Software Nerd

Saturday, December 22, 2007

Erosophia, on Spending

If you don't read them already, I recommend the thoughtful writing of Megan and Jason at Erosophia. In a recent post, Megan speaks of "The Value of Spending". She speaks of how she discovered that earning is not the only value, spending can be a value too.

Megan talks about being happy to pay someone for the value they trade with you; of paying them what they deserve (in your judgment).

This reminded me of something George Reisman says in "Capitalism: A Treatise on Economics". Sellers and buyers may compete against each other when negotiating a price; however, the lowest price isn't always good for the buyer, nor is the highest price always good for the seller. A seller must love a high price, in the context of a particular transaction, if one ignores everything else . However, in a longer-range context, things change. For instance, a seller does not want to charge a price that causes the buyer to look for alternatives; the seller does not want to charge a price that causes other potential sellers to become competitors. The buyer does not want to pay a price so low that the seller is driven out of business.

A recent example of this is Blockbuster's (BBI) online movie service. To compete with Netflix, BBI matched them on price while providing some additional value. Some people don't see much worth in the additional value (able to "exchange" movies at the store), so BBI's scheme was a break-even to them. However, to others -- like me -- the additional value is worth at least a few bucks a month. BBI loses money on their pricing scheme. I have been hoping that they did not continue to lose so much that they went bankrupt, leaving me without the service I prefer. Now, they have finally raised prices for people like me, who want to use that additional value. This is good. If I consider this from the perspective of a few months, I might think it is bad paying an extra $3 each month. However, if I consider the real choice it is between paying the $3 more for this service, or not having this service.

Other aspects to spending: Thinking about Megan's post, there's another aspect to rational spending, which I'd like to see explored: the notion that spending is living. Jack Welch tells of how he never ordered $100 bottles of wine until he had a severe heart attack; after that, he never ordered wine under $100! There's a lot to the subject... perhaps in another post.


  • Your comments evoke a feeling of awe for two related facts:

    (1) The enormously complex dynamism of the market, a social phenomenon which is constantly adjusting.

    2) The ability of the individual mind to make rapid decisions after weighing the many factors involved (price, convenience, packaging, time preference, long-range consequences, hierarchy of one's values, and so forth).

    Of course, it is no coincidence that the entities that have such minds also have markets.

    By Blogger Burgess Laughlin, at 7:43 AM  

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