In Adam Smith's seminal economics work, The Wealth of Nations, he made a simple observation. If you find a stick on the ground, it doesn't have a lot of value. Let's face it, there are a lot of sticks lying around and if someone wanted one bad enough, they wouldn't have a lot of trouble finding one. For the sake of argument, we can set the value of a stick at "free."
However, if you take that stick back to your workshop and fashion an axe handle out of it, that stick suddenly has value. If you were to sell it, the value wouldn't be determined by the resource it came from -- after all, it's that same free stick -- but from the labor and skill you put into making it an axe handle. Maybe someone else doesn't have that skill, maybe they do and just don't want to take the time to do it themselves, but someone will now pay good money for your formerly free stick. In this example, 100% of the value is conferred by the woodworker's labor. When someone buys it, they aren't really buying the axe handle, what they're doing is paying you to make an axe handle after the fact.
The stick was a resource and, to tell the truth, in most cases resources aren't free. But a resource isn't a product. Even resources that have a lot of intrinsic value need to have labor applied to them -- i.e., diamonds must be cut and gold must be refined. And the value of the resource increases after it has been worked -- by labor -- into a product. In short, even when the stick isn't free, labor still increases its value. Call that Economics of Manufacturing 101, the super-simplified fast course...[CLICK TO READ FULL POST]
However, if you take that stick back to your workshop and fashion an axe handle out of it, that stick suddenly has value. If you were to sell it, the value wouldn't be determined by the resource it came from -- after all, it's that same free stick -- but from the labor and skill you put into making it an axe handle. Maybe someone else doesn't have that skill, maybe they do and just don't want to take the time to do it themselves, but someone will now pay good money for your formerly free stick. In this example, 100% of the value is conferred by the woodworker's labor. When someone buys it, they aren't really buying the axe handle, what they're doing is paying you to make an axe handle after the fact.
The stick was a resource and, to tell the truth, in most cases resources aren't free. But a resource isn't a product. Even resources that have a lot of intrinsic value need to have labor applied to them -- i.e., diamonds must be cut and gold must be refined. And the value of the resource increases after it has been worked -- by labor -- into a product. In short, even when the stick isn't free, labor still increases its value. Call that Economics of Manufacturing 101, the super-simplified fast course...[CLICK TO READ FULL POST]