Understanding
Value Creation
To understand the term social value, it is important first to under-
stand what private value is and what role entrepreneurs play in cre- ating it. The best way to do this is to start with a simple economic transaction. Suppose I buy an ice cream cone at Ben & Jerry’s for $2.50. I was willing to pay up to $3 for the cone; Ben & Jerry’s spent only $2 to make the ice cream cone and bring it to market. I walk away with 50 cents of psychic benefit, forming the basis for con- sumer value (what economists term “consumer surplus”), and Ben & Jerry’s banks 50 cents of profit, forming the basis for producer value (what economists term “producer surplus”). The residual value that consumers and producers each claim—the value left over after the transaction—is the lure that brings each party to the market.
The benefits to the parties directly engaged in market transactions are measurable in terms of just this type of residual value. Indeed, the nearly universal practice of measuring human welfare in relation to