We recently read a very interesting email from futurist George Gilder about “time prices”. Gilder is well known for his book “Life After Google”. This looks at the problems in today’s internet. Such as the likes of online security breaches. Or the current censorship of alternative news sources and ideas by major tech players. The book explains how much of what is being developed in the world of blockchain – what is known as the “cryptocosm” – will solve these issues.
However interestingly Gilder also has a keen interest in gold. The following might help convince you why gold will still be around even after all these technological innovations have been implemented.
The below excerpts are all taken from Gilder’s Daily Prophecy.
The Tupy-Pooley Formula: Time Price to Measure Value
Gilder recently attended the FreedomFest. There he heard from Tupy and Pooley. Two economists from the Libertarian Cato Institute.
The Tupy-Pooley formula explains how the time price of anything is simply the hours it takes to earn the money to buy that thing.
Today we hear all about sustainability and how we are running out of resources. However Tupy and Pooley argue that the numbers don’t really seem to show this to be the case…
“Pooley and Tupy calculate average planetary income per hour and divide it into GDP to determine real costs and thus real abundance.
They recommend that economists measure values by the one most ubiquitous and scarce resource constraining every economic activity: time. Time is what remains scarce when everything else grows abundant under capitalism.
In the Tupy Pooley vision the function of money is to translate time scarcity into the fungible form of prices.
The effects of this revolution touch every economic calculation. The economic model behind the environmental movement, with its stress on sustainability, becomes itself unsustainable.
Claims of environmental damage from increased atmospheric CO2 clash hopelessly with the evidence of a cornucopian planet that has grown ever more fertile, green and fruitful as CO2 has increased. As CO2 rose by 60 percent, resource abundance increased by 518.98 percent.”
This reminds us of another anecdote we once heard. Back in the early 20th century people worried that the streets of London would become drowned in many feet of horse manure, due to the number of horse carriages.
Of course we now know what came next. The motor vehicle. No more horse poo!
Now we have similar issues of pollution with the internal combustion engine.
Odds are the human creative spirit will solve this problem too.
Anyway we digress. Back to Tupy Pooley…
Tupy-Pooley Show That The Necessities of Life Are Cheaper and More Abundant
The Tupy-Pooley formula shows that the consumables of life are now significantly cheaper in terms of the time it takes to earn them…
“Time prices register how many hours it takes to earn the money to buy something. Using the time metric, Pooley and Tupy show that as the world population has grown by 71 percent since 1980, the time cost of the 50 most crucial commodities of life has dropped 72 percent. As population grew, it became drastically more “sustainable.”
Tupy and Pooley use an example of a dinner party of 100 guests in 1980. They compare what it would “cost” in “time money” for the same dinner party in 2018.
“In 2018, you can earn your dinner party with 52 percent fewer hours than it cost in 1980. That is the real test of affordability.
What matters to the host is not just the money he has to pay. What really concerns him is how much time he has to work to pay it.
Although the Fed can always print more money, it cannot print more time. Only a Fed economist could argue that the nominal dollars created by the Fed are more real than hours of work.”
Why Has the “Time Price” of Gold Dropped Less Sharply Than Commodities?
So why then has the “time price” of gold dropped less sharply than the “time price” of the commodities purchased to host this 2018 dinner party?
“While the time price of most foods has dropped around 80 percent, the time price of gold — measured by how many hours it takes to earn the money to pay for it — has dropped just 58.6 percent. That means it costs him nearly 15 percent more to pay in gold than to pay in hours of work.
Somehow, the gold price is not the same as the time price. What is going on here?”
…When our [dinner party] host buys gold, he pays in hours of work. But this calculation assumes that gold is a commodity like the rest. But gold is unlike all the other commodities in that all the gold that has ever been mined remains available to be used as money.
Money is a measuring stick – not a magic wand for central bankers. A measuring stick cannot be part of what it measures. Like all the other measuring sticks — from the meter to the ampere to the kilogram — it must have an anchor in a physical constant outside of what it measures.”
Time to Mine an Ounce of Gold Unchanged for Millennia
One of the reasons why gold has been money for so long is this…
“As people devote more capital to mining gold and deploy more advanced gear for exploration and extraction, the gold lodes to be mined become more remote and the deposits more attenuated.
The result is that the time to mine an incremental “Troy ounce” of gold has scarcely changed in millennia. While two centuries ago, people panned for gold from rivers and could deliver it in days, today it takes between ten and twenty years before a gold mine is ready to produce material that can be refined.
Even though the mine will be far more productive than the man with a sieve, overall it will take around the same amount of time to deliver an additional increment of gold.”
This consistency is a perhaps a key factor in another famous example of golds enduring ability to measure value. That is the concept that an ounce of gold in Roman times bought a fine men’s robe and sandals.
Today an ounce of gold still buys a high quality suit and a pair of shoes.
The Problem with Measuring Gold in Dollars
Gilder points out the problem with “measuring” gold in dollars (or any other currency)…
“Gold is money, which is a measuring stick. It is not a commodity to be measured by money. A measuring stick that is part of what it measures becomes a largely meaningless self-referential loop. “
He then explains that it may be the use of Gross Domestic Product (GDP), that is the issue in the Tupy-Pooley time price when using gold…
“The message of the gold price is that overall GDP – which is used by Tupy and Pooley to represent total production – may be a poor gauge of real value. Much of GDP is waste, or government transfer payments devoid of incremental real goods and services. Much of GDP is devoted to litigation to stop production rather than labor to increase it. As a measuring stick, the gold price signifies that perhaps 15 percent of those hours worked are not producing real wealth.
Regardless of the vagaries of GDP, gold has survived the millennia as money for a reason.”
Editors Note: Could this difference also be an indicator that perhaps gold is undervalued today? Read more: How Do You Value Gold | What Price Could Gold Reach?
Money Must Be “Anchored in Time”
Gilder finishes up with why money must be “anchored in time”…
“In a new financial crisis, when currencies everywhere succumb to inflation and chaos, businessmen and women around the world will come to understand that the only money that you can trust is anchored in time: the Tupy-Pooley factor.”
If you want to store some wealth in the longest standing form of money that is anchored in time, then buy some gold or silver.
For an in depth explanation of Tupy and Pooley see: The Simon Abundance Index: A New Way to Measure Availability of Resources.
Or if you prefer a video see:
The Simon Abundance Index: A New Way to Measure Availability of Resources
Featuring Tupy and Puley and the Simon Abundance Index along with George Gilder: