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Re: preventing stock plunge



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1. Yes, it is a bit puzzling. Value is supposed to be an abstract idea while
price is what is accepted in the market to measure value. Thus there is a
close relationship between the two, but they are not identical. In fact, this
is similar to a famous puzzle in economics, which bothered Adam Smith in 18th
Century: Which is more valuable? Water? Or champagne? Water is most valuable
and we cannot survive without it. We can easily dispense with champagne or any
other luxuries of life. Why are the latter more expensive in terms of price
while water is actually more valuable? The puzzle gets resolved when we note
two points. First is the supply side. Water is plentily available, while
champagne is not. Thus, the demand-supply curves join in case of water at high
quantity, low price level, while for chamgpagne, the equilibrium point is at
low quantity, high price. Thus, at the equilibrium point, i.e. at the margin
where we look at only the last units consumed, champagne gives higher marginal
utility.  Second point to be noted is the total value to society, i.e. the
utility we receive from all the units we consume (not just the units near
about the equilibrium point) is much higher in case of water than in case of
champagne. It is possible to conceive of existence without any demand for
champagne i.e. at very high price of the product, but it is not possible to
have demand value of water zero at any price, however high the price may be.
Therefore, water is more valuable to us than champagne, despite the fact that
water price at the margin around the equilibrium point is less.
2. Now, let us come to our question of 'value' of a product requiring a
particular mix of  factors like land, labour and capital, using less
non-renewable energy. Compare it with another similar product, where the three
conventional input factors remain the same, but which uses more units of
energy. My idea of value is social value,  and I would certainly say, the
former should be held in higher esteem and more value should be attributed to
it than the latter. But, whether 'value' gets completely translated to 'price'
depends on the way the economy is run. If I say, 'x' is of higher value, what
is the mechanism in the system to ensure that it gets a higher reward? The
answer depends on the manner of running the economy. " Is it completely free
market, with absolute disregard for externalities? Will there be any
additional taxation to people who use non-renewable energy? Will there be any
incentives for people to install equipments which reduce energy consumption?
Will there be any concessional credit to install energy-saving devices? Will
there be any other types of enforcement measures? What are the avenues for an
industry which gets taxed by government heavily for using energy-intensive
equipment for passing on the cost to consumers? If additional taxation is
done, what are the chances for prevalence of black market without adherence to
such regulations? What is the political will for ensuring enforcement? What is
the level of social acceptance of such energy-based concepts?"--- These are
the kind of questions which need to be asked.
3. The point you made of using 'price' to mean 'value' and making the price
increase as energy consumption increases, is not new as it is already what we
have. It may not be exactly directly proportional, but it is one of the
additive factors anyway in the present economy. Are we satisfied now, that the
present arrangement is perfectly fine and actual efficiency is fairly
determined? If two products are similar, based on same mix of land, capital
and labour,  but one of them has been made by wasting energy, you could give
it a higher price!
4. How do you propose to build-in the concept of value addition with energy
spent? I am not clear on how exactly this could be done. I can understand that
being done in one industrial unit, but how does one see that it is done for
the whole economy? How does one ensure that buyers respond similarly?
Thanks.

Padmanabha Rao wrote:

>
> On Tue, 27 Mar 2001, venugopal wrote:
>  To translate the energy conern into such an expression would mean some
>  thing like, "Other factors like land, capital and manpower used in
>  production remaining the same, the value of a product should be
>  inversely proportional to the non-renewable energy spent in producing
>  it."
> ------
> This is puzzling. Shouldn't it be directly proportional ? I assume value
> as implying price. Of course non-renewables are highly valuable and so I
> guess you meant to say lower depletion of that would be valued by society.
> But, for management in the economy the value or price of a product ought
> to be directly proportional to the non-renewable source of energy expended
> in producing it.
> -----
>  TIt happens that some regulations would become redundant if energy were
> used as currency (medium of exchange), and goods and services in the
> economy were valued in terms of their energy-added. Contemporary Money
> springs from governmental fiat, and its chief use is the facility it
> offers for redistribution -to remove poverty, spread ownership of
> productive property- through physically less violent means (fiscal and
> monetary policy are anyday better than pointing a gun at the
> 1000-acre-land owner). As long as these are the objectives Money is a
> great idea and commendable towards quickly bringing about equal
> opportunities to every citizen. I believe the problem with fiat Money is
> that it can be easily challenged, simply through subsidiary fiats, as
> between a stock broker and his banker-friends or other broker-friends
> (here when the fiat is recalled anything that the broker has produced
> naturally becomes worthless unless some other new fiat comes along).
> Depending on the spread of those smaller fiats the market is
> proportionately cornered by the fiat-givers. Of course fiat-giving is
> illegal by anybody except the govt, but then it's so easy for bankers to
> compromise if they dare to. In sum, money is a double-edged sword. Energy
> is unlike money in the sense that no one can issue a fiat for its
> existence. It would be a great medium for valuation and exchange once all
> citizens have the same opportunity. With India still not having
> 'completed' the redistributions there is a long way to go.  BUT, energy
> when used a medium of exchange and valuation powerfully ensures
> environmental accountability (since all energy comes from the environment
> including one's mental energy which draws from the food one consumes), so
> perhaps depending on how we perceive the redistribution and environmental
> problems, energy rupees would of meaning to us.
>


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