Real Value

What’s the real meaning of life? The real value?

Don’t ask an economist, because it won’t be the philosophical answer you were hoping for.

The value of a thing is different to different people. You may value your dog, while your neighbor sees your dog as his worst enemy. But in economics, “value” refers to market value. What are people willing to pay for this thing?

Real value then, is what people are willing to pay for the value...taking out inflation. The nominal values of goods are all around us: they’re the price tags in our faces. But things get more expensive. Grandma will tell you; back in the good ol' days, gas was under a dollar, and it cost fifty cents to go to the movies.

The real value of goods is that nominal amount we’re used to seeing, subtracting inflation. If you took the real value of movie tickets now and the real value of movie tickets when their nominal price was fifty cents a pop, you can see if people are willing to spend more or less on movies today compared to back then.

Real values allow us to compare prices of things over time, even as inflation climbs. College costs and healthcare costs in the U.S. are two good examples. The real cost of these goods has risen a lot. That’s why, back in the day, you could pay for college by waiting tables at night, and you can’t today. We still try though.