identical, but they are comparable. the ruling prices that we observe in daily commerce cannot be explained by established economic theory, even though theory may be employed to rationalize them after the fact. that becomes clear whenever there are abrupt changes in the prices at which trades take place, in circumstances where nothing fundamental has been altered. the markets for property and financial assets provide the most striking examples. with no extraordinary change in demand or supply, and with little increase in cost, market prices from time to time spiral upwards, only to come crashing down eventually. that was the case with the housing boom in the us and europe in the mid - 2000s. the rapid upward spiral in prices from around 2003 cannot be explained with reference to changes in the demand and supply of housing ; bis central bankers ’ speeches prices developed a momentum of their own. naturally, the price spiral did come to have an effect on demand and supply ; more and more property developers vied to construct new homes, which in turn spurred frenetic activity in building supplies, furnishings, transport and related services. at the same time, as the price of housing soared beyond the reach of ordinary folk, many over - reached themselves, and many more were pushed out of the home buyers ’ market. with supply going up and demand falling, the twain could never meet, and the famous intersection point with which is the enduring symbol of market economics became unattainable. in these circumstances, the market can never find the fair price. another circumstance in which the inadequacy of economists ’ pretensions about determining fair value may be seen, is in the market for entirely new products and services. if i am not mistaken, amazon. com, the internet retailer, made losses for most of the first decade of its existence. yet its share price kept on rising throughout. for all of this time amazon was funding its deficit with additional capital. as it turned out, amazon ’ s business model was successful and the investors who waited out the company ’ s long incubation period have benefitted from an appreciation in the value of their holdings, but the majority of similar ventures went belly up, resulting in the collapse of the dotcom bubble. a third illustration of the difference between economic theory and how prices are in fact determined, comes from the world of automobiles. the world ’ s leading manufacturers, toyota, general motors, volkswagen, all sell some models that are virtually identical in markets all around the world. but the landed price of a corro

to month, nor does the supply, which, in the short term, will be taken from inventories which have already been priced. bis central bankers ’ speeches economists are understandably reluctant to accept the fact that their fundamental contributions to determining fair values have limited practical application. most economists still believe that supply prices and demand by informed customers do conflate to produce a fair price, in spite of all the evidence to the contrary. this is not the place to discuss the very many studies that purport to find support for the conventional view and why there is such dissonance with everyday experience, nor is this the audience for such intricacies. whatever may be their merit, it is clear that we need a way of arriving at fair values in trade that may be applied to our everyday transactions. accountants, lawyers and others have attempted to fill the vacuum left by the economists. however, their definitions all come back to use of the market mechanism. their guidelines are tantamount to saying that any trade that is accepted by agents on both sides of the market may be said to be a fair trade. that is a tautology. we want to know which market price is fair value : is it the price i paid for my house just days before the bottom fell out of the market? i should think not. but neither is it the upset price at which the auctioneer disposes of my former property after the lender has repossessed. somewhere in between the fair value lies, but the market cannot tell us what it is. is there no way of determining what is a fair trade? the answer to that question is nuanced. in cases where today ’ s offer price is not much different from the price i paid the last time i bought a similar item, the markets work perfectly well. everyone accepts that the price is fair if it accords with their expectations, and our expectations are formed on the basis of previous experience. the market does work, for known products with which everyone is familiar, and for modest price variation. the market cannot provide a fair estimate of value when the product is unknown, and when prices vary sharply over time. for new or unfamiliar products there is no reference price to use as a point of departure. typically such a price appears in due course, after a small number of dominant firms arrive at an understanding among themselves on the range of values at which the product will be offered. the problematic cases occur when there is an abrupt change in the value at