The word “valence” originated in the Latin word “valentia” meaning strength or capacity.

In chemistry, valence is the degree to which an element combines with other elements. It is measured as the number of electrons or hydrogen atoms available for bonding with another atom. For example, oxygen has a valence of 2 as it bonds with two hydrogen atoms to make a water molecule.

In linguistics, valence is the number of grammatical elements with which a word combines. Intransitive verbs have a valence of one, and some transitive verbs have a valence of two, the subject and the direct object. Other transitive verbs have a valence of three: the subject, the direct object, and the indirect object.

In psychology, valence is either positive, an attraction, or negative, a repulsion. A related meaning in psychology is the degree to which emotions are attractive or repulsive. Ambivalence occurs when there are both positive and negative valences.

Valence politics, a term introduced by Donald Stokes in 1963, is about the affinity of voters for a political issue or party. People support the party they think can best deliver prosperity, or the parties that most closely fits their biases, or the candidates for whose images and stories are the most pleasing, or they vote in opposition to candidates and parties with negative valence.

The general meaning of “valence” is the capacity of an item to combine with and complement something else. That meaning has been used in economics for the degree to which an input—land, labor, or capital goods—increases the use of one or more other factors. High valence is high complementarity.

An example of economic valence described by Mason Gaffney in his article “Taxes, Capital, and Jobs” is cattle having a high valence for land and a low valence for labor. Farmland converted to cattle ranches will depopulate the neighborhood.

Capital goods can have a high valence for labor, increasing its employment and wages, or a low valence, substituting for labor, reducing the employment in that industry. The existence of capital goods with low valence does not imply less overall employment, if workers can shift to other industries.

Gaffney emphasized the role of turnover in economic valence. Transactions tend to have a high valence for labor. A worker is often needed to facilitate a transaction such as a sale of goods. Profit comes from the gain per item times the turnover. The tax systems today are based on transactions, and thus stifle transactions such as hiring and paying workers.

The best way to increase employment is to increase the valence of land and capital goods for labor. Labor valence is optimized when the cost of labor equals the worker’s contribution to output. That optimum requires a free-market wage. But much of taxation today increases the cost of labor to employers while reducing the net wage of the worker. Besides federal and state income taxes (and value-added taxes in many countries), there are unemployment taxes, workers’ insurance taxes, social security taxes, and required medical-care expenses.

Governments often promote investment in capital goods with tax credits and rapid depreciation, but reducing the cost of capital goods while increasing the cost of labor act to decrease the valence of labor. The result is not just higher unemployment but a lower labor participation rate, fewer adults in the labor pool.

California’s Proposition 13, for example, enacted a maximum annual tax increase of two percent so long as the property is not sold. Recently purchased properties pay a much higher tax than real estate that was bought in the 1970s. Real estate owners get locked in when they would rather move to another location in the state, but don’t do so, because they usually lose their lower property tax advantage.

The valence of land to capital goods and labor is reduced by stifling its turnover. Besides taxes on transfers, the efficient turnover of title to land is reduced by property taxes based not on current market value but on the value of the purchase. California’s Proposition 13, for example, enacted a maximum annual tax increase of two percent so long as the property is not sold. Recently purchased properties pay a much higher tax than real estate that was bought in the 1970s. Real estate owners get locked in when they would rather move to another location in the state, but don’t do so, because they usually lose their lower property tax advantage.

In effect, landowners are subsidized as public goods are mostly financed from taxes on labor, while the civic services increase land rent and land value. Much real estate is then stuck in low-valence uses such as vacant lots or one-story buildings in a neighborhood of taller buildings while the land value appreciates. A tax based on current land value pushes the owners to high-valence uses.

If valence were better appreciated, maybe there would be more political pressure to reform the tax system to promote a higher valence for labor. Today’s system generates idle labor, underused land, and an aversion to employing local labor in favor of outsourcing and substitution. A land-value tax that replaces taxes on transactions would optimize the valence of all factors.

The concept of valence has been largely ignored in economics. If valence were better appreciated, maybe there would be more political pressure to reform the tax system to promote a higher valence for labor. Today’s system generates idle labor, underused land, and an aversion to employing local labor in favor of outsourcing and substitution. A land-value tax that replaces taxes on transactions would optimize the valence of all factors.

We need more valence in economics and in our economy!

© Text Copyright Fred Foldvary, Ph.D. rights reserved.
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