Price doesn’t mean value
Conflating the two terms can be misleading—and result in the undervaluation of both tangible and intangible assets
Being a double major in English and Economics boils down to this: I’ve studied situational irony in its literary sense, and I’ve studied underemployment—knowing I’ll probably experience both at the same time. That amount of irony could kill Macbeth all over again. However, my two disciplines do happen to meet in another aspect: terminology.
We often conflate the words “value” and “price” as interchangeable terms, which leads to our thinking that the price of something is equal to how much it’s worth. That practice can potentially misinform us when we’re considering a thing’s value.
Imagine, if you will, two cars. One is worth $2,500 and the other is worth $100,000. Which car is more valuable? You might say the more expensive one has more value…but really it only has a higher price tag. Value encompasses price in addition to other factors. To determine a thing’s true value, we need further context.
In the case of the cheaper car, a low-income household relies on it heavily to accomplish their daily tasks. They cannot afford another one. If the car were to break down, it would leave them with few transportation options. The more expensive car, on the other hand, is owned by an individual who has many cars of the same price. That car is used only intermittently, and typically for recreation.
If both cars were destroyed in a flood, the owner of the more expensive car would face a greater monetary loss. Again, though, the price is only a single component of its value. The household with the inexpensive car faces a greater loss because they rely on it so heavily and lack alternative transportation options. The $2,500 car, therefore, has a greater value to its owner.
The U.S. Climate Resilience Toolkit describes how the value of certain assets goes beyond monetary pricing.
- Tribal nations are disproportionately affected by a changing climate. They rely on their ecosystems not only as a basis of their economics and health, but also for cultural values. The losses of history and traditional ways of life are difficult to quantify through monetary pricing.
- Low-income areas experience higher vulnerability to negative impacts of a changing climate. If assets are disparately priced, using price as a sole barometer doesn’t encapsulate the true amount of damage inflicted upon communities.
- The price of an asset becomes arbitrary when controlled by exogenous markets, where an asset’s value is tied to its fundamental endogenous worth.
Upon establishing a greater understanding of value, my English degree becomes relevant again (surprising, I know). Once we truly understand value as a noun, we can begin to better understand it as a verb.
