Cultural Discount Rate

As I sit down to write this article I would like to acknowledge that the land that I reside is the traditional lands for the Wurundjeri people. I respect their spiritual relationship with their country. I acknowledge the Wurundjeri people as the custodians of the Melbourne region and recognise that their culture and heritage is still important today.

When I pass by a cemetery, a war memorial, or a sacred rock face, I often find myself wondering how these might be valued far into the future. If the cemetery sat on prime waterfront land, the war memorial honoured soldiers of a failed government, or the sacred rock sat atop vast mineral deposits - how would the cultural heritage be valued? Especially dubious if the people for whom the culture was inherited are a minority, displaced, or gone. I want to explore with you the idea of cultural value. I want to ask the question - how much should we value culture? Perhaps more importantly, I want to see if there is a way to measure it.

Culture is a generous term that embraces heterogeneity. It is often defined as the assembly of ideas, customs, and behaviours of a people. Cultural heritage is dynamic and evolves over time. Culture is lived, re-lived, taught, and passed on from generation to generation. Egypt today is markedly different to Egypt four thousand years ago but there is an unmistakable heritage. Culture and cultural heritage are fundamental to our identity. They are the substance of our inter-generational human condition - our legacy.

Economic Framing

To measure culture we need a numerical equivalence - a value. To find this value we can take an economic perspective, and to understand economics we can first consider history. In a prehistoric world, before the neolithic revolution, all humans depended entirely on their own production for survival. There was no money, no substantial concept of trade, and consequently very little concept of value.

With the advent of agriculture and settlement, humans began to share production, trade, and divide labour. The neolithic human began to depend on other humans. As society developed, fundamental needs became integrated in an economic system. The neolithic human was no longer solely responsible for their food, shelter and access to water. Food production was divided and delegated. Land ownership created capital, which in turn established a value in shelter in the form of rent. Rivers were dammed, wells were dug, until eventually municipal water supply became ubiquitous.

A prehistoric human had surprisingly more liberty than a modern one. They would eat and drink from wherever they desired. But make no mistake, their wellbeing was far from what it is today. For efficiencies in survival, humans came together in communities, established responsibilities, divided labour, and slowly built up a deep dependence on trade. With trade came an intimate understanding of value. Today the modern human must focus their energy into often only one form of production. This is required simply to make sufficient value to exchange for their basic needs: food, water, shelter. The social dependence on trade, and how it frames value, is the origin of economics.

Theory of Value

To measure value we can explore what it means to economists. Early economic explorations on value start with commodities, which are goods that are commonly traded.

Classical economists, including Adam Smith and David Ricardo, would argue that the value of a commodity can be divided into its ‘use-value’ and its ‘exchange-value’. One can use the term ‘use-value’ to refer to the utility of a product, which would mean the ability to satisfy a practical purpose. Grain has a ‘use-value’ for making bread, feeding livestock, and planting for further production of grain. By contrast, ‘exchange-value’ is the ratio that a good is exchanged for other commodities. The ‘exchange-value’ is controlled by many forces which do not affect the ‘use-value’. According to classical economists these two concepts of value are opposing and form contradictory poles.

Classical economists went further to suggest that all commodities must have an underlying intrinsic value that underwrites a fair ‘exchange-value’. This developed into the labour theory of value, where the value of goods and services could be measured by the amount of labour required to produce them. The discrepancy between the intrinsic value, the labour required, and the ‘exchange-value’ was further used by Karl Marx to express a fundamental antagonism between capitalists and laborers. To Marx, company profit represented a surplus of value stolen from the workers through unfair wages. What started as a rather innocuous study of commodity prices planted the seeds for violent social change still in affect today.

Despite the simplicity of the labour theory of value there are many critics. Even Ricardo struggled with his own contradictions -

“I cannot get over the difficulty of the wine, which is kept in the cellar for three or four years [i.e., while constantly increasing in exchange value], or that of the oak tree, which perhaps originally had not 2s expended on it in the way of labour, and yet comes to be worth £100."

A common rebuttal to the labor theory of value is the diamond-water paradox - why are diamonds so much more valuable than water when water is essential for life? The labour required to collect water is insignificant compared to that required to mine diamonds, yet it is fundamental for survival.

Neoclassical economics brought new ideas to the table to reconcile these issues. In the late 19th century the world of economics considered that perhaps value is not intrinsic but subjective to an individual. In this model an exchange is conducted only when each individual perceives a net benefit in value by doing so. From this, value can be created purely through exchange. Along with subjectivity the idea of marginal value was also introduced. Marginal value explained that the value an individual places on a unit of a good decreases with each additional (marginal) unit. This solved the diamond-water paradox, as the supply of water is so great that its marginal value is low, with diamonds representing the opposite. The idea of marginal value led to an economic study of supply and demand that is now a cornerstone of modern economics.

Classical economics put forward the idea that all goods had an intrinsic value. This intrinsic value could be measured as the total sum of human labour required to produce the good. In this sense, value is immutable and universal. However the nuances of capitalism, such as the price of diamonds and water, could only be explained with a subjective theory of value which is individualistic and fickle. The laws of supply and demand better explain the movement of prices but do little to satisfy the desire to neatly measure value.

The Subjective Value of Culture

Applying an economic value to culture is a challenging idea and not entirely congruent. To set a value on culture is to suggest that one might forfeit or acquire elements of culture in a market. At first this is absurd. One cannot purchase culture, let alone sell it. However people exist in an economic system, and their actions are not free from this system. The value of culture, to the individual, resides around opportunity cost, preservation of heritage, and the freedom to practice.

Firstly it is important to recognise that the subjective theory of value is very much at play for culture. People value their own culture significantly more than they value other cultures. Secondly as one cannot purchase culture, the value lies in one’s access to practice and preserve it. This value is driven by the magnitude of the difficulty in doing so. The world in its limiting borders drives an economy of cultural conflict. The colonialists, the indigenious, the religious prosecuted, and the ethnic outcasts, all share a common desire to practice their culture and preserve their cultural heritage. Dissonant cultures in a closed system drive cultural value.

There is another force at play outside of cultural conflict that drives value. As cultures age they develop in historical and archeological importance. Proponents of conservation, arts, and history spend years and great deals of energy to ensure the recovery, maintenance, and protection of cultural assets from dying or forgotten people. UNESCO publishes the ‘Atlas of the World’s Languages in Danger’, revealing that 40% of the world’s languages today are considered endangered - with fewer than 1000 speakers. Museums, galleries, and wealthy homes routinely populate artefacts of culture, driving the value of aboriginal artwork, renaissance masterpieces, and Banksy. On a shorter timescale governments across the world play a vital role in cultural preservation with zoning restrictions and protection of heritage buildings. There is a prevailing agreement across cultures that cultural heritage should be preserved - but it is not universal.

Unfortunately the cultural conflict economy only balances when members of a culture exist in effective numbers to defend it. In an economic system the ‘exchange-value’ of culture is very much at play. This value is subjective and perceived predominantly by the members of a culture. The main driving force for cultural ‘exchange-value’ is the desire to practice culture and to preserve cultural heritage. Some have an interest in preserving cultures outside their own, which furthers the ‘exchange-value’. However others have an interest in eliminating cultures outside their own, limiting the ability for a culture to practice thereby driving up value from the perspective of the oppressed.

The Intrinsic Value of Culture

Just as the exchange value in capitalism does not fully represent the effort required to produce a product, the exchange value for culture does not fully represent the effort over generations of human lives required to develop it.

Capitalism serves to compound capital through the use of existing capital and labour. Cultural heritage is the product of enormous efforts of labour that did not create capital in the economic sense, but instead created great capital in the human sense. Languages, religions, ideologies, stories, literature, plays, foods, dances - the art of the world. Since the product of culture is not economic capital, we are let down by capitalism in the preservation of cultural heritage. There is no intrinsic and prevailing economic force present to preserve cultural heritage. So when the people of a culture are gone - all that is left is the underrepresented value archeologists and historians place.

Similar to the labour theory of value for goods and services, the intrinsic value of culture could be considered as the total human capital required to establish it. A culture’s value could be measured as the population size of its history. Cultural value in this sense is the sum of person years.

Of course, we live in a closed system. A single world, with finite resources. As such a cumulative culture value would prohibit new cultures from ever being valued relative to long standing existing cultures. A solution is to apply a discount rate over time. This way we consider older culture to be less valuable than newer culture. This is similar to the Social Discount Rate, a concept used by economists to discount the benefit to future humans when considering the cost-benefit analysis of a project. We can refer to this as the Cultural Discount Rate.

Therefore, we can propose a simple model to measure the intrinsic value of culture. Based on the classical economists labour theory of value, the value of culture is the cumulation of person years discounted over time.

Indigenous Australians - A Case Study

The question of cultural value becomes far more relevant to Indigenous Australians when we talk about place. Land is fundamental to Indigenous people. It is a deeply spiritual connection defined by stories inherited and retold across generations. As the colonialists invaded Australia in 1788 the culture of land ownership was introduced, however this culture was incompatible with the Indigenous belief that land was not owned: one belonged to the land. The rest is history. The indigenous culture was smothered down to embers from a fire of nearing half a million continuous inhabitants spanning 50 thousands years.

However, what would it look like if we considered the intrinsic value of culture from the indigenous perspective. How would the value of the indigenous peoples culture have compared to the colonialists? The following charts are a crude estimation, but are useful in understanding orders of magnitude and gaining a perspective on this idea.

$$ G_i = \text{generation population size} $$

$$ n = \text{number of generations in culture} $$

$$ \text{cultural value} = \sum_{i=1}^n { G_i } $$

$$ r = \text{cultural discount rate} $$

$$ \text{discount factor} = { 1 \over (1 + r)^t } = e ^ { - rt } $$

Therefore cultural value can be calculated as the sum of generations with a discount rate.

$$ GSD = \text{generation start date} $$

$$ value(t) = \sum_{i=1}^n { G_i * CDR(t - GSD_i) } $$

As an example if we have:

  • a steady generation size of 1
  • the discount rates of = 0.5%, 1%, and 2%
  • a generation size = 25 years

We can see that over time a culture’s intrinsic value reaches a maximum. This is an interesting phenomenon, because it indicates that the maximum cultural value we should consider for a group is proportional to this discount rate and the steady state size of the population.

$$ \text{cultural value} \propto { r, G } $$

Now let’s consider the population sizes of the Indigenous Australians and incoming colonialists. The Indigenous were not a small population, estimated at around 300 thousand in 1788. In fact the Indigenous outnumbered the colonialists until approximately 1840. After this point however the colonialist population moved exponentially.

If we apply a discount rate of 1% and a generation size of 25 years, we can calculate the cultural intrinsic value for the two populations. The Indigenous population starts with a value 4x its population size (due to the historical population value demonstrated in the chart above), we start the colonialists cultural value at zero (even though they are bringing their own culture from England / Europe).

Finally we can compare the population and cultural values in a ratio. This will give us an idea of the relative weighting of the two - shown in the final chart.

Interesting Notes:

  • The colonialist population overtook the indigenous in 1840
  • The colonialist cultural value overtook the indigenous in 1870

The final chart here paints an interesting perspective. We can see that although the colonialists population has at times exceeded almost 100 times that of the Indigenous, the relative cultural value of the colonialists has never exceeded 40 times. Given that the intrinsic value of culture presented here is based on population size, it is favorable to the dramatic increase in population of the colonialists. However the indigenous population has always had more cultural value than represented simply by their population. This supports the common belief among Australians that the Indigenous community is underrepresented in their population compared to the worth of their culture and cultural heritage.

Final Thoughts

After dwelling on this topic for a while I believe there are two key questions for cultural value

  • How do people value culture
  • How should people value culture

The first question can be answered with modern economic theory: applying subjective value, supply and demand, and an understanding of geopolitics. The second question is an ethical one. One possible answer to this question is to borrow the labour theory of value from classical economics. In the case of Australia I wanted to gain an orders of magnitude understanding on the Indignous community. With caution I must explain that the approach presented should only be interpreted as an academic exercise.

Data sourced from (

2665 Words

2020-01-18 21:28 +1100