Of handbags and asteroids

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The issue of how value is created and measured is far from being a simple one. For early economists such as Adam Smith and David Ricardo, it was labour – the work done on raw materials – which created value. The Labour Theory of Value was used and built on by Karl Marx as a core element of his own political economic thought. It seems reasonable enough, and in the eighteenth and nineteenth centuries, most would probably have accepted it without a great deal of thought. But late stage capitalism raises issues which should cause us to rethink whether things are really that simple.

Take designer handbags as an example. Given two almost identical bags, one with a prestigious label on it and the other without, the price difference can be enormous. The bags perform the same function, are probably made of the same material, and even if a little more skilled labour has been expended on making one than the other, the difference is never going to account for the scale of the difference in price. Yet there are people prepared to pay tens of thousands of pounds for an item which is functionally and visibly indistinguishable from one costing a couple of hundred. Except for the label. It is clear that, for some things at least, price is determined more by scarcity and demand than by labour expended.

There was a report some years ago now of an asteroid orbiting between Mars and Jupiter which contained so much metal that it would be worth $10,000 quadrillion if those metals were here on Earth, or 70,000 times the entire world economy. The report suggests that, if the metal could be brought down to Earth, every human being on the planet could be $1.3 billion richer. Except we wouldn’t be, would we. Leaving aside the fact that most of the value would be captured by those already rich beyond the wildest dreams of most of us, the ‘value’ of the metals contained in the asteroid would plummet if that much extra metal were to become available. We couldn’t use it, no-one would buy it, and the value of the same metals already on Earth would drop to near-zero in consequence. $10,000 quadrillion would just disappear in a puff of rocket smoke.

In common parlance, we often use the words ‘price’ and ‘value’ as though they are interchangeable, but price is really just a way of assigning a financial number to the value of an item. And because we live in an economy dominated by the idea of financial wealth, there are a lot of things which are of value but to which we don’t really assign a price at all. We can, for instance, calculate the cost of providing (or choosing not to provide) healthcare for all, but we can’t easily assign a price to good health itself. Then we measure ‘success’ by adding up the ‘value’ of all those things to which we can assign a monetary number, and calculate the increase or decrease over time. And call it GDP or GVA.

There’s no divine law which says things have to be this way. The American Declaration of Independence talked about ‘Life, Liberty and the pursuit of Happiness’ as being its key drivers. A society based around those goals, which measured its success based on their achievement, would look rather different to what we have. That we don’t have that is another of those political choices which have been made for us by those who own and control the financial wealth. It doesn’t have to be this way. And handbags don’t need to cost tens of thousands.