This post was finished for Good Heart Week and speaks to perhaps the most typical context for Goodharting.
Money is one of the largest factors in determining what gets done in the world and a clearer understanding of it and how it interacts with what we value may pay dividend$.
It is commonly claimed that money is an estimate of value and some seem to even think that it is value. While clearly this isn’t entirely true, let's examine it in more detail, and see what money really is and what it really tracks.
What is money? At first glance it seems to be something you can convert into arbitrary goods and services by paying for things. In that sense it seems kind of similar to, say, having iron ore that you may convert into nails. It’s a bit more subtle though. Firstly it’s something you may convert into practically anything, a kind of universal resource. For another, it isn’t itself generally destroyed in the process and is instead simply exchanged: money moves towards the person giving the good or service and away from the person receiving the good or service. It is a kind of resource that can be created from nothing or destroyed and be of any number from positive to negative infinity. Finally, it is supported by a kind of universal belief and convention; if you fail to believe in it, then it ceases to exist, and the belief that exists is distributed amongst all the people involved in transactions. Given how it works I would say it is the natural generalization of an IOU or social status change and probably originated in that (History of money).
From this then it’s reasonable to say that there are five significant operations on money:
Giving these operations, it then looks like money is a kind of anti resource that you exchange for other resources; when you get a good or service that act annihilates a certain amount of money for you. In some derivative-like sense it is the opposite of the change in what you got in exchange.
How do these money calculations then ground out so you get concrete prices? They ground out in the decisions of people to exchange it for things they value intrinsically, the brute facts of resource conversion efficiency, and in the short run (assuming proper updating) beliefs about resource conversion efficiency.
With these clarifications in the background we can now go on and see how money differs from the intrinsic value of things and how it fails to track that exactly.
Knowing how money fails to track value and refining our understanding of how it works could possibly help us in multiple ways: