4th International Trade Show Addis Ababa Ethiopia

Determinants of Market Value: Part I

By Abel Merawi

Negadras-Gebrehiwot-BaykedagnFebruary 20, 2020 (Ezega.com) – On a typical day, it is usual to go to a shop and buy some goods. Perhaps, you wanted to buy some onions and the shopkeeper tells you the price is 20 birr per kilo. You ask why and you’re told that the market is going up these days. You are not satisfied with the response, but you still buy the onions since you need it. On another occasion, you wanted to buy a shirt and the salesperson says its 800 birr. As usual in Ethiopia, you try to bargain by offering 300 Birr and you finally end p buying it 500 Birr. Still, you can’t understand why you were asked to pay 800 Birr in the first place and you get angry a bit because you could have paid the exact price right away if you didn’t have to bargain. This is a daily routine for Ethiopians. You may feel frustrated at times, but still, carry on because it is how things work in Ethiopia. However, you must realize that this should not be a market system for any country. There are considerations to be taken in setting the price of any good or service.

At the beginning of the 20th century, an Ethiopian intellectual by the name Negadras Gebrehiwot Baykedagn has written a book covering the fundamental economic and political theories necessary for Ethiopia. His book is titled ‘Mengist ena Yehizib Astedader’, which can be translated as ‘Government and Public Administration.’ I think this is a remarkable work that can be taken as an economic and political theory of our country. In the following sections, I will be explaining the way prices are determined based on this book.

The price of any given commodity ought to be determined by the effort and time needed to make it. The things that exist in nature before human intervention belongs to all human beings and price should not be put on them. This is so because price implies value. For instance, there should not be a price for forest trees or fish. The price paid for buying wood or fish is set on the value added by human beings. In other words, the price of wood is set based on the processes it goes through, like cutting, shaping and transporting it. In the case of fish, we consider the boat, the nest and the human effort and time to catch it, in determining the price. The price of a bigger fish is higher because it requires more effort and the same goes for bigger wood for it takes more energy to cut and transport it. This is true for both goods and services. The time and effort it takes to learn methods and perform the tasks must be considered when setting a price.

The above argument has further implications on whether a commodity has a price for even a single person when there are no buyers and sellers. Negadras Gebrehiwot Baykedagn argues that price represents value as represented in effort and time, which creates more assets for the users. He states as an example that for the hunter and gatherer, the value or price of fruits is less since it can be gained easily, but the value of meat and fish will be high since it requires the making of tools and much more energy, with more utility from consumption. Accordingly, the argument can be expressed as follows: more time and energy with higher benefit equals higher value or price; while less time and energy with smaller benefit equals a smaller price. However, there are other considerations we have to take into account when setting a price, and especially when we consider the value of money across time and place.

The value of the country’s currency is also a determining factor in setting the price. For instance, the value of 10 Birr a decade ago could be equal to the value of present-day 100 Birr. When there is more money with less value in circulation, the price of products will go higher because the currency has lost its value. Thus, the price of the product did not change; rather it is the value of the money that has changed. Furthermore, the price of a single commodity could vary based on the location of production and market. This requires taking transportation and the availability of products into account. When the supplier and the buyer are living in close proximity, the price of a product is bound to be small. On the contrary, when the buyer is located in a distant place from the supplier, the cost of transportation and the involvement of traders will make the price go higher.

While a healthy market is determined by the effort and time exerted for production, an unhealthy market is determined by the irrational and self-serving will of the trader. In principle, Negadras Gebrehiwot Baykedagn argues, the trader should be a messenger between the supplier and the buyer. The payment the trader receives is determined by the time and energy spent in the process of delivery. However, the price in Ethiopia is set by the trader. Thus, to be rich in Ethiopia, it is better to be a trader rather than a producer. The price of most crops is more than doubled by the time they reach the market because there are people who seek profits they don’t deserve. Just as the trader, the government should also be blamed for unfair taxation and lack of infrastructure.

Any country that wishes to prosper needs to create infrastructures and a fair taxation system. If there are better roads and various means of transportations, the people in the country will be better connected to the source, reducing unnecessary costs. Moreover, the roads should not be filled with tax collectors. The fathers of economics, Adam Smith and Alfred Marshall, state that better transportation is required to avoid additional costs and if tax is collected at every corner, it simply replaces natural barriers by artificial ones. Currently, the products bought from the farmer are taxed when the wholesaler buys it, then it is taxed by tax collectors at every region, followed by taxation when the retailer buys it, and finally, it is taxed when the customer buys it. Sadly, the same product is taxed at least four times, increasing the price of commodities considerably. We will keep other issues such as import/export, manufacturing and education of the people for another day since they require elaborate discussion.

The economic progress of Ethiopia could be realized when there is a healthy market. Like everything else, it is necessary to lay down fundamental principles for the exchange of goods. The price of commodities and services represents resources for production and the value it adds to our lives. If the market is at the mercy of the trader, the country will not benefit. Negadras Gebrehiwot Baykedagn claims that a country that has more traders and government officials instead of producers will never progress since production and the fair exchange of products is the backbone of the economy. Therefore, the Ethiopian government needs to focus on the bigger picture by laying down principles for the market instead of determining the price of sugar or bread by becoming a trader.

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Abel Merawi is Addis Ababa-based contributor for Ezega.com. He can be reached through this form.

Other articles by Abel Merawi:

Your life Matters Too

Manifestations of Artistic Expression

Achievements vs Natural Accidents

The Grip of Sacrifice

Injustice is Never Justifiable

Education Demands of the Future

Job Security, Life and the Unpredictable Future

The Shift From Racism to Culturism

Sacrificing Meaning for Power?

Culture and Market Forces

Intersubjective Reality

Seeking Cosmic Justice

National Myths: Makers and Destroyers of Nations

Are We Truly Free?

Maturity: The Prerequisite to Freedom and Democracy

Loyalty to Truth, Not to Group

The Value of Work

The Flaws with Ethiopian Political System

Intellectuals and the People

Where Are Our Pathfinders?

The Allegory of the Cave and Its Lessons to Leaders

The Truth Behind Humanity

The Seven Virtues

The Seven Deadly Sins

What is the right thing to do?

Building National Identity

Adey Abeba and the Spirit of Change

Mob Violence

Living the Truth as a Human Being

Hubris - The Tragedy of Not Learning from Others

The Era of Group Mentality: Us vs Them

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