The Idea of Value
The idea of value is not new. It is a long time since the non-money dimension of quality of life has been recognized as important.
To its credit, the United Nations … specifically the United Nations Development Programme (UNDP) … set up a system of reporting in the early 1990s at the national level that used measures about human capital. This was in response to the pure money economic statistics that were the main focus of the World Bank, the IMF and others. The UNDP's annual Human Development Report (HDR) set out to measure and report on many metrics that had impact on quality of life.
The HDR is a useful set of benchmark data … but does not integrate these data into a complete framework so that state, progress and performance many be better understood.
Value is subjective
And value is important
Value is subjective ... and very difficult to quantify. Value is arguably far more important than money cost and money price. Value is subjective ... and very difficult to quantify ... but that does not mean that value should be ignored by a socio-economic system of “scorekeeping”. Value is, after all, more than anything else, what determines quality of life.
The idea of actual value is difficult to include in a system of metrics because “value” is perceived so very differently by almost every individual. Value is personal in the extreme!
However, to ignore value as an critical independent measure and simply to use the market and money price as a proxy is not an adequate solution.
Value is subjective ... and therefore difficult to quantify. The challenge with value accounting is how to have numerical values that are an integral part of the system.
Value is personal … and important
The idea of value is difficult to include in a system of metrics because “value” is perceived so very differently by almost every individual. Value is personal in the extreme! Value is subjective ... and very difficult to quantify ... but that does not mean that value should be ignored by a socio-economic system of “scorekeeping”. Value is, after all, more than anything else, what determines quality of life.
It is insufficient to ignore value as an independent measure and simply to use the market and money price as a proxy
All sorts of things have value … this we know. The question is how to get them into a form of accounting without the process becoming too complex.
TVM has value as its core. Value is as central in TVM as profit is in business reporting systems. The value of a community ... or society ... is the key measure in TVM and a core determinant of how society delivers on the goal of happiness and quality of life.
Quality of life is an important matter … it is more important than simply wealth which is measured in money terms. The quantification of something like the quality of life has to take into consideration personal likes and dislikes … but for all the difficulty, it must still be done. In the US Constitution there is recognition that something deserving of protections are life, liberty and the pursuit of happiness. This is what quality of life is all about. Beauty … dreams … possibilities … freedom … opportunity … security, etc. are all components of quality of life! These value elements are arguably more important than money cost and money price that are easy to quantify!
Price is not value
Price is not value. They are different concepts. Value is often expressed in terms similar to a price ... but they have a different origin. Value has to do with perception ... what someone is willing to pay for something in order to be gratified. Because the money numbers associated with value are rarely articulated, and not the subject of conversation and news reports, there is a weak set of value information. It is critical that this is changed. Associating a money number to values is regarded as a difficult ... even impossible ... task. However, this is very important if society is to have metrics that reflect what is the most important in society.
Value and culture
Value is not the same in all cultures and locations! Value is not the same in all cultures and locations! Culture plays a big role in how value is perceived. Modern materialism has tended to equate more and more or bigger and bigger with more value ... but that is not the only way value may be perceived. Different cultures in different places may put different values on the same things ... and this should be respected and value optimized based on what is most appreciated in the community.
Culture plays a big role in how value is perceived. Modern materialism has tended to equate more and more or bigger and bigger with more value ... but that is not the only way value may be perceived. Different cultures in different places may put different values on the same things ... and this should be respected and value optimized based on what is most appreciated in the community.
Value numbers mainly missing
Value is everywhere … but rarely measured
All sorts of things have value … this we know. The question is how to get them into a form of accounting without the process becoming too complex.
TVM has value at its core. Value is as central in TVM as profit is for profit corporate reporting systems. The value of a community ... or society ... is the key measure in TVM and a core determinant of how society delivers on the goal of happiness and quality of life.
Money measures are everywhere, but value measures are mainly missing. When the scorekeeping is all about money, then the game is played to achieve the most of money, with value getting sidelined.
Money is NOT the unit of measure for value
Money numbers are widely used as a proxy for value. But money is NOT the unit of measure for value, though money may be used as a rather inefficient proxy for value. Using a 1:1 relationship between the Value Unit and the Money Unit is a crude first step … but better is needed. Money and value are two entirely different units of measure and Have very different behaviors.
Price is not value. They are different concepts. Price may be used as a crude first approximation to value. Value is often expressed in terms similar to a price ... but they have a different origin. Value has to do with perception ... what someone is willing to pay for something in order to be gratified. Because the money numbers associated with value are rarely articulated, and not the subject of conversation and news reports, there is a weak set of value information. It is critical that this is changed. Associating a money number to values is regarded as a difficult ... even impossible ... task. However, this is very important if society is to have metrics that reflect what is the most important in society.
Standard Value
Using standard value to quantify value
The TVM system uses the concept of “standard value” to provide a basis for doing the accounting for value. The standard value serves as a fixed benchmark and changes to these benchmarks becomes a way for changes and differences in various societies to be a part of the record.
Standard value for community state
The value balance sheet of the community includes a quantification of quality of life. To make this practical and useful, TVM uses standard values for this. The value of a good life is not the cost of a good life … though sometimes price and value may have similar quantification.
The value dynamic around health is complex. Good health may have a very big value, even though it is natural rather than being the result of expensive healthcare interventions. In another situation a sick person may have poor health, even though there have been expensive healthcare interventions. In another situation a poor person may have poor health simply because they cannot afford a relatively low cost health intervention.
TVM considers good health as the desirable norm and in the quality of life value balance sheet as an asset … and a lack of goo health as a diminution of the normal value and expressed in the balance sheet at a liability.
Consider the case of education and economic opportunity:
For example, the “value” of a healthy well educated 25 year old with job opportunities in the United States is very different from the “value” of an unhealthy uneducated 25 year old with no job opportunities in Niger. There is socio-economic progress … a “value” increase … when more 25 year olds in Niger are healthy and educated and have better job opportunities.
The norm is for a person to have some education and for a person to have some economic opportunity … and this norm is in the quality of life balance sheet as an asset. Where a person has exception education and opportunity the asset value is increased … and where a person has less education and less economic opportunity, this is recorded as a liability.
Every element of quality of life is treated in a similar manner … the norm is considered the asset, and the difference from the norm is treated as an incremental asset or as a liability.
Putting a number on value is difficult ... but it does have some utility. As a matter of convenience, the number is also a number for money. Because there are no capital markets that trade in “value” there is no way for value to be monetized.
Elements in standard value
For the individual there are elements of value and quality of life … just as there are elements of cost. The primary elements of value are:
- Family
- Friends and community
- Health
- Education … skills
- Wealth
- Career Opportunity
- Age
- Gender
These value elements are part of the framework of value that is used for individuals and for community
Elements of value are similar to elements of cost. Standard values reflect the perception of value that people have. From this it becomes possible to have standard value profiles from an individual that may be aggregated for the community.
From this it becomes possible to accumulate transaction data and do analysis that reflect the consumption and creation of these values.
The difficulty with using value in metrics is that value is subjective and therefore not easy to quantify ... but value is much more at the core of socio-economic performance and quality of life than anything else. Value is what the recipient thinks it is worth. Putting a number on value is difficult ... but it does have utility.
As a matter of convenience, sometimes the number for value is also the number for money … but they remain two different metrics. Because there are no markets that trade in “value” it is a hyper-hazzle to monetize money. Value is what the recipient thinks it is worth.
With values, these relationships are key: (1) When value is greater than cost there is value adding; and (2) When cost is greater than value there is value destruction.
The challenge with value accounting is how to have numerical values that are an integral part of the system. The TVM solution to this is to have elements of value, just as there are elements of cost, and to have standard values that reflect the perception of value that people have. From this it becomes possible to have standard value profiles for a community ... and from this to create reports that reflect the consumption and creation of these values. The difficulty with using value in metrics is that value is subjective and therefore not easy to quantify ... but value is much more at the core of socio-economic performance and quality of life than anything else.
Relationship of value to price
If value is lower than price, there is no incentive to buy the item.
Something may have a low price, but have enormous value to the person using the product. An aspirin may have a low price ... but getting rid of a headache has big value.
Society is in a good place when goods and services have low prices and these goods and services have high value for the community.
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