V is for Value

What’s it worth to you?

What’s the value of a stock? A toy? A flower? A work of art?

“Beeple” Winklemann, “Everydays–The First 5000 Days.” $69 million.

There are financial valuation models that explain how to set prices for goods in the “market” and for stocks on the exchange. But every time something sells for surprising sums of money, like $69 million for an NFT artwork, we should be reminded about how prices really work.

Value is always in the eyes of the buyer.

Always a Buyer’s Market

If you’ve taken economics classics, you learn about the “invisible hand” of the market and discuss supply and demand curves which represent masses of buyers and sellers, moving towards the “perfect price.” Remember, though, the market is made up of individual people, making buying decisions one at a time.

Every day, you decide whether it’s worth it to buy that diet Mountain Dew for $4.99 a case at the superstore, for $1.99 in a 16-oz bottle at the grocery store, for $1.79 in a large tankard at the gas station, or in a buy-one-get-one-free case for $6.99 at the grocery store. But there’s more: this store in the suburbs has a sale; that store in the wealthy part of downtown charges a premium. And we haven’t even discussed what restaurants charge or, heaven forbid, movie theaters. All of these prices are within a mass, information-neutral, mature market, and there can still be a 5-8x variation in price, which doesn’t bother you. Some of those feel like “a steal” for you, and some are “highway robbery” on the seller’s part. You make a purchase decision as an individual, every single time.

Imagine now a market where only a few are sold, buyers and sellers suppress information so that only those-in-the-know can partake, and the object is brand new. That’s what financial bubbles are made of.

Bubbles, Or Why Weird Stuff Sells for a Lot of Money

Between December 1636 to February 1637, the Dutch whipped themselves into a frenzy over unique tulips, specifically those with stripes or unusual patterns. The most prized-bulbs experienced a 12-fold increase. Based on historical receipts, some were willing to pay 5,000 guilders, “the going rate for a nice house.”

One tulip bulb, four cattle, 10x your annual income. Graphic from medium.com.

At some point the bubble popped. Supply increased to the point where the bulbs weren’t that rare, or people simply came to their senses and stopped bidding. As always, the last person who sells at the high point pulls out with a wolfish grin as the price drops. Usually, it plummets. Fortunately, it turns out this didn’t crash the Dutch economy, though it did crash the reputations of some of the previously-savvy traders. These were the embarrassed rich, not chimney sweeps or cooks.

Financial bubbles recur on a regular basis. A British company auction off shares to the new trade with South American Spanish colonies, in a South Sea bubble where shares were briefly worth more than the entire British national debt. Another bubble with a French company represented traders in Mississippi in the early 1700s. The Japanese real estate market in the 1980s, the dotcom bubble in the 1990s.

Graphic of a “financial bubble” from Canadian Encyclopedia.com.

Who remembers Beanie Babies? There’s always one of these toy-related bubbles that starts around Christmas. The media declares something the “hottest” new toy and sudden scarcity of the Whatever (Teddy Ruxpin, Cabbage Patch dolls, Tickle Me Elmo…) drives the price up. Temporarily.

Cover of Zac Bissonnette’s strange history of a recent bubble, available on Amazon.com.

Art Has No Absolute Monetary Value

The sad and true fact about art is that its value is always in the eyes of the buyer, always a personal decision. I happen to like Jackson Pollock paintings, and I dislike those of Mark Rothko. I’d pay more for one than the other.

Often, when we talk about visual art, we act as if its prices behave along a different standard, as if art “ought” to be priced according to what it’s somehow “really worth.” We are sad that Van Gogh was paid practically nothing in his lifetime when $5 million goes to a splash of a few colors painted by a vagrant with a box of crayons. Prices don’t reflect any absolute value; the value is in the eye of the buyer. Art’s no different.

A Warhol “Dollar Bill.” Photo at news.artnet.com.

At Last, We Come to NFTs

Maybe, you’re starting to see a trend? Why would NFTs be any different?

NFTs, or Non-Fungible Tokens, reflect complicated technology attached to digital or digitized-in-concept assets. The asset doesn’t have to be visual art, though those are easiest understood. Musicians have attached NFT tokens to bits of music. A tennis player offered buyers an NFT right to purchase a piece of her arm.

The NFT and blockchain technology verify authenticity of things that might otherwise be forged. That implies rarity and uniqueness. That conveys value to some who might think rarity would be worth more. But it’s only worth more if a buyer wants to pay.

Pricing and auctions of NFTs are really about people hoping they’ve bought a type of tulip that’s still increasing in value. As more NFTs proliferate and the market “shakes out,” prices will drop. One art auction site has seen 70% price drops from week to week. If anything, boom and bust will go faster as information proliferates more quickly.

Just ask the Dutch. Or people who still have shoeboxes of Beanie Babies in their closet.


The final week of the A to Z challenge–with some tricky letters coming up! Hope you have enjoyed it and will stay with me to the end.

2 Replies to “V is for Value”

    1. They do it believing someone will pay more. Remember at auctions and valuations are musical chairs. No one really wants to own some of these things.

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