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The Creation of Value and the Value of Money

By Henri - Posted on 06 April 2009

Monopoly We have suffered a huge destruction of value in the last eighteen months; or have we? It seems more and more as if the years of our recent bubble inflation should teach us some lesson, as painful as the deflation has become for most of us. Doesn’t pain always teach us something? Otherwise the purpose is somewhat missing in the process of experiencing all of that anguish and sense of loss.

Pain, after all, has the purpose of teaching us not to repeat painful actions in the real physical world. We ignore it at our high risk of repeating the process of feeling it over and over again. So why do we keep inflating all of these bubbles and losing the value of our assets over and over again? Alan Greenspan would tell us that it is because we can never really tell when there is a bubble developing until it bursts. That such an ostensibly wise man can be selling such horse puckey at his age would be amusing if it were not so sad.

Wall Street has been full of horse puckey without the horses for longer than we have had an auto industry. Value is an interesting idea when it is attached to the idea of money and work. When it is attached to pieces of paper whether they are printed by the government or the bankers on Wall Street it is less clear what it means.

There are a lot of ways true value can be created but they all boil down to one of two things, work or applied creativity. In the second case the creativity must be applied in a way that creates something of worth. Patents, writings that illuminate the world, music that lifts us up or casts us down are valuable. An increase in order of some sort or other happens when real value is created. When value is destroyed order is diminished in some way.

So did all of those obscure financial instruments create value because they were created by the great minds of Wall Street? It doesn’t look like it to me. It looks more like they created the illusion of value. Monopoly Money became popular during the last depression because so few of us had enough of the real thing. For a few hours while the game went on we were all creating value by merely buying property and renting it out to the poor fools that landed on it. Creating value by just rolling the dice is best left in Las Vegas or at the monopoly table as we are noticing today.

So if work and increased order are the basis of value, and creativity is after all the product of working to build an ordered mind, then value requires work at its base. Why do we keep on believing that value can be created by printing something on paper? Because our mind mistakes the symbol for the reality all of the time, it is one of the most common errors humans repeat over and over again.

The creation of money is at its root the creation of a symbol that represents value. When more money is created than there is value to support it that money inevitably creates a bubble. It does not really matter if that money is created by government printing presses or Wall Street bankers it has no real value. Only money that is created by a positive change in order in the world of real things is real. Anything else is illusion.

Does anyone want to be the one to tell the Oil barons that they are trading Joules for paper? Killing the messenger is likely to come back in vogue when that finally happens. Me, I’m just typing idle thoughts down on paper. But maybe the gigantic Ponzi Scheme is not limited to Bernie Madoff, maybe it has included Citibank and AIG and Bears, Oh My!

Well Dorothy, it is evident that we are not in Kansas anymore. The man behind the curtain is flashing us all and mooning the whole wide world. So what do we do now? I guess we watch and hope that this new freshly minted leader we have chosen has enough of Kansas in his soul to realize that value is created first. Only then does money have meaning and the value behind it is a big part of that meaning.

And by the way Alan, no illusion lasts longer than the amount of time that perceptions of the beholder can be focused on the process of creating it. You are no longer creating the illusion of wisdom so perhaps it would be better to leave the stage for someone else now. We need some new illusions to pursue. Perfect markets worked for a while as the illusion Du Jour but that was so yesterday.

Please, Uncle Alan, if you must tell another story, talk about how that whole illusion was done. Maybe then the kids can figure out how clever the old people were. The ones that stuck them with the monumental bill for the free lunch they will still be paying as they grow old. It would be a kindness if you could tell us all how that worked; if you actually do understand that it all was just an illusion. The jury’s still out on that part of this massive Ponzi Scheme.

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