Creation and Value

Wednesday ~ July 13th, 2011 in Economics

When I taught econ 101, I would begin my semester with a discussion of auctions and the TV show “cash in the attic.” The idea was to first communicate that value doesn’t have to come from “creating” anything. It can come from rearranging the things we already have.

The items in an auction were always there but they were junk to one family and treasure to another. Rearranging the who had which item made the world a better place. This usually went over pretty well.

From there I tried to then convince them that indeed, value never comes from creating anything because everything that is, was already here. At best we can rearrange atoms into forms that are more useful to us – just like rearranging the stuff in the attic.

This was always a bit harder to get across. This video courtesy of Alex Tabarrok might have come in handy.

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6 comments

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Wednesday ~ July 13th, 2011 at 8:01 pm

Curt Doolittle

Your are beginning to scare me.

Just what point are you making.
Because, entrepreneurs ‘create’ what wasn’t there all the time.
Inventors invent things, processes, and ideas that never were before.

So you must be making some point here that isn’t obvious. Because other than the reductio examples of wooden furniture, create things all the time.

(Or don’t tell me you’re one of those people who is a Keynesian Stagnationist?)

Thursday ~ July 14th, 2011 at 3:03 pm

Niklas Blanchard

I’ve said the same thing!

Here:

http://cheapseatsecon.wordpress.com/2010/03/20/entropy-and-economics-fitness/

and here:

http://cheapseatsecon.wordpress.com/2010/03/26/economics-and-entropy-fitness-ii/

I’ve long argued that “value” is “fit order”, and the fitness function is determined (or rather selected for) by human preference.

Thursday ~ July 14th, 2011 at 3:31 pm

Gepap

I think the problem for me here is the line of thought that separates “value” from need. They are joined – “value” exists only because of the desires or needs of a subject. Water is valuable because it is necessary for life. Diamonds have value because they are necessary for certain industrial uses, or desired for subjective aesthetic reasons.

Another issue is your apparent definiton of “creation”. How is re-arrainging atoms from one substance to another not creation? Is creation merely limited to the very creation of matter and energy itself? Well, there has been no creation for 14 billion years at least, and currently humans are utterly incapable of it. This seems a completly useless definiton of creation.

If someone cuts down a tree, strips its bark, and uses the wood to fashion a piece of furniture, they have likely increased the human desire or need for that wood which in its new form is likely more desired or needed than while it was in a tree, and thus created value.

Thursday ~ July 14th, 2011 at 10:40 pm

Alex Glazkov