Looking at the wine advertisement in the screenshot I linked, I noticed that they referred to the price before the discount as "real value". This is confusing value and price and also having a unclear understanding of their concepts, something that is very widespread. Thread. 🧵
Most people use the terms price and value interchangeably. It's common to say that price measures the value of things, but this isn't correct.
According to Carl Menger (Principles of Political Economy, 1871), "value is the significance that certain goods or partial quantities of goods acquire for us, when we are aware that we depend on them for the satisfaction of our needs."
Valuation is a psychological, personal, subjective, and ever-changing act. Attributing value to something is a cognitive activity of the individual and does not reside in the physical qualities of the thing being valued.
For example, gold has objective physical-chemical qualities: atomic mass, density, color, etc., but the value attributed to it comes from the outside, in particular, from the subjective appreciation of each individual.
It is also a mistake to attribute "intrinsic value" to things. Value is always "extrinsic." One might argue that an essential product, like bread, has intrinsic value; but for someone who is allergic to wheat or on a "bread diet," that product has no value whatsoever.
The problem arises from confusing price and value. But price doesn't measure the value of a good; it merely indicates the existence of a scale of values.
For the seller of a house, the price means: "I value your €200,000 more than my house," while for the buyer it means: "I value your house more than my €200,000."
The phrase "Price is what you pay. Value is what you get," attributed to Warren Buffett, is incorrect. 1) The price is not paid. The price is information. What is paid are specific quantities of economic goods: money, products, services, rights, etc.
For example, the traveler pays the taxi driver with money and the taxi driver pays the traveler with transportation. Let us remember that money is just another commodity, but with the characteristic of being highly interchangeable with other commodities.
2) Value is not obtained because it is a concept. What is obtained are also specific quantities of goods. Those participating in the exchange value what each possesses in opposite ways. What we pay is worth (subjectively) less than what we receive.
Price is a monetary figure, commercial information that the seller discloses to the public. In short, price is: "Monetary information relating to a commercial exchange."
Ex ante, the merchant declares: "I value my product (or service) less than a certain amount of money (price)." Ex post, the value preferences (explicit or implicit) of the participants are empirically recognized.
From an economic perspective, value is the utility that each person subjectively assigns to a particular good. Value is an abstract, ordinal category that cannot be measured in units. We can only value—or prefer—one thing over another.
As always, I give thanks to the authors I have read and especially to Professor José Hernández Cabrera, a true specialist in explaining economic concepts in a clear, simple and accurate way.