A Tale of Two Buckles ; The difference between True Value and Price.
November 21, 2017
The Calibre R822 Predator: A belt buckle without equal. Weighing in at 145 g, it is hand crafted from 180-carat solid white gold and titanium. Shimmering in stately elegance, it is adorned lavishly with 387 diamonds, both baguette cut and round cut, 14.15 carats in total. It is crafted from 167 precision engineered components, the equal in fit and finish to even the best Swiss time-pieces. Its hinges are self-cleaning, and its safety catch mechanisms minimize any chance of unwanted failure. The $550,000 price tag is the small investment necessary to ensure you’re never, ever caught with your pants down, a wardrobe malfunction that could forever tarnish any illustrious career.
The only belt buckle Megatron will wear.
Now enter the Hanks 1.5” Stainless Steel Roller Belt Buckle. Crafted from premium, polished stainless steel, an icon of elegant simplicity. It has a roller for convenience, slips on and off in a matter of seconds, and keeps wear and tear on belt leather to an absolute minimum. With only 3 working components, maximal durability and reliability are guaranteed. With a 100 year warranty, if anything ever goes wrong with it, just send it back. All this for just $9.99 on Amazon Prime.
It's not the buckle you want, but it's the buckle you have right now.
When viewed through the lens of true value, both objects, the Calibre R822 Predator, and the Hanks Stainless steel buckle, are very similar. They both have the same function. They are both mechanisms built to securely fasten a belt in place around the waist. Their “Ability to increase effectiveness” is in the task of making sure your belt stays tight, and your pants stay on, no matter how much weight you’ve been losing. Does one do a better job than the other at this task? A stainless steel buckle made with 3 parts is, in all likelihood going to stand up to wear, tear, and abuse much better than a buckle made from 167 parts. The buckle made from 167 parts has all kinds of one handed smooth adjust features, and so at the end of the day may provide a slightly better fit, allowing you to adjust it while also doing very important things with your other hand.
The two objects have very similar true value, similar “Ability to increase effectiveness” and they both do essentially the same thing. So why does one cost 55,000 times more than the other? That’s over 5 orders of magnitude! To answer that, it is necessary to take a giant conceptual meat cleaver and use it to separate the concept of value from the concept of price. True value and price are totally different concepts and have different purposes.
First what is the purpose of true value? True value, or “Ability to Increase Effectiveness” assigns importance, or value, to things that objectively help you complete a task. Whether that task is staying alive, transporting yourself to work, or staying warm at night. True value is in the business of determining what resources you actually need, to get done what you want to get done. A car has true value for transportation. A blanket has true value in helping keep you warm at night. This is unrelated to how much the car or the blanket cost.
So what is price then? Price is involved in a totally different business. A business of allocating scarce resources. If there isn’t very much of something, and the thing is wanted by a lot of people, that thing will, because of market forces including supply and demand, develop a higher price. This makes the thing harder to acquire, meaning only those who really want or need it have access to it.
Price and True Value are completely different. A resource can be very truly valuable AND very plentiful and cheap. Water, specifically good, clean, and fresh drinking water is necessary to help you stay alive and free of nasty diseases like giardia. It therefore has a very high true value. It is also very plentiful, and is made so by public utilities. This means that water has a low price, despite its high true value. Nutritious food, food that not only satisfies hunger but promotes good health also has a very high true value. This food, for example spinach, beets, yams, and grains, is plentiful and takes relatively few resources to produce, so it has a low price.
Something like a Boeing 787 can vastly increase a great many people’s effectiveness at the task of transporting themselves from one place to another. A 787 has enormously high true value. It also takes a large amount of scarce resources, heavily engineered carbon fiber and titanium and electronics to produce. It therefore has a very high price, $150 million dollars. Enough to buy 272.72 predator belt buckles. The predator belt buckle, however, has a much, much lower true value. It can only fasten one person’s belt, doing only a marginally better job than a $10 belt buckle. However, this buckle is packed with scarce resources. The scarce metal, gold. Scarce diamonds, that have been expertly polished using scarce expert man-hours. Custom designing, engineering, and manufacturing all 167 mechanical components required scarce talent and skills. Don’t forget the scarcity of the belt buckle itself, of which there are only 3 in existence. This, apparently, justifies the price of $550,000 for a belt buckle. The point of all this is that price is related to resource scarcity, and NOT to true value.
Another way to think about true value is to imagine the consequences of taking away a resource. The higher the true value, the more disastrous the consequences of removing the resource. No matter what the price of water is, if you take away all the water everyone will be dead in 3 days. If you take away all the predator belt buckles in the world you have exactly 3 irate business magnates. Even if you took away ALL belt buckles in the world, society could probably still function, however will have to loosen its fashion standards as it loosens its trousers. If you took away all of the jewelry diamonds, people would be less sparkly and fabulous, but would hopefully be able to emotionally recover. If you took away all the cars our modern society would grind to a halt, as almost nobody would be able to transport themselves to their jobs. This has nothing to do with the price of diamonds, or the price of cars. It has everything to do with the “Ablity to increase effectiveness”, or true value, that these resources have.
So why exactly is it important to have a separate concept of value and price like this? What real good does it do? The concept of true value should make it much clearer that the resources that people really need, that can really help people are often NOT resources naturally incentive by market economies. For example, nutritious food is often not made available to people in poverty stricken inner city areas of America. This is because, although these foods aren’t very expensive, it is even cheaper, easier, and more profitable to sell non-perishable sugary, heavily processed food instead. These foods are also more palatable and in higher demand. As a result, people in modern first world country have a calorie surplus and nutrition deficit, and suffer many varied negative health consequences as a result. A free market price based system doesn’t value human health. It doesn’t account for true value. Therefore, it will limit access to cheap, nutritious, highly truly valuable resources if it is more profitable to do so. This is ultimately very bad for everyone. Incentivizing profit over true value leads, in practice, to a world with a thriving, highly profitable market economy and a society full of predominantly malnourished, sick, and miserable human beings. And all the while there is a remarkable and amazing excess of valuable resources. The resources are simply being used in a way that generates the most profit, instead of in a way that generates the most true value.