Very much so!
Money is a tool used for accounting, while value is a system for perception. They interact, but as you say, are not the same.
I own shares of a company (I am therefore a shareholder), if the value of that company increases then the value I own as a shareholder increases, hence value was created for me as the shareholder. This is such a basic principle that the author failing to understand this is kind of embarrassing.
There are other basic things the article gets wrong, like saying that bartering doesn't create value which is patently false. Bartering does in and of itself create value by allocating resources to those who wish to consume it. When Alice trades an apple with Bob for a potato, it's usually done because Alice has a need for a potato and doesn't have a need for the apple, and vice versa for Bob, hence the allocation of apples and potatoes goes to where it's most desired. This increases the efficiency of resource allocation which in and of itself creates value. Furthermore the bartering in and of itself causes an incentive to produce more apples and potatoes.
Honestly this is really basic stuff and not worth writing an entire article bickering over semantics.
What does it mean to 'create value'? As a passive shareholder who does nothing but own shares that increase in value, have you actually created anything? How can you have created value without creating anything? If Alice values potatoes at 1.01 apples and Bob values apples at 1.01 potatoes, and they trade, maybe they've created 0.01 apples worth of value but they certainly have not created two, they started with two and ended with approximately two. If they change their mind and trade back, they've not created 0.02 apples worth of value, they've revealed that the whole thing was a waste of time. If the value of your time is $14.95 an hour, and you get an Amazon job making $15 an hour, Amazon's addition to the economy is $0.05 per hour not $15.
No, it's the farmer who starts with dirt, water, sunshine and diesel and grows the apples and potatoes who is creating value. "Efficiency of resource allocation" are a lot of big words that do little more than justify the speaker diverting a little of the revenue stream to themselves.
Money is only very loosely connected to value creation, because there are two separate factors that tie them together: The amount of value your work adds to society, and your ability to extract money from society.
The whole point is that no human, not even Jeff Bezos, can generate 200 billion dollars worth of value by working. Not by carrying a lot of boxes really fast, nor by thinking really hard, nor by working long hours; not even if he pushes even more boxes while thinking really bright ideas while saving time by peeing in a bottle instead of going to the bathroom, he's simply not that many orders of magnitude smarter or stronger or more dedicated than other humans. And yet his net worth is close enough to $200B that it makes sense to round up about $1.7 billion dollars worth of value, while other people are carrying boxes for $15 an hour and are orders of magnitude away from rounding up to a net worth of $0.1 billion dollars.
The disparity between value generated and money extracted is the core injustice that the open letter glosses over with casual semantics and that the article seeks to understand and expose by being unconventionally precise.
Just because it’s the same commodity doesn’t mean it’s worth the same amount at every time and place. Transportation and storage are technologies that add value by taking surpluses and moving them where they are needed more. This is still true when the cost of transport is very cheap.
Amazon is clearly doing something very useful with its warehouses and delivery. This is all about getting stuff to people whenever they want it.
How much this is really worth is unclear. You can’t take prices at face value. A monopoly could charge higher prices than other companies would charge for the same service in a competitive industry, and the difference is how much of the value goes to the company versus the buyer. But doing calculations using prices is often the best we can do.
It's pretty obvious that fish slowly going bad on a boat is worth little, and that driving an expensive reefer truck to get it from there to a grocery store (and subsequently, for the fishmonger to process and package it) is a valuable, constructive process.
However, for something closer to the real world, if you set up a regulatory system where you're the only one with the registration needed to sell fish, then you buy 1000 kg of frozen Tilapia from fishermen at $2/kg, hire a freight company to drive it a few dozen miles from the docks to the packing plant for $300, spend $300 to have it inspected, and sell it to the packer at $4/kg, have you really added anything? You've made $1400 profit, but you've barely lifted a finger to make some phone calls. That's not 'value creation' or a unique skill in 'identifying supply and demand', you're abusing market inefficiency to rip people off and undeservingly make yourself richer. And then to pat yourself on the back at the end and say you created value equal to the fishermen's profit plus the $600 of services you bought + your own $1400 profit is just adding insult on injury.
Doing calculations using prices is easy, but we can do better than to take them at face value. Amazon is clearly doing something useful, yes, but not $301B worth of useful. They're also positioning themselves to take more money out of the connection they've established between buyer and seller than the shipping, processing, and warehousing costs.
Charging more is capturing consumer surplus value. If it weren't still worth the money, they wouldn't pay for the fish. The higher price more accurately reflects that value of the product to the people who still buy it. (Assuming they know what they're doing.)
Whether or not charging more is good or not depends on your point of view. Buyers and sellers have different opinions. I believe "charge more" is a slogan generally repeated approvingly around here when we're talking about developer salaries?
Here's an example of capturing consumer value that's considered relatively benign, good even: you can listen to a lot of music for free these days, but then Patreon came along and convinced a lot of people that artists should be paid more. The market price in a perfectly competitive market is that music should be free, but sometimes the fans themselves disagree with that.
It doesn't seem like there is any objective truth to the matter as to how much music is worth. There are only opinions. Sometimes you can do some math, but the input is opinions, so the output is aggregate opinions.
The same seems true of other prices. Costs usually set a floor. Consumer value is higher than that, but people disagree on what's "worth it."
This doesn't happen though. There's nothing stopping you from setting up your own fish whole selling company if you think that is lucrative. Sure there will be regulatory hurdles, but if you can make a case that you can do it for cheaper while still making a profit, you can find an investor to pay for your lawyers.
The fisherman wants to sell all their fish with a price that they know in advanced. However, the packer only wants to the fish that they know that they can sell to supermakets, and doesn't want to buy more than they have to. Without someone assuming the risk of holding a bunch of frozen fish for a long time, the fisherman wouldn't being fishing as much, which means less fish ends up with the customer, and less value being created.
> This doesn't happen though
This happens all the time.
The point isn't that it's literally impossible to compete, the point is that there's a large barrier to competition that provides no value to anyone other than the entity that created it. Time and money was spent to intentionally make the market less inefficient, so that the newly inefficient market could be exploited thereafter.
Yes, a new entity could then decide to invest time and money to try to jump over the new hurdle, or toward tearing the hurdle down. But all those man-hours and all that money spent on lawyers could've been put toward something else that creates actual value to a wider slice of society.
>How much this is really worth is unclear.
We can let the market tell us how much its worth. We can look at how much people are willing to pay for it.
How much extra is a customer willing to pay to have it shipped from amazon than go pick it up in a store?
How much cheaper is a seller willing to sell a product to have it on amazons store?
Fortunately as consumers, we often don't have to pay as much as we'd be willing to pay, so the price is an underestimate of consumer value.
But then again, it's easy for companies to confuse the issue. How can you tell what people would be willing to pay for shipping when they are using Amazon Prime and have "free" shipping? They themselves might not know if they're getting a good deal or not.
Seeing the market reaction isn't nothing, but it doesn't tell you what would have happened if you did something different. Startup often have trouble picking a price and may never know if they did it right.
That’s what arbitrage is
If you select an example with almost identically substitutable goods, no wonder you miss the point. Lets use oranges and sausages in the example instead. Now we're trading meat for fruit. What's the value to you of not dying of scurvy or protein deficiency?
Identifying imbalances in supply and demand, and working out how to resolve them creates huge value, otherwise all trade would be pointless.
That's where investors and business owners come in. They identify an imbalance in supply and demand between the labour of employees and the needs of customers. Sure the employees could do that themselves, and that's fine. It's not as if it's illegal, good luck to them. Power to the people. But the point is somebody has to do it and it absolutely creates value.
Yes sure, but to have claimed to "create" the value, it can't simply be taken from someone else. If other people were already selling apples and sausages and you move in a put them out of business then you haven't created anything, you have just captured and monetized value for your own shareholders.
Whats more, If the folks that used to sell apples, also sold bananas, but you drove them out of business, and now bananas are no longer available, value may have been lost.
Otherwise what you’re saying is increased efficiency creates no value.
But I would also argue, that these efficiency gains are tiny. That most businesses spend 90% of their labor effort fighting for control of existing value, not creating new value.
When A robot automates somebodies job away, a shareholders business is run more efficiently and shareholder value increases. But the robots value to society is not realized until the unemployed person goes on to do something else of value. Sometimes they will, but not always. These displaced people could be either a benefit or a burden to society. The value of robot labor is ambiguous.
When Google and Apple make tools for us to work more efficient I can see a clear path to value creation. (Even if very small)
When Amazon sells us more cheap junk from China that we didn't need anyhow, the value creation is a lot less clear.
I guess we are starting to get into the realm where my definition of value is not the same as everybody else. Apologies if I'm rambling, It's an interesting topic and I enjoy thinking about it as I write.
I’m a lot less worried about automaton than I used to be. There’s just zero evidence that it actually leads to any systemic unemployment in practice. Absorbing China into the labour market has been hard on low end wages, but that effect seems to over already. Increasing capacity and efficiency grows the pie for everybody and humans are very adaptable. When there’s under utilised labour, as long as the economy as a whole is healthy somebody will find a way to take commercial advantage of it and all of a sudden you’ve got full employment again. Sure there can be pain, I remember 3m unemployment here in the UK in the early 80s but we’re already back up to near full employment.
I think it will be a huge step forward in human culture when we finally accept that that not everybody has to work, and the productivity of society at large will make everything so cheap that money is really not important.
The only question is how we get from here to there. That's not clear at all.
Can the government simply take from the rich and distribute it evenly to everybody? Can the government even distribute money without inflation eating the value of everything, leaving people feeling miserable and poor. Should the government provide food, shelter, medicine, infrastructure directly? Does the government need to own the means of production?
Selling used goods often leads to valuations like this because human preferences change over time. Consider a used bookstore where people buy books they haven't read before, sell them back when they are done, and then buy some of them yet again much later to reread. The same physical items can trade hands multiple times and keep creating value.
> No, it's the farmer who starts with dirt, water, sunshine and diesel and grows the apples and potatoes who is creating value. "Efficiency of resource allocation" are a lot of big words that do little more than justify the speaker diverting a little of the revenue stream to themselves.
Isn't the farmer just efficiently allocating the solar system's resources? If not apples and potatoes, grass and trees would grow.
If the farmer produces value by directing 1KW/m^2 in a certain way then why can't Jeff Bezos create value by directing a company in a certain way?
I believe this to be incorrect. For instance, let's say that Alice runs a hamburger stand, and wants potatoes to sell alongside her burgers. Conversely, perhaps Bob makes apple pies which he then sells.
In a situation like this, they both would value (the verb) the other food more than the one they had, which would cause them to enact the trade - they are increasing their wealth by doing so. (This leads to a whole additional conversation about wealth, but I'm trying to keep it short here.)
The reason they would value it more is because they could create more value from the other's food. Bob can sell an apple pie for perhaps 10 bucks, of which most is profit. He cannot do anything with a potato, so the value of a potato is significantly less. Likewise, Alice might be able to sell one potato's worth of french fries for $5, generating a significant profit, and thereby creating value.
This is untrue and unlikely.
Invent a star trek type transporter. I bet you could sell your work for 200 billion in cash or 1 trillion in fedex stocks.
You are never going to create 200 trillion value working for Jeff so he pays you 200 billion. Amazon is setup so the value create goes to Jeff and other shareholders. If you are lucky you get 100th of the value you are part of creating. (Yearly profits + yearly valuation increases) / total employees / 1000 is your pay if you are lucky
Bezos claims he created 310 B of value and you say "as shareholder I care about value of the company", but you and other shareholders who own (together) 100% of Amazon didn't get 310 B of value, did you?
That's the thing. Neither did the economy "gain" all this value. If I work for 10 hours and earn a 1000 uSD, my employer didn't create 1000 USD worth of value. We traded my time/effort/exhaustion for money. Maybe there was some actual value created through that work for us or economy/society, or maybe it was meaningless work (and we even stole value from the society by e.g. burning me out).
Many things factor into the value of a good, including where it is and who owns it. If the bartering involves the apple and the potato trading places it’s easy to see how value is created, as the value of a good depends on its location and transporting it to a location where it is more highly valued creates value. (Otherwise transportation as an industry could never create value, in which case, why would anyone ever transport anything?)
It’s more rare that ownership will factor into value, but it comes up sometimes. An example is when the whole of something is worth more than the sum of the parts, like buying the last missing piece of a city block so that you can put a full-block development on it.
From the Bezos letter:
"Summarizing:
Shareholders $21B
Employees $91B
3P Sellers $25B
Customers $164B
Total $301B"
This article is criticizing "employee value" and "customer value", not shareholder value.
If your work is worth to me $120K, and you accept $100K, you have created $20K for me.
Therefore our employment agreement created $25K in value each year.
If your work is worth $120K to your employer, the difference, like you said, is $20K of value created by the employee.
All this to importantly note that the employment agreement didn't create $120K of value -- the employee did, for the employer.
If the employer takes 2 of you, each individually providing $120,000 of value to their customers, and, through managing you as a team, manages to extract $250,000 from a customer, then the employer has finally created value -- specifically, $10,000 worth.
And anyway, that's not the manager who produced that value: it's the sales team, without them the product is literally worthless. So what is manager paid for, again?
And even more interesting question now would be "what are shareholders are paid for anyway, after they've been repaid the initial investment with the interest on top?"
I also read the letter from Bezos and thought "ok is just useless propaganda"
But having someone break it down for me and questioning every statement, was somewhat useful, and possibly increased my awareness to this kind of krap... ehm double standards
You can bundle existing value from one side, add maybe an extra bit here and there and collect money for the process. But how much money you collected in the end has very little relation to how much value you added to the system. Especially since some of the shareholders did absolutely no value creation.
Jeff Benzos is a very smart person and an excellent CEO. He used to work for the Renaissance Fund as well. I really wish I could hear his honest opinion on this piece. He will most likely never read it but I hope he would and I hope he took the time to reply with honesty and no ego.