TRUE VALUE METRICS
UNITS OF ACCOUNT OVERVIEW
UNITS OF ACCOUNT FOR EVERYTHING THAT MATTERS IN THE SOCIO-ENVIRO-ECONOMIC SYSTEM
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Social Capital
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Natural Capital
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Economic Capital
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Manufacturing
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Logistics
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Deforestation
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TO DO ... update images to be more relevant to the subject matter
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MONEY is the dominant UNIT OF ACCOUNT. Everyone is familiar with money. Money is being used for a variety of purposes:
- as a unit of account,
- as a medium of exchange for transactions; and
- as a store of value.
Over time ... a very long time ... coin or money or currency has emerged as a common way to act as a unit of account, a medium of exchange and a store of value
As the modern world has become more complex, this basic idea ought to be challenged and the idea of money modernized in order to be more useful.
An emerging idea is that there should be units of account for everything that really matters, and especially for the issues that impact society and the quality of life and the issues that impact the environment and natural capital.
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MULTIPLE UNITS OF ACCOUNT
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Multiple units of account are way more powerful and analytically useful than merely monetizing impact through some market mechanism
Conventional financial accounting uses money as its unit of account. In a small business all the transactions and the accounting will probably take place in one currency (for example the US$) but in large multinational companies the transactions will be in many different currencies. The accounting professions has established rules for multi-currency accounting that are logical and enable simplified reporting in a single currency. As in most simplifications, this can result in some weird outcomes, but most of the time it works reasonably well.
In my own work I have had some interesting multi-currency experiences. One of the more interesting cases was where a company in Madagascar which had financed its modernization and expansion with loans from the IFC (part of the World Bank Group) in US$, from the Caisse Centrale of France in French Francs and from the European Development Bank in ECU. These loans were being managed by the IFC who required reporting in US$.In addition the company negotiated a large high interest loan in Madagascar from a local bank denominated in Malagache Francs. The company had to report for fiscal purposes to the Madagascar authorities in Malagache Francs as well to an investment group based in France in French Francs. The company had to pay its bills in a variety of currencies, mostly US$ and French Francs and sold its products in countries where payment was being made mainly in Japanese Yen, in Spanish Psetas, in French Francs and in US dollars. The accounting reports for all of these parties were all about the same business, though the financial performance looked very different depending on the reporting currency.
Money and conventional double entry accounting was a very powerful system for accountability when the economy was relatively small and impact on society and the environment could be ignored without too much consequence.
But the last 50 years has been different. The population of the world has grown to record levels, and the degradation of the environment in many different ways has become consequential.
There is a need now for UNITS OF ACCOUNT that are relevent for ALL the impacts associated with economic transactions.
The money measure needs to be better understood. It is common to use a reference currency like the US dollar, but local currency also matters, and there may be funding currency as well. Besides the US$, other reference currencies might be the Euro, Japanese Yen or Chinese Yuan
With TVIA, multiple UNITS OF ACCOUNT are used in a similar way to account for the way in which different activities impact ALL the CAPITALS that make up the SOCIO-ENVIRO-ECONOMIC SYSTEM. This is more powerful and more flexible than the idea of valuing everything using money and markets
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Social Capital / Families / Friends / Neighborhoods / Place
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UNIT OF ACCOUNT ... UNIVERSAL LIFE UNIT
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A UNIVERSAL LIFE UNIT is used For LIFE itself and for all the human dimensions of QUALITY OF LIFE. An important aspect of this metric is that it is not a monetization of value but a method to quantify value in a coherent manner.
The VALUE of LIFE itself
A unit of measure for quality of life may be driven by reference to the value of life itself. There is life, and there is quality of life. The value of life should not be directly related to a money unit, but be defined independently from money.
A standard life unit could be defined as 1 life = 1 million standard life units (SLUs). Everything to do with quality of life should be associated to this unit.
A new born baby has a value of 1 million SLUs
By the time a person is 100 years old this value of life has depreciated (straight line) to 0 ... that is a decline of 10,000 SLUs per year.
There is a cost to maintaining life, this is the basic cost of living. The unit of account for this is a conventional currency such as the USD or another currency.
A person has the capacity for doing things of value. The is usually expressed in terms of job and the associated salaries and benefits for which the unit of account is USD or another conventional currency.
A person often does things that are not paid for, even though these things ... like parenting ... have huge value. These should be valued in terms of SLUs being a contribution from one party ... the parents ... and delivering benefits to the other party ... the child. On one side the limiting factor is the scarcity of time and on the other side the value add is the benefit derived by the child which can be life changing for the child ... extrmely valuable, but not part of conventional economic or financial statistics.
The accumulation of value as life unfolds
As an individual grows ... from baby, to infant, to child, to adolescent, to young adult ... the individual accumulates more and more learning and experience that increases an individual's value.
This value manifests itself in the ability or capacity of the indvidual to make more of a contribution ... whether this contribution is to the family, to the broader community, the society and the economy.
The cost of living
There are costs of living. The essentials for survival have a cost whether it is simply in terms of the time taken to 'gather' these essentials, or whether it is to pay the money price at the food store.
There are costs associated with gaining experience and becoming better prepared for the future.
There are costs associated with health maintenance .. and even more so for resolving health issues that may emerge during a lifetime, and especially in old age.
There are all sorts of costs associated with the common facilities that are important in the running of a modern, efficient socio-enviro-economic system
Lifetime value
Perhaps the most important idea is that an individual should have a positive lifetime value ... that is the contribution of the individual during a lifetime should be more than the cost of living for the individual's lifetime.
This idea is common within the for-profit business. It is expected that every piece of machinery will contribute more to profit than its lifetime costs. The same idea works just as well for people.
Where does 'value' come from
This is a very important question ... and numerical analysis suggests that many of the commonly held beliefs about this are not supported by the evidence.
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Open L0700-UA-SC-SOCIAL-CAPITAL
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Open L0700-CS-HC-HUMAN-CAPITAL
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STANDARD VALUE PROFILES
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The RELATIONSHIP dimension of QUALITY OF LIFE is largely influenced by FAMILY, FRIENDS, COMMUNITY and the characteristics of the PLACE
Relationship capital is the component of social capital that reflects the way in which group and teamwork can enhance performance. Relationship capital has impact on individual quality of life and the performance of the socio0enviro-economic system There is both a static and a dynamic dimension. There is a past, a presednt and a future.
A unit of measure may be driven by reference to the value of life itself. There is life, and there is quality of life. The value of life should not be directly related to a money unit, but be defined independently from money.
A standard life unit could be defined as 1 life = 1 million standard life units. Everything to do with quality of life is associated to this unit.
A new born has a value of 1 million SLUs
By the time a person is 100 this value of life has depreciated (straight line) to 0 ... that is a decline of 10,000 SLUs per year.
There is a cost to maintaining life, this is the basic cost of living. The unit of account for this is USD or another currency.
A person has the capacity for doing things of value. The is usually expressed in terms of job and the associated salaries and benefits for which the unit of account is USD or another currency.
A person often does things that are not paid for, even though these things ... like parenting ... have huge value. These should be valued in terms of SLUs.
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Open L0700-UA-SC-SOCIAL-CAPITAL
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Open L0700-SC-SOCIAL-CAPITAL
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STANDARD VALUE PROFILES
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The LOCATIONAL dimension of QUALITY OF LIFE takes into account how the PLACE impacts everything to do with the life of the people who either live or work in the PLACE
PLACE is a very important component in QUALITY OF LIFE having an impact on almost every element of QoL
TPB observation: Over a period of several decades I did hundreds, maybe thousands of project evaluations for the World Bank, the UN and others. Many of these projects did what was planned, but the impact on development progress was insignificant in large part because most of these projects had a single sector focus and in any specific place, a single dysfunctional sector would serve to nullify the project's positive impact. Some of the projects that were multi-sector and with community focus had substantial success, but were rarely replicated because within the international development community and beneficiary governmentsthere was no coordinated advocacy for multi-sector initiative.
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Open L0700-UA-SC-SOCIAL-CAPITAL
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Open L0700-SC-SOCIAL-CAPITAL
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STANDARD VALUE PROFILES
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(II) NATURAL CAPITAL
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Planet Earth / Water / Trees / Climate instability / Resource depletion /
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MULTIPLE UNITS OF ACCOUNT
FOR NATURAL CAPITAL
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There need to be several units of measure within natural capital (NC) because of the many roles that natural capital plays in the success of everything. It would be good if these could be be summarized or consolidated into a single unit of measure of natural capital as a whole, but this requires more understanding of natural capital values than there is at the present.
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Land
The value of land should be related to a land value unit, and adjusted to reflect all the various uses there are for land, and not just those that a priced into money units as a result of
trade.
There is value in land when used for eco-services (forests for carbon, wetlands for fisheries, wildland for bio-diversity, natural land for water purification, etc).
The unit of measure of land could be that 1 hectare of land = 1000 land units. Land use is constrained by a limited and fixed amount of land, and the value will change depending on the use being made of the land.
Land may be used for urban development, suburban communities, rural agriculture, industrial use, tourism and various forms of ecoservice and habitat for bio-diversity.
Many things associated with land and land use could be related to the idea that 1 hectare of undeveloped natural land equals 1000 (say)
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Open L0700-UA-NC-LAND
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Open L0700-NC-LAND
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STANDARD VALUE PROFILES
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Water
The value of water should be related to the value of life more than to the value of money.
The price or cost of water varies depending on the abundance of water and whether or not water is renewable in the place where it is uses.
The cost of water use must include both the depletion of the stock of water due to consumption but als the cost of the water pollution resulting from post-use discharge.
The unit of account for water could be that 1 liter of net water consumption = 1 water unit.
Many things associated with water and water pollution could be related to the idea that 1 liter of fresh water has a value of 1 (say).
http://www.truevaluemetrics.org/DBpdfs/NaturalCapital/Water/NC-Water-001-150102.pdf
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Open PDF ...
NC-Water-001-150102
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Open L0700-UA-NC-WATER
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Open L0700-NC-WATER
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STANDARD VALUE PROFILES
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Air Pollution
The atmosphere has been used as a waste dump for gaseous effluents since the beginning of time, but this became a serious matter during the era of industrialization and increase in energy use.
Many noxious gases get released into the atmosphere by industrial processes and transport vehicles as well as particulates, all of which are detrimental to health and quality of life.
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Open L0700-UA-NC-AIR
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Open L0700-NC-AIR
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STANDARD VALUE PROFILES
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... related to the CARBON CYCLE and CLIMATE
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Carbon / Greenhouse gas emissions.
The CARBON CYCLE has an impact on many aspects of NATURAL SYSTEMS
In addition to the air pollution referred to above, there is also the environmental degradation arising from the impact of greenhouse gas emissions on the atmosphere and the equilibrium of the weather.
A unit of measure could be based on the idea that one metric ton of carbon dioxide emissions = 1000, and everything to do with air pollution gets related to this unit.
Many things associated with atmospheric pollution could be related to a ton of carbon dioxide emissions where 1 ton of CO2e equals 1,000 (say).
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Open L0700-UA-NC-CARBON-CLIMATE
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Open L0700-NC-CLIMATE
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STANDARD VALUE PROFILES
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... related to the BIODIVERSITY // Fauna and Flora
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Trees / Plants / Animals / Insects / Fish / Birds
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STANDARD VALUE PROFILES
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... related to the ECOSYSTEM SERVICES
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Ecosystem Services.
ECOSYSTEM SERVICES are essential to maintain a variety of natural equilibria
Nature is an amazing system. Even though there has been an immense amount of research and we know a lot, there is still a lot that we do not know.
What we do know is that nature provides many services to maintain the quality of the environment and make it sustainable that are of huge value, but not priced at all in the conventional analysis of the enviro-socio-economic system
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Open L0700-UA-NC-ECOSYSTEM-SERVICES
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Open L0700-NC-ECOSYSTEM-SERVICES
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STANDARD VALUE PROFILES
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... related to the MINERAL RESOURCES
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Mineral Resources
Minerals are an essential raw material for many industrial processes that in turn produce the goods and services people need to support their standard of living and quality of life.
As products move through the supply chain, the flow aspect of these economic transactions are reported using a money price, but the impact of the loss of the mineral resource is not accounted for in the state of the natural capital.
The value of a mineral resource may not need to be quantified when it remains in situ, but when it is depleted the value must be accounted for based on the value the resource contributes to economic performance.
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After around 60 years of adult life I am appalled at the global socio-enviro-economic system dysfunction. I graduated from Cambridge in 1961 after engineering and economics and subsequently became a Chartered Accountant and a fast track CFO in the USA ... but independent work around the world (for the World Bank, the UN and others) alerted me to the deep flaws in how we make decisions, allocate resources and handle accountability. It is appalling ... and prevailing business, academic and political leadership does not seem to have much of a clue what to do. I am curious, but not optimistic that I will learn anything useful.
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STANDARD VALUE PROFILES
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... related to the ENERGY RESOURCES
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Energy Resources
NATURAL RESOURCE CONSUMPTION is a driver of industrial production and created physical structures and systems
Energy is the big driver of the modern enviro-socio-economic system. Energy is a critical input for almost everything that supports the high standard of living and quality of life that is now possible.
There is a sophisticated framework for analysis of cost, price and profit within the energy dimension of the modern enviro-socio-economic system but only a partial framework for the analysis and reporting of the value and impact of everything related to energy in this system.
Major investment has been made in technology to exploit carbon based fossil fuels but, until recently little has been done to exploit the massive flows of renewable energy that exist but have only been exploited on a very limited scale.
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Resources ... State and Consumption
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Open L0700-UA-NC-RESOURCES
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STANDARD VALUE PROFILES
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UNITS OF ACCOUNT
ECONOMIC CAPITAL (FINANCIAL CAPITAL)
MONEY AS THE UNIT OF ACCOUNT
UNIVERSALLY ACCEPTED AS A FOUNDATIONAL PART OF THE ECONOMIC SYSTEM
ALSO A ROOT CAUSE OF MAJOR SYSTEM DYSFUNCTION
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Money / Profit growth / GDP growth / Stock Prices / Cost push inflation / Wages chasing prices
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Money / Profit growth / GDP growth / Stock Prices / Cost push inflation / Wages chasing prices
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Using MONEY as a MEASURE is insane
A good 'MEASURE' is one where the unit of measure is constant and does not change over time.
The 'value' of the US dollar has changed significantly over time as shown in the graph which shows the dramatic decline in the purchasing power of the dollar since the beginning of the 20th century.
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UA for PHYSICAL CAPITALS within ECONOMIC CAPITAL
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ECONOMIC CAPITAL (PHYSICAL CAPITAL)
Physical capital includes products, the goods and services needed for people to have a decent quality of life, it includes buildings and infrastructure. Physical capital needs to measured both in static and in dynamic terms, and in terms of money units and in terms of various impact units. Of special note are products that flow through the enviro-socio-economic system delivering impact
in the form of quality of life and impact on everything else as they go through the life cycle.
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UA for INTANGIBLE CAPITALS within ECONOMIC CAPITAL
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ECONOMIC CAPITAL (INTANGIBLE CAPITAL)
Intangible capital has many forms. It arises because certain transactions or processes create more VALUE than the value that is consumed. This is a foundational principle in nature and science where reactions take place to change the way things are without actually creating any new foundational elements.
The way intangible capital needs to be measured is complex, but simplified by combining value balance sheet to reflect the history of the past to the prsent, and the idea of a net present value to account for the potential and risks of the present into the future.
INSTITUTIONAL CAPITAL
Institution capital has impact. There are money costs to support institutional capital and impact costs when institutional capital is inadequate. There is both a static and a dynamic dimension.
KNOWLEDGE CAPITAL
Knowledge capital is the enabler of a high performance enviro-socio-economic system. Knowledge may be thought to behave somewhat like energy ... potential energy, kinetic energy, heat energy and so on. Knowledge has money costs to support research and all sorts of impacts when knowledge is used, bot good and bad. There is both a static and a dynamic dimension.
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STANDARD VALUE PROFILES
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Accounting for the 21st Century - Metrics for profit, people and planet impact
Accounting for the 21st Century must include metrics that relate to the everything, not merely the activities of the organization and its owners. This is accounting for every part of this amazing and complex system that is the society, the environment and the economy.
True Value Accounting addresses this need. The goal is for TVA to be an easy to use tool that will expand the capabilities of conventional accounting so that the impact of economic activity on everything is brought into account.
Conventional accounting has a focus on a single dimension represented by money, while MDIA accounts for not only money transactions, but also the impact of economic activity on everything
else … hence multi dimension and impact accounting. MDIA enables analysis that embraces not only the impact that money profit has on financial capital, but how economic activity impacts on all the other capitals.
TVA uses a framework of metrics that can be used in every parts of the socio-enviro-economic system. The same data architecture works for a person, for an organization, for a product, for a place and for all the processes that p[roduce a product as it flows through the supply chain.
The logic is relatively simple … but as usual, the devil is in the detail.
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Standard Value Profiles for Everything
TVA uses multiple units of measure … and uses standard value profiles for the accounting. Standard values are something like standard costs in cost accounting.
Money had its origins in being a measure of the price in an economic transaction. It facilitated trade and was very much more efficient than barter. How money became a store of value is a long story, and how money became a key component in money wealth creation an even longer story. Money has its uses, but it is a very poor unit of measure for almost everything that is important in the world we live in. The size of a money unit has no definition at all … it is determined by a market that is also impossible to describe and replete with 'invisible hands' that may or may not control everything.
The value of a product … goods or service … is not the amount that it can be bought or sold for. That is a price. The value is what a product contributes … to a person directly and to society in general and also taking into account the impact there is on natural capital. What this means is that there is a need for several units of measure and related quantification.
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UNITS OF ACCOUNT
Conventional financial accounting uses money as its unit of account, and there are established methods for the use of multiple currencies when this is needed because of the nature of the business.
With TVIA, multiple UNITS OF ACCOUNT are used in a similar way to account for the way in which different activities impact ALL the CAPITALS that make up the SOCIO-ENVIRO-ECONOMIC SYSTEM. This is more powerful and more flexible than the idea of valuing everything using money and markets
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Open L070-SV-STANDARD-VALUE-PROFILE
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