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?