This is the first of four posts composed of extracts from the introductory chapter of my recent book Inventing Value (Cambridge UP, 2022).
“The first step we must take in this journey is to confront the contentious concept of value itself. Existing understandings of economic value are dominated by two traditions of economic thought. On the one hand, we find the mainstream marginalist tradition in economics, which tends to ignore explicit mentions of value, but in practice treats it as identical to the notion of equilibrium price – the price a commodity would have if demand and supply for it were in balance. In a sense, value is an objective quantity for the marginalists: at any one time, every commodity is seen as having a single price for all, determined by the larger forces of the market. On the other, we find Marxist understandings of value as the product of labour. For Marx, value is also an objective property of commodities, determined by the amount of social necessary labour time required to produce them, and it sits at the heart of his critique of capitalism, which is concerned with how the value produced by labour is appropriated by the ruling class. Chapter two rejects both of these understandings of value, but also explores how the Marxist approach has seeped into and distorted other progressive attempts to get to grips with the problem of value. The concepts of value creation and value extraction, common in these discourses, rest on a Marxist-influenced productionist concept of value that is no more sustainable than the orthodox Marxist version. These discourses are at their strongest when they ignore the idea that value is created by production and instead frame decisions about the economy in terms of what we might call the social value of its products, recognising that value is not an objective but a normative quality. Indeed, despite their facades of objectivity, I suggest, both the Marxist and marginalist accounts have normative undercurrents and there is a good reason for this: value is fundamentally a normative concept.
Chapter three begins to develop this insight by building on a more promising recent literature on value. In practice, as the French conventions theorists have pointed out, talk of value functions in the economy as a set of justifications for prices (Boltanski & Esquerre, 2016, p. 37). There is therefore a sense in which value is subjective – each of us forms our own opinion of the value of a thing. However, this is not a purely individualistic subjectivity: The opinions of value we form are shaped by social forces, mediated through what I call lay theories of value. A lay theory of value is an everyday argument about a factor that affects the price that ought to be paid for a certain type of thing. When we form an opinion of the value of a thing, we usually take account of several such theories. The theories themselves are fundamentally normative, in at least two respects. First, they are theories about the price at which something ought to be bought and sold. Second, they are socially shared theories. Not only do we learn about them from each other, but we also learn which theories are socially accepted and in what circumstances from our interactions with each other. We may deploy such theories in making decisions about transactions, but also sometimes in negotiating prices, and only those theories that others also accept can be deployed successfully in negotiations.
One part of the study of value, then, must be to examine how it is that some lay theories of value rather than others become established as norms. This is often strongly influenced by what we may call value entrepreneurs, or inventors of value, typically producers or suppliers of goods who do discursive work – often in the form of advertising and marketing – to persuade potential customers to adopt favourable valuation conventions and apply them to their products. Because value depends on what we think about it, value entrepreneurs can invent value if they can shape what we think, creating reasons – reasons that would not otherwise have influenced us – for us to value goods more highly. Most obviously, this strategy is widely adopted by the producers of so-called luxury goods. These lay theories of value have a significant influence on the prices that purchasers are willing to pay for goods, and also on the prices that sellers are prepared to accept, but prices are not entirely determined by our theories of value. Rather, these are one important group of causal factors amongst others, and chapter three also discusses how we should think of the relationship between value and price in a context where other factors also influence price outcomes.
When we turn more specifically to value in the finance sector, in chapter four, we find that lay theories of the value of financial assets are closely linked to beliefs about future returns from those assets. For most investors, the significant benefit from buying a financial asset is that it entitles the holder to a stream of income, often in the form of payments like interest or dividends and the price that is realised when the asset is subsequently resold. Conventional accounts of financial value suggest that we can forecast these payments, sometimes giving a range of probabilities to different possible outcomes, then calculate the present value of the stream of income. But all such forecasts are inherently uncertain, and so beliefs about the value of financial assets depend upon stories: fictions, as Jens Beckert calls them, that are made up about those future returns (Beckert, 2016).
At one level, those stories work in much the same way as our understandings of value more generally: they depend on persuading investors to accept certain lay theories of value (also known as valuation conventions) and to accept that a given asset should be valued on the basis of a particular theory or set of theories. During the Internet stock boom of the very early twenty-first century, for example, value entrepreneurs argued that companies would be able to convert visitors to their websites into profit in the long term and therefore that the more visitors a company had to their site the higher it should be valued, regardless of how much profit (or, usually, loss) it was making in the short term. Many investors were persuaded of this theory of value, and persuaded to apply it to the stocks of a series of so-called “new economy” companies, many of which subsequently collapsed under the weight of their losses (Thrift, 2001).
The chapter draws on the work of John Maynard Keynes and André Orléan on financial valuation conventions, Pierre Bourdieu’s work on symbolic value, and Jens Beckert’s work on fictional expectations to build an explanation of how financial value is invented. The stories that are told about financial value are central to this explanation, but stories do not weave this magic in the abstract, as some accounts of the influence of discourse seem to imply. On the contrary, their influence depends on who tells them, and on whom they are told to. Some groups or classes of financial actors have enormous discursive, social, political, and/or economic power, giving them the capacity to construct more influential narratives: the power to sell promises, to become successful financial value entrepreneurs. The power of those promises is squared in the realm of financial assets, because not only their value, but also the very existence of the assets themselves, depends on what we think about them. Financial value entrepreneurs not only invent or manipulate the discourses about how we should value their assets, but also invent the assets themselves, and the discourses that construct them as being assets at all. But those promises have to be sold to someone to have any effect. An audience must be persuaded by the story, and in particular a group of investors must be created that is willing to take the story and its connection to a particular asset seriously enough to consider buying the asset. In other words, these stories work in part by constructing what I call asset circles for the financial asset concerned. Only once a group has been created that takes the asset seriously as a potential investment does it become important on what basis – on the basis of what lay theories – those potential investors are prepared to value the asset.
Chapter five develops the concept of asset circles and outlines the structural elements of the book’s approach to value in general and financial value in particular. As a variety of norms, lay theories of value are backed by structures I have called norm circles (Elder-Vass, 2010b). Assets, however, are more complex. Unlike ordinary goods and services, but like money, financial assets cannot exist without a belief that they can be redeemed or sold on at some point in the future, and so they depend on a further layer of social construction. The chapter develops the argument through the parallels between financial assets and money. Both depend for their very existence on social structures. In the case of money I call these monetary complexes, which include both a monetary infrastructure and also a monetary circle: a group of social actors that are willing to accept the particular monetary instrument concerned in payment. Without a monetary circle, money is worthless, indeed it is not even money. Similarly, I argue that the existence of financial assets depends on structures that I call asset complexes, which in turn consist of a combination of an asset circle – a group of investors open to buying the asset – and an asset infrastructure – the technology and institutions that record the existence of the asset and make it tradable. Both norm circles and asset complexes are themselves subject to influence from structures like banks and other finance sector organisations, and the discursive structures through which those organisations exert some of their influences.”
Beckert, J. (2016). Imagined Futures. Harvard University Press.
Boltanski, L., & Esquerre, A. (2016). The Economic Life of Things. New Left Review, (98), 31–54.
Elder-Vass, D. (2010). The Causal Power of Social Structures. Cambridge University Press.
Thrift, N. (2001). ‘It’s the romance, not the finance, that makes the business worth pursuing’: disclosing a new market culture. Economy and Society, 30(4), 412–432.