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Source link: http://archive.mises.org/10326/a-social-function-of-the-wealthy/

A Social Function of the Wealthy

July 20, 2009 by

Since I loathe shopping, I tend to stay out of stores. So it should not be a shock to learn that, as I browsed a computer store this past weekend, I was surprised to find big-box computer monitors missing from the shelves. Instead of those once-ubiquitous monsters, I found an amazing selection of flat screen monitors of all types and shapes.

And to think, not too long ago, flat screen monitors were quite expensive — well beyond my penny-pitching ways. Now those monitors are a deal, really.

So today I read where the flat screen TV is being replaced by the ultrathin. Of course, the current price for the ultrathin is well beyond my ouch point. Nevertheless, many folks will buy this gotta-have item, setting in motion the free market process that quickly drives prices lower over time.

I fully expect my next TV to be a reasonably priced ultrathin (of course, if you know me, you know that my next TV purchase will likely be many years from now).

“Gagnon expects ultrathin models to be at a premium for another year or two, while manufacturers wring as much as possible from customers who are wealthy, early adopters of gadgets or especially design-conscious.”

Yes. Wring from the wealthy and later provide for the masses. What a wonderful system, this free market.


Jonathan Finegold Catalán July 20, 2009 at 11:29 pm

My television is a 21″ cathode-ray tube. And, I don’t plan on buying a new one anytime soon: in fact, I plan to get rid of my television altogether!

Sovy Kurosei July 20, 2009 at 11:59 pm

I’m not sure what you are getting at. Prices fall for producing a product until it reaches a point where it is profitable to produce and sell the product. Wealthy purchasers don’t “set in motion” this process; it is always happening, everyday, as electronics get better designed, using cheaper components and in a more streamlined manufacturing process to produce cheaper electronics.

I do like Sony’s 11 inch superduperultrathin 3mm thick monitor though. I didn’t think I would see screens that thin for another five or ten years.

Joe July 21, 2009 at 12:17 am

“Wealthy purchasers don’t “set in motion” this process; it is always happening, everyday, as electronics get better designed, using cheaper components and in a more streamlined manufacturing process to produce cheaper electronics.”

It’s a little bit of this, and a little bit of what you explain. For instance, the top model processors from Intel command less than a 10% performance lead over the next best model, but have a price tag that is twice as high. The cost of producing these two products is almost (if not exactly) the same, but the higher profit margin on the better performing part allows the company to have much more in terms of savings for future use.

The chip wars between AMD and Intel have been up and down, and if we look at the times AMD was ahead in performance, and Intel was ahead in performance, we could see that only the leading company would be able to sell their top products at that very high markup, and produce more profits on their products. This, in turn, allowed them to invest more into producing better products for cheaper, bringing that once overpriced product to the masses. Without the lead, there is less money for the company, and they will fall behind in terms of being able to keep up with research and performance.

…So in a way, the high-rollers who splurge on overpriced goods just to get them really does help in bringing those things to the masses. It also shows that there is a demand for the product, and that these companies will also factor in scale of economy to determine if they could generate more profit at a lower price point with more units.

Shay July 21, 2009 at 12:49 am

“Yes. Wring from the wealthy and later provide for the masses. What a wonderful system, this free market.”

Indeed, since it’s all via voluntary exchange; the people buying these expensive products feel they benefit from the exchange, and the companies selling them benefit too. I’m not sure whether you’re implicitly comparing this to government taxation if the wealthy. If you are, you’ll note the lack of volition in the government case.

Conza88 July 21, 2009 at 1:36 am

How many books could you buy from LvMI store, rather than buying a TV? ;-)

Orfeu July 21, 2009 at 1:38 am

As far as I know, the rich, being the early adopters of technology, are also the ones that test the technology in its first stages and provide valuable input. A product that not even the rich want, it is a product that no one would want :).

Of course there are vendors that sell only to the rich, but usually parts of those products do find their way in mass market merchandise, also benefiting from previous experience.

I think Mises and Hayek wrote this somewhere.

2nd Amendment July 21, 2009 at 7:41 am

If it continues to get any thinner, we are heading towards negative thickness where it will start to get thick in front of the screen rather than behind.

It’s hard to imagine anything thinner. Maybe projecting an image on your white wall.

Gil July 21, 2009 at 8:19 am

T’was interesting a few years back SED, OLED and Laser TVs were going to be LCD and Plasma ‘killers’. However LCD TV and Plasma TV technology has improved to the point the image quality is now close to a high-quality CRT TV. Not to mention I got to watch a movie on one of Samsung’s new LED-backlit LCD TVs at a store. It’s has better a quality image, thinner and less power consuming over a regular LCD TV. It would seem OLED TV will eventually make it to the market but that’ll probably be years away.

Yancey Ward July 21, 2009 at 9:42 am

Jim, you souless libertarian!! Have you no compassion for the poor masses that have to make do with their soul-destroying cathode-ray tubes, or the middle classes still trapped in their flat-screened hell-on-Earth? Universal ultrathin television is the only answer, otherwise we will eventually spend 120% of GDP on ultrathin technology.

Vitor July 21, 2009 at 10:31 am

Cant wait for OLED displays. Ultrathin with perfect colours and true black! Current LCDs have horrible black.

Kevin July 21, 2009 at 11:01 am

I was surprised to see the prices of flat screen monitors have come down so much. I got a 19″ for $100 yesterday.

Ron July 21, 2009 at 1:54 pm

I’m holding out for the contact lenses that project an image directly onto my retina.

Ron July 21, 2009 at 2:07 pm

All kidding aside, in order for any new product to be successful there has to be a market for it. The fact that there are some people who are able and willing to pay tens of thousands of dollars for the latest and greatest I think definitely plays a positive role in the speed at which such technologies are developed. Without such consumers, there is little incentive to pursue development on a brand new technology. You gotta be able to sell it to someone.

fundamentalist July 21, 2009 at 6:31 pm

Have you guys forgotten micro 101? About midway through the texts discus price discrimination. Knowing that the elasticity of demand for new gadgets varies a lot among people, most tech companies sell new products for really high prices so that they can capture all of the profit possible from those who must be the first kid on their block with the new toy and price is no object. When those early adopters have bought all they want, the company drops the price to capture the next level of elasticity. That pricing process continues until all that is left are the most price resistant buyers.

Baron July 21, 2009 at 9:16 pm

There has been a lot of talk about the internet killing the newspaper industry, but I think OLED displays will be the final nail. Imagine a paper thin screen, able to be rolled up, manufactured in bulk off a printing press type machine so they are cheap. Give it an internet connection, and you’ve got an electronic newspaper. Kindle in the year 2040, basically. Remember the scene from Minority Report where Tom Cruise is on the subway, reading the paper, and the headline updates itself? It’s not too far-fetched.

Jim Fedako July 21, 2009 at 9:46 pm


I keep forgetting the key insight of micro: Everything is possible if you draw the lines just right.

Walt D. July 21, 2009 at 9:47 pm

“I was surprised to see the prices of flat screen monitors have come down so much. I got a 19″ for $100 yesterday.”
Deflation, deflation, deflation!
Read all about it! :

Gil July 21, 2009 at 10:02 pm

OLED also ought use the least amount of power for a display since there’s no backlighting. Who knows a ‘TV contact lens’ might be a tiny OLED display?

Shay July 22, 2009 at 3:02 am

“I was surprised to see the prices of flat screen monitors have come down so much. I got a 19″ for $100 yesterday.”

Technology, technology, technology!

Read all about it!

(fixed that for you, Walt D.)

Billy Bush July 22, 2009 at 8:15 am

I must agree with the important role the wealthy play in the economic landscape. Although I agree with the ol’ micro foundation, that of maximizing profits then moving to the masses, an important role is filled as well in funding future development. Many new technologies are funded by the wealthy purchaser for further enhancement. The same happens in cars. The super-car developers of the future are continually looking to push the technological boundary. As the wealthy are purchasing Bugatti’s, the technology developed by them eventually trickles down to your civic making everyone happy!

billwald July 23, 2009 at 12:20 pm

Except in this example I suspect that it is the gamesters who buy the super fast computers, porn watchers and sports nuts who buy the new big screens, not the rich people.

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