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Inflation

HeavyAaron said:
That's a price theory I've never heard before. It also begs the question... what drives the price of oil?

My personal price theory is that price depends upon labor. The more labor something takes to create, the pricier it is. Note that the price includes the price of inputs (such as oil) which themselves have a price based on labor.

So that seems to beg the question, well what drives the price of labor? My theory would be the price of labor is just high enough to find someone willing to perform whatever task is in question.

btw. for intellectual integrity this is Karl Marx price theory give or take, though I did develop it independantly. Note also that it is not a complete theory.

Aaron
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I don't think real life bears out your theory all that well. For example, does the labor to dig an ounce of gold out of the ground really outstrip the cost of labor to dig out an ounce of silver by all that much? Yet there is a vast difference in their costs. This is because there are many more factors affecting the price than the cost of labor.

In short, Art's theory makes more sense.
 
Art Vandelay said:
My theory is that price of something depends on the value that society assigns to it.
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Absolutely true. I wouldn't argue with that for a moment.

I said that my price theory was incomplete, namely because it was 1) supply side only and 2) assumed perfect competition. I submit that if you add demand side and inperfect competition it'd be a complete theory. And then those markets would price determine to be "that value society assigns to it."

Aaron
 
Nyarlathotep said:
I don't think real life bears out your theory all that well. For example, does the labor to dig an ounce of gold out of the ground really outstrip the cost of labor to dig out an ounce of silver by all that much? Yet there is a vast difference in their costs. This is because there are many more factors affecting the price than the cost of labor.

In short, Art's theory makes more sense.
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Two differences between gold and silver: 1) Yes, harder to obtain gold due to relative scarcity. 2) gold has a higher demand. Which is certainly part of the price determinate. And as I said later, but didn't want to get into before, is that's part of the incompleteness I was refering to.

Any price theory needs to answer the diamond water paradox. http://en.wikipedia.org/wiki/Diamond_water_paradox

Aaron
 
HeavyAaron said:
That's a price theory I've never heard before. It also begs the question... what drives the price of oil?

My personal price theory is that price depends upon labor. The more labor something takes to create, the pricier it is. Note that the price includes the price of inputs (such as oil) which themselves have a price based on labor.

So that seems to beg the question, well what drives the price of labor? My theory would be the price of labor is just high enough to find someone willing to perform whatever task is in question.

btw. for intellectual integrity this is Karl Marx price theory give or take, though I did develop it independantly. Note also that it is not a complete theory.

Aaron
Click to expand...

Rich Dad Poor Dad agress with Marx too. He says the only way to get rich is to get other people to do it for you.
 
HeavyAaron said:
Any price theory needs to answer the diamond water paradox. http://en.wikipedia.org/wiki/Diamond_water_paradox

Aaron
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I'm not so sure it's such a paradox. It seems to be based on a flawed premise; that water is always nearly valueless. Water is subject to the same laws of supply and demand as everything else. Thus water rights beceome a valuable commodity in places like Nevada where water is scarce and it loses its value where water is plentiful

Likewise, I suspect that if diamonds covered 3/4 of the Earths surface and regularly fell from the sky, that their value would drop significantly, too.
 
The classic relationship between interest rates and inflation has to do with the monetary policy of the Federal Reserve. They can control the interest rates, and one of the reasons they do so is to control inflation. Interest rates rising are usually a sign that the Fed is hoping to slow down inflation by tightening the money supply.

Now, if the Fed becomes too predictable, their changes are cancelled by the effect of consumers adjusting their habits in anticipation of the change. Taken to the extreme, this led to the famous "stagflation" of the 1970s where prices kept climbing right along with interest rates.

Fortunately, they learned a way out of it. If I recall correctly chairman Volcker (Greenspan's predecessor) had a lot to do with figuring out how to break the cycle. Although, it's clear Greenspan understood the necessary principles at least as well. I hope the new guy is up for it.
 
gnome said:
Now, if the Fed becomes too predictable, their changes are cancelled by the effect of consumers adjusting their habits in anticipation of the change. Taken to the extreme, this led to the famous "stagflation" of the 1970s where prices kept climbing right along with interest rates.
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Stagflation was an international phaenomenon, to greater or lesser extents. The Fed lost much of its international influence with the collapse of the Bretton Woods arrangements, itself a result of the financing of the Vietnam War. Stagnation was mostly down to the disruptions caused by sudden changes in energy-prices. Inflation was mostly down to the world already being awash with dollars. Economic policy in the Western world was generally counter-productive. Relatively high inflation and interest rates continued into the early 90's in some places.

Who knows what tomorrow will bring? An energy-price hike which looks long-term, the world awash with US deficit dollars, economics still not a concrete science ...
 
Nyarlathotep said:
I'm not so sure it's such a paradox. It seems to be based on a flawed premise; that water is always nearly valueless. Water is subject to the same laws of supply and demand as everything else. Thus water rights beceome a valuable commodity in places like Nevada where water is scarce and it loses its value where water is plentiful

Likewise, I suspect that if diamonds covered 3/4 of the Earths surface and regularly fell from the sky, that their value would drop significantly, too.
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While diamonds are strictly rationed by a global monopoly (de Beers) and people have been convinced that they should never trade them ("Diamonds are forvever")
 
a_unique_person said:
I must be some sort of economic genius, interest rates just went up. http://www.theage.com.au/news/business/rates-blow-for-homeowners/2006/05/03/1146335767318.html
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"My outlook for the economy is one of continued optimism and one of continued confidence about the future," [Howard] told a business lunch in his Sydney electorate of Bennelong.
"I believe that we will continue to grow at a very strong rate because we have the fundamentals right.
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Oh dear. You know you're in trouble when the leadership starts mentioning "the fundamentals".

The talk is of interest rate rises coming up in the UK as well.
 
For those of us in the Northern Hemisphere, it's time to start planting a vegetable garden. Better than what you get in the stores too!
 
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