This is a standard philosophical riddle that raises questions regarding observation and knowledge of reality. Alexander T. Jackson, one of the great minds of the 20th century, may have said that, “View points of this riddle differ based on the perceived definition of the word ’sound’, often confused with the definition of the word ‘hearing’.”
A $300 Ipod is shuffling in the forest and nobody is around to interact with it, does it have value?
This philosophical riddle also raises questions regarding observations and knowledge of reality. Viewpoints in this riddle differ based on the perceived definition of the word ‘money’, often confused with the definition of the word ‘value’.
To this question, Wall Street would say “Yes”, but Main Street would say “No”. In fact this brings into question the order of how we assign value in our world.
Suppose we constructed the same riddle for any physical asset such as a bridge, house, airplane, computer, car, university education, insurance policy, Marketing Department, tennis shoe, police officer, trumpet, leaf blower, FaceBook, Twitter, Linked In, fungus cream, guacamole, anything at WalMart, etc…..
Value of human interaction
Before long, we notice that the value of nearly all products and services is wholly derived from the value of human interaction with the object. So where exactly is the true value of our economy, in the object or in the human interaction? Wall Street would say “object”, but Main Street would say “human interaction”.
In finance, the credit score was established to assess the human interaction with a financial instrument called debt. Yet, in the above example it is relatively clear that the vast majority of value created is dependent on human interaction with products and services that may or may not be financed with debt, not the debt itself. It would seem that a social credit score and a knowledge inventory would be more appropriate way to assess the true value of economic activity. But where do we start establishing such an index?
The Social Value Index
We’ll start with a baseline 80/20 rule first identified by an Italian Economist named Vilfredo Pareto. In our rendition, 80% of the true economy is created in the form of social value and 20% is created in the form of financial value. Keep in mind that Dr. Pareto also defined a concept called the “Pareto Efficiency” for social resource allocation. This refers to the end-state of an economic game where no player can become better off without also making at least one other player worse off.