Anyone can look up the price of gold per ounce and answer that question. It is actively traded in markets around the world. And if you wanted to invest in gold, you can do that very easily. Gold is an asset. We value it because, well, we value it. It has limited use in jewelry and electronics but mostly it is a store of value. And trading it creates information such as a measure of our fear of inflation, likelihood of another financial disaster, or confidence in our currency.
We accept the notion of trading gold (and many other assets) and accept that we can only make money by betting on gold’s price rising or falling. We accept these financial bets because gold is a store of value and we use the information trading it as a signal in our economy.
If I asked how much is a whale worth? I would, and often do get, a very different response, “You can’t own a whale, it's priceless, it has no intrinsic value!”, and many more like that.
But let’s take a closer look: gold vs. whales:
- Gold is a store of value because it is relatively rare Check – whales too
- Gold has intrinsic value Check – whales too
- Trading gold creates useful information (if we did whales too)
- We can make money betting on the rise/fall of its price (if we did whales too)
- There are other uses for gold Check – whales too
But you can own gold and you can’t own whales!
True but thankfully we have modern financial tools to solve that problem. You don’t have to have the gold in your safe or a whale in a backyard pool to own its value. Financial products allow us to abstractly own an asset’s value to make life easier. We unlinked ownership of the asset and owning its value some time ago. Most trading in commodities or assets like gold don’t bother with physical delivery. A barrel of oil or bushel of corn or bar of gold doesn’t need to show up at your door. You simply own the potential change in value. So we know we can own the value and not the thing.
So why would I want to own whales?
First, without a financial value for whales, we cannot include the value of whales in our economy. We don’t capture the value of a whales, its genetic material, its service role in a functioning ecosystem, its beauty, intelligence, etc. if we don’t have a financial price for whales. We can protect them by law by making an argument for their value but it often puts protecting whales at odds with growing our economy. A false choice but understandable when our economy only sees financial value and whales have none. Pricing whales; advocacy on steroids.
Second, when we value whales or any other natural asset, we get information about the well-being of that asset and its relation to other things in our economy. That information is distilled to a powerful tool called price. When resource development in arctic threatens whales that is reflected in their price. If whale food is over harvested (fish or krill for instance) that is reflected in the price of whales (and other assets). If the U.S. Navy uses sonar technology that harms whales, we can say how much harm in dollar terms as well as our desire to be humane to whales. Money gained or lost speaks very loudly. We need only look at the Dow Industrial Average, GDP or The Case-Shiller Housing Index to see how loudly it speaks!
When we value more and more natural assets we are including them in our economy and we do something of much greater value than valuing a single species or ecosystem. We get a picture of what the actual costs of our products and services are. The economy may know the direct cost to drill for oil in the arctic (ships, labor, fuel, machines, etc.), but it doesn’t have a way to measure that impact on whales, fish, climate, human health or other costs. These other costs are real and are paid for by everyone in a huge hidden tax that saps our ecosystems and our economy.
When we do have a way to see these costs, by the effect they have on whales and other assets, we can more accurately price the real cost of oil drilling. That price should include the risk of rare events, like oil spills (BP Gulf of Mexico). The real costs of activities allow us to make smarter choices on how to drill or whether to drill for that oil in the first place and determine if alternatives are actually less expensive and even which alternatives make sense. Our markets are powerful tools that efficiently digest data and distill it to usable information and can be highly efficient if they have the right input data.
With IVE, we use the same financial mechanisms that allow us to value/price gold and apply them to natural assets, in this example whales. With a financial exchange, we provide a way to own the value of whales like you can own the value of gold. You can make money investing in whales and you can make our economy and our environment healthier.