[ergoproxy]

From the article: "Amazon has successfully fostered the idea that a book is a thing of minimal value."

Adam Smith discovered the Paradox of Value: "Nothing is more useful than water: but it will purchase scarcely anything; scarcely anything can be had in exchange for it. A diamond, on the contrary, has scarcely any use-value; but a very great quantity of other goods may frequently be had in exchange for it." See An Inquiry into the Nature and Causes of the Wealth of Nations, Book I, Chapter IV, "Of the Origin and Use of Money," Paragraph 13.

Like water, books may have a high use-value, but a very low exchange-value. Ditto for free open-source software.

It's unfortunate that the dominant school of economics today--Neoclassical economics--equates the value of a commodity with its price, whether the market is competitive or not.

By contrast, Classical economists like Adam Smith distinguished between (1) value, (2) use-value, (3) exchange value, and (4) price. Prices are further distinguished between natural prices and market prices--

(1) Value: The amount of labor necessary to the production of a marketable commodity.

(2) Use-value is the amount of discomfort or labor saved through the use of an object. Use-value does not depend on the existence of a market.

(3) Exchange-value: What quantity of other commodities an object will exchange for, if traded. It does not need to be expressed in money prices.

(4) Money prices: There's a distinction between "natural prices" (long-run cost-of-production) and "market prices" (price you actually pay for an object in the market); and these are only equal under conditions of market efficiency, equilibrium, and rational expectations. See the blog post "Adam Smith on Equilibrium" (March 26, 2013) at http://somrh.blogspot.com/2013/03/adam-smith-on-equilibrium....

Canadian poli-sci professor Robert Albritton claimed that capitalists (like Jeff Bezos, presumably) are indifferent to the use-value of the commodities in which they deal, since the only thing that matters to them is the money they make. Source: http://www.nodo50.org/cubasigloXXI/congreso/albritton_31ago0...

[ArbitraryLimits]

Everything you've said is strictly true, but I feel like it misses the point. The difference between water and diamonds is that water's marginal utility is almost zero, owing to its ubiquity, whereas the marginal "utility" of a diamond is huge since most people have none already.

[ergoproxy]

Adam Smith's LTV also solves the Paradox of Value just as well as Marginalism: "The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it" (Book I, Chapter V, "Of the Real and Nominal Price of Commodities, or of their Price in Labour, and their Price in Money"). So diamonds cost more simply because they require more toil to acquire than water.

Marginalism (in its incarnations as Austrian economics and Neoclassical economics) has got its own problems: (1) impossible to measure an individual consumers' marginal utility; (2) general equilibria only exist under conditions of perfect competition; (3) uniqueness of a general equilibrium not guaranteed; and (4) general equilibria aren't stable (see the Sonnenschein–Mantel–Debreu theorem).

Marginalism in all its forms seems to exist only to attack government regulation, justify income inequality, and otherwise promote the interests of the top 1%. And it's proponents tell us that the only alternatives are systems designed to rob us and take away our individual freedom (Keynesianism and Marxism).

So my point was to provoke a reconsideration of Classical economics, which offers a forgotten alternative: Classical economists like Smith saw wealth as a flow of goods rather than as a stock of money; emphasized the creation of wealth; and (most importantly) viewed "laissez-faire" as a means to the end of greater competition, rather than as an end in itself.

Returning to the topic in the OP, in Classical economics, it's possible that the "natural prices" of books are higher than the "market prices," because the market is not competitive, and middlemen like Bezos are using their market power to suppress the wages of authors.