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Measuring the Value of Things

In everyday life we tend to think about the value of our things in dollar terms (or in whatever currency we are used to using). We also tend to think in terms of market value. If houses in a certain neighborhood are selling for $120,000, then we think a normal house there is worth about that much. What gets lost in this routine way of thinking is the contextual nature of value. The value of things is not set in stone, after all, and can be dramatically different based on context.

For example, we think a hundred one-ounce gold coins are a very valuable asset (they could be sold for $170,000 at today's market price). But to a baby these coins would be something to play with, and of no more value than plastic tokens. Value is not objective in reference to all people then, but only in regards to a person's ability to use something for a worthy purpose.

Furthermore, since our abilities vary, the value of things varies greatly according to who has them. Suppose a man in prison gives his last $100,000 for a dozen pens and a stack of paper and stamped envelopes. The value of these things to most people might be a few dollars, but he has the knowledge to start and run a business from his cell using these tools, and he makes millions doing so. This shows how much we can multiply the value of things with our knowledge and skills.

Then there are all the factors outside of our control or skills that determine value. A stack of cash might be worthless to a man who is dying--unless it can be used to buy a cure. Those gold coins would have little value to a man shipwrecked for years on an arctic island, when compared to a hot meal and a shelter.

These "situational" examples are perhaps the more obvious ones for demonstrating the contextual nature of the value of things, but they are not the most interesting. The examples of value differences based on skills and maturity or wisdom are far more fascinating. After all, most of us will not be shipwrecked and have to choose between gold and food, while all of us have some knowledge or skills which allow us to use things in better ways than most other people.

I use the comparison to "most other people" because this suggests that we can find those things for which the value is greater to us than to the "market," and so profit. It is just one way to use ideas like these. For example, if the market value of a house in a college town is $160,000 based on the $16,000 in rental income it produces each year, but you know how to produce $24,000 from it (perhaps you know how to create more bedrooms to rent out using the space in new ways), you have a huge investing advantage. Assuming you wanted to invest and make the usual return, the value of the house is actually closer to $240,000 to you, but you get to buy it for $160,000. That is just one small example, but it should make you wonder what other discrepancies between "market value" and "potential personal value" you can find and capitalize on. Here are s few more general questions about the value of things, just to get you thinking:

1. Are there things around you that might be far more valuable than you realize, if you had the maturity and knowledge to make them so?

2. How can you recognize these potential riches for what they are?

3. How can this concept be applied beyond the realm of money?

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Value of Things