Putting a Price Tag on Nature

by Eco18

Value is highly subjective and therefore nearly impossible to quantify. Yet our economic system does just this by attempting to represent value through a scientific, normative unit of measure otherwise known as price. In economics, the differences between price and value are subtle. As a result the consumer is lead to believe that the price of a good or service is an accurate representation of its value, when in fact it neglects to consider the true value of the components of the natural environment that were destroyed in order to produce it. Anyone who is concerned with the environment should be aware of the problem of pricing as an attempt to quantify the unquantifiable. First – price fails to incorporate the scope of benefits the natural environment provides. Second – many humans will treat value and price as synonymous whether they realize it or not.

Take the price of a 1×4 plank of Red Oak wood at Home Depot. The price tag, $12.24, is composed of a number of things including the costs of extracting the Oak tree from the ground, the fuel required to transport the tree to the factory and the labor that went into cutting the tree into a plank. The price however, does not account for the value of the services that would have been provided by the tree had it not been removed from the natural environment such as the sequestration of carbon dioxide from the atmosphere and its provision of a habitat for hundreds of species.

Part of the reason why price cannot take into account the value of what was lost in order to produce a good or service is because of how price is determined. The market relies on the interactions between producers and consumers to determine a commensurate price value for all available goods and services. The consumer influences pricing with their personal preferences which manifests in their Willingness To Pay (WTP) [1] for specific goods and services. The producer will influence pricing based on consumer WTP as well as their own goal of generating the maximum amount of profit. Economic ideology contends that “surplus value” is the primary source of profit within a capitalist economic system. Higher surplus values are achieved through the increased exploitation of inputs, which will lower the total costs for the producer to manufacture the good or service, allowing them to generate a larger profit. Since the environment is the source of land and natural resources – the primary inputs into the production process – the value of what is taken from the environment will be forcibly lowered to generate maximum profit.

The truth is that the average consumer is not equipped to determine the value of the inputs derived from the natural environment and the producer will always try to keep that value artificially low. This is clearly a lose-lose for the earth. The translation of value into price is one of the greatest dangers plaguing the natural environment today.

 


[1] Pearce, D. et al. Economic Values and the Natural World. Johns Hopkins University Press. 1990. P. 13

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