Uncoupling the Endeavours of Innovation and Production
We have envisaged a Value Surface as a graphical expression of commodity values across a population of consumers. This seascape-like surface is changing continuously with time, indicating variations in consumer preference, along with capital investment and competition.
A unique diamond was selected to exemplify the creation of value. The act of discovery of the gemstone is equivalent to invention. It was the initial creative act from which follows all subsequent innovation. The craftsmen who enhanced the value of the diamond did so by changing its information content that, when communicated through Consumer Product Interactions, encourages consumers to appreciate its value. As these craftsmen are working on a single unique entity, their activity is quintessentially innovation. Through their creative labour they are adding value to the original invention that was the raw diamond at discovery.
The value-surface then is like a huge marquee that is erected using the value creating endeavours of the innovators. The Value Surface thus adapts the Labour Theory of Value, introducing flexibility with typical consumer values that feature in contemporary society. This is the concept of a Labour Theory of Value Creation (see paper).
If the labour of innovation is dedicated to making the information content of a product (or service) valuable, then the labour of production is dedicated to the replication of that same information in the manufactured product. Hence the endeavours of innovation and production present themselves as two independent axes in the Labour Theory of Value Creation.
The initial market modelling assumptions in the Labour Theory of Value Creation are:-
- Value is appreciated by a population of consumers
- Consumer perceived values follows a Gaussian distribution with mean xmn and a standard deviation xsd. This provides a statistical description of the Value Surface.
- The Consumer Product Interaction (CPI) is a key event at which a decision to acquire some goods is taken.
- Consumers will acquire these goods when their perceived value exceeds the price that is set by their supplier.
- Overall investment is used to create the CPIs in the consumer population
- This overall investment made provides a measure of total labour to create the CPIs.
- Value perceived through a CPI is proportional to the overall investment.
- Price is set by the supplier to provide a maximum return on investment.
This enables us to configure the Labour Theory of Value Creation to meet three scenarios:-
Scenario 1: Classical Labour Theory of Value
- Value appreciated by consumers is constant
- Consumer perceived value follows a Gaussian distribution with mean xmnand a standard deviation xsd —> 0
- The price is set to xmn(e.g. 2) to maximise return on investment
- Above this level perceived value < price so no goods will exchange
- Below this level all goods will exchange but at a lower income
- This trivial example is consistent with the Labour Theory of Value
Scenario 2: Value creation by INNOVATION
- Pink Star Diamond as a unique product exemplifies a case of value creation through innovation
- A generalised market takes a Gaussian distribution of perceived value with mean xmn and standard deviation xsd
- The price to maximise return on investment is the maximum perceived value attained for one individual in a population of consumers.
- A typical consumer market displays similar behaviour to that of the Labour Theory of Value.
- An auction provides the means to identify the single, preferred consumer
Scenario 3: Value creation by REPLICATION
- A conventional consumer market with a Gaussian distribution of perceived value with mean xmn = 0 and standard deviation xsd > 0 and no negative values
- Here xsd represents the efficiency of repetitive labour to replicate value creation
- As in the Labour Theory of Value, the price to maximise income is almost equal to the average Consumer Perceived Value
- Only 50% of the consumers will acquire the goods in this scenario
- The graphic below demonstrates this principle for xsd = 4, and the mathematics are included in the associated paper
Therefore from the Labour Theory of Value Creation we may conclude as follows:-
- As far as the value creating effects of labour are concerned, the endeavours of innovation differ fundamentally from that dedicated to production
- We need to uncouple labour deployed on innovation (creation of value) from that expended on the replication of that value
- In the earliest stages of innovation the appreciation of value created by labour is due to the uniqueness of its output
- Innovation and replication then combine to different degrees to provide a changing appreciation of value throughout a commercial lifecycle
- Combining investment in innovative and replicative activity are key judgements for organisations and individuals