Effectual Value

Whereas potential value is the capacity of a final output to increase health, effectual value is the actual health gained from the output’s consumption — that is, its assimilation and use.

The role of effectual value in ENL is to judge the distribution and consumption of final outputs. Like potential value, effectual value can initially be positive or negative. Unlike potential value, it tends to decrease at the margin.

Thus, effectual value that is initially positive may become negative as consumption proceeds. A typical effectual value curve is shown in the following figure.

Effectual value
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Effectual value is the realization of the capacity in potential value — the actual health change resulting from consumption. It is depicted as a downward-sloping curve that may become negative.

Economic activist Michael Albert displays a strong intuitive grasp of this concept in the following passage:

The United States has 3 million people without homes to sleep in, though it has roughly 50,000 hotels that are generally only about half full and are able to house 15 million people. So, the United States has 3 million homeless people with 7.5 million empty rooms that they could, but can't, occupy.1

Whatever the accuracy of Albert's figures, his example cuts to the heart of effectual value: outputs exist that could increase health, but under current social arrangements they fail to achieve this result. The conclusion is clear: the distribution of outputs is central to the ultimate health benefits that are derived from an economy’s outputs.

An important distinction between potential and effectual value is that potential value is a relationship between an output and the human body — the output's capacity to modify the body's health. Effectual value, on the other hand, is the result of an activity — consumption.

Thus an output possesses the attribute of potential value, but effectual value is achieved when the output is consumed by a human being. Although it is tempting to treat effectual value as an output’s attribute, this should be resisted to avoid logical errors.

There are two key economic factors that account for the decline in an output's effectual value: satiation and output losses.

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