The Definitions of Value: The Economic Definitions, #2

By Kirian "Deso" van Hest

The Definition of Value is the second volume in "The Economic Definitions" trilogy (together with "The Definition of Money" and "Ethereal Value and the Cryptofuture"), and deals definitively with all concepts of what Value is and how it arises from fundamental concepts shared between all humans.

It goes through previous definitions of value such as Labor and Scarcity, and exposes the shortcomings within. It shows that, even though each previous definition still holds value in and of itself, each previous definition was replaced by the next through a greater need for accuracy in measuring and calculating value. Within its own domain, each definition still applies and will always apply, but as technology moves ever forward, ever deeper examinations of value are needed.

 

The book adds my own definition of value into the mix, just as it describes the value at the basis of all other values, and how it all arises from simple human nature. It teaches methods for thinking of value in this way, using simple yet advanced logic, that'll allow a more accurate assessment of asset values through time, even before events have happened. Yet, that only applies to Intrinsic value, the value assets hold of themselves.

 

The book also describes Perceived value and how it comes to be. It describes what happens when expectations of value become completely decoupled from any underlying intrinsic value, and "a bubble" forms in an asset. It describes how these bubbles form and the progression of these bubbles through society, as these moments in history always show a similar pattern – arising from shared values between people. Where money is based on fundamental rules, Value is more psychological – yet it is still 100% based on fundamental reasons.

 

Through these fundamental reasons and concepts, I describe a new concept called Value Transference, which will turn out to be one of the major discoveries in economics in this century. The idea that value is transferred between objects if one object is destroyed and the other is generated will come to dominate finance in the coming years, and is even used in the third book in the trilogy to create the first true digital sound money system.

 

Though another new concept, Virtual Labor, shows that similar systems already exist today in the medium of Videogames. The book will show the limits of Intrinsic Value in the digital realm, and lays the groundwork for the knowledge in the third book, which fixes these issues. And hopefully, a lot of society's ails along the way.

• Language: English
• Publisher: Kirian "Deso" van Hest
• Release date: Aug 1, 2021
• ISBN: 9798201126261

Book preview

Foreword

Iwanted to write this book, aside from needing it to explain currency to the fullest as well as making the value of my own currency crystal clear which i propose in the third book; because it seems to me people in general – atleast those living in within the English speaking sphere of influence – have lost all sight of what value means .

Oh sure, we're told all the time that things have value. We get told things are a store of value. But no one ever bothers to comprehensively explain what value itself means. It's always explained on a per-asset basis. Which often isn't much help, as Gold has value because it's best at storing value doesn't bring us any closer to explaining why gold does or doesn't have value, what value is stored, or again, what value is.

Meanwhile, things that objectively have no value skyrocket in price and have massive resources dedicated to them, because people simply cannot see the value proposition isn't there – as they don't understand what value is to begin with.

In the end, this leads to feelings of hopelessness, as continuously hoping for a better quality of life expresses itself in investing in companies or assets that don't have any value or have long since lost all value – so called zombie companies – which consequently go bust or go nowhere and lose alot of people alot of money. Meanwhile it appears in the news as just another fraud to everyone else.

But value hasn't disappeared. Valuable companies, valuable assets, valuable ideas still exist... But are buried under a giant layer of faux-complexity, created by conmen who benefit from your thinking that it's impossible to understand what has value and what doesn't, while they profit greatly from self-induced complexity...

...until they go bust from self-induced complexity. Shoutout to Archegos and Credit Suisse.

All hope is not lost. What i aim to do with this book is to explain exactly what value is – all possible forms of it – with the star of the show being intrinsic value.

Intrinsic value is the value assets naturally have to us. We desire them because of this value, whatever that value might be. Sometimes it's because the asset performs a desirable function to society. Sometimes because we have an emotional connection to said asset. But in all cases, we desire things, and the reasons we desire those things stems from the intrinsic value of those things.

Value is hard to understand, at first. It would be easier if things had a set value, but alas – value fluctuates all the time. From person to person, asset to asset, time to time across the entire economy.  And while it might seem impossible to pin down the value of any given asset at any given time; by learning the system driving intrinsic value, it turns out to be easier to learn then one might think.

There will be very little math in this book, and nothing above elementary school level. Everything has been brought down to concepts, examples and history. Once you understand those concepts that drive the value of things, you'll be able to discover true value again, lost to society for a very long time.... And you'll come to understand how far we've let things slide, and the need for improvement.

Luckily, there'll be another book after this one to achieve just that. For now, i hope you enjoy The Definitions of Value.

- Kirian Deso van Hest.

Chapter 1: The Definitions of Intrinsic Value

You might notice Definitions is plural in this book. This is because Value has been defined multiple times in multiple ways throughout history, and those multiple definitions of value still each have value in and of themselves. Unlike the definition of Money which requires stability, Value itself continually fluctuates. Measuring the value that an individual ascribes to an asset objectively is nigh on impossible. Therefore, when we talk of Value, what's usually meant is Intrinsic Value, and it applies to how humans value something on average , through our common or shared values.

Price itself is an extension of this. The price of an asset is merely the equilibrium between the valuation of all people demanding that asset. And as the valuation of an asset can become decoupled from that asset's Intrinsic Value, one might wonder what good can come of chasing such an elusive beast such as value.

Well, it's because over time, assets always return to their intrinsic value one way or another, even if we can't individually objectively measure what that is. Production beyond demand always leads to surplus, which eventually causes the prices to fall as the general population values the asset less when it becomes more common. But as time moves on and the asset is consumed or deprecates, while the producers who are producing said asset stop doing so as it was no longer profitable to do so; supply is reduced until demand-supply equilibrium is once again reached, which will be reflected in the price.

The problem with the above explanation is values the asset less, as that's part of human psychology. It's not often thought about, but consider this: Once a new technology is invented, why doesn't the price of assets already built stay high while the technology is iterated? For example, a washing machine made 20 years ago is now almost unsellable (reflected in the low sales price), even if its functionality is as good as the new models – getting the laundry clean. Total functionality might be less and resource consumption more, but apparently, the question of does it work? isn't enough for humans to see value – unless they are left with no choice but to use a 20 year old washing machine. Apparently, Choice, and the availability of choice (better known as Agency), matter a great deal to value.

It's these factors that make measuring the intrinsic value of a variety of assets nigh impossible. Thus, we have to measure it in a round-about way through derived statistics, and in that case all tools must be available to be used, even outdated notions of intrinsic value. Simply because there are still many usecases where those definitions simply are enough, and serve as a great way to reduce complexity of economic calculations; while in other situations one must look deeper.

As such, i look upon these definitions as the economic variants of science's Newton's Theory of Gravity, Einstein’s General Relativity and Quantum Mechanics. We know Newton's theories of gravity are wrong, as they aren't accurate enough at large scales. Nevertheless they are often used by students and even by companies for anything that doesn't involve too large a scale. With Newton's theory, you can calculate the distance to the moon and be off by roughly 30 centimeters.

This means that, for pretty much everything in Earth's orbit out to the moon, you'll be able to use Newton's calculations – which are alot simpler to do – and at most get a slightly rough landing if you go out as far as the moon. For (low) Earth orbit, these calculations are enough, as those orbits don't require millimeter-level accuracy. Were you to look at stars many lightyears away, the discrepancy becomes too large for the theory to be useful in modern science, which requires higher degrees of accuracy. Centimeters around the moon becomes millions of kilometers lightyears away.

Einstein's Theory of General Relativity solves that problem by being far more accurate then Newton's theories, at a tradeoff of being more complex. This does not make either of them correct, we know they're wrong: Einstein's calculations break down in the middle of the black holes – and the problem with physics theories are, they need to be universal in order to accurately describe physics.

Many layers of theory have been added ontop since, yet there is much left to discover. A universal formula even Einstein couldn't find, so that's left up to future generations.

Even worse, on the very small scale, General Relativity and Gravity barely seem to be of any impact at all, being the weakest of the fundamental forces by far. To describe these systems, Quantum mechanics was needed. And ever since Quantum Mechanics has been invented, scientists have been trying to unify the theories, as of yet with no result.

Whether it's possible or not to unify the various definitions of intrinsic value into a true base value, i don't know. But i do know that all definitions are needed to be understood if one is to understand the human economy to its fullest – as well as to be able to use the tools our modern complex world offers us to the fullest.

The 3 definitions of Intrinsic value are as follows:

The first definition of Intrinsic Value is Labor, or Labor-added Value. This comes from Adam Smith's book the Wealth of Nations, which is maybe the only book on economics i ever read (well... until the numbers started being rattled off and i got bored). And as it was with Newton, at the time it was written – 1776 – his world view was very much true. At the time, before the industrial revolution, ALL production came directly from human labor.

But in our modern era this no longer holds true. We now have many machines who continually output products without ever tiring or complaining, and consume universal standardized resources to run. Even changing the definition to Energy and redefining human labor as human energy spent offers no solace: It doesn't take into account the value of Algorithms, which can produce work we humans value alot at next to no energy with modern (and especially future) computing power. While cheap energy is needed for society to advance, thanks to automatization and increases in energy generation we could easily have energy in abundance should we reallocate the effort to it.

For example, the US Federal Reserve is currently printing $120,000,000,000 a month, and buying US Treasuries and Mortgage Backed Securities with it.

Currently, Nuclear reactors aren't favored because of their high construction costs. To build a 1 Gigawatt reactor costs roughly $10 billion (in 2020 dollars). This means the Federal Reserve is funding 12 of these things a month. While the amount of residential homes you can power with 1 Gigawatt varies, realistically you’re talking around 350,000 US homes on average.

So the Federal Reserve is printing enough money to fund cheap baseload power to 4,2 million US homes, every month. And has for the last 9 months at least (before that it was more during the March 2020 crash), meaning they already funded 108 Nuclear powerplants able to provide continuous baseload power to ~37,8 million US homes. In 2020, the US counted 128,58 million households – so the Federal Reserve has already spent enough money to provide cheap baseload power to 29,39% of ALL United States homes in the last 9 months.

If we were to take the Fed's balance sheet, filled with synthetic stuff – at the time of writing $7,80 trillion total – enough for 780 1GW reactors, powering 273 million US homes, or more then double the number of US households. Zero reactors were built with this money. (Final draft update: $8,1 trillion at the end of June, so that’s another 30 GW added, or 10,5 million homes).

The point as regards to Labor is; it won't be long before technology has advanced to the point where we can create a factory powered by abundant power, if not fission then fusion, building robots which are capable of building more robots, factories and fusion reactors themselves. This’ll take labor, human energy and physical energy out of the equation entirely as a measure of value – as long as it pertains to production of goods where supply has overwhelmed demand, and robotic labor as well as raw resources to generate power and more robots remain abundant. In the case of Uranium and Thorium which are used for nuclear power, they will be available in abundance for a long time to come.

For something to be universal, it has to apply at all times, even in the future.

I wanted to give an example grounded in reality (as the above spending really happened, whether that seems fantastical to posterity or not) to make it clear that the future isn't as far away as people think – most of what's holding it back is sheer misallocation of effort. Once that changes and once you include Algorithmic labor, capable of producing value at next to no energy costs ontop of abundance energy to run said algorithms – labor is taken out of the equation as an accurate source of measuring value.

But; as long as the assets under analysis are still limited in quantity, impossible to produce via robotic/automated labor across the entire chain (even programmers gotta eat and general purpose robots are a ways away), and have to be produced in the real; those assets continue to have Labor-added value, and the definition continues to be in play and has to be considered.

The second definition of Intrinsic Value is