IANAE. This is a really interesting riddle. Because even in incidents of fraud or natural disaster, from an economic standpoint the intrinsic value isn’t lost: if a distillery full of barrels of whisky goes up in flames and there’s nothing recoverable—then elsewhere in the whisky market you would presume that the prices would go up as scarcity is now greater than demand and you would expect that “loss” to be dispersed as a gain through their competitors—you would think. (Not to mention the expenditure of the distiller to their suppliers and employees—any money that changed hands they keep—so the Opportunity Cost of the whisky didn’t go up in smoke).
I say “you would think” because Price elasticity is it isn’t necessarily instantaneous nor is it perfect—the correction in prices can be delayed especially if information is delayed. Like you said—money is a good approximation of what people value but there is a certain amount of noise and lag.
For example, what if there is no elasticity in whisky markets? What if there was already an oversupply and the distiller was never going to recoup their investment (if the fire didn’t wipe them out). It’s really interesting because in theory they would have to drop their prices until someone would buy it. But not only is information not instantaneous, there’s no certainty that it would happen like that.
You might be interested in reading George Soros’ speech on Reflexivity which describes how sometimes the intrinsic value of things (like financial securities) and their market value grow further or closer together. What’s interesting is that if perception and prices rise, this can actually have a changing effect on intrinsic value higher or lower.
No one ever knows precisely what the intrinsic value is at, and since it is reflexive and affected by the market value, this makes it much more elusive.
Really somewhere along the line value is being created, because whenever someone develops a more efficient means of producing the same output that is making the value of a dollar increase since the same output can be bought for less. That suggests that value can also be destroyed if those techniques or abilities are lost (i.e. the last COBOL coder dies and there’s no one to replace him so they have to use a less efficient system) - but I think most real world examples of it are probably due to poor flow of information or misinformation.
At the end of the day it all feels suspiciously close to Aristotle’s Potentiality and Actuality Dichotomy.
IANAE. This is a really interesting riddle. Because even in incidents of fraud or natural disaster, from an economic standpoint the intrinsic value isn’t lost: if a distillery full of barrels of whisky goes up in flames and there’s nothing recoverable—then elsewhere in the whisky market you would presume that the prices would go up as scarcity is now greater than demand and you would expect that “loss” to be dispersed as a gain through their competitors—you would think. (Not to mention the expenditure of the distiller to their suppliers and employees—any money that changed hands they keep—so the Opportunity Cost of the whisky didn’t go up in smoke).
I say “you would think” because Price elasticity is it isn’t necessarily instantaneous nor is it perfect—the correction in prices can be delayed especially if information is delayed. Like you said—money is a good approximation of what people value but there is a certain amount of noise and lag.
For example, what if there is no elasticity in whisky markets? What if there was already an oversupply and the distiller was never going to recoup their investment (if the fire didn’t wipe them out). It’s really interesting because in theory they would have to drop their prices until someone would buy it. But not only is information not instantaneous, there’s no certainty that it would happen like that.
You might be interested in reading George Soros’ speech on Reflexivity which describes how sometimes the intrinsic value of things (like financial securities) and their market value grow further or closer together. What’s interesting is that if perception and prices rise, this can actually have a changing effect on intrinsic value higher or lower.
No one ever knows precisely what the intrinsic value is at, and since it is reflexive and affected by the market value, this makes it much more elusive.
Really somewhere along the line value is being created, because whenever someone develops a more efficient means of producing the same output that is making the value of a dollar increase since the same output can be bought for less. That suggests that value can also be destroyed if those techniques or abilities are lost (i.e. the last COBOL coder dies and there’s no one to replace him so they have to use a less efficient system) - but I think most real world examples of it are probably due to poor flow of information or misinformation.
At the end of the day it all feels suspiciously close to Aristotle’s Potentiality and Actuality Dichotomy.