The Natural Distinction Between Intrinsic Value And Extrinsic Value

The Natural Distinction between Intrinsic Value and Extrinsic Value ========<>========= Author: Abraham Philocrat Publisher: SworldTV – Sustainability Resource Centre Publication Date: August 28, 2008 Source: http://philocrat.com/sworldtv

Abstract: This document is published separately for download by visitors to the SWorldTV website. As the source document for the whole website, it is currently the most visited and viewed page on the website by visitors and search engines. We had no intention of separating this document from the website, but due to popular demand, we have come to a decision to do so. We hope that it helps people, institutions and vested interest groups grasp at least a meagre aspect of the extremely difficult concepts of intrinsic and extrinsic values and how they interplay and shape our value allocation and decision systems. If you wish to comment on this document please visit the website to do so SWorldTV - Sustainability Resource Centre.

The need to distinguish between Intrinsic Value (IV) and Extrinsic Value (EV) is very important and it is required in order to evaluate and understand such notions as Quality, Efficiency, Growth in Value, Structural and Functional Progress, and ultimately Perfection. From the point of view of Sustainability, these are extremely difficult notions to define, let alone understand. The current economic model fails to capture not only the intrinsic values of assets, goods and services but also how these intrinsic values shape both the consumers’ decisions and the decision system of the wider economy. Because economic mathematics does not capture a single psychological component inherent in the human decision system, it seems that no one knows how value-added entities within the current economic model fluctuate between intrinsic value-added mode and extrinsic value-added mode which is what is needed to capture the performance value or the sustainability value of such value-added entities (assets, commodities, and services). All that this means is that, both intrinsic value-added and extrinsic value-added modes can and do influence consumers’ decisions in a wide range of ways, and sometimes with devastating consequences on both the local and global economies. So, what is the natural distinction between intrinsic value and extrinsic value and in what ways do they affect consumers’ decisions and the acquiring of valued-added entities in the so-called free market? Let, me start by defining

these two concepts and establishing their relationships first. I will deal with their effects right after. Intrinsic Value is derived from anything or action that was designed to solve a specific human problem, preferably to 100% degree of accuracy or satisfaction. Of course we know that in the real ideal world this is not always the case, for it seems that most value-added entities or events that we design never solve our problems to 100% degree of human satisfaction without such caveats as accidents, wear and tear, unexpected errors, miscalculations, sabotage, and a wide range of other natural constraints. Because of these inherent problems, the only next sensible thing for human beings to do is to start improving all the value-added entities and events that they design with the hope that one day these designs will finally attain their peaks of structural and functional quality and accuracy in problems resolution. They will finally solve the specific human problems to the level of satisfaction that we originally intended. For example, a car is designed for the purpose of transporting human beings and goods from point A to point B safely and on time. The intrinsic value of a car, therefore, is the structural and functional ability to convey a passenger from position A to Position B safely and on time, that is, without any damage to the passenger. The physical state of the passenger at position A must be identical to the physical state of the same passenger at position B on arrival without any incident and this must be done within a reasonable pre-set time period. Hence, when pricing the car and conveyance event, the prices of both must capture only the intrinsic components of this and nothing more. No arbitrary or strayed values other than the safety component of the car design and time component of the transportation event should be featured or be factored in. Extrinsic Value on the other hand is any value that can be added to any entity or event design for whatever reasons best known to the designer and that can be completely removed from it or done away with without affecting its original underlying intrinsic value. Consider for example, three car manufacturers, one is appearance-focused, the second is functionalityfocused and the third is both-focused (takes advantage of both). The appearance-focused manufacturer pays little or no attention to functionality but continues to improve only the appearance of one model of its several models. This model from the first day it came into the market had 50% accidents rate, and after about six reissues of the same model on the market the only noticed improvement to it was the appearance. The improved appearance each time pushed not only the price of the model up to the manufacturer’s delight but also it increased the sale of the model. Yet the accidents rate still stood at 50% percent much to the ignorance of both its customers and the motor and road safety authority. From the point of view of sustainability, this manufacturer is not only getting away with murder but

also it is relying entirely on extrinsic value of the vehicle to stay in business. The second manufacturer does the opposite. He introduced a car model into the same market with little or no attention paid to appearance but with a high level concentration on the internal functionality and safety of the car. The car had an accident rate of 10% percent with a safety record of 90% and after about six bouts of improvement and reissue, the accident rate reduced to only 3% with a whopping 97% safety record. Yes, superior engineering of the car’s functionality radically improved that car’s safety to such high level, but under the current economic model where consumers seem to be influenced far more by appearance (which is the extrinsic value of the product) the car sales suffered greatly because this manufacturer paid little or no attention to the improvement of the appearance as the time, the functionality and the safety levels are improved. The third manufacturer embraced both the functionality and the appearance aspects of the design and introduced a similar car model into the same market. The appearance of the car improved proportionately with the functionality each time it is re-engineered and reissued into the market. After about six redesigns and reissues, the car’s safety record shot up to 98% with only 2% accident rate, and with future plans to push this level of improvement further. The manufacturer’s sales record improved proportionately because they were able to market both the physical and the functional improvements in a value-added manner, such that not only did these two types of improvement pushed the price of the model up each time but also they were able to market it successfully. So, this third manufacturer is laughing to the bank, but from the point of view of sustainability under the present economic model, this has created and introduced a wide range of problems of monumental scale into the economy in a highly unsuspecting way as systematically explained below. Firstly, the first car manufacturer is not supposed to exist all. Under sustainable economy, sustainability principles and safeguards would not permit this type of manufacturer to exist, let alone to participate in the production and marketing of function-critical, value-added entities to the detriment of the unsuspecting consumers as so explained. Unfortunately, the current economic model does contain loop holes under which such a manufacturer may exist and operate with impunity, especially in the underdeveloped and developing countries. Even within so-called first-world economies, loopholes may still exist for such type of companies to exist. A perfect example, of this are the so-called ‘black economies’ (black markets) that often subsist within the local economy of the developed economy and which some authorities often turn a blind eye to for all sorts of reasons best known to them. Companies of this kind are usually responsible for

manufacturing and flooding the developed and non-developed economies alike with counterfeit goods usually blamed for causing more health, environmental and economic problems than they solve. Sustainable economy has all the components with which to eliminate this type of problem from the society. The third manufacturer is undisputedly the ideal type of company that any sustainable-economic minded individual would like to embrace. In fact, any right-thinking human being who cares about sustainable living would embrace the practice of this third type of company. There is no doubt that this third car manufacturer is to an extent acting sustainably, but there is more work to be done to make the company fully sustainably. Sustainably, it has fulfilled both (1) the design aspect and (2) the valued-added aspect of it (intrinsic and extrinsic combined) but there is (3) the progressive aspect to fulfil to make the thinking and action of this company fully sustainable. What constitutes this progressive aspect? It is the price. This third company tends to get the whole concept of sustainability all wrong. The owner and shareholders of this third company are labouring under the gross misconception that when the value-added aspect of design are fixed which as you can see pushes the price of it up that’s is OK. Well, the price increase wrecks the sustainability value of all what the company had far achieved because the improvement of the appearance and the functionality to the highest level such that the price tag is pushed beyond the level of affordability decreases the number of people in the population that may very well benefit from it, which in essence turns the car into a luxury item for the elites only. This in actual fact and overall outcome diminishes the sustainable value of the improved physical appearance and functionality when finally calculated. Is the Sustainable Value of a design measured by: 1.

How functionally safe the design is?

2.

How many people actually benefit from the improved design?

3.

How pretty is the car in outward physical appearance?

Although we reluctantly acknowledged and included (3) above, the improvement in the physical appearance of the design as part of the valuedadded aspect of it, nevertheless, from the point of view of sustainability, we are naturally advised and bound to discount it from the overall sustainable value of the whole project. For it seems that it is only the functionality improvement that counts or has significant value, at least from the point of view of the overall human safety. In fact, philosophers of all ages are deeply suspicious of the exact role of extrinsic value in the overall design of things from the point of view of sustainability and human safety, and they have

questioned this for thousands of years. One of the questions they raised, and is still being discussed till this day, is the exact role that extrinsic value, such as physical appearance, plays in the overall structure and function of things. For example, in the above case, what role, if any, will the improved visual appearance of the car play during say a fatal motor accident? We know that the car has been structurally and functionally improved to a safety level of 98% with an almost negligible marginal error of 2%, but if this same car is involved in a very bad accident, what role can the improved physical appearance of the design play from the point of view of the overall safety of all the passengers involved? Will the improved appearance contribute to the overall safety of the passengers in the car during the accidents? Well, that is the question. Yes, improved functionality, which alone is responsible for the overall safety of the passengers during an accident, does add justifiable value to the car design but what is currently scientifically unclear, let alone philosophically so, is whether the improved physical appearance of it adds any justifiable value at all, let alone any quantifiable contribution to safety during a major motor accident. When the manufacturer of the car with 98% safety record used both the improved functionality and the improved appearance as an excuse to increase the price, or justify the price increase, do you think this action is compatible with sustainability principles? It is certainly not compatible because price increase has the usual consequence of decreasing the number of beneficiaries. When you think and act sustainably, the outcome must be such that it yields the maximum benefit. Sustainable Value (SV) is a measure of a percentage of the total number of beneficiaries within a given population, and an act is fully sustainable or is said to be so when the number of beneficiaries equal the population size. In fact, you can quite rightly treat 98% safety level as the sustainable value of the car design in the above example. Now, a car with an extremely high sustainable value like this one that is not passed on for the whole population to enjoy and benefit from is from the point of view of sustainability completely useless. Here is how the sustainable value of the above example may be calculated: Let SV = Sustainable Value Let B = Beneficiaries Let P = Population Let NB = Non-beneficiaries

SV = B ------- x 100% P The sustainability principle says that 100% qualitative value of a design with regards to functionality must yield 100% quantitative value with regards usage for it to qualify as being sustainable. In this very case SV must on a head-to-head count yield the highest percentage value from P for the car to be declared as being fully sustainable. If not, then the manufacturer of the car in the third example must explain to the wider world why they created a car that is almost 100% safe but whose benefit was not passed on to be enjoyed by everyone in the society or the whole population. For example, after the car has been brought to the market with full knowledge of the population, let say that after the count B = 100,000 beneficiaries and P = 300,000 people in the population, then the calculation should yield the following result: SV = 100,000 ---------- x 100% 300,000 = 33.33% The result definitely yields a negative value. The Manufacturer must explain why a car with 98% sustainable value (qualitative) yields only 33.33% sustainable value (quantitative), or should we call it unsustainable value, which is also its overall utility value. This seems to me and perhaps to any other onlooker as well, to be of no value whatsoever to the rest of the society. You cannot create safety of this type and not share it with the rest of humanity in a way that makes you the hero of that society. Why pursue value of this magnitude that cannot spread to the rest of humanity? Let’s move on from here. Now supposing the manufacturer in the second example decided to improve their own car once again, say, from 90% safety level to 100%, and they succeeded in doing so. We are told in that example that this manufacturer was functionality-focused and therefore they concentrated mainly on

improving the functionality of the car via continuous structural improvement, but paid little or no attention whatsoever to the car’s appearance. So in this final attempt they succeeded in making the car 100% safe, which implies that regardless of what type of accident that the car encounters or is involved in, no passenger dies. Let us also assume that the same manufacturer, using sustainable principles, managed to keep the price of the car at sustainable level (that is, affordable level), successfully brought the car to the market with the full knowledge of the whole population. When the government of the day heard about the existence of this car, they bought the patent for this car along with the company that manufactured it, and brought the technology of this car in full control of the authority. The government then went about the process of not only putting the car into full scale production to manufacture enough quantity to meet the demand but also pumping huge amounts funds into it to subsidise every purchase by every citizen of driving age. The Government also developed a new generation of public transport vehicles using the same technology and also made sure that all their fares are kept at sustainable levels. After the project had been successfully implemented, when the calculation was re-enacted on a head-to-head count, the following result was obtained: P = 300,000: B = 299,000 SV = (299,000 ÷ 300,000) × 100 = 99.7% This result can be shown to be equivalent to full sustainability via an internal adjustment of parameters. The parameters are adjusted by treating the sustainable fares for the public transport and the sustainable prices for the private purchases of the 100% safe car as generating 100% protection for the whole population. This adjustment occurs irrespective of whether there is a hundred percent usage of both the public transport and the private car or not. Regardless of the number of the people using the two means of transport, the fact remains that each time they want to use them (1) everyone can afford it and (2) every passenger that uses it will be protected when they do so. So the protection offered by these two means of transport is available at 100% of the time of usage. This and this alone is what provides justifiable grounds for such adjustments. The utility value of the two means of transport can be recalculated and expressed as the time under which they both remained 100% safe during usage. The result must show that 100% population remains safe at 100% of the available time. The question that now remains to answer is this. How can the manufacturer in example three under this new development justify why a motor vehicle with 98% sustainable value produces a disastrous 33.33% unsustainable outcome from the point of view of collective usage. The second manufacture,

even without extrinsic valued-added consideration has produced a far superior product that benefits the whole of the society, (1) for making human mobility from point A to point B 100% safe and (2)for making the price affordable thereby widening both its usage and overall sustainable value of the vehicle. The third manufacturer in this very sense renders its own position within sustainability scale when measured almost indifferent from that of the first manufacturer. Either they have made a regrettable fundamental error of judgement caused by genuine ignorance of the scope and substance of sustainability or they simply don’t care, perhaps because they are overpowered by greed. But they can reverse this mistake that they have made. They can actively correct the mistake by simply restructuring their manufacturing or production practices and adopting sustainable principles to make their products fully sustainable. People may begin to wonder what these sustainable principles are. Well, as I said above these manufacturers know already at least two of these principles and what they are; (1) improve the quality (safety) of your products using valued added methodologies that are by measure sustainable and (2) spread the resulting benefit to the wider population by keeping the price of your product at sustainable (affordable) level. In fact, the third manufacturer was just one step away from achieving full sustainability before greed, incompetence or genuine ignorance took over and pushed the price of the improved brand to grossly unsustainable level. Ok, they may invoke the usual bags of excuses in the world to justify why they cannot do so, but by so doing they cast themselves out of the rest of the people that are working very hard to make the human life not only comfortable but also sustainable. Sustainability is a collective concept, it is not something that one person or one group of people can achieve on their own. It requires talents and contributions from every sector of the society. The third manufacturer if they wish to get there should ask the second manufacturer not only what they did to achieve 100% safety in their final car design stage but also what they did to keep the price of it within a sustainable (affordable) level. Maybe I should give them a helping hand here. Whatever methods were used by the second car manufacturer to achieve a sustainable price level after they have spent a great deal of time and investment to develop the car, the fact remains that this company must have thought about this from outset, they must have had some sort of sustainable funding streams (SFS) set-up from outset to do so before the government found out about what they had achieved and gave them full assistance. This is the type of company that cares and this is also the type of government that cares …..and as you may well appreciate this is not the sort of issue that any government can afford to play politics with. Sustainable funding streams attract funds from a wide

range of sources depending on each company’s circumstances, from government subsidies, donations, profits, assets disposal income, inheritance to cost savings from operational efficiency. Sustainable Funding Streams (SFS) such as COP (cost of prevention) and COC (cost of cure) can use these types of funding sources to fill up and grow to maturity. COP is a sustainable funding stream used to keep all the underlying sustainable components of a business at sustainable levels, such as prices, wages, deposits, interest rates etc. The sustainable power of COP is twofold; it does not only protect the whole business against damaging and unpredictable external market forces but also it’s the coolest and most reliable way to distribute wealth (sharing the company’s wealth with the rest of the society). It is a rubber stamp badge of excellence which places the company on the highest scale of sustainability. COC on the other hand is the sustainable funding stream that, once it is set up and grown to maturity, becomes the lifeblood of the company and gives the business 100% protection. It is a funding stream that is equal or is twice the value of the business. It is the money that the company has but never uses it in the day-to-day running of the business, which is usually stuck away in a government insured or guaranteed investment. I call it investment because many business people at first gut reaction instinct would find the concept of COC impossible to stomach if it turns to be a funding stream that stays idle in a pot without earning them something. They will find this entirely against all business ethics that they have known and revered. The COC sustainable funding stream therefore is best kept in a government investment where the full sum or 100% of the total investment is guaranteed by the government, meaning that the investor will get the full value of his investment back in the event where it fails to earn interest in the usual value-added manner. Hence the worst case scenario is that whatever happens, in the end the investors should still get the full value of their COC back to serve the very initial purpose for which it was set aside for which is to rescue the business from total failure. COC, whether it is invested in the way so described or left in the company piggy bank idle, serves one purpose and one purpose only; to return a business back to its original state if it fails for whatever reasons. In all areas of 'Sustainable Economy' both COP and COC are sustainable funding streams that require from outset a Transitional Period (TP) to grow to maturity and how short TP is depends entirely on the different circumstances of each organisation. But several strategies exist for shortening TP to a reasonable extent. During TP, other funding streams such as government-assisted subsidies, donations, inheritance, savings from efficient use of resources, etc can temporarily be used to keep the variable components of the market or economy, such as prices of assets, goods and services, at sustainable levels. Frankly, TP is a highly disciplined period involving clear

thinking, a lot of patience, low returns to business owners and investors while COP and COC sustainable funding streams are being built and grown to maturity. At maturity, COP is always equal to the total estimated value needed to keep all the variable components of the business or market permanently at sustainable levels and any growth value accrued for this business is measured as a surplus at a level twice the value of COP, whereas COC at maturity is a liquidity equal to the full value of the business. The standard saying in sustainability is that in a sustainable economy every business always carries with it a replica of itself in liquidity for selfreplacement if it fails. Don't leave home without a copy of you! Companies with no sustainable funding streams, such as COP and COC, set up and painstakingly grown to maturity are frankly gambling however big or secure they may think they are. They are prone to failure as they are exposed to the same risks resulting from the unpredictable external market forces, and it's even worse if 100% of the economy within which the companies originate is speculated on the world market. Of course it is easier for people to argue that keeping and growing COC along with COP that is already protecting the business to a reasonable extent is total madness or an impossible venture or wasted business resources. Well, my response to this is simple. Just imagine how many businesses (big or large) that have failed that wished they had their COC funding streams at maturity to rescue them from such failures. Well, I rest my case. NOTE: This text was meant to explain the natural relationship between Intrinsic value and Extrinsic Value and demonstrate not only how metaphysically spooky and epistemologically vexing this relationship is but also how these two types of values that things possess affect the human decision system. How the methods by which we allocate values to things in general are not only very strange but also can very quickly without redress add arbitrary values to those things, which consequently may lead to gross inequality and cause severe human hardship. For full explanation of the COP and COC sustainable funding streams concepts, please visit the website, refer to the definition page, and follow future topics. It is also important to note that, at the practical level and leaving the controversy aside, once we have agreed in our minds what parameters are to be factored in or used in the calculation of the sustainability value of a product, such parameters are treated as separate entities with their own sustainability values to be pooled and consolidated into the overall Sustainable Value or Performance index of the thing in questions. In our case in the car example, we use only 2 of the three parameters (1) Functionality and (2) Beneficiaries as genuine parameters to be factored in, and ignored (3) Appearance for an obvious reason – to steer clear of

controversy. In my honest opinion and as I have also made it clear at the website, the inclusion of parameter (3) in the final calculation and consolidation process is optional. I habitually avoid it for two significant reasons, (1) the percentage value needed in the consolidation process cannot be calculated (it's inaccessible to mathematics), and (2) it's value can only be weighted or scored via 'value judgement' otherwise called 'speech judgement' , which is technically equivalent to naming or giving names to things. The worked example below demonstrates the full procedure for calculating and not scoring or weighting, even though we do demonstrate how to apply both in some of the worked examples on the website. =================<>=============== Worked Example: Sustainable Value Calculations A car manufacturer, after many years of investments and continual improvement of one of their car models, eventually produced a car with 100% safety but only 33.33 percent of car drivers could afford this car. From the point of view of sustainability, the car manufacturer has produced a car with the highest intrinsic qualitative value with regards to the car's overall functionality and performance, but the car was overpriced such that only a limited number of drivers could afford it. The sustainable value of this car is naturally a relation between the overall functional performance value and its beneficiaries. Sustainable Values calculation must take both into account and consolidate the resulting values accordingly as shown here: Calculating and Consolidating the Sustainability Values of the Car's Beneficiaries and Functionality into its overall Sustainability Performance Index (SPI) Let SV/SPI = Sustainable Value Let B = Beneficiaries Let P = Population SV = B ——- x 100% P The sustainability principle says that 100% qualitative intrinsic value of a design with regards to functionality must yield 100% quantitative value with regards usage for it to qualify as being sustainable. For example, after the car has been brought to the market with the full knowledge of the population, let say that after the count B = 100,000 beneficiaries and P = 300,000 people

in the population with driving ability and transportation needs, then the calculation should yield the following result: SV = 100,000 ———100% 300,000 = 33.33% SV/SPI = Σ(μ + λ + …. n) ÷ (n x 100) x 100. μ= Sustainable Value for the Car's performance: λ= Sustainable Value for the beneficiaries. μ=100: λ=33.33: n = 2 SV/SPI = Σ(μ + λ) ÷ (100 x 2) × 100 = (100 + 33.33) ÷ 200 × 100 = 66.67% NOTE: It is important to note that the sustainability value of any mobile system's functionality and safety is a scientifically quantifiable, testable and determinable value. It is not a value that can be assumed, and the value used in the above calculation is merely illustrative. The parameters that go into quantifying it and summarising it into a percentage value are wide ranging and extensive, obviously based on the number of things in a mobile system's design that contribute to the passengers' physical injuries, destruction or death. This issue is the sort that any good modern sustainable design project should aim to cover not only widely and in greater detail but also with double precision. And remember that when it comes a sustainable design project of this monumental scale or magnitude, a multidisciplinary approach to it is fundamental and inevitable. See all the topics under Sustainable Design on the menu bar for additional information and guidance on the subject.

The negative value of 33.33% has written off or discounted a substantial value from the consolidated result. The manufacturer, if they genuinely want this 100% life-saving car to be fully sustainable, should apply sustainable methodologies to bring the price down and increase usage. The same will be true of a drug company that finds a miracle cure for any type of disease and manufactures the drug but only 20% of all the sufferers from that disease can afford the drug. Or a sweet manufacturer that manufactures a special pack of tasty sweets to help relief the busy population of hunger but which at the same time is costing the nation's health service billions of pounds in obesity and dentistry bills. In the first example, the negative value generated by the overpriced drug with 20% low usage will write off substantial part of the positive value of the drug from the consolidated result. Equally, if

relieving the busy population's hunger with a pack of tasty sweet is going to land the health service with a budget-busting obesity and dentistry bills, then the negative value generated by this will discount the positive value from their calculated and consolidated sustainable values. Both manufacturers (drug and sweet) should consider applying sustainable economic principles to rectify these dilemmas. NOTE: Some things or events or systems that were designed to solve a specific type

of problem while in their normal functioning states may create a completely different type of problem or a set of problems without people involved knowing this. The take home lesson from this is that people should think of things and systems in a holistic way, especially at the design and implementation stages, for you may end up creating a thing or a system that causes more problems than it solves. If you do, then you are naturally obliged to quantify and consolidate the sustainable values of all aspects of the thing or system in the manner just demonstrated. The result is SV/SPI of the system.

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