In this part, I examine how value in use or Φ is generated. Yes, generated.
Exchange value is typically described in terms of creation. If we consider the underlying assumption of modern monetary theory, exchange value is figuratively and literally created. In contrast, value in use must always be generated. That is, in simplified terms - (1) there must exist available primary capital(s), (2) difference or disequilibrium (3) a means of transforming the available primary capitals or a compatible capital engine or converter into work or new capital and (4 ) fuel(s), in the form of other available capitals to power that engine. To speak in terms of value creation disguises the sophistication of the underlying processes that result in the production of more or less capacity to bring about change. Value in use cannot be created out of nothing.
I recommend reading the Millennia Challenge Series from the start to familiarize yourself with the variable involved in the generation of value in use.
Based on these variables, I suggest there is a formula for deciding whether a given action or event generates more or less value in use. Or in practical terms, whether after the transformation of a primary capital, an individual, corporation or society can create more change or less. I call this sustainability metric value return on investment or VROI.
This is a significant departure from contemporary approaches to sustainability that advocate for preservation, regeneration and circularity. At the core of VROI is a process that continually generates and dissipates value in use.
You only need to Count to 1
Before describing the VROI formula in more detail, it’s worth pointing out that, at this stage, the formula does not produce a universal metric, like dollars. Unlike exchange value, that has the benefit of being expressed in numbers, we are yet to discover a way of quantifying the potential value in use in a thing into a numeric equivalent. But that never stopped progress in physics. We can move forward with out a universal metric or measure of equivalence using observation. Explaining potential change (another description of capital) by comparing and analyzing the relationship between things in terms of magnitude (more or less), speed (fast or by slow), time (short or long) and possibility (can or can’t) to explain value generation.
No doubt this approach is unsatisfactory to those conditioned to require ontological certainty in the form of a solid mathematical equation. But, nature provides a far more persuasive argument - if you don’t eat, you die. The principle described in the context of energy in its physical form (EROI). As systems ecologist, Charles Hall has been reminding us for years:
At its simplest, energy return on investment (EROI) is the ratio of energy returned to the energy expended during an energy-gathering process. In the realm of coupled natural and human systems, EROI is a primary sustainability metric quantifying an unyielding thermodynamic limit imposed on nature—and therefore on all of civilization. The ramifications of EROI are absolute… the laws of thermodynamics require that all species acquire more energy than they expend, or they die (i.e., EROI must be greater than 1).
If available energy is a predictor of continued existence, 1 is the threshold indicator. Thus, all things being equal, we only need to count to 1 . An EROI of less than 1 and you know you are closer to death. Greater than 1 further away from non existence. And, if EROI is consistently less that 1 you have, as Madam Cotard discovered a long time ago, an existential problem. The goal of course is not to get to 1 (that’s sustainability) but as far way from 1 as possible (that’s flourishing).
Based on the notion that value in use is energy in its social form, I’ve modified Hall’s EROI formula to apply to the transformation of capitals that store value in use or VROi.
I suggest that the better use of a thing is signified by a VROI greater than 1. While there are exceptions, any use of a thing that in all likelihood leaves less available capacity to bring about change than when the process started is not the best use of a thing. The irony, lost on exchange value boosters, is maximising a preference or a profit can minimise the capacity to bring about future change. Trapping individuals and corporations in value poverty.
Value poverty is the state in which a system does not have access to the value in use required to make any real change or exercise any control in the face of outrageous fortune. To be clear value poverty is not a synonym for financial poverty. An individual or society with more access to financial capital than another, may still, from a value in use perspective be experiencing value poverty when compared to an individual or society with less financial capital but reserves of social capital. This is because social capital can typically do more work and for longer than social capital. For example, from an individuals perspective, she can only use her dollar once but she can use her social capital more than once ( and it may increase from use).
Value Return on Investment or DECIDING THE BEST USE OF A THING
Using the start point as the the value in use stored in primary capital(s) before any transformation process, the midpoint as the value in use stored in the capital(s) which are used by capital engine or capital converter to transform the primary capital, and the value in use of available capitals stored at the end point, its possible to create a basic formula to determine the best use of a thing:
If the total value in use stored in capitals can do more useful work at the end point is greater than at the start point (after adjusting for mid point transaction costs and discounting for the risk of the unexpected or intended), value in use is more likely to have been generated and the transaction can be described as efficient from a value in use perspective. The net value in use position is positive or more than 1.
However, if the total value in use stored across all available capitals at the end point can do less useful work than at the start point (after adjusting for mid point transaction costs etc.), value in use has been destroyed and the transaction can be described as inefficient. The net value position is negative or less than 1. Though inefficiency doesn’t capture the potential gravity of the situation.
The outcome of persistent or even systematic net negative value in use transactions is that the total value in use available and accessible to do useful work in the future decreases. Eventually this leads to what I call a “value crisis”. The acute event where either primary capitals are exhausted ( there is nothing to transform) and/or the capitals required to “power” the capital converter are insufficient ( there is something to transform but it is trapped in that form) and the system in question can no longer maintain its own existence because it does not have access or the ability to generate the value in use required to maintain existence.
You will note that I refer to availability and accessibility in the context of VROi. Availability means that a given system can access or use a given capital. Ownership is generally a good indicator of availability ( but as we will see in later parts, not necessarily). Accessibility refers to the ability to use a capital in a given way. You will recall from previous parts in the series that, in the absence of a compatible engine capable of transforming a capital to liberate its value in use, the value in use is trapped. The value in use may be available but without the right capital engine it is inaccessible. Put another way, the potential value in use of an output capital is dependent on availability and accessibility.
Of course counting to 1 is not easy in the context of value in use. It requires quantitative and qualitative assessment of the relative capacity of capitals to bring about change based on their properties and characteristics discussed in part 11 of this series and alternative uses. For example, the types of work a capital can do, over what time and at what rate of exhaustion. But despite the difficulty and paucity of research, the significance of VROI more than justifies the exercise.
The Significance of VROI
VROi, like EROI is more than just a sustainability metric. It’s also a measure of flourishing. It’s no accident that the greatest diversity of life exists where there is an abundance of available and accessible energy. Where there are stores of values and the means to transform those stores into infinite possibilities made possible by entropy. The physics of value in use, discussed in part 7 of the Millennia Challenge Series, are the same physics of life. I suggest the same immutable principle applies to energy in social form - value in use. Individuals, corporations and society flourishes where more value in use, stored across all capitals, is being generated from activities and events than less.
The opposite is also observed. Life ceases to flourish in an environment where the use more is routinely transformed into the use less. A process marked by a scarcity of available value rich capitals, the destruction of engines responsible for generating value in use or unimaginably, the recklessly indifferent creation of engines that turn capitals with more value in use into capitals with less value in use. A process I describe as decapitalisation:
A business model designed to maximize financial capital will not necessarily create the greatest value in use. From a value in use perspective, if a business model transforms capitals with a greater value (work capacity) than money into money, the transformation is inefficient. The result is more money but less value. In practical terms, this means the business model is producing less capacity to do work in the future. This paradox is at the root of neoclassical economics. Rather that capitalize resources it leads to an overall decapitalisation. More money but less capacity to bring about positive change. A paradox that eventually leads to a value crisis.
In this sense, the “ism” in capitalism denotes a verb and not the more common noun. Whereas the neo-classical collective use the word capitalism as a noun, from a value in use perspective, capitalism describes the process by which capital is transformed into greater available value in use and decapitalsim the reverse.
Decapitalism is far darker than in it sounds. It’s not even a play on “decapitation” or removing the head of capital. Rather, it described the process of shrinking total energy its its social form available to empower an individual, corporation and or society. Consider a capital that does not exhaust its value in use through use or even increases its value in use through use. If it is destroyed, the consequence is the real destruction is not that capital but of the potentially unlimited work that the capital could have performed. For example, when a cultural artifact is destroyed, it not just the form that no longer exists. The value in use of the artifact embodied in that form ceases to be transferred into the environment and available for use by those in the “know”. The value in use that previously poured out and enlivened ceases to be available. Likewise, when we destroy the means to access that value, through the disappearance of language and culture, the value in use in the artifact becomes trapped. The value in use that would otherwise be available to flourish now encased in forced ignorance.
Decapitalism is an extreme form of inter generational vandalism. Depriving the future not just of things but the value in use stored in those things. Leaving our children with less capacity to generate socially useful change. The neo-classical mantra of maximising profits for shareholders is nothing short of a call to war against the future. if this sounds like polemics, how else should we describe an organizing principle that sucks energy out of system and needlessly accelerates entropy. With no irony, it is described as growth and the transformation of more things into financial capital indifferent to what this means in real terms celebrated as in GDP.
Fortunately, the VROi formula suggests decapitalism is a reversible process. Given available primary capitals, the development of novel capital engines capable of transforming those capitals and throwing out the neo-classical vandal playbook it’s possible to get to back to a VROi of not just to 1 but orders of magnitude greater. Indeed, many corporations do that already but the net position still looks negative. Particularly if you consider that, if the public corporation was a species, it would be on the endangered list. The ramifications of VROi, captured by the decline in the number of public corporations over recent decades, equally absolute.
But given it will take some time for the value in use energy sinks to to be taken out of service, VROI has a short term significance. It provides a useful methodology for analyzing whether a given transformation - like Dupont’s decision to transform its historic research facility into cost saving or Rio Tinto decision to transform ancient built environment into iron - produced more or less value in use. If only their board’s were taught to count to 1.
Next up a more detailed examination of the role of capital converters or engines before finally turning to the relationship between Value in Use and Systems.