Pricing and consumer mood

by Rob Horning

10 October 2005


I found this statement, quoted in a Wall Street Journal story today about inflation (“The Outlook” on A2), fairly astounding. It comes from remarks made to shareholders by the treasurer of a uniform-manufacturing company, Cintas—not exactly a sector that’s especially senstive to energy costs: “The increase in energy costs that is felt throughout the entire country has changed the mind-set of consumers and they’re more apt to accept a price increase than they were in the past 12 months.” So in other words, energy-cost increases bear only a psychological relationship to the price we regular-shlub consumers pay for goods and services? And the prices we are confrnted with are a reflection of our state of mind, of what we’re willing to pay? Paying more for gas makes us feel like everything should be getting more expensive, and then manufacturers gratify this notion of ours by arbitrarily raising prices? Is this really how the finely calibrated and unerring free market functions? I guess so. What I continue to get stubbornly stuck on is the idea that the price of something should actually reflect some inherent use value in the thing itself, but the idea that things have inherent value has become a mystification. Value is strictly a matter of what someone will pay (only exchange value, no use value). The supply/demand curves that govern prices are affected by perceptions, since we are rarely confronted directly with real scarcity at this point. So things like consumer confidence have a direct bearing not only on investment but on pricing as well, I guess.

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