Value of something
When I have $100 to spend, I can buy ~50 cups of coffee, ~10 regular meals, or a 1-night stay at a hotel, etc. Accordingly it feels like the value of $100 should be ~50 cups of coffee, or ~10 meals, or a one-night stay at a hotel. If I can’t put this $100 into any usage, it is worthless. For instance, if the coffee shop, or the restaurant, or the hotel or any business in general refuses to accept fiat money, the value of that $100 will be zero.
Intuitively, the value of a fiat money can be represented by the units of consumables one can purchase using that money. On the other hand, the exact answer to the question of “what IS the value of $100 fiat money” is not yet obvious (at least to me). One can argue that when 10 meals can be purchased using $100, the value of that 10 meals can be hugely different for different people in the different parts of the world. But this argument feels like trying to argue the value of 10 meals rather than the value of $100.
My current understanding is that, in general, the value of something can be represented/quantifiable by the units of some other things that can be directly obtained by putting that thing into usage. If it stays idle without doing anything, the value is essentially zero.
Let’s look at some more examples:
- Value of a cup of coffee. When I drink a cup of regular coffee (not decaf), I can finish 5 tasks on average instead of two in a day; or I can finish a task on average in 1 hour instead of 2 hours. In this case, the value of the coffee can be represented by 5 tasks/day or 1 hour/task. If the coffee sits on the table without anyone drinking it, the value of that coffee will be zero.
- Value of a car. With my car, I can commute 100-mile distance in, let's say, two hours. In this particular case the value of my car can be represented by 2 hours/100 miles. If the car stays idle in the garage with no one driving it, the value is essentially zero.
- Value of a business. Let’s say I am considering buying an Amazon online retail business. First I ask myself: How much am I willing to pay for this business? The answer to this question can be the value of that business. If I am willing to pay $10 million for the store, the value of that business is $10 million to me. If no one is willing to pay anything, the value of the business is essentially zero.
What’s wrong with this model?
Frankly , I am not sure if this is a proper way of looking at the value of something. On the other hand, I couldn’t yet come up with a better way of describing the value of something, anything. There are cases that might challenge my current understanding of value notion:
- In the value-of-100-dollar example, the value of $100 in 1950 would be hugely different from the value now. Also, for someone in a third-world country in 2021, the value of $100 dollars would be much higher than for people in a developed country. Does it mean the value of something can be high-dimensional (e.g., time, space)?
- If I use the number of tasks or the hours to finish a task to represent the value of a regular coffee, what is the value of decaf? How does someone represent/quantify the value of a decaf? The answer is not clear to me.
- When looking at the value of a car, if a car stays idle in the garage all the time, one can argue that it’s value is negative since the price of the car depreciates.
- I can value a business to be worth $10M. But someone else might value it more/less than $10M. Does that mean there is no universal representation of the value of something?
Why am I interested in this topic?
My motivation for why I am interested in the value of something comes from my curiosity of the value of (a) cryptocurrency. For quite some time I have been asking myself “what is the value (if there is any value) of a cryptocurrency?”. I initially thought this is an easy question to answer, but I quickly realized that was not the case. As a result, instead of explicitly looking at cryptocurrency, I started with a general value concept. Hopefully, by writing several posts about the topic, I will gradually discover the answer to my original question.