Materialism …

June 24, 2011
Herman O'Hermitage
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By: Herman O’Hermitage
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Herman’s Comment:

Property values can be ascribed in many ways. Most residential property is based on recent comparative sales. That is rational. For large commercial property it is not as easy. A good example is a licensed hotel situated next to a nickel and dime discount store. In this example allow the square metres to be equal. The value of the hotel will be higher because of the attached license, and the higher income stream that might accrue. This is called the “Built” market, and the valuation is based on what is called “Times Purchase”. “Times Purchase” is similar to “Price to Earnings” of stocks, and is the reciprocal of yield. As with price to earnings tax (and gross or net income) only confuses the issue. (Depreciation may have tax benefit).

If we were to try to value the Queen Victoria Building in Sydney, you simply can not ascribe a value on replacement cost, on recent sales. The very concept of alternative uses is just as much nonsense. Therefore any property value is based not on land value plus building cost, allowing for depreciation but rather the rental stream that the building attracts. An equally interesting case is the recent refit of the Centrepoint in Sydney by the Westfield Group.

Any Westfield property is valued only on rental return and perceived risk. Westfield is a very modern phenomena. The capacity to sell a $10 cost article of clothing with branding for $100 actually determines the property value because when the sale occurs with a high mark up demand and supply of a potential rental site, will drive up rents.

Conversely the retailer needs a higher mark up to cover the excessive rent. We should ask why do we not support shops that locate in cheaper rent premises, therefore have a lower required mark up. This is beginning to understand materialism.

To go further we need to understand branding. When it comes to branding a great example is Oral B toothbrushes. Oral B were an insignificant market share when a clever Sydney advertising agency came up with the campaign “the brand used by dentists”. As sales exploded, the Gillette company bought the brand. What costs cents to manufacture, now sells at a handsome profit margin because the product is perceived to be better. What economists term to be Tastes and Alternatives.

The study of materialism goes back to Friedrich Albert Lange (or maybe Immanuel Kant – irrationality), where it is certain that Lange redefined other people’s work, and there have been many alternative views since. As you attempt to navigate through these philosophies you will continually come against many conundrums. Take the example where Karl Marx attempted to say we would evolve away from this type of irrationality, yet to really allow the modern Chinese economy to truly blossom, China needed to reconfigure communism to incorporate a market based economy to overcome apathy and lack of motivation.

This is the term generally used in the USA, the market based economy. America goes much further by advocating that free markets are self-regulating. According to the American model unregulated markets will live a natural course of waxing and waning, where economic rationality is the long run result. The economic models of Scandinavia show this to be not so true, and the current problems that beset the USA, can only make you cringe.

As America lurches day by day further into crisis, we have many emerging economies like Indonesia or India that display an upwardly mobile middle class. The need to replace squats and hovels with capacity and infrastructure simply spirals. This can be observed through China over the last decade, and Japan after World War II and Singapore or Malaysia after that. Another modern marvel might include Brazil. The one big difference between the USA and these countries experiencing rapid growth is that each express some level of a planned economy, (picking winners rather than totally unregulated market based economies).

When you now go to these emerging nations with their mega mall shopping facilities, and international and expensive brands, you can only wonder who really is paying those rents. In South East Asia where per capita incomes are still low on an international scale, is it indeed the tourist who supports those mega malls? Those seeking out biggest brands (or fakes) at cheaper prices.

Last weekend at the Bangkok airport you could eat rice, meat and vegetables from Thai style kitchens – (a complete meal) – for about A$5. If you wanted a coffee from Starbucks or a burger from Hungry Jacks each article was priced similarly, about A$5 so that total spend was more like A$12. I personally will not support this American branding (Cali-fornication) of the world. I am rather averse to trans fat, excess salt or sugar and MSG. But that is a different story, maybe.

The question I want to stay on is how people survive on incomes of about US$1,000 (or smaller) per annum – yet we of more affluence display greater levels of depression?

Another philosopher, Friedrich Nietzsche wrote to the effect – “excessive want is the source of many individual crisis”. You will find this in many aspects of psychology and other areas of mental health.

Australia has a growing demand for mental health services. Let me take the extreme case of a shop-a-holic. This person has debts beyond their means. They draw happiness from excessive consumption. When the credit facilities are maxed out they are dysfunctional and needing therapy (in crisis). Their purchases are far too often quite mindless. They want to collect the most exclusive shopping bags. People want to use Peters of Kensington or Saks of 5th Avenue or Harrods shopping paraphernalia as a status symbol.

If we weaken the argument somewhat – a young child at school says Dad has a new car, or Mum has got a new Yves Saint Laurent whatever. Either consciously or unconsciously the listener thinks WOW, when maybe the most rational response is “why what was wrong with the old one?”

If a friend asks you whether you would like to look at his new car, do you ever reply by offering to show him your railway ticket collection (or something equally absurd). Materialism is indoctrinated at a young age and represents an enlightenment when you can start to understand it, and move beyond it. The attempt to return to a place of rationality.

Now I feel like a glass of Cola, but I want a Coke. In many countries you will find that Coke is more expensive than beer. That might be a function of excise or lack thereof, but the point still remains the contents of a vessel costs cents to bottle or can, several cents to distribute, through vending machines or whatever, and disproportionately for the branding.

Coca-Cola Amatil now controls the bottled water market and aims for the same in high energy drinks or guarana products like Red Bull and so on. CC Amatil is interested in the carve up of Fosters Group, not for the diversification into alcohol, but furthering their saturation of the carbonated drinks market. Years ago Amatil divested cigarettes, and now we have the debate about the consequence of government legislation to kill tobacco brands using plain paper packaging. Do people smoke because of nicotine addiction – or when “only the best will do?” Their marketing makes smoking fashionable and a status symbol. “May I have a packet of Dunhill, or may I have a packet of Coffin Nails Please?”

The story continues with McDonald’s and childhood obesity. The $5 ($4.95) McHappy meal, is so fast and keeps the child happy. What does it cost to cut a cheese sandwich? About 60c for bread, 10c for spread, about 20c for processed cheese, and maybe 60c to $1 for a piece of fruit in season. All in less than $2 (plus the labour which includes the shopping for ingredients), but we can’t capture the happiness factor. In the words of MasterCard – “Priceless”. Our children become the marketing medium.

At university we attempt to teach this using blind taste tests of chocolate chip cookies in three brands. Arnotts, Paradise and an own generic brand, all placed into brown paper bags. When you study generic brands, you will find there are several grocery lines with the generic brand having up to 40% market share. They tend to be the less conspicuous items like sliced cheese. There are many theories. In the sliced cheese example you don’t see the packaging at consumption. In the case of personal hygiene, generic brand penetration is low. Generic brand sales increase during recession, and wane again during times of affluence.

Again the central question, “why do the countries that have the largest built economies and consumer brands (also the highest GDP) have the most prevalent proportion of mental health issues?”

Is it possible to revert to lower economic status to recover from mental health issues, ie our materialism is slowly suffocating us.

The two questions can not be the same, because the answers are not the same. There is definitely merit in the first question, whereas the second is somewhat preposterous. Our ego would never entertain this perception of going backwards.

Have a happy consumption day! Most rational people reading this will probably tell their friends about the article while they are out enjoying mindless consumption.


Herman …

Links to Previous Post by this Author …

The Greek Sovereign Debt Default. Herman O'Hermitage
The Solar Electricity Debate. Herman O'Hermitage
The Assassination of BIN LADEN – the urban myth begins … Herman O'Hermitage
“” – on what being Australian means … Herman O'Hermitage
Asset Inflation – Herman O’Hermitage takes it to task … Herman O'Hermitage
POWER – in the Political sense – or Fuelling Industry? Herman O'Hermitage
  1. June 24, 2011 at 3:55 pm

    A subject that is too little visited when real societal concerns are at the forefront of the globe’s materialistic existence. Your comments raise several lesser known examples of how ‘materialism’ has so infected every aspect of civilised domestication and capitalism …

    Wonderful artile Herman … much food for thought …

  2. Herman
    June 29, 2011 at 10:36 am

    Today clearing my various in trays I discovered this.

    Of course it is out there, but sometimes simply too hard to not simply ponder. It tends to put our current crises into a different light. End of the World scenarios can be linked to various biblical studies like Revelation or the second coming. It is an immense body of work in itself.

    I recommend this site for 5 minutes reading.

  1. June 30, 2011 at 12:43 pm
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