Co-authored by Saumya Seth and Sanya Seth
Intriguingly, the economic perspective of some in the 21st century still lies in the shadow of Karl Marx’s belief that “value cannot exist without money as its mode of expression.” This is clearly false. "Money" and "value" are not the same. Yet today, they are treated as synonyms. It is forgotten that the word ‘value’ encapsulates a conceptual bifurcation that is not limited to its monetary aspect. In order to better measure the effectiveness of economic policy, we need to understand that the word ‘value’ is a generic term that addresses two core concepts: “use value,” meaning the utility attached to the commodity, and “exchange value,” the value at which the good can be exchanged for another.
The privileging of “exchange value” over “use value” is articulated in Adam Smith’s discussion of the issue, in his Paradox of Value. Smith points out how non-essential commodities with limited utility may carry high prices, while essential goods may, conversely, be priced cheaply. For instance, a diamond is a luxury, non-essential good with a high exchange value. Water, by contrast, is an exhaustive resource and a basic necessity for survival, but has little exchange value. Alternatively known as the Diamond-Water Paradox, it lays bare the irony underlying the monetizing of products based on their exchange value rather than their use.
The transformation of the world’s economic landscape as a result of COVID-19 prompts us to analyse the ultimately arbitrary valuation of a commodity or service. The change in the marginal utility derived from the usage of goods in those specific circumstances has inverted the paradox of value, altering the lens through which citizens evaluate life's sine-qua-nons. This is evinced through the soaring prices for essential commodities that remind us, morbidly, of just how high these goods’ “value in use” is. Our usage of the phrase ‘inversion of the paradox of value’ is our attempt to understand the new COVID-19-driven valuation behaviour.
This inversion can be seen through the pain suffered by the global luxury goods market, and the surge in prices for essential goods, during the pandemic. In 2020, the watches and jewellery market shrunk by a fourth from its level in 2019. The clothes and accessories sector was next, with a twenty percent decrease in market size. The cosmetics and perfumes market was marginally more resistant to the pandemic's effects, with a fifteen percent fall. By contrast, during the pandemic oxygen’s price rose as a result of higher demand. As Business Insider India stated, “India's COVID-19 surge is highlighting a ruthless, global black market for oxygen, where sellers jack prices up to 1,000 percent.” The increase in the demand for resources such as medical oxygen, induced by the shortage in supply due to disruptions in transportation during lockdowns, steered an increase in its exchange value in the free market, even while its use-value for patients stayed the same. The table beneath indicates the demand-supply conditions of oxygen reserves in India during the pandemic:
Oxygen market conditions resulted in a positive feedback loop; the inversion of the paradox of value encouraged people to pay more based on the exchange value of the commodity while ignoring its social value. As demand for scarce essential resources (like oxygen) rose, so did its price. This led people to anticipate future rises in the price of the resource, causing them to buy larger quantities in the present, further worsening the problem. As a result, rising costs pushed vital resources out of reach of India's rural populace, exposing the country's expanding poverty crisis.
A careful look at the economy's state during the pandemic indicates the need for a human-driven inversion of the paradox, which ought to have taken place during the peak of the crisis. While the exchange value of goods and services is important, we must account for the “value of the provider”. This is the concept of assigning monetary value to the economic welfare gains as a consequence of their services provided, more specifically their contribution to the country’s GDP in terms of productivity, wages, and the value created.
One area where this human driven inversion could be put into practice is the area of wage distribution at the foundations of society; jobs such as waste collection, cleaning, or any similar overlooked yet crucial industries. We should not ignore the value of the jobs in the formal sector, nor should we target their pay scales. Instead, we should counter the undervaluation (value in exchange) of informal, essential service providers in contrast to the utility of their services.
As Lewis Mumford said, genuine economic value lies in the power to sustain or enrich life. During the health crisis, this was in the hands of the health workers and frontline workers; and yet, the greatest irony was that these workers were “overworked and underpaid”. ASHA (Accredited Social Health Activist) workers in Gujarat, India, for example, worked exceptionally hard providing medical services and vaccinations to child care centres at a mere 3000 rupees per month. Often, however, they were not paid even these low wages and never received the extra incentives promised to them during the pandemic.
In addition to simply aiming to end the shortage of frontline workers, their wages must reflect the cost of their training and account for the high risk they face every day. Here, the inversion would mean paying higher wages to doctors, nurses, medical staff, and other frontline workers, though only during the health crisis period, through the means of incremental wages and incentives based on their contribution to GDP.
Market conditions were responsible for the hike in prices of essential commodities required during the pandemic, but the services that we needed the most and that played the biggest part in dealing with the crisis were swept under the rug. Intuitively, we might want to see the ‘value in exchange’ and the ‘value in use’ at a stable equilibrium, but issues like existing wealth inequality, difficulties in implementing policy, and the simple issue of labour markets’ supply and demand make this difficult to achieve. However, the first step of solving a problem is acknowledging it, and we hope to have done this by casting a spotlight on this underreported phenomenon during the pandemic.
Harvey, David. Marx, Capital and the Madness of Economic Reason. Oxford University Press, 2019.