Business Schools Professors: What will you teach when money becomes irrelevant in a declining economy?
(Or how do we need to re-think the concept of value from a sustainable economy?)
Compare the following two definitions.
Definition 1: Economic value is a number expressed in units of a currency issued by a country's central bank.
Definition 2: Economic value is a number expressed by a person's willingness to pay for a product or service.
As this video from Investopedia shows, in stagnant economies where consumers have a limited amount of income to spend, demand is more sensitive to price, and thus elasticity is greater. What is elasticity? In plain English, elasticity is another number. It conveys the message of the following formula:
Now, let’s switch the attention to the following thought experiment. Suppose you are the president of a country, say Qatar, with extreme weather conditions. Suppose, in addition, that you are summoned to organize an event of worldwide attention, like the FIFA World Cup. Furthermore, suppose you must invest heavily to build some stadiums to host this soccer contest, and in the process, a significant number of foreign workforce die from exposition to these weather conditions. Finally, suppose you were successful, and soccer teams met in your country a couple of days before the opening match.
None of the two definitions mentioned at the beginning of this note make sense if you exclude another important yet non-related psychological variable in the process of generating economic value: meaningful self-control. Researchers such as Daniel Ariely and Klaus Wertenbroch have experimentally studied self-control. Self-control is essential for all economic agents, from business managers to presidents, citizens, vendors, and consumers. A lack of self-control in commercial transactions can ruin the concept of value. To illustrate this simple idea, let me finish this note with the story of Rasmus Tantholdt.
On November 16, a Danish reporter, Rasmus Tantholdt, and his film crew faced threats of having the camera smashed during a live broadcast. Qatari security officials accosted the reporter. He was told he needed to stop filming or his camera would be destroyed. Rasmus Tantholdt, the reporter, later received an apology from Qatari delegates.
The idea of self-control as a variable that should be included in the formulas of economic value is fruitful. Still, I am not sure about the existence of rigorous theoretical development about its mathematical relationship with individual income, prices, supply, and demand. Arguably, these relationships might be interesting for professors working at business schools.
