The Value Shock

Steve Borsch has a nicely written commentary on the current crisis and how it is partly related to the way we are starting to conceive of value.

Read the original here.

I’m only reproducing an interesting quote on how two different value logics play out in a Star Trek episode, then below I would like to share an anecdote on how I see the current financial crisis as related to this crisis of value.

“First an anecdote: on a Star Trek Next Generation episode, the Enterprise comes across a ship with most people dead, but there are three survivors in suspended animation. They awaken these three who’ve been like this for 300 years. The woman in the group is stunned and sad she’ll never see her son again, but the Enterprise crew has discovered his descendants. One guy was a country singer who gets Picard to use the replicator and get him a famous Gibson guitar. The last guy is SO EXCITED at the prospect of getting back to Earth so he can see how compounding has worked on his investments. “I’ll be extremely wealthy,” he cries out.

This brings to a head something about Picard’s century and material value. Picard tries to get him to understand that “there is no more ‘want’ in the world” since they can make anything instantly and money is no longer an exchange of value (though it’s never exactly clear how economics work in their time and how people are incented and motivated). This guy finally realizes that he is going to have to adapt to a world and time where anything material can be created at the touch of a button, and he’ll have to find other motivators.

Aren’t we there in some ways right now?

Here’s how I believe this value shock plays out today, and how it is related to the current crisis.

Today, most value is immaterial, it is not the value in the production of the Nike shoe that counts, but what a Nike shoe ‘means’ for the people who buy it. The problem is that such value is fundamentally immeasurable through money, yet that is precisely what capitalism attempts to value through the stock market mechanism.

The stock market creates extra goodwill value, i.e. the different between the value of the material stocks of a company, and its estimated value. But because this is ultimately subjective, there is no objective yardstick. The result is that this gives enormous leeway to overevaluate value, and because we have excess ‘casino money’ in our system, this creates inevitable bubbles. Instead of inflation, the 98% of our money supply, over-leveraged around non-existing mortgage money as we now know, creates bubbles. I once decided to quit a job, because one of my superiors asked me twice to add a zero to an earnings estimate!! I knew then that the accounting systems of contemporary capitalist companies are no more trustworthty than that of the Soviet Union’s planning system. Enron was not an exception, but in fact the rule. I knew then that I could no longer stay in such an environment, and in fact this incident lies at the root of why I created the P2P Foundation.

Every manager in a current corporation knows that they have been doing this on a systematic basis since the 80’s and that the value is purely based on a consensus, which in fact created a pyramid scheme. This is in my view the reason of the crisis of confidence, since they know deep down that their own value is bogus, how can they trust anyone else’s?

The lesson for me, is that the market is no longer an appropriate way to measure such value, and that we cannot allow over-leveraged and ultimately ‘fake’ money, to rule our societies and economies by what are ultimately pyramid schemes.

This pyramid is now falling like a house of cards, and the worse we could do is create the conditions to create it anew one more time, setting us up for the next fall.

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