Where people are stuck economically
People who understand finance don't understand economics, and people who understand economics don't understand finance.
Most people have no idea about the difference between "economics" and "finance."
Economics is about creating value, finance is about pricing that value in the marketplace.
If we look at the previous posting, here are the stages where either economics should have priority, or finance:
A $20 bill CANNOT be worth $10, and a $5 bill CANNOT be worth $100.
That's finance. What you READ is what you get.
Economics is different. You can never know for sure what the value of an object or thing or idea is. It's not written anywhere. The value depends on the person who buys it or creates it or sacrifices something for it.
Real-life example: You're a single guy. Your boss asks you to come in during week-ends and do overtime. In return, he pays you for overtime. Your cost is that you won't go out and have fun with your friends that week-end.
But one day, you become a father. The cost is higher. You won't be there for your child. Yet, in the world of finance, they assume your "cost" is the same and hasn't changed, even now that you've become a father.
The success secret here is that you have to understand economics BEFORE you understand finance.
Unless your name is Warren Buffett, you won't become rich through finance alone. Besides, numbers are boring.
People who become rich AND contribute something valuable, first had to go through the "subcommercial" phase where they -- pretty much like Thomas Edison, the prolific inventor -- had to experiment relentlessly in order to finally create something of value which they can sell at a fair price.
"Subcommercial" means "not yet ready for commercialization."
(By the way, I went to business school for three years and nobody ever taught me about these four categories. You're getting a pretty good business insight, methinks! Don't forget to share this blog with your friends and family and coworkers! Share the wealth! Empower the people you love!) :-)
Most people have no idea about the difference between "economics" and "finance."
Economics is about creating value, finance is about pricing that value in the marketplace.
If we look at the previous posting, here are the stages where either economics should have priority, or finance:
- Sub-commercial: this is where you are able to create value, but not quite able to price that value. As a result, a lot of market testing is required. Sometimes called the "beta" phase. -- ECONOMICS
- Commercial: this is where you begin to make money and the price is somewhat right: customers accept to pay that price in order to get the value you provide. -- FINANCE
- Trans-commercial: This is where you control and master your commercial operations well enough to teach it to others (or to package it into a franchise-like system, and license that system to others). -- ECONOMICS + FINANCE
- Meta-commercial: finally, this is the "grandmaster" stage where you master business so well that each SBU or company in your portfolio is just a chesspiece in your global game of imperial capitalism, the goal of which is to conquer and control as much cognitive estate as possible (cognitive estate being the mindshare that you control, that is, how many people engage with your mass media which, of course, promote your products and services). -- ECONOMICS (COGNITIVE, MENTAL, SOCIAL) + FINANCE
A $20 bill CANNOT be worth $10, and a $5 bill CANNOT be worth $100.
That's finance. What you READ is what you get.
Economics is different. You can never know for sure what the value of an object or thing or idea is. It's not written anywhere. The value depends on the person who buys it or creates it or sacrifices something for it.
Real-life example: You're a single guy. Your boss asks you to come in during week-ends and do overtime. In return, he pays you for overtime. Your cost is that you won't go out and have fun with your friends that week-end.
But one day, you become a father. The cost is higher. You won't be there for your child. Yet, in the world of finance, they assume your "cost" is the same and hasn't changed, even now that you've become a father.
The success secret here is that you have to understand economics BEFORE you understand finance.
Unless your name is Warren Buffett, you won't become rich through finance alone. Besides, numbers are boring.
People who become rich AND contribute something valuable, first had to go through the "subcommercial" phase where they -- pretty much like Thomas Edison, the prolific inventor -- had to experiment relentlessly in order to finally create something of value which they can sell at a fair price.
"Subcommercial" means "not yet ready for commercialization."
(By the way, I went to business school for three years and nobody ever taught me about these four categories. You're getting a pretty good business insight, methinks! Don't forget to share this blog with your friends and family and coworkers! Share the wealth! Empower the people you love!) :-)
posted by Super Peter at 11:43 AM
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