Powerful terms connected to finance, innovation, and creativity.
Implies that some individuals or entities may not be creating value, such as couch potatoes or value destroyers.
Importance of a Theory of Value
There's a need for a proper theory of value in economics.
Current discourse lacks contestation and rigorous questioning of value creation vs. value extraction.
Economic Context
2009 Financial Crisis
Followed by the CEO of Goldman Sachs claiming their workers are the most productive.
Productivity tied to producing goods efficiently that meet market demand.
Goldman Sachs was central to the financial crisis, leading to foreclosures and job losses.
Historical Perspectives on Value
Physiocrats (300 years ago)
Focus on agriculture; introduced the "Tableau Economique" by François Quesnay, outlining three social classes:
Productive Class: Farmers creating value.
Proprietors: Merchants who facilitate value movement.
Sterile Class: Landlords charging fees without creating new value.
Concern about the distribution of produced value and potential risks to economic reproduction.
Classical Economists (1800s)
Shifted focus to industrial labor during the Industrial Revolution.
Introduced a labor theory of value, emphasizing productivity through division of labor.
Distinguished between productive and unproductive activities (e.g., lawyers, professors).
Neoclassical Economics Shift
Change from objective to subjective conditions.
Focus on individual decision-making (workers, consumers, firms).
Equilibrium prices reveal value rather than determining it through objective means.
Measurement of Economic Output
Current GDP measures include only activities with explicit prices, leading to:
Anomalies in Value Measurement:
Marrying a babysitter decreases GDP; pollution increases it due to cleaning costs.
Financial sector's growth (1970s onwards) included under GDP, shifting focus to financial intermediation, not productivity.
Financial Sector Insights
Finance, Insurance, Real Estate (FIRE)
A significant portion of financial activities simply finance themselves rather than contribute to the broader economy.
Rise in share buybacks over reinvestment in production has implications for economic growth and job creation.
Challenges in Value Measurement
Pharmaceutical pricing reflects market dynamics, neglecting public investment in research and development.
The need for new indicators of value beyond traditional GDP measures.
Potential Solutions and Future Directions
Reconsider the measurement of output and the distinction between value extraction and creation.
Encourage long-term investments and reform in the financial sector to support productive activities.
Explore indicators like gross national happiness (e.g., Bhutan, New Zealand) to measure well-being.
Final Thoughts
The Moon landing exemplified collaborative investment across sectors, highlighting the importance of nurturing innovation and experimentation.
Value is not merely represented by price; a broader understanding of what constitutes value is essential for future growth and addressing societal challenges like climate change.