Wednesday, October 19, 2011

intrinsic value

Ask an economist what the value of something is, and you'll probably get a response along the lines of "That depends on supply and demand."

This boggled me, I always thought that there was some intrinsic value to physical things, but all of it is simply an evaluation of the different factors that go into making it.

At this point my repressed inner autist started screaming and hitting himself. The nice and neat science of economics went the same relativistic way moral systems went: "Yes, but that's YOUR opinion."

And at that point we just stopped thinking. Or did we? Because Sam Harris made a very convincing point in this video. Just because something is complex doesn't mean we can't make statements about it, just that it is hard.

Maybe that will push us out of cultural and moral relativism someday, but I digress. This post is about the intrinsic value of things, both services and goods.

Goods are those things you can hold, eat, use. Things that remain in this world after the transaction is done. They're there and for that, they have value. What value this is, I can't say, but it is intrinsic because the object is physical. It exists.

Services on the other hand, are less real. Sure, an IOU for a massage is nice. But you can't hold it, eat it or split it between 4 friends. It only exists in the minds of those who offered and accepted the service. You can put it down on paper to make it seem more trustworthy, but it's still just an idea in the head of two people.

Only when you make the idea bigger and put it in more heads (Most, actually) you get things like money, which only works because people believe that the value keeps on existing.

The point that I'm trying to make is that any economy consists of simply passing value around to move resources, products and services from person to person. And the movement of that money indicates the size and strength of an economy. Usually this would be a healthy mix of resources, products and services, but you can only grow so much corn and make so many cars.
Services, however, you can easily expand. You make services upon services, services for resources and products, services for the services for services.

And all of a sudden, more and more money is pushed around. Congratulations, your economy just grew!
But wait. The amount of food and products remained the same. So what happens if those services keep on growing?

It depends, it turns out. Some services actually add efficiency to the whole chain of gathering resources, making products and selling them to consumers. Investment loans, transportation And abstracts such as scientific advance, societal stability and culture all add to the intrinsic value of a society, but can only exist as long as there is enough intrinsic value to sustain it (Basically, food)

But some services don't better the system but actually leech value from it. Resource speculation, where one speculates upon the price of grain is a practice which yields money to those whom take part in it. But there is no extra grain because of it. The net result is that those on the end of the chain pay money to someone who did not actually add to the process.

Extending that metaphor, there are derivates, toxic loans and many more services which simply leech value from the bottom of the chain, the resources and products.

And at some point, when the size of that economy grows too far beyond that which can be sustained by the value of the resources and products, it all falls apart.Pop goes the bubble

And that leaves me with my final question: If we can calculate the real value (or cost) of a service, will we finally be able to create a society where only the services that we actually want (And that are in the value budget for our resources and products) remain? I wonder how libraries, culture and education measure up against quick loans, some insurances and overpriced designs.

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