Equating money with value is in many cases a necessary expedient. People make transactions with money, of one form or another, rather than with “utility” or happiness. But even if economists often have no choice but to judge outcomes in terms of who ends up with how many dollars, they can pay more attention to the way focusing on “material well-being”, as determined by the “measuring rod of money”, influences and constrains their work.

The measuring rod itself often causes trouble. Not every dollar is of equal value, for instance. You might think that if two economists were forced to bid on an apple, the winner would desire the apple more and the auction would thereby have found the best, welfare-maximising use for the apple. But the evidence suggests that money has diminishing marginal value: the more you have, the less you value an extra dollar. The winner might therefore end up with the apple not because it will bring him more joy, but because his greater wealth means that his bid is less of a sacrifice. Economists are aware of this problem. It features, for example, in debates about the link between income and happiness across countries. But the profession is surprisingly casual about its potential implications: for example, that as inequality rises, the price mechanism may do a worse job of allocating resources.

Equating dollar costs with value misleads in other ways. That economic statistics such as GDP are flawed is not news. In a speech in 1968 Robert Kennedy complained that measures of output include spending on cigarette advertisements, napalm and the like, while omitting the quality of children’s health and education. Despite efforts to improve such statistics, these problems remain. A dollar spent on financial services or a pricey medical test counts towards GDP whether or not it contributes to human welfare. Social costs such as pollution are omitted. Economists try to take account of such costs in other contexts, for example when assessing the harms caused by climate change. Yet even then they often focus on how environmental change will affect measurable production and neglect outcomes that cannot easily be set against the measuring rod.

Economists also generally ignore the value of non-market activity, like unpaid work. By one estimate, including unpaid work in American GDP in 2010 would have raised its value by 26%. As Diane Coyle of Cambridge University has argued, the decision to exclude unpaid work may reflect the value judgments of the officials who first ran statistical agencies. But it seems likely that economists today still treat things which cannot easily be measured as if they matter less.

Economists are at their least useful when a measuring stick should not be used at all. They have been known to calculate, for example, the financial gains from achieving gender equality. But gender equality has an intrinsic value, regardless of its impact on GDP. Similarly, species loss and forced mass migration impose psychic costs that resist dollar valuation but are nonetheless important aspects of the threat from climate change.

Such quandaries might suggest that ethical issues should be left to other social scientists. But that division of labour would be untenable. Indeed, economists often work on the basis that tangible costs and benefits outweigh subjective values. Alvin Roth, for example, suggests that moral qualms about “repugnant transactions” (such as trading in human organs) should be swept aside in order to realise the welfare gains that a market in organs would generate. Perhaps so, but to draw that conclusion while dismissing such concerns, rather than treating them as principles which might also contribute to human well-being, is inappropriate. Further, the very act of pulling out the measuring rod alters our sense of value. Though the size of the effect is disputed, psychological research suggests that nudging people to think in terms of money when they make a choice encourages a “businesslike mindset” that is less trusting and generous. Expanding the reach of markets is not just a way to satisfy preferences more efficiently. Rather, it favours market-oriented values over others.

Q1) Which of the following statements best reflects the author’s argument?

a) Economists should find a better measuring tool than money to measure economic health.
b) Money distorts the value system and presents people as merely economic entities.
c) Economists should evaluate the effects of using money as a measuring tool for value.
d) The use of money as a tool for evaluating preferences is misleading as it ignores non- monetary aspects of the economy.



Q2) The author refers to ‘repugnant transactions’ (last paragraph) for which of the following reasons?

a) To distinguish between economic transactions which add positive value to the economy and those that are of a dubious moral impact.
b) To show the error in the argument of economists that welfare concerns can be addressed without distinguishing them from concerns for economic growth.
c) To provide an instance of what happens when economists are asked to explain the morality of dubious economic activity.
d) To build a case for the idea that all economic activities are not equal in the moral sense and they should be assessed on certain standards before being allowed in the market.



Q3) According to the passage, “as inequality rises, the price mechanism will do a worse job of allocating resources”, because:

a) Resource allocation occurs based on diminishing marginal value.
b) Resources allocation happens on the basis of the ability to pay for the resource.
c) The measuring rod of money will distort the relative utility of an item.
d) Satisfying preferences on the basis of wealth undermines price mechanism.