Economic Fallacy the First

A number of economic fallacies run rampant in the world. Dale Franks was posting on the failures of European economic policy yesterday. I think he's conflating two (or more) fallacies into one, but he did bring up the first and most enduring economic fallacy:

You cannot build a successful economic model that is predicated on people paying for a thing other than what it is worth.

In part, this has always been one of the basic failures of Marxism. You can prattle about “surplus value” all you want, and even pass taxes (VAT) based on the concept. In the final analysis, a thing is worth only what someone will pay for it. It doesn’t matter what the widget in question actually might be. It doesn’t even have to be a tangible asset. Still, it’s only worth what someone will give you for it.

The idea that there is some intrinsic economic value to stuff is deeply embedded in our material culture. I think remembering that value and worth are always personal judgements is important here. There are many things out and about in the universe that have little or no value to me. Britney Spears albums are a good example. I won’t give you a dime for one. However, a number of other people obviously will pay for them. I have some friends that sell stuff on eBay a lot. Their perceptions of value are widely divergent from the marketplace's at times. In such cases, nobody buys the items. While my friends may think that some gadget is worth $150, if nobody is willing to pay then it obviously isn't.

This value disparity makes certain societal functions a little bit tricky sometimes. How much are you willing to pay for parks? It may be a lot. It may be next to nothing. Your friends and neighbors, through the mechanism of government, are going to collaborate with you to make that decision. Like many collaborative works, the answer usually satisfies no one perfectly, providing yet another reason why the government should be doing as little as possible.