prices are forward looking

One of the old languages, Aymara, of South America has a unique feature.  Events in the past are said to be in front of the speaker, i.e. where he can see them; while those in the future are behind him.

If you think about it a little it makes sense.  You can’t see the future.  But, you can call up memories of the past.  So in sense that is all you can see.

But, yeah, doesn’t that treat memory as more valid your imaginary futures, your plans.  It hardly seems fair to treat one tenuous mental model as more real than the other.   It makes me wonder is Aymara the perfect language of nostalgia?

I was reminded of all that by this essay which digs into the common presumption that you deserve your income.

“Free market prices are essentially forward-looking.  Current prices send signals to producers as to where the demand is now, not where the demand was when individual producers decided on their production plans.”

I like to say that there are two simple naive ways to think about the price of something: that it cost to make v.s. what it value the buyer will extract from it.  If $cost < $value then we can negotiate.  There are uncountable reasons why this model is too simple, but it’s still useful.  In part because it’s nice and symmetric, the seller doesn’t want the buyer to know $cost and vis-a-versa.  They keep their secret, but it looms large in their mind.  During the negotiation the buyer strives to dampen the seller’s nostalgia and his own valuation; while the seller does the opposite.

If I have labored a life time to acquire some skill then I know that my $cost is high, but the market doesn’t care.  The market is just as likely to have a high $value for things that skills that were trivial to acquire.   This is a line of reasoning that I am familiar with for most products, but I’ll admit I’d never seen it so boldly stated for transactions involving skills.

2 thoughts on “prices are forward looking

  1. PuercoPop

    On a tangential note, the pronoun we is ambiguos. It can either include the person you are speaking to or exclude him. Another South American language, Quechua, has two different pronouns to remove the ambiguity

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