The Cost of Everything

by John Médaille on October 18, 2010 · 3 comments <span>Print this article</span> Print this article

in Economics & Empire,Politics & Power,Short

Christopher Carr, in his lament for a lost river, Honest Water, asks

Water consumption seems to be a damned if you do, damned if you don’t situation.  What else can we do besides hope for miraculous scientific advances, try to minimize chronic exposure to individual toxins by varying the type of water consumed, or simply eat, drink, and be merry?

This puts the question in the context of hope, of science, and of hope in science. And of course, in our age, or in any age, the role of the scientist is crucial, and we are grateful for their services. But let me suggest that there is someone missing from this equation, someone we are more inclined to laugh at rather than praise, someone to whom we are unlikely to compose a poem of praise. Nevertheless, on this person all poetry in an industrial age must depend. All efforts at proper preservation must begin with his proper work, and all attempts to clean the wounded river depend on what he does. Who is this person, at once the object of ridicule and the key to the question?

It is the cost accountant.

Honest water depends on honest accounting. Indeed, three-fourths of all issues of economic justice are issues of cost accounting, and of properly assigning costs to cost-causers. And without proper accounting, there can be neither honest pricing nor clean water.

We tend to think of costs in terms of prices, and when we shop, we tend to think the price has covered the cost, and by choosing the lowest price, we have chosen the most efficient cost-structure. And this should be true, but rarely is in a day dominated by large and powerful retailers. Because the truth of cost-accounting is this: Prices may change; costs may not. That is, for a given level of technology and social organization, costs for a given commodity will be the same. Oh, one company may manage the resources or the supply chain somewhat better than another, but these differences will be small and will tend to disappear over time.

But while the costs are the same for a given process, not all processors pay all of the costs. Costs may be externalized or subsidized. The chemicals dumped in the river represent a real cost, but not one the dumper pays. By dumping the chemicals, he converts the river into a sewer, the natural into the unnatural. There is a cost involved, but not one that shows up in the price. Of course, the river is a natural sewer; that is one of its functions. But only for natural things in quantities that naturally occur. When industrialists dump unnatural chemicals, or even natural ones in unnatural quantities, they present the river, and the public, with a problem it cannot solve. The cases of cancer that Christopher sites are of course a cost, but one that does not fall on the cost-causer.

When you see a company that promises “Always low prices, always,” you can bet that they mean, “always externalized costs, always subsidized profits, always.” There is no other way to do it. It is not, as some imagine, a question of “economies of scale,” but of political economies; not efficiency in production, but efficiency in politics: efficiently escaping due costs and obtaining undue subsidies.

There are two basic costs that must always be paid: the cost of the worker and the cost of the raw materials. The worker has some natural costs, because not only must he or she be supported for another day, but he must first have been produced, in that little social factory known as the family. When wages make family life difficult or impossible, then such wages really represent an externalized cost. And when nature is damaged to the point that it cannot reproduce what it has given, then this is an externalized cost. And when we consume things that nature cannot reproduce, like oil, we need to accountant for it not merely as a cost, but as the destruction of a capital resource.

Much is made of the differences in wages between, say, us and China, but in truth, if the wage differences disappeared tomorrow, and if the renminbi were allowed to run to its true value, our industrialists would still keep their production overseas, because the Chinese allow a greater degree of externalization of costs then we do. We still operate with the idea that water ought to be clean and factories ought to be safe, and work hours ought to be reasonable, etc.

Cleaning the river means first counting it as a cost, a cost which must show up in the price. But I am afraid that most people, given a choice between clean water and a cheap iPad will chose the later.

{ 3 comments… read them below or add one }

avatar Schofield October 19, 2010 at 8:53 am

How ironic that the “People’s” Republic of China is not the people’s at all but a dumping ground for pollution. George Orwell had it right in “Animal Farm” Crony Capitalism will rule the world!

avatar ARicketson October 20, 2010 at 2:58 am

This is an important consideration that is often overlooked.

I had hoped to share a report from the Economist magazine, which had a nice map showing that some regions of the world faced “physical scarcity” of water, whereas many other regions faced “economic scarcity” — meaning that water was unavailable for important uses mainly because it was being misallocataed.

Here’s a map similar to the one I remember, but I can’t find a description of what exactly is being depicted on it. http://www.wri.org/map/physical-and-economic-water-scarcity

avatar Noel October 23, 2010 at 5:22 pm

This is the best post I’ve seen on FPR in a while.

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