WEALTH PRINCIPLES

This power to purchase—or again, value—can be attached to physical objects or a set of actions; that is, goods and services, the overarching term for which we call products. However, not all objects or actions possess this property. Many things have zero value, and others still, have a negative value.

​

The concept of value itself is especially tricky given the word’s everyday dual meaning. Take the classic example cited by economist Adam Smith: water versus diamonds. Are they both valuable? A nature lover will tell us the earth’s water is extremely valuable, but a merchant jeweler will tell us that diamonds are also extremely valuable.

​

In everyday speak both statements are true. And this causes confusion. We need something objective that we can all agree upon to distinguish between these two statements which employ this one critical word: value. We require something measurable—a measure of value—especially if we insist that both water and diamonds each have a high value.

​

If we are to measure how much water is used by a person over a month, we can see quite clearly that it is a product consumed in large quantities. We drink it, shower with it, clean laundry with it, etc. Water has a vast array of uses.

​

However, the jeweler would point out that all this water can buy you nothing. Water cannot pay your bills. Water cannot trade for groceries. No one reimburses with water. It generally exchanges for no money and simply has no purchasing power.

​

The jeweler arrives at this conclusion not by measuring the water’s value in gallons. Rather, he measures its value in prices.

​

But the nature lover would counter that people cannot drink diamonds. Diamonds cannot wash our laundry. No one showers with diamonds. A farmer cannot hydrate his crops with a diamond irrigation system. Firemen have never extinguished a burning building with diamonds. And so on. Diamonds have very few uses. Water, by contrast, is one of the most consumed and important products on the planet.

​

Furthermore, the more abstract and difficult to measure phenomena of psychological satisfaction—also known as utility—experienced when consuming water becomes even more readily apparent in its absence. A man will quickly die without water.

​

All this we know. However, as outside observers we still notice a single word—value—to refer to two distinct concepts. The nature lover says value to indicate the water’s vast array of uses and the psychological satisfaction that occurs as it is consumed; or what is called value-in-use. The jeweler says value to refer to the diamond’s powerful ability to influence a trade; or value-in-exchange.

​

Going forward, it is critical in business to differentiate between the idea of usefulness and purchasing power. In fact, within your business vocabulary the word value should be forever distinguished from the concept of usefulness. Always. We never speak of value in the sense of value-in-use because it conflates too easily with value-in-exchange. Value is one thing. Usefulness is another. Period.

​

If a person substitutes the term value for usefulness in a business setting, then it is appropriate to provide a quick correction. If the social situation does not allow for such, it is recommended to at least make a quiet mental note that separates the two concepts for your own sake.

​

The business and scientific definition of value is the point upon which everything that describes wealth balances. When that definition breaks down so do all the other concepts and explanations that flow from it.

​

Later in this primer we will address how usefulness is interrelated to and plays a critical role in determining a thing’s purchasing power. But for now, suffice it to say that the word value should only be said in the sense that the jeweler says it; again, that is: value-in-exchange or purchasing power.

​

​