Tuesday, May 16, 2006

comparing apples to non-apples

Being an aficionado of most-goods Apple, it usually means that I come across some industry analyst opinion piece which attempts to compare Apple Computer Corp.'s offerings to those of the rest of the industry util-to-util.

While the money price is the indicator most of use to make comparisons of utility in the indirect-exchange economy, for better or worse, the money price is usually the only cost taken into consideration by these analysts.

The problem with that of course is that while you can compare physical features, dollar-to-dollar, you cannot easily integrate the psychic benefits provided into your utility comparison.

For instance, what price can an analyst quantify which would measure the benefit of not having to deal with computer trojans and viruses and the resulting peace of mind associated with that?

How many utils do you get from the use of a superior operating system which works as designed, hiberbates and awakes instantaneously, and almost never, never, ever crashes?

How do you compare the sheer aesthetic bliss from a unified graphical user interface, the ease of controlling its functions, and the neat integration of hardware to software (iPod <--> iTunes; iSight <--> iChat, PhotoBooth, iMovie; Apple Remote <--> FrontRow, etc.) ?

To ask those questions are to answer it, and the fact that Apple is sucessfully selling computers, and most importantly, profitting from their operation, proves that to the contrary of naysayers, Apple is providing a good which satisfies the consumer demand for computer equipment preferred over the next best alternative.

What I'm not saying is that price comparisons are entirely irrelevant; rather that I am attempting to stress that there are other values here, which although they cannot be legitimately quantified, they are at best approximated in the money price, and will require the economic actor to subjectively assess the ordinal utility so as to make the correct purchasing decision. However, to simply compare dollar value is a bogus operation, which yields the same in results (the GIGO rule)

I am neither a sociologist, nor a psychologist by occupation, but I would hazard that this erroneous view of what money is, emerged with the appearance of bank notes, and later reinforced by the unbacked, fractional-reserve type into what people believe it ought to be, but isn't.

Money we know, is a good we use mostly for its exchange value, but before that it first had to be desired for its use value. Precious metals, because of their relative scarcity, their durability, the ease of storage and divisibility historically led to it's wide-spread adoptance as money, the common-denominator good, which many people are willing to exchange for other goods, and to hold onto for later exchange. Logically it follows, that the more of it you have of this good, the more of it you can exchange for other goods for the benefit of your ultimate consumption.

The other side of the coin, so to speak, is the portability of money. Gold, although highly desired by many, is difficult to use in everyday, small transactions. Sure you can clip a coin into pieces, but it was rarely done so very accurately. Others still used gold for small transactions, by having ground into a fine, easily divisble dust, which had to be carefully tied up in a kerchief until you were rung up at the dry goods store's register.

Another problem you would encounter is that of safety. Clinking coins in your pocket or bag is a loudly announced appointment with your local cutpurse. And although a bullion can buy you practically anything, should it be misplaced or stolen, it will represent a very heavy loss of exchange upon the lossee, thus being a burden on the sound mind and wits of the holder.

To counter those problems, the notion of banks evolved, whence you would deposit your valubles, and recieve a warehouse receipt that acknowleged it. Indeed, you payed the bank for the privilege of safeguarding your money stock. Now, instead of lugging along a gold bullion to buy a house, you would simply hand the seller the receipt to the same good, giving him title to 'one gold bullion' at So-and-So Gold Warehousing Extraordinaires & Co.

Unfortunately, it was at this point, that along with convenience of light-weight paper specie, came the abstraction of money, psychologically setting it apart from other goods. It's now common belief that if you duplicate the paper certificate, you can create goods out of thin air (for practical consideration, please observe the Federal Reserve and the lesser smalltime counterfeiters who operate under this fallacy.) Due to my involvement in the real estate industry, I first observed signs of this fallacious nominal illusion, or the "nominallusion" as I like to shorten it.

The nominallusion is the faith by those who believe, that when you have a lot of numbers attached to a real estate transaction, it's indicative that the value of the transacted property has risen astronomically, when in fact, the value may have dropped in real terms, and it's only that the price of money has fallen significantly in real terms. However, the dogged insistence of comparing a historic price with present prices and arriving at such conclusions of value, when the vehicle of comparison (money prices) has been so tampered with as to make the information conveyed utterly useless, is quite and regrettibly pervasive.

The potential of moral hazard only looms larger under such illusions, especially when artificially low-interest rates spur entreprenuers and financial institutions into collosal malinvestment of capital.

To correct this mass delusion, we would have to educate-away the primitive nominallusion of money, and to reintroduce the concept of sound money. Until that time, we have the blind leading the blind in their quest to objectively compare apples to apples.

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