ENL's Measurement Standard

In order to judge economic activities, ENL requires a measurement standard for value.

The pervasive influence of standard thought has convinced most economic thinkers that the only valid way to assess value is through subjective desires, and that these must be measured by the money people are prepared to pay.

The role of a functional framework is distinct from that of a guiding framework, and validity in one sphere has no bearing on validity in the other. What follows must be judged on the basis of its logical consistency with ENL's economic aim and guiding role, not by comparing it to a different mode of economic thought.

It is important to understand that, once a value standard is established, the cost standard is its opposite or negation. This is because a key task for ENL is to offset cost against value to determine the net effects of economic activities on human beings. Unless the two are judged by the same standard—that is, unless they are commensurable—this is logically impossible.

Thus, if ENL were to choose energy gain as its standard of value, energy loss would necessarily be its standard of cost. If it were to choose increased happiness as its standard of value, then decreased happiness must be its standard of cost. Neither of these has in fact been chosen, but the examples should clarify this important principle.

ENL's goal for an economy is sustainable well-being with respect to human beings. The term "well-being" within ENL is formally defined, but in the discussion below a dictionary definition suffices: "satisfactory conditions for existence".

"Sustainable" means that present humankind must protect nature so that future humankind can achieve well-being in their turn. Because an analyst can choose global geographical scope, this goal must be applicable to the world's entire population, irrespective of cultural or other differences.

In brief, ENL's value concept must capture the intuitive essence of well-being, and it must permit well-being to be achieved in a sustainable manner and on a global scale. In addition, because the framework strives to be as rigorous as the subject matter permits, the concept must allow for quantification and thus for empirical development.

The initial step in finding the right measurement standard is to point out that it cannot be subjective. Using the strength of individual desires as the measure of value would contradict ENL's goals in two main ways.

First, desire is not directly measurable, and thus cannot be used to ensure well-being for all people. The strength of subjective desire can only be gauged by an external representative such as money. This allows the rich to express their consumption desires much more effectively than the poor, thus focusing production on the luxuries of the few rather than the requirements of the many.

Adam Smith made this point 230 years ago:

…the effectual demand… is different from the absolute demand. A very poor man may be said in some sense to have a demand for a coach and six [horses]; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to market in order to satisfy it.1

In other words, a poor person may be keen to ride in a horse-drawn carriage, but under capitalism this has no economic significance, and will not result in the production of new carriages, because he can't afford to pay for this output.

Smith chose a contemporary luxury for his example, but the same point applies to essentials such as food and shelter today. Take this example from Paul Harrison:

…the chief ailments of the world's poor receive scant attention compared to the diseases of the rich. The reason is simple: drug research, like food production, is geared not to human needs but to the effective demand of the market. The poor do not have enough buying power to influence what gets produced.2

The second reason why the measurement standard cannot be subjective is that subjective desire does not express genuine well-being. Desires are incessantly manipulated by social influences such as advertising, media images, and peer pressures. In fact, consumption desires are often nothing more than the deeply implanted urges of corporate marketing efforts. Such influences result in both the qualitative distortion and the quantitative expansion of our consumption demands.

These observations are neither new nor radical. For example, here is a well-known passage from social critic Vance Packard, writing in 1960:

The emerging philosophy was most fervently and bluntly stated perhaps in two long articles in The Journal of Retailing during the mid-fifties. The author was Marketing Consultant Vince Lebow. He made a forthright plea for ‘forced consumption.’ ‘Our enormously productive economy… demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfactions, our ego satisfactions, in consumption… We need things consumed, burned up, worn out, replaced, and discarded at an ever increasing rate.’3

Almost half a century later, little had changed. In 2006 the following appeared in the industry journal Advertising Age:

Some fraction of [American] spending is, of course, the result of our basic need for food, clothing, shelter, and transportation. But really, how many households need two homes, three vehicles, and four TVs? It's clear that a great deal… of consumer spending is driven by desire, not need. Not many of us who work in advertising and marketing would have jobs if all we did was serve the basic human needs of sensible consumers.4

If ENL's standard of measurement for value and cost cannot be subjective, then it must be objective—that is, it must be based on the publicly observable state of the external world, not on the private experiences of the individual's internal world.

This was acknowledged several decades ago by ecological economist Herman Daly in a penetrating essay titled, “Alternative Strategies for Integrating Economics and Ecology." In describing the strategy of "economic imperialism," Daly indicated that value should not be subjective, but should instead reflect “…the objective needs of human beings or other species considered as biological entities…"5

To summarize, we are looking for an objective factor in the human domain that captures our general understanding of well-being, permits quantification, applies on a global basis, and encourages present humankind to retain the natural conditions for the well-being of future humankind.

Only one factor meets all these criteria: humankind's physical health.

Physical health has an objective basis in that it relates to our externally observable state. It can be quantified through strength, flexibility, freedom from disease and injury, and many other readily accessible attributes. It puts rich and poor on the same plane and can be applied, with only minor adjustments, to all societies and cultures. It restricts consumption based on the physical limitations of the human body.

Numerous studies have shown that physical health is strongly impacted by our emotional states and stress conditions; it therefore serves as an accurate proxy for general health. General health, in turn, is for most people the central aspect of happiness and well-being.6

The use of physical health as the key criterion for economic success has been supported by at least one standard economic thinker, Irving Fisher. In 1906 he wrote the following:

The true 'wealth of nations' is the health of its individuals. A nation consisting of weak, sickly, and short-lived individuals is poor compared with a nation whose inhabitants are of the opposite type. Hence it is that the devices of modern hygiene, sanitation, and preventive medicine, which tend to increase human working power and enjoying power, are of greater economic import than many of the luxurious and enervating devices commonly connoted by 'wealth'.7

Irving's comments are particularly relevant with respect to the global achievement of well-being. People in the rich countries, most of whom have long enjoyed good hygiene and sanitation, can easily ignore the fact that these essentials are still absent in many poor countries, and that economic resources should be directed primarily to these basic requirements.

The health standard focuses our attention on these fundamental issues.

Even economist Julian Simon, a red-meat supporter of standard thought, finds that health is a central economic concern. To his credit, he says that, "Feeling and being healthy [are] as valuable as anything else an economy can provide."8

For all the reasons cited, ENL's assessment of a final output's value is the degree to which it increases the physical health of human beings through consumption. Conversely, its assessment of a final output's cost is the degree to which it decreases physical health through production.

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