From: Allin Cottrell (email@example.com)
Date: Mon Jul 19 2004 - 20:24:00 EDT
I'm going to have another try at this, from first principles. This is partly a reply to Rakesh, but it's also a more general reflection on the long-running "measurement of abstract labor" thread. My thesis is that money as such does not "measure" anything. Money (e.g. the dollar) is a unit of account, a "standard of value" if you like. In that respect it bears some analogy to a "standard of weight", such as the standard kilogram. Note that the standard kilogram is not, of itself, capable of measuring the weight of anything: for that you need a balance or some such apparatus. Suppose I give you some item x, and the standard kilogram, and ask you to use the kilo to measure the weight of x -- but you're not allowed a balance or anything of the sort. It can't be done. If you're allowed a balance, you're in business. Suppose x is some standardized item, weighing substantially less than a kilo. You then see how many x's you can put in the scales against the standard kilo before tipping it, and you can bracket the weight of x quite successfully. Now my point is that in the case of money the "balance" (that actually does the "measuring") is a much more complex apparatus, involving production, supply-and-demand, and profit rates. Unlike the physical balance it is not a simple bilateral mechanism (the standard kilo versus x, the monetary standard versus an individual commodity -- no, it doesn't work, the analogy breaks down). And with the social "valuation apparatus", it turns out that it doesn't matter very much whether or not the standard (e.g. the dollar) remains constant over time. The system is in trouble if the standard fluctuates wildly over a short time horizon, but it is remarkably robust in face of substantial ongoing change, at a non-constant but boundedly-varying rate. The condition for this is that economic agents are primarily interested in relative prices, and they're "smart enough" to perceive relative prices even when the absolute price level is nowhere near constant. Of course, the "smart enough" here is not really an individualistic thing: it's a matter of the evolution of social institutions such as the calculation and timely publication of economy-wide price and wage indices. Allin.
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