Language confusions in economics:
the example of value
Sometimes for ideological reasons, people, including
commentators and economists,
tend to have anchoring and framing biases that make them confuse various notions,
which might be linked somewhat, but are far from being
The fact that every school of thoughts added its own, usually narrow, approach,
makesit difficult to unravel the ball of strings
When it is no longer clear what we are talking about, when definitions are
mixed up, no
wonder that reasoning is perturbed and that there is a lot of
conflicts between various schools of thoughts.
The example of value
Confusions are frequent about what is value.
Value is essentially an estimate of
potential or desirable price.
That estimate is done:
Either in a subjective way, by any person according to its expectations
or even its wishes,
Or in a theoretical way ("fair" price, "intrinsic" value) by analysts using
That makes already several different notions. But also, value is often confused
Price (market value or, in some cases, administrative
As it is usually publicly known (except when a black market exists)
it is the most objective data the reality that can be seen.
It depends on how well the market works or the administration
It can also be influenced by irrational behaviors.
But it keeps being the reality.
Utility or ophelimity (economic
It is a personal value that somebody estimates or feels according to
its own perceptions, needs, preferences and possibilities).
Usage value, a kind of utility extended to the whole population, based
on theoretical assumptions.
Social utility, a close concept that extends the utility notion to the
"common good". This raises the question of who could judge what it is.
Or an element of cost (work value).
Some history about economic value
Many economists gave their own approaches of economic value, some of them
with quite a narrow view.
Daniel Bernoulli was the first to link value to utility
and more specifically
to risk attitude.
This idea is still used, for example to define a financial value, or more
precisely an expected financial utility.
The Physiocrats considered that only agriculture produced
value, and that industry and trade did not add any.
This misconception still exists in another form, as some consider that
only products-generating industries (agriculture and manufacturing),
and not the service activities, bring economic value.
This is ignoring that in developed countries 70% or 80% of the economic
activity, thus of production (as measured by the
GDP - Gross Domestic
Product of those territories) is made of services.
Adam Smith, Pareto and Marx related economic value only to the
quantity of work needed.
This was ignoring
the utility factor
Economic value and factors of production
Far from stating, as the above quoted economists thought, that the value of
goods and services originates only
from the soil (and natural resources), or
the quantity of work (in extreme cases work can even be destructive if what
it produces has less value than what is used to produce it), it supposes a
convergence of all factors of production that help to satisfy needs or
desires (economic utility).
In our modern economy, those factors are,
See more details on those factors in the "Virtual aspects..." section below
of course work and natural resources
the invested capital,
knowledge and abilities (a form of capital),
initiatives, innovations and risk taking
the structures of production (legal, organizational)
What is growth?
Economic growth is often considered as a quantitative accumulation.
But this is only a part of the story,
maybe not the most important one nowadays.
Actually, the economy is a "dynamical system" subject to "percolations" that
take place above "critical thresholds".
They create changes of rhythm (acceleration / deceleration) but, and this is
something more crucial, "qualitative jumps"
Economic growth in the 21st century
For example, nowadays, at least in developed countries, the share of
"material goods" in the economy is less and less important, as the lion's
share of production is made more and more of services.
This is true of all industries: some are ascending, some are declining.
knowledge-related activities are the new stars. Even in emerging
Welcome to the "postindustrial" economy!
Also globalization, by multiplying trade opportunities, allows growth
to extend to more and more countries (the "emerging countries"
The danger is that many protectionists propose to break that virtuous
under the pretence to fight the economic crisis, is
what made it much longer and deeper in the 1930-1940 decade.
The environment issues
(pollution, raw material and fossil fuel
exhaustion...) will not be
solved by "degrowth" as some ideologues try to
impose it (*) but by favoring the mutation and growth or future-oriented
sectors of activities.
By the way, the evolution of
market prices (they rise for natural
resources, they decrease for high tech goods and services) helps to
reach that goal.
black point is that some emerging countries have to develop
physical resource-intensive and energy-intensive industries (and
to satisfy the basic needs of their population and avoid
But it can be done wisely, so as to limit their own
(*) Well, they have the right to do it for themselves, and also to give
tips to spare resources.
But some movements see here the opportunity
to propose a new collectivism.
Virtual aspects of economics, capital, work, money...
Nowadays we live more and more in a world of ideas.
We often hear that "virtual reality" is intruding more and more in
society in general as
well as in everybody's life.
A phenomenon that is not limited to "advanced" countries.
That "virtualization" impacts more and more the economy, a domain of social activity
among others. Here, the
phenomenon is not limited to the reductive new economy
concept, focused on communication technologies. It is not limited either to
extensive concept of behavioral economics.
It has consequences on about all aspects of the economy, such as:
Products and services - except those which satisfy basic material needs - have
an important mental content.
This involves cognition and emotions, for those who purchase them, who
receive them or who create and
Prices result for a big part from an equilibrium reached between subjective
Besides, money is nowadays and has been for a long time, since gold and
silver coins are no
more in use, an abstract and immaterial being.
money? (see the link)
Three roles and two forms
Money is an economic instrument made to 1) exchange (to pay, to give...), 2) to
measure and 3) to keep value.
It has two forms:
The main one, "sight" bank account balances, (used with transfers,
checks, payment cards...). It is also called "bank money" and is well
adapted to be used as "electronic cash".
And physical cash (banknotes/coins) which role is more and more
It is also called "fiat money".
It can be legally defined as a commitment based on other commitments
Money is created by the banking system, essentially as a counterpart of a myriad
of borrowers' commitments.
The banking system commits itself to make that money acceptable and usable (as
Those contractual commitments can be considered as the collateral of depositors
(and ndirectly banknote bearers).
Central banks, which control that creation (and which also issue directly the "fiat
money"), and are lenders of last resort add
another level of warranty.
States and their taxpayers are the ultimate guarantors in case the banking
system cannot face its own commitment to money holders.
Each central bank is responsible to control how a specific money unit (Euro, US
dollar, Mexican peso, or whatever) is issued by the
banking system of the related
It regulates the quantity and price (interbank interest rate, to simplify, and, for
some central banks, the foreign exchange rate) of
is usually considered, here again to simplify, that too much credit and
might bring consumer price inflation and /or asset bubbles, and
that not enough
money might bring deflation / recession and/or
underinvestment / asset crashes.
More details in my "what is money" article
Work includes more and more knowledge,
preferences, conception, heuristics, money flows, etc.
Capital (see above) is not only, unlike classical economists thought,
* a portion of human work which had been saved (instead of consumed),
* or even a "class" of people dedicated to enslave another one, as pretends
extreme theories that consider capital as a "social domination" tool.
Capital is an economic "riches" (like products and services) and a specific
Its value, which
measures to what extent it is present among other riches, is not
directly based on the price of the physical equipment used for
It depends largely on less tangible elements such as the company's goodwill,
the anticipation of gains and the equity investor preferences....
The capital-work duet does not cover the whole range of
production (which include also inventiveness, subjectivity,
Between you and me, how strange that many economists still did not
fully understood what the
present world is, which creates biases in
and some scientists (neurosciences...) understood this before
Cleric and gurus also (here it is a bit more worrying).
Same thing for
philosophers,psychologists and sociologists (although
ideological prejudices and quarrels between schools).
Let us not forget that emotions, immediate satisfactions and
dissatisfactions, are often what
triggers decisions, sorry for the
economic man who sees only rational calculations.
Economists from all schools might be too materialistic, they
need to play virtual economy games on the internet, of course with
utmost moderation, better not shift fully into other dimensions
and end up as immaterial ectoplasms in parallel universes ;-).
Towards a World currency?
Or at least, as a start, a world monetary standard (WOMOST)
and a World monetary
=> see my article:
Towards a world currency
World Monetary Standard
World Monetary Institution
* Reference and pivot for all
Forex quotations. Compatible
with floating exchange rates.
* Self standing value, independent
standard based neither on precious
metals nor currency basket.
* Also quotation tool for bonds,
* Democratic federal
* Mission 1: Supervisor of the world
financial and banking system, including
Legal power to put in check any
monetary and financial excess.
* Mission 2 : Central bank of
central banks (reserve pool and
liquidity supply bank)
Other topics in economics (essays)