A Price for Everything

A basic axiom of capitalism is that everything has a price. Any product or service — regardless of its moral or ethical value — can be one side of a transaction in which the other side is money. The amount of money exchanged represents a point somewhere between the value of obtaining  the product or service to the purchaser and the value of delivering  the product or service to the seller.

An economics teacher once postulated this to his class in this manner: How many people in his class would be willing to have the tip of their little finger cut off? The class was understandably squeamish at the prospect, so he elaborated.

The tip of the little finger would be surgically removed at the first joint. There would be no pain and no ill effects from the surgery. The only thing is that the person would have to live with the inconvenience of missing the tip of their finger for the rest of their life.

Okay, given that, how many people would accept that offer?

No hands were raised.

Okay, let’s sweeten the pot. What if they were to be paid one dollar? Would that make a difference?

Again, no takers. So he doubled the ante. Two dollars for cutting off the tip of your little finger.

Nope. Nobody would do it.

Five hundred dollars? A few people in the room squirmed nervously.

Okay. Ten million dollars.

Every hand in the room shot up.

So the fair market price of cutting off one’s finger is somewhere between five hundred dollars and ten million dollars. The only thing left to do would be to work from both ends until the final price is agreed upon.

That’s how auctions work. That’s how eBay works. Heck, that’s how capitalism works. It’s a wonderful system. And, just like abstinence, it works every time it’s tried.

This is nothing new. One of the most enduring examples is in the world’s oldest profession. And it was wonderfully illustrated in Julia Roberts’ breakthrough movie, “Pretty Woman”.

Julie Roberts and Richard Gere negotiated her fee for a week’s worth of service. The auction takes only a few seconds — a few lines of the movie. Finally, they settle on $3,000.

Once they shake on the deal, she confesses, “I would have stayed for two thousand.” He replies, “I would have paid four.”

So the fair market price of a week with Julia Roberts at your beck and call is somewhere between $2,000 and $4,000.

Nah, that was in 1990. The price has probably gone up since then.