Pricing progress – yes please

I pounced on Eli Cook’s new book, The Pricing of Progress: Economic Indicators and the Capitalization of American Life. The author is an historian, and I enjoyed reading the historical detail, which traces the evolution of economic measurement of the US economy from Alexander Hamilton on. The early chapters set up a contrast between the use of ‘moral statistics’ – essentially detailed social statistics – in public discourse and policy in the earlier part of the period and the forerunners of the economic statistics we are used to today. Hamilton was an outlier in his day, the book argues, in seeking to price everything. It was not until the late 19th or early 20th century that the commercial mindset predominated. And Cook – like many modern critics of capitalism from Polanyi on – regrets that shift.

This framework means the book sees more continuity than I (and others) would between pre-World War 2 statistics and modern ones. Cook’s argument about that continuing essence is this: “One of the key elements that distinguishes capitalism from previous forms of cultural and social organization is capital investment, the act through which basic elements of society and life – including natural resources, technological discoveries, cultural productiond, urban spaces, educational institutions, human beings and the fiscal nation state – are transformed (or capitalized’) into income-generating assets valued and allocated in accordance with their capacity to make money and yield profitable returns.”

It seems to me there are two separate arguments here. One is about the spread of money as a metric. Concerning the ‘moral statistics’ of the mid-19th century, Cook writes: “Moral statistics did not measure social welfare in units of money, as the American people’s general disdain of the pricing process held strong through the 1840s.” Indeed, he notes an ‘explosion’ in the use of the word ‘priceless’ in the 1830s and 1840s – although this was a sign, perhaps, of this approach coming under pressure. The book portrays the 1850s as “a watershed decade for the pricing of progress”. This is a well-aired debate, to which the economist’s response as always been that it is impossible to weigh up trade-offs without measuring in common units, and money is at least as good as any other. Anyway, this dislike of money as the metric of value of culture, natural resources etc will resonate with many readers.

The point about regarding all of these things as income-generating assets is a distinct one. The book starts by defining this – just like the theory of a company’s market cap – as the net present value of the stream of future earnings. The first example is the shift (in 17th and 18th century England) from seeing land as a forum governed by traditional relationships to the enclosure of land and its valuation estimated as a multiple of expected rents. The book sometimes uses ‘capitalization’ with a different meaning – often, just ‘aggregated’. It does acknowledge right at the end that modern (system of national accounts based) economic statistics are different from predecessor statistical frameworks such as those of William Petty or Thomas Jefferson: “There is one important difference between GDP and some of the previous forms of capitalization documented in this book.” That is, of course, that GDP pays no attention to asset values at all. All that matters is the current flow of resources, no matter what the inter-termporal trade-offs or depreciation.

This seems at least as important a watershed as the transition to valuation based on market prices: if only we had capitalized natural resources then we might not be in the current dangerous environmental situation! It is true that at in microeconomics the ‘capital’ metaphor has persisted and spread – we have human capital, cultural capital, social capital etc. Some of these are more persuasive than others – natural capital is as real as physical capital. I find the concept of human capital and investment in one’s capabilities a useful one, though Cook disparages it. And – being an economist – would argue we should be doing more pricing of assets we ‘value’ (in the normal everyday sense) in order to take more care of the future than has been the case for the past 70 years or more. The more we ‘capitalize’ the future benefits nature will give us, by looking at the value of tomorrow now, the better we will look after the assets.

So although there is a lot to enjoy in The Pricing of Progress, the elision of monetization and capitalization is confusing and frustrating. It lasts up to the final page, where Cook criticizes Donald Trump for comparing running America to running a business. I agree – but would not describe it remotely as a “capitalizing vision for America,” as Cook describes it. On the contrary, Mr Trump seems to have no concern at all for America’s assets, as he and his family extract as much value short term as they can. Read this book for its insights into the growth of a commercial mindset in 19th and early 20th century America, including the role of slavery, but I don’t think it adds a lot to the current debate on economic measurement.

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