Today, on 31 December 2020, at 23:00 local London time, the UK will formally leave the international socio-economic space created by European nation-states through a number of international treaties since the end of the second world war. It is a turning point in the sense that the UK deliberately diminishes its reach in the global economy. The historical trend is that one strives to expand its reach by participating in larger socio-economic spaces to enhance opportunities for economic prosperity. This wilful abandonment of this principle, shows a profound crisis in the UK political sphere.
Most amazingly, the new treaty between the UK and the EU that guides their economic relationship excludes services. The service sector makes up an astounding 80% of the UK economy. Why are services excluded from the Brexit treaty? It makes it much harder to assess what exactly has happened in the negotiations and what the thinking of the various parties about Brexit is.
One of reasons for the omission of services from the Brexit treaty might be that services are extremely hard to assess economically. There is actually no established economic theory that allows the proper assessment of services. Most theories of value focus on physical economic goods and their assessment. Services on the other hand are non-physical and are delivered through collaborative processes. They have the form of written documents, software, or collaborative acts of pure human capital expenditure. These aspects make the proper modelling of services extremely hard.
Brexit points to the significant crisis in which economics itself currently is. Economics has drifted away from being the “science of valuing wealth creating activities”. (This was also pointed out in a recent post on OpenDemocracy, which focusses on contemporary issues that are very hard to value and measure, but are essential in the functioning of the economy.) Even though a theory of value was the most important component of the economic theorising since the onset of economics as an independent field of inquiry. The classical political economists from Adam Smith, David Ricardo, John Stuart Mill, to Karl Marx, developed a deep philosophical understanding of economic value in their labour theory of value: Economic goods have value because the expenditure of human labour create them in an economic meaningful way.
This was challenged by the founders of neo-classical economics William Stanley Jevons, Leon Walras and Carl Menger, who argued for a subjective theory of value based on economic scarcity: Economic goods have value because they are scarce and their value is determined through the balance of demand and supply forces in a system of good markets. This approach was fully explored and laid down in mathematical models in the subsequent century, resulting in the mathematical economic theory of market equilibrium in the work of Gerard Debreu and Kenneth Arrow.
Since then economics has slowly drifted away from the theory of value as its core mission. Subjectivism was taken to its extreme by the pursuit of game theory and behavioural economics. After the 1980s very few meaningful research was published on contemporary economic issues from a theory of value perspective. We never got to develop a meaningful theory of how value important categories of economic goods such as services, non-consumable intermediary inputs in general, and collective goods such as the natural environment, the waste of production processes, and government bureaucracy.
Thinking about today’s “Day of Brexit”, it is clear that in order to have a better understanding of these choices, we need a proper theory of value that includes many of these important elements in the contemporary global economy. A starting point might be the work of Piero Sraffa on the theory of value. His approach transcends the objective philosophy of the labour theory of value as well as the subjective approach of the market theory of value, synthesising these ideas into a single framework. My own research on the valuing of commodities in models of a social division of labour point to his approach as a natural reflection of answers to these profound questions.
I hope that the act of Brexit will lead to more research into the important issue of valuing contemporary economic activities and issues.