A Natural Value Unit - Econophysics as Arbiter bet

arXiv:physics/0608087v3[physics.soc-ph]13Dec2006ANaturalValueUnit-EconophysicsasArbiterbetweenFinanceandEconomicsSteivanDefilla∗EnergyAdvisor,SwissStateSecretariatforEconomicAffairsSECO(Dated:February2,2008)AbstractForeignexchangemarketsshowthatcurrencyunits(=accountingornominalpriceunits)arevariables.Technicalandeconomicprogressevidencesthattheconsumerbaskets(=purchasingpowerunitsorrealpriceunits)arealsovariables.Incontrast,allphysicalmeasurementunitsareconstantsandeitherdefinedintheSI(=metric)conventionorbaseduponnaturalconstants(=”natural”orPlanckunits).Econophysicscanidentifyaconstantnaturalvaluescaleorvalueunit(naturalnumeraire)baseduponPlanckenergy.InhonoroftheeconomistL.Walras,this”Planckvalue”couldbecalledwalras(Wal),therebyusingtheSInamingconvention.OneWalcanbeshowntohaveaphysiologicalandaneconomicinterpretationinthatitisequaltotheannualminimalrealcostofphysiologicallifeofareferencepersonatminimalactivity.ThepriceofoneWalintermsofanycurrencycanbeestimatedbyhedonicregressiontechniquesusedininflationmeasurement(axiometry).ThispilotresearchusesofficialdisaggregatedSwissProducerandConsumerPriceIndexdataandestimatesthehedonicwalrasprice(HWP),quotedinSwissfrancsin2003,anditsinverse,thephysicalpurchasingpower(PhPP)oftheSwissfrancin2003.PACSnumbers:01.80.+b,06.20,89.65.GhKeywords:Numeraire,energy,Planckunits,purchasingpower,hedonicregression11.THEANECDOTEOFTHECHEATEDCHEATERAbakeroncewenttothejudgetocomplainthatthefarmerschunksofbutterweresmallerandsmallereveryyear,whichaccordingtohimmeantthatthefarmerwascheatingandshouldbefined.Questionedbythejudge,thefarmerrepliedthathehasnotnoticedanychangeandthathewasobligedtousethebakersbreadloafsascounterweightsforsettingtheweightofhischunksofbutterashehadnoothercounterweights,andthatifanyonewascheating,itwasthebaker.Thisanecdoteillustratesthecircularmeasurementparadigmanditsvariableandim-precisemeasurementunitsthataresymptomaticforfinanceandeconomics.Unlikeallothersciences,whichclearlydifferentiatebetweenthemeasuringphenomenon(i.e.thefixmeasurementunit)andthemeasuredphenomena(i.e.variablemeasurands),financeandeconomicsmayeasilyconfusethetwo,sothatitisnotalwaysclearwhatismeasuringandwhatisbeingmeasured.Whilecurrencyunitsarenormallyfixnominalpriceunits,theyturnouttobevariablesonforeignexchangemarkets.Likewise,consumptionbasketsarethefixrealpriceunitsininflationanalysis,buttheyarevariablesinconsumptionanalysis.Withoutafixandprecisevaluemeasurementunit,valueaccountingislikeaddingapplestotomatoesandbecomesmeaningless.Withoutmeaningfulaccounting,finance,economicsandeconophysicswouldnotbequantitativesciences.Fromthemetrologicalpointofviewitisnotthediversityofmeasurementunits,buttheirvariabilitythatcreatestheproblem:Alengthunitsuchasthe“King’sarmlength”canperfectlycoexistwiththemeter,butitmightbetooimpreciseforscienceandtradeif,e.g.,itgainsacertainpercentageoflengtheveryyear,astheKinggrows.Contrarytorelativitytheory,wherethevaryingapparentlengthofthemeterinmovementistheresultofapreciselydefinedandwell-measuredphysicalphenomenon,thevariabilityofmeasurementunitsinfinanceandeconomicsistheresultofapoorlydefinedmeasurementparadigm.Financeandaccountingstillignorethevariabilityandimprecisionofthemoneyunittoalargeextent.Financialstatementsandaccountsareheldinnominalcurrencies,incometaxesarepaidonnominalincome,VATonnominalprices,dividendscalculatedonthebasisofnominalprofits,finesstatedasnominalamounts.Forfinance,moneycountsmorethananythingelse,moneyisthenumeraire.Intermsoftheaboveanecdote,theaccountantisthefarmer,ashedoesnotnoticeanydriftintime.Fortheaccountant,theoptimalstrategy2togetrichwouldbetoprintmoney.ThehyperinflationinGermanyafterWorldWarIhasdisprovedthatstrategy,asitmadeGermanyreallypoor,albeitastronomicallyhighnominalGDPfigures.Fisher[1]andKeynes[2]calledthisviewmoneyillusion.Valuetheories,e.g.byDebreu[3],normallyignoremoneyillusion.2.CONSUMERBASKETILLUSIONANDINDEXINCONSISTENCYIneconomics,theconsumerbasketisthenumeraire.Thisallowscalculatingrealexchangerates,alsocalledpurchasingpowerparities(PPP)betweencurrencies,andinflation,i.e.lossofpurchasingpowerinagiventimespan,wherefromrealprices,realincome,realprofits,realGDP,realtaxesandrealfinescanbecomputed.Theconsumerbasketisnotanidealnumerairebecauseitisnotunique.Infacteachindividualhashisownconsumerbasket.Economicsunderstandsthecompositionofeachindividualconsumerbasketastheresultofconstrainedoptimization,e.g.costminimizationunderproductionconstraintorutilitymaximizationunderbudgetconstraint,cf.e.g.pp.400ss.of[4].Theseoptimizationresultsdependonrelativepricesandarethereforemeasurementresults,correspondingtosubjectivevaluationofgoodsandservices,ortosubjectivepurchasingpowerofmoney,butnotanobjectivevaluemeasurementunit.Forgettingridofindividualbasketvariability,economicsusestheaggregatebasketasnumeraire.Eventheaggregateworldbasketvarieshoweverinitscompositionintimeasafunctionoftechnologicalinnovation,relativeprices,globaleconomicdevelopmentlevel,globalaverageincomeandglobalincomedistribution,globalethniccompositionandglobalclimatechange.Furthermore,indivi