Markets create wealth.
Supposing I take my watch off and I sell it to someone in class. We agree on a price, say, $20.
What did the buyer value the watch at?
Much of the class will say $20.
Supposing I take my watch off and I sell it to someone in class. We agree on a price, say, $20.
What did the buyer value the watch at?
Much of the class will say $20.
That’s not the right answer. Why?
"All we know is that the person would rather have the watch than have the $20 bill. What did you know about the value I placed on it?
Exactly the inverse. I’d rather have the $20 bill than have the watch.
Now, most people think the benefit of markets is: I walked away with a $20 bill, great, which I valued more highly than the watch, and you walked away with the watch that you valued more highly than the $20...
but...
look at all the excess value there.
- What is "excess value"?
Excess value:
"All we know is that the person would rather have the watch than have the $20 bill. What did you know about the value I placed on it?
Exactly the inverse. I’d rather have the $20 bill than have the watch.
Now, most people think the benefit of markets is: I walked away with a $20 bill, great, which I valued more highly than the watch, and you walked away with the watch that you valued more highly than the $20...
but...
look at all the excess value there.
- What is "excess value"?
Excess value:
Maybe you wanted that watch because it completed your
fabulous watch collection or you desperately needed a watch or it was so
attractive to you that the value you placed on it would be in the hundreds of
dollars. You got all that surplus value, and me, I really needed that $20. I
had an investment opportunity over here for that $20 that has yielded a
manifold return for me.
That’s how markets create additional value.
A long as the system is genuinely fair and open.
That’s how markets create additional value.
A long as the system is genuinely fair and open.
- U.S. Senator Elizabeth Warren
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