I have been thinking a lot about commodities recently for a class I am thinking of putting together in the spring. The article in the url below introduces a way of thinking about commodities that I think adds a layer of nuance—assessing commodities in terms of both market value and social value:
“Beekeeping is one example beloved by economic theorists. Bees create honey, which can be sold on the market. But they also pollinate nearby apple trees, a useful service that is not purchased or priced.”
The article focuses on a 2012 UN report investigating alternatives to GDP as a way of measuring a nation’s wealth:
“Economists usually settle instead for GDP. But that is a measure of income, not wealth. It values a flow of goods and services, not a stock of assets. Gauging an economy by its GDP is like judging a company by its quarterly profits, without ever peeking at its balance-sheet. Happily, the United Nations this month published balance-sheets for 20 nations in a report overseen by Sir Partha Dasgupta of Cambridge University. They included three kinds of asset: “manufactured”, or physical, capital (machinery, buildings, infrastructure and so on); human capital (the population’s education and skills); and natural capital (including land, forests, fossil fuels and minerals).”
In order to do that, it is essential to make all three kinds of capital commensurable—i.e., by placing a dollar value on them. Placing a dollar value on commodities is common—it is why there is such strong markets for investors interested in speculating on future commodity prices. This process is far from perfect, however. In fact, forcing the comparison of otherwise incomparable things presents a whole new set of issues:
“By putting a dollar value on everything from bauxite to brainpower, the UN’s exercise makes all three kinds of capital comparable and commensurable. It also implies that they are substitutable. A country can lose $100 billion-worth of pastureland, gain $100 billion-worth of skills and be no worse off than before. … The idea that natural assets are substitutable makes some environmentalists (including some contributors to the report) nervous. Many of the services the environment provides, like clean water and air, are irreplaceable necessities, they point out. In theory, however, the undoubted value of these natural treasures should be reflected in their price, which should rise steeply as they become more scarce. … In practice, however, natural assets are often hard to price well or at all. As a consequence, the UN report has to steer clear of assets like clean air that cannot be directly owned, bought or sold. It confines itself to resources like gas, nickel and timber, for which market prices exist. But even these market prices may not reflect a commodity’s true social value.”
These thoughts dovetail with thoughts prompted while reading Michael Sandel’s recent book, What Money Can’t Buy. Rather than about money, however, I think a more accurate title would have been something along the lines of ‘How Should We Value Things?’ One way to value things is to put a price on them (e.g., paying someone to line up for you to buy tickets to a popular event); another way is to value them in terms of time (e.g., willing to wait in line yourself to buy those tickets)—see Strategic CSR: The Moral Limits of Markets.
The UN report featured in the article (‘Inclusive Wealth Report 2012’) is located at: http://www.ihdp.unu.edu/article/iwr
Take care
David
The Real Wealth of Nations
The Economist
June 30, 2012
