In what sense are goods and services interchangeable?

[ideogram]

Go.

[timhau]

They're both nouns in plural form.

[Harry Lime Juice]

'Disgraces no doves' is an anagram.

[AvalonXQ]

In the sense that we can give both a value in dollars, and therefore interchange one for another through the medium of money.

[Mark6]

Sounds like you answered your own question. Or do you think there is more to it?

In one very important sense goods and services (and for that matter services and other services) are NOT interchangeable: goods you can buy and then re-sell. Services, generally you cannot.

[Loss Leader]

I exchange my services for goods nearly every day.

[TraneWreck]

The sixth.

[NobbyNobbs]

You can service me and I'll tell you if it was good.

[drkitten]

Sounds like you answered your own question. Or do you think there is more to it?

I'm afraid I have to agree. Superficially and without context, this seems like a really silly question.

If there's actually an interesting and important QBQ, I'd like to cut through the standard ten pages of drivel and insults and hear it.

[Dave Rogers]

Buy me lunch, and I'll explain it to you.

Dave

[ideogram]

I'm not sure I can put it in words. It seems to me goods and services are fundamentally different things. The only reason we can exchange them is because people are willing to perform services in exchange for goods, through the medium of money. But what exactly is the exchange rate? Wouldn't it seem that every person has a different exchange rate? What is a market rate for services? Goods are generally commodities, services are not. How are the services of one auto mechanic measurable in comparison to those of another? For that matter, how are the services of an auto mechanic as performed for a loyal customer measurable in comparison to those performed for a random joe off the street?

I have a lot of questions. If you want I'm sure I can think of a lot more.

[AvalonXQ]

I'm not sure I can put it in words. It seems to me goods and services are fundamentally different things. The only reason we can exchange them is because people are willing to perform services in exchange for goods, through the medium of money. But what exactly is the exchange rate? Wouldn't it seem that every person has a different exchange rate?

This could be true for goods as well. In a business-caters-to-consumers culture like ours, each business sets a selling price, and consumers pay that price at their option. Correct pricing is determined by adjustment of prices and corresponding behavioral changes in consumers.


What is a market rate for services? Goods are generally commodities, services are not. How are the services of one auto mechanic measurable in comparison to those of another?
By results. If my break pads are worn down, I have an idea of how much it's reasonable to pay for someone else to replace them with new break pads. At the end of the process, as long as I have properly-positioned, new break pads, the nuances in capability between the mechanics aren't really that relevant.
On the other hand, if my wheels are squeaking and I don't know why, going to a mechanic with better diagnostic skills (or, in my case, one that I'm more likely to trust not to up-sell me unnecessary repairs) may be of more value because the result is of more value.
Try reducing services to the value of the results of those services -- either tangible (a repaired car, a full stomach) or intangible (a pleasurable evening). It's what someone's willing to pay for that sets the price.

[ideogram]

This could be true for goods as well. In a business-caters-to-consumers culture like ours, each business sets a selling price, and consumers pay that price at their option. Correct pricing is determined by adjustment of prices and corresponding behavioral changes in consumers.



By results. If my break pads are worn down, I have an idea of how much it's reasonable to pay for someone else to replace them with new break pads. At the end of the process, as long as I have properly-positioned, new break pads, the nuances in capability between the mechanics aren't really that relevant.
On the other hand, if my wheels are squeaking and I don't know why, going to a mechanic with better diagnostic skills (or, in my case, one that I'm more likely to trust not to up-sell me unnecessary repairs) may be of more value because the result is of more value.
Try reducing services to the value of the results of those services -- either tangible (a repaired car, a full stomach) or intangible (a pleasurable evening). It's what someone's willing to pay for that sets the price.

So the value of anything is the price at which a willing buyer meets a willing seller? How does a market function in which every individual transaction is unique? Isn't this how home prices got wildly out of line? I hear businesses are salivating at the prospect of individually determined pricing so that they can extract the maximum every customer is willing to pay. Doesn't this interfere with the ability of the market to allocate resources? As I see it money is supposed to be an abstract "resource", but what resource is that? What do goods and services have in common that can be abstracted into a notion of "resource"?

How much money would I have to pay you to provide me the services you provide to a loyal customer?

[AvalonXQ]

What do goods and services have in common that can be abstracted into a notion of "resource"?

The fact that people value them, and are willing to give up something else they value in exchange for them.
In other words, what goods and services have in common that can be abstracted into a notion of "resource", is fungibility.

[ideogram]

Maybe what I'm trying to get to is this: I'm not willing to exchange my services for goods. What is my place in a capitalist economy?

[TraneWreck]

Maybe what I'm trying to get to is this: I'm not willing to exchange my services for goods. What is my place in a capitalist economy?

Naked and starving.

[ideogram]

"Give a man a fish ... teach a man to fish ..." wouldn't I rather hook a man for a lifetime of buying fish rather than enable him to get fish without me? In this case the exchange rate is infinite, isn't it?

[ideogram]

Naked and starving.

Except we don't let it get that far. This is why people on welfare don't work, right?

[paximperium]

"Give a man a fish ... teach a man to fish ..." wouldn't I rather hook a man for a lifetime of buying fish rather than enable him to get fish without me? In this case the exchange rate is infinite, isn't it?
I'd let a man do what he is good at instead of wasting his time doing what he isn't.
Except we don't let it get that far. This is why people on welfare don't work, right?You're on welfare? No wonder you don't understand reality.

[paximperium]

Maybe what I'm trying to get to is this: I'm not willing to exchange my services for goods. What is my place in a capitalist economy?
You'd have no place in any economy or any society.

[AvalonXQ]

Maybe what I'm trying to get to is this: I'm not willing to exchange my services for goods. What is my place in a capitalist economy?

That depends. Are you willing to exchange your goods for goods? What goods do you need from others?
A farmer or artisan might be just fine in this situation: his services are not bartered away but instead are self-directed, to the ends of producing goods. A farmer that toils the land to produce wheat that he then sells is only "exchanging goods". A toolmaker, silversmith, jeweler, etc may similarly create goods that he then exchanges for what he needs.
In an industrial economy, on the other hand, you have the problem that the majority of modern positions are based on selling your labor directly to someone else. You could get by in one of the few positions where this is not the case, but your options are profoundly limited.

ETA: Even in this situation, you might be able to gain employment on the basis of "goods" rather than services -- depending on how you're willing to stretch your definitions. Many factory jobs, for instance, are paid "per article". If you decide that you're essentially being paid for producing an assembled good, you might be able to take such a job.

[ideogram]

That depends. Are you willing to exchange your goods for goods? What goods do you need from others?
A farmer or artisan might be just fine in this situation: his services are not bartered away but instead are self-directed, to the ends of producing goods. A farmer that toils the land to produce wheat that he then sells is only "exchanging goods". A toolmaker, silversmith, jeweler, etc may similarly create goods that he then exchanges for what he needs.
In an industrial economy, on the other hand, you have the problem that the majority of modern positions are based on selling your labor directly to someone else. You could get by in one of the few positions where this is not the case, but your options are profoundly limited.

ETA: Even in this situation, you might be able to gain employment on the basis of "goods" rather than services -- depending on how you're willing to stretch your definitions. Many factory jobs, for instance, are paid "per article". If you decide that you're essentially being paid for producing an assembled good, you might be able to take such a job.
I would say I have all the goods I desire. Thus I fail the assumption that human desires are infinite, at least so far as goods are concerned.

I'm not sure I really wanted to turn this into a discussion of myself personally. It seems to me there are an increasing number of people in this situation, although maybe I'm projecting.

What is information? Is it a service, a good, or something entirely different?

[Philosaur]

Maybe what I'm trying to get to is this: I'm not willing to exchange my services for goods. What is my place in a capitalist economy?

You still have to obtain goods for sustenance, so either you are self-sufficient, a thief, or on welfare.

And if you have no valuable talent or competency, then you have nothing to offer as a service. If you *can* perform some valuable activity, then either you use it only for your own benefit (for self-sufficiency), or you can give away the benefit of your work (in which case you are still not exchanging it for goods), making you charitable.

Production/Consumption matrix: *

produce only for self & consume only from self => self-sufficient
produce only for self & steal => thief
produce only for self & depend on charity => dishonest dead-beat

charitable & consume only from self => saint
charitable & steal => Robin Hood
charitable & depend on charity => Communist

don't produce & consume only from self => corpse (long-term projection)
don't produce & steal => lazy thief
don't produce & depend on charity => dead-beat

* I am no economist

[TraneWreck]

I would say I have all the goods I desire.

How did you get them?

[ideogram]

How did you get them?

I would prefer not to discuss that.

[TraneWreck]

I would prefer not to discuss that.

I sure hope it wasn't by exchanging services or some medium that represented value for your services.

[Philosaur]

I would say I have all the goods I desire. Thus I fail the assumption that human desires are infinite, at least so far as goods are concerned.

But your needs are another matter entirely.


I'm not sure I really wanted to turn this into a discussion of myself personally. It seems to me there are an increasing number of people in this situation, although maybe I'm projecting.

I think the simple and obvious answer is that you are projecting.


What is information? Is it a service, a good, or something entirely different?
I think information is more like a service than a good.

If you are paying someone for readily available but hard to catalog (or sort, store, and present) information, you are paying more for the work they did in your stead. You aren't really paying for the paper and ink in a calendar, you're paying for the convenient layout and catalog of important dates.

If you are paying someone for hard to obtain information, like the formula for a new drug, then you are paying for access, whether or not you make the drug itself. And you're certainly not paying for the napkin it's written on, or the phone call it's uttered over.

Furthermore, when someone provides you with information, you are not depriving that person of the same information (unless specific caveats are in place to do so)--so again it's unlike a good.

[Fnord]

In what sense are goods and services interchangeable?

In the sense that the producer of goods or services perceives equitable value in the goods or services of another. If an agreement can be made, then the goods or services can be interchanged. I trade you a bushel basket of oranges from my tree for a bushel basket of avocados from yours. Good enough if we both agree.

Problems arise when there is disagreement on the perceived value of goods.

Example: Let's says that a local labor co-op is set up specifically for the purpose of brokering "Sweat-Equity" agreements -- I replace your roof and you re-wire my home. If you spend more on materials than I do, then we work out some sort of compensation. Fair and equitable, at least to our satisfaction.

Then some woo-woo feng shui practitioner offers to light a few candles, say a few prayers and re-arrange the furniture in my house in exchange for my services - her home was hit hard by "toxic mold", and she wants me to replace all the drywall and re-paint every room. I perceive no value in the service she offers, while she seems to think that her services are at least as valuable as 50-plus man-hours of labor, thousands of dollars of materials, and the health threat of direct exposure to toxic mold spores. No way is there going to be a "Fair and Equitable" exchange of services.

[ideogram]

In what sense are goods and services interchangeable?

In the sense that the producer of goods or services perceives equitable value in the goods or services of another. If an agreement can be made, then the goods or services can be interchanged. I trade you a bushel basket of oranges from my tree for a bushel basket of avocados from yours. Good enough if we both agree.

Problems arise when there is disagreement on the perceived value of goods.

Example: Let's says that a local labor co-op is set up specifically for the purpose of brokering "Sweat-Equity" agreements -- I replace your roof and you re-wire my home. If you spend more on materials than I do, then we work out some sort of compensation. Fair and equitable, at least to our satisfaction.

Then some woo-woo feng shui practitioner offers to light a few candles, say a few prayers and re-arrange the furniture in my house in exchange for my services - her home was hit hard by "toxic mold", and she wants me to replace all the drywall and re-paint every room. I perceive no value in the service she offers, while she seems to think that her services are at least as valuable as 50-plus man-hours of labor, thousands of dollars of materials, and the health threat of direct exposure to toxic mold spores. No way is there going to be a "Fair and Equitable" exchange of services.

Then this is a barter economy in which every transaction is unique? How is this supposed to happen with money? Isn't the monetary value of something supposed to represent what society as a whole agrees is the value of that good or service?

[learner]

I exchange goods for services regularly. I hate mownig my lawn, its very big and I have no desire to do it even though it needs mowing. Samantha, the Girl that lives down the Lane from me has a Pony that we agreed could be let loose in the field at the end of my garden in exchange for Samantha mowing my lawn regularly.

The Meadow is my property/goods the mowing is her service. All is well.

[ideogram]

Isn't it true that there must be multiple competing buyers and multiple competing sellers for a market to work?

[Fnord]

Then this is a barter economy in which every transaction is unique?
Yep.
How is this supposed to happen with money?
The original question was, "In what sense are goods and services interchangeable?" Unless you count money as "goods", then money does not enter into the barter transaction.
Isn't the monetary value of something supposed to represent what society as a whole agrees is the value of that good or service?
No. Money is merely a medium of exchange, with no intrinsic value of its own. If a bag of 10 apples has a permanently fixed cost of $10, then what is the value of $1 in apples? That's right, a dollar is worth one apple. Or, from a different perspective, an apple is worth one dollar.

In an unregulated ("Free-Market") economy, the Law of Supply & Demand rules. Thus, if it costs $20 for the same bag of apples three months later, then what has happened? From the perspective of the seller, apples have increased in value; while from the perspective of the buyer, the dollar has decreased in value.

Your perspective will depend on which you value more: Goods and Services, or the money used to purchase them. As for me and my house, we prefer the former.

[Fnord]

Isn't it true that there must be multiple competing buyers and multiple competing sellers for a market to work?
No. A "Marketplace" is any venue in which an exchange of goods or services takes place. All that is required is one supplier and one consumer. It can even be said that both parties are simultaneously consumers and suppliers of each other's goods and services.

[drkitten]

So the value of anything is the price at which a willing buyer meets a willing seller?

Yes, more or less by definition.

How does a market function in which every individual transaction is unique?

By haggling.

Isn't this how home prices got wildly out of line?

No. Home prices got wildly out of line because demand totally pwned supply, because people had "desires" for houses that turned out in retrospect to be wildly against their long-term needs.

I hear businesses are salivating at the prospect of individually determined pricing so that they can extract the maximum every customer is willing to pay.

Nothing new there. Auctions have done this for millenia.

Doesn't this interfere with the ability of the market to allocate resources?

No.

As I see it money is supposed to be an abstract "resource", but what resource is that?


"Money." A metric for people's degree of want -- the more you want something, the more money you're willing to give for it.



What do goods and services have in common that can be abstracted into a notion of "resource"?

People want them and are willing to exchange them.


How much money would I have to pay you to provide me the services you provide to a loyal customer?

Depends on who "I" am, of course. Perhaps the same amount I charge loyal customers. Or perhaps you couldn't buy that level of service from me at any price, because I am unwilling to provide you those services. Or any level in between.

[drkitten]

"Give a man a fish ... teach a man to fish ..." wouldn't I rather hook a man for a lifetime of buying fish rather than enable him to get fish without me? In this case the exchange rate is infinite, isn't it?

No. Because if you teach him to fish, then he has to spend the time (resource) to catch the fish; if you catch the fish for him, then you have to spend your own time.

I can sell lawnmowers to a thousand people and have more free time than if I mow the lawns of ten.

[AvalonXQ]

I would say I have all the goods I desire.

If you do not wish to acquire either goods or services from others, then you have no place in the economy.
However, you're on the internet, so we can fairly expect that this is not the case.

[drkitten]

If you do not wish to acquire either goods or services from others, then you have no place in the economy.
However, you're on the internet, so we can fairly expect that this is not the case.

I'd also be willing to wager at least a pint that ideogram sleeps indoors, wears clothes, and eats.

[KingMerv00]

I would prefer not to discuss that.

Teach yourself to steal a man's fish, feed yourself for a lifetime.

[Fnord]

I can sell lawnmowers to a thousand people and have more free time than if I mow the lawns of ten.

Hire one man to do your fishing for you and have more free time than if you do your fishing for yourself.

[NewtonTrino]

Ideogram, can you just make your point? Or is this supposed to be 20 questions?

[TraneWreck]

Ideogram, can you just make your point? Or is this supposed to be 20 questions?

I was trying to guess what he was getting at.

Austrian economics? Local currency?

I smell something crazy brewing.

[learner]

So the value of anything is the price at which a willing buyer meets a willing seller? How does a market function in which every individual transaction is unique? Isn't this how home prices got wildly out of line? I hear businesses are salivating at the prospect of individually determined pricing so that they can extract the maximum every customer is willing to pay. Doesn't this interfere with the ability of the market to allocate resources? As I see it money is supposed to be an abstract "resource", but what resource is that? What do goods and services have in common that can be abstracted into a notion of "resource"?

How much money would I have to pay you to provide me the services you provide to a loyal customer?

I don't understand. Since when haven't businesses priced services or Goods to extract the maximum they can? I was a business owner for nearly 30 years and maximising what I could extract from customers was my main mission. Worked for me.

[drkitten]

I don't understand. Since when haven't businesses priced services or Goods to extract the maximum they can? I was a business owner for nearly 30 years and maximising what I could extract from customers was my main mission. Worked for me.

I think the idea is that information technology has achieved a point where prices can be set for individual customers, at least in theory. Rather than selling from a fixed price list (e.g., if you want a loaf of bread, it will cost you $1.29), the computer automagically reads your mind and adjusts the price based on what you're willing/able to pay. The loaf of bread that I might buy for $1.29 might cost you $1.59 because the computer has labelled you as an "easy mark."

Of course, this really isn't new. This is how cars have been sold for decades; you get the price you can argue out of the salesman, and if you just walk in and say "I'll take that one; how much shall I make the check for?" you've almost certainly overpaid. And if I'm auctioning off something, then I get what the highest bidder is willing to pay; it doesn't matter if you wouldn't give tuppence for my old Happy Days lunchbox if there's some fool in the audience who will bid $10,000 for it. The price is set -- individually -- according to the biggest fool in the audience.

[learner]

I think the idea is that information technology has achieved a point where prices can be set for individual customers, at least in theory. Rather than selling from a fixed price list (e.g., if you want a loaf of bread, it will cost you $1.29), the computer automagically reads your mind and adjusts the price based on what you're willing/able to pay. The loaf of bread that I might buy for $1.29 might cost you $1.59 because the computer has labelled you as an "easy mark."

Of course, this really isn't new. This is how cars have been sold for decades; you get the price you can argue out of the salesman, and if you just walk in and say "I'll take that one; how much shall I make the check for?" you've almost certainly overpaid. And if I'm auctioning off something, then I get what the highest bidder is willing to pay; it doesn't matter if you wouldn't give tuppence for my old Happy Days lunchbox if there's some fool in the audience who will bid $10,000 for it. The price is set -- individually -- according to the biggest fool in the audience.

I see now. So when I had a queue of people at a till I could give them a glance, If they had a fur coat on the spuds were one price, in cheap clothes, another price. I can see it now.."sorry madam, you are obviously well off, thats why you paid more than the man who I served before you".

How did I miss it! the obvious ones so often slip my notice.

I'm being flippant..ish. Thanks for clarifying I do understand now :)

[Last of the Fraggles]

I see now. So when I had a queue of people at a till I could give them a glance, If they had a fur coat on the spuds were one price, in cheap clothes, another price. I can see it now.."sorry madam, you are obviously well off, thats why you paid more than the man who I served before you".

How did I miss it! the obvious ones so often slip my notice.

I'm being flippant..ish. Thanks for clarifying I do understand now :)

Are people still pushing this concept? I know it was the next big thing a while back but my understanding was it generally creates a lot of ill-feeling when people find out that the book they bought from amazon for $10 was sold to someone else at the same time for $5.

I know there are situations when this kind of thing works but I was under the impression that general retail had kind of given up on the idea.

[ideogram]

Ideogram, can you just make your point? Or is this supposed to be 20 questions?

To be honest I'm not sure I had one. Thanks everyone for responding, let me think about what people have said.

[learner]

Are people still pushing this concept? I know it was the next big thing a while back but my understanding was it generally creates a lot of ill-feeling when people find out that the book they bought from amazon for $10 was sold to someone else at the same time for $5.

I know there are situations when this kind of thing works but I was under the impression that general retail had kind of given up on the idea.

Traditional retail such as Greengrocers, butchers, Bakeres, etc, in fact all of a traditional highstreet, never even considered it ,never mind doing it. Apart from rare cases, as you say, it is unworkable.

Example. Carrots sold at 59pkg. Most Greengrocers have a system of PLU numbers pre-programmed, price changes carried out at the start or end of the day. Using a dtermined price structure would require maybe ten different pre-set prices for each product to be used according to the apparent wealth of the customer. As I said, Unworkable

[Dave Rogers]

It seems to me that there has to be a link between goods and services, because services are the means by which goods are produced from resources. A weaver operates (services) a loom (goods) to produce cloth (goods) from thread (goods), the loom having been constructed (services) by an engineer using materials (resources) that have been extracted and purified (services) by miners and lumberers, and transported (services) by lorry (goods) to the weaver's premises, the thread having been spun (services) from wool (goods) produced by a hill farmer who rears sheep (services) on his land (resources). The point is that there is no clear distinction between goods and services; in effect, goods are resources plus services. If the two were not interchangable, trade of any kind would be impossibly complicated.

Dave

[paximperium]

Traditional retail such as Greengrocers, butchers, Bakeres, etc, in fact all of a traditional highstreet, never even considered it ,never mind doing it. Apart from rare cases, as you say, it is unworkable.

Example. Carrots sold at 59pkg. Most Greengrocers have a system of PLU numbers pre-programmed, price changes carried out at the start or end of the day. Using a dtermined price structure would require maybe ten different pre-set prices for each product to be used according to the apparent wealth of the customer. As I said, Unworkable
"Hello Mrs. Smith. How're the kids today? I've got you the special cut of sirloin. Some restaurant big whigs ordered it and I got some extra. Would you believe they're paying $10 a pound for this? Aw, don't worry, just pay the regular price. See ya next Sunday.";)

[soylent]

Maybe what I'm trying to get to is this: I'm not willing to exchange my services for goods. What is my place in a capitalist economy?

Self-sufficiency, AKA crushing poverty.

[soylent]

In what sense are goods and services interchangeable?

In the sense that the producer of goods or services perceives equitable value in the goods or services of another.

Never mind, I think I misinterpreted.

Old reply:
No; both percieve a sizeable gain, otherwise there'd be no point to the whole thing. If I buy a packet of carrots for $1 I value the carrots higher than I value the dollar, and the store values the dollar I paid higher than the carrots. Trade rarely happens unless this isn't the case(someone might buy cookies from girl scouts even though they'd never buy those cookies at the store for that price. This is either because of some sort of fringe benefit like feeling nice because you're helping the girl scouts raise money or because you're avoiding the social awkwardness of telling girl scouts to stop pestering you)

If the expected gain is small(e.g. I would rather have a bar of luxury chocolate than $10, but if it had cost $12 I'd rather have the money) the transactions cost(often not a monetary cost; going to the store, waiting in line, maybe it's raining, that kind of stuff) is too big and no trade happens.

If I'm sufficiently thirsty and know I will be seriously irritated by it; I could begrudgingly buy very overpriced soda from a little conveniently sited concession stand and still be annoyed at what a rip-off it was. Why does such a trade happen? Because it's more annoying to wait than to pay up.

[Brian-M]

I would say I have all the goods I desire. Thus I fail the assumption that human desires are infinite, at least so far as goods are concerned.


Who said that human desires are infinite? They aren't.

However, human needs and desires are ongoing. You might have all the goods you desire today, but what about tomorrow, next week, or next year? Will you still have all the goods you desire when you've run out of food, your clothes are threadbare rags, your care tires are bald, your television is broken and your batteries are flat?

Sooner or later you're going to need more goods to replace existing ones that are worn-out, used up or broken. To say that you have all the goods you desire is disingenuous.

And what about services? As AvalonXQ pointed out, you're using the internet, which means there's a strong chance you're paying for the services of an Internet Service Provider. (Unless you're using a free service, such as provided by a public library. In which case, you're still purchasing a service, just not with your own money.)

I doubt you go a single day without purchasing goods or services. I don't know whether you count water and electricity as goods or services, but every time you turn on a tap or flush the toilet, you're effectively purchasing water. Every time you switch on the light, watch TV or listen to the radio, you're purchasing electricity.

Exchange of Goods and Services... life would be much harsher without it.

What is information? Is it a service, a good, or something entirely different?

Information is an abstract, neither a good nor a service. Provision of useful, relevant or entertaining information is a service. Objects containing information (such as books, CDs and DVDs) are goods.

I'm not sure exactly what category ownership of Intellectual Property falls into.

[drkitten]

I know there are situations when this kind of thing works but I was under the impression that general retail had kind of given up on the idea.

Actually, general retail has found a way to make this idea work (ish) through membership cards and whatnot.

I'll use CostCo as an example. You pay $50 a year for access, prices are as marked. Or you pay $100/year for "executive-level" access and you get 1% of your purchases back at the end of the year. Since most people don't buy $5,000 worth of groceries, they end up paying more for the privilege of having a bad-assed black card in their purse.

But general retail gets complicated because it's so fiercely competitive, and because people don't like the idea that they should pay more simply because they can. What usually happens instead is that you try to upsell the customers into a better 'tier' by offering them some sort of near-freebie and then charging them for the tier. Credit cards do it all the time; you can get an ordinary card at 9% and no annual fee, or a silver card at 10% and a $50 fee (but you also get free rental car insurance), or a gold card at 11% and a $100 fee (but you also get free rental car insurance and an end of year statement for your taxes), or .... [etc, etc], or a plutonium card at 15.5%, a $2500 fee (but you also get free rental car insurance, an end of year statement for your taxes, your picture on the card for identity theft protection,.... and a special 800 number that only other plutonium card holders know aboutl for better customer service.)

And, of course, the idea is routine in anything other than general retail. Ever see the phrase "call for quote" on a web page? Ever tried to buy something by the truckload from a wholesaler? You pay what you can negotiate, and if the seller thinks you've got another $1000 in your wallet, he'll do his damnedest to get it out of you.

[drkitten]

Who said that human desires are infinite? They aren't.

The usual phrasing is "resources are limited, wants are not." If you want to read "unlimited" as "infinite," go ahead. If you want to read it as "ongoing," that works.

Generally, it's both. People always want more, out of simple fear of the future if nothing else.

[ideogram]

I have both a macroeconomic question and a personal one.

I am interested in how capitalist economies allocate resources more efficiently than other systems. I believe that "money" started out as an abstraction of physical resources, thus the confusion of people who insist that gold is money. As we move to a service economy, it seems to me that the nature of money is changing. Services which can only be exchanged by barter may have prohibitive transaction costs, some services are not for sale at any price; these cannot be part of the economy, how should they be allocated? Furthermore, I believe that information is neither a good nor a service, and as we move to an information economy, the nature of money is going to change again. If I know how to fix a line of code that will save a million people an hour of labor each, how much should I be paid? If a musician writes a song in a year that a million people are willing to pay a dollar for but can also obtain for free, how much should he be paid? Information can be duplicated infinitely at no cost.

I am intrigued by the notions of fungibility, and money as a measure of "want". I'll need to think about that.

I have heard that markets have a function called "price discovery" which seems to me essential for capitalist economies to allocate resources efficiently. My understanding is that it is not the absolute cost of any good or service that matters, but their relative costs which are "price signals" which producers use to choose efficient methods of producing goods.

Also, it seems to me that "information asymmetry" is a problem for fair and equitable agreements. As services become more knowledge intensive this gets worse, since there is information asymmetry by definition.

In my view the purpose of the economy is to get people to cooperate to solve problems more efficiently than if everyone was self-sufficient. It is critical for this purpose that people be willing to exchange their services (and increasingly, their information) for goods. Threatening them with starvation is one motivation. The use of luxury items as status symbols is another. However, it seems to me that the main motivation for a lifetime of work is the promise of retirement, i.e. self-sufficiency. However, from the perspective of the economy, any self-sufficient individual is a wasted resource. The obvious solution is an illusory promise.

My personal question is:

Is it immoral to refuse to exchange your services for goods? How about your information?

Note that I never said I do not wish to exchange services. But as above, some services are not for sale at any price. For example, I can cook food that I like more, is healthier, and costs less than any food I can obtain in a restaurant. The traditional explanation of the allocation of labor is that by specializing, I can use my comparative advantage for the benefit of the economy and earn more money. However, I do not feel that I benefit by specializing in computer programming to the detriment of the food I eat. What would I spend the extra money on?

What about information? When I give you my information, what do I get in return?

Or maybe I am divorced from reality.

[drkitten]

I am interested in how capitalist economies allocate resources more efficiently than other systems. I believe that "money" started out as an abstraction of physical resources, thus the confusion of people who insist that gold is money.

Why on earth do you believe this? People have been bartering goods for services since well before money was invented. (Think prostitution.)

As we move to a service economy, it seems to me that the nature of money is changing.

Why?

Services which can only be exchanged by barter may have prohibitive transaction costs, some services are not for sale at any price; these cannot be part of the economy, how should they be allocated?

Well, if they're not part of the economy, they're not part of the economy. I can't buy a first-class ticket to Orion,.... so what?

Furthermore, I believe that information is neither a good nor a service, and as we move to an information economy, the nature of money is going to change again. If I know how to fix a line of code that will save a million people an hour of labor each, how much should I be paid?

As much as someone wants to pay you for it.

If a musician writes a song in a year that a million people are willing to pay a dollar for but can also obtain for free, how much should he be paid?

As much as someone wants to pay him for it.

Information can be duplicated infinitely at no cost.

True, but not necessarily relevant -- just because it can be done doesn't mean that it will be done. And there's the whole edifice of IP law (which dates back centuries) to monitor this.


I have heard that markets have a function called "price discovery" which seems to me essential for capitalist economies to allocate resources efficiently. My understanding is that it is not the absolute cost of any good or service that matters, but their relative costs which are "price signals" which producers use to choose efficient methods of producing goods.

As far as I can tell, this is word salad. "Price discovery" is simply the term used for the idea that if I'm charging too much, I won't make any sales, so I lower my price until I "discover" that someone's willing to buy what I'm selling.



In my view the purpose of the economy is to get people to cooperate to solve problems more efficiently than if everyone was self-sufficient.

I suggest you're already off on the wrong foot. The market has no "purpose." It simply "is."


It is critical for this purpose that people be willing to exchange their services (and increasingly, their information) for goods.

No. You've got it backwards. The market exists because people want to exchange stuff. (Not even "are willing to," but "want to.") Ultimately, it's basic biology. You don't have everything you want, so you swap what you have but don't want for what you want but don't have.

If, for some reason, you have everything you want,.... you don't do any swapping right now. There are enough other people who don't have everything they want -- a group that will include you when you get hungry again -- that the marketplace endures.

Threatening them with starvation is one motivation.

No one's "threatening" anyone with hunger. Hunger is a basic biological fact. If you want food, and you don't have any, then you will try to find a way to get some. Since we have rules against out and out theft, most people will try to find a cooperative way to get it -- and we're back to some sort of marketplace.


My personal question is:

Is it immoral to refuse to exchange your services for goods? How about your information?

Not at all. If you're an expert hunter, for example, and someone wants to hire your services as a rifleman to commit an assassination, you're well within your (moral) rights to refuse. But you'll get hungry eventually, so you better find some other way to obtain goods (food) or you'll starve.



Note that I never said I do not wish to exchange services. But as above, some services are not for sale at any price. For example, I can cook food that I like more, is healthier, and costs less than any food I can obtain in a restaurant.

And you're still wrong, I'm afraid. Hire yourself a private cook. The services you want are available, just perhaps not at a price you like.

The traditional explanation of the allocation of labor is that by specializing, I can use my comparative advantage for the benefit of the economy and earn more money. However, I do not feel that I benefit by specializing in computer programming to the detriment of the food I eat. What would I spend the extra money on?

Well, in this case, you spend the extra money on not growing your own food. And in many cases, on food you literally can't grow (due to season and/or climate).

You also obviously spend your extra money on Internet service (as was already pointed out). How many subsistence farmers can afford that particular luxury?



What about information? When I give you my information, what do I get in return?

Whatever you charged for it, if I agreed to pay.


Or maybe I am divorced from reality.

Completely, as far as I can tell.

Among other things, you seem to think that food magically appears at the grocer's or that you can get apples and mangoes for your apple-mango salad from the same tree in your back yard, and that Internet connectivity magically pours out of the wall like water from a private spring.

[ideogram]

Fine.

[drkitten]

Fine.

I think the basic point that you're missing is that you don't have to be part of the economy if you don't want to -- but in order to do that, you need to live a completely self-sufficient lifestyle. Two hundred years ago, you might have been able to do that as a mountain man in Colorado. Today you'd probably have to live a Robinson Crusoe existence on an island somewhere.

But unless you're willing to grow your own food and manufacture your own clothes, you'll need to pay someone something to provide them to you, which puts you back in a cooperative economy. And you'll need to have something to trade. At that point, what you choose to trade is up to you, assuming you can find a trading partner. If you want to swap your programming skills instead of your valuable paperclip collection, that's fine.

A friend of mine on the West Coast dropped out of a Ph.D. program in computer science, precisely because she decided she didn't want to trade her programming skills for food; instead, she does massage therapy and trades her skills in that. She makes less money (which is her choice) but sleeps better at night, apparently. But she still eats, and still pays for her food by offering something her clients value....

[ideogram]

I think the basic point that you're missing is that you don't have to be part of the economy if you don't want to -- but in order to do that, you need to live a completely self-sufficient lifestyle. Two hundred years ago, you might have been able to do that as a mountain man in Colorado. Today you'd probably have to live a Robinson Crusoe existence on an island somewhere.

But unless you're willing to grow your own food and manufacture your own clothes, you'll need to pay someone something to provide them to you, which puts you back in a cooperative economy. And you'll need to have something to trade. At that point, what you choose to trade is up to you, assuming you can find a trading partner. If you want to swap your programming skills instead of your valuable paperclip collection, that's fine.

A friend of mine on the West Coast dropped out of a Ph.D. program in computer science, precisely because she decided she didn't want to trade her programming skills for food; instead, she does massage therapy and trades her skills in that. She makes less money (which is her choice) but sleeps better at night, apparently. But she still eats, and still pays for her food by offering something her clients value....

What is retirement?

[drkitten]

What is retirement?

It's when you stop working and decide to live on your savings. Duh.

Economically, some people stockpile more "money" than they need for day-to-day living. At some point, they can decide that they've stockpiled enough that they can live off the stockpile instead of continuing to trade goods/services.

Nothing particularly special about that. I stockpile money in a 403(b) plan. Don Corleone stockpiles "favors" ("someday -- and that day may never come -- I may ask a service of you, Bonasera") that he can call it later.

Of course, in modern times, a lot of people don't stockpile enough money, so we-as-a-society have decided to be charitable and give certain people (the old, the disabled, the infirm, and the children) money enough to live on as an act of charity. The idea is that's better/nicer than having them starve in the Dickensian streets. We call this "social security" in the States.

But in either case, retirees are still part of the economy, getting money somewhere and exchanging it for food....

ETA: note that Robinson Crusoe didn't have the option of retirement; had he not been rescued, he would have been working his fields until the day he died.

[ideogram]

It's when you stop working and decide to live on your savings. Duh.

Economically, some people stockpile more "money" than they need for day-to-day living. At some point, they can decide that they've stockpiled enough that they can live off the stockpile instead of continuing to trade goods/services.

Nothing particularly special about that. I stockpile money in a 403(b) plan. Don Corleone stockpiles "favors" ("someday -- and that day may never come -- I may ask a service of you, Bonasera") that he can call it later.

Of course, in modern times, a lot of people don't stockpile enough money, so we-as-a-society have decided to be charitable and give certain people (the old, the disabled, the infirm, and the children) money enough to live on as an act of charity. The idea is that's better/nicer than having them starve in the Dickensian streets. We call this "social security" in the States.

But in either case, retirees are still part of the economy, getting money somewhere and exchanging it for food....

ETA: note that Robinson Crusoe didn't have the option of retirement; had he not been rescued, he would have been working his fields until the day he died.

Indeed, retirees don't trade their services for goods. And they are not immoral.

[drkitten]

Indeed, retirees don't trade their services for goods.

Yes, they do. Just in another tense. They traded their services for goods.

Trades don't have to happen simultaneously; that's, for example, what an "option" is. That's also how loans work (I will buy a car now and "trade" you stuff for it over the next sixty months), and it's how many pre-paid contracts work.

For example, a gift card is a situation where I give the store money now and they give me (or someone else) goods later. It's still a money-for-goods trade. I can get a similar deal with the kid across the street; I pay him $100 a month and he mows my lawn on an ongoing basis.

It's also one of the advantages of a money economy offers over a barter economy; I can trade what I have to offer for an intermediate store of value and then trade the store later for what I really want. Essentially, it's a delayed trade.


And they are not immoral.

Many people feel that people living off public charity (i.e. who did not pre-trade their services for goods) are indeed immoral, precisely because they didn't trade anything. See "queen, welfare."

[ideogram]

Yes, they do. Just in another tense. They traded their services for goods.

Trades don't have to happen simultaneously; that's, for example, what an "option" is. That's also how loans work (I will buy a car now and "trade" you stuff for it over the next sixty months), and it's how many pre-paid contracts work.

For example, a gift card is a situation where I give the store money now and they give me (or someone else) goods later. It's still a money-for-goods trade. I can get a similar deal with the kid across the street; I pay him $100 a month and he mows my lawn on an ongoing basis.

It's also one of the advantages of a money economy offers over a barter economy; I can trade what I have to offer for an intermediate store of value and then trade the store later for what I really want. Essentially, it's a delayed trade.

Yes, I understand that. I rather think you didn't understand me.

Many people feel that people living off public charity (i.e. who did not pre-trade their services for goods) are indeed immoral, precisely because they didn't trade anything. See "queen, welfare."

Indeed.

[drkitten]

Yes, I understand that. I rather think you didn't understand me.

[Shrug.] Quite possibly. I can only respond to what you put on paper/the screen, not to the voices in your head.

[ideogram]

[Shrug.] Quite possibly. I can only respond to what you put on paper/the screen, not to the voices in your head.

Well, I expressed myself to the best of my ability. The rest is up to the reader.

[Fnord]

Ideogram, I hope you've also learned what we've been trying to teach you. Your concept of economics seems to be that of a person that has never had to support him- or her-self on his or her own income. It took me less than six weeks into my first rental agreement to realize all of the legitimate economic principles that have been presented here -- each to a greater or lesser degree, of course, but at least I learned enough to discard my own juvenile "The World Owes Me A Living" attitude.

Harsh reality always trumps youthful idealism.

[Toke]

ideogram,
I have still not understood your question.

If you want your society to move past basic hunter/gatherer where everyone makes his/her own tools you need some level of specialisation.

E.g. the flint chipper and hunters would likely trade for arrowheads v.s. furs and meat.

Do you have a problem with the principle in that?

[drkitten]

ideogram,
I have still not understood your question.

If you want your society to move past basic hunter/gatherer where everyone makes his/her own tools you need some level of specialisation.

E.g. the flint chipper and hunters would likely trade for arrowheads v.s. furs and meat.

Do you have a problem with the principle in that?

I think -- and I admit it's hard to tell -- that he's trying to convince himself that it's moral to trade goods for goods, but not services for goods. So he'd be happy with the flint-knapper trading arrowheads and knives for meat, but not with the flint-knapper sharpening someone's knife or arrows for meat.

[ideogram]

ideogram,
I have still not understood your question.

If you want your society to move past basic hunter/gatherer where everyone makes his/her own tools you need some level of specialisation.

E.g. the flint chipper and hunters would likely trade for arrowheads v.s. furs and meat.

Do you have a problem with the principle in that?

All right, let's try this again.

I find it really irritating that because I made the mistake of mentioning my personal perspective the only thing people want to say to me is "get a job".

I thought there were other things worth discussing here.

Let's get this straight. I am in favor of capitalism. I think it's the best system we have. But I'm interested in the many ways the ideal doesn't match the reality.

I am not saying what society "should" be. I want to discuss why society is the way it is, and the ways society might change in the future. This is why I talk about the differences between goods, services, and information.

I'm also not here to assert or defend some position. I was hoping for a brainstorming type discussion where people can toss around ideas without getting attacked. I'm not sure it's possible to have this kind of discussion here at JREF.

As we move to a service economy, it seems to me that the nature of money is changing.
Why?
I dunno, because it sounds good, I guess. If you believe money started as an abstraction of physical resources, then as physical resources become less important in the economy, money represents something different. If you believe money just represents what people "want", you wouldn't see any difference.

Well, if they're not part of the economy, they're not part of the economy. I can't buy a first-class ticket to Orion,.... so what?
Because they do get traded, but not via capitalism.

As much as someone wants to pay you for it.
What seems to me to be missing from this is the idea that sellers generally compete, so that buyers have the power to choose whichever seller offers the lowest price, even if an individual buyer might be willing to pay more.

I suggest you're already off on the wrong foot. The market has no "purpose." It simply "is."
I know that. I'm just using words loosely, in the sense that we can say the "purpose" of the heart is to pump blood.

The rest of your reply seems to be based on the assumption that I'm trying to overthrow the market, which again is not true.

[ideogram]

I think -- and I admit it's hard to tell -- that he's trying to convince himself that it's moral to trade goods for goods, but not services for goods. So he'd be happy with the flint-knapper trading arrowheads and knives for meat, but not with the flint-knapper sharpening someone's knife or arrows for meat.

No, I'm not making any moral judgements myself. I'm interested in the way that moral judgements (irrational factors) affect the functioning of the economy (which is often assumed to be composed of rational actors).

Telling someone they are morally inferior because they don't have a job would be one example.

[ideogram]

As much as someone wants to pay you for it.


Your perspective here seems to be that of a consumer, "money is what I use to buy what I want". I am interested in the efficent allocation of resources to produce goods, or the perspective of a producer.

Leaving aside the "word salad", as a producer I need to decide whether to make my widget out of two parts wadget and one part woo or one part wadget and ten parts woo. I need to know the relative costs of wadget and woo. The economy as a whole functions more efficiently if those costs reflect the actual resources ("money") required to obtain wadget and woo, and not the greatest fool in between.

I'm not a professional economist, so please be gentle with your corrections.

[SezMe]

It could be, ideogram, that a forum such as this is not the right venue for such a broad, vague question as that in your OP. It would be better for you to get some basic micro- and macro-economics under your belt. Then, if you pose a specific question about some aspect of the economic knowledge you have gained you would probably engender a useful discussion. As it is, having to provide you with some Econ 101 will generate some snark. You should not be surprised by that.

[ideogram]

It could be, ideogram, that a forum such as this is not the right venue for such a broad, vague question as that in your OP. It would be better for you to get some basic micro- and macro-economics under your belt. Then, if you pose a specific question about some aspect of the economic knowledge you have gained you would probably engender a useful discussion. As it is, having to provide you with some Econ 101 will generate some snark. You should not be surprised by that.

Good point.

[drkitten]

Leaving aside the "word salad", as a producer I need to decide whether to make my widget out of two parts wadget and one part woo or one part wadget and ten parts woo. I need to know the relative costs of wadget and woo. The economy as a whole functions more efficiently if those costs reflect the actual resources ("money") required to obtain wadget and woo, and not the greatest fool in between.

No, you don't.

You need to know the costs to you -- i.e. the price the fools in between will charge you.

E.g., is "wadget" patented? In this case, it doesn't matter how many resources it costs to obtain it, because you can't get it at cost. It costs what the patent-holder charges you for it. Perhaps she produces it a a nickel a ton, but charges you $50/ton for it, because she wants to recoup her R&D costs,.... or simply because she's an avaricious bitch.

Or maybe she's selling it below cost, in order to establish a market.

(ETA: check the history of the Toyota Prius for an example of that, and compare it with the nascent Chevy Volt. That's not at all a hypothetical situation....)

From an economic point of view, it doesn't matter to you which it is.

[Fnord]

It could be, ideogram, that a forum such as this is not the right venue for such a broad, vague question as that in your OP. It would be better for you to get some basic micro- and macro-economics under your belt.
Better yet, some actual, real-world, first-hand experience in how the economy works.
Then, if you pose a specific question about some aspect of the economic knowledge you have gained you would probably engender a useful discussion.
Then, he may not need to ask any further questions.
As it is, having to provide you with some Econ 101 will generate some snark. You should not be surprised by that.
Snark is easy. Economics is hard.

[ideogram]

So, am I allowed to ask more questions? Or should I wait until I read a textbook?

E.g., is "wadget" patented? In this case, it doesn't matter how many resources it costs to obtain it, because you can't get it at cost. It costs what the patent-holder charges you for it. Perhaps she produces it a a nickel a ton, but charges you $50/ton for it, because she wants to recoup her R&D costs,.... or simply because she's an avaricious bitch.
That would be why people argue about intellectual property, wouldn't it?

Or maybe she's selling it below cost, in order to establish a market.
But she does that with the expectation that she will recoup her costs, i.e. she is estimating future demand, yes? And isn't dumping illegal?

From an economic point of view, it doesn't matter to you which it is.
Well, that would be the difference between macroeconomics and microeconomics, right? Again, I'm interested in how the economy allocates resources efficiently. Is that too theoretical?

[drkitten]

That would be why people argue about intellectual property, wouldn't it?

No, it wouldn't.


But she does that with the expectation that she will recoup her costs, i.e. she is estimating future demand, yes?

Not necessarily. that's up to her.

And isn't dumping illegal?

Not usually at the domestic level. "Loss leaders" are common practice. Most of the advertised specials you see at the local supermarket are being sold below cost, because they figure they can get people into their stores that way.


Well, that would be the difference between macroeconomics and microeconomics, right?

No.

Again, I'm interested in how the economy allocates resources efficiently. Is that too theoretical?

Not at all. You're simply underinformed and working with concepts you don't understand.

[AvalonXQ]

Intellectual property protections are granted, at least under one theory, because in their absence the inventor would have never shared their invention in the first place. It's better to grant a short monopoly on an invention than not have the invention at all.

As for the efficient allocation of resources, the basic idea is simple. Resources are considered to be allocated efficiently when they are in the possession of the person who values them most highly. Assuming sufficient resources all around and low transaction costs, we would expect that a free market will result in this allocation because people will trade what they value less for what they value more.

[Cuddles]

So, am I allowed to ask more questions? Or should I wait until I read a textbook?

You're certainly allowed to ask questions. Whether it is sensible to do so before you read that textbook and acquire at least a basic understanding of economics is a different matter.

Incidentally, this advice will cost you three flint-knapped arrow heads.

[drkitten]

Intellectual property protections are granted, at least under one theory, because in their absence the inventor would have never shared their invention in the first place. It's better to grant a short monopoly on an invention than not have the invention at all.

That's the dominant theory, I believe -- it's sufficiently well-established as to be almost doctrine, and I've never heard a sensible argument against it.

Even the people who argue "against" intellectual property tend to agree with this theory. The problem becomes to determine what type of monopoly is appropriate, and also how long a "short" monopoly is. For example, copyright used to be valid for 14 years from the date of publication. Today, it's "the author's life plus 75 years," or in the case of corporate authorship, 120 years. (We can thank the lobbyists at Disney for this; the rule of thumb among most IP lawyers today is that Mickey Mouse will never go out of copyright, and that Disney will continue to buy Congressmen to extend the term as needful.) I don't think anyone who doesn't work at Disney considers this to be a "short" monopoly, hence the controversy.

Similarly, the idea that one can patent an algorithm (which is essentially an idea, which is traditionally unpatentable) is a new development, pushed largely by the software industry. Again, a lot of people disagree with this. There's nothing wrong with patents, but quite a bit wrong with patenting the traditionally unpatentable, especially when it has the effect of stifling instead of enhancing innovation.

The third problem, of course, is just with the administration of patents; the USPTO has historically been understaffed and the staff have been undertrained, resulting in a group that the patent lawyers can run rings around and the issuance of a number of "obvious" patents as the definition of "obvious" has been so watered down.

But none of this affects the basic concept of intellectual property. As I said, I've never seen an economist offer a legitimate criticism of the concept, just of how it's instantiated in current law/policy.


As for the efficient allocation of resources, the basic idea is simple. Resources are considered to be allocated efficiently when they are in the possession of the person who values them most highly. Assuming sufficient resources all around and low transaction costs, we would expect that a free market will result in this allocation because people will trade what they value less for what they value more.

QFT.

[drkitten]

Incidentally, this advice will cost you three flint-knapped arrow heads.

How much is that in obsidian knives? (Damn exchange rate questions....)

[AvalonXQ]

In Europe, especially France, there's a little bit more traction of a "moral rights" theory for IP -- inventors and authors should get a monopoly on their creations simply because they created them.
I think the incentive theory is better, but I also have to acknowledge that one of the reasons it's dominant in the U.S. is because it is the Constitutional justification for patent rights. I hope nobody is insulted by my quoting and explaining these ideas that many may find rather basic, but here's the Clause:
To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries
This is the authority for Congress's establishment of U.S. patent and copyright law, and it makes clear that the reason to give creators limited rights to their creations is to promote progress. Congress's authority is based on a quid pro quo model of IP; thus, even if another model became more popular, U.S. law couldn't easily adapt to it.