Karl Marx and Real Estate
Karl Marx was and is highly misunderstood. I will certainly fail to reduce Marx’s corpus to a teachable form in a blog post (it’s more than 1000 pages), however I will attempt to shed light on a few integral concepts and illustrate how they make your real estate purchase more rational.
When you hear someone call another a Marxist, they are usually referring to Marx’s ends-socialism- however Marx’s central contribution in my opinion lies in his analysis of Capitalism.
In the first chapter of Das Capital, Marx draws the distinction between use value and exchange value; use value being one’s use of a good and the exchange value being the value to another. For example, water has high use value because we can drink it, use it to cook with, and a plethora of other uses. However it does not have a high exchange value since it’s abundant. Gold on the converse has a low use value and a high exchange value. Sure you can use gold in jewelry and (although it’s a stretch) use for utensils, but there are cheaper, stronger materials that make for better options. Compared with a pound of water at less than $1, a pound of gold as I write this is north of $21,000.
Most investable assets have either a high exchange value or a high use value.
You can’t do anything useful with a stock certificate, CD, annuity or treasury bond; fine art is nice to look at but won’t help you survive; currency can be exchanged for goods but all it’s intrinsically good for is burning for warmth. On the other hand cars can get you from place to place (high use value) although the exchange value drastically diminishes as you use it and as manufacturing improves, thus increasing supply.
There is one investable asset that have a high use value and high exchange value (caveat: in the proper market conditions) and that’s real estate.
While other asset classes are artificially scarce, meaning the issuer can print stocks, bonds or currency ad infinitum, real estate is actually scarce (unless Elon Musk can colonize Mars). While other asset classes have limited use value, real estate you can build a house on or farm the soil on the land.
In my business, investors typically focus on exchange value while the motivation of end users lies in its use value. Ultimately when purchasing a home for any purpose, it’s best to have a healthy dose of both use and exchange value.