1 Analysis‎ > ‎Economics‎ > ‎01 Value and Price‎ > ‎

09 Price with Form

Any body may buy a class of thing and sell a class of thing, but anything they trade is generally made of material in a specific form.

Change that form and you may change the value of material, transform some thing into something else, transform corn into flour, transform flour into bread, turn metal into cars, or sand into computers etc etc.

Coal and diamonds are just different forms of carbon yet one is valued more than the other.

Some transformations devalue materials. Burning oil turns its chemical components into less valuable forms, eating food leaves it in a less valuable form.

When processes transform materials  into more valuable forms this is called production but when processes transform materials into less valuable forms this is called consumption.
The alchemists wanted to turn lead into gold and understand how metals appeared when certain rocks were heated with charcoal and from their work chemistry was born.

Producers and Consumers

Some bodies are producers and some are consumers.
  • Production is any process that adds value to material, and so producers are bodies who output more value than they input, they supply more then they demand.
  • Consumption is any process that subtracts value from material and so consumers are bodies who input more value than they output, they demand more then they supply.
But production and consumption is not something only a body, like a person or a firm, can do, many things can produce and consume. A car consumes petrol a factory makes goods etc.

Usually any transformation processes both produces and consumes in various proportions;
  • A field may be seen as producing a crop but it also consumes the farmer's labour in the process.
  • A tree needs water,
  • A well needs work to raise the water,
  • A factory needs power and raw material.

Economic Momentum

When trees are planted, wells are dug and factories are built this represents an investment of resources and a commitment to the value flows that will be produced.

Once valuables are being produced or consumed at a certain flow rate it can be difficult to increase or decrease that flow. This is why economic problems occur when suddenly demand for a product stops and factories have to be slowed down or stopped, or the supply of food stops and people go hungry. The flow of value from production to consumption may be considered to have an economic momentum and an economic force is required to change the flow.

Pay or Profit

[TODO look at this sub-section further.]

The benefits of production are obvious and lead to profits, but an important question is what happens to the money that comes into a firm. Some will pay other firms for supplies and the remainder will exit in peoples pockets, as wages or payments to investors of one form or another. Since a healthy economy consists of trade rings the question is how soon can that money circulate back to the firm?

Are the products of the firm purchasable by the workforce, the general workforce, the better paid workforce, the investors, who? In some countries the majority of the workforce cannot afford the produce, which is exported to wealthier countries. Unless these countries are getting their money by being investors in the firm or firms like it, the money will not circulate.
  • Where does the people's money go?
  • How much do they spend how much do they save/invest?
  • Where does the product go, the poor or the rich?
  • When they spend do they spend on basic products or advanced product, sheep or elaborate computer games?
Always the question is, "Is the value cycle complete?" If not then there will be issues. Every trade chain must form a ring eventually or there will be economic problems.

(C)2010 Tom de Havas. The information under this section is my own work it may be reproduced without modification but must include this notice.