sort of situation?
"Can we even define a price ratio between flour & cheese ...?" Only as a statistic, based on a time series of observed behaviour.
The daily "gold/silver ratio" is often published as a live graph. Take a 'moving average' of that daily ratio data over a very long time period and you start to see the glimmerings of an 'estimate'. Since the 1970's that ratio has varied a lot, but somewhere between 60:1 and 70:1 seems like a fair estimate.
Not many people understand that no thing HAS a monetary 'value'. Every thing HAS 'properties', which may be grouped under special names, like geometric, chemical, physical, etc.
But 'value' is never inherent in a thing (not even a piece of gold); only a person can PUT a value ON a thing, and various people can (and do) put different 'values' on the same thing. Even one solitary person can change their opinion about their 'value' for a single thing over time, though the thing retains all it original 'properties', unchanged.
So 'value' of any thing is only ever, and always, inside a person's head. It's a 'personal opinion' about the relative importance of that thing to the observer; it's entirely dependent on the whims of the person holding that opinion.
Very well put. It would be extremely helpful if more people understood this.
In case you're waiting for the answer to the question, 'how do people know how many pounds to offer (or insist on) in exchange for other things?', I decided that this was getting too deep for now, so I'll be addressing it later. But if you can't wait, I can recommend Per Bylund's description in his book 'How to Think About the Economy':
https://mises.org/library/how-think-about-economy-primer
(By the way, I wouldn't call myself an Austrian economist. I think they are excessively concerned about banks creating money. But I do like the Austrian school's emphasis on there being no free lunches).
Money is a device intended to measure one thing only: The "Exchange Value" of any thing capable of being "owned", commonly called an "asset". Though the current 'value' of any given asset inevitably varies from time to time and from person to person, every asset does acquire a precise "exchange value" each time it 'moves' from one owner to the next.
Unfortunately, mankind has yet to devise a unit for money which is 'invariable', like the inch, pound or second. Until we can devise such a unit, or one approaching such stability, we are doomed to use the equivalent of an 'elastic tape measure' to effect and record our asset exchanges.
All currencies in the world presently have legally defined unit (and sub-unit) 'NAMES' only and no legally defined "Exchange Value". I may one day publish an article about how I believe that deficiency can be overcome at my Substack [https://patcusack.substack.com/]
You might like Per Bylund's book, "How to Think About the Economy". PDF available for free:
https://mises.org/library/how-think-about-economy-primer
I tend to leave questions of price to people who are interested in psychology. The key insight of the One Lesson is that the economy is fundamentally simple---almost as simple as barter---and many things in economics can be explained without even considering prices. The broken window fallacy is a good example of this, where discussion of prices, supply and demand only serves to obscure what's happening rather than clarify it. Another is the understanding that banks need to charge fees or interest in order to remain solvent.
Just finished reading it. Thanks for the link.
To choose or not to choose, "fees or interest"? That is the question.
That was quick! I quite like the Austrian school of economics, but I think they get hung up on money creation as being inherently bad. The One Lesson shows that there's absolutely nothing wrong with making a promise *as long as you can keep it*. If you own a kilogramme of gold or a tonne of wheat (and have no liabilities yet), you can write an IOU to someone for $20, and as long as you can sell some of your gold or wheat for $20, you can pay what you owe and nobody is harmed.
The real problem comes when people, or more importantly large corporations (think banks and governments), become insolvent, having made huge numbers of promises they can't keep because they don't have enough assets.
I'm retired - lots of free time, :). I enjoyed the interlude. A lot of sound reasoning there, but I highlighted one sentence for discussion: "So, they exchanged *because* Adam values the milk higher than the apple *and* Beth values the apple higher than the milk." [p.29, * * = Bylund's italics].
I say, Bylund can't know this! Neither can he know whether "they both expected to be *better off* with what they received in exchange". That is mind-reading, not objective observation. This appears just after he finished saying [on p.28] economic data can't show the *cause* of the exchange. You need to be very careful with what he calls "a priori understanding". He means, "a priori assumptions".
Why not say "≥" (instead of ">")? The limiting case of "=" would surely be true. Anything less than "=" and the exchange (probably?) wouldn't happen without some element of "unfairness", e.g., coercion, etc. In fact, I'd go so far as to say that the "=" case is the ontological definition of a "fair trade", in which neither Adam nor Beth "gains" nor "loses", but both "profit".
For what shall it "profit" a man, if he shall "gain" the whole world, and "lose" his own soul? [Mark 8:36, my added ""]. Therefore, profit ≠ gain.
I'm guessing he believes that the minor inconvenience of doing the exchange wouldn't be worthwhile if each was just as happy with what they already had as what they would get from the exchange.
In my own analysis, I don't assume anything about people's motivations or decision-making. I just say, if person A decides to do this, the effects are X and Y.
My (unpublished) idea of price was, like Bylund's, the ratio of the perceived values of what is given and received in an exchange. Where Bylund says that ratio is always > 1 for *both* parties, I think he needs to clarify his point, because I actually defined a "fair exchange" as one in which both parties agreed that the "price ratio" was ≡ 1.
One of the problems with price is it's not just a property of a product, or even a product & a potential buyer & a potential seller. If Alice has 10kg of flour, and Bob has 10kg of cheese, and both particularly like cheese pies (ingredients 1kg flour, 1kg cheese), I'd expect both would prefer to have 5kg of each, and that they would consider paying more for the first 5kg than for subsequent kgs. Can we even define a price ratio between flour & cheese for that sort of situation?
Correct. Ultimately, the price of any thing is your valuation of "what you give" to become it's new owner. It's in your head.
"Can we even define a price ratio between flour & cheese ...?" Only as a statistic, based on a time series of observed behaviour.
The daily "gold/silver ratio" is often published as a live graph. Take a 'moving average' of that daily ratio data over a very long time period and you start to see the glimmerings of an 'estimate'. Since the 1970's that ratio has varied a lot, but somewhere between 60:1 and 70:1 seems like a fair estimate.
There's an interesting history of this ratio on Investopedia: https://www.investopedia.com/articles/investing/080316/historical-guide-goldsilver-ratio.asp