Where did the other dollar go, Jeff?

This is a brilliant explanation of what a clearinghouse does

First time I’ve understood it intuitively

But everybody also knew everyone else was broke, so they had mentally discounted the future value of their accounts receivable (though obviously not to the point of actually writing it off yet). So their subjective sense of their future worth was negative, until the stranger showed up and injected liquidity into the market.

Sure, but it's not stable or dependable. If one person goes bankrupt or dies or moves away, then everybody would go bankrupt one after the other. Compare to a scenario where everyone actually is at zero.

but a cheque has a giver and a receiver, the receiver cannot then give the check to someone else as payment since the giver and receiver printed on the cheque are different

That almost sounds like it's endorsing check fraud

The ownership position that Bezos had through most of its history was enough to make a hostile acquisition nearly impossible. That's how they survived the bad years post dotcom bubble without being acquired for relatively cheap. It's very hard to pull off a successful hostile takeover if you have prominent insiders with ~25-35% of the company and they don't want to sell. Certainly after they began reporting AWS results and the stock skyrocketed that was the end of any serious hostile acquisition risk (in the few years prior to the AWS numbers they were a $100-$175 billion market cap company, which eg Walmart could have afforded had regulators allowed it and insiders not made it nearly impossible).

Thanks! I must have mixed it up in my mind. Wetware Memory sucks.

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.

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).

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.

> 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.

When you word it that way, I get a bit angry when I read "which brings the total to."

"The bellhop, who is very nice, takes $5 from the register and return $2 to each tourist, paying $1 from his pocket— the guests don’t have to fuss over uneven change that way.

Now, each of the three tourists has spent $8, for a total of $24. The bellhop has spent $1, which brings the total to $25. Where did the other 5 dollars go?"

"The bellhop, who is very much not honest, takes $10 from the register and return only $1 to each tourist, pocketing the remaining $7— the guests don’t have to fuss over uneven change that way.

Now, each of the three tourists has spent $9, for a total of $27. The bellhop has retained $7, which brings the total to $34. Where did those other 4 dollars come from?"

As an aside, this shows the value and reason behind double entry bookkeeping. More setup in the beginning, but ultimately much less confusing.

I agree that the overall value that amazon is claiming is dubious at best. It's conflating consumer/producer surplus with net profits and conflating both of those with wages.

But the whole point of the article is to debunk these distortions and add clarity. Adding its own confusion and distortions is not a good way to start.

While funny, that doesn't really apply here. We're exchanging an apple for an orange. That is a very reasonable barter transaction and I see no reason that it doesn't create value.

In fact, the value is likely to be undercounted by GDP. People are taxed on income, so casual transactions like the orange-for-apple trade are likely to be left out of GDP simply because they are unreported.

Your example is the opposite: over-counting GDP and the participants paying thousands of dollars in taxes.

This actually creates 1BTC.

So okay, fraudulent transactions exist. That doesn’t tell you whether a particular transaction is fraudulent.

The shipping industry is useful and using it to ship bricks for some fraudulent scheme doesn’t change that. The value of a physical action isn’t inherent in the action itself, but rather depends on what purpose it serves.

And unless you both pay your tax on your $10,000 income, you are defrauding the IRS (assuming you are in the US).

Doesn't it take labor to facilitate the matchmaking, transportation, and transaction costs associated with barter?

"It makes sense if you believe value to be an objective thing"

Does any serious economic philosophy actually believe that foolishness?

> employers necessarily pay you less than the value of your labor.

Untrue. Employers aim for that but they often fail.

The Credit Suisse employees that lost $5 billion due to Archegos were overpaid.

Alternatively if I am the only person that can do a particular necessary job for a business, I should be able to reap the majority of the profits due to my monopoly.

Finally, for some professional jobs productivity is hard to measure, yet you may employ many people because in aggregate they make a profit. At an individual level, the profit margin can vary from negative to positive.

> employers necessarily pay you less than the value of your labor.

That’s not true “necessarily” unless you assume all employers are sustainable, in idealized competitive markets, and that all of their inputs are also purchased in idealized competitive markets such that they don’t have monopsony savings they can spend on surplus wages without impacting sustainability.

Obviously, even with idealized market assumptions, one reason an firms fail is paying more total for inputs than the value they produce, and lots of firms fail.

This only follows under the assumption that a company only derives value from the labour of its employees, ie. “there is only labour”.

But there are many other kinds of assets - cash, brand, real estate, natural renewable resources etc.

One could have a zero labour company that is profitable.

That part is fine and understood when you take a job with a for profit company. I just don't like it when employers think that are doing you some sort of favor.

To be clear, I object to this sentence as nonsensical:

>In a typical transaction, no value is created.

As I explained, in typical transactions value is created for both parties.

Trade almost always creates value for both consenting stakeholders. It should be the default assumption and anyone arguing the opposite is talking nonsense.

In rare edge cases it can be argued that trade doesn't create value for consenting stakeholders:

(1) Information asymmetries that don't rise to the level of fraud, which cause one counterparty to make an uninformed decision.

(2) Trades that appeal to the dopamine system but otherwise work against the individual, e.g. with social-media doomscrolling, gambling, drugs, fast food. In this case the individual has diminished agency to make the best decision for themselves in all cases.

Anything else? [I'm ignoring externalities here]