Thinking about costs, instead of just price.
In the post titled “What is a Price?”, I defined a price as the social costs of resource use.
Prices often involve expenditure of virtual resources granted in a social context. Fiat money, and even bitcoin, are accounting symbols created by social peers. What makes them accounting assets specifically, in addition to being an anthropological social symbol, is fungibility and expendibility. These virtual accounting assets imitate the behavior of finite physical resources.
Anthropological accounts of money, economic principles, and social structures in modern capitalism I find highly fascinating. One great contemporary source that explores this in depth is Graeber’s book Debt(available free of charge here). There’s a lot more that could be said on this issue, but this angle seems monopolized(ironically) by Marxist intellectual tradition. I find Marxist narratives compelling and insightful, but also sometimes incomplete or inaccurate. People with a wide variety of political values and intellectual inclinations should discuss anthropology more, in my opinion.
One of the primary advantages of “costs and priorities” over “supply and demand” is that the former allows any level of entity abstraction, which is especially useful in evaluating individual motivations in the context of overlapping hierarchical abstract entities.
When you act, you probably think about your own needs first. Then you might think about family and close friends. After that you move on to other aggregate abstract entities. “How will these actions affect my neighborhood? my community? the city? my country? the world?”
Supply and Demand, as a model, captures important and readily observable price dynamics.
But I care about costs in general, and prices are only one type of cost. Furthermore, supply and demand are only two of many potential factors affecting price.
Supply and Demand, while potentially useful as a “micro” economic model, is a terrible concept to help you think about the relationship between an individual and a city, or between a city and a country, for example.
Even in micro-economics, I would argue, supply and demand often does not provide the full picture of price dynamics, except when participants are specifically trained to resolve prices in that way. Supply and Demand can arguably be a socially beneficial paradigm for resolving prices and determining resource allocations. However, the appropriateness of market-based resource allocations varies with the context.
We need to establish the proper scope, in which it is both appropriate to use market based resource allocation strategies, as well as accurate to numerically represent costs using virtual accounting assets, ie dollars or whatever else. Only if both these conditions are met is traditional economic thinking based on supply and demand a good idea.
As a comparison to help present the limitations of the insights provided by price information, let’s turn to quantum mechanics. When discussing quantum mechanics, the term “probability” is often thrown around casually. But probability doesn’t capture all the information of quantum states in Hilbert Spaces. There’s a great smbc comic that explains this in detail.
Similarly, when you represent costs as a price in dollars alone, you lose a TON of contextual social information.
For many kinds of “consumption”(economists tend to apply the term consumption all economic activity), this contextual information isn’t very important. It doesn’t make a big difference whether you buy your new iPhone from Amazon or Best Buy.
But for something like childcare or education, the context is everything.
Another arena where traditional economics fails is warfare. I think this inadequacy of traditional economics is where a lot of conspiracy theories come from, like the idea that wars are driven by bankers after profit.
Following traditional economic profit seeking paradigms in warfare is immoral and counterproductive, but people pursuing such broken strategies can still come out alright, or even “ahead” in accounting terms, if the rest of us pay for their short-sided amoral behavior.
These are just some thoughts to help you recognize the general concept of “costs” as opposed to the more narrow concept of “prices”.
