Value does not exist in the absence of consciousness, ergo value is relative.

To understand why, one needs to go deeper into what value means. Value arises from economic utility. That is, value is the quantitative measure of utility. Utility itself is a vaguely defined term (it has no proper or concrete definition). To paraphrase: anything that gives a consumer satisfaction is said to have some utility. When a person attaches a quantitative measure to that utility (in terms of money) it is said to be of value; value being expressed in terms of money.

A very interesting answer - but I do not agree in total.

But the link for utility is not the most important part here, I think, and I see a different part as more of interest.

As I pointed out above there is the chance of having a definition of "value" as the expression of "real physical total sum" of economy. You can of course say that all this is also utility - i.e. the total sum of value is the expression for the total sum of all utilities.

But utility is also not physically measurable - which is my intention of giving the discussion a true measurable unit.

Because: IF you have a true measurement unit for "ONE PART OF ECONOMY" - you have one for the total sum of economy also.

And vice versa you have a measurable unit for not even the total sum of value but also the total sum of utilities. This is always valid, since the total sum of each economy in all different kind of perspectives is always 100%.

This is the argument for a way of measuring the total sum of value (and if you like also utility) in a given economy.

My conclusion: Yes, value is relative. But the total sum of it always is 100%.

If you have a different unit for measuring the 100% in this different unit - you have an indirect tool for measuring the true value for any given economy.

The sum of value is alwways 100% - and so the sum of all money is.

And now you can start defining a sum of money for this 100% of value - as the medium of exchange - you can redefine the quantity equation down to earth, down to physically measurable units.

Or in other words: "Measuring in money units" is using a tool of inside this inner circle, this tautology, money is relative, value is relative. All old neo classical economic theory is only relative - since there is no direct link to any real world unit definition.

I think there's a circular logic in play here and it's quite dangerous to reason on those lines because we end up right where we started because we've defined the start point and end point to be the same.

There's just too much reliance on the "sum being equal to 100%". Sum of what? Utility? But we don't have a quantitative definition of utility in the first place (other than value, of course.)

Let me put another way: the size of the universe is 100%. That's true. It HAS to be true. But it's not very useful to us without knowing how big it really is! We don't know the 100% size, hence there's no question of knowing 1% (or any other unit) of it so you can arrive at the total value. Similarly, the sum of all stars', quasars', nebulae's (and other celestial phenomena) energy generation is equal to 100% of the universe's energy generation. We KNOW that. But we don't know how much that 100% is.

In case of economy, its much more complicated to approach the problem from that angle. Even if we know what 100% utility means (sum of individual utilities)-and let me say we don't know- it's even more difficult to determine standalone utility at 1% (of that 100%). It's complicated by presence of marginal utility in the economy i.e. value of 1% is not equal the value of next 1%.

To summarize there are two major obstacles with this approach. Even if assume that sum of individual utilities will always equal 100%, which may be logically correct, what's the point of it? We cannot measure this 100%. Assuming we did measure it, we cannot simply dissect it into individual percentages because of presence of marginal utility. So the exercise of defining "one part of an economy" would not start from determining what "one part of utility" should mean; rather, such a definition (of "one part of economy") would probably say how much utility it can provide at a given marginal level.

Well, I think it is possible to measure the 100% ... and I mean true measuring in physical real units. Not directly the utilitiness of each singel product but the true size of a given economy ... Given my proposition is true the logical conclusion is roght i think...

I'm not 100% sure I understand the initial question, but if I am following this discussion, I find it useful to think about the value of an economy in the following way. I agree that it is true that we can measure the total value of an economy in terms of some real unit, provided we employ some notion of "market value" to all goods exchanged in that economy, convert all values to a common unit of measurement according to these exchange rates, and then sum them up.

A basic definition of market value of any good is the rate at which it would exchange in a hypothetical perfect competition scenario with no externalities or informational frictions. (It is a conceptually useful measure of market value, but of course completely impractical to actually measure.) This notion of market value is tied to individual valuations insofar as utility maximizing individuals would make exchanges until each's ratios of marginal utility of consuming that good (or marginal rates of substitution in terms of the numeraire good) equals it's market value. Using this definition, then, the total value of the economy is the sum of all products valued at the individual marginal utilities of consumption. From this perspective, we can use market value to assign real values to specific goods, or parts of the economy, and the value of the entire economy is simply the sum of the parts.

A shortcoming of this notion of market value, I think, is that it is that marginal values do not really reflect the full "value" (or full utility) society receives from the goods consumed. What I mean is that although market value (under specific unrealistic conditions) reflects individual marginal valuations leaves out consumer surplus (the valuation the individual places on all units consumed, not just the marginal one) and it also gives zero weight to what Carl Menger refers to as non-economic goods which are nevertheless "valuable" or even essential (air, water from a stream, etc).

As a practical matter, we are unable to measure true market value anyway, so instead we use market prices/exchange rates to measure the size/value of the economy (Real GDP). These prices reflect distortions and frictions such as market power and imperfect information. But it is a convenient, second-best alternative to an otherwise impossible measurement task.

"A basic definition of market value of any good is the rate at which it would exchange in a hypothetical perfect competition scenario with no externalities or informational frictions."

Well - I do not agree, that a hypothetical perfect competition scenario can be argued plausible.

As I noted in my other question "Why do people trade at all?" - if there would be a perfect moment of truth, that two economic subjects have two different goods of perfectly the same value ... I am very sure they would not agree to trade at all.

Because: IF it is true, THAT both goods have the perfect same VALUE - the trade process would be not of interest for both of the subjects. The TRADE PROCES itself is some kinf of work, efford or even wasted time for both - why would these both subjects trade at all?

Of course, the normal understadnig is, each does have different kind of interest ... but then the perfect situation with both goods with the perfect same value is not logical any longer.

One must read this "perfect situation" in some kind of true valuation at a special given level ... with another extra special level of personal interest - otherwise the formula never gets solved.

"A shortcoming of this notion of market value, I think, is that it is that marginal values do not really reflect the full "value" (or full utility) society receives from the goods consumed."

That means in other word, there are my two different levels of value. There is the economic accountbale value of all goods ... which is the level we can account by money, and there is this next level 'virtual' high moral, high valuable, etc. ... kind of value ... which is the terminology of young girl valuing Justin Bieber.

Lets stick to the first level. The other is just 'unbelievable precious, with the highest value of the universe'.

"As a practical matter, we are unable to measure true market value anyway, so instead we use market prices/exchange rates to measure the size/value of the economy (Real GDP)."

Well - I would not agree, since I think that it is not of interest of looking for a "true" value in a "perfect" situation.

Value is always relative - since there is no definition for "one part of value".

And relative means always relative to the available total sum of all goods. Therefore the normally used term 'Real GDP' has nothing to do with my point of research, the physically real measurable characteristic of the GDP.

The term 'real GDP' is only an inflation-rate-corrected monetary virtual valuation, valid only for the given moment.

Each single unperfect trade sums all up to the total size of the economy - and all unperfections of each trade can only level out to the total sum failure of zero. There is no value outside of that given economy. I speak of the monetarized value here - important to mention.

And by keeping this system as it is at the moment - you never have any chance of define the exact given value for "one part of economy" in a real physical unit.

It is still a tautology.

If you have that perfect market - the amount of money thrown into that economy levels out the "value" ... if every subject of that economy is a billionaire ... well, washing a car will be expensive in that economy.

If that is not the case, and each subject of another economy has just one dollar a month .. you get your car washed cheap ... if you have your income of today in that economy.

The value idea is relative - and only by defining a link to some real world physical units enables solving this formula. And very important: As long as the value is only relative, a 'Real GDP value' is simply not possible to be defined.

Only by putting a definition based on physical real units of characterisctics of the economic product the story can be told.

This goes beyond normal yearly economic accounting.

With this physical real world bound measuring unit you can start arguing external limits inside of this formula.

As long as you stay inside the "money accounting" there is no plausible way of talking about limits coming from externalities.

Dennis Meadows "limits of growth" does not give a monetary borderline of total growth.

Read that book - there is no monetary limit - as we see at the moment ... and that story is also linked to external limits ... which can never be reasonably understand as long as you stay inside the money accounting only ... .

"Well - I do not agree, that a hypothetical perfect competition scenario can be argued plausible."

I did not claim that this hypothetical scenario was plausible. I argue that it offers only conceptually useful definition of market value - i.e. that it is, it provides a measure of economic value that perhaps we could agree on at a philosophical level - but as I mentioned it is completely impractical for measuring value in an actual economy, which is why economists don't use it. The measure they do use, however, will be similar or disimilar to market value depending on how close the particular market is to this hypothetical scenario.

"As I noted in my other question "Why do people trade at all?" - if there would be a perfect moment of truth, that two economic subjects have two different goods of perfectly the same value ... I am very sure they would not agree to trade at all."

Of course, in any given moment of time, people have to stop trading at some point. According to economic theory, that point is where the marginal (emph) valuations of all individuals is the same (and equal to this market value). The point here is that private valuations, as they are related to individual benefits from consumption, start out different, leading some individuals with valuations below that of others to want to sell (and the others want to buy) to trade. They will do this up to the point that their marginal valuations are the same. This is what I meant when I said that the market value of a good is tied to marginal utilities of consumption of all individuals in society (in the hypothetical scenario of perfect information and competition). Indeed, this is still a relative value across individual goods, but as long as the numeraire good is the same, (which could be a monetary unit, or any other good that is exchanged) then there is no problem in adding them up to the whole economy.

"If you have that perfect market - the amount of money trown into that economy levels out the "value" ... if every subject of that economy is a billionaire ... well, washing a car will be expensive in that economy. If that is not the case, and each subject of another economy has just one dollar a month .. you get your car washed cheap ... if you have you income of today in that eocnomy."

I think what you really mean by this is that valuations of the good are not independent of quantities. That is, scarcity matters. Without scarcity (say, a hypothetical infinite supply of clean air or water), then there is no market value (coming back to Carl Menger's notion of non-economic goods), even if these goods are essential. But even for economic goods, if they are abundant in society, people consume much more of these things, which tends to lower the marginal (emph) valuation of these things (i.e. diminishing marginal utility or benefit from each additional unit consumed). This brings down the market value of that good relative to other goods. Money is only different in that it's relative value lies in its usefulness for exchange rather than in consumption, but the principle is the same. If thee is a lot more of it in the economy, more dollars must exchange for fewer goods, and you have inflation. But in general the more of any good in society and the lower the private valuations on the margin, the more of it that will be needed to exchange for goods that become relatively scarce.

"The value idea is relative - and only by defining a link to some real world physical units enables solving this formula. "

If by this you mean that the units we use to measure value do not tell us something about the level of psychological happiness that individuals experience from consumption, then I agree entirely. We must always measure value relative to some other physical unit, and who knows what levels of individual happiness this particular numeraire good brings to the people who consume it. I'm not sure we'll ever have the means to measure value in this way, but I suppose a more important question is why we would necessarily want such a measure.

Thanks, CHristopher, for your reply!

"The point here is that private valuations, as they are related to individual benefits from consumption, start out different, leading some individuals with valuations below that of others to want to sell (and the others want to buy) to trade. They will do this up to the point that their marginal valuations are the same."

Hm, yes, I do agree - but in my point of view this is not of interest. It does not matter if the trade is done by the perfect market or by the market we have today.

The main point - and this is very sensitive - is that the total monetary value of all kind of goods in a given economy in one year are linked.

I am not sure if this is covered by the normal economic theory - I believe it is not.

Why are all single values in that given economy in that given period are linked?

Because value is always just relative - relative to the total sum of the (macro-)economy around each (micro-)economic trade, production or delivery of service.

Or in other words: Because each part of the economic doing is just a part of the total, nothing can exceed the total size of this total size.

And because of this it is of absolutely no interest if we account all parts very close to whatever hypothetical true value - or far from it. If there is a failure on pne part of the economy (the accounted value is higher than the hypothetical one) ... the total sum of all economy forced some other parts of the economy to hav eto be paid lower than the hypothetical true value.

And I still think that is is not possible to just argue that there ever can be a phypothetical true value. That is in my opinion nonsense - nothing more as wishful thinking of economic theorists thinking about "true value" as an answer for the question of "what is the best price" or how to describe trade.

I argue along my argument above: IF there would be a hypothetical true value known for all goods available - trade will stop immediately if the trader would act rational. But they don't ... they all want to trick out each other. At stock market, at "daily deals" or wherever.

"If by this you mean that the units we use to measure value do not tell us something about the level of psychological happiness that individuals experience from consumption, then I agree entirely. "

Perfectly right! I do not talk about the value of Justin Bieber. There is no way of arguing ... with young girls about this.

"We must always measure value relative to some other physical unit, and who knows what levels of individual happiness this particular numeraire good brings to the people who consume it. I'm not sure we'll ever have the means to measure value in this way, but I suppose a more important question is why we would necessarily want such a measure."

I totally agree on the first part. But I have doubts on the second part. Happiness is also relative - between zero and one.

And there is much research saying that happiness levels out always in a medium level. If you win a million ... you are happy for some days or weeks, maybe months. But it will into decline and it will level out at a medium level - maybe reaching a bottom if you get robbed and loose your million.

Happiness has something to do with a filled stomache and a roof above your head. And it has something to do with the happiness of your neighbour ... and the size of his car and house. ... as I said: It is relative.

If your neighbour has just a hut of 15 m² - well, you will be happy to have a house of the double size ...

And I disagree that the kind of the numéraire is of interest. It is of no "kind" ´ - it is a unit - a unit has a defined size in a given relation to some kind of a physical real world characteristic of the real world. (as meter for the length, as kilogramm for the weight).

More important: The numèraire has to be measurable in a physically measurable unit of this defined real world characteristic.

The happiness is nothing to be measured - it can not be measured (in the meaning of physical measuring).

But if you can measure a physical real world characteristic for defining the "true real world size" of a given economy - you can say of what absolute size this given economy is. You can say how much of "one part of economy" is available for each of the inhabitants.

That may influence the happiness. But I have doubts. We have quite a lot cars. Which is a quite nice thing to have. Are we more happy than other because of this?

I really have doubts.

For me it is more interesting to measure the total size of the economy - for getting the measured value for the 100% of the economy, for the 100% of my relative value.

Then we talking about shares of some known size. By this workaround, by the definition of how to measure "one part of the economy" we truely can measure the total size - in physical units and we also get the 100% of the value of this economy.

Then we have - by this definition - a working method for measuring a true absolute size of economy and value in common.

Hi Olaf, I could be misunderstanding where you are coming from (perhaps to set in my way of looking at the world) so forgive me if I miss your point here. But working backward from the last part of your argument, I interpret your perspective as being that the argument that real product per person (say, some GDP-related measure) reflects human satisfaction is not really convincing given the available evidence. And since human satisfaction is the basis for "value", measures of value that relate to the total size of the pie, so to speak, are not very useful. If instead what people care about is their relative share of the pie (as some experimental evidence might suggest) then it is in these units that we should report relative values? For example, the price of this car costs 203 billionths of a percent; this person's income is 2 millionths etc. (Sorry if I have misinterpreted your meaning here.)

I'm not sure that I really buy the argument that some have made that only relative incomes or relative wealth truly matters to people in the long run (beyond some subsistence level). I think the survey-based evidence, which typically asks people to rank their happiness according to some scale, don't help us determine relative happiness. (Admittedly I have seen only a small fraction of this literature, so perhaps some approaches to measurement are better than others.) To me it's not really a mystery that people's scales of measurement for such things adapt to the their relative context (the extremes of the scale are always what we see as our potentials, and these are context dependent). But just because the subjective scale changes with context, this just means that we can't compare scores from these scales, not that one's level of happiness or suffering is only measureable according to the relative positions of people around us. In other words, I believe the size of the pie really does matter - that more is generally more valuable than less - for ranking levels of happiness, on average at least. On the other hand, I am sympathetic to the view that people tend to take what they have for granted when they are not sufficiently conscious of what others don't have - so from a normative standpoint, perhaps the size of the pie should matter much more in terms of individual valuation than it tends to in practice. But I believe this is another matter. While I appreciate the ideal of positive economics and focusing on what is in terms of human psychology, I feel that people ought to value goods on the basis of what they afford in terms of comfort and opportunities and not simply based on the relative share of the pie these goods represent.

But regarding your point on the numeraire or unit not being of interest in itself, this is probably right. However, what I mean is that it seems essential that there is a common numeraire in which all market prices are quoted so that any individual price quote has a clear conceptual meaning to each individual in terms of their relative (emph) valuation of goods. It is true that this unit means nothing in terms of relative happiness or utility across individuals. But all that matters for effective trade is that each individual can easily compare relative prices to their own relative valuations of goods.

If by "true value" you mean some sort of inherent value of an object, on a scale somehow independent of people's private valuations, then I disagree that economic theorist are generally believers in any such notion of value. On the contrary, economic theorists are only concerned about relative value at the level of the individual. (In the jargon of economists, utility or welfare is an ordinal concept at the level of the individual, not a cardinal one.) Granted, economists may tend to make tenuous assumptions about this relative scale being fixed over time because these assumptions seem sensible or convenient in some contexts (though not all do - there is some interesting work, for example, on how habit formation influences relative valuation of goods over time). Economists may disagree on many details, depending on the context, but generally they agree more is preferred to less (to any one individual), but that relative values of each unit are decreasing in the amount consumed. But no comparison between individual happiness/welfare is made.

So coming back to your original point about how relative values are linked over time, I still think the hypothetical notions of market value (and perhaps the closest practical measure of value - the average real/deflated market price) is a useful concept. It may tell us nothing about private individual valuations in any absolute sense, but it still enables us to track relative values of objects and relative incomes over time. For example, even if we know nothing about relative valuations across individuals, surely it is still useful to suppose that as private valuations of Justin Bieber concerts rise on average in society (as measured, perhaps, by his popularity among young girls) that this contributes to a rise in market value (which may be correlated by concert ticket prices). And it is probably also meaningful for Justin to infer from his rising real income that it is worth his while to do more of these concerts compared to previous years, and that the payoff is a higher expected level of happiness relative to previous years as a result of the increased consumption possibilities. So I would argue that market values contain a lot of useful information, even without any comparison of subjective valuations across individuals.

Thank you for this discussion:) The issue of value is – I think – central to the economics.

“Why are all single values in that given economy in that given period are linked?

Because value is always just relative - relative to the total sum of the (macro-)economy around each (micro-)economic trade, production or delivery of service.”

In my opinion it goes in concordance with the concept of measuring utility of=n the basis of people preferences. They prenerences changes depending on the situation on the market. Compare an example of introducing a new substitute to some product. It changes the price of other goods. That is how I define your link between good in the economy. Is it correct?

As for previous discussion: “The sum of value is always 100% - and so the sum of all money is.

And now you can start defining a sum of money for this 100% of value - as the medium of exchange - you can redefine the quantity equation down to earth, down to physically measurable units.”

The concept of relative valuation is interesting, but what happens if you want to compare goods from different economies?

“I think the survey-based evidence, which typically asks people to rank their happiness according to some scale, don't help us determine relative happiness.”

If you need to give a more measurable unit than utility, there is a concept of willingness to pay or willingness to accept. Those measures are designed to catch the utility of the good for a consumer. They are useful also for public goods valuation, i.e. contingent valuation method – then you can do survey research and directly ask respondents how much they would be willing to pay for the good. However, you must remember, that CV is prone to a number of biases.

I would also agree that the value is relative, but I would connect it to individual preferences, visible on markets or in elicitation procedures of WTP (when they are distorted or not present at all).

One thing I would like to ask is how we can define an actual economy? You mentioned about externalities and happiness. I would also add a concept used in environmental economics as a part of total economic value of environmental good: intrinsic value, that is linked to moral sentiments and altruism. How can we measure that? Is it reasonable to add it for the whole economy measurement? I think it is possible to use here CVM as some approximation.

Dear Monika,

thanks for your interesting reply and the questions. One small question: The abbreviations CV, WTP and CVM ... i am not 100% sure what you mean with it.

Please explain it ...

And a short comment for "If you need to give a more measurable unit than utility, there is a concept of willingness to pay or willingness to accept."

First: Using the term 'more' measurable is a bit dangerous as long it is not a precise measuring at all.

But of course i understand what is meant: "more easy to be registered or catched". And for this meaning it touches again - in my point of view - the question of exactly the same: "relative or not?"

Because: Willingness to pay is maybe easier to be expressed in a quite exact money unit ... but again it is the very same unprecise because there is no exact definition of an absolute value.

What i mean: registering "utility" or even "willingness to pay" has the same basic unprecision underlaying flaw ... the willingness to pay is linked to the amount of money available - which is in return linked to the total amount of money available.

Which means:

The unperfectness of "registering" (not exactly measuring) of "utility" and "willingness to pay" is exactly the same. Note it in a monetary unit makes it seem to me more precise ... but in fact it is not more precise - I think.

It is all relative ... to the total amount of "amout of money" or "total amount of utility" ...

Olaf

Dear Olaf,

CV or CVM stands for Contingent Valuation (Method). It is used for non-marked or public goods valuation, i.e. environmental goods like air pollution reductions. The valuation is done via surveys, where respondents are asked to state their preferences for some specific good or project effects.

WTP (Willingness to Pay) and WTA (Willingess to Accept compensation) are closely linked to that method because the valuation allows for estimating individual WTP for a good by asking how much a person would like to pay (f.e. in taxes increase) to have the good delivered to the market. Willigness to accept is used for losses valuation – how much people would be willing to accept for some loss in public good.

Both measures are designed to measure demand schedule and consumer surplus.

As for your question “relative of not” – in my opinion, the value of an good is always relative, however I don’t fully understand your concept of measuring it in relation to the economy as a whole – even if you assess it in percentage terms, you still need a price for a good and all prices in the economy to set the relation. Maybe I don’t see your point here?

For me the relativity of the value is buried in the relativity of individual preferences that meet finnaly on the market and create the price (assuming the market is undistorted in a way there is no public goods or externalities). So even if we could use some numeraire instead of money valuation, it still should be based on the assumption of individual preferences and the ability of individual to rank his preferences rationally.

So, to conclude:

“The unperfectness of "registering" (not exactly measuring) of "utility" and "willingness to pay" is exactly the same. Note it in a monetary unit makes it seem to me more precise ... but in fact it is not more precise - I think.

It is all relative ... to the total amount of "amount of money" or "total amount of utility" ..”

I agree with your thought. But do we have sth better than money? Even if it in imperfect, it allows easy comparison. In that way, the money, even if they are written down in absolute terms (EUR or any other currency) they should be interpreted in relative terms as an easy way to rank all goods depending on their importance (relative scarcity).

If we assume that the value is created by individual preferences, the answer to your question would be “relative” and the surrounding creating this relativity would depend on contemporary tastes (you mentioned Justin Bieber) and all other market conditions that changes all the time. Look at financial markets – I think that the relativity of the value is clearly visible there. There is not possible to speak about some objective value.

Monika

Thank You Monica, for this fast reply and the explanation!

"As for your question “relative of not” – in my opinion, the value of an good is always relative, however I don’t fully understand your concept of measuring it in relation to the economy as a whole – even if you assess it in percentage terms, you still need a price for a good and all prices in the economy to set the relation. Maybe I don’t see your point here?

For me the relativity of the value is buried in the relativity of individual preferences that meet finally on the market and create the price (assuming the market is undistorted in a way there is no public goods or externalities). So even if we could use some numeraire instead of money valuation, it still should be based on the assumption of individual preferences and the ability of individual to rank his preferences rationally." ... and ...

"I agree with your thought. But do we have sth better than money? Even if it in imperfect, it allows easy comparison."

Your reply touches some different questions:

1. Do I need a price for each good in an economy to set a relation?

2. How the relativity of individual preferences linked to the relativity of price and vice versa?

3. Must a (physical) numéraire be linked to individual preferences to rank the preferences rationally?

4. Even if we see the problem with money, do we have something better?

...

I think these are your points, roughly.

The answer goes a bit beyond the simple question above.

As you say also, the problem with money is still existing, and you ask for something better.

That I want to describe or define. But not for all kind of use cases of money. The money we talk here is used for the accounting of each single "value" - and the pure sum of it gives the GDP. The discussion is not about judging of one single part of the economy. So I do not talk about some kind of paintings which "have a value" of millions and of other things which have no value at all (totally crashed car) ... the point is, all these single parts have a given value for a moment - and the always (!) in total add up to the sum of 100%. There is no way out of this simple rule.

That you have to keep in mind. The sum can shrink or grow - but is always 100% to the total sum of produced goods - whatever kind of goods it is.

Then you start (physically) measuring the total amount of all products. Measuring in physical terms. Weighing for example, or measuring the total volume. Like you measure the weight of a person.

This sounds rigiculous in the first and second moment - but just to explain what I mean with "measuring", lets follow this thought. You will get a result - f.e. 120 kg for a person. That is the result of the characteristic of this person with the defined scale in one defined unit. It does not tell anything about what kind of 120 kg it is. Is it a muscle body or a fat one? The scale does not tell. That is not part of the measurement.

Back to the economy: It is producing really existing goods which you clearly can measure. The defined scale will therefore physically measure the products in one of its physical existence.

But: The scale will not "see", what kind of products there are on the table. That is the point where nearly all economist step out of the picture. "Ridicoulous just to think about this stupid idea ..."

But coming back to your questions: There is no link between each single part of economy from its money value to its physical measurable value - exept one link:

All value as well as all measured characteristics (whatever kind of) adds up to the total sum of economy, and is represented by a percentage of it. This is not easy to believe - but clearly a pure logical conclusion.

The very important and interesting point is just that the monetary value of one special product or common good has absolutely no link to any physical measurement - and never will have - for this single product.

But the other truely measured value has this connection to reality.

And via this path you can define a physically measurable unit for "ONE PART OF ECONOMY" as an average.

This is the basic principle - beside the unanswered question of "what" kind of phyiscal characteristic is the right one for measuring the economy.

Taking weight: Yes, weight is a poor unit - but not totally stupid in all cases!

Think about a quite simple economy, producing nothing but one sort of corn:

Now it does absolutely make sense to put it on a scale ... for this product of this economy it is therefore possible.

The question remain,what is the right unit to measure a more complex economy.

Well, read my paper "Energy as Numéraire" - that is my point of view. (even it is a bit short, it tells the basic story)

So, now I want to answer your questions:

to 1.: Since I first measure the total "sum" of one given characteristic of the economy, it is not necessary to have any currency at all. I could even measure (!) an economy run without any kind of money. Therefor I do not need to know any price of any kind of good inside of that economy for the measurement. There will probably come prices ... but that is not my story of measuring the total sum of that economy - but it sets the total sum of value also. The percentages of each good inside this total sum is irrelevant to know.

to 2.: The same answer is true for question number 2: There is no direct link from the monetary value of one product to its physical "size" in any kind of physical unit - except is is only part of the 100%.

to 3.: No. a physical numéraire gives ONLY a number for the absolute size of a given physical unit. The ranking inside this 100% is irrelevant for the total sum.

to 4.: Yes, there is a better numéraire for accounting the total true "size" of any given economy. It is of course not weight.

It is the Exergy, the total amount of energy invested for creating the total sum of all products.

That is the least resource - non recycable. And with no differentiation between physical work of humans or physical work by machines.

(Following this line will result in a redefinition of productivity, of efficiency and in a redefinition of the use of money. Money is, in my point of view, a perfect thing for trading, for changing products for money - but not for accounting the true size of economy.)

Which means: Money value is always relative and never stable from itself.

Hope this is not to much confusing?

Olaf

Dear Christopher,

it took some time, but I come back to your comment now:

"[...]But working backward from the last part of your argument, I interpret your perspective as being that the argument that real product per person (say, some GDP-related measure) reflects human satisfaction is not really convincing given the available evidence. And since human satisfaction is the basis for "value", measures of value that relate to the total size of the pie, so to speak, are not very useful."

You interpret that my argument is, that the total sum of all products reflects the (perfect) human satisfaction. And (the sum) of the satisfaction is the basis (or equal) to all value,

And this does not convince you and is not very useful, you think. Instead you think that people care about their relative share of the pie.

I am not totally sure if i really get your critic right.

Lets describe my point of view for "value" and also "satisfaction" like this:

Any economy is like it is - for a given moment. It only changes slowly over time.

Each different economy in history and of today has some kind of special characteristics.

Each economy has some kind of a set of rules which can be understood as the pathes of how decisions were made.

Each economy does also produce a lot of stuff - whatever stuff it is. (Pyramids, cars, houses, flat screen TVs, kuckuck-clocks, big paintings in the desert or skyscrapers also in the desert).

This I see as a given characteristic of an economy at a given moment. It will probably change over time faster or slower - and the amount of stuff is growing or shrinking. (not necessarily in monetary units, but in reality).

And there is one more fact: The total sum of all accounted value has a given defined number, the GDP, but can by logical reasoning also understood as the size of 100% in a given period of time.

If the stock pile of all goods (in what unit ever) grows by 20%, you can compare both truely measured numbers. But for a given period it is always the 100% of that given economy.

And each inhabitant of each economy has a given level of satifaction. Satisfaction is a bit different. So I do not really want to measure about satisfaction. It is "how the people feel" inside of that economy. It is of course important at the end - but not in each discussion, and I want to take this apart for the moment.

I want to talk about the accounted value, about the usage of money as a scale for value ...

This kind of value is always linked to the size of the stock pile of all stuff.

The people want most of the stuff (it is produced and sold because of this fact) and therefore the size of the stock pile can be used as an equivalent expression for measuring the total amount of value.

But if you (I am not talking about how at the moment!) are able to really measure this stock pile - you have an absolute defined definition for value also.

This is very sensitive: Think about my example above: Think about a very simple economy just producing nothing but one sort of corn: The amount of corn IS in fact truely measurable and could be used as the real physical numéraire of the total sum of that economy.

By measuring the real part of the economy you have an equivalent expression for the total size or sum of all value.

For this corn economy: Think about if you link the amount of money floating in this economy DIRECTLY to the amount of this one sort of corn ...

That is the perfect example for the use of the quantity equation ... And you have a defined and truely measurable size underlaying the GDP.

Without this link there is only "Money GDP" ... with this equivalent definition ... you could start measuring the true size of each corn economy in history or in the world.

Ok. There are no pure corn economies. But this example shows how I define value and how i want to use it.

"[...] - so from a normative standpoint, perhaps the size of the pie should matter much more in terms of individual valuation than it tends to in practice. But I believe this is another matter. [...]"

This point from you is extremely good!

My intention is to truely measure the size of the pie. We had a quite long story of an always growning pie ... and as long as everybody gets always a bit more ... not very much complains about wanting an even bigger share of the pie. Because I do think that it really matters. Explicitely in a period of time where the pie is shrinking ...

"[...] However, what I mean is that it seems essential that there is a common numeraire in which all market prices are quoted so that any individual price quote has a clear conceptual meaning to each individual in terms of their relative (emph) valuation of goods.

[...].

But all that matters for effective trade is that each individual can easily compare relative prices to their own relative valuations of goods.[...]"

That is of importance INSIDE of the pie, for running the economy with its own characteristic system. But not each economy does need prices at all. I can think of economies without any prices - having the same amount of "stuff" as we do, but a different system of setting the given share for each individual.

Money or any valuation is not necessary to run an economy - we do not know very much economies without money, but in principle it is possible.

"[...]. On the contrary, economic theorists are only concerned about relative value at the level of the individual. (In the jargon of economists, utility or welfare is an ordinal concept at the level of the individual, not a cardinal one.) [...]"

Well, as said above: I think, it starts to be interesting in a "global stall" of the global economy and also a "stall of the economic theories" to think about the total size of the pie and about the share we want to invest for the individual wishes ofparts of the inhabitants.

Questions like: "how much of the total sum of all physical produced goods goes to the teachers?" (at the end, the teachers get a given amount of money (a share of all money available) ... to buy a given amount of the total share of all produced goods (so, each teacher get one new car all five years, a warm house and three flat screens - in average ... or so.

It is just another point of view for a discussion ...

"[...], surely it is still useful to suppose that as private valuations of Justin Bieber concerts rise on average in society (as measured, perhaps, by his popularity among young girls) that this contributes to a rise in market value (which may be correlated by concert ticket prices).

[...]

So I would argue that market values contain a lot of useful information, even without any comparison of subjective valuations across individuals."

Well, see it like this:

Justin Bieber gets what share of the total amount of produced goods for making other people happy INSIDE of the total pie or the total amount of stuff?

He does not produce any kind of the physical stuff he uses. He gets a big share of it for ... just singing. But he gets a big share of the total stock pile of goods.

The question is: who is doing all the work for producing the physical stuff - an the equivalent for the total sum of value - which is the size of the pie to be shared.

The problem with the normal accounting:

There is no way of describing a pie, coming onto the table next week ... in a total size of half of today.

It the total sum of all value, if the total sum of all physical produced goods, is the total size of the pie ... shinks by 50% ...

what will the neoclassical theory tell about this with its concept of relative prices?

We do need a physical link to argue about the limit of growth.

Hi Olaf. I hope you don't mind if I chime back in on this discussion. I confess that I do not follow all of your points on why everything must be viewed in relation to the 100%. I hope my response will not be based on a misinterpretation of your views, but if I am not too far off from understanding the meaning of your question, perhaps I can contribute something positive from an economist's perspective by expanding on some points I made earlier.

Naturally it's important to establish that we are using the word value in the same way. In my mind, there are three broad ways in which this word is commonly used:

(1) Value as a metric - such as weight, heat, speed, monetary value, etc. Here we can quote the specific "value" attributed to that object or substance to express it's relative "size" or degree in terms of that metric, and this value is by definition always relative to a numeraire or prescribed measurable unit (which could itself be a percentage of some defined whole, if those are the units that happen to be useful for a particular task, but can be any arbitrarily defined unit provided the unit of measurement is constant).

(2) Value as a measure of human subjective appreciation of a particular experience of a thing of event. This is also a relative valuation, but one that is ultimately psychologically based. Even though we tend to prescribe value to the objects or events themselves, they don't have any inherent value distinct from their relative personal value to members of a society or market. (For example, do I prefer to take a walk in the park today or instead to work and earn enough income to buy a new tv. Here I weigh the relative value of a leisurely walk to the cumulative satisfaction I would get from the tv, and this relative valuation is not connected to anyone else's relative value, except perhaps through the relative market price of these goods - i.e. if it takes three days of work to afford the tv instead of just one, then I my relative valuation should be different. But I will return to the significance of relative market price and other people's subjective valuations in a moment.)

(3) Values as a set of normative or ethical principles which are used to describe someone's guiding principles for relating to the world. For example, the notion of fairness. I'm not sure it makes sense to refer to this type of value as being relative. One value system might be considered as preferable to another (for example, one policy might result in outcomes deemed to be more fair than another), implying a relative comparison, but this comparison is nevertheless evaluating the relative achievement of absolute "goods" or objectives, which form the core principles or ethical values themselves (i.e. the core principle of something being fair or not).

The notion of value that economists tend to be most concerned about is (2) insofar as they aim to understand human behaviour and how markets work, and given the belief that people's behaviour is largely driven by the desire to maximise this type of value. (People are also motivated by ethical values, and as some branches of economics seek to understand this type of behaviour too, the line between the two notions of value is perhaps not so clear. It also goes without saying that economists are also concerned with normative/ethical values - such as the principles of efficiency, equality, and human welfare - in answering the "why" we want to understand behaviour and markets.)

But economists' analysis of value defined in (2) (let's call it "subjective value") in relation to human behaviour and markets has necessitated some type of metric, which has resulted in a link (1) and (2). The simple idea that the amount of personal/psychological satisfaction that one receives from an experience can be ranked enables us to connect subjective valuation to an ordinal scale (with a numeraire that we can arbitrarily call "utils" or utility). So utility falls entirely under the first category of value, which is not ultimately what we care about, but is intended as a way of talking about or representing the relative rankings people make according to the second definition, the thing we actually care about. And although we can't actually measure utility, economists don't need to in order to understand markets - assumptions about how physical objects enter as an input into this subjective value is sufficient to make predictions about behaviour (which may be good or bad predictions, of course, depending on how good or bad these assumptions are, but this is a whole other topic.) There is no requirement that utility be something measurable in practice, and being ordinal by nature no comparisons of this metric across people is necessary.

Going a bit further, in trying to understand how maximising this subjective value translates into behaviour, we need to know something about relative prices of the inputs into the subjective experiences being compared. At this point we can talk about tradeoffs (or what economists refer to as opportunity costs), which transfer the subjective valuations of entire experiences into well-defined relative values of the goods/commodities that are inputs into these experiences, and start building theories about production, trade, and all types of markets. All this stemming from the simple notion of some artificial metric for subjective value that we call utility.

Now to get back to your main question - how do economists proceed from simple notions of subjective valuations of particular goods, which differ from person to person, to placing a value on the aggregate economy? One way to do this is to employ the notion of market value that I mentioned before. Market value is fairly intuitive, it is links people's subjective valuations together through the notion that in ideal circumstances marginal valuations (the value placed on the marginal unit purchased or consumed) is the same across all individuals participating in the market, and finally it is conceptually linked to market prices. To the extent that market prices reflect market values (but they need not under circumstances I listed before), then it seems natural to value all goods by their market prices and then add them up. This gives us a fairly useful (and practical) way of valuing the entire economy because, say, as more apples are produced, all else equal the recorded increase in the value of the economy is reflected in this increase in goods, which people individually value (and tend to value equally, on the margin.) If the quantity of apples produced stays the same but the price of apples falls because society suddenly values apples less for whatever reason (again, assuming price reflects market value) then, all else equal, the value of the economy falls. Once again, the change in the value of the economy is reflecting changes in human subjective valuations on the margin. All we needed to assume is that human experiences can be ranked and apples are an input into these experiences. We need not know anything about the intensity of these experiences themselves nor know how to measure "utilities".

I would also contend that the numeraire with which we measure the total size or value of the economy is conceptually irrelevant, as long as we are adding up consistently measured relative market values. We could measure the economy as a total number of apples, by expressing the values of all other goods in terms of apples, and easily convert to any other measure by simply dividing by the price (or, in an ideal world, the market value) of that good relative to apples. So if the numeraire is apples, this simply becomes the point of reference for the individual, and links back to the subjective valuation of the individual based on how much they value that marginal apple they ate. (The subjective value of the economy to that person is arguably just sum of all of these marginal values, though now we are getting rather abstract). Money turns out to be a pretty good numeraire because the reference becomes a basket of goods that I consume on a day to day basis - that is, I know roughly how much satisfaction $100 provides to me based on the typical basket I would purchase with that money, and therefore the value of the aggregate economy can just be considered a multiple of equivalent baskets.

So what is still true here is that we start with a concept of relative value and end up with one as well. All values are expressed relative to some numeraire, and although this numeraire should serve as a reference to subjective values in terms of people's experiences, these subjective values are only understood in relative terms as well. But the point is that the valuation of the economy we come up with still has meaning - if it grows it potentially tells us something about how the overall level of satisfaction or value of experience in society is evolving over time (again, making some basic assumptions about goods being inputs into the value of these experiences).

It is true by definition that each part of that aggregate value - the value of each good that is being valued in the economy - is always a percentage of the whole. But I would argue that this assertion amounts to just changing the metric/numeraire. That is, instead of the numeraire being, say, apples or dollars, the unit of account is now "the whole" or "the economy", and so all component values are just being rescaled to be consistent with the new unit. But the relative values themselves don't change. For some types of comparisons, this numeraire, according to which all values are expressed as percentages, is useful. I may want to know how the relative importance of the apple industry in the whole economy has evolved over time, and so I would look at how the share of this industry to the total has changed. But if instead I want to get an idea of how the total size of the economy changes over time, because I believe this is connected to individual subjective valuation and welfare, then clearly I need to measure the total economy in terms of some physical unit.

I should just reiterate the point I made earlier about the appropriateness of "market value" as the concept of value for aggregating up to the total value of the economy. While it may be a convenient notion of value given it's relationship to market price, the latter being something we can observe and practically measure, the concept of market value does leave a lot of things out if what we are really after is some measure of aggregate subjective value. The fact that people would often be willing to pay more for a good than they actually pay suggests that market value underestimates actual total value (and just because I can obtain something free, or almost free, and could consume as much as I could possibly want at that low price, does not mean I didn't value the first unit I consumed very highly). As Monika points out, willingness to pay would be a better representation of total subjective valuation. If we could survey everyone and ask what they would be willing to pay, as a society in terms of some numeraire, to not have the entire lot taken away from them, then this would give a metric for the value of the economy that is more representative of subjective valuations.

Cheers.

Hi again, Olaf! I didn't notice your second reply to my previous post when I added mine! So I'll just quickly respond to a few of the arguments you've proved here.

"I want to talk about the accounted value, about the usage of money as a scale for value ...

This kind of value is always linked to the size of the stock pile of all stuff.

...

But if you (I am not talking about how at the moment!) are able to really measure this stock pile - you have an absolute defined definition for value also."

I agree with this. But I think it's important that the notion of value is clarified in this context - the challenge in estimating value in a metric or accounting sense (in whatever units) is a data/resources problem. But I am supposing what we are after is a measure of value in terms of some notion of usefulness also.

"This is very sensitive: Think about my example above: Think about a very simple economy just producing nothing but one sort of corn: The amount of corn IS in fact truely measurable and could be used as the real physical numéraire of the total sum of that economy. By measuring the real part of the economy you have an equivalent expression for the total size or sum of all value."

I agree. The interesting part of this example is, for me, the fact that the corn has some subjective value (which is why it is something that is produced, and why we would tend to refer to this as an "economy"). So the ultimate usefulness of the goods being counted - the subjective value component - should form the basis of the stock we are trying to measure. For example, it wouldn't make sense to measure the size of an economy by the quantity of empty milk cartons, if the milk cartons were not valued by society's members. As long as the economy being measured consists of something of subjective worth, then I agree that money, or the medium of exchange, is a sensible numeraire to express it's value.

"My intention is to truely measure the size of the pie. We had a quite long story of an always growning pie ... and as long as everybody gets always a bit more ... not very much complains about wanting an even bigger share of the pie. Because I do think that it really matters. Explicitely in a period of time where the pie is shrinking ... "

I agree!

"That is of importance INSIDE of the pie, for running the economy with its own characteristic system. But not each economy does need prices at all. I can think of economies without any prices - having the same amount of "stuff" as we do, but a different system of setting the given share for each individual."

This is a really interesting thing to ponder - how does one value an economy without prices. To use an absurd example, suppose someone were outlandish enough to charge a million dollars for a cupcake, and some really wealthy person is silly enough to buy one. If the seller then produces 1000 more, quoting the same price for each of them, but they do not sell, it would seem far fetched to say that the economy has expanded by a billion dollars from this additional production. It seems far fetched precisely because we expect these cupcakes are "overvalued", and so we should not value them at this price just because they are produced. But if they DO all sell for a million dollars each, then suddenly it does make sense that this represents a billion dollar increase in productive activity, because there is a sense that this is how the cupcakes are valued relative to other goods in this society. Of course GDP only counts up goods and services that are actually exchanged in the market, and so such unreasonable pricing would not influence the calculation. But if you take these exchange prices away, such that everything is allocated by some other form of distribution, then you are absolutely right - even though we may know that the economy has value, we have practical means of valuing the components and adding them up, because without observing exchanges, we really get no sense of how society's members value these objects.

"Justin Bieber gets what share of the total amount of produced goods for making other people happy INSIDE of the total pie or the total amount of stuff?

He does not produce any kind of the physical stuff he uses. He gets a big share of it for ... just singing. But he gets a big share of the total stock pile of goods."

But I would say that Justin Bieber is producing valuable stuff (well, not valuable to me personally - in fact I would probably pay to hear less Bieber) insofar as he produces things that society values, and this is a part of the pie! I think it's often easy to discount the productive value of intangible goods. But to illustrate why it would be a mistake to do so, suppose someone is paid to move a stack of lumber from one site to another site, where construction of a house is going to take place. He didn't produce any physical object. He just moved objects of value. But his contribution was nevertheless valuable and increased the size of the pie. Why? Because he added value to the production process of a good that would eventually be sold (and valued at a price reflective of its ultimate value to society). Without anyone doing this action, the house may never be built! The same analogy can be made with regards to ideas and innovation. There are lots of bad ideas out there, but the good ones have value in themselves, even if they are not themselves physical objects, but because they are a key input into some good, service, or production process that will ultimately satisfy the wants of society.

Dear Christopher, thank you for this short lecture about value ...

I can say now that

"To the extent that market prices reflect market values [...], then it seems natural to value all goods by their market prices and then add them up. This gives us a fairly useful [...] way of valuing the entire economy because, say, as more apples are produced, all else equal the recorded increase in the value of the economy is reflected in this increase in goods, which people individually value (and tend to value equally, on the margin.)"

"If the quantity of apples produced stays the same but the price of apples falls because society suddenly values apples less for whatever reason (again, assuming price reflects market value) then, all else equal, the value of the economy falls."

There i would not agree in total. That is what my relation to the 100% of value says.

First: The number of apples is the same and all are already got from the trees, but because of an apple ghost nobody want to buy apples anymore.

So, the work which has been done (put the apples from the trees into the storage) stays the same.

The only thing what changed is the willingness of buying apples. The value of apples accounted in monetary units falls. (but of course the apples are exacly as fine as before).

You say: Now the economy in total must fall also. Because the fall in apple prices.

I say: The total product, the large stock pile of all produced goods, does not change and has not changed. The amount of money in the pockets does not change either.

I would tend to say that the amount of money which was formerly planned to be spend for buying apples now goes into another fruit market: Peaches.

How high would the price of peaches now rise?

I would assume the price of peaches will rise until the formerly planned amount of money is used up.

At the end: The economy will stay stable.

I would say: This is only a microeconomic effect - and does not necessarily hit any macro economic size.

Only if the story goes on like this: Next year, every farmer cuts down the apple trees. And plants ne peach trees.

But that given year there is no more peaches, only apples less.

This is now a really shrinking economy, with shrinking income at the farmers.

You say: "I would also contend that the numeraire with which we measure the total size or value of the economy is conceptually irrelevant, as long as we are adding up consistently measured relative market values."

This example now explains why I think a physical real numéraire would be of interest.

Having such a numéraire would make it possible to decide if the economy really shrink or not.

If you only use the virtual money ... you have a lot of overlappings and failures ...

Another example: What is the "work" that investment bankers add to build the large stock pile of all produced goods, houses and fast cars?

Physically spoken an investment banker does not deliver any kind of physical work. He sits at his desk any moves papers printed with "I owe you" from one desk to another.

That is his role in the economy - and for this important "work" he gets his fair share of the physical product of the total product of the economy: huge houses, yachts and a few supercars each year ... and nice ladies on top.

You say: "I would also contend that the numeraire with which we measure the total size or value of the economy is conceptually irrelevant, as long as we are adding up consistently measured relative market values. We could measure the economy as a total number of apples, by expressing the values of all other goods in terms of apples, and easily convert to any other measure by simply dividing by the price [...] of that good relative to apples. So if the numeraire is apples, this simply becomes the point of reference for the individual, and links back to the subjective valuation of the individual based on how much they value that marginal apple they ate. [...]

Money turns out to be a pretty good numeraire because the reference becomes a basket of goods that I consume on a day to day basis ..."

I would say: Apples are a "real" numéraire, but they are not a perfect numéraire in comparison to a real characteristic of the real economy in total.

This is a sensitive and important difference. Apples as the numéraire are as bad as money is - as long as you take the willingness to exchange from each good into apples as the numéraire as you described.

"Value in apple share" is as bad as "value in monetary share".

Compare that to a truely measurable unit which IS a very concrete real characteristic of the actual economy as it is?

For example a pure corn economy: In this case you can define a very precise level of the relationship between one (measurable) kilogramm of corn to its price.

This is a definition with a true measurable characteristic as the numéraire.

And the number of kilogramms of corn tells the very exact story of the size of that economy in a given period. And that number is abstract, valid over time and free of valuation.

Such a real characteristic should be there for the economy in total. That is then the absolut expression of the total amount of "economy" or the total amount of all (accounted) values.

With such a definition you can have an indirect defined absolute scale for "ONE PART OF ECONOMY" - and also for "ONE PART OF VALUE" (just the accountable value, not the others).

So that is why i asked "is value relative?" Yes, it is relative to the "amount of economy" - but if you can measure this "size of economy" you have a way of measuring the value in total.

The valuation of each kind of good inside of the macroeconomy is then linked as long it all adds up to this total sum.

Only the question remains how to really measure the economy ...

Dear Christopher, it seems to be that we both were writing at the same time ... Now we sit here with an irregluar sequence ... :)

"This is a really interesting thing to ponder - how does one value an economy without prices. To use an absurd example, suppose someone were outlandish enough to charge a million dollars for a cupcake, and some really wealthy person is silly enough to buy one."

Well - but valuing or I would better say measuring an economy without prices means that you do not at all look at the prices. It would really mean to look at the core characteristic of the economy. Weighing it could be one possibility of measuring one real characteristic of that economy. But weighing is not the best one (but it could be of interest even though!)

"But I would say that Justin Bieber is producing valuable stuff (well, not valuable to me personally - in fact I would probably pay to hear less Bieber) insofar as he produces things that society values, and this is a part of the pie!"

I would say no, he is not doing anything to help create the stock pile of the physical products of the economy. It is the other way round: He used large amounts of energy just to move around, to power the sound system and to have a comfortable home with apes, with supercars and so on.

Lets see money as it is really used: It is a tool of trade. If i buy something, i give money in exchange.

The very sad fact that a lot of young girls are stupid enough (well, to be discussed) ... to give him all of their money in exchange for an hour of hearing loud music ... or a copy of a cd ... does not mean that bieber really produce any part of the economy.

Well - normally economist see just the money flowing in and state in the very same moment: YES! THAT IS A PRODUCT AND PART OF ECONOMY.

But in physical terms this is not true - he does not produce one good (ok, as a hard copy).

That is one problem with money as numéraire. It blinds the accounting to see what is really the basic producer and what is really a product.

There was an interview with Ludwig Poullain, former chief of the WestLB. He said in the Handelsblatt:

"Wir müssen lernen, dass Geld nicht gleich Geld ist. Man muss zwischen konkretem und abstraktem Geld unterscheiden.

[...]

Ich bin mal ganz einfach: Für das Geschäftsjahr 2010 haben die Deutsche Bank und Daimler in etwa einen ähnlichen Bruttogewinn. Sie zahlen beide die gleichen Steuern und Dividenden. Was aber machen Sie mit dem Rest des Gewinns? Daimler investiert in Forschung und Entwicklung und verbessert seine Produktionsabläufe. Die Deutsche Bank legt das Geld zur Seite um damit neues Geld zu produzieren. Daimler verwendet das Geld im produktiven Sinne für die Volkswirtschaft, das Geld der Deutschen Bank aber wird abstrakt verwenden, es hat keinen produktiven Sinn für die Gesellschaft."

He states that there is a difference between the money "made" by Daimler and by Deutsche Bank.

You could see it like I also say: Physically spoken, Daimler is building cars. It forms matter into products. Daimler IS doing real work, producing real products.

What is Deutsche Bank doing the same year? Sitting around in big towers ... clicking mouse buttons and keyboards, and moving papers.

Deutsche Bank is worse than Juston Bieber - there is nobody really want to have them do what they do. And the biggest problem: They physically do nothing to build, to create the products in total.

Ok, maybe they help someone to "get capital" to start a business, a new company, producing the new products ...

But - why not directly measuring the products where they are created? In a physical characteristic of these goods?

That is what should be done instead of accounting in monetary units, I think.

That is why I want to look for a unit for an abolute scale for the size of the economy - to have in the same moment an absolute scale for the accountable value also.

;-)

Hi Olaf. Thank you for the quick reply.

"First: The number of apples is the same and all are already got from the trees, but because of an apple ghost nobody want to buy apples anymore. So, the work which has been done (put the apples from the trees into the storage) stays the same. The only thing what changed is the willingness of buying apples. The value of apples accounted in monetary units falls. (but of course the apples are exacly as fine as before). "

I think you are right that I have made an error here in this statement - I agree the price of peaches has to rise and the economy remains stable. So in this instance a decrease in the subjective valuation of apples has had no effect on the economy (I believe I was conflating ordinal and cardinal value here - thank you for pointing out my error!) But you are also right that a natural response is for the apple producers to reduce supply in response to the fall in price - this will partially be offset by an increase in productive activity in other sectors of the economy (say peaches) due to the release of productive inputs (say labour) but would probably also be be offset by an increase in leisure which, interestingly enough, is valued by society but not part of any formal exchange, and therefore not counted in measures of GDP. (And I suppose it should!)

But I think this discussion highlights a key insight - which is may in fact be something you are driving at with your single-good corn economy - regardless of the numeraire used, an increase in the size of the economy must either reflect an increase in productivity - the amount of output derived from a given quantity of inputs - or an increase in the productive inputs themselves. (And I can think of a few reasons why our GDP measure does not depend exclusively on productivity differences or quantity of productive inputs that are also independent of the numeraire used.) In a single good economy, it is straightforward to see that this must be true.

I can also agree that, if we were able to assign an indisputable, appropriate metric to value the economy as a whole, we could more easily value the component parts by looking at their respective shares of the total value. But would you agree that, in order to do this, we would need some concept of the relative values of these component parts to society, and that these relative values are tied to some subjective relative satisfaction or need? If so, I would still argue that the concepts of willingness-to-pay or market-value are good candidates - the former is probably more directly linked to societal value shares, while the latter is more directly linked to exchange prices and these, in turn, are measurable in market economies.

If we agree on this, then indeed, as you say, the only remaining question is what is the appropriate measure of the total pie . But given that there is no sense in which we can get around this relativeness - I don't believe there is a meaningful measure of the total pie that is absolute and not in itself just a relative value - then I don't think there is anything to gain from starting with the whole and using this as a benchmark for valuing the parts. Why can't we equally begin with a part - any part - and aggregate up to the whole?

Hi Christopher,

now we are back in the right timeline ... :) a quick reply:

"I don't believe there is a meaningful measure of the total pie that is absolute and not in itself just a relative value ..."

Well, that debate has to be held, I think.

But for the moment: IF there would be such a scale, a defined unit - I think it would be of "value" to start using it, to start the discussion of underlaying the accounting of macro economics with a true measurable unit.

I think it is quite important for the discussion of our global "financial crisis" also.

Think about a situation where the total pie does not grow in total, or even shrinks.

How would you be ever able to just see that situation coming? All relative prices ... are never able to tell that story.

Without the link to a physical real measurable unit to the economic theories you are blinded out by the "relative money value".

Or the 42 year old discussion of the limits of growth: What number is the limit?

I never found a number of GDP indicating the limit of growth ... the story was only about constraints of some real matter stuff - and there is still no link to the economic theory.

And that is what I want to answer: Describe a meaningful measure for measuring the size of each economy - absolute and without any currency or any monetary or money like matter (gold, or whatever). No matter if there is any kind of currency in use or not, and the scale is also stable over time, enabling the comparision of the size of former economies with todays economies.

I really think that there is such a measure - one physical unit which is the very core of each part of economy and which can be used as the numéraire of the macro economy.

I did held a science slam presentation a few weeks ago. It is in german and without the animations. I will upload the paper. There are some graphics which maybe helps to follow my idea. You can read my other paper also.

Olaf

Of course, now If this it, Imagine how is the accounting measurement in the financial statements. How are our Decisions? Reality?

@Maria:

"In my opinion, if value, in general, and economic value, in special, have an subjective component we can not have an absolute unit measure."

The question is not really if value has a subjective comonent.

Value has a lot of different meanings which is more than just the monetary value only.

But that is the case for any given good and not connected to any monetary value at all. (Think about the "unimaginable value of a beautiful view" ...)

So as long as we discuss the economic side of value, we do discuss today the monetary value, that is what we use for accounting the "size of an economy".

And if there is a true and measurable unit in reality for such monetary valued good, well, then we can discuss the use of this measurement tool instead of the monetary value.

An Example: An easy and simple economy do produce only one good: Corn.

So, here we have a real measurable unit: It is the volume of the corn in the box - or the weight of the corn.

Both is a perfect measure for the total amount of physical product of this economy.

The question is: Is there such a real characteristic unit for other kind of economc products also?

And I say: Yes, there is such a unit, a measurable unit for the physical size of any given economy.

Very interesting. I am Founder Editor of the Journal of Creating Value jcv.sagepub.com and invite you to write there.

Also join the Linked in group Journal of Creating Value to carry out such debates

Also speak at our confernce on Creating Value in May 2018 in the UK http://www.dmu.ac.uk/about-dmu/schools-and-departments/leicester-castle-business-school/the-first-global-conference-on-creating-value.aspx

Customer Value is always relative, as most all value.

Customer Value Added is the Value you add divided by the value your competitors add. If greater than one then you are creating value to that customer and he shouldbuy from you. If less thanone, the customer goes to competition