A slave to the passions?

Weekly Updates

As any aficionado of the film Legally Blond knows, Aristotle declared “the law is reason, free from passion.” Adapting this for financial markets, “an asset is a store of value, free from passion.”
“Free from passion” is an important qualification. This means assets are something that can be valued using objective criteria in a spreadsheet. Economists may disagree on the fair value of an asset—hence the vast spectrum of views about currency values. But these differences are objective, emphasizing different inputs. Passion is not involved.
Other forms of wealth are not assets in this sense. Art as a form of wealth can have considerable value—but it is not an asset. Art’s value is driven by the collectors’ passion. Art is supposed to stimulate the emotions after all. Similarly crypto, the past glories of NFTs, and collectible sports shoes all have values determined by passion.
Does this distinction matter? It might. Introducing passion into value makes valuation less certain—a wealth tax on passion would be difficult to calculate. Wealth effects may also be different. Wealth effects stimulate consumption because wealth holders feel they could potentially liquidate and spend their capital gains. If passion is involved, the willingness to sell, and thus the wealth effect, may be lessened.