I have just finished reading Peter L Bernstein‘s book The Power of Gold: the history of an obsession. To my great pleasure, he announces in his mini-biography on the dust jacket that he “combines the zest of a historian with the meticulous analytical powers of an economist.” (The zest of a historian can be obtained by applying a very fine grater to the rind.)
Not being an economist myself, I laid aside this book and pondered the history of mankind’s attempts to fix a value on goods and services. And I find myself wishing that Bernstein had spent a bit less time as an economic consultant, and a little more poking about in the last remaining bastion of unfettered capitalism.
I refer, naturally, to the Flea Market. Like other forms of market which exist as models of economic activity, the Flea Market has much to teach the casual observer about the real value of goods. You will also discover that many middle-class Australians have no idea of fundamental economics, which could be why they are currently in debt up to their eyeballs.
If you wander around the Flea Market, you will see a wide range of goods for sale. Take, for example, that little black dress with the unmistakeable stamp of department store quality (missing button, wonky zip, and mystery stains). You ask the price. The middle-class woman in charge says with utter confidence, “Thirty dollars.”
You start back in alarm, and re-examine the dress in question. The owner of the dress becomes defensive. “I paid over a hundred dollars for that.” You look at it again, and think about it. “Ten dollars?” you offer. “No way,” says the vendor. So you shake your head sadly, and walk away.
The problem becomes more apparent as you examine other goods on other stalls. Again and again, you hear the defensive cry of, “I bought this for –”. You can see the cogs tick over – I bought this three years ago for $100; I’ve got a lot of wear out of it; I’m too fat for it now and anyway it’s not fashionable any more; allowing for depreciation and wear and tear, I reckon it’s worth $30.
Trouble is, lady, at the end of the morning your little black dress will still be sitting there, unsold.
Three years ago the dress was worth $100, which is what you were gullible enough to pay for it. But when you paid $100 for that dress, you were ripped off. That dress was made in a factory in China for a very small sum of money. What you paid for, was the privilege of buying it from a department store that costs millions to stay open. Mark-up like that means nothing in the Flea Market.
Now, removed from the highly-perfumed economic environment of the department store, it’s still worth exactly what someone is prepared to pay for it. But the laws of the Flea Market will now determine the value of your item.
Flea Market prices are determined by several key factors: how long you have been standing there in the hot sun trying to flog the items in question; what’s the going rate for dirty and damaged little black dresses in the surrounding charity shops (and potential buyers are almost certainly aware of it); and how badly you want the money.
That’s all. Not how much you paid for it; not where you bought it; not how much it meant to you; not how marvellous you are, and how much the buyer’s life will be enriched by the privilege of buying some of your old junk.
Vendors have to get to my local Flea Market at around 4am if they want to get a good spot and have the best chance of selling their stuff. I have watched prices fall like lightning as the morning wears on, the sun gets hotter and the vendors more frustrated as their (foolishly) overpriced second-hand rubbish remains unsold.
At around 11am, the stalls have to start packing up, and that, my friends, is when the real science of economics begins. “Everything fifty cents!” “All shoes a dollar!” It is also easy to see at the eleventh hour who are the winners, and who the losers. The winners have a small box or two of unsold junk which they throw in the nearest bin; the losers have to pack up the whole sorry lot and take it home again.
Sometimes this is too much for their wounded self-esteem, and they drop it all off at the nearest charity shop. There, the little black dress may be thrown away because it is not fit to be sold. Or, it may be given a wash and a steam iron; a button will be found and sewn on, and it will be put out for sale – for around $10-$15. The charity shop will receive 100% of that money; the donor will receive nothing.
How different things could have been if the vendor had only understood that most fundamental of economic principles: that the value of an item is what someone is prepared to pay for it.