TEXT OF INTERVIEW
KAI RYSSDAL: A couple of years ago the fence in our yard was broken, the one that goes around our house and keeps the dogs in. And I thought to myself — I could fix it myself or I could pay somebody to do it. Life’s busy and nobody has a lot of time. But fences are expensive. So, I did it myself for basically just the cost of materials. No big deal.
But that little cost analysis I did is something all of us do all the time. It’s also the basis for Eduardo Porter’s new book, “The Price of Everything.” Eduardo, welcome to the program.
EDUARDO PORTER: Great to be here, Kai.
RYSSDAL: You know it struck me, as I was reading this book, that it’s about price, sure. But it’s really about price in the broadest possible sense. It’s almost about value, right?
PORTER: Well, yes. Although value is kind of like a shiftier concept, right? I do agree with you that this isn’t price as in money price. Price can be measured in many other ways, including in time, work and love. In fact, I like to think of the best way of measuring price in terms of opportunity. The price of any choice that you take is all the other things that you did not do because you took this path — that’s the opportunity cost.
RYSSDAL: So how do we weigh and apply this price concept everyday? Is there a basic answer?
PORTER: Consider how you shop. There was this study done of shoppers in Denver a few years ago, using a database by a market research firm that had thousands of families. They had their data about their ages, their incomes, along with data with what they bought in supermarkets and how much they paid for it, right? Now, they sifted through this data and the found that families that earn %70,000 a year or more spent about 5 percent more for the exact same goods as families that earned $30,000 or less. Why is this? Well, the price of the time of the more affluent families was higher than for the less affluent families. Say you’re a janitor that earns $11 an hour and somebody comes and offers you $100 or an extra hour of free time. Chances are you’ll take the $100. But say you’re a lawyer making $500 an hour and somebody comes with the same offer. Chances are you’re going to take the time. That’s because the value of your time is higher. Now when you move this to the grocery store, the janitor is going to click coupons, is going to wait for specials, is going to keep an eye out on the best time to buy any given thing, do comparison shopping and so on. And therefore is going to get stuff for less than the lawyer, who is just going to pick up whatever she needs without necessarily even looking at the price tag.
RYSSDAL: None of this pricing that you’re talking about — whether it’s the larger social issues or what we’re paying for a house or a gallon of gas — none of that happens in a vacuum. It’s always balanced against the worth of something else.
PORTER: The history of how we understand prices is really very interesting because it goes back to the ancient Greeks. The notion of price was attached to the notion of value, which was kind of like a moral concept. And we go back to where we started this conversation. The idea that there had to be some morality to how much things were worth in the marketplace drove the understanding of prices until the 17th century. This idea that there was some justice attached to the prices of things. And many people began to understand this as the work that was contained in any given object, right? That the price of that thing had to be the value of the labor that had gone into it. And this was posited by David Ricardo and by Adam Smith, and it was perhaps most famously espoused by Marx. But it totally forgot the idea that actually the price of something in a marketplace is a transaction. There is a buyer who values something and a seller who will be willing to make that transaction at that given price or not.
RYSSDAL: And everybody has to be happy, right?
PORTER: Well, with a grain of salt. The fact that we choose to make a transaction at a given price doesn’t mean that under any circumstances we would be happy to make that transaction at that price.
RYSSDAL: Eduardo Porter is an editorial writer at the New York Times. He’s also got a new book out. It’s called “The Price of Everything: Solving the Mystery of Why We Pay What We Do.” Eduardo, thanks very much for your time.
PORTER: Thank you, Kai.
RYSSDAL: Opportunity cost or no, prices do sometimes make you wonder. To see a list of some of the more unusual things we pay for — or don’t — click here. We’ve got an excerpt of Eduardo Porter’s book on our new book section, The Big Book.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.