Finance: The Third Level of Consequence

Where economics focuses on financial outcomes, it is functioning at the third level of consequence, ignoring two levels of consequence that precede it.  This may be the reason that the financial approach to economics finds itself so often frustrated, unable to form a reliable model or explain the phenomena that naturally occurs in the market.

The first level of consequence is corporeal: the human being is a mind that is contained with the fragile case of a body.  Therefore, the first consequences of concern at the prospect of any human action is the jeopardy it poses to the integrity of the body and mind of the actor.   Any injury or debilitation in pursuit of a specific goal is a permanent consequence, whose cost must be factored into the greater “budget” of life.  In general, we expect that we will maintain our present state – to emerge from any activity in more or less the same condition in which we entered into it.

Costs to corporeal integrity may be objectively calculated according to the projected value, accounting for the risk of damage and the value that is placed on the type of damage inflicted.   But while it is easy enough for an actuary to put a dollar value on the debilitation of another person, it is not so easy for a person to assess the value of their own debilitation – nor is accepting the actuary’s figures a sign of assent or agreement of value.  

The second level of consequence is social: the human being is a social animal, who benefits from participation in society.   There is no method to reliably quantify the degree to which we value the engagement with others nor the value that can be placed upon our identity and esteem in a social context, but they are nonetheless valued.   And just as we expect participation in an activity to have no effect on the integrity of our bodies, so do we expect participation to have no effect on our social standing.

It is likewise futile to attempt to monetize human relationships.   We may decide to engage in some activity that will harm our esteem by the same vague estimations of potential outcomes: how will our esteem and relationships suffer as a consequence of our involvement, and what is the likelihood of our involvement being observed or detected?   But what is the financial value of damaging a social connection?

It is only on the third level of consequence that we begin to consider anything that can be assessed financially.    On this level, we begin to consider the consequences an effect will have on property: whether we will gain or lose value, or the fundamental nature of property will be changed in an undertaking that decreases or augments its value to us.

Even then, assigning a monetary value to property is a highly subjective matter – even when one attempts to objectivize it, this is generally done by the market value of the property were it offered for sale.  That is to say, the value is considered to be that placed upon it by someone who does not already own it, not the value placed upon it by the owner – which is always greater.   If it were not so, we would choose to possess nothing, the money offered in exchange for it being more valuable to us than its possession – hence to possess anything at all is to value it more than its market price.