Marginal Value

A reader recently asked me what price she should be willing to pay for cheap beer by the case. When buying beer at the liquor store (or “beer distributor” if I happen to be in Pennsylvania) I expect “sub-premium” beers (such as Hamm’sPBR, Miller High Life, Keystone, etc.) to be about $15.00 per 30 before tax. When buying slightly better beers, I regard it as a good deal if I can get beers at under $1.00 each. And, of course, one must be willing to pay more for better beers.

But it bears repeating that value is not intrinsic. So I repeat, in the words of Ludwig von Mises: “Value is not intrinsic, it is not in things. It is within us; it is the way in which man reacts to the conditions of his environment.” We may attempt to assign value to something, but those values mean nothing without human action. Either we buy at a given price or we do not. If we say “Pabst is not worth $25.00 per 30” but then still make that purchase, we are clearly mistaken. It is only the act of the sale that tells us anything concrete about value.

What’s more, values change relative to each other based on each individual’s hierarchy of wants. “If a man is faced with the alternative of giving up either one unit of his supply of a or one unit of his supply of b, he does not compare the total value of his total stock of a with the total value of his stock of b. He compares the marginal values both of a and of b. Although he may value the total supply of a higher than the total supply of b, the marginal value of b may be higher than the marginal value of a.” This helps shed light on the classic question of why gold is more prized than water, even though water is essential for human survival while gold is not. The answer lies in the fact that under most circumstances, the marginal value of a unit of water is less than the marginal value of a unit of gold. This is because water is generally plentiful enough to supply our basic needs. But it is equally true that in the severest drought, one would not part with a unit of water for any amount of gold; the marginal value of each has changed with the circumstances.

Beer of the week: Casablanca Premium Lager – Among the many conditions that factor into valuing beer is location. In Morocco one may expect to pay slightly more for a beer than one might expect given the prevailing exchange rates. The marginal value of the stock of beer is somewhat higher for its relative scarcity. (That is not to say that it is hard to get beer in Morocco; it is just a smaller market.) Casablanca, Morocco is one of the largest economic centers of Africa. It is also the source of this aptly named beer. Casablanca lager is clear and pale, with a very faint and dry aroma. It is a very standard micro, but plenty refreshing.

Reading of the week: Human Action by Ludwig von Mises – Later in this, his chef d’oeuvre, Mises writes: “The moralists’ and sermonizers’ critique of profits misses the point. It is not the fault of the entrepreneurs that the consumers–the people, the common man–prefer liquor to Bibles and detective stories to serious books, and that governments prefer guns to butter. The entrepreneur does not make greater profits in selling “bad” things than in selling “good” things. His profits are the greater the better he succeeds in providing the consumers with those things they ask for most intensely.”

Question for the week: Do the common people truly prefer liquor to Bibles and detective stories to serious books? Is it not simply true that the marginal value of a second Bible is quite low compared to the marginal value of a second drink?

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Conspicuous Consumption of Killian’s

When I worked in an Italian restaurant, a customer remarked by way of compliment that “it’s clear that there are real immigrants working in the kitchen.” I confirmed that the cooks were, indeed, immigrants and that I would pass on the compliment to the chef. I neglected to mention where the immigrants in question came from originally; I suspect very strongly that the customer would have been less effusive in her praise of the food if she knew that the chef was not Italian, but Mexican. Preconceived notions have such a peculiar way of effecting perception.

Some years later, it was my duty (nay, honor) to purchase kegs of beer for campus-wide college parties. Substantial though my allotted budget was, it was not inexhaustible. To save money for very good beer at the biggest parties, I purchased cheaper beers throughout the year. For the most part, people seemed to like this plan, but I occasionally got complaints. I was always surprised when people had the nerve to whine about having to (or, more properly, getting to) drink Yeungling or PBR at a party. Everybody’s favorite beer should be free beer.

One way that I avoided complaints was to purchase Killian’s Irish Red. Killian’s certainly seems classier than PBR or Bud Light. I personally think that it tastes better as well. The twist, however, is that a keg of Killian’s is no more expensive than a keg of Coors Light. (Which is not surprising when you learn that Killian’s is brewed by the same giant company.) Many of the students who complained about cheap macrobrews applauded my decision to serve this cheap macrobrew, simply because they didn’t know how cheap it was.

Thorstein Veblen wrote of fashion that people have a strong bias against anything cheap. People of taste will reject a beautiful, well-made garment as soon as they realize that it is not expensive. “[The garment] loses caste aesthetically because it falls to a lower pecuniary grade.” The same (and its reverse) is often true of beer: if it is 50¢ per can, people believe that it can’t be good, and if it is $15 per bottle, people believe that it can’t be bad.

Part of why I favor drinking from a glass is so that the label (and the price tag) don’t distract you from the beer.

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Beer of the week: George Killian’s Irish Red -Killian’s is ruby red and certainly more eye-catching than a domestic light beer. The roasted malt that provides the color (at least I hope that the color comes from the malt rather than food coloring) also imparts some flavor. To be sure, it isn’t a great beer but it does have decent body and some good bread and caramel notes. I definitely recommend it if you want a beer that seems more fancy than it is.

Reading for the week: The Theory of the Leisure Class by Thorstein Veblen – Veblen coined the term “conspicuous consumption” to describe the myriad ways in which people indulge in luxury goods and activities (and let everybody else know it.) In this excerpt Veblen discusses how fashion can show off wealth. Not only can a man in a tuxedo afford to buy a tuxedo, the pristine cleanliness of his tuxedo makes it obvious that he does not have to perform any manual labor.

Question for the week: Not that many people would be willing to admit this, but have you ever liked something until you found out that it was cheap and only then decided that you did not like it?