I am not an economist, nor am I a student of economic theory. I have a limited understanding of the theories of money, and as simple understanding of the principles of capital markets. But I do understand the theory of value. Value is created when humans expend effort toward the creation of a product, or towards the execution of a service. Those products and services have a cost (unit effort + material input + a share of (infrastructure + marketing)), and in a relatively unconstrained market (no such thing as a free market) the products and services have a value (how much someone will pay for it).

Humans voluntarily commit their time to the creation of value (go to work), because they believe that the compensation they receive for their effort towards creating concentrated value for others to purchase, allows them to purchase more value of greater diversity than they could produce individually. Here is my example to illustrate this point: I go to work as a software developer, earning $50 per hour. But my home needs to be painted. As a painter, I am not skilled, and so I can paint about 1500 square feet of surface (walls and ceilings) in a day. A professional painter costs me $50 dollars an hour, but can paint 3000 sq ft of surface per day. Assuming that the cost of materials and equipment is the same (they are not), If I stay home from work to paint my house myself, it costs me roughly $25 per hour that I do this. This is because I am compensated for creating value based on my skill in a way that exceeds my ability to create value as a painter.

In our economic system, every job (we’ll get to this in a minute) has some relation to created or creating value. There are 4 basic relationships to this value: Supplying effort (labor, including direct production, design, research, planning, management), Supplying side (acquiring and managing the materials consumed in the value creation process), Infrastructure (means of production, facilities, accounting, administration, hr, treasury management), demand side (everything after production including inventory, distribution, sales, advertising, customer service, etc). There is one relationship to value missing above – that is deciding what value to create. That is the role of director, propietor, owner, investor, etc.

In fact, every category in every relationship listed here except director has it’s own industry – such that what emerges is the complex web of supply and demand and amazing specialization. Every one striving to create value that others wants to consume…

In a simple example of a coffee shop (say Starbucks), we have the growers of the coffee beans (Juan Valdez), the supply side (warehousing, roasting, transport, purchasing, packaging, redistribution, etc), the service of converting beans into a cup of coffee on demand (provided at the store), the additional service of special preparations (like expresso, cappucino, latte, etc.) and perhaps the implied (indirectly compensated) service of having a place to hang out, meet, or get some work done. The infrastructure requires a physical store presence with storage (for consumables and merchandise), specialized equipment (bought from equipment manufacturers), management and employees, requiring human resources to recruit and train, etc. On the demand side, there is marketing, advertising, and the barista’s themselves who are half marketing, half service provider in that they perform dual role of sales and preparation.

Lately the finance industry has been getting a lot of negative attention. I suppose, that their relation to value creation is as an infrastructure service provider. The basic services they provide are credit and liquidity. Credit is the service that used to be called usury – using other people’s money. Liquidity is a newer service that allows the ownership interests of a business enterprise to be transacted using some very generalized legal shared ownership constructs, and the infrastructure of a daily market for shares of corporate ownership. Their stated business model is to take value from the movement of wealth. They help you take some of your excess value (wealth) and let other value creators use it to create more value, of which you are entitled to some. Every time they do this, a transaction takes place, and since the finance industry manages the transaction, they take a little piece of value from the activity: a transaction cost, a spread, a fee.

The finance industry exists not to create value, but to manage the transfer of wealth between parties. The problem with the finance industry is greed. Because the marketplaces that provide liquidity also define the prices or valuations of those corporations, the finance industry has the ability to sway or manipulate those prices. In fact, corporations have become so dependent on credit and liquidity, that they focus more on their stock price than they do on their relationship to created value. This “inversion” has made the finance industry more powerful than their true relation to created value would indicate. It also has enabled the finance industry to “take” more than a reasonable share of the created value out of the market. This has been done by continually devising new financial instruments or transactions to take value through the application of market liquidity principles via complex transaction strategies. Derivatives, hedge funds, day trading, all examples of these strategies – not providing a service, but “gaming” them liquidity or credit markets, to “pull” wealth from them, rather than earning it by providing a service.

I think that the current electoral process is devoid of value creation. I think vast amounts of wealth are donated to and consumed by the electoral process, and very little value if any is created. I also think there is a tolerated industry of influence surrounding our government, that does not create any value.

Without exploring them in this post, I want to put out there the following questions:

• What is the relationship of education to value creation?
• What is the relationship of organized religion or other social enterprise to value creation?
• What is the relationship of entertainment or the arts to value creation?
• What is the relationship of philanthropy to value creation?
• What is the relationship of criminal enterprise to value creation?

The reason I pose these questions that each of these poses a vast “industry” or pool of employment. But [how] are these jobs involved in the process of creating value?