4 min read

Value Creation and Money

It's worth thinking about why something or someone has value. Is it the money in our bank account or is it what we did to earn that money? The creation of value is very different from money itself. I believe it's worth exploring the thoughts behind what value creation actually is.
Value Creation and Money
Bread has intrinsic value.

Money is a method of representing and exchanging value which is agreed upon by the mass. That's all money is. Money only has value because a lot of people believe it has value and therefore will part ways with it to exchange for something of value, and provider of such value is willing to accept money in exchange.

Dependency is Value

Let's talk about dependency and value creation next and see how the concept of money and value creation come together to create the economy we have today. What has value? How does one define something has value? I believe at the most basic level is the concept of dependency. If you depend on something it has value to you. Let's take a few simple examples

You buy a laptop from Apple. You can use it to entertain yourself, get work done and everything else. It saves you time and because of your new found time you can do more with your life. The laptop is useful and therefore you are dependent on it. You cannot go back to your life without the laptop because you are used to operating at a higher level of productivity therefore you are willing to part ways with some money because you know you can use the laptop to generate more money anyways. In this case you become the owner of a physical object.

Let's explore another scenario. You book a hotel, and when you check-in you are greeted by the staff. They make sure your luggage is well taken care of and reaches your room safely. You feel relaxed, you have a bed to sleep on while visiting a foreign land. You are buying time in a location that will make you feel like home or better than home. This is achieved by providing you with some basic human needs and services from the staff at the hotel. Since you needed to travel to a foreign location either for work or vacation, you are dependent on that hotel for a short time. This hotel therefore has value and you are willing to part ways with some money to stay at the hotel.

How about another example. You are a business owner. Let's say a restaurant. There is a specific type of restaurant you want to create. You do everything you can to ensure your restaurant is special. You've gone to the lengths to find a special Chef to cook this very special food.

Only a few chefs in the world know how to handle such ingredients with care and ensure a good experience for your guests. You are now dependent on that Chef. The value of said chef will be quite high because he is difficult to replace. Replacing said chef will take time and may need you to hire more chefs to come and replicate as closely as possible what the original chef does also without guarantee that the new chefs will be able to do what the original chef does. All you can do is reduce the dependency, but only up to a certain extent. After all there is only one Gordon Ramsay.

Value is created when you become dependent on some object, service or a person who gives you value by creating value. The keyword here is dependency. Those things are dependable. They make your life better in some way shape or form that is why you are dependent on them. You can count on the laptop turning on when you hit the switch, the hotel being there when you decide you need to travel, and the person being there for your business when you need them to perform. That's how value is created. Money which is the representation of value as storage and a medium of exchange follows objects, services and most importantly highly skilled individuals.

Not all things are Replaceable

There are differences between the things of value. If you break your laptop you can just go to the store and get a new one, you'll end up with an even better experience because the new one is better it's got a new chip, more ram so on and so forth.

If there is a problem with your hotel room, you can request to be moved to a new room.

If you however want to replace a highly skilled individual you can try and replace them like objects. But it's important to recognize that people are different than objects.

Objects depreciate over time. Highly skilled people stay highly skilled because they don't stop improving themselves. Their value if they keep practicing, keep going up. They learn to do things better, find new techniques, they compete with themselves and continuously improve on their own skills. This is why these people will never be replaceable. This is why 100 chefs cannot replace 1 Michelin star chef.

Decoupling Value from Money

We often find ourselves mixing value with money. We could say that money has value to us because we depend on money to spend on what we depend on. However its important to note that on its own money has no value, it only has value because it is widely accepted by other people or things that provide intrinsic value.

Cryptocurrencies suffer from this phenomena without the ability to be a true medium of exchange for other goods and services. I would say not even stocks have this problem. Stocks represent shares of businesses that people depend on. How much people depend on that business determines how well the business does and thus the value of the shares. Yes value of shares can be over inflated due to people's opinion and emotions but they're still backed by some revenue generating businesses.

Cryptocurrencies on the other hand are not 'dependable' nor are people intrinsically 'dependent' on them. Dependency on cryptocurrencies are purely artificially fabricated which is why the value is so volatile. Few people with a lot of influence can go on social media and say a given cryptocurrency is not valuable and the value tanks. Cryptocurrency only has value because a large amount of people are lead to believe it has value. This is a fabrication based on emotions and opinions.

People are not dependent on cryptocurrency for surviving and living their lives. Imagine the same thing but for essential goods. Imagine if some influencer went on social media to say that bread has no value. The value of bread would stay the same because there is a lot of people who still value bread regardless of what anyone says. Bread still fills the stomach of people all over the world. It doesn't lose its value just because someone said something bad about it. That's what it means to be valuable or to have "intrinsic" value.