“What is value? This is perhaps the most urgent, yet neglected, question of contemporary social theory”

Murray (2017)

“studying value can be monumentally difficult, but it can be done”

Anderson and Narus (1998)

“Since all of us desire to be happy (flourishing and well being), and since we evidently become so on account of our use—that is our good use—of other things, and since knowledge is what provides this goodness of use and also good fortune, every man must, as seems plausible, prepare himself by every means for this: to be as wise as possible. Right?”

Socrates

Humanity has longed to solve the “Value Problem” - what is value, how is it produced, how should it be measured and what do the answers to these questions mean for the way we organize ourselves and society.   Seemingly benign questions with a disastrous habit of yielding destructive solutions.  

In European thought, the Value Problem was first framed thousands of years ago:  

A shoe is used for wear and is used for exchange; both are uses of the shoe. He who gives a shoe in exchange for money or food to him who wants one, does indeed use the shoe as a shoe, but this is not its proper use, for a shoe is not made to be an object of barter.

Aristotle thought the Value Problem concerned the best or most productive use of a thing.

Unlike today, the philosopher conceived of value as a single idea.  All value was value in use and was to be measured in terms of the lived experience of a thing.   Unlike today, no distinction was made between value in use and value in exchange.   A shoe did not have two values.  One when worn and the other when exchanged for money.  Wear and exchange were not different types of value but simply different types of use.  Aristotle insists that “both are uses of the shoe”.   Thus, the Value Problem invited a simple analysis - is it better to wear a shoe or barter with it for money?

Though thousands of years old, the pre-classical Value Problem still matters because it impacts directly on the way life is lived individually and collectively:

• which things are the most useful;

• how do we decide between the different uses of things;

• who produces the greatest value;

• where is the production boundary when it comes to value in use; and

• how do we account for value in use.

But this no longer a philosophic mediation.  If the dire projections for the planet’s future are any measure, the “make-take-dispose” answer to the Value Problem of the 20th century has turned out to be as far from the best or most productive use of the world’s rare treasures as could be imagined.

The cause of climate change, biodiversity loss, cultural destruction, and the perilous struggle to live long and well can be traced back to Aristotle.  More precisely, what happens when humanity organizes economics, law, and society without a viable solution to the Value Problem.  

Despite the basic and practical importance of value in use to life and livelihood, the question of what is the best use of a thing has been largely lost to history.   Erased from debate and public intellectual though when economic scientists proclaimed centuries ago to have solved the Value Problem once and for all.   But this was not the same problem posed throughout antiquity.

The Economist Solution to Value in Use  

The economist solution to the problem of value in use is to ignore it.

To fully appreciate the extent of intellectual neglect, it helps to understand how the pre-classical value problem was revised and eventually thought out of existence. First by the classical economists and then completed by neo-classical economists.  Through a slight of the invisible hand, their deceptively ingenious solution to the most complex of problems, was to change the nature and scope of the question.   And with it, the course of history and with that, the future of all species. 

Familiar names like Smith, Ricardo, Marx, and Pareto might not have agreed on much but all agreed to fundamentally modify Aristotle’s formulation.   First, whereas the pre-classical version of the Value Problem concerned value in use, both classical and neo-classical economists alike considered that there were two different kinds of value:

“The word value ... has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods... The one may be called `value in use’, the other, `value in exchange’”

Smith (1838)

Marx confirms Smith’s distinction in Capital.     Throughout his work the pre-classical expressions “value in use” and “value in exchange” are replaced with “use value” and “exchange value”.  Value is no longer a single property found in acts of use and exchange but two different and opposing categories of value.   Together these two giants of economic thought shift the emphasis of political economy from a singular concept of value to one divided into use and exchange. 

Next, having split value in two, the concept of value in use (now defined as use value) is systematically dismissed by all economic faiths as irrelevant to the study of economics:

Use-value is an expression of a certain relation between the consumer and the object consumed. Political economy, on the other hand, is a social science of the relations between people. It follows that use-value as such lies outside the sphere of investigation of political economy”

Sweezy (1942)

Finally, once value in use had been intellectually thrown away, all value eventually becomes exchange value or the ratio at which one good exchanges for another.   The prefix exchange, now redundant, is dropped and with it any clue that value could have another meaning.   Today’s teachers of economics seemigly unaware that exchange value, markets and prices represent only a small slice of the historical value pie.

Through a succession of rhetorical and conceptual innovations, the pre-classical Value Problem had been cut down into a much smaller and more manageable frame.   No longer concerned with use, the boundary of the neo-classical Value Problem is confined to the production and consumption of commodities that can be exchanged in markets.  A convention adopted to this day by even the most unconventional of economists:

Value can be defined in different ways, but at its heart is the production of new goods and services  

 Mazzacato   

 

Over the course of a few centuries, value had lost all association with the production of value in use (other than through a poor analogy to subjective demand).   The old or pre-classical value in use problem replaced with the new or neoclassical exchange value problem - how to explain the prices of goods and services.  Critically, the old practical value in use questions are no longer a problem for economics and economists to solve.   Aristotle’s idea of value being a universal property of all things thereafter confined to history. Playing no further part in the development of economics through the 20th century. 

By the time economists settled on a solution to the neo-classical Value Problem the “best use” of a thing was no longer that which was most useful but the use that produced the greatest price.  Only things that have a price have value.  A sentiment trusted and relied upon by the world's most influential businesses, institutions and governments:

“Companies that grow and earn a return on capital that exceeds their cost of capital create value.”

McKinsey and Company (2020)

Re-framed in this way, the neoclassical thought collective came up with their own solution to deciding the best use of a thing. If business maximized their profits and at an individual level, consumers maximized their utility associated with pleasure or “well feeling” this would ensure the best use of all things and the ultimate well being of all. Or so they thought..

The Problem with Economists

The economists solution was not without its problems. Tinkering with the value problem had caused economists to develop what can best be described as a high functioning dissociative condition.

Not the involuntary mental disorder but a voluntary disconnection from reality. Telling us that the best use of thing can be determined without knowing anything about the thing itself. Convinced that we can know a things value entirely dissociated from physical reality and the characteristics, roles and properties of the thing in question. And like their namesake, this disconnection from reality causes problems with functioning in every day life. But not for the economist who continues to have the ear of policy makers. The economist may have the condition but the planet has the symptoms.

It is not that the economists are evil but that haven given up on trying to understand usefulness they pursue the bad in the name of the good.

It is clear then that people who are ignorant of bad things do not desire them, but rather they desire those things they believe to be good. But these things [i.e., by contrast with those things] are bad—so that people who are ignorant of bad things and believe them to be good, clearly desire good things.

Socrates.

Collapsing confidence in corporations and capitalism, accelerating bio-diversity loss and irreversible climate change all point toward the conclusion that, despite McKinsey’s revenue exceeding 10 billion dollars each year and all the Nobel prizes that have been awarded in economic science, humanity has been solving the wrong set of economic problems.  Instead, ignored for centuries, the resulting neglect has resulted in a real-world threat to sustainability and prosperity.  

Each of the global challenge confronting humanity is rooted in the pre-classical Value Problem.   By following the logic of exchange value and maximizing profits we have created a scenario in which we have institutionalized and encouraged the transformation of things that have the greatest value in use into things that have the greatest exchange value. 

Unwise to the notion of the good use, the profession and all those who they have come to influence cannot fathom that perfect competition, markets, symmetric information and diminishing marginal returns will not buy a fraction of the existential capitals which have been destroyed to the relentless beat of the shareholder primacy mantra.

To sum up, the problem with economics is that economists confuse their ambition to solve every problem faced by humanity with perfect markets with their ability to grasp even the most elemental laws of physics that govern not only human existence but all existence. Unaware that all their tinkering with the value problem had introduced an unimaginable mischief into the story of humanity.

If you take one thing from the Millennia Challenge series it is that when Smith Marx and the neoclassical thought collective divided the concept of value into value in exchange (the product of markets) and value in use ( the product of the living experience of a thing) the study of economics, more or less abandoned the planet. Such is the gap between their theoretical assumptions and reality, that I put it to you that an astrophysicist has more chance of curing cancer than an economist curing climate change. Astrophysics having more in common with biology than economics has to environmental or any other science concerned with real world problems. Put another way, the theory of value that got us here cannot be the theory of value that gets us out of here.

Introducing the Millennia Challenge

The Clay Mathematics Institute pledged a US 1 million dollar prize the first correct solution to each of seven well-known mathematical problems. They called it the Millennium Prize.

Why is it that we have a prize for how fluids behave and not how to decide whether it is better to wear a shoe or barter it for money? Understanding how air and water move will no doubt impact humanity, but the solution to the Navier-Stokes equations, will not change the behavior of the fluid. But, an alternate theory of value, can change the behavior and have a profound impact on humanity. .

To be clear, if economics, as we know it, has not and can not solve the problem of the best use of a thing, the search is still on. In response, I set the Millennium Challenge.

Unfortunately, neither I nor my legal practice has $1 million to pledge for a solution. I wish I did. Thinking that a bucket of money separates us from a chance of flourishing is a cause for despair. Perhaps this is why Aristotle encouraged humanity to wear their shoes rather than take them to the market. Sensing there would be a time when humanity would need to travel far, but knowing that humanity could not move such a distance without shoes and fearing that humanity would not move without the promise of gold.

So to be clear, no money but the gratitude of all life over eternity. Over the next weeks and months I’ll be putting forward a sequence of ideas that builds to a possible solution to the best or just better use of a thing. Its basically an energetic or change theory of value in use. Remembering that at this stage, the solution doesn’t even have to be correct. It just needs to be more probable than the exchange value solution to the best use of a thing which, based on latest Intergovernmental Panel on Climate Change report is highly improbable.

The Energetic Solution to Value in Use

When worn, a shoe is used as a primal technology to empower us to go further.  Transforming our human energy into more adventurous movement. When exchanged for food, to empower us to live a little longer.  When worn out, transformed into something else.  Though wear, exchange and transformation have nothing obvious in common all share the power to be used to produce objective socially useful change.  That is, change that leads not just to meaningless expansion but meaningful flourishing growth.

If science tells us that there can no change without work, and no work without energy, embodied within the shoe must be a source of energy.   The same indivisible thing that is transferred from the shoe to do the work of change.   Change that, at its most basic, is undifferentiated other than in magnitude and duration based on the decision to wear it, exchange it or turn it into something entirely different. Put simply, the best use is that which enables us to make the greatest useful change over the longest period.

My solution to the Millennia Challenge starts with defining value as the capacity of a thing to effect socially useful change.  If something can produce growth, development and flourishing, individually or collectively, in the future it stands to reason that it is a store of value.  I suggest that value in use is nothing short of useful energy in its social form.

Whereas modern economists consider use value to be a function of the relationship between individuals and objects and is therefore subjective, I propose that value in use is a function of the relationship between things that produce measurable change.  From the shoe’s perspective, its use is objective.  It is the characteristics and properties of the shoe in relation to other things that determines whether it can be used to protect or to barter.  The value in use is embodied in the shoe and transferred through different kinds of work.  The individual’s choice only determines the rate and duration of the shoe’s work.  A shoe can do the work of exchange once or the work of protecting our feet every day. 

However, this choice is not easy to explain or obvious.  Unlike exchange value, the best use of a thing is not determined by what an individual chooses to spend their money on.   Though there may be psychological, cognitive, emotional, social and cultural factors that affect or determine this choice, behavioural economics is by and large an intellectual dead end.  If value is in the eye of the beholder the individual’s decision can be explained and influenced but not shown to be objectively analysed.  

But, if value is in the hand of the holder, the best use of the thing is a product of the alternative uses to which it can be put measured in terms of observable change.  In other words, best use of a thing is tied to the relationship between things and their ability to produce meaningful change.  Value in use is therefore not determined by personal preference, but by reason informed by a new science - the new science of value in use.  

My next post will introduces the new science of value needed to solve the Value Problem.

Links to the Millennia Challenge Series