|
HOUR MONEY:
The Substance of World Government
The great challenge in designing a world government is
properly defining the responsibilities of such a government.
People tend to fear that it will be too powerful, perhaps
because they think that instituting a new government at a
higher level of authority will consist of making the higher
level government responsible for the same kinds of things
for which lower level governments are responsible. The
implication would be that a world government would
micro-manage all the affairs of people everywhere in the
world. People know that such an effort would be
impractical and unwise. The problem manifests itself
in the United States today where we have Democrats
advocating extensive Federal government aid and support
programs and Republicans denouncing not only such programs
but, it seems, the very existence of the Federal government
itself.
I think that the principle that should guide the overall
design of any hierarchy of governments, such as local,
national, regional, and global, is that substance at each
higher level should be more general, less specific, than the
substance at each lower level. The net effect should
be that governments at every higher level govern less, not
more. A good example of substance at the global
government level is the metric system of standards of weight
and measure.
A global society requires global standards of measurement.
The metric system meets that requirement. Wherever
anyone on earth needs to measure length or weight or
temperature, they can do so with confidence that people
elsewhere on earth will use the same metric units of
measure. Once defined globally, people are free to
apply the standards as needed. The substance of world
government should be to
define global units of measure. It need only
maintain existing metric units. However, the
characteristics of metric units reveal the nature of the
most serious measurement problem of world governance today,
the absence of a money unit for prices.
The four characteristics of units of the metric system and
all successful measurement standards are:
1. Each is an observable quantity. The
meter measure of length has a length. The kilogram
measure of weight has a weight.
2. All exist in standardized measuring instruments
so that anyone who wishes to measure length may use a meter
stick, anyone who wishes to measure weight may use a scale
calibrated in grams and kilograms.
3. All have symbols for recording measurements,
namely, the Arabic numerals 0, 1, 2, 3, 4, 5, 6, 7, 8, and
9, know the significance of place for the difference between
105 and 501, and names, “meters,” “grams.”
The unknown
quantity: the length of the tabletop.
The known quantity: the standardized measuring instrument.
The written
record in words and numbers:
4. All can
be
written in durable form. All modern businesses use
written invoices and receipts to record quantities of all
kinds of goods and services. We never mistake the
written receipt for the quantity it represents. We know that
a note stating, “The table is 1 meter square” is not itself
one meter square.
Therefore, the
four elements of measurement are: 1) an unknown quantity, 2)
a measuring instrument, 3) symbols, and 4) a written record.
The unknown
quantity: the price of the table.
The known quantity:
??
The written record: the money price.
The purpose of
money is to express the prices of goods and services,
the unknown quantities. However, what is the known
quantity for measuring price? It is nowhere to be
found. It is missing.
Money everywhere has only the third and fourth
characteristics; symbols in durable form. Most of the
words identify the national government responsible for its
issue; “The United States of America,” “India.” The
numbers have names; “Dollar,” “Rupees,” but no definition of
“Dollar” or “Rupee.” It is as if people were told to
use “meters” but nowhere was “meter” defined.
That’s the
problem. Money prices are numbers without definitions,
without definite meaning. Consequently prices
worldwide are determined, as the economists like to say, by
trial and error, how much error no one seems able to say.
Imagine the chaos if the length of the meter were left to
trial and error.
Fortunately, the required actual quantity exists and has
been making itself felt perhaps as long as money has
existed, but like gravity before its existence was known, we
human beings are unaware of it. That quantity is work
time, the unit identified by none other than Adam Smith in
the very first line of his famous, Wealth of Nations,
originally published in 1776.
“The annual labour of every nation is the fund which
originally supplies it with all the necessaries and
conveniencies of life which it annually consumes, and which
consist always either in the immediate produce of that
labor, or in what is purchased with that produce from other
nations” (Smith, 1963: page 1).
Evidence in support of Smith’s statement comes from the
country pages of the International Monetary Fund’s monthly
publication, International Financial Statistics.
Simply divide the Gross Domestic Product of any nation
expressed in its own currency (line 99b) by the total hours
of work that produced it (employment, line 67e, times 2000
hours for 50 weeks of 40 hours per week).
Gross Domestic
Product (line 99b)
Total Hours
Worked (line 67e * 2000)
Plot the results against currency exchange rates (line ae)
using logarithms and you will find a very strong
correlation, for 93 countries in 2004, r = .86 of a possible
r=1.00. This strong correlation has existed since the
IMF began publishing currency exchange rates in 1948.
Why is there such a persistent and strong correlation?
Work time is like land, a relatively fixed quantity.
Human work is limited by the human body’s need for periodic
rest. A nation’s ability to produce is limited to the
limits of its people to work. No nation can sell all
its goods and services for nothing. If it did, its people
would surely die for they would have nothing to sustain
themselves. By the same principle, any nation that
bought all of another nation’s goods and services for
nothing would surely destroy that other nation.
I have stated the exchange in all-for-nothing terms.
We can also state it in degree.
To the degree that
trade between nations deviates from the exchange of equal
amounts of work time, some nations gain something for
nothing while other nations lose something for nothing in
return.
To the degree
that there are deviations from equal work time, there will
be trouble between nations. Exchange rate disparities
could explain the failure of expanding world trade to bring
prosperity to all nations. The correlation between GDP
per hour of work and currency exchange rates is among
logarithms. By converting exchange rates to their
equivalent in minutes of work, we can see that some of those
disparities are very large.
Exchange Rates in Minutes
Convert exchange rates to minutes of work by dividing them
by GDP per hour of work.
Exchange
Rate (line ae)
GDP per hour of
work.
Work times range
from one minute for Norway to 190 minutes for Ecuador (Table
1). With the U.S. dollar at 1.4 minutes of work,
people in Ecuador would need to work 190 minutes to obtain
1.4 minutes worth of U.S. product. In 2000, the
President of Ecuador announced his intention to “dollarize”
the Ecuador economy, which led to protests, his removal from
office, and the elevation of the Vice-President to the
presidency. Ecuador’s GDP per hour in dollars in 2004
was $3.9, much closer to the US rate of $42.13 per hour.
Ecuador’s price level would need to be 10 times higher ($39
per hour) to approximate parity with the U.S. However,
such a rise would be interpreted as inflation rather than
adjustment to parity, given the prevailing economic
paradigm. The exchange rate of the Ecuador sucre
remained in 2004 at 25,000 per $1.
The unknown
quantity: the price of the table. |
