The relativity of values causes us to use money irrationally. I go to the supermarket to buy a $15 pen, and the clerk smiles and says, “You can buy this pen for $7 if you walk 5 minutes from here.” Then, most people walk five minutes and buy a $15 pen for $7. But if you want to buy a $1,000 jacket and the clerk smiles and says, “You can get a $992 jacket in five minutes from here,” most people simply buy the $1,000 jacket. Reasonably, walking for 5 minutes equals the effort, and the profit of $8 is the same. However, people might go to a store that sells pens cheaper, but not for the jacket, because the discount rate is too low. In other words, the relativity of comparing values makes us act irrationally. The pen’s discount rate is 55%, and the jacket’s is only 0.8%. Yet, the total amount is the same for all $8, and the effort to gain that profit is identical. Attitudes and misconceptions about consumption influence how we build wealth. - Joseph’s “just my thoughts”
When stating that prices have risen, it signifies that something else has decreased in price. If house prices are up by 10%, then something else indicates that the price is down by 10%. What is this “something else”? It is the value of money –a number derived from converting the value of an inflationary object into a currency. As the prices of goods increase, the value of money decreases correspondingly. If the object is compared in value to something other than currency, then something else that has increased in value compared to the object has depreciated in value. Most values are expressed in currency, so if the price of an object relative to currency rises, the value of the currency is relatively low. Therefore, if you receive cash from sales, wealth is created and preserved only when you exchange it for something else that is appreciating in value compared to cash. If you keep the cash intact, you will undoubtedly become poorer. Wealth is always a relative concept, not an absolut...