This post is all about theories of value (opens new window), which form the foundation (the axioms (opens new window)) for further economic theory and analysis.

When I say "value", I'm not talking about prices, but about "happiness" or "flourishing", what economists usually call Utility (opens new window), and which I'll call Welfare.

The theory:

• Humans have experiences that we consider either desirable or undesirable (they have positive or negative valence (opens new window)). Actually achieving positive experiences I'll call Welfare.
• Humans exist in the Universe, which contains all the stuff (natural resources) that gives us our experiences, including those that produce Welfare.
• In order to get Welfare, Labor must be performed to act upon the Universe. Labor can do something temporary like getting and eating food, something semi-permanent such as building a shelter or moving to a more hospitable climate, or anything in between.
• Labor can be enhanced by using Leverage. Leverage is any preexisting configuration of the Universe that makes it possible to get the same amount of Welfare with less Labor, in the exact same way a lever (opens new window) allows a large amount of weight to be moved with a smaller amount of force. This can come in the form of many things, such as knowledge, skills, structures, tools, technology, and even social systems.

In short: Welfare equals Labor amplified with Leverage acting upon Universe

Welfare = (Labor ⋅ Leverage) ⋅ Universe

Understanding Leverage

Leverage is the most useful part of this theory to understand, since the capacity of both Labor and Universe are basically finite and immutable in the real world. Leverage in contrast is theoretically unbounded, as proven by the rapid advancement of technology over the last few centuries.

Leverage comes in two forms: knowledge and configurations.

• Knowledge is obvious: knowing which plants are poison or medicine is a huge form of Leverage, along with all the knowledge about how to hunt a deer or make charcoal or build a computer or an electric motor.
• Configurations are physical arrangements of the Universe that can be used for Leverage (tools, machines, buildings, roads, trains, dams, etc).
  • Configurations can very reasonably be thought of as useful encodings of knowledge into the real world.
  • Configurations don't have to be human-made: the Universe often gives us ready-made configurations, such as when plants happen to be useful or aquifers exist that collect and purify water.

In a way knowledge is a configuration, but a configuration of neurons or ink on a page or charges in transistors, structures that encode that knowledge. But in practice knowledge behaves very differently, especially since the cost of transmitting information has dropped to essentially zero (opens new window).

Leverage and economic productivity (opens new window) are essentially the same thing, except that Leverage is slightly broader. It describes a persistent capability, or latent capacity, whereas productivity is a point-in-time measurement.

It's also important to note that most Leverage we enjoy didn't exist naturally, but was created by Labor. It seems reasonable to assert that most of what we think of as "Society" is all the agreements and social systems we've created to incentivize each other to apply the Labor necessary to build up and use Leverage. My assertion is that the success of any socioeconomic system will be almost entirely determined by how well it achieves that incentivization. The most effective way for us to make our world better is to increase our Leverage, either by discovering new technologies or improving the systems we use to make decisions.

And it's useful to notice that Labor and resources can be expended either to immediately "cash out" and create Welfare now, or to build up Leverage in the hope to create more Welfare later.

Is this a new theory of value?

Sorta? Most of these ideas have been explored by others. I'm mostly just distilling, simplifying, remixing, or elaborating on concepts already proposed by the Labor Theory of Value (opens new window), the Subjective Theory of Value (opens new window), and Georgism (opens new window).

• The first two theories understand Labor, and mix together Land and Leverage as "Capital".
• The Subjective Theory of Value understands Welfare.
• Georgism understands that things like "Land" are usefully different than other forms of Capital because of their inherently finite nature and tendency toward some kind of monopoly, and so pull them apart.

So what have I added?

• I've expanded "Land" to Universe, since this theory of value would apply just as well in space and other planets as here on Earth.
• I've generalized the concept of Leverage from Capital. Previous theories might have correctly understood that things like knowledge and infrastructure are Capital, but the word is overloaded and confusing in modern discourse. The term Leverage is neutral and much more intuitively describes what's going on.

Importantly, the term Leverage doesn't in any way imply "ownership" or any particular social system, such as private property. It is completely agnostic about what social systems are in place that create and direct Leverage, if any. Leverage is just a description of opportunities presented by physics and biology, and has nothing to do with human institutions.

And finally the similarities to previous theories:

• This theory accords with Subjective Theory in that the "value" of something is simply how much Welfare it can bring to some particular actor (opens new window) at some particular time based on their preferences.
  • Importantly this has nothing to do with markets or exchange, which reveal how much value something has relatively between actors, considering their comparative power and access to such a thing. So if markets and the opportunity to exchange exist, then the value of something depends on both its Welfare value and its possible exchange value, since it could be exchanged for something that might have more Welfare value.
• This theory accords with Labor Theory in that the centrality of Labor for both building up and using Leverage is recognized. Importantly the Labor of all those who bring useful marginal contributions (opens new window) is acknowledged, including all those that discover useful knowledge, or usefully organize the Labor of others, or operate the means of production.
• This theory accords with Georgism in that natural resources and other naturally monopolizable things are separated from other forms of Capital.

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Appendix

Some applications of leverage

Welfare-Neutral Force Amplification:

The easiest form of Leverage to understand is forms that literally "move the Universe". This category describes structures, machines, and knowledge that help us simply change the Universe more, regardless of the Welfare effects those changes have.

• A pneumatic excavator (opens new window) allows a single person with barely any exertion to move the same amount of earth as roughly sixteen workers exerting immensely with shovels (opens new window).
• A train can move thousands of tons of freight hundreds of miles a day, whereas a human can carry around thirty pounds roughly twenty miles a day.
• A calculator can instantly perform calculations that humans take many seconds or minutes to grind through.
• An internet network can transmit messages to billions of people in seconds.

Most of the time we just call this category "technology", even for skills or techniques that require very little or no technology, such as pinching a banana (opens new window) or lifting with your legs (opens new window).

Welfare Fittedness

A more nuanced form of Leverage is knowledge of what actions actually produce Welfare, rather than Welfare-neutral force amplification. This category we mostly call "psychology" or "aesthetics", our understanding of what things actually make humans happy.

Things like better ways to calm a baby (opens new window) or how to sleep restfully (opens new window) or compose enjoyable music (opens new window) are all examples.

Coordination Systems

Anything that helps a group of actors work together to coordinate their Labor such that they achieve more together than they could individually.

• Social systems such as governments and firms create Leverage by making promises and rules that form a foundation for further coordination.
• Decision-making systems such as votes or ballot surveys allow large groups to aggregate preferences.
• Communications technology of all kinds reduces the Labor required for coordination across space and time.