Good question, sounds like value is being defined way too narrowly here. The value of farm equipment isn't the intrinsic or salvage value of the metal and other raw materials it is made out of, the value is equal to (value of crops yielded with the use of equipment) - (value of crops yielded without use of equipment). Just like the value of liquidity is clearly evident by the liquidity preference in debt markets. An upward sloping yield curve means investors demand higher rates of interest for longer tenor debt http://www.bloomberg.com/markets/rates/index.html Same situation applies to equity markets and is one of the reasons VC investments require higher discount rates than equity investments in public companies.
You're talking about money value, not "real value." (I guess that might not be the clearest term for what I mean)
The value of farm equipment is in more crops being produced.
The value of liquidity is less clear. An upward sloping yield curve means people are willing to exchange more money for shorter term debt. That money can then be used to invest in the creation of more products. It's not until that point that it's clear what "real value" is being produced.
I understand how you are defining value. I am just rejecting that definition because it is both different from how people typically define the term and not particularly useful. For instance you are claiming that software has no value, only the consumer end-products you create with it. Most people would say software has value equal to the increased efficiency it gives you. In that same vein I am claiming liquidity has value equal to the increased optionality it gives you. How does your definition help me better understand the world?
Sorry, the meaning I've been trying to get across is intrinsic value and I think we agree. I'm not trying to say that liquidity has no value. It clearly does have value.
My point is that liquidity's value comes from its secondary effects of allocating resources more efficiently. It's important to have this awareness because increasing liquidity might not always be the best way to increase the efficiency of allocation.
Same with software. Software tools have value equal to (amount of things produced with them) - (value of things produced without them).
> It's important to have this awareness because increasing liquidity might not always be the best way to increase the efficiency of allocation.
It doesn't matter whether it's the best way, just that it's effective. You typically get better results by applying many improvements than you do by just applying the "best" improvement.
And, liquidity isn't just about improving allocation.
> Software tools have value equal to (amount of things produced with them) - (value of things produced without them).
Actually not. The value of anything is the benefit of said thing minus its cost. It's otherwise independent of the value of other things.
You may decide between two things based on their relative value, but that's different.
