Tuesday, June 24, 2008

Measurement of Mind Asset

Mind asset measurement is a novel and non-trivial issue. I have a few conversation of the topic with Michel Bauwens at P2P Foundation recently. It seems, however, that we only get more confused after the talk than at the beginning. Hence I feel the necessity of writing another essay dedicating to the topic. I believe that well understanding of this topic might be critical especially to new Web startup companies.

Asset Measurement in a Nutshell

In feudal society, value of land asset is measured by how much more land asset could be produced by possessing the land asset. In capitalist society, value of capital asset is measured by how much more capital asset could be produced by possessing the capital asset. Similarly, in harmonious society value of mind asset is measured by how much more mind asset could be produced by possessing the mind asset.

Value of Liability and Value of Asset

Before discussing measurement, we need to distinguish two types of personal belongings---liability and asset.

Liability is anything which only produces expense. Typical examples of liability are such as car, TV, computer, food, etc. Liability has its purchasing value when it is purchased. The real value of liability, however, only decreases with time after it is purchased.

Asset is any item which produces income. Typical examples of asset are such as rental real estates, stocks, bonds, etc. Asset also has its purchasing value when it is purchased. The real value of asset, however, may increase or decrease with time after it is purchased. The real value of asset is based on the real-time mutual consent of sellers and buyers.

The value of asset is primarily measured by its marketing value in contrast to that the value of liability is primarily measured by its purchasing value. For a liability such as a TV set or a car, more expensive means more valuable. For an asset such as a stock or a bond, more expensive per share does not necessarily mean more valuable at all.

For instance, at January 2004 the stock of Apple Inc. (AAPL) was about $11.28 per share in average while the stock of Yahoo Inc. (YHOO) was about $23.49 per share in average. After four and a half years, at June 2008 Apple stock is worth of $175.27 per share in average and Yahoo stock is worth of $21.99 per share in average. Were we able to be back to measure the value of stocks of the two companies in January 2004, which one would be more valuable? Certainly the answer must be Apple though its purchasing value at the meantime was less than the value of Yahoo stocks. This example shows that the real value of capital asset is about its ability of producing higher value capital asset in the future rather than its purchasing value at the meantime. This is a typical asset measurement in the form of capital.

Measurement of Land Asset

We have been familiar to capital asset value measurement since we are currently in the stage of capitalism. In consequence, however, we have forgotten how to measure the value of asset in the other types besides capital. For example, when we think of land, we immediately think of land as real estates---a particular form of capital. We have simply neglected that the value of land asset in feudal society was not measured by its capital value. On the contrary, capital in feudal society was measured by its land value since it was land but not capital that was the key asset of the feudal society. By going over the measurement of land asset in the past age of feudalism, we are going to understand the measurement of mind asset in the coming harmonious age.

The following is a few facts about key asset in society. Land was the key asset in feudal society. Capital is the key asset in capitalist society. Land was the primary input resources of traditional agriculture---the fundamental form of economy in feudal society. Capital is the primary input resources of modern industry---the fundamental form of economy in capitalist society. The class of people in a society is determined by the amount of key asset they own. Respectively, in feudal society the class of people was determined by the amount of land they owned, and in capitalist society the class of people is determined by the amount of capital they own. Due to this distinction, the measurement of land asset in feudal society is essentially different from the measurement of capital asset in capitalist society.

Let's take another example to show the difference of value measurement between land asset and capital asset. In the capitalist society a small penthouse at Manhattan is generally more valuable an asset than a several-acre-large plain land at rural Iowa. The reason is that we compare the two assets by their capital value. In other words, the two assets are only compared as two pieces of real estates---a typical form of capital asset. Now let's turn our clock back for two thousand years. In the ancient Rome Empire, would a small penthouse at Rome generally more valuable an asset than a several-acre-large plain land at Galilee, a far away rural province from Rome? The answer is no, while the reason is not that the land at rural Galilee would be more capital-productive than the penthouse at Rome. Instead, the reason is that a small penthouse at Rome is less land-productive than a several-acre-large plain land at Galilee discarding their capital value. The difference between land-productive and capital-productive is the key of the answer.

Land productivity is a central issue in feudal society. Large size of land and greater land productivity means that the landlords can raise more people under their leadership. By owning more people, the landlords may assemble a force to occupy more land. Hence it shows a fundamental economical cycle in feudal society---land to produce more land.

By contrast, capital ownership was not as essential as land ownership in feudal society. It was not straightforward to convert capital to land. Most of the time, money meant little simply because no land was on sale voluntarily even if someone had offered a large amount of money. On the contrary, it was always easy and straightforward to convert land to capital since nobody would worry of the lack of land buyers. Land, instead of capital, was the fundamental circulating asset in feudal society.

These discussions explain that value of land asset is measured by how much more land asset could be produced by possessing the land asset.

Measurement of Capital Asset

Measurement of capital asset is what we are familiar. Basically, we convert everything into its capital value and compare the amount of converted capital to each other.

What I want to emphasize is some fundamental revolution in human society that causes the change from land as key asset to capital as key asset. In a previous essay, I have discussed the impact of the invention of Watt steam engine. Due to this invention, the rate of capital production the first time in history was above the rate of land production. Industry replaced the agriculture becoming the foundation of modern economy. As the result, capital replaced land becoming the basic scale of asset measurement.

Because of this transformation, the wealth in society is measured by the capital ownership instead of the land ownership. By owning capital, people can buy anything that includes land. On the contrary, owning land does not necessarily mean owning capital because it is possible that nobody would be willing to buy it since land is not the essential input resources of industry. Therefore, land in capitalist society gets a new name---real estate. Land is only considered to be a special type of capital.

In summary, value of capital asset is measured by how much more capital asset could be produced by possessing the capital asset.

Measurement of Mind Asset

What we are facing now is the rise of information industry. Information industry is different from the traditional industry. Information industry takes mind as its primary input in comparing to that the traditional industry takes capital as its primary input. This change has been overlooked by many people until now because we have been used to think of mind also as a special type of capital---similar to simply take land as real estates. It is such a narrowed thought of mind that causes the difficulty of understanding the measurement of mind asset.

Mind essentially is different from capital, which is the same as that land essentially is different from capital. We may evaluate both land and mind in their capitalized value only if they are freely acquired with money or financial capital. When they are essentially more crucial in society than financial capital such as land in feudal society, however, they are not capital any more. By contrast, themselves become the scale of measurement about wealth in society.

Capital is not the natural scale of asset measurement and it will not be the scale of asset measurement forever. If the wealth of feudal society was measured by land but not capital, why can't the wealth of the new coming age be measured by mind instead of capital? We may apply financial capital (money) to measure wealth in any time period. But it does not necessary mean that financial capital is the ultimate scale of asset measurement. There is something money cannot buy, especially within certain particular time period.

Certainly, however, there are many technical issues we need to solve before mind indeed replaces capital to be the measurement scale of wealth. It also took many years for capital completely replacing land being the key asset of society, let it alone that such a replacement be eventually understood and adopted by the general public. (My grand-father-in-law still did not understand it until the middle of last century in China and thus he and his family paid a great deal on this misunderstanding in the rest of their life.)

In the history of capital, the invention of stocks was a landmark. Stock reveals that capital is liquid in contrast to that land is solid. We may look for a similar invention on mind presentation to prompt the adoption of mind asset. Obviously, however, the invention is not ready yet. We still need more patience for the coming new age of human society. (By the way, I will join Adam Lindemann at Imindi. We expect to not only produce novel mind product but also be end up with a few creative improvement on mind asset presentation as the Dutch East India Company did in 1606.)

Michel in his response also has addressed two specific questions of the value of mind asset: (1) the monetary value of mind asset, and (2) the mind asset protection from illegal copies. The following is my answer to the two specific ones.

I agree to the following argument made by Michel.

"There is no one to one relationship between the 100 million downloaded YouTube videos, and the income it can generate. The ratios are very low. This is what the crisis of value is about. Google may make a lot of money, but only a marginal number of websites makes money!! Most use value that is generated, even by high quality mind assets, does not generate a lot of monetary income."

But I have different thought on these facts.

The difference between my thought and Michel's thought is that Michel takes YouTube videos to be mind asset while to me they are more about mind liability than mind asset because (as Michel discovered) people can hardly use them to produce more mind asset. In other words, that until now it is still so difficult for mind product to be asset is because the general lack of production line of mind.

We have YouTube videos, and they are at the end of the current production line of mind. If they are not input resources of some other Web industrial companies, these videos can only be liability but not asset. Moreover, their purchasing value is also low because their producing cost is low (don't count the producing cost of shooting the films).

Such a problem is a generic problem in the current Web industry. The reason that Google makes money is that Google has a well developed production line of mind asset. Google can continuously produce higher quality mind asset by converting the low-quality mind product to be the input resources. Hence Google knows the secret of mind as asset (no matter it is by real understanding or by unconsciousness). By contrast, that many other Web companies can hardly make money is because they don't understand mind asset and they are also not lucky enough to unconsciously catch mind as asset. To the end, they only produce mind product as liability and they do not have the knowledge to design a production line of mind so that their produced liability might be a new form of asset. If Web industrial companies may learn the spirit of mind asset and learn how to make themselves produce asset but not liability, many of them will start to make money.

Why is it hard for us to make money from mind liability, at least at present? The answer is related to the second question we mentioned---the mind asset protection from illegal copies.

Until now, many mind products on the Web are easy to be copied since they are in digital forms and they only describe static content. But things are changing with the progress of Web evolution. The emergence of Web widgets is a typical example.

Web widget is a special type of Web services that service providers implement portable client-side plug-in for users to enjoy the services in their own sites. The difference between Web widget as mind asset and normal Web content as mind liability is that the service providers have the full control of their mind product. Although it is free for users to plug in the client-side widgets, the service providers can subjectively decide whether to continue the service or update the content of the service from time to time. It is generally hard for users to "copy" the server-side program since it is intangible for the client-side users. Hence Web widget is a typical example of mind asset that can produce more mind product and it is not easy for people to steal illegally.

In summary, the production and formulation of the Web-age mind asset is still at its beginning. We still have a long way to go to eventually make the public realize the value of mind asset and understand the measurement of mind asset. However, whoever may catch the spirit of mind asset first would be able to make profit from the knowledge. It is similar to the old day when pioneers got to understand the magic of capital. We are entering a new realm of economy in which we are employing a new form of asset. The entire world is changing gradually in this process.

1 comment:

bloodcarter said...

Yihong,

Very insightful post and perfectly clear analogies. Looking forward to learn more about how to create and measure mind assets!

Vlad.