A Price for Everything
June 12, 2014
What is a tree worth?
Is this a question you’ve ever pondered? Does it seem like an odd question? Perhaps it seems like an inappropriate question? How could someone possibly attach a financial quantity to a tree? Don’t trees transcend monetary values? Trees are more the things of poetry than finance, aren’t they? Not according to a recent report from TD Economics [pdf].
$700. That’s how much a tree is worth, at least if you live in Toronto. A study by analysts at the bank found that Toronto’s 10 million trees provide $80 million in annual services such as water flow reduction, air quality improvement and climate moderation. For every dollar spent maintaining the trees of the city, the trees provide $1.35 — $3.20 in benefits. The present value given to the trees is $7 billion, or $700 per tree.
The attachment of a dollar value to a tree is not a surprising act for an economist, even if it feels alien, and a little off-putting, to most of us. A tree is so much more than just these ‘services’ — a cold, transactional word. The study’s authors are human enough to note, “Many of the benefits [of trees] that are important to communities – aesthetic values, recreational spaces, community importance – are difficult to quantify,” and this means that they “are not included in our valuation.” So, is this a good thing or a bad thing?
Prices are a powerful mechanism that allows comparison of otherwise incommensurable things. They have proven capable of transcending all sorts of boundaries. By putting a price on trees, their value is expressed in a common language. Prices enable exchange, for better and for worse. If someone wants to remove a tree, a price gives us an idea of what we are giving up and what costs may have to be paid elsewhere. If the trade-off has to be made, then a price is a useful thing. However, once a price gets attached to something, it is assumed that it must, therefore, be for sale.
Since a tree has been deemed worth $700, if a developer wants to remove 1000 trees, all they need do is pay $700,000 and the account is balanced. Yet, the values that trees provide — even those we can quantify — cannot be reduced to the individual trees. Many of the ‘services’ of a tree emerge from its role in a collective: a single tree is an ineffective watershed. And, this does not even consider all the “difficult to quantify” things we value about trees, or the ‘services’ of which we are not yet aware. The scientific virtue of continual augmentation, renewal and transformation of knowledge is in stark contrast to the economic assumption of perfect information.
That is the real tragedy of prices; what they miss. Prices can never include every cost and every benefit. Unfortunately, the process of price-making is complicated and largely unexamined, so we have poor understanding of what might be systematically excluded in the making of prices.
For centuries, economists of all sorts have tried to explain the observable prices we all experience in terms of unobservable determinants: labour for the classical economists, culminating in Marx, and utility for the neoclassicists. However, it was Aristotle who came closest to the reality of price-making when he suggested that prices were “makeshift for practical purposes.” This does not mean that prices are strictly established at the moment of a transaction as a matter of convenience. Rather, there is any number of ad hoc calculations made along the way as resources get transformed into goods, changing hands, moving from buyer to seller.
“Makeshift” and “practical” are loaded terms containing numerous, conflicting and complex realities. The farmer needs to make enough to produce for another season, feed her family and save just a little bit, in case next year’s crop fails. The worker needs enough to cover rent and food, with a bit saved for eventual retirement. The capitalist needs to generate returns to satisfy the shareholders. The debtor needs to cover this month’s interest.
In all of these makeshift calculations for myriad practical needs, many things will go unpriced, some sacrificed in the struggle between needs. That means, in a system dictated by prices, their value is effectively zero. In economic parlance, these are externalities. An externality is a cost or a benefit that escapes the calculation of a price. Pollution is the best known example. The effects of climate change are proving to be the largest uncalculated, and therefore unpaid, costs in human history.
The problem with prices is primarily the lack of knowledge about how they are calculated, whether in traditional marketplaces, modern supermarkets or analytical reports, like that on the value of Toronto’s trees. It is unclear what goes into the making of prices and not only has political economy not clarified the matter, the prioritization of single-cause value theory has obfuscated our understanding. Contemporary mainstream economics insistence on markets as a just, efficient pricing mechanism has been an ideological cover benefiting those with the greatest power-making capacity.
Pricing is always an inter-subjective process and the determination of the value of Toronto’s trees should not be left to economists, who conduct these exercises as self-appointed mid-wives for the prices of unrealizable markets. Instead, pricing our trees, as well as the setting of prices in the market, need to be subject to democratic input as a way of ensuring those affected by trade-offs have input into how those trade-offs will be priced.
To paraphrase Joan Robinson, the misery of being priced by economists is nothing compared to the misery of not being priced at all.