A lot of readers still don’t get value transference. So I think this is something I need to write more about. Some of my blog readers suffer from rigid thinking. They tend to be of a libertarian economic bent and wrongly believe that any voluntary commercial transaction is a fair transaction in which the party receiving the money has created exactly as much value as the amount of money received. On the other hand, the same blog readers may agree that paying $30,000/year college tuition per year to study Women’s Studies is a big scam. But wait! If the money was voluntarily paid from student to college, surely the college created $30,000 of value, didn’t it?
What about the story of the stucco guy whose income dropped from $500,000 to $70,000 after competitors entered his market? How is it that the guy was creating $500,000 of value per year (VPY) before there was competition, but only $70,000 VPY afterwards? My answer, of course, is that he was creating $70,000 VPY the whole time, but because barriers to entry prevented competition, he was also transferring hundreds of thousands of dollar of VPY from others to himself.
The stucco guy is an example of someone simultaneously creating and transferring value. I think there are two major categories of value transference occupations. There are people like the stucco guy and bankers who both simultaneously create value and transfer value, but who transfer far more value than they create. And then there are more pure value transferers, like women’s studies professors, who earn a decent middle class salary despite contributing nothing useful to society. I guess we can call these two classes the commercial value transference class, and the SWPL value transference class.
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Supply and demand offers a simpler and more coherent explanation: when he was the only stucco guy in town, his scarcity made his service worth $500k.
Where did I ever write that value transference and supply and demand are mutually incompatible economic concepts? Just the opposite, it’s the basic economic law of supply and demand that explains the value transference. Because of barriers to entry, the supply of stucco services is much less than it would be in a free market with perfect competition, and this is what causes the value transference to take place. I believe that value transference also has a demand component in that people’s demands are irrational, but that’s a topic for a future post.
DaveinHackensack also writes:
As sloppy and imperfect as the market's assignment of value is, Marxists have never offered a better one; in fact, what they've offered has been worse.
Where did I ever write that I favored the imposition of communism? Or even of socialism? My proposal for reform, which should be called Sigmaism and not Marxism, is that the purpose of government is to create rules whereby people who create value are rewarded and people who transfer value are not rewarded. Under Sigmaism, people’s self-interest in obtaining rewards would cause them to create more value than they would under the current system. In contrast, Communism assumed that people would create value out of altruism rather than any self-interest.