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Chapter 8:


Part of increasing your awareness is being able to separate the value of everything from its price.

By value, I mean personal value and market value. Personal value is how you value something personally and how someone else values the same stuff personally. Market value is how much you can buy or sell it for and how much anyone else can buy or sell it for.

By price, I mean the forms of payment involved, whether in a national currency, exchange of other goods or services, or by promising to take or not to take certain actions.

Here are some extreme examples of personal and market value.

Personal value:
Physical safety:
Extremely high to a person in a war zone;
Much less to you safely thousands of miles away.

Breathing air:
Extremely high to a drowning man or woman;
Much less to you safe on land.

1885 US trade dollar in proof-63 condition:
Extremely high to the collector who needs this extremely rare coin to complete his or her collection;
Much less to you if you don't collect coins.

Family photos:
Extremely high to a family member;
Much less (is there any value at all?) to anyone else.

Market value:
50 square-meter oddly-shaped parcel of land:
Extremely high to the developer who owns the rest of the city block and can make millions by including the odd parcel underneath in his new office tower;
Extremely high to the parcel's current owner who knows the developer wants it;
Much less to anyone else, since the parcel is too small and odd-shaped to be developed by itself.

Stock of company targeted for a hostile takeover:
Very high to the corporate raider seeing hidden value in the company by rearranging its parts;
Extremely high to management and majority owners wanting to keep the company independent;
Much less to you only wanting the stock as a steady income-producing investment;


We can easily underestimate market value because we personally don't value it or don't see the hidden value that others see. From time to time, you may have read where some lucky person buys a hideous painting at a yard sale for the value of the frame, and discovers a masterpiece hidden beneath valued by the fine arts marketplace in the millions of dollars. They had nearly tossed the masterpiece away, but their knowledgeable friend rescues it by bringing in an art expert, who announces the discovery of the lost masterpiece to the newspapers. 

We can easily overestimate market value because we personally value it more than people we find in the market are willing to pay. I saw this a number of times during my days as a real estate broker in Honolulu. The market had peaked and prices had been softening for a year, but you could always find sellers attaching absurd bubble market prices to their properties because of its sentimental value. Usually, they talked about finding a rich but financially stupid Japanese or Arab; the problem is that wealthy Japanese and Arabs don't pay for a stranger's fond memories and as rich people they usually aren't financially stupid. I also saw sellers asking too high prices because they overvalued their poorly located Waikiki condo's sliver of a blue ocean view. If you live where there is no ocean, you can understand how they personally value that little bit of view. If suddenly, all wealthy Japanese and Arabs became financially stupid, the seller's asking price might reflect the market price and they would have the opportunity to sell their property. 

So, you can see that personal value and market value are two different things. At times, they can even have the same price. The owner of the small, odd-shaped real estate parcel attaches a huge personal sentimental value to it ($1 million), while the real estate developer attaches a huge market value to it ($1 million) because it can make him $2 million with his planned new office tower. It's easy to confuse personal value and market value, especially when they are priced the same, but it's important not to do so.

Why is not confusing the two so important?

  1. You increase your perception of reality
  2. You value your stuff in terms other than currency
  3. You use your money smartly and creatively

Let's look at each of these in detail.

1. Your increase your perception of reality:

You've seen in the personal value example of breathing air that the value was incalculable to the drowning person, while nearly worthless to another.

You may feel it's immoral to rescue a drowning person for a large amount of money. Shakespeare's fictional King Lear was willing to offer his entire kingdom for a horse. And people and businesses facing financial crises are willing to trade their assets for immediate cash at amounts far below market value.

$10 cash for a $2.5 million estate
If you had only 5 minutes more to repay a criminal lender $1,000 or be killed, and you only needed $10 more, is there anything you wouldn't give to make the deal? Is there any question in your mind that whatever you give up for a $10 currency note, even your $2.5 million house, is worth it? Is there any question that the person who exchanges $10 for your $2.5 million estate essentially saves your life? What if they refuse to give you $10, saying they feel it's wrong to take advantage of people in desperate situations?

Cut off my leg for a $2.5 million estate
If you still feel it would be immoral to accept $10 for an $2.5 million estate from an extremely desperate person facing death, how would you feel offering your $2.5 million estate in exchange for a person swinging an ax and cutting off your leg at the knee within the same 5 minutes in order to save you from bleeding to death? 

The two scenarios are the same: you want to save your life, are willing to offer anything and everything you have to get what you need, and have the possibility that the person you're dealing with refuses to do the deal on moral grounds. Their moral grounds may end up costing you your life.

It's immoral for them to refuse to do such an extremely favorable deal. Yet they can see it only in terms of market value ($2.5 million estate exchanged for $10 in paper currency), while you see it in terms of personal value (a replaceable house exchanged for your irreplaceable life). The market valuation they use has nothing to do your personal valuation.

The point of these extreme examples is to increase your perception of reality by switching everything around from what you might consider a fair deal. By widening your perspective, you expand the possibilities of getting what you want. Think of how different observers, with different degrees of truth and bias about the examples, can perceive the deal. They read in the newspapers:

  1. Business negotiator saves life, gains Winthrop Estate
  2. My kingdom for a horse: King Lear in 2003
  3. Corporate downsizer axes Winthrop, gets estate-sized fee
  4. Winthrop heir credits poor Samaritan with saving life, rewards her with estate
  5. Immoral businesswoman saves cash-short minister from facing hell
  6. Immoral businesswoman bleeds estate out of bleeding Winthrop

I pray you will never be in such desperate situations as these examples. But do realize that there are people and businesses in extremely pressing situations with whom you can make extremely favorable deals for yourself, deals which help them immensely by avoiding immediate legal action, opening up possibilities for them, giving them the chance to breathe.

Such deals happen to people who allow them as possibilities. They don't happen to people who rule their lives by the expression, "If it seems to good to be true, it probably is (and therefore must be)."

2. You value stuff in terms other than currency

By not confusing personal value with market value, you learn that you can value stuff and non-stuff in ways that goes beyond your national currency, whether it's the Hong Kong dollar, South African rand, or Korean won.

Let's look at money itself in order to separate it from your national currency.

Money is just an idea. The value of money is in what you think it can do for you and what others think it can do for them, because whatever its form -- currency notes, coins, electronic creditts in a checking or savings account -- you can't eat it, drink it, or clothe orr house yourself with it.

Successful forms of money are those that are willingly supported by large numbers of people, such as nations using their own currency. The success of this money comes from its intrinsic value, such as containing gold or silver, and from it being an accepted standard as a medium of exchange. Both the intrinsic value and the accepted standards are merely ideas.

To help you understand these concepts of intrinsic value and accepted standards of money, let's look at computer software.

Computer software has no intrinsic value unless it's connected to a computer that can run it and is used by someone with a need for it. If it works on the computer but the user doesn't need it, it has no value to them. If the user needs it but it doesn't work on their computer, it has no value to them. Its value comes from being connected to a computer and a person that can use it; the value comes through its relationships. The Chinese version of Microsoft Word, which will probably run on your computer, won't help you if you can't read and type Chinese.

The software gains further value as a standard if it creates files that you and others can use, such as this Adobe Acrobat PDF document version of this book. I use Adobe Acrobat Reader, you use it, and so do many others. It is an accepted standard, gaining value again through its relationships.

Money defined by its relationships works the same way. It needs to be connected to a system that runs on it and to people that can use it.

Let's look at how money gets its intrinsic value. Until recently, most Western money was in the form of gold or silver. Like software that doesn't work on your computer, the gold and silver by themselves are worthless to you; they are not food, clothing, or shelter. But because most people have willingly supported gold and silver as valuable stuff for thousands of years, the precious metals have intrinsic value; you can trade the gold or silver for food, clothes, and a home. There is no absolute intrinsic value; people need to have the idea that the gold or silver itself has value.

Anything can be used as money if enough people willingly support it, as you've seen in the interesting forms of money.

An odd note: people today prefer to be paid with paper currency, which has no intrinsic value, than in gold or silver, which has an intrinsic value, because metals are less accepted than paper as money in ordinary transactions. Many years ago, it was the opposite: people used precious metals as money because they were more accepted and had intrinsic worth, but not paper currency, because it had no intrinsic worth and therefore was less accepted.

What happens if we remove the currency's intrinsic value as governments have done? The currency can still be an accepted standard and be willingly used as money in trading. For example, you give the retailer a 100 Canadian dollar note, who gives you computer software. The retailer deposits the $100 in its bank account, uses $50 to pay the software supplier, and keeps the other $50 as profit. If the bank or the supplier did not accept Canadian dollars as a standard, then the retailer would not accept them from you. It fails as money - a medium of exchange - in this case.

Currency is valuable if it can be traded for what you want. That depends on others being able to trade it for what they want, and so on. It's this accepted standard - an accepted idea - that gives money in the form of currency its value. (People in many nations do not accept their own national currency as money; they use another nation's currency.) Even if the currency is convertible into something such as gold or silver, it's the accepted idea that gold or silver has value that makes it money. 

I hope I have helped you to see that money - and currency representing it - is just an idea. Your idea of its value comes from being with others who have a similar idea of its value. The idea of money can change over time due to new standards of acceptance.

Once everyone shares the same idea of the money's value, which can take hundreds of years, governments can take the money off precious metals standards, substitute their own national currency as money while forcing everyone to trade in gold and silver for the new currency, and back the value of the new currency with only the full faith and credit of the government itself. This is what the US government did from 1775 to 1965. (note 1) That US$100 note you accept is merely a note, just like what you sign when you borrow from the bank. The differences are that the US government:

  1. can go into debt or increase earnings through taxes to keep their payments timely; your bank may prohibit you from borrowing more, since you increase your credit risk
  2. has forced the people to accept the new currency as the standard by making the note, the piece of paper itself, "legal tender for all debts, public and private."

If you begin to value your transactions in terms other than your own currency, you open up the possibilities of creating money rather than merely passing along money you have in hand.

  • Governments do this by monopolizing the currency and forcing everyone to accept it as the standard.
  • Banks create money. This occurs because governments allow banks to lend out multiples of the amounts they take in. That $10,000 certificate of deposit you have lent them creates $3 million they lend as home loans.
  • Corporations create money by issuing stock. They do this by selling the stock at multiples of what the company's assets are worth. The value of that stock comes from the intrinsic value of the company assets, from the company's future ability to earn money and pay dividends, and from other buyers willing to own that stock. They then use this private money to invest in other companies.
  • Markets of publicly traded securities, such as stocks and bonds, create money when securities prices fluctuate, affecting the wealth of all those who own them.
  • Real estate investors create money. When their properties rise in market or appraised value, they can extract money created by the property to buy more properties. They can exchange their properties for other properties, using the property itself as the medium of exchange. If they determine the property values are uneven, such as a 10-unit apartment building for a 20-unit building, one side will pay the difference with cash, other assets, debt, or promises to do or not do something.
  • Theme parks, carnivals, fairs, and game arcades use their own private money by having you exchange paper and coin currency for tickets, scrip, and game tokens.
  • Marketing experts create money for businesses by increasing the public's preference (or idea of greater value) for certain brands of products or services, which can sell for higher profit margins than similar products that are not as strongly preferred by the public. This strong brand preference also increases the value of the business itself, thereby creating money for its owners.

Whether it's a bank loan, share of stock, or real estate, the fact that each is conveniently measured by the same national currency does not matter. Money is not only passed from hand to hand; it is created by getting people to hold certain ideas about the value of stuff, including certain pieces of paper and round metal objects.

3. You use your money smartly and creatively

Finally, you can use your increased perception to understand you have a number of ways to use your money smartly. You have just seen that it's easy to make the error of equating personal value with market value. And you have seen that since money is merely an idea, it can be created.

Just as your government has worked hard to have you accept the idea that their paper and metal products are money, those selling products work hard to have you accept the idea that their products are more than the physical objects themselves.

Let's see through the illusion with some common consumer products advertised with high level of glamour: clothing, cigarettes, and cars.

Illusion 1: price tags reflect the value of the products.  In men's clothing sold in the US, the German label Hugo Boss is considered an upscale, expensive label. A major retailer may price a Hugo Boss sports coat at $400 or more. Large amounts of money have been invested for years in creating, developing, and sustaining the idea that Hugo Boss is an upscale, expensive name. And they have succeeded, since US men in general have accepted the illusion by paying these extreme prices. They are well-constructed clothes, but so are similar ones for $100. Yet, I bought a like-new Hugo Boss sports coat for $1.25, spending $25 afterwards to alter it for a total of $26.25.

Illusion 2: certain products are for certain groups of people. Marlboro is the largest-selling cigarette brand in the US. The marketing idea for the last 40 years, backed by the American frontier image of the cowboy and millions of advertising dollars, has been that it is a man's cigarette. But in the 1960s, Marlboro was in 31st place and a feminine brand. (note 2) Same cigarette. Different brands. Merely different ideas sustained over time which people accepted.

Illusion 3: prices are fixed, merchants won't negotiate. If you have lived in the US all your life, the few negotiable prices you may know about are automobiles and real estate. However, if you've gone to open markets such as those in Mexico City, you know that every price is negotiable, and just like the person who pays full price at the auto dealership, you'll be considered a fool for paying full price at an open market.

The television program, Inside Edition, aired a segment on September 9, 2003, which featured a man in the US expert in bargaining for his retail purchases, and followed him with a hidden camera as he went through a shopping mall and negotiated for food, clothing, and bedroom furniture, saving hundreds of dollars.

In a fixed price environment, there is another illusion you need to see: the price ranges within the price structure. 

Illusion #4: there is only one price: new price and used price. The new product has a price range, depending on the merchant's cost structure and need for cash. A new $49.99 shirt at Macy's is priced at $9.99 at Ross Stores. A new discounted computer monitor at CompUSA is $179 while $60 only a few miles away.

The used versions also have price ranges. If you shop for the popular model of a used car in well-maintained condition, you'll find hundreds of possibilities. If you can fix cars, you can expand your choices by including cars needing repair. The benefits of using your mechanical skill are:

  1. others without your skill have two choices: make the safe choice by paying a premium for a well-maintained car or take an unknown risk by buying the fixer-upper.
  2. you have less competition in buying a car needing repair.
In coin collecting, there are seven major categories for new, and eight major categories for used. Within each category, there is a price range representing the dealers and private sellers.

Auto mechanics aren't the only people using their expertise to their advantage. Building contractors often buy properties with buildings that need repairs or that were never completed. Real estate agents and attorneys buy properties with legal problems such as liens, unclear title, and hostile tenants.

This brings us to the next illusion.

Illusion #5: You need personal expertise to buy very risky products or services. You can expand your possibilities without needing to be an auto mechanic or building contractor. It has become common for used car buyers to have their auto mechanic examine the car before purchase. You can extend this to any area where you don't have the expertise. A real estate agent with trusted relationships with a building contractor and a real estate attorney can buy those previously "very risky" properties needing both serious physical and legal work.

The obvious advantage of having trusted experts is that you don't have to spend years gaining the expertise yourself. The disadvantage is that some of your experts can charge very steep fees for their services. The solution in such cases, especially where the activity will be ongoing as a business, is to have the experts join you as business partners and to share in the profits rather than paying cash out of your own pocket. You save money while creating money from the business.

In fact, this is what I do. I offer my marketing services to new businesses that can't afford to pay me in cash, but can give me ownership and management in the enterprise. It's my form of venture capitalism.

Let's sum up the illusions we've identified:

  1. price tags reflect the value of the product or service
  2. certain products are for certain people
  3. fixed prices are not negotiable
  4. there is only one price: new price or used price
  5. you need personal expertise in buying very risky products or services

Fortunately, increased access to information and new marketplaces due to the internet, such as eBay and specialized sites for businesses, are helping people to see through these illusions.

You can see there are numerous ways to use your money, both smartly and creatively. 

By smart, I mean knowing about the marketplace you're buying in. Often, we will research a market thoroughly when it's an infrequent purchase, such as a car, but we won't research the market as thoroughly for categories which, through smaller cost but more frequent buying, may add up to as much as that car when comparing car ownership over six years. Buy a car for $15,000 and that is $2,500 a year over six years. Any small but frequent purchase deserves the same scrutiny as negotiating that $18,000 car down to $15,000. What about your family's total for food (both prepared at home and bought at restaurants) over six years? For housing (rent or mortgage, insurance, electricity, water, cable TV, internet access)?

By creative, I mean using the illusions listed above to your advantage. You've seen that the illusions are often created by governments and businesses backed by mountains of money and decades or centuries, but the illusions still require the buyers to support them by thinking there is no other way, by continuing their behavior, and by passing their behavior along to others, even from generation to generation, so that a culture is created. 

If you have spent some time outside your primary culture, you are probably familiar with observing behavior in others in order to learn how to act in the other culture. You may have noticed a gesture that everyone does and asked the reason behind the gesture. Sometimes, people fully immersed in the culture will not know. If you are from the West, why do people shake hands? The gesture is used today to greet or agree each other. But what about its origins? 

Some Dim Sum?
My recent interactions with recently immigrated Chinese have led to dining on dim sum each Monday. I noticed that whenever someone poured tea, the recipient would tap their right index and middle finger on the table. Perhaps a signal to stop pouring, like saying "okay" when someone refills your glass? I asked but nobody in attendance knew until several months later, when it was explained the gesture was a looser form of the original, symbolizing a person lying on the floor in deepest respect and gratitude. Many of those people drinking steeped tea were even more steeped in tradition to where they acted unconsciously.

Be smart with money. Realize it's only an idea, and ideas come from your mind. By being creative with your ideas, you will create more money for yourself. It's better than taking a second job. Much better.

Let's now look at everyone's favorite subject, one which seems as certain as death: taxes.


  1. R.S. Yeoman, A Guide Book of United States Coins, 42nd edition, 1989, Western Publishing Company: Racine, WI, 1990.
  2. Shari Caudron, "Low-cost, creative strategies allow you to fight and win in today's marketplace,", July 16, 2001.

continue to Chapter 9:

The Government Miracle of Taxation


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