Submitted by Jeffrey Snider – Alhambra Investment Partners
Value as a foundation seems almost too literal to be an economic or financial concept, but it is perhaps the bedrock association that makes the economic system. We are used to aspects like profits and money, even inflation, but those are all symptoms of the ever-changing world surrounding value. Karl Marx understood very well how deeply embedded value was even by the 1850’s, unleashed in just a few centuries’ time as Adam Smith’s wonderful summation recounted how mercantile capitalism was more than just some “invisible hand.” For Marx, he knew that the very rise of modern economic orientation would spoil all his plans and conceits for instituting equality as he saw it; that is why hisrevolution had to be worldwide and comprehensive, to totally and completely destroy all notions of value in order to start over.
I wrote quite exhaustively (as I typically do) about the socialist strands in our economic history here, but it is, I think, useful to emphasize the role of value in theory that animates if not all of the historical progression of the elements that define our systemic operation than at least a majority portion. As early as the 1830’s, “reformers” of all kinds were beginning to examine how value might be “exploitable” as means to achieve desired results.
In the 1830’s, Robert Owen, a Welsh “reformer”, had tried repeatedly to convert currency to labor function. Time-based currency was an idea where you were “paid” in time for labor (notes actually denominated in hours), exchangeable for products “valued” under the same terms. The idea was simple, namely that all labor should be equal so that inequality of class would be abolished. Time currency, then, meant that there was no value to labor, only to goods, which presented inordinate problems in valuing goods as they were also intermediate to labor.
Owen, therefore, had very little luck in actually creating a workable system outside of that theory. He had close experience with a similar system, though wholly opposite his egalitarian intentions, in the “truck system” of early 19th century Britain. Owen was a part-owner of a mill and it was typical practice to pay mill workers in tokens (either in part or even in full) that were only exchangeable at the mill owner’s “truck shop.” Since the owner would often supply the worst kinds of inferior goods and charge the highest prices for them, Owen realized the relative exchange equation here was to devalue labor; he intended to accomplish the opposite thinking it would not only be more equitable to labor but far more efficient for everyone (instead of benefiting the mill owner almost exclusively, a far more fair labor “value” might benefit all of social society).
Socialists independent of Marx, including Owen who had influenced Marx with his time currency, shared many of his ideals if not his fervor for destroying everything in a clean and devastating break. For many, money could be the agent of change, whether in the course of redistribution (including government taxation and “spending”) or outright redefinition. If they would not go so far as to destroy value from the root, then they thought it, as Owen, potentially effective to manipulate money as a substitute or proxy for value. And a great deal of socialist contribution had little to do with equality other than utopian ideals of creating “optimal” outcomes. The shared methodology was simply to reduce individuals to cogs in order to more cohesively control the macro mess of them.
The development of economics as both a study and a political expression is certainly non-linear, but in the 20th century there is a clear progression; we started in gold and ended under much less certain terms, a process that seems chaotic, and often was, but with its own guiding if largely invisible hand. The battles in the various marginal directions seemed to take shape over money and currency, but in reality it is and has always been about value. The intent at times has been to separate money from value, but the grand mistake seems to have been where theorists simply assumed that all money and currency are eventually perfect substitutes. That may be true in at least one monetary function, payment terms, but has proven far more stubborn in practice across the whole spectrum of monetary discipline.
At the start of the 20th century, value was relatively easy to describe and its role was just as straightforward. The decade of the 1890’s proved that inordinately (as it was known up until the 1930’s as the Great Depression) where value was imposed on financial society through the act of convertibility. Numbers and quantitative descriptions did not apply, which is why so often the ire of “experts” is invoked against this type of expression, but it comes down to a simple and collective judgment (not aggregated) of the people to disassociate their property from financial components; the latter being judged un-valuable with respect to the former. Continue reading