"The value of goods arises from their relationship to our needs, and is not inherent in the goods themselves. With changes in this relationship, value arises and disappears....... Value is nothing inherent in goods, no property of them, nor an independent thing existing by itself. It is a judgement economizing men make about the importance of goods at their disposal for the maintenance of their lives and well-being. Hence, value does not exist outside the consciousness of men. It is, therefore, also quite erroneous to call a good that has value to economizing individuals a 'value,' or for economists to speak of 'values' as of independent real things, and to objectify value in this particular way. For the entities that exist objectively are always only particular things or quantities of things, and their value is something fundamentally different from the things themselves; it is a judgement made by economizing individuals about the importance their command of things has for the maintenance of their lives and well-being. Objectification of the value of goods, which is entirely subjective in nature, has nevertheless contributed very greatly to confusion about the principles of our science". Carl Menger

Arbitrage is the driver of all economic activity. Entrepreneurs perform arbitrage when they combine capital and labour in an activity that aims to capture an entrepreneurial profit. Other entrepreneurs will undertake similar activities, thereby reducing the entrepreneurial margin. This is the basis of competition.

Arbitrage takes place over time and space. Arbitrage over time in its simplest form involves buying a good now, storing it and then selling it in the future for a profit. Arbitrage over space in its simplest form involves buying a good in one location and selling that same good in another location for a profit.

It is important that you become financially aware of the role of arbitrage in your daily life as it helps shape all of your economic actions.

Subjective value

As value is subjective, a good or investment does not have an 'intrinsic value'. The value of a good has nothing to do with its labour 'content', the capital machinery that was use to produce it, or the land on which it was produced. The concept of a 'mutual fund' is at odds with the subjective nature of value. As each person's circumstances are unique, the assessed value of present and future goods should be determined by the subjective value of the individual concerned. The only exception is the most marketable good, gold, which exhibits a near constant marginal utility, which can objectively be assessed as money.

Arbitrage (you)

Arbitrage is the driver of individual economic activity. We are always assessing quality, price, ease of access, substitutes, alternatives for the goods and services that we purchase and those which we produce.

The easiest form of arbitrage is price comparison over space.

Arbitrage between investments is easiest when it is between similar assets and when transaction costs are low.

Arbitrage (market maker)

The market-maker is an important participant in the economy. The market-maker is the expert at arbitrage, and provides a bid price and an offer price for goods. The actions of the market-maker helps to minimise the bid / offer spread. This benefits participants in the market, effectively increasing the bargaining power of all.