I have read most of Seth Godin’s books and am an occasionally reader of his blog. On June 9, 2010, in a post entitled Hourly work vs. linchpin work, he wrote the following:
You should pay people by the hour when there are available substitutes. When you rely on freelancers you can put a value on their time based on what the market is paying. If there are six podiatrists in town, and all can heal your foot, the going rate is based on their time and effort, not on the lifetime use of your foot.
There is no other way to say it, this is just plain wrong.
Once again, a really smart person has fallen prey to Marx’ Labor Theory of Value. Effort does not have value, results do. The value of a podiatrists healing your foot is based on the lifetime use of your foot. This does not mean that the price is solely based on that lifetime value.
All value is subjective, not objective. Assuming a free market for this service (laughable considering it is healthcare), the “going rate” is not based on the time and effort of the doctor, but what a patient is willing to pay the doctor, period. Increased supply does bring price down, but not because any change in time and effort.