“Mother, Do Not Get Sick over the Loss: It Is Only Bushes"

Whoever said education is a two-way street was quite right. I am an educator. I have educated so many. I have advised and counseled students throughout their Ph.D. studies in economics. I have always been on one side of the street – giving rather than receiving. A few days ago I was on the other side of the street, receiving advice and counseling. Let me explain.

Several days ago, a bunch of intoxicated twenty year olds missed their turn and instead plowed the car one of them was driving into my front lawn. The car landed in a densely covered frontage with bushes. The car crash caused the destruction of sixty bushes and the damage was put at something over $20,000. None of the people in the car were hurt.

Aside from a total wreck of a car, the only damage was the death of my lovely “BUSHES”. As in cases such as this, the driver was not insured, so I am left holding the bag. But this loss is not the motivating factor in my writing about the event. The destruction of my personal property, to be sure, was the catalyst that prompted me to write, but what made me rethink the value of the loss was the advice I have received from my daughter. Her statement, “it’s only bushes”, triggered the economist thinking about what determines “VALUE”.

David Ricardo back in the 1800s attributed the value to labor embodied in the good (Principle of Political Economy); hence, this became known as the “labor theory of value”. This clearly aroused a great deal of discussion, not only because of reducing all inputs that went into producing value to a single factor, but because of its neglect of why a good, produced by labor or other factor, would command a value. Alfred Marshall’s “Principle of Economics” (1890) provided an answer which remains in today’s economics textbooks. According to Marshall, “value is wealth”. There are two elements that determine value: value in use and value in exchange. Marshall has also stated (something that many of us seem to have forgotten!) that wealth consists of desirable things or goods. Desirable things are Material, or Personal and Immaterial (p.54). Material goods consist of useful things that satisfy human wants. Nonmaterial goods fall into two classes: one consists of a person’s own qualities and faculties for action and for enjoyment (he calls it internal goods). The second are called “external” goods because they consist of relations beneficial to the person with other people. The question then is, what constitutes a person’s wealth?

According to Marshall, “A man’s wealth is his stock of two classes of goods: those to which he has a property rights” (i.e., my bushes), and “those external immaterial goods”. Marshall goes on to say that we must also include as goods the benefits which one derives from living in a certain place, a certain environment. This is the essence of what has given rise in the economic literature (although not commonly attributed to Marshall) as “environmental amenities” and hence our theories of “hedonic” prices.

In the undergraduate texts of price theory, we often neglect this element of wealth in defining value. In the study of public economics and/or environmental economics, these amenities are captured in determining the valuation of housing and the choice of residence or environmental qualities. Even though these disciplines have developed excellent models for the valuation of said amenities, such as “the willingness to pay”, and “willingness to accept” models, it had struck me that we neither incorporate these amenities in determining the “replacement” costs for property damages or in the valuation of risk to life and limbs.

Take the first case (and the loss of my bushes) as an example. As I have mentioned earlier, it was not the monetary loss alone that made me “SICK”. As Marshall put it so many years ago, the value of a good is much more than that of exchange. Put differently, a man (or a woman, in this case) does not live by bread alone. We live by our environment. The human mind and feelings are quite complex. What triggers happiness, sadness, enlightenment, or sickness cannot be put down simply to the satisfaction of material goods. I am an early riser. A morning walk in my garden triggers happiness and excitement at the sighting of red cardinals, the sole blue jay, and the cotton tail rabbits, and, yes, my lovely bushes. I have lived with these bushes for some thirty years. I have fed them, nurtured them, and protected them from predators – they are part of my environmental amenities, a part of my every day living. Well, they could have died a natural death – old age or disease. I could accept that, but destruction due to reckless behavior of a young man is not acceptable.

Over the past few months, the news media have daily reported the prevalence of this type of destruction to people’s properties. Every other day or so, they report a car or a truck that went into the front lawn of a residence, the front of a convenience store, a restaurant, and so on. The story never goes beyond that. No one ever asks why this going is on, and what kind of penalties such behavior elicits. I got my answer yesterday. According to our local ABC station evening news, drunk drivers in the state have successfully been able to suppress the result of the breath analyzer from the jury in the trial. As a result, they reported a 26% increase in accident caused by drunk drivers and a 23% decline in the conviction rate. The report comes from the Worcester county district attorney’s office.

Thank you, my daughter, for your advice. Rest assured that I shall get over it, but most importantly I shall revisit the study of value. Perhaps we might be able to incorporate the values of these amenities in the insurance contract.