Concept of Relative Value

I've been thinking a lot about the essence of economics. Sure, we can get buried really quickly in all sorts of minutia. What I'm thinking about are the essential core principles. And when I think about it, economics is all about the concept of relative value. By that I mean the value of one thing compared to another -- and that value changes over time, and it differs from person to person.

I recall when I was a kid in the school cafeteria. Without realizing what they were doing, the kids would engage in a spirited exchange market trading food items. From my experience, a dill pickle had very little value; a cupcake quite a bit. And then all sorts of interesting things would happen: if I was competing with someone else to acquire a cupcake in trade, no matter how many dill pickles I might have to trade, the sheer quantity of my dill pickles would never trump another kid's apple pie. So value is not a simple mathematical model. 100 pickles or 1000 pickles -- it makes no difference because pickles weren't valued relative to the cupcake. However, I might be able to trade a pickle for a bunch of carrot sticks. And it might be a 1-for-1 trade. So it's not like pickles have no value. It's all relative.

I was fortunate to not have much of a sweet tooth, so if I had a piece of cake or a cookie or whatever, I'd happily trade it away and get a lot more food in return. Others were so smitten by the sweets they'd trade their whole lunch for a Hostess coconut snowball cake. On the relatively rare occasion I'd buy a hot lunch (normally I brought a bagged lunch), I'd quickly establish interest in trading for my dessert, which I didn't really care for. I once traded my small piece of chocolate cake for someone else's lasagna and vegetables. Essentially their whole lunch. I was happy, they were happy. I was nourished. Them? Well, that wasn't my concern.

Note: and here's where the concept of currency (money) comes into play. As I said before, paper money (in particular) has no inherent value. Money serves as a proxy of actual value. I value my $1 bill because of what I can buy with that $1 bill. And that is based on trust that others will honor that $1 bill as an exchangeable representation of value. To trade my dill pickle for a cupcake using money requires an agreement on how many pickles per dollar, and then what fraction of a cupcake for a dollar. Once done, the dollar is nothing but a proxy, a representation of the relative value of the pickle vs. the cupcake.

It's a fascinating topic ... it really is. The dynamics are endless.

There's a "basic economics" text book written by Thomas Sowell that I've read really good things about. It's on Amazon here. I'm not saying you should get it ... but if you're thinking about delving into the topic some, it might be a good place to start.