The promise of one party to pay value at a later date in exchange for another party paying value at the current date.
” ‘Credit’ is the third person singular conjugation of the present tense of the Latin verb credere, ‘to believe.’ It’s the most exceptional and interesting thing in the financial world. Similar leaps of belief underlie every human transaction in life: Your wife might cheat on you, but you hope otherwise. The online store may not ship you your goods, but you trust otherwise. Credit derivatives are just the explicit encapsulations of such beliefs, in financial and contractual form, for corporate entities. Unlike other financial securities, such as shares of IBM stock or oil futures, a credit derivative is not even some theoretical value of a tangible good. It’s the perceived value of complete intangible, the perception of the probability of meeting some future obligation” (20, Chaos Monkeys)
Chaos Monkeys by Antonio Garica Martinez
“The ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity.” (Oxford Dictionary of English)
“The essence of this law can be illustrated with a simple example. Imagine that you are a skilled cabinetmaker as well as a gifted painter. It takes you a day to build a cabinet or a day to paint a picture. In the local economy, paintings sell for $400 and cabinets go for $350. Your neighbor also shares the same skill sets, but it takes him a day and a half to build a cabinet and three days to complete a painting. You have an absolute advantage over your neighbor in both areas, so you should try to outproduce him across the board, right? Wrong.
Here’s why: If you flip between painting and cabinetmaking over a six-day work week, you would produce three paintings and three cabinets worth $2,250. If your neighbor embarked upon the same work schedule, he would produce one painting and two cabinets worth $1,100. There would be a total of four paintings and five cabinets produced: a total of nine production units. If, however, you were to choose to focus on painting, the area where you have the greatest comparative advantage and the most profit, and leave cabinetmaking to your neighbor, something magical would happen. You would produce six paintings worth $2,400 per week, while your neighbor would produce four cabinets worth $1,400, bringing the total to 10 production units. In real terms, both you and your neighbor would be richer for specializing – and the local economy is one production unit the better for it.” (Investopedia)
The work of knowledge work is often difficult to measure and its value is therefore hard to determine.
Economist Thomas Piketty made this point when arguing that that the general inability to measure the value of work enables executives to claim salaries that greatly succeed an executive’s marginal productivity.
“Generally speaking, as knowledge work makes more complex demands of the labor force, it becomes harder to measure the value of an individual’s efforts.” (55, Deep Work)
Deep Work by Cal Newport