Letter: Price best determines overall value of resources
Published: Wednesday, February 10, 2010 3:50 PM EST
To the Editor:
In a free market, prices convey information. Since our markets -- though heavily regulated -- still have an essence of freedom, the prices we pay in the checkout line tell a story in themselves.
By purchasing one item instead of another, the consumer sets the value for labor, capital and natural resources. And as our preferences change, so do prices.
When the demand for corn increases, price of corn and the price of farmland that produces corn also increase. This readjustment of prices in conjunction with consumer demand happens continually. And it directs and redirects resources from goods in relatively low demand to goods in relatively high demand. Economists call this process equilibration.
It follows that when two comparable goods are priced differently, the higher-priced good is produced by resources that are valued higher than the resources used in the lower-priced good. Sure, there are exceptions, but the process of equilibration works to bring them back in line.
The price of a good tells the story of the value of the resources used to produce that good.
This is important information. Why? When your goal is to go green, and you do so by purchasing products that are priced higher than their supposedly non-green alternative, you may want to think before you buy.
The reason most green items are priced higher than their comparable non-green alternatives is that the production of these green items consumes more valuable resources than those consumed by their non-green alternatives. This is true despite the reuse of materials in green products.
How can this be so? The reuse of materials is itself not resource free. So the reuse of post-consumer materials requires the use of additional resources, in many instances more resources than were "saved" through reuse -- as indicated by the price tag.
If you look only at the post-consumer content of a product and ignore its price, you are missing the value of all those additional resources consumed.
So while you may think you are helping the environment by going green and going expensive, you are actually doing the opposite.
When faced with choices, as the economist Ludwig von Mises showed years ago, let prices be your guide.