The growing disquiet regarding the employment of cost/benefit analysis, combined with the oil crisis of the 1970s, led to the abandonment of Keynesian economics and to the rejection of what Jackson and Roberts (1997) termed ‘tonnage ideology’. This ideology linked wealth with an increase in material goods regardless of the consequences. Subsequently, alternative measures emerged seeking to disassociate quality of life with obtainment of material goods.50 One of the earliest measures to embrace this notion was the physical quality of life index (PQLI), which adopted a non-monetary approach. The PQLI was introduced in mid-1970s due to the failure of alternative measures to the GDP to take hold because of their excessive complexity (Morris, 1979). Consequently, Morris developed a simple measure which identified only certain conditions that had to be satisfied. Employing an index ranging from 0 to 100 based on equal weights, the
50
The alternative measures very briefly outlined in this section: the PQLI, the HDI, the GS and the GPI are all examined further in the next chapter.
variables: infant mortality, life expectancy at age one and basic literacy were measured. This helped direct policy towards helping the less fortunate.
Another alternative measurement is the human development indicator (HDI), which was introduced in 1990 to help overcome the fixation of equating economic growth to human development. Although it still uses GDP per capita for income levels, this is supplemented by measures for health via life expectancy and for education via literacy rate and enrolment ratios. The HDI also employs a non-monetary approach.
More recently, criticisms of progress measures were directed at their inability to reflect the economy that actually exists. Current changes in the configuration of the economy such as IC have made existing measurements seem outmoded. Hence, measures such as the genuine savings (GS) and the genuine progress indicator (GPI) explicitly expanded the measurement domain of progress. Once again, this was due to the failure of the GDP to incorporate NC, HC and other social externalities in their measurement.
The rise of these alternative measurements demonstrates the growing concern amongst economists that the current analysis (GDP) employed by mainstream neoclassical economics is not accurately conveying the real world situation.51 Despite the proliferation of these alternative measures, neoclassical analysis via the GDP continues to reign supreme.
Table 2.1 below, summarises the evolution of wealth presented in this chapter. In this table the valuation of wealth falls under three distinct banners. They are: use-value, which is linked to what use a commodity could be put to for society; labour-theory value, which is measured in terms of the labour-time used reflecting the cost of production; and exchange-value, where the forces of supply and demand is the sole determinant of valuation. The table also highlights the recent increase in alternative wealth measurements, which reflects the debate that currently exists within economics regarding the idea and relationship of the whole and the part. This will be examined in the next chapter.
51
As mentioned in Chapter 1 (see Section 1.1 Footnote 2); the OECD (2007a) conference: ‘Measuring and Fostering the Progress of Societies’ reflects this. Here, attendants acknowledged the pressing need for improved progress measurement.
Table 2.1 Tabular flow of evolution of wealth and its measurement
Stage Timeline Summary
Pre-Historic (use-value)
10,000 BC - 500 BC
Wealth must possess use-value. Wealth accumulation not practical. Limited exchange of goods. Limited measurement.
Old Testament (use-value)
2900 BC - 350 BC
Wealth equals spiritual and practical wisdom. Wealth derived from land. Accumulation forbidden.
Ancient Greece
(use-value) 330 BC
Natural wealth (use-value) and unnatural wealth (exchange-value) introduced. Money as a measure of wealth and value in general. Dark Ages
(use-value) 7 th
Century
Wealth must be shared. Avoidance of wasteful use of resources. Human and social considerations paramount. Accumulation forbidden.
Scholastics
(use-value) 1274
Synthesis of Aristotle and Christianity. Unnatural wealth sinful. Moral antipathy to accumulation continues.
Mercantilists
(exchange-value) 17 th
Century
Fundamental shift in wealth concept. Use-value replaced by exchange-value. Material interpretation. Accumulation no longer unnatural.
Mun
(exchange-value) 1664
Wealth is money. Concept of stock supreme. Origin of wealth equals foreign trade. Used as an index of national welfare.
Petty
(labour theory) 1692
Labour equals wealth. Wealth expands to stock of consumable goods and means of production. Analysis via commerce. Numbers replace words.
Boisguilbert
(labour theory) 1697
Wealth is wellbeing of all subjects arising merely from production. Consumption is foundation of all wealth.
Bernoulli
(labour theory) 1738
Introduces calculus to economics. Earliest graph on utility of wealth. Principle of diminishing marginal utility introduced.
Cantillon
(exchange-value) 1755
Wealth equals flow. Analysis shifts from sphere of exchange to production. Labour theory of value dropped. Wealth increases only in production.
Physiocrats
(exchange-value) 18 th
Century Introduced isolation and abstraction to analysis. Wealth narrow focus, only agriculture.
Adam Smith
(labour theory) 1776
Natural wealth equals accumulation of private wealth. Labour sole source of value. Per capita income criteria for economic wellbeing. J-B. Say
(exchange-value) 1803
All value found in utility. Production equals creation of wealth. Land, labour and capital equal 3 factors of production.
Muller
(use-value) 19 th
Century Wealth exists only in use. Universalistic approach. Measures must include intangibles. Riches do not equate to wealth.
Ricardo
(labour theory) 1817
Labour and scarcity determines value. Analysis loses its empirical bent. Use of high mathematical formulas.
Cournot
(exchange-value) 1838
Value of exchange sole foundation of wealth. Economic laws formulated in mathematical language.
J.S.Mill
(labour theory) 1844
Favoured eclectic approach to analysis. Must include both human welfare and tolerance.
Karl Marx
(labour theory) 1863
Analysis must include social relations of production. Focused on ownership and distribution of wealth.
Table 2.1 Tabular flow of evolution of wealth and its measurement (continued)
Stage Timeline Summary
Marginalist’s
(exchange-value) 1874
Market interactions generate wealth not natural resources.
Comprehensive definition of wealth, rooted in theory of exchange. Institutionalists
(use/exchange- value)
Early 20th Century
Move away from universalist principles, instead favours incorporating historical, social and institutional factors. Rationalists
(exchange-value) 1922
Normative/positive distinction. Individual becomes unit of explanation. Scorn for any philosophical or metaphysical analysis. Aggregation
(exchange-value) 1940s
Wealth measurement transformed, analysis incorporates macroeconomic aggregates.
Cost/benefit
(exchange-value) 1950s
Strict adherence to mathematical economics. Synthesis of macro and microeconomics. Formulate theories in mathematical terms. Comprehensive indicators (use/exchange- value) 1970s - current
Concept and measurement of wealth expands to incorporate non- market aspects. Human, natural and social aspects seen as comprising national wealth.
Note: The timelines are approximates only.