Charles Brown writes: >> I am sure I am going to butcher this and repeat arguments that you believe >> were refuted 100 years ago, but here goes. I disdain the labor theory of >> value for the reason stated by Whately: "it is not that pearls fetch a high >> price because men have dived for them, but on the contrary, men dive for >> them because they fetch a high price."
<snip> >> CB: In the financial process what corresponds to the pearl in the analogy ? If we are dealing with a single diver with no tools, probably no correspondence. But imagine an entrepeneurial diver who thinks "I can find a lot more pearls, and make a lot more money, if I buy a boat, oxygen tanks, etc." But he has no cash to acquire the tools, so he has to convince somebody with cash to advance the cash to him. It doesn't ultimately matter whether it is debt or equity, but it has to be somebody who is convinced to advance the cash to our diver as opposed to the butcher, baker, candlestick maker or anybody else who also has a bright idea and needs cash. The man with cash has to pick and choose who to invest in. If he chooses wrong, he loses his cash. Therefore, the investor is incentivized to research the market for pearls and other possible investments and to invest in a project that is likely to satisfy the subjective demands of the consumer at a profitable cost. David Shemano
