Money’s pretty new. Before that, we traded. My corn for your milk. The trade enriches both of us, and it’s simple.
Money, of course, makes a whole bunch of other transactions possible. Maybe I don’t need your milk, but I can take your money and use it to buy something I do need, from someone else. Very efficient, but also very abstract.
As we ceased to trade, we moved all of our transactions to the abstract world of money. And the thing about an abstract trade is that it happens over time, not all at once. So I trade you this tuition money today in exchange for degree in four years which might get me a better job in nine years. Not only is there risk involved, but who knows what the value of anything nine years from now is?
Because of the abstraction and time shift, we’re constantly re-evaluating what money is worth. Five dollars to buy a snack box on an airplane is worth something very different than five dollars to buy a cup of coffee after a fancy meal, which is worth something different than five dollars in the grocery store. That’s because we pretend that the five dollars in each situation is worth a different amount–because it’s been shifted.
Most of the time, when we’re buying non-commodity items, we’re asking ourselves questions like:
- How much pain am I in right now?
- Do I deserve this?
- What will happen to the price in an hour or a week? If it changes, will I feel smart or dumb?
- What will my neighbors think?
- Does it feel fair?
- What sort of risks (positive and negative) are involved? (This is why eBay auctions don’t work for the masses).
Pricing based on cost, then, makes no sense whatsoever. Cost isn’t abstract, but value is.
Thanks for listening.