letters and counting!
The banking crisis came to a crisis in 2007-2008 but it has been building for decades. In part this is because the capitalist market economy only works well for those economic activities that lend themselves to making money profits, and does not work at all top satisfy critical socio-economic needs in the most efficient way. Clearly the capitalist has worked better than the communist system … but does that mean that it is working very well? I think not! I want to see the capitalist market economy evolve into a value market economy (#NuVME) where the goal is not only about maximizing money profit, but also creating value for society. For this to work money accounting also has to evolve to include the debit and credit of value flows and the reporting of valueadd. I call this system of metrics TrueValueMetrics (#TVM) TVM has some characteristics that all accountants will recognize, but there are differences. (1) In the main, money accounting is done with an organization the reporting entity. In the TVM system, the community (a place) is the reporting entity and organizations and their economic activities are subsidiary to the community. (2) In money accounting everything is done using money units. In TVM the metric is value. Most argue that value is subjective, difficult to quantify and therefore should not be used. TVM argues that value is central to quality of life, and its subjectivity and variability is part of its importance. We solve the problem of quantification just as one does in cost accounting with standard costs, and use in TVM a set of standard values. (3) In money accounting there is a balance sheet and a P&L account. Profit is also the change in balance sheet from the beginning to the end of the period. The same applies in the TVM system. There is the State of the community, its progress and its performance. The State or balance sheet of the community is based on the values associated with the community and is a measure of quality of life. Progress is how the state of the community changes from the beginning to the end of the period. Performance is about how much resources are consumed in order to achieve progress. As the former President of the World Bank you are well aware of the huge challenges faced by our global society … but I am optimistic. The capability of technology is millions of times more than when I started my career, so a system of socio-economic resource management that is value based can change a lot in ways that I believe Adam Smith would endorse. My guess is that the #OWS movement is going to get some really interesting ideas in play that will rewrite much of what is now conventional wisdom. I hope so, and I will help all I can, and I hope that leaders in our current socio-economic order will help as well. With regards Peter Burgess @truevaluemetric http://truevaluemetrics.org