Finally, An Understanding Of Value
Posted by Roger Keays, 8 December 2008, 2:57 AM
For several years, a concrete understanding of the concept of value has been eluding me. It all began when I was developing the object model for Sunburnt Accounting which was to support multiple currencies. I didn't want to simply translate every transaction involving foreign currencies into a global base currency because this didn't seem to model the real world. If I exchange one sheep for two pigs, who cares about the price of sheep or pigs in Australian Dollars or Mexican Pesos or toothpicks? My sheep is worth two pigs.
This is okay until it comes to reporting. For example, your balance sheet shows what you are 'worth'. You could continue without a base currency and say your net worth is two pigs, $100, 20000 pesos and 4 broken toothpicks, but the question remains - what is this worth? You might even decide to convert it all to AUD and declare the total value to be $300, but what is that worth? In Australia in 2008 it's worth about a iPhone, but for rural Vietnamese it could be worth food for a family for several months.
Now you see why I've been so confused - and it gets worse. Consider inflation and deflation; add fluctuating foreign exchange rates and share prices; understand that governments and reserve banks can simply print more money; and finally realise that money is only legal tender because the government accepts it as payment for taxes. With such a ridiculous economic system, and if we're all measuring value in monetary terms, then what the heck is value?
Well thanks to the good Wikipedians editing the pages on economics, I discovered a definition of value that actually kind of makes sense. It is:
What you would give up in order to obtain something.
I think economists call this the marginal theory of value. The opposite is the labour theory of value which is basically "what you gave up in order to obtain something". The labour theory of value is, IMHO, somewhat of an antipattern but it is definitely quite real. It is a paradigm we generally default to when we value our possessions - forgetting the alternative possibility of how they might be replaced.
Interesting stuff, no? Value is what you would give up in order to obtain something. It all makes sense. Now I even understand why the cosmetics industry is so big.
BTW, Sunburnt Accounting has been implemented with a base currency and records all transaction entries with an exchange rate against that commodity. Unfortunately, I had to give up on a holistic implementation given the limitations of SQL data types ;)
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Comment posted by: Mong on 16 January 2009, 2:04 PM
I will give you one of my Llama's for two of your sheep.
Comment posted by: Roger Keays on 16 January 2009, 2:05 PM
I would do anything for one of your Llamas.
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