The First Law of Value: Nominal PriceAugust 30, 2022
The First Law of Value states:
Every thing in the universe has an existential value, otherwise it would not exist.
This law is derived from the Third Law of Thermodynamics which says that absolute zero temperature is impossible to reach or maintain.
This law crosses over:
- to Medical Superphysics as everything being able to affect a person’s health in varying degrees.
- to Supersociology as everyone’s opinion or expression has a value to a society
Nominal Price: The Buyer’s Valuation
A purchaser assigns a nominal value to any good or service that he needs or wants, after his mind realizes that need or want.
This value can be denoted in currency, commodities, goods, or services. At such a point, it becomes a nominal price.
In the previous chapter, we gave an example of Adam wanting to buy a cake for his wife’s birthday. The total worth of the cake to his mind comes from:
- his love for his wife
- the practice of giving a cake during birthdays
- the cake’s usefulness to his wife
This exchangeable value is thus the numerical version of his abstract desire for the cake. From the perspective of Adam, this exchangeable value takes the form of a “nominal price”. This represents the amount of money, goods, or services that Adam is willing to give for the cake.
- The more he desires the cake, the higher its nominal price will be
- The less he desires the cake, the lower its nominal price
The previous chapter explained that a rare item is usually more desired than one that is very common.
- Rare and scarce items therefore have a high nominal price.
- Common items have a low nominal price.
In our example, let us say 3 men, Adam, Barry, and Charlie saw cakes at a cake shop.
- Their wives have birthdays on that day.
- Each man loves his wife in different degrees:
- Adam has a high degree of love for his wife
- Barry has a normal love for his wife
- Charlie has less than usual love for his wife
They might then assign different nominal prices for the cake:
|Man||Nominal Price for Cake|
Thus, nominal value and nominal price are always relative and subjective. Nevertheless, we can get an average nominal price, which in this case is $15.
We can say that the effective demand for cakes at that time is 3 units at $15. This effective demand is the actual demand of the people who are willing to pay for products or services.
In our example, Adam was the man among the 3 men who loved his own wife so much that he gave the highest nominal price for the cake for her. Let us imagine that he wants to give her a bouquet of flowers, worth $20, on every day of the year instead of just during her birthday. This will cost him nominally $7,300 per year.
20 * 365 = 7,300
Let us assume that his budget was only $365 or $1 per day. He would thus wish that the $20 bouquet were only $1. This wishful demand is what we call “absolute demand”.
The engines of an economy are thus:
- Effective Demand for short-term and medium-term movement, dynamism, development, or growth
- Absolute Demand for the long-term
Effective demand makes us:
- go to the grocery store to buy bread and milk
- go online to buy promotional items
- contact a broker to buy long-term securities or real estate
Absolute demand makes us:
- enroll in school to get an education
- apply for a job in our chosen career
- do research that might lead us to invent something
Neoclassical Economics only has the concept of effective demand, but no concept of the absolute demand, which is really metaphysical or abstract in nature.