“Nowadays people know the price of everything and the value of nothing.”
A good Guardian piece reveals that a house has just gone on sale in London for £250m. Another British house can be bought for £1. (Yes, you didn’t misread either of those figures).
This ultimate Ferrari (it goes from 0-60mph in 3 seconds) is expected to find buyers at £1m – twice as much as its slightly less testosterone-powered stablemate.
All of these high prices strike most people as ridiculous. And of course, compared with the money most of us have to spend and the way we choose to spend it, that is precisely what they are.
It would be hard to fit any of them into any terrestrial concept of value for money.
But what about a small Starbucks cappuccino for £1.15 ($1.75)? At around 1/3 less than the usual UK price, that sounds like a bargain, doesn’t it?
Photo from Tripadvisor
Until you put in the context of Mumbai, where it translates into 95 rupees: the price middle class Indian inhabitants of that city are queuing up to pay for their daily fix.
On their way in or out of the store, those Indians will inevitably pass some of their 6m (yes, it’s worth pausing over that figure too: 6…0…0…0…0…0…0) fellow slum-dwelling citizens who rely on $2 per day simply for their survival
Presumably, to one of those ragpickers, the notion of spending their entire daily budget minus 25c on a cup of hot liquid is also… ridiculous. But not quite as ridiculous, presumably as the Indian launch in 2009 by Mont Blanc of 3000 rollerball Mahatma Ghandi pens, priced at $3,000. (There was also an even more limited edition gold-and-silver effort priced at $25,000)
Both pens were withdrawn from sale after action by the Indian government, but anyone who really wants one can apparently bid for it on eBay.
Whatever price that pen fetches – however ridiculous it might seem to the Mumbai beggar, or to you or me – will be its value at the time and to the person who decides to buy it. As will the final sale price of the London house.
And that’s my point. I keep hearing people say that this or that price for a Pauillac, a Napa Cabernet or a Provence rosé is “silly”, and that the wine in question is not “worth” that price. I used to be part of that chorus, but then I grew up and learned the basic rules of capitalism.
1) The value of anything is what someone is prepared to pay for it. There may only be one potential buyer who’s ready to pay £250m for that house. Indeed there may not be any takers for it at all at that price. Perhaps the current owner will end up accepting £225m or £200m, or maybe even £150m, if he’s feeling a bit strapped for cash. But whichever of these figures he pays will be the value of that house on that day.
2) The value of anything depends on two factors
- The seller’s need to sell
- The buyer’s desire to buy
3) The price the buyer – assuming he has the desire – will pay depends, in its turn on
- The place (a glass of Coke costs more at in a seafront cafe in St Tropez than in a London pub; prices fetched at auctions may be higher or lower than for the same items elsewhere)
- The time (hotels have high and low seasons; umbrella salesmen can raise prices in a rainstorm)
- The buyer’s means (Lionel Messi earns over £2m per month; the extravagant purchase of the Penfolds Ampoule would be paid for in a couple of days.)
Now obviously everyone is different. There are poor people who spend foolishly and billionaires who are “careful” with every penny they spend. And everything is relative. Once a middle class indian is prepared to spend 61 rupees for a coffee – the going rate for the local CCD brand – maybe finding the extra 34 isn’t too big a stretch.
My point, and one I’ll address in greater detail separately, is that the one factor that is totally irrelevant to this scenario is an outsider’s opinion of the “value” of whatever it is that is being bought.
You may earnestly believe that Grange or Lafite, or whatever, is not “worth” – cannot possibly be worth – the price people are paying for it. Sorry guys, that’s just your opinion. Even if almost the entire world agrees with you, to the person who has decided, for his own reasons, to make the purchase, your views… are of absolutely no value at all.