Money and Value

 [Back to Money - An Overview]

Introduction

Money has financial value, but so too do many other things.

The value of things in society is constantly increasing, and (in general) we want to be able to trade these things, so too the supply of money within the society needs to be constantly increasing, to remain in step.

Price and Value

We tend to confuse price and value: the price is the amount asked for (or paid) for an item, the value is what the item is worth to the people involved.  In normal circumstances, when you purchase something, there are often several different prices and values involved, even if many of them are never made explicit.  We can list them in order, with the smallest amount first.

For the seller, we have...

  • The value.
  • The minimum price it might be sold for.
  • The actual price it is sold for.
  • The price it is advertised for.

For the buyer, we have...

  • The target price.
  • The actual price it is bought for.
  • The maximum price they would be willing to pay.
  • The value.

In a normal sale, the owner will not sell unless they receive more than the item is worth more to them, and the purchaser will not buy unless it is worth more to them than they pay for it.   When this happens, the value of the item traded immediately increases, because it is worth more to the new owner.

Of course, not all purchases happen as a free choice, sometimes (as in a 'liquidation sale') the owner cannot keep the item, and sometimes the shelf life of the item is limited, which changes the dynamics.  But, in general, the value of goods in the society increases with every purchase.

Value is also created by farming, manufacturing and entertainment: in each case, people work to create something of value, and which other people are happy to pay for.

Value Beyond Money

There are many things which people value, which do not translate into a financial amount - things like pleasure, convenience and appreciation.  The sun on your face after a long rainy spell, your bus arriving as you reach the busstop, being told that your thoughtful words made a real difference to a person who was struggling.  In talking about money and value, we must not forget that, while money is often needed, the most important things in life cannot be given a financial value.

 

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