National Accounts
Money is Tricky
In "The Value of Everything" Mariana Mazzacato is trying to come up with a clear concept of value.
It's hard.
Part of the reasons it's hard is that in economics money is the main measure of value.
She introduces the concept of a 'production boundary'.
For example, once, only agriculture was considered to be productive; everything else was thought to be supported by agriculture.
So only agriculture was within the production boundary.
We might think of that which is within the production boundary is essential while that which is outside is more or less superfluous; we can get along without it. Slowly, more and more activities were deemed to be within the production boundary. But the idea is that only activities within the production boundary produce wealth and those outside consume that production.
As society became more and more complex and large, the rulers needed a way to gauge how wealthy their society was.
For a long time the measure was fairly direct. You raised taxes until people couldn't pay more.
But, that wasn't very accurate and mistakes could be disastrous.
By the 1700s advances in math and communication enabled people to try more precise but abstract approaches. Companies learned to apply accounting methods to their own businesses to track their own wealth. Tax collectors could use that data to calculate the tax owed.
But also that data was a treasure trove of information about the wealth of a nation. A side product of that has that perception of wealth linked to money because money was easy to measure.
Over time everything that didn't make money somehow got pushed outside the production boundary.
This involves paradoxes like police departments are not productive because they don't turn a profit because their clients don't pay for their services.
There is a temptation to say that if you can sell something that the price is a measure of it's value.
If you made money then by definition you are productive.
It's easy to see the problem with that definition; lots of people make money at things that are positively harmful. Is producing harm productive?
These days we have a measure of the economy called the Gross Domestic Product.
It's a complicated measure. I don't know it's details.
But I've seen that it measures flows of money and this can be perverse.
For instance, a natural disaster causes lots of money to be spent recovering which boosts a GDP. Is such a measure really adequate?
Another even more absurd measure, though more informal, is the stock market. The stock market does work to raise capital for investment.
But mostly it's a medium for gambling. The current price of a stock has little to do with how productive a company is. Yet the gyrations of the stock market are seen as a measure of the health of the economy. And many of the gamblers make money and so are seen as productive and the ones who lose money are not counted.
These days that whole structure is being challenged from many directions.
On the one hand the drive to make money at all costs has caused us to strip the Earth of all sorts of natural resources that may well end in disaster.
On the other hand automation is making it so that few people are actually within the productive boundary (assuming we go back to the idea that being productive is making things we use). The most visible manifestation of that is that there are fewer and fewer jobs that pay a 'living wage'.
There are other measures of a society rather than systems of national accounting that focus on money. Sam Harris is right that we .need to pay attention to human wellbeing. But how is that measured? I recommend looking at The Capabilities Approach (Martha Nussbaum and Armatya Sen) for a pretty detailed measure.
We do need national accounts and measuring how money flows is important. We need to be careful that it keeps on flowing for the common good and not get captured for private power. And only something like The Capabilities Approach can inform us about the common good.
What do you think?
I present regular philosophy discussions in a virtual reality called Second Life.
I set a topic and people come as avatars and sit around a virtual table to discuss it.
Each week I write a short essay to set the topic.
I show a selection of them here.