---
type: claim
domain: internet-finance
description: "Standard financial analysis treats what has value as fixed and only its price as variable — but paradigm shifts change what MATTERS, rendering entire analytical frameworks obsolete along with the assets they valued"
confidence: likely
source: "Abdalla manuscript 'Architectural Investing' (copper example, Hidalgo citations), Hidalgo 'Why Information Grows' (2015)"
created: 2026-04-03
related:
- priority inheritance means nascent technologies inherit economic value from the future systems they will enable creating investable dependency chains
- market volatility follows power laws from self-organized criticality not the normal distributions assumed by efficient market theory
- products and technologies are crystals of imagination that carry economic value proportional to the knowledge embedded in them not the raw materials they contain
reweave_edges:
- products and technologies are crystals of imagination that carry economic value proportional to the knowledge embedded in them not the raw materials they contain|related|2026-04-17
- value flows to whichever resources are scarce and disruption shifts which resources are scarce making resource scarcity analysis the core strategic framework|supports|2026-04-24
supports:
- value flows to whichever resources are scarce and disruption shifts which resources are scarce making resource scarcity analysis the core strategic framework
---

# Value is doubly unstable because both market prices and the underlying relevance of commodities shift with the knowledge landscape

Standard financial analysis models one layer of instability: market price fluctuation around a fundamentally stable underlying value. A barrel of oil has intrinsic utility; its market price fluctuates around that utility. The analyst's job is to identify when price diverges from value.

The manuscript argues there are two layers of instability:

**Layer 1: Price instability** — the familiar market volatility. Prices fluctuate due to supply/demand, sentiment, liquidity, and information asymmetry. This is the domain of traditional financial analysis.

**Layer 2: Relevance instability** — changes in the knowledge landscape change WHAT is valuable, not just how much it's worth. Copper was marginal for millennia, then Faraday's discovery made it essential infrastructure overnight. Whale oil was the dominant energy source until petroleum displaced it entirely. Rare earths were geological curiosities until permanent magnet technology made them strategic assets.

The second layer is more important and less analyzed. When the knowledge landscape shifts, entire asset classes can go from irrelevant to essential (copper after electromagnetism, lithium after batteries) or from essential to worthless (whale oil after petroleum, film after digital photography, physical retail after e-commerce). No amount of Layer 1 analysis (price-to-earnings ratios, discounted cash flows, technical analysis) helps if the underlying relevance is about to shift.

Investment strategies that only model Layer 1 are structurally inadequate for paradigm transitions. They work within stable knowledge regimes but fail catastrophically at regime boundaries — precisely when the most value is created and destroyed.

Hidalgo's information theory of economic value provides the theoretical foundation: products embody crystallized knowledge (knowhow + know-what). When the knowledge landscape changes, the knowledge embedded in existing products may become obsolete, shifting which products and resources carry value. Value tracks knowledge, and knowledge evolves.

The practical implication: during paradigm transitions (like the current AI transition), the investor who understands what the NEW knowledge landscape will value outperforms the investor who better analyzes the CURRENT landscape. This is the case for architectural investing over fundamental analysis during transitions.

## Challenges

- "Paradigm transitions" are identifiable in retrospect but difficult to time prospectively. The claim is actionable only if you can identify when the knowledge landscape is shifting, which may not be possible in real time.
- Layer 1 instability is more frequent and more immediately relevant to most investment horizons. Layer 2 shifts are rare (once per generation at most). For most investors most of the time, Layer 1 analysis is sufficient.
- The copper example is illustrative but not representative. Most commodities don't undergo Layer 2 shifts within investment-relevant timescales.

---

Relevant Notes:
- [[priority inheritance means nascent technologies inherit economic value from the future systems they will enable creating investable dependency chains]] — priority inheritance IS the mechanism by which Layer 2 value shifts create investable opportunities
- [[market volatility follows power laws from self-organized criticality not the normal distributions assumed by efficient market theory]] — Layer 1 instability follows power laws; Layer 2 instability follows knowledge-landscape dynamics

Topics:
- [[_map]]