Towards a New Theory of Value?

Abstract

There is globally a debate going on about issues of economic development and how to measure it. The system of national accounts with the gross domestic product (GDP) as its core indicator has become criticized because of measuring the wellbeing of peoples in different countries improperly. The central conjecture is: If the GDP is an insufficient indicator for economic development than ranking the success of development by using the GDP growth rates is misleading. The GDP is calculated on components based on money values determined by single markets. It aims to aggregate all kinds of economic activities related to production into a single number. All single elements are always measured by market prices as they occur in the respective market places. Therefore the foundation is the values observable in the respectable market places. What is obvious as a simple empirical fact is the willingness to pay for some good or service. However, these are taking place in a specific institutional setting of particularly designed markets. The idea behind this paper is that current theories of value ignore the subjective valuations of the market outcomes by the member of a society and consider prices as objective values of exogenous pre-determined preferences of individuals. However, behavioral economics has demonstrated by experiments that this often fails to match with the ex-post subjective valuations considered as fair from the perspective of the society. Therefore specific regulations of markets have always been designed to bring the principles of social justice in line with the market outcome. When free markets, i.e. unregulated markets fail, they need regulations to bring them in line with the principles of social justice, i.e. its social values and the happiness of the greatest numbers. Therefore regulating markets in a way to tackle the mismatch between market outcomes and the desired market outcomes according to the principle of fairness and justice could solve the problem of market failures at the micro level. The fairness adjusted GDP would therefore match market valuations in line with the greatest happiness principle, which currently is not the case.