The Misunderstood Nature Of Value

Posted on Posted in Comments On The World, Entrepreneurship and Learning

We create value by figuring out how to manipulate the world around us in a way that better serves human wants and needs.

Value is subjective to the extent that all individuals have a variety of different wants and needs as well as different opinions on how those wants and needs are best fulfilled. We all need to eat, but the what/where/when/how is at least slightly different for all individuals based on their preferences.

Value is produced in our minds.

The world exists a certain way. This existence is objective. We must use our minds—our reason—to gain knowledge about the world, understand the world, and shape it to suit our ends. This is the essence of the human condition. It’s what makes life for us possible and enjoyable.

When understood in this light, it becomes clear that the true production of value occurs by thinking. Physical labor is almost always required, but it is always predicated on the act of thinking that came before it. At a very basic level you must always—however quickly—plan your physical action before you take it.

The vast majority of value in the economy is not, then, created by physical labor. The vast majority of value stems from the systems in which physical labor occurs, and the technology that makes that labor so much more productive.

A car is a valuable consumer good less because of the person that physically puts it together, than because of person who thought and drew up the plan of how it should go together. Without the immense thinking that has gone into car production over the last hundred years, we would just be stuck with a bunch of metal, plastic, and rubber with no plan of how they should go together and no system to actually put them together.

To take it even further, we probably wouldn’t even have those raw resources because no one thought up an efficient method to extract or produce them. Similar to car production, the majority of value that we get to enjoy from those raw materials is made possible by the thinking that went in to how to produce or extract them. The physical labor involved in actually producing or extracting, though involving great effort, accounts for a small part of the later value.

There is a fundamental misunderstanding among many people about what produces things that people value.

First of all, when talking about how valuable something is, it doesn’t matter how much thinking OR physical labor went into it. Value is the subjective opinion of each individual. It just so happens that it often takes a lot of thinking and effort to produce something which people value. But just because a lot of labor and thinking went into something does not mean that anyone values it.

The remnants of Adam Smith’s and later Karl Marx’s debunked Labor Theory of Value still seems to somehow find its way into our modern conventional wisdom. Please know better. Value is subjective. It’s based on your preferences and the preferences of everyone around you.

Second, although the factory workers, miners, builders, etc. are important and critical to any operation in their respective field, they are not the main value producers. The Left often likes to paint a picture of fat executives sitting back and counting their money produced by their lowly and exploited workers.

This is obviously not the case. For one, unless you have the endless tax funds of the state you cannot afford to pay high up people huge salaries for doing nothing. Far from sitting back and counting their money, executives, founders, owners, and CEOs are the ones who have huge responsibilities within the company, are often risking their own money, are constantly “on-the-clock”, and take actions that have far-reaching consequences for everyone.

Successful businesses pay all their members in accordance with how much value they bring to the table. The capitalist and CEO haters of the world would do well to understand that.

In reality, the laborers jobs would not exist without these thinkers. The people listed above, along with sales people, marketers, business development people–and anyone else that could be broadly defined as an entrepreneur–are the ones who create jobs and value for everyone else.

Thinkers and entrepreneurs create their own jobs and systems. Other people work within jobs and systems created by entrepreneurs. That distinction makes it easy to see who is really creating the palpable value in an organization and in the world.

Thinking is what sets humans apart.

Reason is our most valuable resource.

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