Fundamentals of capitalist economic life

That is why to call increased share prices a “strengthening” of the market is nonsense. Strength is a function of independent judgments. Any “gearing” will of course simply accelerate the process.

Further problems

Three other factors contribute further to problems with our expectations of unregulated markets to deliver “value”.

One is rejection on the significance of “social” costs and benefits. They are the incidental costs and benefits to third parties not directly involved in a sale. The impact of increasing numbers of motor cars on pollution and traffic congestion is a good example. The idea that economic activity occurs in an environmental vacuum is a nonsense - as is the implied belief in “free” market analysis that nature is an abundant, free but saleable resource.

It is likely to become a basic cause of disillusion with market value that will go hand in hand with the destruction of the environment if we expect markets in themselves to place a value of such concerns.

The second is ever-widening gap between buyers and sellers that inevitably decrease knowledge of the quality of goods and how they are produced. That problem will reach its zenith (nadir) in globalisation. For those who see global trade as the ultimate solution it must be pointed out that it is a process of diminishing direct product knowledge.

Third is that quality of a product is likely to be swamped by price considerations, especially if “the ‘homogeneous product” condition for perfect market are accepted. That is most likely to be the case in the “short” run and Keynes of course had the final say about the “long” run.

Thus we need to develop a General Theory of Value that has elements that balance the call for “free markets” with regulated activity if capitalism is to deliver “true” value and survive. For instance in areas where public utility is the required outcome and social benefits are paramount the push for privatisation should be continually questioned.

As a starting point, a General Theory of Value might postulate:

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

In the mean time capitalism will only flourish if it accepts that the much-flaunted “freedom”, of which it is purportedly the unabashed champion, is understood. It is better if “freedom” is not interpreted as being a denial of limits to behaviour but as an understanding of what those limits are.

We need a General Theory of Value that encompasses social, cultural and environmental worth that weans us from reliance on purely material products for fulfilment.