Value(s)

Building a Better World For All

Mark Carney

• Publisher: William Collins
• Year: 2021
• Print ISBN: 9780008421090
• eBook ISBN: 9780008421144
• Topic: Economics
• Subtopic: Macroeconomics
• Index: Economics

Our world is full of fault lines – growing inequality in income and opportunity; systemic racism; health and economic crises from a global pandemic; mistrust of experts; the existential threat of climate change; deep threats to employment in a digital economy with robotics on the rise.

These fundamental problems and others like them, argues Mark Carney, stem from a common crisis in values.

Drawing on the turmoil of the past decade, Mark Carney shows how ‘market economies’ have evolved into ‘market societies’ where price determines the value of everything. In this profoundly important new book, Carney argues that radical, foundational change is required if we are to build an economy and society based not on market values but on human values. A society that can work better for all.

When we think about what we, as individuals, value most highly, we might list fairness, health, the protection of our rights, economic security from poverty, the preservation of natural diversity, resources and beauty. The tragedy is, these things that we hold dearest are too often the casualties of our twenty-first century world, where they ought to be our bedrock.

In Value(s), Mark Carney offers a vision of a more humane society and a practical manifesto for getting there. How we reform our infrastructure to make things better and fairer is at the heart of every chapter, with outlines of wholly new ideas that can restructure society and enshrine our human values at the core of all that we build for our children and grandchildren.

PART I

THE RISE OF THE MARKET SOCIETY

1

Perspectives of Value – Objective Value

Consider these paradoxes of value. Great minds from Plato to Adam Smith have pondered why water – which is essential for life – is virtually free, and diamonds – which have limited utility beyond their beauty – are so expensive.

During the Covid crisis, the extraordinary values of public service, dedication and heroism of healthcare workers across the world were celebrated. As the sounds of applause and saucepan drums rang from doorsteps and raised spirits, few recalled the arguments made by economists that the wages of these workers (wages that generally consigned them to long commutes to work on risky public transportation) reflected their marginal contribution to society. Instead there was, for a time, recognition that some values cannot be priced. And yet assessments soon emerged that compared the value of people’s lives to the economic costs of the lockdown in order to chart an exit strategy.1

Why is Amazon rated as one of the world’s most valuable companies by financial markets, but the value of the vast geographical region of the Amazon rainforest appears on no ledger until it is stripped of its foliage and converted into farmland? Who can calculate the value of the species being lost for ever in the Sixth Mass Extinction?

To explore whether value must be priced in order to be valued, let’s begin with concepts of value.

Concepts of value are rooted in philosophy and more recently – and narrowly – in economic and financial theory.

Value and values are related but distinct. In the most general sense, values represent principles or standards of behaviour. They are judgements of what is important in life, determining what actions are best to do or what ways are best to live (a field of study called normative ethics). Examples include integrity, fairness, responsibility, sustainability, dignity, reason and passion.

Value is the regard that something is held to deserve – its importance, worth or usefulness. The verb to value is ‘to consider someone or something to be important or beneficial; to have a high opinion of’ or ‘to estimate the monetary worth of something’.2 Value is not necessarily constant but specific to time and situation. Consider Shakespeare’s Richard III who in battle cries despairingly, ‘A horse, a horse, my kingdom for a horse,’ or the value people have placed on basic daily essentials and healthcare workers during the pandemic.

These examples emphasise that the economic value of a good or service is generally3 depicted as relative – ‘how much’ of a desirable condition or commodity would be given up in exchange for another. When expressed in monetary terms, this is known as the ‘exchange value’. The distinctions between exchange value, use value and intrinsic value have been sources of intense debate in economics.

It is increasingly common to equate the monetary estimate of something with its worth and, in turn, that worth with society’s values. The subjective (or price) theory of value – once contentious – now goes largely unchallenged in economic teaching, is taken as given in business schools and frequently determines society’s perception of its deeper values.

To begin to draw out the consequences of the convenient shorthand of price equalling value, it is helpful to consider a brief history of the theory of value in economic thought.

A Brief History of Value

One of the most fundamental questions in economics has been what determines the value of a good or service. By the turn of the last century, ‘in the language of the craft “economic theory” had come to mean value theory’.4

But with what does economic value theory properly concern itself? After all, value is also a property of literature, art, education and religion. At their core, economic theories of value seek to explain why goods and services are priced as they are and how to calculate their correct price, if such a value is thought to exist. As we shall see, however, the reach of economic thinking about value has extended widely from this narrow remit, and the profession’s discipline in restricting economic thinking to economic value has been relaxed considerably.

Much of historical thinking about economic value concentrates on the process of value creation, with different conceptions of value rooted in the socioeconomic and technological conditions of the time. Many value theorists give heavy consideration to distributional consequences, and distinguish between productive and unproductive activities, with the aim of increasing the ‘wealth of the nation’. In these regards, historical approaches to economic value embody values relating to ‘what is important in life’.

The various approaches to value also usually differentiate between value creation and value extraction, or rent seeking. Value creation results from combining different types of resources (human, physical and intangible) to produce new goods and services. Value extraction can be thought of as the product of ‘moving around existing resources and outputs and gaining disproportionately from the resulting trade’.5 ‘Rent’ is the return to this activity, and it has been at best viewed as unearned income or, at worst, theft.

These distinctions between productive and non-productive activities, between value creation and extraction and between just returns and rents are critical because they guide public policy, and in turn influence growth and welfare.

Over the centuries there have been two broad schools of thought regarding the determinants of economic value: objective and subjective.

In objective theories of value, value is determined by the production of goods and services. Objective approaches contend that, although the price of a product results from supply and demand, its underlying value is derived from how that product is produced and how that production affects wages, profits and rents. In objective theories, value is tied to the nature of production, including the time required, the quality of labour employed and the influence of new technologies and ways of working. Proponents span Aristotle to Adam Smith and Karl Marx.

In contrast, subjective theories of value place greater weight on how exchange value (the price of goods and services in the market) reveals underlying value. In subjective theories, value is in the eyes of the beholder, driven by preferences and to a lesser extent scarcity. This approach is most clearly associated with neo-classical economists of the nineteenth century, such as William Jevons and Alfred Marshall, and it is dominant in our time. This has a variety of consequences, especially the implication that something which is not priced is neither valued nor valuable. It is as if the price of everything is becoming the value of everything.

Early Objective Theories of Value

The Greek philosophers, notably Aristotle (384–322 BC), held that the source of value was based on need, without which exchange of goods and services would not take place. Aristotle was the first to distinguish between the dual uses of an article (an idea that is taken up with enthusiasm by the classicists of the nineteenth century who distinguished between value and price):6

Of everything we possess there are two uses: both belong to the thing as such, but not in the same manner, for one is the proper, and the other the improper or secondary use of it. For example, a shoe is used to wear and is used for exchange; both are uses of the shoe.7

Aristotle’s considerations of value were incidental to his primary concern, ‘justice’. Value takes the form of utility (in use value) and is measured by labour. Aristotle’s ‘just price’ was the exchange of equal values in terms of labour, with differences in labour quality taken into account.8 He made no attempt to explain how commerce worked or therefore how prices were determined in a ‘positive theory of value’.

In the Middle Ages, the ‘canonists’ were philosopher theologians who, like their Aristotelian forebears, regarded economics as integral to ethical and moral philosophy. Their economic approach therefore cannot be divorced from their systems of social philosophy which were aspects of ecclesiastical jurisprudence, whose ultimate objective was achieving God’s grace.

In this context, canonist thinking on value centred on two aspects. First, a normative approach – what value should be – instead of what actually is revealed in markets through exchange. And second, addressing the practical problem of establishing prices in accord with ecclesiastical justice; in other words, how to justify earthly commerce before God.

The canonists advanced the concept of a ‘just price’, although its precise definition was open to interpretation, interpretations that were, of course, adjudicated by the Church. Consistent with Aristotle, labour costs were important. Albertus Magnus (c.1200–80) counsels that goods ‘containing the same amount of labour and expense’ should be exchanged. In his Summa Theologica, St Thomas Aquinas (1225–74) distinguished the ‘just price’ of a good from the ‘wrong price’ that results from greed or other moral ills.

There were few moral ills worse than usury. In Dante’s Inferno, usurers are consigned to the seventh circle of hell because they make money not from productive sources (nature or art), but from speculative charges in interest rates. This theme of the evil of rent-seeking finance is prominent in most theories of value before neo-classicism.

Aquinas allowed variations from the ‘just price’, but only as payment for the merchant’s labour, and only to degrees that would be sufficient to allow the merchant their accustomed standard of living, a concession that in practice could allow considerable tolerance of different prices and profits.

A century after Aquinas, St Antonino (1389–1459) justified prices on the basis of a concept of disutility:

The case when a man needs something, the loss of which will be a grave inconvenience to the owner. The latter may in these circumstances demand a higher price, not looking to the value of the thing in itself, but its value to him, i.e. not looking to the thing, but to the inconvenience its loss will occasion him.9

St Antonino rationalised interest with similar logic, pointing out that the money involved could have secured capital, and the capital could have earned a profit; therefore, the loss of profit could justly be charged as interest. But he held throughout that gains were not ends, merely means to the ultimate spiritual object of all activity.

When divining the value theorems of the canonists (or for that matter the Greek philosophers) it is critical to recognise the extent to which their value theories and economics were unified aspects of a much larger world (indeed heavenly) view.10

For our purposes, it is sufficient to conclude that the canonists prioritised a welfare with an other-world content over temporal wealth, they subordinated profit to moral ends and they insisted that economic offices be discharged consistent with a doctrine of stewardship.11 In this last respect, they provide some of the foundations for modern ideas of corporate purpose and stakeholder capitalism (albeit without the vibrant financial sector or the sense of secular duty to make a profit).

The canonist influence over economic conduct waned with the Reformation and the growing separation of religious doctrine and economic activity. Their heirs were, in turn, the mercantilists and the physiocrats, both of whose value systems favoured real-world political economy over higher conceptions of value and welfare.

The fifteenth and sixteenth centuries brought new technologies and modes of organisation that gave rise to commercial society. Maritime trade grew with the new navigational instruments; farming began to lose its feudal characteristics; and the economy moved towards large, organised markets, under guilds and the great trading companies (such as the East India Company) that were monopolistically controlled under official protection.

In response, a new economic doctrine – mercantilism – was born. At its heart, mercantilism was the view that maximising net exports was the best route to national prosperity, and that a country’s wealth was measured by gold, the by-product of these surpluses.

The significance of mercantilism lay largely in its substitution of the national competitive state for the moral order of the canonists. As will be discussed in Chapter 3, the legitimacy of the monarch was shifting from being grounded in divine right to being a Hobbesian protector, first against the scourges of the age and then gradually of new trade routes and commercial opportunities. The common good was redefined in national political terms, beginning a quest for value theories that determined how best to advance the wealth of nations. Despite such lofty aims, however, the mercantilist literature was primarily intended to advance the fortunes of a select group of individuals and corporations, whose pursuit of personal gain was clothed in a larger national purpose.

Attitudes towards what constituted rent seeking changed during the mercantilist era. During this age of European conquest of the so-called New World and the plunder of its gold and silver, value was assigned to activities that developed and protected trade routes and accumulated precious metals. As Thomas Mun, a director of the East India Company, declared, national wealth was enhanced by selling ‘more to strangers yearly than we consume of theirs in value’.12 Moving things around came to be viewed as value creation rather than value extraction.

Perceptions of value changed accordingly. In his Lecture on Money, the Florentine merchant and historian Bernardo Davanzati (1529–1606) constructed a theory of value based on utility that focused on the drivers of the demand for goods, a natural consequence of valuing merchants who controlled trading not production processes.13 Davanzati also distinguished ‘value in exchange’ from ‘value in use’, identifying the ‘paradox of value’ in the process.14 He argued that gold has no value in use but great value in exchange because it can be used to command other goods.

Around the same time, an influential approach to value was developed by Sir William Petty (1623–87), an anatomist, physician and Member of Parliament, who had been a tax administrator in Ireland under Oliver Cromwell’s Commonwealth government. With his training as a physician and heavily influenced by the scientific advances of his era, Petty searched for natural and intrinsic laws of reality – including ‘natural value’. According to Petty, ‘natural value’ was determined by the factors of production – land and labour – and the market price (‘actual price’) of any commodity would fluctuate around its natural value (‘natural price’). Petty simplified his theory of value to one based on labour, by solving for a ‘par’ value for land in terms of labour.15 That labour value, in turn, was determined by a form of subsistence wage, which was the unit of measure consisting of ‘The easiest-gotten food of the respecti...

Table of contents

• Title Page
• Copyright
• Dedication
• Contents
• Preface: Values into Action
• Introduction
• PART I – The Rise of the Market Society
• 1 Perspectives of Value – Objective Value
• 2 Perspectives of Value – Subjective Value
• 3 Money, Gold and the Age of Consent
• 4 From Magna Carta to Modern Money
• 5 The Future of Money
• 6 The Market Society and the Value of Nothing
• PART II – Three Crises of Value(s)
• 7 The Global Financial Crisis: A World Unmoored
• 8 Creating a Simpler, Safer, Fairer Financial System
• 9 The Covid Crisis: How We Got Here
• 10 Covid Crisis: Fallout, Recovery and Renaissance?
• 11 The Climate Crisis
• 12 Breaking the Tragedy of the Horizon
• PART III – Reclaiming Our Values
• 13 Values-Based Leadership
• 14 How Purposeful Companies Create Value
• 15 Investing for Value(s)
• 16 How Countries Can Build Value for All
• Conclusion: Humility
• List of Figures
• Notes
• Acknowledgements
• About the Author
• About the Publisher