Price, value and cost

In my series on economics I'm trying to really nail down the counterintuitive point that in a free market, prices tend downwards towards the cost, not upwards to the value. Even in oddball edge cases, like novelists or NBA players, physical bottlenecks just cause the cost (often externalized) to rise towards the price: So the price of any commodity always tends to be a function of its cost, not its value.

The incredible differences in wealth we see in any elitist society, whether it be the Capitalist societies of the West or the (revisionist) Communist societies of the East, are not because the elites produce more value. Even if they did produce tremendous value, that still would not entail that they receive a price commensurate with the value.

A related myth is that differences in individual skill or character are the cause of vast differences in wealth. This myth is even held by some Communists, who see the eradication of any difference in material wealth due to skill as the key point for creating a classless society. In a free market, differences in price due to differences in skill is not the difference between the most skilled and the least skilled, but rather the difference between the most skilled and the second or third most skilled (i.e. the most skilled who do not produce the commodity, i.e. the opportunity-adjusted cost). In other words, the economic consequences of inherent skill differentials are relatively small. Furthermore, as society becomes more specialized, people will tend to gravitate to the fields for which they have the most skill; most people will be performing the occupations for which they are relatively the most skilled.

In a truly free market, excess value always accrues to the common good, not the purely individual good. A truly free market tends towards communism.

The vast differences in wealth are always due to pure social constructions that at best amplify differences in skill by many orders of magnitude or at worst create vast differences based on non-economically-related qualities (usually birth* and/or religious/ideological conformity).

*Is skill inherited? Compare and contrast Conrad and Paris Hilton. I rest my case.

We ourselves, as sapient beings, create pure social constructions; they are not imposed upon us by objective reality. In ecology — economics with only the most basic, limited social constructions — we see no vast differences in wealth at all. An apex predator, relatively speaking, lives just as close to the edge of starvation as the animals and plants at the bottom of the food chain.

The biological facts of human psychology form the only objective constraints on our pure social constructions, but we already know that human biological psychology is extremely labile. We can and do learn to think mostly not as our brains compel us to think but as we're taught to think.

We are not constrained in our economic arrangements by our brains. We are not constrained by our history. We are constrained only by our own illusions, our own gullibility, and our own fear.