Wednesday, September 29, 2004


Too often I hear people exclaiming that they felt taken advantage of in an exchange relationship. "I paid $5 for a beer! What a rip-off!" or "Gasoline's over $2 a gallon, and I paid $40 to fill up! What a rip-off!"

The first thing to note is that so long as the products purchased were what was expected (i.e. not sold fraudulently), the exchange was by definition worth it to both parties. Were the value of the good being exchanged for not in excess of the value of the money, no transaction would have occured. To say that such exchanges weren't worth it ignores the fact that the buyer could have simply put their money back into their pocket and walked away.

The problem being highlighted here can't then be with the actual values of the goods in question. What we're really getting at is a dissatisfaction with the rate of exchange itself. In other words, the buyer or seller considers the rate to be worthwhile to make the exchange, but not fair or just. The problem complained of is, in essence, that one party can't set the value of the goods being exchanged for the other party.

In other words, because I can't control what price you're willing to offer a good for, I'm upset and feel wronged. Surely, I think, I should be the rightful owner of the goods being sold, that I could more effectively regulate their disposition. Frankly, this sort of thinking is a bit disturbing, because it ignores the subjectivity of value, and expresses the desire to control that which is not one's to control (i.e. not one's own property).

To say that another is incorrectly valuing a good is nearly meaningless without qualification and considerations that only that individual is able to apply. And to wish to control another's property is dangerous, in that this impulse furthers the destruction of the mutual respect for property necessary for cooperation and market interaction. This is the sort of impulse that ultimately leads to efforts to subvert property by one of two means: illegitimately or legitimately.

THe former technique is simply crime. I take from you because I wish to, though the taking is regarded as wrongful and indefensible. Therefore, I am able to respond to the crime in order to prevent it. The latter is called government, and it's a form of expropriation to which no recourse can be had. There is no preventing it, only submission.

Ultimately, the feeling of being ripped-off discounts the rational faculties of judgment inherent in fellow human beings that lead to thesubjective valuation of the goods at their disposal, and edges one down a road that ends with expropriation. Expropriation leads to a general increase of time-preference rates and schedules, which leads to a reduction of the availablility of present goods in society, and ends in a process of "decivilization," wherein individuals in society become more and more present-oriented in their actions. I've said it before, I'll say it again: this is not a good thing.

So, is the ballpark hotdog worth it? Your call.


Chris said...

Yes. All well and good, Tim. However, you also need to factor into the prices the amount that we pay in taxes when we purchase these items. A lot of the cost of the $2 gasoline stems from the nearly $.36 we pay in taxes for that gasoline. Thus, in some way we are being ripped off, just not by the retailer, but by the government. Just thought I'd point that out.

P.S. - Does anyone know how to put a "cent" sign on a keypad. I always have to write things as $.XX instead of just typing a cent sign. Which, by the way, can be found on typewriters in the "Shift-6" position (where the carrot is located now) Curse modern technology. Though, I'm sure you economists will argue that this is but a mere reflection of a change in consumer demand. Perhaps, it's inflation's fault and hardly anything of value is worth cents anymore.

Tim said...

That was going to be tomorrow's post :)
But don't stop there! The $.36 is just the beginning; we can't fairly say the "true" market value has been uncovered until we remove all of the tax burden.

In other words, we need to factor in the effects of the the taxes the retailer and their employees paid, the taxes the shipping company and their employees paid, and the taxes the producer itself paid. Tariffs, sales taxes, income taxes, all will eventually get rolled in. And even this can be stopping short.

Consider the case of a loaf of bread: there's the buyer, the reatailer, the shipper, the maker, another shipper, a supplier, yet another shipper, and a producer. And the producer (a farmer, presumably) probably bought their seed from somewhere else!

Each of these transactions is taxed in one way, shape or form. The consequences are that the true market price is so obfuscated that it's nigh impossible to determine.

But won't someone please try, that more might see the true cost of government? Essentially, the problem involves the redistribution of all tax revenues, at local, state, and Federal levels...

Chris said...

Yeah. I had just thought of all of that after I sent my post. The levels of taxation would be endless if we tryed to calculate them all.

Illy said...

Guys, I need your help. How can I deal with a professor who believes that the purpose of the economy is to provide jobs for everyone, that immigration is not a very good thing, and that capitalism wouldn't exist if it weren't for the government making sure that nobody gets ripped off? He is, in spite of these obvious shortcomings, a very sweet guy...

Tim said...

Good luck... he's probably familiar with all competing theories, so trying them out isn't likely to help any. Otherwise, I'd suggest to him a read through Gene Callahan's excellent book, "Economics for Real People."