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I = S - M

The modern way of thinking about economics has been I = M - S Where I is the I as in me, M is what is 'mine' and S is what ...

4/30/08

What is value? Economists have tried to answer this question for at least two hundred years. I will try to answer it in two minutes.

There is an inherent value in all things and beings.

It is the inherent dignity of a rock, tree, or person that gives it its value. The Classical economists as well as the Marxians miss this simple point. A tree may have no economic value-in-exchange nor reflect any labor expended by humans but surely it has value.

I will call this inherent value in all things dignity value.

All things natural and created have dignity value. It is when a society departs from the dignity value of things that bubbles are created. The dignity value of all the so-called financial innovations in the real-estate market and stock market is close to zero. Their existence is of no real value whatsoever.

John Kenneth Galbraith pointed out years ago that bubbles are created by innovations in a subject incapable of innovations. In other words 'new' financial instruments are given a high and rising economic value while their dignity value is zero. The rising economic values of these financial assets in relation to their dignity value creates bubbles.

Crashes return things to their dignity values. Bubbles must burst. There is after all a quiet dignity to that.

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