Origins of the general theory of value

How we see things is a product of what we are looking for and what we are looking for is a product of what we learnt to look for.

Usually in economics we are looking for some measure of goods made available and services provided over a period of time in a particular area. It is usually an annual, national measure. We then look for growth in what is measured over the same period.

This conceptual framework has persisted since the subject had its origins in post-war reconstruction when it closely reflected the desperate needs for all products. Students of Piaget will see its development as an example of genetic epistemology with the development of economies going hand in hand with development of the understanding of how they function.

There is no doubting the economic post-war miracle has been accompanied by an increasing understanding of how economies can be influenced to produce the desired results. From John Maynard Keynes came the acceptance of a role of government in manipulating total demand to a level of full employment. Both fiscal and monetary policies were to be used. Later economists have successfully argued the case to deregulate markets in order to expand innovative economic activities.

However it seems that economic theory is no longer reflecting economic realities.

Over time the role of markets has come to dominate economic theory so much that the subject could have been renamed the Market Theory of Value.

Today, however, there is increasing pressure to incorporate ecological, social and cultural values into those market-dominated theories of economics.

There is some urgency in the task because the gap between economic theory and economic, social and ecological reality is such that the current wisdom on economic problems often states the problem as if it were the solution.

Three examples are:

• we need economic growth to survive;
• markets are the fundamental source of value; and
• global markets must be limitless.

This article explores these problems and in doing so the concept of a General Theory of Economics is introduced.

But first a further comment on economic epistemology. Fundamental to economic epistemology are statements of purpose and field. In this area two statements have dominated the subject like catechisms. One is that the economic problem is to “satisfy unlimited wants with limited resources” and the second is that “value is competitive market price”.

The General Theory of Value is concerned with developing the purpose and field of Economics by broadening both statements through discussion to encompass more realistic notions of purpose in economic activity and the nature of value.

Economics is not a science but it has elements that are at least quasi-scientific. Econometric studies that seek to predict levels of production, unemployment and inflation have a role in developing policy advice but they do not get to the substance of value. Similarly markets have an aura of objective management of distribution but in the end their process is circular. Market price is market price is market price.

The General Theory of Value expresses the nature of value and the economic problem in very general terms and believes they should be the subject of ongoing public debate and not be confined to educational institutions with restrictive traditions of narrow text based scholarship.

As a starting point, The General Theory of Value postulates:

1. Value is the product of the sensible interaction of people with each other and the environment.
2. Market price is often distorted by factors such as unequal power of buyers and sellers, incomplete information, external consequences and irrational expectations as well as the quality of goods and services offered.
3. Sustainable economic activity cannot exist at a global level unless it exists at national and local levels.
4. Economic diversity rather than global specialisation is the better safeguard against vulnerability.

A starting point for the General Theory of Value has been the identification of distinct landscapes, each with characteristic economic dynamic and ends. This is a critical to broadening the general dimension of economics. It unashamedly and inescapably presents moral axioms of which the only test is that they make sense. They are open to discussion in the hope that a broad consensus can be found. That should be the substance of the study of economics.

The three dominant landscape types are: productive land, urban land and natural land. The names are chosen to distinguish them and their core qualities are more important than delineating them.

Productive land is essentially agricultural and industrial land. The classification is, as suggested, arbitrary but once made its particular use should best be left to the market to determine within determined parameters of acceptable behaviour. Interference in most open markets should be avoided but is justified where production is in competition with urban or natural land: for instance, the urban sprawl over quality agricultural land that is common around many cities is a far from optimal use of land.

Urban land is easy to identify but what is its end and how is that to be achieved? Its end is to be enjoyed to its full cultural and social limit and that is achieved through co-operation and communication.

What natural landscape there is should be maintained, shared and extended through a process of education and that is its own end. The cost of occupation should be in the development of understanding of its needs and nature, not market price. Activity should be for education or benign enjoyment.

Production, enjoyment, education and sharing are the dominant functions of the three landscapes but there is a place for each function in the development of each landscape.

Finally it is important that economies are judged by their balance between production, understanding and enjoyment and not simply by their growth.

We commend The General Theory of Value for open discussion and development.