The Choice of Units

Superphysics Note

In Economic Superphysics, units are under the 1st Law of Value as Energy Manifestation

Chapters 4 to 7 are a digression on three perplexities:

1. The choice of the units of quantity for an economic system as a whole
2. The part played by expectation in economic analysis
3. The definition of income

The units of Economics are unsatisfactory becuase of 3 things:

1. The National Dividend`

This was defined by Marshall and Professor Pigou. It measures the volume of current output (real income) and not the value of output or money-income.

Furthermore, it depends on net output which is the net addition to the resources of society available for:

• consumption or
• retention as capital stock

This net output is from the economic activities and sacrifices of the current period, after allowing for the wastage of real capital at the start of the period. They did this to try to create a quantitative science.

But I seriously object to this because the society’s output of goods and services is a non-homogeneous complex which cannot be measured *.

Superphysics Note

This is the same essence as Ricardo’s objection to Adam Smith using grains as the measure of value.

It can be measured only in special cases. For example, when all the items of one output are included in the same proportions in another output.

2. The Net Output

This is ever harder to calculate when we try to measure the net addition to capital equipment

In this, we must find some basis for a quantitative comparison between the new equipment and the old ones that perished by wastage.

To get the net National Dividend, Pigou deducts such “normal” obsolescence, etc. “Normal” is defined as that the depletion which can be foreseen regularly at least in the big picture.

But this deduction is not a deduction in terms of money. So he assumes that there can be a change in physical quantity, although there has been no physical change – he is covertly introducing changes in value.

Moreover, he is unable to devise any satisfactory formula[4] to evaluate new equipment against old when, due to changes in technique, the two are not identical.

Pigou aimed at the right concept for economic analysis. But it needs a better system of units. Otherwise, its precise definition is impossible.

Without a common unit, there is no solution to the problem of:

• comparing one real output with another
• calculating net output by setting off new items of equipment against the wastage of old items

3. The concept of general price-level is vague

This is a “purely theoretical” conundrum that they never perplexes business decisions. These are irrelevant to causal economic events which are clear-cut and determinate despite the quantitative indeterminacy of this concept.

Thus, general prices lack precision and are unnecessary. Our quantitative analysis must be expressed without using any quantitatively vague expressions. As soon as one tries, one can get on much better without them.

Two incommensurable collections of miscellaneous objects cannot provide the material for a quantitative analysis. But this does not prevent us from making approximate statistical comparisons. These comparisons depend on some broad of judgment rather than strict calculation.

Net real output and general price levels are in the field of history and statistics. They should satisfy historical or social curiosity.

But they are not good for our causal analysis which requires perfect precision.

They say that net output today is greater, but the price-level lower than ten years ago. It is equal to saying that Queen Victoria was a better queen but not a happier woman than Queen Elizabeth. It is unsuitable for differential calculus.

Our precision will be fake if we try to use such vague concepts in quantitative analysis.

How are firms, which own the capital equipment, induced to generate more employment?

We can answer this for an individual firm or industry producing a homogeneous product through its changes in output.

But when we aggregate all firms, we can only speak accurately for employment applied to a given equipment. Output as a whole and its price-level are not required here since there is no need for an absolute measure of current aggregate output. Such a measure would allow us to compare its amount with the amount from having different capital equipment with a different quantity of employment.

If we want to roughly compare an increase of output, we must rely on the amount of employment generated by a given capital equipment as a satisfactory index .

The two are presumed to be directly correlated, though not in exact numerical proportions.

My theory of employment uses only two fundamental units of quantity:

1. Quantities of money-value - this is strictly homogeneous via wage-unit
2. Quantities of employment - this can be made homogeneous via labour-time as labour unit

The different grades and kinds of labour and salaried assistance have more or less a fixed relative remuneration.

The quantity of employment can be defined by:

• using 1 hour of ordinary labour as the unit
• weighing 1 hour of special employment relative to the remuneration of the ordinary labour

In this way, 1 hour of special labour paid at 2x ordinary labor at 1 hour will count as two units. Thus:

• “labour-unit” is 1 hour of ordinary labour.
• “wage-unit” is the money-wage of a labour-unit*.[5]

Superphysics Note

We rename labour unit into ‘hourly-common-labour’ and wage unit as ‘hourly-common-wage’. Keynes’ use of wage-unit as the measure of value in an economy is the reason why minimum wage is established in countries

Thus, Wages = Employment Level * hourly-common-wage

• E is wages
• W is the hourly-common-wage
• N is the quantity of employment

If workers’ pay is proportional to their efficiency, then their pay will show the amount of labour that they can supply.