Value: What Are You Worth?

“Achievement does not, except by arbitrary definition, augment your intrinsic worth. If you see yourself as a “better” or “greater” person because you succeed at something, you may temporarily feel “worthier.” But your successes actually do not raise your intrinsic worth one bit; nor do your failures lower your human value”

Albert Ellis — American Psychologist and Author

“Price is what you pay. Value is what you get”.
— Warren Buffet, Legendary Investor

In October 2019, there was a terrible bus accident in western Uttar Pradesh — a regular occurrence in that part of India with mostly broken unsafe roads. 7 people died. The Chief Minister announced a compensation of Rs. 2 lakhs for each life lost, payable to next of the kin. The Delhi Chief Minister, at the height of the COVID crisis in 2020, proposed a more generous Rs. 1 crore for the relatives of doctors who died taking care of infected patients. In Maharashtra, farmers' suicides attracted a paltry Rs. 1 lakh per person. In Andhra Pradesh, it amounted to Rs. 7 lakhs. In Madhya Pradesh, Rs. 10 lakhs.

How does one ‘value’ a life? Or a product? Or a service? Or an experience? A beautiful site? Radheysham was extremely valuable, perhaps the most valued person in the world for his family before he died. If we were to attach a monetary value to his life, what would that be? We will never know because after the HDFC Bank repossessed his cars, his only property, there was no way to measure it. Minus the unpaid loan, his 3 cars were valued at Rs. 6 Lakhs. A value he had created after driving the car himself for 2 years and profiting from the labor of the other 2 drivers he had hired. That was his value, his worth, his wealth — his property.

But what is Radheysham’s true worth, not by virtue of what he owned in his own name but by virtue of his share of the national assets that are held in the name of the government? Or by virtue of his capacity to consume? Economists and business analysts often calculate Customer Life Value (CLV) by assessing the profit that a corporation will derive out of the relationship with the customer over the life of the relationship. So, the Toyota Etios reseller in Jaipur who would have earned, say Rs. 1 crore from Radheysham if he continued to expand his taxi business and bought 20 more cars over the next 20 years, earning a profit of Rs. 50,000 each. Simply put, Radheysham would have added Rs. 50,000 value to the economy per year from the purchase of a car alone. All this value is added every year by the government, and something called GDP (Gross Domestic Product) is produced.

More GDP means more consumption, which means more production. More production means more jobs and more jobs mean more incomes and more incomes mean more spending and this is how economic activity is sustained. This is simple, but sometimes people do not have money to buy stuff because they do not have jobs and they do not have jobs because there is no production (which is strange as we will discover in later chapters).

But why should there be no production when 700 million people are struggling to acquire homes and education and clothing and entertainment? So why doesn’t the government give people money, which they can use to buy stuff they need? You might find the concept strange, but actually, it does that all the time. We are not aware, because it mostly goes to large banks and financial institutions first, and then to big businesses, thinking they will invest in businesses that will produce jobs that will pay you salary or wages. Suffice to say, the government could have handed over enough money to people like Radheysham to allow him to rent a small house, eat well and wear decent clothes and pay for the Jio connection so his daughter could attend online classes. The government gave money to HDFC Bank instead, which repossessed Radheysham’s only means of livelihood. Forget about the CLV of Radheysham, now that he is dead, but let us look at his implicit wealth, the wealth he unknowingly possessed.

Let us begin by accepting every country is in possession of something called ‘National Wealth,’ which is nothing but property (ownership) claims of the state (i.e. its citizens) over the assets of its entire geography and, in some cases, overseas. I have done some numbers which I present in Chapter 18 that estimates a value of roughly Rs. 5.7 crore per family. What it means is that Radheysham and his family of 5 were combined owners of a small fortune which they could have used to tide over the COVID crisis. He should have been able to mortgage that share of this wealth and obtain a loan against it and paid the bank and prevent his cars from being repossessed. Or started a second business? Or a third business? Or done nothing at all till the pandemic was over?

Ladakh, sometimes referred to as an earthly paradise, the fictional Shangri La of the Lost Horizon, is not only a land of immense beauty but also a place for enduring happiness. Surrounded by craggy mountains, rolling hills, cascading waterfalls, and clean rivers, it is located in the upper Himalayas. In winter, temperatures drop below -19 degrees. Natives routinely live to 100 years or more.

Ladakhis lead a life of extreme simplicity and limited means. For ages, people have devised clever ways to meet their basic needs without jeopardizing the environment. Their communal life is distinguished by cooperation rather than competition. People work hard, but they also enjoy “lengthy and expensive weddings, funerals, and religious events. Their culture is diverse and colorful, with beliefs and practices centered on Tibetan Mahayana Buddhism, the predominant religion in that part of India30.” Ladakh’s culture has been preserved for generations due to its geographical isolation. Yet, in the 1960s, the government of India, to protect its borders with China and Pakistan, built a road from Kashmir valley to Ladakh. Since 1974, when foreigners were first allowed to visit this vitally sensitive location, there has been a steady increase in the number of tourists,31 who now number around 250,000 each year. Tourism has affected a fundamental transformation in the Ladakhis’ self-image and they have begun to think that outsiders live lives of endless affluence and pleasure. Their own way of life, which is a near-miracle of social and environmental balance, appears inferior and outdated in comparison.

“Helena Norberg-Hodge, a Swedish linguist has spent half of each year in Ladakh since she first visited in 1974. She tells of an experience that sharply illustrates this deterioration in the Ladakhis’ self-esteem. During one of her earliest visits to Ladakh, a young man gave her a tour of his village. Impressed by the size and beauty of all the houses she saw, she asked him to show her the poorest house. He proudly informed her that there were no poor houses there. Recently, she overheard the same man imploring a tourist, ‘If only you could do something to help us Ladakhis. We are so poor.’”

“This change in self-image is driving the Ladakhis to relinquish traditional practices and materials in favour of “modern” ways and products, even where the latter are inconsistent with local needs and conditions. The result, too often, is an actual decrease in the standard of living. Young people, hoping to emulate the modern, urban life, are leaving the villages and moving to Leh, the main population center. But because there are few paying jobs offered in this still largely agrarian economy, unemployment and poverty are gaining a toe-hold.

Norberg-Hodge, who stayed on in Ladakh to learn more of its people and language, saw a sad irony in the Ladakhis’ abandonment of their old way of life. She observed that the very things the Ladakhis were renouncing as old-fashioned — composting toilets (which provide fertilizer for the fields), organic farming, the use of natural materials for clothing and buildings, for instance — were regaining popularity in the developed world.”

Inspired by the writings of Norberg-Hodge, my friend Rakesh Sinha, a successful investment banker who often complained of insufferable Delhi pollution and unending corporate rat-race, one day decided to retire, and leave for the comfort of mountain life in Ladakh. He rented a modest house, switched to a diet of vegetables, fruits and nuts and drank fresh water from the spring. It has been ten years. His days consist of meditating, long unplanned walks and farming organic food for exports to Srinagar. To outsiders like Rakesh, the lives of the Ladakhi people are ‘invaluable’ — simple, co-operative, fulfilling and leisurely. Yet, the people of Ladakh may not be aware of the ‘value’ of their own lives, unless they have experienced an alternative life (say, in Delhi). Strangely, the person from Delhi aspires to a life in Ladakh perhaps as much as the Ladakhis aspire to the charm of Delhi, the hustle and bustle and the polluting industries? The ‘value’ that a Delhi visitor will attach and may be willing to pay to experience life in Ladakh could range from Rs. 2,000 to Rs. 80,000 per day. For Rakesh, it is a value beyond compare. A Ladakhi may not have any money to experience Delhi life, other than perhaps as a migrant daily wage worker. Which life is more valuable? And to whom?

We end up with the inescapable conclusion that:

a) There are few instances where an experience or an object could be quantified in terms of value. At others, mostly not.

b) Value can either be tangible or intangible. It is hard to quantify the intangible and therefore attach a value to it.

Rakesh, when pushed, could estimate the rent of his wooden accommodation at say Rs. 10,000 per month. The fruits he eats could be worth Rs. 5000 per month and water Rs. 1,000 per month. The labor he spends in growing vegetables, plucking the fruits, and tending to his farm could be Rs. 6,000 per month, which is what a local farmworker would charge.

Anyone can attach a monetary value to Rakesh’s acts of consumption based on his own estimates from his or her experience living in Delhi. Of course, it would be 10 times, if someone from Switzerland were to estimate them. How about the pleasure he derives out of meditating? Or the bliss he experiences in the surroundings. Can we attach a monetary value to these feelings? A tourist from Germany could pay US $2,000 for it. Don’t we travel to exotic locations for the visual pleasure of our eyes? Spend on experiences rather than physical materials, they say. How much? What is an experience worth?

The Merriam Webster dictionary defines value as follows:

1: the monetary worth of something

2: a fair return or equivalent in goods, services, or money for something exchanged

3: relative worth, utility, or importance

4: something (such as a principle or quality) intrinsically valuable or desirable

5: a numerical quantity that is assigned or is determined by calculation or measurement

The word ‘value’ therefore renders itself to innumerable meanings exactly in a way ‘dignity’ did. And irrespective of how we define or interpret or assess ‘value’, the field of economics demands that we quantify it. You can ‘value’ a picturesque sight, but can you quantify it? Yes, Ladakh has a primitive market, and it serves the needs of the society living there. It is the societies in Delhi and elsewhere where shockingly, human beings seem to serve markets.

Quantifying Value

Human beings have devised absurd ways of quantifying value. Yet, we have come to accept them with utter faith and credulity. Here are two broad ways we arrive at a monetary value of a product, service or experience, if we go by the rudimentary economic principles.

First

When we buy a product, we pay for the materials and the labor plus a profit that goes into making it. Material is physical, you can touch and feel it. Labour is energy spent by a human being. Profit is the excess of what the buyer pays minus the expense incurred. Material comes from nature (primary) or from items produced from the use of those natural materials (secondary) — food grains from crops, fruits from trees, petroleum from underground biomass, gold and copper from mines etc. You can track all physical materials to nature. Labour is energy and more difficult to detect. One can argue that human energy also originates in nature. Like the earth and the mountains and the seas and everything else human beings were also created by God, as were animals and plants and corals and algae.

A movie superstar’s income is part effort (working) part talent (born, practiced or cultured) and part looks (well-proportioned body and chiseled face) for instance. When we go to a theatre to watch a film, we attach a value to our pleasure for those 2 hours and therefore make a payment of say Rs. 100, which includes payment for everything from the artists’ fees to the expenses incurred on making it. This is how we account and attach a value to our experience’s worth.

A court can impose a fine in case of an injury, which is a monetary equivalent of the pain a person suffered as a consequence of such act. The underground market for human body parts is also a case in point where kidneys and other transplantable organs are traded, a kidney for Rs. 7 lakhs for instance.

The value of gold is partly made of the effort spent in mining it and its scarcity.

Second

The other way to quantify the value of an item and experience is by subjecting it to the institution of a marketplace — letting many people bid for the item (which represents a value) under sale. This can depend on the demand and supply of the item or some other item similar to it. But it also depends on the quantities offered and so on.

The above examples tell us that the price of an item is determined by a combination of material plus effort plus the nature of demand and supply. Let us assume we accept the value of an item being sold as its cost (purchase price) to the buyer, but how do we know its actual cost to the seller? One way to estimate the cost to the seller (who can also be the producer) is to estimate his purchase price plus a profit. If that person has purchased the item from another seller, then we can estimate his costs accordingly viz his purchase price plus a profit? If you regress this enough, the item becomes a series of costs plus profits. Now if you remove the profit then what remains in the cost. But cost of what? As we saw earlier, it must be some material or labor or experience whose origin can only lie in nature.

The other interesting thing we notice in the above examples is that there is something that is helping the seller (other than their labour and ingenuity), which is essential materials that originate in nature. In a perfect world no one should be allowed to capture this material (value) from nature simply because nature belongs to everyone.

Karl Marx based his theses on the exploitation of this labour by the capitalist class, called the labor theory of value. The truth is that the value of labour is so small and the perceived value of everything other than labour (mostly profit) so large that unless the other value (profit) is accounted for, the price of an item can never be explained.

In his book ‘The Value of Nothing’, author and film maker Raj Patel demolishes the belief that ‘price equals value’. It is a misleading and inaccurate representation of the world. Theories are nothing but an outcome of your assumptions. And when your assumptions are arbitrary, your theories and their conclusions are bound to be wrong or equally arbitrary.

The whole idea of “value” which forms the basis of economic theories, including the way we calculate prices, costs, and ultimately wealth, hinges on our imagination rather than on any scientific principle. It is important therefore that all economic theories be tested against common sense, rudimentary logic, and human intuition rather than on the basis of complicated mathematics and fashionable vocabulary that economists and social scientists use.