Ecological economists’ view on value and prices

Inge Røpke

Socio-economic analyses such as CBA require a common unit of measurement in the form of money. When the advantages and disadvantages are put into monetary terms, things can be added and subtracted in order to reach a final result. From the point of view of mainstream economists, the fact that not all the pros and cons have a market price that can be included in the calculation is a challenge for CBA. If the construction of a motorway damages a nature reserve, there is no obvious market price of what has been lost. Therefore, the value of what has been lost has to be estimated by using different methods like those described in the first section of this theme.

Such efforts are based on the idea that market prices are an appropriate expression of what something is worth and, therefore, it is relevant to construct market prices when they are not available. Neoclassical economics can be critical of market prices as a value measure if they arise on markets that do not function optimally as they should according to the theory. On perfect markets, there must be, among other things, many buyers and sellers (i.e. not monopolies) and no so-called external costs, where production has unintended side-effects for others in the society that the producer does not pay for. However, the imperfect market is considered to be an exception, which does not seriously obstruct the use of market prices as a measure of value.

Ecological economics is more radical by arguing that market prices are not a relevant measure of value, even when markets function ‘perfectly’. As discussed in the theme on growth, ecological economics has no suggestion as to how society’s annual production of use values can be added together in order to measure the output. There is no common characteristic of use values that makes it possible. Ecological economists consider incommensurability to be a fundamental condition.

Historically, such a point of view has been unsatisfactory. According to the classical economists of the 19th century, goods are comparable through their exchange value, which is based on the amount of work that was used in their production – partly the direct work of the actual production process and partly indirect work involved in producing the raw materials, semi-manufactured materials and the machines that are gradually worn out. According to this labour theory of value, value is based on the work effort measured in time and is, thus, solely determined by conditions on the production side.

As an alternative, others have argued for the adoption of an energy value perspective, where the direct and indirect energy consumption involved in producing the goods determines their value. Due to the great importance that energy is ascribed in ecological economics, one may expect that the field would adopt such an attitude. However, this form of ‘objective’ measure of the value of a good, which is solely based on one or another kind of cost, is clearly unsatisfactory as a measure of what the good is worth to the user.

Therefore, how should we determine the value of a good from the user’s perspective? Neoclassical economists suggest that utility is reflected in the user’s willingness to pay at a given time. However, as neoclassical economists are aware, willingness to pay can not be found in the market price because some of the users would have been willing to pay more than the market price (in neoclassical theory this is referred to as the consumer surplus). In addition, willingness to pay is largely determined by ability to pay, which is very unevenly distributed. This means that the market price does not reflect the high value some goods may have for those who can not pay. Finally, willingness to pay is an expression of individual preferences rather than collective priorities, which may be thought to show more consideration for the common good and ethical principles. Neither willingness to pay nor market prices can be considered societally relevant indicators of what goods are worth.

In practice, market prices emerge as a result of interaction between supply and demand, which again reflect many different factors: uneven income and wealth distribution nationally and globally, physical and social structures that are based on decades where the environmental impacts of production have not been priced, power structures and cultural ideas that influence the relative wages for different types of work, etc. In other words, market prices are historically constructed and in many ways are influenced by inequality in the past and present. When we want to make societal priorities regarding the environment as well as in other areas, market prices can not be considered ‘objective’ input to the decision-making process. Furthermore, the validity of attempting to find the ‘correct’ prices for goods that do not have a market price is highly questionable. What goods are worth to us and what it has cost to produce them has no objective answer, but rather a series of different answers which depend on your particular point of view and priorities.

At the same time, the fact that we in society have to prioritise, set environmental goals and decide which methods to use to achieve the goals is unavoidable. When incommensurability is a fundamental condition, prioritisation must necessarily be a political process. Therefore, ecological economists often prefer prioritisation methods that illuminate the political decisions rather than hide them behind calculations that are supposed to be ‘objective’. Consequently, research is conducted on some of the alternatives to CBA which were discussed above. This includes some of the problems which are associated with the deliberative methods, such as how to ensure representativeness and counteract the inequality that is associated with different groups’ qualifications and background for participating in the debates.

In practice, ecological economists often find themselves in a position where it is necessary to become involved in a battleground, in which a CBA is designed, in order to promote a specific development in a particular area. However, as described in the section on the view on nature and ethics, this can be problematic as it paves the way for a logic that will always be able to suppress considerations for nature and ethics.