Where does value come from?

A political system rides directly on top of an economic system.

You can't have a government that supports freedom if the economic system does not support freedom.

Economics is about how people within a community exchange certain things of certain kind of value.

The question of value is the age old question, the one that children start asking as soon as they realize their parents do some things and don't do others strictly because of money.

And it rarely gets properly answered. So I'm going to be foolish enough to try to answer this question.

Some things are too valuable to be exchanged economically except in certain limited senses: clean air, potable water, love (not the romantic kind or the passions of the libido which are mistaken for love).

The most basic valuable thing that can be exchanged in the sense of human economy is food.

Not every kind of food, but food that directly supports nutrition.

Everything else is seasonal or secondary, or tertiary or superfluous.

Seasonal primary stuff includes shelter in extremes of weather, certain items of medicinal value during epidemics, and the like.

Secondary stuff includes certain useful medicines and toiletries, certain foods that support the nutritional functions, functional clothing, basic shelter and storage, certain kinds of education, basic transportation and shipping, certain forms of art and literature related to communication, constructive leisure, and such.

Tertiary stuff includes a broader selection of the stuff in the secondary class, things that are useful, but can be foregone when necessary.

Everything else is superfluous.

If you look at the items which command the highest prices and the stuff that generates the most economic activity in a healthy economy, it is mostly superfluous stuff.

Why superfluous?

Increased profit margins are driven by demand exceeding supply. In a healthy market, an increase of demand will be met by an increase in supply and price/profit margin will not rise. Especially, an increase in demand for essentials and stuff that supports essentials will be met as soon as possible by an increase in supply.

In a healthy economy, our enlightened self-interest prevents us from playing too many games with the supply of essentials. (Essentials includes the primary and secondary stuff.)

Natural supply limits of tertiary and superfluous stuff will be tolerated to a degree in a healthy market. Jewels and so-called precious metals come to mind. But as soon as they come to mind, we look a little harder and discover that the same thing that happens with petroleum (a secondary stuff in the current economy) happens with diamonds.

If there is enough demand (if the price rises high enough), there will be an increase in supply.

Controlled economies can try to regulate supply, but the result is almost always that, to the extent that an economy is controlled, it becomes moribund.


And then black markets appear.

Cartels and monopolies can try to induce extra-governmental controls on supply to push prices up, but the result is the same: moribundity and black markets.

In the point of view of certain people who like to control others, moribundity is the preferred mode.

If you have a country with a large population and find the population difficult to control, one course often used in history is to play with the economy and restrict caloric intake. People who are starving generally don't have enough energy to foment rebellions.

The same game can be played with the economy. Tight controls and five year plans, on the surface, demonstrate interest in the economy. But the result is a moribund economy with black markets, which are both easier to control than a healthy, vibrant economy.

Of course, the long range view of the moribund mode shows the fly in the ointment: people who don't get enough nutrition do not work efficiently. (They also die earlier, but people who think they have to control things perceive the death of others as a necessary part of the cost.) You can't maintain a healthy economy in the moribund mode. (Why is this not obvious?)

So, where does the value in an economy come from? Do you see it?

In a healthy economy, people work.

Why do they work? Many people have noted this, but it's pretty obvious. Our bodies and our minds are constructed with an active bias. We don't work because of whips and incentives. Those are only useful in the control-mode theories, the ones that assume moribundity.

We work because it is built into our nature.

This is not an argument, it's an allegory, but the Japanese character for work consists of two parts: nin-ben 「亻」, or, "person", and ugoku 「動」, or "move". A person moving is work being done. (Yes, it's just an allegory borrowed from an interesting item of linguistic trivia. Chinese may be different from Japanese with this particular character. I have heard that they don't have 「働」, using 「動」 for both "move" and "work". It's something I need to find out more about, I suppose, if I'm going to be bringing the Japanese words up. Sometime.)

If we are not allowed to work, we become dysfunctional.

For those who wonder why the US needs so many prisons these days, moribundity is not the first or most common dysfunctional mode of people who are not allowed to work. If you think about it, you should understand why.

So, where does money come from? Money is a proxy for value. Setting aside theories and methods about how and when and by whom money should be printed or otherwise generated, money is a proxy for value. It is a communication medium by which we communicate needs, wants, and other values.

In a metaphorical sense, in an ideal economy, money is value.

Where does value come from?

People work. Some produce food from natural resources. Food has value.

Food has value, even though it has less value to the rich than to the ordinary individual, and even less value to the personality that likes control.

People work. Some people build houses, roads, etc. Houses, roads, and the like have value.

People work. Some people produce clothes. Clothes have value in protecting the body, especially while working.

People work. If something is needed and it is not being produced, in a free and healthy economy, someone will either produce the necessary product or a reasonable substitute.

Sometimes, no, usually, the needed product won't be produced in time for those who needed it the most. This is not a desirable result, but it is a necessary element of an economy which is not run by a clairvoyant.

Clairvoyants do not exist, but they are often brought up as implicit assumptions from those who promote controlled economy models.

(Prophets exist, but I don't want to mix too much religion into this rant. It should be noted that, even if you accept God and prophets, God seems to be willing to let people struggle with unmet needs. There is a reason for that, somewhat related to the following conclusion:)

In a free economy, there will be some whose needs are not met. But that's better than the alternatives, where most people will have important needs that go unmet, and where they are not allowed to try to meet their own needs by their own labor.

Controlled economies are less functional than free economies.

I suppose that it may be necessary to introduce temporary controls for various reasons, but those controls should be removed at the earliest possible moment, to avoid the guaranteed dysfunctional results when they are left in place.

Where does value come from?

Value is generated when people work.

More value is generated when people are allowed to work freely.

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