Grappa-Ling With Mark Carney (2)

 

Although he tries to add some anecdotes, the first four chapters of Carney's book read like an economic text, covering as they do the histories of value theory and of money. There are no great revelations here, though it feels like the chapters are a subtle push-back against people who still believe in mercantilism or the gold standard.

The chapters also feel like they are addressing the absolutism that characterizes a lot of political thought rooted in (some of the) principles of economics. I want to highlight a few of these that are relevant to me.

First is the distinction between what we might call 'productive' and 'unproductive' economic activity. Carney makes the point, with which I agree, that this can be pretty arbitrary. To begin, we have two sets of factors that do not contribute to the 'value' of an object:

• rent, and rent-seeking activities
• profit, and profit-seeking abilities

There are also activities that are deemed 'non-productive' because

• they do not result in economic activity or commercial sales
• they are performed by people who are not paid to perform them

Value today is determined not by intrinsic worth but rather by subjective assessment (including the famous laws of supply and demand) as mediated by a range of other factors. Carney points to "widespread ignorance of both (this approach's) limitations and its impacts:

• market failures - prices become skewed in cases of over-abundance and extreme scarcity
  
• human frailties - including a lack of full knowledge and non-rational decision-making
  
• the welfare of nations - including the failure to value essential social services
  
• the theory of market sentiments - where profit and rent-seeking are valued

The danger of market economics is that it is a self-fulfilling prophecy: if that which is not in the market is not valued, then there is a tendency to bring everything that is valued into the marketplace. But the marketplace has one determinant of value: price. And as Carney says, "effective market functioning requires other sentiments, such as trust, fairness and integrity."

He makes essentially the same point in his discussion of money, reaching much the same conclusion from another direction. Money, like value, has undergone a transition over time from being backed by assets (such as land or gold) to being backed by a set of institutions, and most notably banks. This wasn't because gold is not valuable, but because being locked into a gold standard "would ultimately fail because its values were not consistent with those of society. It prioritised international solidarity over domestic solidarity."

Quite simply (and this is a bit of an overstatement) the ability to govern required the consent of the governed, illustrated by Carney through an extended discussion of the Magna Carta. "In order to function within a democracy, the authority of independent bodies must be constrained, allowing them to do only that which is necessary to pursue specific objectives, and they must be accountable to the people for their performance." (p. 77)

This leads to a discussion of the evolving role of banks, and in particular, of central banks, in preserving the value of money. They do this by fixing interest rates to regulate the cost (and therefore supply) of money, and (more recently) regulating and backing the stability of banks. This authority was historically dedicated to fighting inflation at all costs, but over time, has come to include a mandate to consider the economic health of the country more generally.

There is to my mind far too much talk of 'tough decisions' in chapter four. These decisions aren't 'tough' at all for the people who are making them, unaffected as they are by unemployment, low wages, and increasing poverty. The battle against inflation represents first and foremost the interest of those with money, and protecting the value of that money isn't 'tough' at all for them. The actual 'tough' decisions they face are the decisions that promote the welfare of the people even when it harms the interests of those with money.

In any case, Carney draws some important lessons from all of this:

• the importance of flexibility in inflation targeting - the bank can't control everything, but it can control the balance of the paid caused by, say, Brexit, between workers and the wealthy
• a focus on price stability can become a dangerous distraction from other fundamentals, such as regulating banks
  
• "trust can be undermined not just through a loss of certainty about the future value of money, but also through a loss of confidence in banks or even a loss of faith in the financial system itself" (p. 85)

These lessons in turn lead to his overall conclusion: "The value of money and the legitimacy of the Bank come from people’s trust and their belief in the fairness and integrity of the system... That is a clue to what gives money its value: resilience, solidarity, transparency, accountability and trust." (pp. 86-88)

Honestly, this is a conclusion I really want to believe. It has all the elements of a foundation for liberal democracy. I'm just not sure it can be sustained.

What we really see through these first four chapters is complex of three major forces:

• nature - the intrinsic value of things
• authority - the influence of wealth and power
• values - the conditions required for consent.

None of these is going away; the events of the last decade should make that clear. 

Human needs (and human suffering) show us that some things are vital no matter what the price (including especially the basics of human sustenance). Even if labour is worth nothing, people will fight to get what they need to survive. And this is exacerbated by forces beyond our control as individuals, such as resource depletion and climate change.

Wealth and power are also not going away. We still see in some countries a willingness to invade others. And we see the influence of the wealthy over public policy and government. Rent-seeking and profit drain the resources of the poor, pushing them towards subsistence-level existence.

The need for the consent of the governed is probably the least reliable in the current age. Carney points to "resilience, solidarity, transparency, accountability and trust," but he will have to come to grips with the fact that, as Chomsky argues, these can be 'manufactured' through propaganda, deception and misinformation, rather than earned. And even if we are in the business of earning trust, it's not clear that these are the values that inform society.

I always keep in mind the most salient argument in Patrick Watson's The Struggle for Democracy - the willingness to debate and reason in good faith about the governance of a society depends on the existence of a certain level of prosperity in that society. The same is true of values. Some values - most values, even - don't survive poverty. What we really believe is ethical not always what we describe in our ethical theories.