I know what you’re thinking – why don’t I spend some time educating myself in economics, rather than banging on about the same old problems again and again, with a barely primary school level of understanding? And, you know, it’s a good point. I’m doing some reading. But I also need to get this stuff off my chest; so there’s a lot more ignorant bitching on its way.
Let’s talk about the price mechanism. I’m reading Harvey and Jowsey’s frankly elementary textbook (“an ideal entry to the subject for introductory students in business and economics”). Some quotes.
Page 19. “In this way the price system acts, as it were, like a marvellous computer, registering people’s preferences for different goods, transmitting those preferences to firms, moving resources to produce the goods, and deciding who shall obtain the final products. Thus, through the motivation of individual self-interest, the four problems inherent in economising [not worth listing] are solved automatically.”
What are the problems with the price mechanism?
p. 20: “the consumers with the most money have the greatest pull in the market. As a result, resources may be devoted to producing luxuries for the rich to the exclusion of necessities for the poor. While this is really brought about by the unequal distribution of wealth and income rather than by the market system, the fact is that the latter tends to produce, and even accentuate, such inequality.”
Note the scapegoat here. Inequality is not brought about by the market system; the market system simply maintains (or even accentuates – a very Gogolian “even”) this inequality, because it is guided by the original unequal distribution of wealth and income. Harvey and Jowsey are carefully equivocal about whether the market itself is responsible for this original distribution.
Lest we forget, money is also a commodity. The distribution of money is guided by the market mechanism. But money has a special status. Since money is the measure of value that the price mechanism employs, there is always a tendency to regard it as outside the price mechanism. It isn’t; but neither can it be entirely brought within the perspective of the price mechanism. Money is, let’s say, a quasi-transcendental. It is the transcendental subject of economics, as well as the object of its analysis. It is like the metre rule in Paris, which, according to Wittgenstein, has no length.
The distribution of money is guided by a market mechanism. But this mechanism cannot exactly be called the price mechanism. Let’s call it – far too hastily – the pre-price mechanism. (Far too hastily because, as any Derridean will tell you, the implication of temporal or logical priority that comes with this is altogether misleading. But I’ll live with that, for the moment.) There’s demand for money; and when there’s a lot of demand for money, all else being equal, money is expensive. But (since we’re not yet thinking in terms of the price mechanism) this expensiveness isn’t represented by money’s price (as in its monetary value), but rather by what else we’re prepared to give for it. If you’re starving, you’ll do anything for a dollar. This is the real ‘price’ of money, and it’s what guides the distribution of money in the ‘pre-price’ mechanism.
On page 273 (discussing something completely different) Harvey and Jowsey make the following admission: “In economics the maxim ‘to him that hath shall be given’ often holds.” On page 229, more weirdly, they’re discussing road pricing. “The relatively low-income motorist, who would now have to resort to public transport, would lose most. But why should the price-mechanism be unacceptable on account of income differences in the road price market and not elsewhere in the economy?” [Good question.] On page 207, they’re discussing the problems with government allocation of resources. “First, the one-man, one-vote principle does not weight votes according to the intensity of satisfaction gained or lost… Second, political decisions are essentially subjective. Economic efficiency in resource allocation requires that objective criteria should be used as far as possible… CBA [Cost-benefit analysis] is a technique which seeks to bring greater objectivity into decision-making. It does this by identifying all the relevant benefits and costs of a particular scheme and quantifying them in money terms.”
I promised not to be unnecessarily rude in this blog. But really. As if money has ever been a more ‘objective’ measure of satisfaction than voting. As if political decisions are more ‘subjective’ than consumers’ decisions. As if money spent on something is an even halfway adequate measure of how much it’s valued.
I’ve complained about this before. The point I’m making now is that the market mechanism for the distribution of money is itself responsible for the failure of money to adequately correspond to real valuation. The price mechanism distributes resources to those who are able to pay the most for them. The ‘pre-price’ mechanism distributes money to those who need it least.
If you’re starving you’ll do anything for a dollar. It is therefore possible to employ you in (more or less) any job, doing (more or less) anything. Those who need money most will give most for it. If you’re desperate for money, your labour will be correspondingly undervalued (relative to the labour of those in no such need). This undervaluation will then directly affect how much value you are able to place on goods within the price mechanism. The desperate need for food doesn’t (generally) lead you to place an extremely high money value on food; it leads you to place an extremely high ‘pre-price’ value on money; leading to you place (by necessity) an extremely low monetary value on actual goods. With all that follows in the operation of the price mechanism.
I know that when economists consider the value of money they adjust for purchasing power parity and all the rest of it; I’m not an idiot. My point isn’t that economists are unaware of the inadequacies of monetary valuation (although those Harvey and Jowsey quotes are a little alarming). My point is that there are two provisionally distinguishable market mechanisms in operation here, or anywhere. One, the price mechanism, which we hear so much about, has a tendency to distribute goods from those who value them little to those who value them a lot, as this valuation is measured by willingness to pay money for goods. The other mechanism – what I’m inadequately calling the ‘pre-price’ mechanism – has a tendency to distribute goods from those who value them a lot to those who value them little, because those who value them a lot are likely to have fewer tokens of value with which to influence the operation of the price mechanism. This ‘pre-price’ mechanism is just as formalisable as the price mechanism; both are in operation at all times. But which one do we hear about in the economics textbooks?
Harvey and Jowsey, page 163: “Efficiency in the allocation of resources is achieved when society has so allocated its limited resources that the maximum possible satisfaction is obtained. To ensure that no reshuffling of resources will increase satisfaction, there must be exchange efficiency, technical efficiency and economic efficiency. Let us examine what each involves and how the market economy can bring about all three simultaneously.”
Two movements: a double movement. But only one of these movements is emphasised in economics textbooks. Why? Because of the quasi-transcendental status of money. We can choose whether we treat money as transcending the field of economics or as part of it. This choice is going to be driven by ideology. And economics, by and large, chooses to treat money as if it were the transcendental subject through which the world can be observed. Economics sees through money’s eyes. Which means, in practice, that economics sees through the eyes of those with money.
This is, I would suggest, one reason why Marxism still has such a grip on the radical left: the labour theory of value is obvious nonsense, but it has the virtue of providing a theory of value that does not take its bearings from money.
A progressive economics needs to be economically literate; it needs to assimilate everything we’ve learnt since Marx. It then needs to give adequate weight to everything that mainstream economics suppresses. One example among many is what I’m calling the ‘pre-price’ mechanism. More, hopefully, to follow.