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I thought it was poorly written and fails to understand some simple financial terms. When people say value is created for shareholders, they don't mean sharehol

by Kranar 6y ago

I thought it was poorly written and fails to understand some simple financial terms. When people say value is created for shareholders, they don't mean shareholders created that value; they mean that the value of the thing owned by shareholders has increased. 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.

MattRix 6y ago
Maybe you need to read the article again, because in this comment you are conflating different kinds of “value” as if they are all equally meaningful.
burkaman 6y ago
> When people say value is created for shareholders 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.
LeifCarrotson 6y ago
This is a philosophical piece, the fact that it's really basic stuff is exactly why an entire blog post (better yet, a journal article or book) should be written to bicker over those semantics. Those financial terms are loaded with meaning and the author believes that meaning to be invalid; the semantics are the entire point. 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.
- simonh 6y ago
  >they've not created 0.02 apples worth of value, they've revealed that the whole thing was a waste of time 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.
  - SuoDuanDao 6y ago
    Sometimes I get concerned by how unabashedly people put forward frankly socialist talking points in public discourse these days. But then I see how incredibly common sense refutations by people like yourself are, and feel a little less worried.
    - simonh 6y ago
      Well, I don’t think socialists are completely wrong about everything. It’s just that particularly in economics the basic theory they’re working from is deeply flawed. On the other hand while market forces are incredibly powerful, they’re not an end in themselves. Both capitalism and socialism taken to ideological extremes can be incredibly dangerous and harmful, but the ideas in both have plenty to offer.
  - jay_kyburz 6y ago
    >Identifying imbalances in supply and demand, and working out how to resolve them creates huge value, otherwise all trade would be pointless. 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.
underdeserver 6y ago
It is false, but so is Bezos' claim - if you would take $100K in salary, but wouldn't take $90K, that means your time is worth X where $90K <= x < $100K. Let's assume x = $95K. 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.
- Joker_vD 6y ago
  I remember reading something like this in Marx's first volume of Capital, where he was explaining how the labour is "self-expanding", that is, producing more than it costs to sustain (except he used work-hours in accounting). Funnily enough, if you read Marx's account closely enough, there is no unfairness in payment: what's bought is "ability to work", its marginal price in the competitive market is exactly the cost of living, and the fact that the price of the resulting product the higher is irrelevant.
- ImPostingOnHN 6y ago
  If someone pays you $100K, then your value is, by definition, $100K, because the value is what someone is willing to pay. 100% of that value, by the way, is created by you developing from a $0K-salary baby into a $100K-salary adult. So that's 100K value created by the employee (and the people in their life to an immeasurable degree). 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.
  - Joker_vD 6y ago
    It's a interesting approach to accounting, except for the fact that the manager is not paid $10k when employers are paid $120k each. 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?"
jakubp 6y ago
You are wrong about apples and potatoes - the blog post author does mention your story just under different term: utility, which is a standard way to express the notion you touched: the total utility of an apple and a potato in the right hands is higher than utility of them in the wrong hands. So barter increases utility, but economy as a whole isn't any more valuable because of it (externally it'll trade the same). It's also echoed in OP's point about utility of money (and a question whether Amazon actually increases or decreases total utility in the economy). 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).
- dodobirdlord 6y ago
  > So barter increases utility, but economy as a whole isn't any more valuable because of it 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.
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lottin 6y ago
No, the author is right. He says that barter does not create market value which is true. Barter may or may not lead to a better allocation of goods, in terms of exchange efficiency, but the market value (i.e. price) of those goods and the amount of goods remains unchanged.
- ezrast 6y ago
  For the record, the post you are responding to (and many others sharing similar criticism) was made before I changed "no value" to "no market value" (this edit is called out in a footnote).

by Kranar 6y ago

MattRix 6y ago

Maybe you need to read the article again, because in this comment you are conflating different kinds of “value” as if they are all equally meaningful.

burkaman 6y ago

> When people say value is created for shareholders 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.

LeifCarrotson 6y ago

This is a philosophical piece, the fact that it's really basic stuff is exactly why an entire blog post (better yet, a journal article or book) should be written to bicker over those semantics. Those financial terms are loaded with meaning and the author believes that meaning to be invalid; the semantics are the entire point. 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.

simonh 6y ago
>they've not created 0.02 apples worth of value, they've revealed that the whole thing was a waste of time 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.
- SuoDuanDao 6y ago
  Sometimes I get concerned by how unabashedly people put forward frankly socialist talking points in public discourse these days. But then I see how incredibly common sense refutations by people like yourself are, and feel a little less worried.
  - simonh 6y ago
    Well, I don’t think socialists are completely wrong about everything. It’s just that particularly in economics the basic theory they’re working from is deeply flawed. On the other hand while market forces are incredibly powerful, they’re not an end in themselves. Both capitalism and socialism taken to ideological extremes can be incredibly dangerous and harmful, but the ideas in both have plenty to offer.
- jay_kyburz 6y ago
  >Identifying imbalances in supply and demand, and working out how to resolve them creates huge value, otherwise all trade would be pointless. 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.

underdeserver 6y ago

It is false, but so is Bezos' claim - if you would take $100K in salary, but wouldn't take $90K, that means your time is worth X where $90K <= x < $100K. Let's assume x = $95K. 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.

Joker_vD 6y ago
I remember reading something like this in Marx's first volume of Capital, where he was explaining how the labour is "self-expanding", that is, producing more than it costs to sustain (except he used work-hours in accounting). Funnily enough, if you read Marx's account closely enough, there is no unfairness in payment: what's bought is "ability to work", its marginal price in the competitive market is exactly the cost of living, and the fact that the price of the resulting product the higher is irrelevant.
ImPostingOnHN 6y ago
If someone pays you $100K, then your value is, by definition, $100K, because the value is what someone is willing to pay. 100% of that value, by the way, is created by you developing from a $0K-salary baby into a $100K-salary adult. So that's 100K value created by the employee (and the people in their life to an immeasurable degree). 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.
- Joker_vD 6y ago
  It's a interesting approach to accounting, except for the fact that the manager is not paid $10k when employers are paid $120k each. 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?"

jakubp 6y ago

You are wrong about apples and potatoes - the blog post author does mention your story just under different term: utility, which is a standard way to express the notion you touched: the total utility of an apple and a potato in the right hands is higher than utility of them in the wrong hands. So barter increases utility, but economy as a whole isn't any more valuable because of it (externally it'll trade the same). It's also echoed in OP's point about utility of money (and a question whether Amazon actually increases or decreases total utility in the economy). 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).

dodobirdlord 6y ago
> So barter increases utility, but economy as a whole isn't any more valuable because of it 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.
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lottin 6y ago

No, the author is right. He says that barter does not create market value which is true. Barter may or may not lead to a better allocation of goods, in terms of exchange efficiency, but the market value (i.e. price) of those goods and the amount of goods remains unchanged.

ezrast 6y ago
For the record, the post you are responding to (and many others sharing similar criticism) was made before I changed "no value" to "no market value" (this edit is called out in a footnote).