Paying for water

A tweeter asks David Deutsch about paying for water:

@DavidDeutschOxf Random Q: Us paying for water on a planet that is two-thirds water is, at this point, a lack of creativity or knowledge?

Some replies pointed out that you’re paying to have water without toxic stuff in it, or in convenient forms like bottled water. But the system of paying for water itself is an example of creativity and knowledge at work.

There are lots of choices about how to make and distribute water for drinking and other purposes.

Suppose that the only water around was salty. To get drinkable water you would have to remove the salt. This is often done by distilling the water. You make the water evaporate collect the evaporated water and condense it so that it turns back to liquid. But there are lots of possible ways of distilling water.

In some places, such as the UK lots of non-salty water falls out of the sky. So there is non-salty water around for people to use. But the UK could produce more drinking water by desalination.

And when people use water they often render it undrinkable and useless for other purposes, e.g. – they pee in water that is in a toilet. So if you want to use the water again it has to be treated.

And for some applications of water, you want water that is prepared in a more complicated way than drinking water. In chemistry experiments, people often want very pure water with no additives. But tap water often has chemicals in it, e.g. – fluorides. So tap water is no good for some chemistry experiments.

And water can be delivered to the consumer in lots of ways. You can get it in bottles or out of a tap. Or you can take tap water and put it into a machine that purifies the water.

So how do you make a choice among all those options? And how do people decide what delivery options to offer, what purity of water to offer and so on? Pricing is a way of helping people make such decisions.

You can exchange money for a very wide variety of goods. Anything that people are willing to offer in trade can be traded for money in most circumstances in advanced industrial societies. Money is a medium of exchange: it is a good you acquire so you can use it to acquire other goods. This means that you can deal with anyone who has a good you want. If there was no medium of exchange you would have to have some specific good on hand that your trading partner wanted. Without money, if Bob wants milk and Jim wants a chicken but all Bob has is corn, Bob would have to go trade the corn for a chicken before he could get the milk. Instead of doing this, Bob can just give Jim money and Jim can buy his own chicken. Money is a creative solution to the problem that it is difficult to arrange for the wants of trading partners to coincide without a medium of exchange.

If you’re choosing among different ways of getting water you can look at the cost of the different options to decide among them. If you’re running a chemistry experiment, you might decide that having pure water is worth the cost of buying  device for purifying tap water. You prefer the water purifier to the other stuff you could buy with the money you allocate to buying the purifier. If you’re just making tea, you might decide the water purifier isn’t worth the cost: you prefer the other stuff you could buy with the money to the water purifier. If you’re going out cycling you might be willing to pay for bottled water so you can have it in a convenient container. But you might not pay for bottled water if you are at home.

And if people are trying to choose among different ways of supplying water, they can look at whether people are willing to pay enough to make it worthwhile. If non-salty water falls out of the sky in the UK it might not be a good idea to build a desalination plant here. People aren’t willing to pay enough, they prefer the other goods they can buy with the same money. In other places, rain water doesn’t provide what people need for drinking, farming and so on. So people will pay for desalination because they prefer more water to the other stuff they could get with that money.

Some books you could read to understand more about economics include Economics in one lesson or Time will run back both by Henry Hazlitt. For a much longer and deeper explanation see Capitalism by George Reisman.