is it a fair assessment to say that the values of our economy are becoming increasingly virtual?

Question

What I mean is that while for most of history, currencies were tied to some real commodities, but this is no longer the case (since a couple of decades).

Similarly, stock values seem to be quite detached from real, physically existing properties.

From this perspective, most of the "value on paper" of our economy is not tied to any real-life values.

What do you think of this reasoning? Should I be worried about this (an implication is that most of this virtual value can disappear overnight if people don't believe in a potential future conversion into real values any more)?

Or am I missing something here?

Answer 1

Great question! Any asset, be it tangible or intangible, has the same quality of fiat money. That is, we value an asset because we believe that people will pay more for it in the future. This belief may be bolstered by fundamental valuations based on it's ability to generate real goods. However, the belief that others will value a stock, block of land etc. is, in the end, the only determinant of it's value. This has always been the case in capitalist economies. Yes, it is something to worry about. It is hard to imagine the kind of mass hysteria that would dissolve the public's faith in their paper. It was also hard for prior generations to imagine the great depression, World War Two, and the nuclear bomb. Not to mention 9/11.

Answer 2

You are absolutely right, and that's a very perceptive question. Except, you need not worry about this, and you are wrong to say these abstract values are not tied to "real-life values".

They do represent real-life values, because value is derived solely from humans wanting something -- human demand. It does not matter if they want something intangible, or something made of molecules that you can hold in your hand -- "value" is just as legitimate either way.

Value has no meaning or existence in the absence of human society. This is an important point. Gold and diamonds have no intrinsic value at all: They only have value when there are people who want these things. But people also want abstract things. Virtual clothing for your avatar sold in "Second Life" for real money has value just as legitimately as a gold coin does. Value, in fact, is all about pleasing the human brain.

What you see happening now is that as people (as consumers) become more wealthy and further distanced from the primal threats of starvation and exposure to the elements, and have their basic needs met, they are able to turn their desires to more abstract things.

Meanwhile with regard to production, value-creation is moving upscale from low-level assembly of things to a higher-level knowledge work and creative work. What's valuable about Microsoft is its software and its programmers. What's valuable about Hollywood is the stories they create. These things are great generators of wealth, and make far more money that some 19th century farm or gold mine ever could have.

So yes this is all an evolution towards valuing abstract or intangible things as society becomes more advanced, but unless you'd prefer to live in a cave and kill large mammals with a wooden spear for lunch, it's all good.

Answer 3

i think that the value of stock is not completely tied to real assets (though it is part of the consideration certainly) because investers in stock are paying for future income stream-which is predicted largly on performance history and projections into the future.

and money has always represented "value" via mutual agreement
otherwise it was just a commodity.

also the concepts and applications of credit and banking loans are thousands of years old

the real issues are those that revolve around the accounting balance between production of value and its consumption.

balance being the key word.

sorry if this does not relate to your question but it is my opinion.