4. Creating, consuming, and storing value

In: A Primer in Monetary Economics

17 Jan 2011

By: Andrea Terzi

Labor and output

For value to be transferred (in any of the transferring systems described above), it must first be created. Creation of value in a social system is a process by which something that some people care about receiving is made available to the transferring process. Newly created valuable entities include the provision of labor services, i.e., human effort at the disposal of another person or production unit, and the output of a production process.

Value created is either consumed or stored

Labor services can be provided only at the moment of action: they are immediately consumed and cannot be stored. Any missed opportunity of providing potentially available labor services is a permanent loss for the individual as well as for society.  A community that is in good health and is not threatened provides propitious conditions for the creation of value from labor, and thus real wealth.  Depending on the transferring system, labor services are forced, offered spontaneously, or delivered by contract.

The output of a production process results from the coordination effort of various resources and entails the creation of a new material object, a service, or the provision of an existing resource at specific conditions (e.g., time and location). Output can be either consumed or stored. Services are inevitably consumed when received and cannot be stored. Some products, if not consumed, lose their qualities quickly and can hardly be stored for long without significant modifications that affect their perceived value.  Other products can be stored, and this can happen either before being transferred by the giver to the recipient or after being obtained by the recipient. People have an interest in protecting such products from theft, destruction, or too rapid deterioration.

Assets and capital goods

In a contractual obligation system within a legal framework for property rights and a monetary system, the owner who stores products considers such values as assets (i.e., things of value that are owned) and may have to bear the expenses for carrying such assets over time. Although their characteristics may change over time, products that can be stored maintain some resalable value, normally declining with time, although in some cases (e.g., if they become “rare collectibles”) their resalable value may increase.

A special category of those products that can be stored remains valuable because they are the means to produce other products. This is also true in Robinson Crusoe’s economy (where Robinson makes a net to increase his chances to catch fish), but because no transfer is possible value remains subjectively recognized by a single actor.

These products that can be used to produce other products are called capital goods. Typically, these can play a number of strategic functions in the defense and development of society and are part of its overall wealth (e.g., a shipyard establishment can be vital for defense and commerce). Unlikely to be transferred through a gift-with-reciprocity mechanism, they are either seized by the ruling class through a forced acquisition in a hierarchy system, or they are owned by individuals who expect to have sufficient resources to afford their storage and maintenance (i.e., their carrying costs) and benefit from their future value.

In a contractual obligation system, command over capital goods feeds the possibility of offering contracts for the sale of the products that such goods will help produce. Thus, capital goods have a value that reflects their capacity to generate future credits through the contractual obligation system. Such credits, once settled through the monetary system, convert into units of account. Capital goods are thus priced with reference to their expected power to generate future cash flows.

Next module: Value transferred and stored in non-monetary economies
Back to Table of Contents

Comment Form