Updated on: June 4, 2020 ; Wealth & Value
What is value?
Is value the same as money: Or does it have a different meaning? What comes to your mind when you hear this term? Let me guess. Is it money?
Most people often equate it to money. It is perhaps true that money is the most widely used and most commonly understood measure of it.
On a side note, please don’t confuse value with values. Values are a completely different concept that encompasses many more qualities. These qualities relate to the principles and standards of one’s behaviour.
Coming back to the topic: Normally, many ideas that apply to money are also applicable to value. So it is fine if you think of it as money for simplicity’s sake and all practical purposes. But there is a big fundamental difference that you need to understand when you come across them.
Value is your evaluation of the fair worth of something.
Example
To explain it better let’s start with an example. Imagine a world without money where people transacted through the barter system. Now think of a farmer named Paddyman who grows rice and has an ample amount of rice stored in his barn.
Now Paddyman wants to buy some oranges. He manages to find Orangiee who owns orange orchards. Luckily Orangiee needs some rice and is willing to trade her oranges for Paddyman’s rice. As Paddyman found Orangiee with the exact opposite need, we reckon that the problem is solved, right? Not yet…
The next key question they face is: “What should be the exchange rate for rice and oranges”. If both of them have no prior knowledge of any similar transaction that has taken place, then they would have to negotiate to settle on an agreeable exchange rate. Let’s assume, our two friends here have reached an acceptable exchange rate pretty soon. The rate they settle on is:
1 kg of rice = 3 oranges
So, what do you infer from the above transaction?
Our friend Paddyman values 1 kg of rice to be as worthy as 4 oranges. On similar lines, our other friend Orangiee values 1 orange to be as worthy as 250 gms of rice.
Here we notice that both Paddyman and Orangiee have assigned some value to their produce even in the absence of any money.
Why money?
So, the value of any item or service is the intrinsic worthiness that we associate with that item or service. This could be quantified in terms of money or any other measure. For instance, it could be in terms of gold, silver, sea-shells, etc. As a matter of fact, some of these were very much in use until the time when money got introduced in the form as we know it today.
We need a common measure to value the countless number of items and services around us today otherwise, there will be utter chaos and confusion. Money solves this need because it has solid government and institutional backing. So money is the most widely accepted and popular way to measure the value of anything.
There are different variants of money or currency. They mostly vary by country and region. For example, rupees, dollar, pound, euro, etc. Also, there are globally followed standard ways of currency conversion.
Value of money
Now is the time to introduce money into the example of Paddyman and Orangiee. If 1 kg of rice costs Rs. 100, then 1 orange would cost Rs 25. Interestingly, we can also measure the value of money by the same logic. We can very well say that Re 1 is worth 1/100 kg of rice.
Change in value
The scenario played above is an example at a single point of time. Let’s make it a bit more interesting by adding the element of time to it.
What if the same 1 kg of rice costs Rs 120 one year later? Will you view it as an appreciation of the value of 1 kg of rice by Rs 20 i.e., appreciation by 20%?
Or will you view this as a depreciation in the value of money (rupees)? Depreciation by (1/120 – 1/100) 16.67%. This is calculated as the decline in the purchasing power of Re 1.
So you can see that the value of any item, including money is not fixed. It may vary based on time, and the measure used to value that item.
Conclusion
Value is the intrinsic worthiness of an entity or service. We can measure the value of most of the goods and services in terms of money. Even money also has an intrinsic value associated with it. Can you relate this to the fluctuations in the current exchanges?
The measurement of value is relative. It depends on the measure you use to determine the value of the item you are interested in.
I hope this article helped you gain a fresh perspective on value. More you ponder upon this and try applying it to your surroundings you will start understanding it better.