Saturday, November 27, 2010

Auction of Apple-1 Computer Teaches Two Economic Lessons

This Tuesday, an original Apple-1 Computer sold at auction at Christie's of London for $213,600. The original 1976 sticker price for the computer when it was first released was $666.66. This recent sale illustrates two important economic lessons.

The first lesson is that value is subjective. People value goods according the the ends those goods satisfy. When acting, because economic goods are scarce, a person must rank his ends, choosing to obtain some while leaving others unfulfilled. This ranking is done by a process of subjective, or personal, valuation. As explained by Carl Menger in his Principles of Economics , it is this subjective value that determines the price of a good. Menger's theory that is derived from the reality of human action is in stark contrast with Karl Marx's labor theory of value and even Alfred Marshall cost of production theory of value. With an original price tag of $666.66, we know that the original cost of production was something less than that. It surely was not $213, 600. The reason the selling price for the Apple-1 was that high is that someone subjectively valued that particular computer more than $213,600. Value is subjective and the prices of goods are determined by the subjective valuations of all buyers and sellers in the market.

The second thing we learn from the story of the computer sale is that free enterprise, capital investment, and entrepreneurial drive result in economic development. The story about the Apple-1 auction reports that in today's dollars, $666.66, the original purchase price, is approximately equivalent to $2593.96 today. Spending that much money will buy you three top of the line iPads. It could also buy a personal computer that can do vastly more that the creators of Apple-1 (with its 8K bytes of RAM) ever dreamed a computer could do.

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