The price of the value

There is no big deal to know, that value cannot be quantified while price on other hand cannot be un-quantified. That the value of any item being exchanged among humans can not be defined objectively was so nicely explained already by Ludwig von Mises for example in Socialism (that I have a pleasure to read it at the moment). Value is integral part of each economic calculation of each individual in literary every moment of any transaction and is as such 100% relational. Value is not static since environment of each transaction changes with that same transaction and with all other transactions taking place on all levels, from cultural to physical.

Relativity is objective

Such view was often attacked as if it was relativistic, as if supporting “anything goes” philosophy of subjectivism. But such criticism could not be more wrong. Relationality of value rests on full acceptance of objective reality outside but at the same time on the fact that mentioned objective reality changes all the time. It is not questionable that a stone falling has objective reality (it exists even if not perceived by any human) and it is also not questionable that laws of motion and conservation of energy (and all other laws of nature) are objectively proven (at least for dimensions in which that stone exists), but the value of that same stone changes constantly. That same stone has different value if used by a hunter for killing an animal or by Princess of Monaco recognizing in it a jewel. It also has a different price. But more about price in relation to value later.

In times when Ludwig von Mises wrote his major treatises the science of complexity was not as developed as it is today. Mechanisms of positive and negative feedback loops of nonlinear dynamics (mechanistic explanation of complexity) allow us to understand better what Charles Darwin or Von Mises took for granted. As much as humans in the tree of life have no higher value than amoebas, the value of any item put on market changes not only with each user but also within one user over time. Value can never be fixed.

It is often repeated truth that it was a materialism of Marxism that was really subjectivistic. When everything is fixed in advance, when there is no option for individual to decide, to make personal economic calculation, “objectivity” of that value rests completely in the hands of a subject in power to decide for the whole community. The value is objectively defined for all by one subject, dictator, ideal figure of working class or deity. That is thus also a simplest description of totalitarianism.

Value and (personal) values

Before we jump to relation between value and price, let us take a view on values as personal values. I have pointed to peculiarity of Slovenian language that has two words for what only “value” denotes in English many times so far. We do have “vrednota” for personal value and “vrednost” for value that is on the market. Such differentiation allows us to ascribe positive feelings to “vrednota” while at the same time we can despise “vrednost” as something bad that happens on the capitalist market only.

For the purpose of this post I would only like to refer to personal value as something that gets its shape and also changes its shape over time. We evolve our values only through relations with other people, events and objects and we also change our values all the time through those same interactions. We perform our actions on the basis of our values as much as our speech acts rest on them. Personal values are foundations of our personality, but at the same time we know (or we should know) that our values change in interrelations no less than a climate does for instance.

Values are dynamic

This relational nature of values raises enormous problems for many. As a brand developer I encounter clients that would like to get fixed brands all the time. They cannot accept that brands (as sacks of values) cannot but change all the time. In the moment that they do not change any more, they are dead (out of exchange). Brands as complexes of nine categories of values (described by Standard Branding Model) change not only in relation to environment but also internally. Internal values can stay “the same” but since they constantly change their relative value in relation to all other internal values, they change even if they stay the same. More than they stay the same, more they change the brand as complex structure. That is why we say that we should stick to defined values as long as possible, since this consistency only allows us to make the brand flexible so it can readjust itself to changes in environment.

Brand to trademark = value to price

After all I have written so far it should not be a surprise to see that value is in a similar relation to a price as brand is to trademark. Price is petrified (a quantity) of certain value for the purpose of economic calculation (evaluation of risks and profits of each action on the market). Trademark is petrified evaluation of any brand for the purpose of specific transaction in specific place and specific moment.

Price might be complicated as much as is trademark, but they are not complex. For that reason it is hard to understand how prices and brands are constructed. But when price and trademark are constructed, both are easy to handle.

On the other hand values and brands are easy to understand, since they are complex entities that are understood with whole our beings and not only by our rational mind. But for that same reason it is so much more difficult to handle them. It is easy to understand brands and values only, if one is able to step out of complicated rationality to complex intentionality of life. I often explain this later as “kitchen logic”. Child “understands” it (better: he lives it). Although later education limits his powers to plain rationality, it is possible to upgrade this mechanistic view on reality with the help of system thinking and complexity logic that makes life different from inert nature.

Values and prices in reporting

How could so far explained relation between value and price help us understand corporations and their reporting?

One can never get a real value of anything on the market. For that reason “the value of this or that company” cannot be established in principle. One can also not evaluate the value of a company through financial annual reports. They can evaluate past price value on certain moment (end of fiscal year) transparent, but nothing more. Financial annual reports bring price value as hypothetical fixed number for a specific moment in time. For the very next moment that price is already different. But at least it is fixed, what we cannot say for the value of the company.  Financial annual reports say nothing about the value of the company.

For that reason various types of corporate social responsibility reports developed and Global Reporting Initiative with its GRI’s as well. They emerged from intuition that financial reports lack to evaluate the real value of the company. For that same reason we are talking about various types of capital and not only money capital represented through various types of financial, material or proprietorial goods. We do feel that capital figures represented by the money value of stock options do represent the only possible tool for exchange, but do not explain the real value. They offer a solid ground to speculate the difference between the money-price and value of that company.

It is going to be fun to follow Integrated Reporting Initiative which aim is exactly to construct a report that would put all values on the same level. But again it should be clear by principle, that if that initiative succeeds, the result will not be the value, but “only” more precise money-price evaluation of all capitals that co-construct company value-chain.

The value of the customer

Let me conclude with the value of the customer, so often used in marketing. This value should explain how much each customer adds to the value of the company and at the same time how much the company loses if such customer is lost.

It is quite clear that we are again talking about money-price value of a customer and not about his value. Value of each customer for the company changes all the time, while money price value stays fairly fixed. Although I have so far not worked on this issue seriously, I would say that money-price value of each customer is total sum of all company assets divided by the number of customers adjusted with the volume of sale to each customer. But let this assumption serve as provocation only.

Such conclusion also helps us solve moral dilemma. No, we have no intention to reduce a value of humans on money-price. Humans do have to fix money-price level each time they enter labour market for instance. But that has nothing to do with their value (vrednost) and even less with their internal values (vrednote). One does not need Christian socialism or Marxism to solve this dilemma. Pure liberalism suffices. My personal tag for this is homonism.

 

 

Andrej Drapal