Saturday, February 13, 2010

More thoughts on value

I want to take a brief look at the Labour theory of value (LTV), which has been occupying my thoughts of late.

In this view, basically speaking, all economic value – value being denoted by price via trading in a market – derives ultimately from the amount and type of labour expended in bringing a good or service to market (where demand for that good arises, in theory, by mentally calculating how much labour the purchaser would save by buying it). The price would of course also include raw materials and energy costs, but even these found their value via the labour it took to bring them to market. For example, should all energy be freely and inexhaustibly available to all, and unpossessable too (like air), it would not contribute to price/value. This is the case with air; it can have no value economically because it is everywhere available to everyone without any effort (lung diseases excluded).

In this theory then, only those things it takes labour to create or acquire can ever have any economic value. To bring this idea into some focus; if there were but one access point, planet-wide, to an infinite amount of clean drinking water, the abundance of the water would be secondary to the ability of the lucky nation that hosted this resource to generate economic value by controlling supply. This control and distribution would constitute labour of course, as would constructing infrastructure to enable efficient distribution. The price would be determined by demand and supply, where supply (rationing) is manipulated to maximise profits. (I imagine the government would be very tight-lipped about the amount of water! Rumours the supply was infinite would be branded fantastical.) In this example, the environmental and national conditions allowing easy domination of the resource are the key factors, labour's role being dependent on those conditions.

In LTV, money is therefore a tool which, in part, measures the value of the work expended to produce a good or service. And yet the very nature of money creation also strongly influences price; banks have the task of judging the capacity of the individual, corporation, institution or nation recipient of its largess, to repay, via their efforts in the labour market or by raising taxes, the money created for them in the form of an interest bearing loan. Interest is variously: a reflection of risk; a valuation of the labour expended by the bank loaning the money; and a “technique” for making money a “serious” business, that is, for not making it too cheap, too easy to come by. As a side note and contrary to classical economic wisdom, it is private banks lending out money that leads money supply (according to Steve Keen’s research). A Central Bank, then, has the task of trying to keep money supply reflective of economic activity by tuning interest rates on its loan injections, or draining money from the economy by calling in those loans. The success of its efforts are reflected by inflation or deflation, by growth or contraction. People working hard to make a buck cannot control this side of the equation, no matter how skilful their work, nor how hard they work or try to find work. Value, as reflected by price, fluctuates in the economic winds brought into being by the machinations of central banks.

And there is yet more to price than labour and central bank competence. Perceived scarcity, status, cachet, fashion, advertising etc., influence price strongly, as do monopolistic and cartel powers. Were labour to be the sole determinant of price, our world would be a very different place. While it is true that advertising is labour, it is not labour that affects the quality of a product, it affects demand. Demand is not a product, except in the sense that suppliers manufacture demand for their products via advertising, a process which is probably worthy of a separate post.

So economics has a perception of value particular to its area of study. I find this unsatisfying, because air is obviously valuable, as are friendship and trust, and many other things whose exchange cannot be affected monetarily, and yet economics cannot value them. While mission creep is something it is often wise to avoid, it is unwise to ignore wisdoms from other areas of life which are valid generally. Furthermore, money's (and by association economics') relative importance in deciding the day-to-day running of nations and international relations demands of us that we make the study of economics as inclusive of societal and ecological considerations as possible, or we risk running aground. To firewall economics off from e.g. sociology, psychology and ecology, to make appeals to the scientific method via mathematical models riddled through with assumptions and maybes at the expense of societal cohesion and health, is to wilfully lock a discipline away in an ivory tower. To my mind this firewalling is, at a very high level, deliberate, for economics as we have it today is purposefully the art of obfuscation. How can the discipline which most controls monetary policy by its theories, fail to take into account the health of society and ecosystem?

My intuition tells me value is one area humanity needs to look at very carefully indeed. It is a slippery concept, arising from relationships between things, and is not in any way an absolute thing (perhaps nothing is). I don't believe there is such a thing as “intrinsic value” for example, but Plato did. Indeed, I would put my money on it being impossible to define value to everyone's satisfaction, but that might be a Good Thing. At a minimum, merely recognising this difficulty at a deep cultural level would be only good, I feel.

So how helpful is it to humanity to associate price with value?


Martin said...

I see you gently closed the door to the spirit for the time being to come back and discuss mundane points with the rest of us. After all what else is there to do in the meantime?

Just to make sure I'm keeping up with you on this, can we look at a current event? One ogre caught in the light is Monsanto and its GMO miscreant. The value associated with its creation is very high, and Monsanto has a large amount of empirical evidence to convince the doubters that they have something the world cannot do without. On the other side are plenty of naysayers, with at present just slightly more than a sixth sense that something is very wrong with all this. The largest sense being that there is a difference between introducing a gene from one plant to another by cross-pollinating and introducing a gene to a plant from an entirely different kingdom!

Monsanto seems to have built its defense on the sort of scientific methods you mentioned while the opposing side has yet to construct anything as large, and actually, has yet to present something concrete in the public arena to push Monsanto on its backside. Monsanto presently has a very large price attached to its perceived value of its product. But its value system is flawed even though it seems to be accepted by the majority. The opposing side has not yet organised enough to counter this , although some very good value judgments are in the works, along the lines you usually speak of. Values involving more spiritual, natural cycles. With no money attached.

Does this illustration fit to what you are saying?

Toby said...

Hi Martin,

thanks for commenting again. Yes, I think the Monstanto case is highly relevant, in that it demonstrates how tricky a task establishing value is. There is in this case both labour and claimed benefit to humanity via improved food production. On the other side we have worries about genetically modifying food and justified suspicion about the company generally, considering its track record.

One of the things that makes such cases close to impossible to resolve is the power of money, which is a separate issue from discussions about value. Arguing with Monstanto officially costs huge amounts of dosh. The truth of the consequences of genetically modifying food is probably out there somewhere, maybe in the future, but discovering it publicly is highly unlikely. Monsanto has a vested interest in winning this argument, come what may. Money once again muddies the water.

Actually, the spiritual angle is one I seldom touch in the blogosphere, because it is so personal and ineffable. That's not to say I don't think it's the most important thing, more that the pragmatic and day-to-day are where the most fruitful discussions are to be had. And I suppose I should point out the door is only ajar, not closed.