Yesterday we looked at the fundamental insanity of having a
flexible standard for anything. Today we
look at what might make a good standard of value, especially when the idea
of having a standard in the first place has become an alien concept.
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| Energy: the Cure for Poverty |
We’ve raised this issue before, and it’s not the easiest
thing to get across. There are problems
with standards of value, since the thing of value selected as the standard
thereby becomes price controlled in terms of the currency it measures. Defining a dollar as 1/35th of an
ounce of gold, for example, means that, regardless of its true market value,
based on supply and demand, an ounce of gold always costs $35.
We don’t have this problem with, say, a yard or a
meter. We can be arbitrary in selecting
the standard because length is not a thing of value in and of itself. Once we decide that an inch is the distance
between two selected points, our troubles are over — at least with respect to
what an inch and anything based on that inch is. Such a unit of measure is a pure abstraction
and completely objective, and can be anything we agree on as long as we stick
to the agreement.
Value is another matter altogether. Value is a subjective concept. What I value may not be what you value, and
we may value those things that we both agree are valuable in different ways for
different reasons. For example, you may
value the class ring on my finger purely in terms of its gold content, while I
value it in terms of the sentimental associations with my alma mater.
We can only approach an objective value of anything by
aggregating the subjective opinions of many people — sort of a calculus of value
by means of which we reach a value good enough for most purposes, even though
we can never reach a thing’s true value.
The best we can do in terms of a standard of value is “good enough for
most purposes,” but never perfect.
We had a struggle with this, not least because of a
sentimental attachment to specie (i.e.,
gold and silver) due to decades of study as a monetary historian and theorist. Silver was the standard for millennia, until
overtaken by gold in the late nineteenth century when the world supply
increased sufficiently.
The ideal standard would be one with a permanent value that
does not change objectively as the supply increases or decreases. That is impossible, given the subjective
nature of value, but we can get close with one commodity.
What is the one thing that increases in quantity as
production increases, and decreases in quantity as production decreases?
Energy.
This is not to say that energy is the perfect measure. Different sources of energy cost different
amounts, and different prices are charged for electrical power depending on
where it is, and even what time of day it is.
Plus, different forms of energy, well, take different forms. A falling rock is a different form of energy
than burning coal. The energy-as-energy,
however, is exactly the same, no matter where you are or where you go, and can
be measured in the same units.
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| A standard must be uniform, impartial, and objective. |
Picking a standard unit of energy measure and deregulating
energy would be about as close as you can get to an objective standard for a
currency. Given that the actual price
paid for energy could vary as it does now, the standard would remain the same,
as long as the price fluctuations remained within a reasonable range.
Thus, assuming that $1 were to be defined as 1 energy unit,
the actual cost of 1 energy unit’s worth of electricity could vary from $0.95
to $1.05 or even greater, as long as the average over time stayed close to $1
per unit, and the official conversion rate (assuming you wanted to convert all
your currency to the standard of value) would be $1 per energy unit.
So, wouldn’t people be tempted to purchase lots of energy
when the price is low and sell it immediately to a bank that has to use the
official rate, or buy lots of energy from the bank and sell it on the open
market when the price is high?
They might . . .
if the standard were something other than energy. Energy, however, is difficult to store, and
the price most people pay is for energy delivered and consumed immediately upon
delivery.
To prevent people from taking advantage of the arbitrage (simultaneous
purchase and sale of an asset in order to profit from a difference in the price), define the standard as the official unit price for
delivered energy. No one could hoard
energy to take advantage of the arbitrage, because buying and reselling
delivered energy is complex and expensive — and you might get in to a lot of
trouble doing it if the law prohibits energy speculation. It is also virtually impossible to purchase energy in one area for delivery in another area with a higher price, at least without prohibitively expensive transmission infrastructure.
Nor could you hoard energy. Consider a storage battery, even the most
efficient. You pay much more for the
power in a storage battery than you do for household current. It is simply not cost effective to hoard
energy using any conceivable technology if the goal is to make a profit on
buying and selling the energy.
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| Speculating in delivered energy would be difficult and nearly pointless. |
Assuming the market value of
delivered energy stays within a relatively small range, it would not even pay
someone to convert dollars to energy when the market price is low, and energy
to dollars when the market price is high.
The only feasible way of doing this would be for a bank or utility
company to sell vouchers at the official price with which to pay the utility
bill.
This, in and of itself, would tend
to keep the market price of energy within a small range, and people would tend
to convert their dollars to energy vouchers only as they need them — which
would be a rather rare occurrence, since you would ordinarily pay your bill
with regular currency unless somebody had some insider knowledge of a sudden
change affecting the cost of energy generation.
Even then, most changes make
energy cheaper, so buying vouchers ahead of time and hoarding would mean paying
more for the same thing. The only way to
profit by buying and selling energy vouchers when the market price varies from
the standard price would be if the market price is rising.
Even that can easily be dealt with
by making energy vouchers non-transferable.
After all, if you want something transferable, that is what currency is
designed to be. You should be able to do
only two things with an energy voucher obtained at the official price of
energy: pay your utility bill with it in terms of the energy unit, or sell it
back to the bank or utility company in terms of the currency unit. Since you would get only what you paid for it
in terms of the currency unit, there would be a holding loss to you on each
such transaction.
Tomorrow we’ll start to look at some specifics.
