Markets Underinvest In Vitality
Progress & Phenomenology, Part 2
Hi, I’m Oshan. This newsletter explores topics around emancipatory social science, consciousness studies, and together, the worlds they might weave. This is the second of three installments from my larger essay, Progress and Phenomenology: Value Is Vitality.
Markets Underinvest In Vitality // Value Beyond Prices
In part I, I sketched the enactivist idea that valence is the proper form of value (as opposed to, say, price), added a temporal dimension with positive feedback mechanisms to define ‘vitality’, and bundled that into a formal-ish theory of value:
Value is the enaction of vitality in living systems.
But value is not just an idea. It’s an outcome of a systemic, structured process. Producing a new form of value requires reforming existing structures to produce new outcomes.
David Graeber defines structure as the “way in which changes – or in the case of social structure, action – is patterned; it consists…of the invariable principles that regulate a system of transformations.” Structures pattern systems of transformation.
This opens two remaining questions for this series:
How does the present economic structure undermine the production of vitality?
What new structures might help pattern our transformations towards greater production of vitality?
In this installment, we address the first question.
The Problem with Too Many Markets
So here’s the problem. Markets allocate capital towards outputs that generate observable and appropriable returns. Returns that can be priced. But vitality often lies in activities that resist pricing1.
Even at an intuitive level, market prices and social value do not always have the most convincing of overlaps. See, for example, the disparity in pay between teachers and marketing executives.
If a system is narrowly structured to produce observable and appropriable returns, it will systematically under-invest in the full-spectrum of activities, or ways of living, that produce vitality. It will also underpay teachers and care workers. If you wanted to build such a system, you would make markets as central as possible to how that society provisions resources to citizens.
But markets are only one way a society can provision resources. And the more progress civilization makes, the more it has to lose by clinging to markets. The more it has to gain by expanding those provisioning strategies.
In particular, as the legal scholar Brett Frischmann points out, markets place a ceiling on the potential for positive externalities. Property rights and markets enable private actors to capture the value that is produced. But positive externalities are generally public benefits that cannot be captured by market players, leaving markets no incentive to produce them:
“…the market mechanism exhibits a bias for outputs that generate observable and appropriable returns at the expense of outputs that generate positive externalities [public benefits that cannot be captured by market players]. This is not surprising because the whole point of relying on property rights and the market is to enable private appropriation and discourage externalities. The problem with relying on the market is that potential positive externalities may remain unrealized if they cannot be easily valued and appropriated by those that produce them, even though society as a whole may be better off if those potential externalities were actually produced.”
If not markets, how else to provision resources?
Alternatives, which we already use in varying degrees, can include:
Public goods and infrastructure (law enforcement, open source software, transportation and communications infrastructure)
Public enterprises that offer affordable alternatives to market prices (public housing, transit, education, and utilities)
Managing resources as commons (lobster fisheries in Maine, irrigation systems in New Mexico, community forests in Nepal, Wikipedia)
Unconditional cash transfers (basic income, child allowances, baby bonds)
Universal social policies (free at point-of-access services like universal healthcare, public transit, college)
Price will dominate value so long as markets dominate the social provisioning process. At the same time, markets will dominate provisioning so long as price dominates value. We’re tangled in a vicious cycle.
But this also provides at least two surfaces for intervention. To structure the production of value to extend beyond prices, we can both 1) develop alternative theories of value that support new narratives, and 2) shift the balance of provisioning into market alternatives. Here, too, each strategy feeds the other.
Part 1 already focused on the former strategy. Part 3 will focus on the latter. Here, our focus is to continue painting a picture of our present situation. In the spirit of Chesterton’s fence, we should always understand the rationale behind the state of affairs we hope to change.
To understand why prices so thoroughly govern value today, we should turn to the present theory of value: marginal utility theory, or simply, marginalism.
The Marginalist Theory of Value
Marginalism began emerging in the 1870’s, widely credited with cementing the evolution from classical to modern economics. Marginal utility theory is the idea that utility is the proper form of value, and utility is given by the additional satisfaction that one extra unit of a good or service provides. A common example of marginalism’s explanatory power is the diamond paradox.
Water is vital to all life. Diamonds are not. Why, then, are diamonds so much more expensive than water? Rather than evaluating these in general, we can consider them in marginal terms. While water may be more intrinsically valuable, it’s also quite plentiful. One additional unit of water isn’t all that valuable to me. I can buy a bottle for $2, or drink my tap water for a few cents. But if you offered me one additional unit of diamond, that would be worth a lot to me. If you offered me an additional pound of water, or pound of diamonds, I will almost always choose the diamonds.
In the mathematical universe of equations, you can directly measure marginal utility. But in the real world, you can’t. My brain doesn’t give off some neurochemical utility reading that we can directly measure. This is because utility does not actually exist. This posed a problem for economists, who grew increasingly enamored with measurement through the 20th century.
But the economist Paul Samuelson found a way to bypass the problem in his seminal 1940 textbook, Economics. Rather than devising some way to measure “utils” in the world, you could instead rely on the assumptions that humans are rational, and markets are competitive, and the choices made by rational actors in competitive markets reflect their preferences. And preferences, ultimately, are expressions of individual utility functions.
This chain of assumptions confers a crucial role to prices. This is all happening during the Hayekian days, where we’re learning to see markets as massive, decentralized systems of collective intelligence that synthesize webs of localized information into market prices. Across the economy, consumers and producers will adjust their respective consumption and production levels until prices equal marginal benefits across the economy (‘market clearing prices’). Once the costs of production equal the marginal benefits, you have an efficient market where prices reflect preferences/utility/value.
In other words, efficient markets process information, and ultimately, price value. The chain of assumptions underlying the marginalist theory of value:
Value → utility → revealed preferences → prices.
Often, critics of marginalism summarize it, pejoratively, as: “price equals value.” Turns out, this isn’t an unfair description. As one economics textbook puts it:
“Value will be the actual price once all the producers and consumers have had time to adjust their consumption and production to any changes in taste and/or technology. In other words - aside from the time frame - there is no difference between value and price according to this theory.”
Here, again, is the problem. Marginalism is blind to forms of value that lie beyond what information prices can convey. Without institutions allocating capital towards those spheres of value production that remain illegible to prices, this setup leads to anti-utopias.
Let’s take, for example, the stubbornness of the 40-hour workweek.
Socially Necessary Labor Time
In every era of society, there’s some average amount of labor time that’s considered normal, or 'full-time’. Let’s call this socially necessary labor time, or the average amount of time a citizen must exchange via labor markets in order to access the resources they need to lead a dignified life.
Historically, the reduction of socially necessary labor time was, itself, a form of value. The Ancient Greek’s believed reducing it to zero was a pre-requisite for the higher virtues of life.
From the Greeks through to the modern United States, we generally agreed that reducing average labor time created more room for what matters most in life. Until about 1940, when this belief began disintegrating, and the reduction of labor time flat-lined (I’ve written & interviewed a lot about this dynamic, so I won’t dwell on it here. I really enjoyed speaking with the leisure historian Benjamin Hunnicutt about why this happened).
Socially Necessary Labor Time as a Constraint
Another way to see socially necessary labor time is as a sort of boundary placed upon the action-possibilities for every agent subject to it.
Socially necessary labor time carves out a portion of one’s life, and places a constraint over what actions one is free to take therein. Within its boundaries, citizens are only free to pursue forms of value that are priced by labor markets. Every action taken within the life-time subject to socially necessary labor time must satisfy (at least) two constraints:
The action must be physically possible for the agent in their given context.
The action must receive compensation through the labor market (i.e., the agent can only take actions that can be priced, and therefore valued and compensated by labor markets).
For better or worse, I’ve made a diagram to visualize the constraint:
Now, when we understand value as the vitality enacted by living systems, its evolutionary features come into focus. And evolution functions by a few simple elements: variation, selection, and replication.
Constraints placed upon potential actions, when aggregated across an entire system of agents, reduce the overall variation and diversity that system might enact. In turn, this reduces the probability of discovering adaptive mutations that can be selected and replicated.
So socially necessary labor time is a temporal constraint placed upon the potential diversity societies may enact. Reducing this constraint, then, is a powerful strategy for increasing diversity, and increasing the production of real value. Reducing the constraint increases the number of viable action possibilities agents face, and scaled across a lifetime, the number of viable forms of life.
In terms of our visual, this transforms some red dots into some green dots:
(section title) Reducing the predominance of markets can expand the scope of value production.
To be more precise, vitality-producing activities are often ‘ends in themselves’, things we do for their own sake. Taking a daily walk in the sun, exercising, writing private poetry, tinkering on an engineering problem, long conversations with close friends, spending time with family. Interestingly, it also seems that commodifying activities that produce vitality, like going from writing private poetry to a professional writer, is a reliable method of reducing the magnitude of vitality they produce.