Which option paints the most realistic picture? Expressing market related magnitudes in terms of other market related variables like fiat currencies, or can we perhaps achieve something more real? Is there perhaps a unit of measurement with a constant real value that we can apply for this purpose?

Previous posts in this series:

#1, #2, #3, #4, #5, #6

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Out of the drawer for today:

Probably the most difficult post to write ever - hope it is not the most difficult to get your head around too! This article is again very densely written, where every word has to be weighed in context. I'm sorry for that, but otherwise this article would be the length of a series of tomes to heavy to carry. This essay is meant as a thought provoker - at the end of it I leave some hopefully tantalizing questions, that I hope this platform's seekers of a more fair and sensible economy will respond to!

Usefulness has Value where Value has no Usefulness

Introduction

Background

For the purpose of this article:

• Economics as such is about getting resources for sustaining life and for enhancing quality of life from its places of origin to the consumers depending on it.
• Complementary economics is the economics that organically evolved out of the naturally given, namely demand, distribution of resources and the distribution of consumers. It consists primarily of the phenomena specialized production and trade, of which trade is the most topically relevant.
• Economics as a science is concerned with making economics in the real world work most effectively in the most efficient manner.
• The most topically relevant concept that evolved within the realm of trade is the concept of relative value.
• The secondary phenomenon most topically relevant that evolved in this realm is currency, as a bearer of value.

The Subject Matter

Economists as well as people involved in economic activities need to communicate economically relevant quantities in ways that make sense in the real world out there.

Even head counts (like "a work force of N employees") and physically measurable quantities (like "x kilograms of gold"), which are economically relevant physical quantities in their own right, have their economic relevance expressed in terms of their perceived value at the time of their relevance.

How much economic weight a relevant quantity has, is normally expressed in terms of some or other common currency, like "Energy in California then cost you 0.10 USD a unit".

The problem with currencies commonly used for this purpose ($, €, ¥, £ etc) is that a currency unit does not represent a quantity of value that is constant relative to anything else in the market.

This atricle is about sussing out the possibility of expressing the economically relevant weight of quantities in terms of a quantity that is not market dependent and that represents a very specific relationship that is constant wherever it features in the economic world, which is everywhere.

The Role of Value

Even though nothing much will happen without production, trading is the key activity in complementary economics.

And trades, as a rule, can only occur when assessments of value between parties concur, that is, when both parties are happy with what they get in exchange.

Whether parties trading with one another end up with a straightforward swap of things, or whether they use an intermediate currency to facilitate the trade, an assessment of value by each party plays a dominant role.

Some things have value in different ways than others. Some things have value because your life depends on them. Some things have value because they improve your quality of life. Some things have value because they broaden your experience in life, and some because they enhance your experience of life, even if only imaginarily so.

The perceived value of just about anything is a subjective affair between different faculties in you: in a trading situation you have an eye on the item you want to buy, you have an eye on your pocket, you have another eye on the seller, one on the future, one on your past experiences, one on your creditors, one on your debtors, one on your loved ones, and more - and the result is a highly speculative judgement heavily influenced by your emotional assessment of the situation. And that goes for nearly all trades, except for those done by set up computers and calculating sociopaths - and even their evaluations are, for the most part, relative to the whole emotional speculative market value condition.

The Problem with Market Value

Value is defined (Wiki) as "The amount (of money, goods, or services) that is considered to be a fair equivalent for something else." (This is the postmodern perception of what the word 'value' means; please also take note of the perception held in the era of classic economics as described further down.)

From this definition it is clear that 'value', in this sense, is a relative quantity, forever dependent on human judgement at any particular point in time. It is forever the outcome of a process of bargaining where a break-even point in the judgement of value by competing bargaining parties is taken to reflect the current values of a pair of items in trade in terms of one another. For instance, a bargaing process may end with a barrel of oil being sold for $60, at which point a barrel of oil will be considered to have a value of $60, and $60 will be considered to have a value equivalent to that of a barrel of oil.

Human judgement in turn depends not only on fairly rational factors like supply and demand, but also on 'market sentiment', which in turn depends on a multitude of emotional factors, the effects of which are extremely difficult to determine, nevermind predict. Who knows, for instance, whether news is false or real, or how any news will affect the market sentiment at any time? And one can only guess at how market sentiment will influence the perceived value of just about anything.

In practice, because calculated economic conditions at any point in time are expressed in terms of value based quantities (of e.g., the Dollar), no such expression is really valid for longer than the moment it is spoken.

Okay, that statement of fact is old hat. All economists worth their salt know that, and mathematical means do exist to make economic facts and figures make sense in whatever time frame they are wished to make sense. Not that this solves the basic promlem - time-adapted figures remain only valid relative to the moment in time to which they have been adapted, after which they have to be recalculated again and again to make sense at whatever new point in time one wants them to be relevant.

'Value' in the Classic sense

Within the academic domain of history of economics the century or so before WWI is seen to be the era of Classic Economics. For a better understanding of perception during that era of concepts like 'socialism' and 'value' I suggest you view at least some of the interviews with Michael Hudson on these topics.

During that era there was a distinction drawn between 'price' and 'value', where 'value' was then seen as production cost and 'price' was seen as our postmodern perception of 'value' as described above.

Now please do not allow the above reference to leave the impression that this author (me) has any totalitarian leanings. On the contrary, the closer to free market anarchy, the better for me.

What does make sense for me in the bigger, somewhat utopean picture, is what one could call organic socialism, or lending a hand where your heart leads you. In practice I believe there should be a completely decentralized facility providing the means for survival to the non-productive sector, but much more about that in future posts.

Here we are strictly focussing on finding a unit of measurement for expressing economic conditions other than market priced currencies.

Is there perhaps some link to reality hidden somewhere?

The value of anything in a market at a particular point in time is said to be equivalent to whatever bid in some currency two parties are willing to transact a change of ownership of that thing at that particular point in time. That figure has no tangible link to reality though.

There is however one single phenomenon, economically speaking, that is not affected by any sentiment whatsoever, and that does not change over time either, namely the minimum amount of useful physical energy required to produce a specific amount of any product.

Can we by any chance somehow define a unit based on this uniquely constant relationship, in terms of which we can express even the most volatile of values in the market? Will the use of such a unit have any further benefit?

Currencies

I won't go into the history of currencies here, exept for saying that we really got clever inventing fungible currencies to represent value in general, it being not quite a fungible entity in itself, as we can attach value to different things for completely different reasons. (A topic for a tome or two on it's own I guess, this decadent leap we took!)

What is important to understand about currencies, is that currencies are ideally meant to represent value so purely that the terms 'currency' and 'value' should in fact be interchangeable; our human minds have some difficulty doing that though, as we tend to see currencies as tangible commodities in their own right, with understandable qualities we can recognise them by. Currencies fail when they fail to represent value as they are meant to do and not because of any change in the qualities we recognize them by.

We have succeeded in refining the concept of currency so far that we today have currencies with basically only four qualities about them, namely identity, quantity, exchangeability and scarcity. These qualities together make a currency useful as a fungible representation of 'value', with it is relative scarcity determining it's relative value. The Dollar, for instance, is a man made commodity that we call "the Dollar", that exists as multiples and fractions of 'one Dollar', that is exchangeable by consensus and that has a scarcity determined by the quantity of Dollars issued relative to the volume of 'value' it needs to represent in the market.

Conclusion

'Value', or price based expressions of economic quantities depend for their meaningfulness on the emotionally dependant variable historic information pertaining at whatever points in time that may be relevant. And what complicates matters even further, is that every semi-independant economic enclave within larger economic spheres suffers its own set of emotional influences on values relevant to its own inner workings.

This makes the image of economic conditions presented to decision making politicians and for public consumption like a freely drifting swarm of hot air baloons, quite disconnected from reality, which is rather miserable for a science upon which everybody's lives depend, isn't it?

And that is all due to us knowing no better way than expressing economic figures in terms of currencies representing volatile emotionally skewed perceptions of value, which makes our statements foggy from the moment they are made, becoming forever foggier as time marches on.

My question

Is it perhaps possible that we can tether economic theory as a whole to reality a little better by making use of a unit derived from a timeless and emotion free relationship that does, directly and indirectly, somehow feature in all economic activities, though not in the same proportion that 'value' in the sense of market price does?

Looking for a Stable Unit of Measurement

Economics is about trading products that we categorize as goods and services. One thing that all products have in common, is that they are produced. Even trading is a service that is produced somehow. Another thing that all products have in common is 'value'. All products a re traded for whatever value they are perceived to have at the time that they are traded.

Production and value are features common to all products.

• Value features as a simple dimension of the product expressed as an amount of something else (usually some currency), the magnitude of which is determined by means of competitive bargaining in an open market, except where otherwise specified by either authoroty or by agreement, as was in the case of the gold standard.

• Production features as the activity required to have a product be a product. No product can be a product without being produced.

'Production' is a very boad term that varies by methods different for every product type. But production has one economically relevant fungible dimension that is called production cost, the size of which is traditionally expressed in terms of an amount of some or other currency, which of course has some value relevant to all else that matters.

Drilling further down

Production cost, in its turn, may consist of several components, some of which, like due royalties, can be quite artifical. Others, like scarcity of resources, can be quite volatile.

One ever present component as part of it though, namely the amount of useful energy required to effect production, has a very special quality, namely that it is directly proportional to the amount of product produced by making use of it, with this relationship being contant over time.

E_useful ∝ Work_machine ∝ Volume of Product

This equasion may be true and beautiful, but it describes only a fraction of the whole production process. For some products it is valid in calculating only an insignificant portion of production cost and an even less significant portion of the product's eventual market value. With some products, especially goods mass produced as essential foodstuff to be consumed by all and sundry, the amount of useful energy necessary to produce these products can play a quite significant role in determining it's eventual market price.

Looking forward into a future where robotics is likely to play a dominant role in particulary mass production, we may end up with a scenario where all aspects of the production cost of mass products can be calculated in terms of energy: it takes so much energy to produce the robot; it takes so much energy to run the robot; it take so much energy to complete every aspect of the production process under supervision of the robot. The sum total of all these energies may then represent not only the total production cost of all essentials we need to survive on, but also the end user value of it, calculated in terms of the value of useful energy conumed in the whole production process.

So what do we find here?

We find that we have a dimension, or quality, common to all products, and therefore common to all trades - something that can be measured and calculated exactly, with scientific precision; an identifiable scalar associated with every imaginable product, that is as basic and essential and as ubiquitous in the world of economic function as it is in nature.

Everything executed in the economic world requires some amount of energy to perform - from melting aluminum to doing an electronic transfer, to placing a fulstop at the end of a sentence, or thinking any thought - there is always some amount of energy at work.

We also find that production cost, and especially the energy proportion of it, does not have proportional relationship with the eventual market value of all products - it plays a significant only with respect to the costs and values of most essential goods.

But does this matter?

The Usefulness of Energy

Without Energy there is No Production

In our most natural condition we harvest energy naturally contained in our food, in order to be physically functional and productive. The harvesting and consumption of naturally provided foodstuff are our first productive activities. Cooking is our first processing industry.

Energy

In a modern economy we to a large degree externalize this process by harvesting useful energy from nature to drive production machinery. Collecting firewood was the first step in this direction.

One of these days practically all the basic products we need for survival will be produced by robotically controlled machinery - and energy will be the major input driving the whole process.

The Energy Interface

Let's call the phase in production where useful energy is applied to effect production the "energy interface".

At the energy interface, it is the usefulness of energy that matters for the producer. For instance, when the baker turns on the oven to bake the bread, it is the usefulness of the energy required to bake the bread that matters. And it is this usefulness of the energy that gives the energy value to the baker.

Energy is what links nature, our bank of resources, across the energy interface, to the formal economy.

On tha 'nature side' of what we can call the 'primary energy interface' we have latent energy. On the economic side of the energy interface, we have useful energy.

Science has enabled us to calculate the quantities of energy on both sides of this interface to a very high degree of accuracy.

Furthermore, the properties of energy are constant. They do not change over time. The amount of production that can be done by applying a specific amount of energy will always be the same.

Usefulness versus Value

Value as such

Value, the ephemeral quantity expressing how desirable ownership of any good or service is at a specific point in time, relative to how desirable ownership of any other item might be at that moment, does not serve the purpose of expressing comparative conditions at different times very well. And it is from such comparisons that we derive predictions, diagnose ailments and design improvements.

Value expressed by Fiat currencies

The Dollar, an artificial commodity created for this purpose, is the conventional currency used for representing the relative values of goods and services in the market at any time. The relative value of the Dollar, and even more so the relative values of similar curencies used especially in smaller, more vulnerable economies, is not constant either.

The Gold Standard

The Gold Standard was designed to directly (in the case of the Dollar) and indirectly (in the case of other related currencies) couple the values of currencies world wide to the value of gold, relative to that of other tradeable items. The value of gold, however, is not perfectly stable either, in spite of the fact that the amount of gold (and the growth of it through mining) available to serve as collateral for every dollar in circulation is known. The main advantage of the gold standard was that it limited the amount of currency in circulation, as the number of currency units in circulation had to be kept on par with the number of units of gold available as collateral, thus limiting currency inflation to that of the volume of gold available.

The unspoken reason that the gold standard was revoked is probably that the greedy either ignored it, or could do better without it.

Considering Energy as a Reckoning Standard

Now this may sound absurd, but...

Thus far we have been analyzing currencies and the values they represent as units in which to perform trades and in terms of which to express the results of econometric exercises. But nowhere do these have a constant and timeless relationship with reality.

To even think of energy as a currency standard may seem absurd, as energy as a commodity fails the most important requirement to serve as a currency, namely scarcity. Energy availability is in fact unpredictable and so is it's price in the marketplace.

The Uniqueness of Energy

Energy is both fungible and constant in productivity

Let's put on the table all things relevant to our quest here..
We have:

• Production as a basic economic activity
• Energy as a basic input into production
• An exact relationship between energy input and product output
• The fact that this relationship is timeless
• Energy as a production cost factor
• A value of the usefulness of energy to the producer
• The fact that only useful energy is useful to the producer
• The fact that useful energy is fungible over the whole range of tradable products

I think the fact that the exact amounts of energy vs amounts of products produced, in certain conditions, can be calculated, together with the fact that the usefulness of useful energy therefore has a 'value' for the producer, that can only calculated exactly in terms of the quantities of energy consumed, constitute the argument we are looking for.

These two facts together in fact qualifies a unit of energy to serve as a constant value quantity in terms of which we can express valid production costs of high energy input products, as opposed to expressing their production costs in terms of volatile currency values.

Production engineers have in fact been doing this for ages, working out the efficiency of manufacturing plants, or of parts of it.

We can also calculate the cost of survival on essential high energy input goods of the avarage individual in terms of units of energy quite accurately. And it will give us a timeless result, at least as timeless as the relationship between energy input vs product output is. The amount of energy it requires to put a bread on the table in a hundred or a thousand years from now, shouldn't differ much from what it requires now. (Not that bread will still be in fasion, even fifty years from now!)

Broadening the Horizon

So okay, we can use an energy unit to do some dandy calculations in the realm of high energy intensity products, but can we perhaps somehow transpose the constant value of the usefulness of energy to serve as a constant value for a currency that can be useful in the realm of trading in general?

A Challenge!

In this last segnent I will make some propositions and leave some open questions for the community to ponder...

Do we have a potentially useful currency here?

Currencies that we are familiar with require scarcity to give it value.

A unit of energy, on the other hand, as we have seen above, has an inherent value in terms of it's usefulness as a production factor. It does not require scarcity to give it a value.

This is a hard fact, but does this qualify a unit of energy to serve as a unit of currency in the open market?

You can mint gold coins and bring these into circulation. Can you do the same with energy?

Isn't energy already minted? - you can buy it from your energy supplier as units of electricity, each unit exactly one kilowatt-hour in size, delivered to your home elextricity connection box via the electricity distribution network. It costs you beween more or less 0.10 and and 0.50 USD a unit, depending on where you live and from who you buy.

But this does not make it a useful general trading currency, does it - we want something more handy in our wallets we can spend anywhere, don't we?

Can we create a token currency on par with the value of the usefulness of energy to serve this purpose?

To my mind it would be really helpful having a stable currency value that links the theoretical dynamics of economics to the physical reality providing the resources we add value to, and in terms of which we can trade the resulting products in a naturally stabilized economic environment. With such a currency:

• We will be able to express economically relevant quantities in terms of a quantity that is time- and market sentiment independent, instead of e.g., in terms of the dithering dollar, which suffers both of these weaknesses.
• We will have an economy within which prices of the most important products, namely those we need to basically survive on, are relatively stable, even under the otherwise worst of economic conditions.
• There are many more derived benefits one could mention, but this post is getting very long, so for the time being I will leave it to the fertile mind of the reader to deduce!

I see three possibilities to investigate here: (1) A global government style option; (2) An inherently stable coin blockchain based model; (3) A closed one-currency people's market.

(1) The Centralized Option

Can we declare an Energy Standard on the pattern of the Gold Standard?

Yes, maybe we can. What would we have then?

• We will have a derivative currrency unit, let's call it the Enner, just a vibey currency-like sounding name, to clearly distinguish between the currency and it's underlying commodity.
• By international consensus, an Enner will have a purchasing power for exactly one unit of useful energy.
• Because electricity is the most common form of useful energy used in the developed world, the standard unit of energy used as par will most likely be one unit of electric energy, i.e., one kilowatt-hour of electric energy.

And what will the effect be?

• One Enner will buy one unit of 'electric power'. Any other price will be unlawful.
• But whoa, that is price fixing, isn't it! Isn't that an economical sin?
• That will distort the whole market, won't it?
• Will it be a beneficial distortion, or an unhealthy one?
• Will the unique role of energy in economics perhaps be a saver here?

We will have a currency with a stable value relative to the real production costs of essential goods.

• What will the effects of inflation in an economy based on a monetary system like this be?
• Will it self-regulate?
• What will the efect of inflation be on the prices of essential goods?
• And on the prices of luxuries?

But the big question is, would you want it to succed?

(2) A Blockchain based Stable-coin Model

Will creating a crypto token with a purchasing power of one unit of electricity perhaps be a better idea? Have it all on a decentralized blockchain?

• Can that be done at all?
• How would one formulate it?
• Will any crypto ever be safe from interference by the powers that be on an open market platform?

I don't think so. Are we not seeing the very soul of decentralized trading with cryptos already being messed with? Are the powers that be not capable of slowly usurping that movement toward independence by simply buying up every single crypto as it emerges and just sitting on it?

Now don't get me wrong: keep your crypto's!! Don't give away your power. Things may not work out quite as intended, but that does not spell complete failure. Worst case, the more gets taken out of circulation, the more it will be worth, even as collector's pieces in the end!

A Closed One-currency People's Market

Maybe this is the answer: a closed market in which the blockchain continuously issues a limited number of trading tokens to every unique account holder - a system within which no single party can ever dominate and in which excess tokens are continuously burnt to protect the value of the token, and thus the purchasing power and the freedom of the account holding individual.

And it is in a closed system like this that an energy-based currency like the Enner described above can function and hold value and serve as a means for constantly issuing a sufficient amount of purchasing power to each individual to guarantee survival of each by means of the closed market system. The number of tokens issued will be in proportion to the amount of energy required by the average individual to survive on anywhere in the world.

In this system you can move way beyond mere survival and get as materially wealthy as you can by simply being productive and selling your products in the vast market of individuals in the system each with neverending purchasing power and a never ending demand for goods to survive on and more.

Please see post #4 in this series for more information on this.

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Thanks for reading!
I may not have STEEM or SP to hand out as prizes, but I will read, upvote and comment on every sensible idea put forward. If I don't, I'm dead!
- more to follow...

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Blessings!

And do remember not to believe a word i say, unless it cannot be denied!

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_{Images : Kudos to Paint X for providing the software!
Photos, if any : Own}