What Is A Thing Worth?
By Steve GillmanWhich is worth more; an orange or an apple? At the moment an apple costs more at the grocery store, but the question isn’t really identical to “which costs more?” After all, one or the other has more value to you even if they both were free. Or to use another example, if the price of a pen was higher than that of a computer, you would still probably consider the computer to be “worth” more than the pen - unless you were selling them. Clearly what we think of as value is not identical with “price,” nor is it always closely related.
So what is a thing worth? How do we determine that? What does “worthless” mean? Can something have a negative value? I probably won’t have any sufficient answers here to any of these questions. But here are some thoughts and ideas about them.
Even with our crude ways of measuring it (like the price in dollars), the value of things is a matter of context, of course. A house that would sell for $300,000 in one place might get only $60,000 in another location, for example. But when we look at why, we see that there are different ways to measure value, and some of them seem more rational or “healthy” than others.
For example, a home is “worth” more if it is close to good jobs and stores and services, and therefore it sells for more. But if an identical house sells for more just because it is next to the house of a famous person, is it actually “worth” more? In other words, do the reasons people value things constitute real value regardless of how rational or healthy those reasons are?
I watched a man sitting in a monastery as he was offered tea by the Buddhist monk there. The monk asked him if he would like the $2 cup of tea or the $100 cup of tea. The man asked what the difference was, to which the monk replied, “The $100 cup costs more.” He was serious, by the way. That was the only difference between the two.
Now, does a cup of tea have a value of $100 just because we pay that much for it? Do we create the value of a thing by our valuing of it? If not, could there be some way to objectively determine what that cup of tea is worth - regardless of the price paid - to the nearest penny?
Or does that cup of tea become worth a certain amount once most people are willing to pay that much for it? In other words, is value a social agreement, with no other objective reference?
Certainly most of us feel that there is some more objective way to figure the value of things than by simply looking at the prices in the marketplace. This is why we are able to say things are over-priced or under-priced. Yet it still seems virtually impossible to outline any objective way to value things with any precision. Even if we get rid of pricing and compare objects to objects or services to services we are quickly lost.
Since pricing is the easiest way to talk about these ideas, I’ll use that for another example. When many stocks were priced at 40 times earnings in the late 90s, were they worth it? I used to point out that this was the equivalent of paying a million dollars for a hot dog stand that made just $25,000 per year - something that virtually nobody would consider. So why would they pay $10 per share for a company that produced just 25 cents in profits per share?
They paid it because they suspected someone else would someday buy the stock from them at an even higher price. Now, if it is irrational to pay 40 times earnings, does it become rational to do so if there is someone who will buy from you for more? As crazy as this gets, it also seems a bit crazy to tell people they are “irrationally exuberant” in the prices they are paying while they’re making money doing it. In this respect - at least with investments - it seems that value is in part constructed by consensus, sometimes without reference to any objective measures (how many companies that never made any profit were doubling in price in a year or two?)
An orange is worth more than an apple at the moment - to me. I can explain that I like oranges more, or that they might be healthier in some ways. It is nice to think that we have objective reasons for what a thing is worth, but the bottom line at the moment is that I would pay more for an orange. I really don’t have any good answers (yet) to all the other questions raised here.
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Tags: pricing, value of things, worth