Prices are based on what the market will pay, not the cost of materials.
I heard a take on this, which suggests price is more a measure of the value of labor rather than the cost of materials. Under more historical economic models, you were limited by your immediate regional supply of a good or service. And we would talk about shortages, droughts, and famines when the local supply was exhausted. The local labor force couldn’t produce more commodities with the tools/conditions at hand, causing consumption to outpace available surplus.
Under a more modern market system, we no longer talk about “running out” of a given commodity. Instead, we talk about the price going beyond what we have available to pay. You’ll walk into the grocery store and see a $10 banana. And it’ll sit on the shelf till it rots, because nobody has $10 to spend on a banana. But it’s only there because nobody can pay that price. The fact that there’s no second banana in the stock room is obscured by the astronomically high price on display.
However, you do eventually get to the point where people need the commodity more than they need the currency. That is, in effect, the cause of inflation. And then the banana gets sold, there’s no second banana, and we reveal the real cost of materials in their absence. There’s no supply chain bringing in more bananas because we’ve experienced a structural failure in the economy. The cost of maintaining infrastructure eclipsed what the owners/administrators were willing to front. We obscured it with a price signal until the bitter end.
And the empty shelves ultimately reveal what national administrators believe to be the value of the local population. It is not a question of commodity markets any longer, but of labor markets. You (the local public) aren’t worth sending new supplies to, because we (the capitalist economic administrators) no longer consider you productive laborers.
I would say the classic example is the American Ghost Town. Typically townships that sprang up during the Frontier Era to serve some transitory economic function (mining colony, overland shipping stop, cattle depot) that were rendered obsolete with the railroads and subsequently abandoned.
Named by German prospectors who came looking for gold, Berlin was a company mining town. Established in the 1880s, the town was largely abandoned by the 1910s after the mine closed in response to strike action. The well-preserved structures are now part of Berlin-Ichthyosaur State Park, known for fossil discoveries of a prehistoric marine mammal.
Kennicott was established as a mining town in 1903 to take advantage of the area’s copper deposits (the emergence of electric power having increased copper’s value considerably). The mines were depleted by 1938 and the town largely abandoned. Since the 1970s, the town has become an increasingly popular tourist destination.
More of a ghost fortress than a ghost town, Fort Jefferson’s construction began in 1846 as part of Florida’s defenses against piracy. It also served as a prison during the Civil War, then became a quarantine station and a navy refuelling point before it was abandoned in 1906 due to hurricane damage. Fort Jefferson has been a National Monument since 1935 and is open to tourists. It continues to be the largest brick structure in the U.S.
Incidentally, a lot of the “town was abandoned in…” correspond with the Great Depression, when interstate commerce had all but collapsed due to failures of major financial, communication, and transport companies of the era.
Ok I think I get it now, it is basically the flaw behind resource allocation through capitalism. The cost of supplying these mining towns does not match their ability to pay for those supplies after the mine goes bust. Do I have that right?
There’s a virtuous cycle of commerce that can emerge out of a professional services or manufacturing sector if people are willing to invest in it. But if you see the economy as extractive, you stop putting money in as soon as you assume there’s no more wealth to pull out.
Its an interesting way to frame the problem compared to how it might be typically framed as “not enough jobs” or “wages aren’t high enough” or the new favorite among Canadian politicians of a “productivity crisis”
I heard a take on this, which suggests price is more a measure of the value of labor rather than the cost of materials. Under more historical economic models, you were limited by your immediate regional supply of a good or service. And we would talk about shortages, droughts, and famines when the local supply was exhausted. The local labor force couldn’t produce more commodities with the tools/conditions at hand, causing consumption to outpace available surplus.
Under a more modern market system, we no longer talk about “running out” of a given commodity. Instead, we talk about the price going beyond what we have available to pay. You’ll walk into the grocery store and see a $10 banana. And it’ll sit on the shelf till it rots, because nobody has $10 to spend on a banana. But it’s only there because nobody can pay that price. The fact that there’s no second banana in the stock room is obscured by the astronomically high price on display.
However, you do eventually get to the point where people need the commodity more than they need the currency. That is, in effect, the cause of inflation. And then the banana gets sold, there’s no second banana, and we reveal the real cost of materials in their absence. There’s no supply chain bringing in more bananas because we’ve experienced a structural failure in the economy. The cost of maintaining infrastructure eclipsed what the owners/administrators were willing to front. We obscured it with a price signal until the bitter end.
And the empty shelves ultimately reveal what national administrators believe to be the value of the local population. It is not a question of commodity markets any longer, but of labor markets. You (the local public) aren’t worth sending new supplies to, because we (the capitalist economic administrators) no longer consider you productive laborers.
For any liberals reading this; this is basic supply and demand in a situation with surplus labor.
This is an interesting perspective I haven’t heard before. Are there historical examples of this happening?
I would say the classic example is the American Ghost Town. Typically townships that sprang up during the Frontier Era to serve some transitory economic function (mining colony, overland shipping stop, cattle depot) that were rendered obsolete with the railroads and subsequently abandoned.
https://www.geotab.com/ghost-towns/
Incidentally, a lot of the “town was abandoned in…” correspond with the Great Depression, when interstate commerce had all but collapsed due to failures of major financial, communication, and transport companies of the era.
Ok I think I get it now, it is basically the flaw behind resource allocation through capitalism. The cost of supplying these mining towns does not match their ability to pay for those supplies after the mine goes bust. Do I have that right?
Functionally, yeah.
There’s a virtuous cycle of commerce that can emerge out of a professional services or manufacturing sector if people are willing to invest in it. But if you see the economy as extractive, you stop putting money in as soon as you assume there’s no more wealth to pull out.
Its an interesting way to frame the problem compared to how it might be typically framed as “not enough jobs” or “wages aren’t high enough” or the new favorite among Canadian politicians of a “productivity crisis”