Lately, I have been thinking a lot about the meaning of “value”. It’s a word that appears in my everyday work as an accountant. I record transactions at their “past (historical) value”; sometimes I calculate “future value”, and still other times I need to determine “present value”. I have seen financial statements that incorporate all three of past, present, and future values, and of course the term “time value of money” is frequently used in the financial industry.
But what is the connection between “time” and “value”? Consider this: that there is no intrinsic value in money. The only value in money is the belief that buyer and seller place in it as a medium of exchange. Take your dollars or Euros or pounds or yen to another planet and they would have no value there. Value is entirely a function of human belief. This is the reason we use two words in each and every transaction of value that we record everywhere on planet Earth: debit, which means “belief owed” and credit, which means “belief received”. In the balance of all transactions is “belief” itself.
What do we believe in, and to what do we apply value? As inflation begins to take hold, decreasing the value of the money we hold today, we might ask how much of the value destruction arises from our fading belief in the potential of the future? Why are some more willing to place greater value on a digital bit called “cryptocurrency” – which has very limited practical use – than the currencies backed by nations of people?
Should we turn the statement around and instead of wondering about the time value of money we should think instead about the value of time? What do we believe the value of time is? Doesn’t it depend on our vision for the future, and whether we think the future holds the potential of greater value than the past?