Chapter 6: The Shadow Price

In 2020, the global economy produced approximately ninety trillion dollars of goods and services. This number—Gross World Product—is the standard measure of economic activity, the figure that headlines track, that governments target, that economists treat as the fundamental indicator of human welfare.

But what does ninety trillion dollars leave out?

Start with the obvious: the air you breathed today. The water that fell as rain. The ozone layer shielding you from the sun. The ecosystems filtering waste, pollinating crops, steadying the climate. None of this appears in GDP. The economy depends utterly on these natural systems, yet our accounting treats them as free inputs with no price and therefore no value.

Or consider: the parent who stayed home to raise children. The neighbor who checked on the elderly couple down the street. The volunteer who coached Little League. The friend who listened when you needed to talk. All this—the care work that makes human life possible—is invisible to money. It has no price, generates no GDP, counts for nothing in our standard measures of prosperity.

Or this: the languages that went extinct as their last speakers died. The traditional knowledge of plants and ecosystems lost when communities dispersed. The intangible heritage of crafts, stories, ways of life that cannot survive market competition. What's the price of a vanished culture?

Money is a powerful lens—it brings some things into sharp focus. What falls outside the frame, it cannot see. What money can't price, money can't see. And what money can't see, markets systematically undervalue, neglect, or destroy.

Polanyi's Fictitious Commodities

Karl Polanyi, the Hungarian economic historian whose work we encountered earlier, identified three "fictitious commodities" at the heart of market economies: land, labor, and money itself. He called them fictitious because, although markets treat them as commodities produced for sale, they were never actually produced for that purpose.

Land is not a product of human labor. It is the earth—the soil, the waters, the atmosphere, the living systems that sustain all production. When markets treat land as a commodity, something to be bought and sold for whatever price it fetches, they ignore its character as the irreducible foundation of life. You can make more widgets, but you cannot make more planet.

The consequences of commodifying land ripple through history. Enclosures in England drove peasants from common lands they had worked for generations, creating a landless class forced to sell their labor in factories. Colonial appropriation treated entire continents as real estate to be claimed and exploited. Today, real estate speculation drives housing costs beyond what ordinary families can afford, while land use decisions driven by market logic pave over wetlands, fragment habitats, and accelerate species extinction.

Labor is not separable from the laborer. When markets treat labor as a commodity, they treat human beings as inputs, interchangeable units of production capacity to be deployed where returns are highest. But a human being is not a factor of production. You can store widgets in a warehouse; you cannot store people. You can dispose of obsolete machinery; when you dispose of obsolete workers, you have homeless families, devastated communities, deaths of despair.

The brutal logic of labor commodification appeared in its purest form in early industrial capitalism: children in mines, sixteen-hour workdays, wages calibrated to subsistence and no more. The labor movement, the welfare state, the regulations that limit what employers can demand—all represent society pushing back against the full commodification of human beings.

Money is not a thing but a relationship, not a commodity but a social agreement. When markets treat money itself as a commodity—to be bought and sold, borrowed and lent, speculated upon—they create financial systems that can spiral away from the productive economy entirely. The 2008 financial crisis was, at its core, a crisis of commodified money: derivatives of derivatives, financial instruments so complex that their creators didn't understand them, a shadow banking system that had grown larger than the official one.

Polanyi's insight is that treating these fictitious commodities as real commodities inevitably creates social catastrophe. The market, left to its own logic, will grind up land, labor, and money in pursuit of profit. Society must protect itself—through regulation, through social insurance, through institutions that limit market reach. This is the "double movement": market expansion and social protection, locked in perpetual tension.

Externalities: What Prices Don't Include

Economists have a term for costs that fall outside market transactions: externalities. When a factory pollutes a river, the damage to downstream communities doesn't appear in the factory's accounts. When driving a car contributes to climate change, the cost of rising seas and intensifying storms isn't included in the price of gasoline. The market transaction is completed, but the full costs are externalized—pushed onto third parties, onto future generations, onto the planet.

Externalities are not minor glitches in an otherwise efficient system. They are structural features of how markets work. Prices reflect the costs that buyers and sellers face directly; they cannot reflect costs that fall elsewhere. And in a world of complex interdependence, where every action ripples through ecological and social systems, the costs that fall elsewhere can dwarf the costs that appear in prices.

Climate change is the externality of externalities. For two centuries, the fossil fuels that powered industrial growth came with a hidden cost: carbon dioxide accumulating in the atmosphere, trapping heat, destabilizing the climate systems that civilization depends on. None of this appeared in the price of coal or oil. Markets efficiently allocated fossil fuels to their highest-value uses without ever accounting for the damage those uses would eventually cause.

The result is a coordination failure of planetary scale. Each individual transaction—burning fuel to make products, shipping goods across oceans, heating homes, driving cars—was locally rational. Buyers and sellers agreed on prices that reflected their direct costs and benefits. But the aggregate effect of billions of such transactions is an atmosphere transformed, a climate destabilized, a future imperiled.

Markets cannot solve this problem on their own. The externality is too diffuse, too delayed, too disconnected from the transactions that cause it. Solving it requires what markets cannot provide: collective action, long-term thinking, coordination mechanisms that account for costs that prices cannot capture.

The Care Economy

Here is a number that should unsettle anyone who takes economics seriously: globally, unpaid care work is estimated at ten to thirteen trillion dollars annually—roughly 10-15% of global GDP. This is the work of raising children, caring for the elderly, maintaining households, supporting communities. It is disproportionately done by women. It is essential to the economy—without it, no one would show up to work, no children would grow into workers, no social fabric would hold together—and yet it is invisible to economic measurement.

Feminist economists have long called attention to this blindness. The System of National Accounts that generates GDP was designed to measure market activity. Work that happens outside markets—in households, in communities, in the informal networks of mutual support—doesn't fit the system. It's not that anyone decided care work was unimportant; it's that the measurement tools were built for a different purpose and the importance went unmeasured.

The consequences are profound. When governments make policy based on GDP, they optimize for market activity while neglecting what makes market activity possible. When families calculate whether both parents should work, the market wages are visible while the value of care provided at home is invisible—skewing decisions in favor of market work even when that might not maximize family welfare. When societies age and care needs grow, economies that never valued care work are ill-prepared to provide it.

There's a deeper issue here. Care work is relational. Its value lies not in what is produced but in the relationship between caregiver and cared-for. A parent comforting a child, a daughter visiting her aging father, a friend helping a friend through crisis—these cannot be commodified without transforming what they are. Pay someone to visit your father, and it's no longer a daughter visiting; it's a service delivered. Some things, the philosopher Michael Sandel argues, are corrupted by being bought and sold.

Markets are powerful tools for coordinating production and exchange. But care is neither production nor exchange; it is relationship. Market logic, applied to care, misunderstands what care is and undermines what makes it valuable.

The Tragedy of Measurability

There's a pattern here: what gets measured gets managed, and what money measures is what money can price. This creates a systematic bias toward the quantifiable, the tradeable, the commodifiable—and against everything else.

Call it the tragedy of measurability. As market logic expands, more and more of life gets pulled into its frame. Activities that once existed outside money—teaching, healing, creating, caring—become professionalized, monetized, measured by the metrics money understands. And in the translation, something is often lost.

Consider education. Learning is relationship: a curious mind meeting a more experienced mind, the spark of understanding passing between them. Market-oriented education reforms treat learning as production: inputs (teachers, buildings, curricula) producing outputs (test scores, graduation rates, job placements). The metrics become the targets; teachers teach to tests; learning as transformation gives way to learning as measurable outcome.

Or consider healthcare. Healing is relationship: a suffering person meeting a healer, trust enabling diagnosis and treatment. Market-oriented healthcare treats healing as a series of procedures: billable events with documented outcomes. Doctors spend more time on documentation than with patients; healthcare systems optimize for throughput; healing as relationship recedes behind healing as transaction.

Or consider the arts. Creating is exploration: a maker following the logic of their materials into unknown territory. Market-oriented creative industries demand products: hit songs, bestselling books, viral content. The economics of winner-take-all markets push creators toward what algorithms promote; originality gives way to optimization; creation as exploration yields to creation as production.

None of this is inevitable. Markets in education, healthcare, and the arts can coexist with non-market values—if we build institutions that protect space for relationship, exploration, and care. But the trajectory of money's logic is always toward commodification. Left unchecked, it turns everything into transactions.

The Coherentist Critique

The coherentist perspective sees money as a coordination technology—brilliant within its domain, dangerous beyond it. The problems we've surveyed aren't market failures that better markets could fix; they're the limits of what money-based coordination can do.

Money creates resonance in one dimension—the dimension of price. It aligns individual incentives with market signals, directing resources toward what people will pay for. Within this dimension, markets achieve remarkable coordination: billions of daily decisions, made by individuals with no central direction, producing a global economy of astonishing complexity.

But resonance in one dimension can mean dissonance in others. Optimizing for what prices capture means neglecting what prices miss. When money cannot price something—clean air, social trust, cultural heritage, the climate of future centuries—markets treat it as worthless, regardless of how much it matters.

This is not a moral failing of markets; it is their structural logic. A hammer drives nails beautifully and can't cut wood. Criticizing it for failing to saw misses the point. What we need is the right tool for each task—and the wisdom to know which tool to use when.

Markets and money are the right tool for coordinating production and exchange among strangers at scale. They are the wrong tool for managing commons, sustaining relationships, preserving what cannot be priced. The tragedy is not that we use markets, but that we have come to treat markets as the universal solution when they are a particular tool with particular limits.

The Thread Forward

We have traced money's arc: from gift economies through credit systems and coinage to market economies that transformed the world. We've seen what money made possible—the extraordinary gains of the Great Enrichment—and what money cannot see—the externalities, the care work, the unpriced values that markets systematically neglect.

The next part of our story turns to the market's internal dynamics: the genius of price signals, the failures that mar even well-functioning markets, the human costs of market transitions. The coherentist question becomes increasingly urgent: if money-based coordination has these fundamental limits, what else is possible?