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These days it's hard to avoid seeing articles that
proclaim something like The stocks that compose the
Dow-Jones Industrial Average lost $6.7 trillion of their
value in 2008
or Metro area median house values drop
5.2 percent from last year.
But when we read value
in this context, what are
we really reading about?
Let's take something simple, like firewood. Let's assume I paid $140 a cord for it last fall. (A cord is a stack 4 feet by 4 feet by 8 feet, or 128 cubic feet, except that there's space between the logs, so it's actually more like 96 cubic feet.)
And let us assume that for some reason, the price of firewood has dropped to $100 a cord.
In financial terms, the wood has less value
than
it did a few months ago. But from another perspective, it's
just as valuable. It burns just as well in January as it
did in October. It has the same BTU content. It's just as
easy or hard to split and haul. In other words, nothing has
affected its utility for the reason I got the wood -- to
help heat our house.
From that vantage, what changed was not the value of the
wood, but its price. Yet if we go from simple firewood to
the stock exchange, value
somehow enters the
discussion.
To take another example, my computer is certainly worth less than it was when I built it a year ago. Relatively tiny 80-gb hard drive (but only 21 percent full), single-core CPU even it is a 64-bit processor, a mere 2 gigs of RAM -- I'm not sure there's any new desktop machine that wimpy for sale anywhere.
But it does the work I want it to do. It boots up every
morning and doesn't lock up or crash (one reason why
GNU/Linux, which is free, is more valuable than Microsoft
Windows, which isn't). I'm familiar with its quirks and
workarounds. Its value to me grows over time, whereas its
market price is likely down near the negative you'll
have to pay somebody to haul this away.
Or let us ponder real-estate. I don't follow the local market that closely, but it's entirely possible that our house's market price dropped by $50,000 or even $100,000 last year.
But it still shelters us. It hasn't lost any square-footage; all the rooms are still here. The lot is the same size, and it remains within convenient walking distance of most of our daily needs, thereby reducing our transportation expenses. Its value to us is basically the same as it was when we bought it for $52,000 almost 20 years ago, even if the market price moves up and down.
So unless we plan to sell the house or borrow a lot of money against it, the fluctuations in its price don't have much relevance to our daily lives.
That may explain why, even though we keep reading that
this is the greatest financial collapse since the Great
Depression,
mundane life seems to go on about the same.
Prices have fallen for paperwork based on leveraging other
paperwork, but a cord of dry ponderosa pine still has the
same heating value, no matter what its price.
We hear a lot about family values
and those
values voters
who put moral considerations ahead of
economic considerations. Yet when we read about the
economy, we keep seeing the misleading word values
instead of the honest word prices.
Oscar Wilde, the 19th-century British wit and
playwright, once defined a cynic as A man who knows the
price of everything and the value of nothing.
Wilde knew the difference. But since he wrote that in 1892, we seem to have confused the two, and thus equate declining prices with declining values, when they're not the same.
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