The Laws of Economics

by Kaleem Aziz

 

Abstract: The laws and definitions of Economics operate all around us, like the laws of Physics. Our current valuations of Economics are based on either a regional definition of money or a picture that is differentiated by the difference in goods traded in each transaction.

 

This paper outlines:

 

-         A theoretical attempt to unify, generalize and extend the concept of Economics by means of analyzing social, financial and economic definition of money.

 

-         A proof to a common set of laws for Economics, that apply at any time in human history, in any geographical region and may be extended to any medium other than money.

 

-         Laws that are a superset of current Micro Economics and Macro Economics concepts, much like Einstein’s laws of mechanics were a superset of Newton’s laws; in that they prove why things work the way they do.

 

-         Laws that mathematically connect Economy to learning/education, population, leadership, regulation, bartering, biding, (fixed) cost, and the concept of tools.

 

-         Laws that merge Micro Economics with Macro Economics and create the common base for one Macro Economics for entire humanity.

 

 

Conventional Current Definitions:

 

Micro Economics – the branch of economics dealing with individual commodities, producers.

 

Macro Economics – the study of large scale or general economic factors, e.g. national productivity.

 

 

I. Introduction:

 

The laws of Economics proposed here are simple, to such an extent that they may appear common sense and trivial. Their power is not as much in their simplicity and generalization, as in the factors they exclude. The first part of the paper outlines the simplicity, and these paradigms will create the stage for the more important second part -- the implications and lessons of what they exclude.

 

 

- Part One -

 

 

II. Definition of Money:

 

Currency is generally a definition by the state. It is a replacement for the barter trading system within the region with something the state has certified and guarded. Often, the state reserves the right to change this definition, and thereby intervenes in setting its value/valuation/worth. Besides the standard within the state, the standards are set and regulated inter-state for exchange rate of one currency with the currency of other states.

 

Current definitions of money are based on geographical sensitivity, cultural sensitivity or historical sensitivity.

 

Examples of each of the above are:

 

  1. The regional difference of goods and currency from one nation to another,
  2. The difference in the beliefs of certain societies about the sin in interest,
  3. The difference in the valuation of goods/currency based on the past changes in governments and laws of the land.

 

Any attempt to unify a single standard for currency, irrespective of whether it was money, barter, gold, printed-paper currency, or some other medium of currency, requires us to look for common factors across these scenarios. In this paper, I unify the minimum needed factors for the need of money as follows:

 

  1. Money, by definition, is a "certificate" of exchange of goods (a.k.a., trade) amongst humans,
  2. Money signifies a payment or receipt of goods made by human labor,
  3. Amount of money paid/received is directly proportional to the demand of the goods exchanged,
  4. Amount of money paid/received is inversely proportional to the supply of the goods exchanged.

 

A disagreement to the above definition can be to the assumption I made that money is only based on exchange amongst humans of goods made by human labor (points 1 and 2 above). If there are indeed any goods that are not made by involvement of human labor, then they are like fruits in the backyard that don't require trading with another human. And if you are trading it at all, there is always human labor, at least in knowing the secret to where or how that fruit is. For every scenario one can think of I can show a living human making a payment and another living human receiving that payment[1]. (Discuss: Can you think of any other exceptions?)

 

Another disagreement to this can be to the assumption that money paid/received in a transaction is based only on supply and demand (points 3 & 4). If goods are exchanged for a price, it only means that there's a need by one party for the goods of the other, and a need by the other party for the money of the other. Any individual transaction can be broken down to this generalization[2]. (Discuss: Can you think of any other exceptions?)

 

Mathematically, using the above proportionalities and ignoring any constants (that vary from region to region), the crude formula for the need of money for any transaction/trade is as follows:

 

               .... (Formula A)

 

Note that the ratio of demand and supply is the “valuation” of seller’s human labor by the buyer. For simplicity, you may also write the equation as:

 

 

where Valuation refers to the value of this Human Effort in terms of money it pays.

 

Also, human effort can be broken down as:

 

 

            where Human signifies a live and intelligent seller, and Effort refers to the energy spent in doing some work.

 

Usually this HumanEffort is one that others couldn’t have done for the same requirements of price, location, ease, quality, etc., of the buyers’ personal (emotional or logical) choice; which creates the Valuation = (Demand/Supply). We will use the original formula A for most of our discussions, referring to the Valuation concept briefly later in this paper.

 

 

III. Value is in the eye of the beholder:

 

There are as many ways to look at a trade as the number of people who perceive its value. However, the trade happens only because the buyer agreed to pay for it. This helps to fix the frame of reference of the transaction, instantaneously, with the value of goods traded with respect to how much money the buyer paid, i.e., only the buyer defines the value of all goods traded.

 

This consistency in view resolves many of the complexities of valuation with respect to defining money universally. Let us discuss two questions that arise from this "buyer defines the valuation" perspective:

 

i. What's the value of work that is never traded?

 

A situation of no trade/sale, essentially, means:

 

  1. no/zero value received from buyer(s).
  2. it can be preparation  or home work efforts, or a fruit of seller's own backyard that didn't require trading with any other person.
  3. seller sold the goods to self with no involvement of money.

 

Notice that in formula (A) above, when demand becomes zero, the amount of money in transaction becomes zero.

 

ii. What's the value of trade that is not done by means of money?

 

Any trade that doesn't involve money can either be:

 

1. a barter exchange, or

2. a product to generate money later.

 

A barter style exchange can be a non-money gift, a free service, or exchange of goods/services. Since no money is involved, the state has no regulation over such trade, and therefore, sometimes considers such mass transactions as the black market. In either case, the formula for the exchange will not involve money but exchange of human effort in the following manner:

 

  

.... (Formula B)

 

An agreement or arrangement to pay later is not a money transaction, but a product being sold. The buyer does not have enough demand for this seller's goods, and therefore, the seller carries forward the risk of receiving money payments until later. The seller has no guarantee of receiving the money, and until the payments are actually received, the valuation of the goods is the value paid by the buyer at each of the transactions.

 

If the amount paid was partially money and partially barter exchange, then formula A applies to the part of trade that was done using money and formula B applies to the part that was done using barter exchange.

 

iii. What’s the value of goods bought without the freewill of the buyer?

 

An argument of coercion and duress can be made here, citing cases where the seller forces and threatens the buyer into the trade. This is not a valid transaction simply because this was neither the intent/purpose of money nor the definition of money when money was created as a standard of exchange. However, if we shift the definition of money to legalize this, the laws of Economics still apply exactly as they were meant to – only money loses its capability to follow these laws. Since these events actually happen, where sellers pressurize buyers into the trade, without the freewill of the buyer; I use a theoretical concept called the Progress Quotient to define the ideal definition of money, and then try to align money’s definition as close to the Progress Quotient as theoretically possible. I discuss more of these situations under the section VIII. Regulations, w.r.t Black Market vs. Barter Exchange.

 

Re-iterating the point of this section, if money was not paid then it had no value in terms of money. However, the value of the goods (in terms of money) is set to the money it was traded for.

 

 

IV. Unification of Micro Economics and Macro Economics:

 

The above formula A unifies Micro Economics with Macro Economics (and vice versa). In order to get the Macro Economic picture of an isolated and self-sufficient community, we need only add or subtract the amount of money generated by sales only (since a sale happens when the value was set by the buyer, i.e., value is in the eye of the beholder). So, in an ideal Macro Economic setting with several working individuals, for each individual we perform a summation as follows:

 

             .... (Formula C)

 

where n = number of transactions/trades he has made using either money or barter system.

 

Using the above formula C, we arrive at the Macro Economic total for the community of working individuals as:

 

                .... (Formula D)

 

 

The only correction to the above summation is that there is usually some work that undid others' efforts, and hence must be negated or cancelled out. For example, if one person/team spends effort making something that was counter productive, either in the long run or in terms of the efforts of other person/team, the net effect of their work must be a subtraction, not an addition. In our current monetary/fiscal systems, both kinds of works are paid with money, and therefore are added. This can be corrected by proper regulation and alignment of work, in matters of which current monetary policy provides no guidance by itself. The concept of Progress Quotient, however, provides for such guidance intrinsically.

 

Summary of unification of Micro Economics with Macro Economics: If the number of working people remains a constant for a period of time, we could use formula A to represent the work of that community. In other words, each community can have its own Individual Economy represented by formula C, and we can build on top of these communities a global Macro Economy through simple addition! Of course, the largest Macro Economics possible would then end with the largest community of humans, a.k.a., our entire humanity. This is how the Macro Economics of a smaller community becomes the Micro Economics of a larger community, and how we can unify Micro Economics with Macro Economics.

 

- End Part One -

 

- Part Two -

 

 

The lessons from the part one are as follows.

 

 

V. Money is not dependent on time:

 

As can be seen in the formula for money, there is no component of time in it. Which really means the following three things:

  1. Time + Money = Interest: Relationship of money to time in our current systems is measured by means of interest. As the time increases, so does the interest amount.
  2. Interest is a product: Interest is a product being offered, not something that is inherent to the need or understanding of money. What is being exchanged is an agreement, and the human effort lies in finding the need to borrow.
  3. Variable Interest: By varying the interest, we make variation to how much you can charge for the time someone holds your resource/property. A drastic change in interest rate essentially means that the time is being valued more than the human effort of the person using the money, which in turn pushes the person to work harder so they can have the benefit of borrowing.
  4. Depreciation: All goods or resources that lose valuation in human perspective are considered to depreciate with time. Similarly, goods or resources that don’t, or gain value, appreciate. It must be realized that this is not necessarily a function of time itself, but a function of transfer of energy over a period of time. Therefore, depreciation is a human approximation to loss of value/energy with time, but from an Economics perspective it must be based on the loss of value/energy rather than with time – because of variety of other factors that are affecting on it. For example the growth of a city raises the prices of land – not because land offers more, but trade among people offers more progress/survival in the region. Yet we measure rise in land price as a factor of time.
  5. Economies in history: It is possible to compare money over generations/eras, simply based on valuation of human effort. Life styles, earnings, fairness, etc., can be compared in different eras and progress can be measured. For a progressing society, human effort fetches more in later generations than past generations. For a regressing society, for example, one that is going from civil towns to being lost in forests with wild animals hunting them down, human effort offers less reward/value in the present than it did in the past. Depression and downtimes are examples of short-term regression, and severe depression causes a break down in economic/social stability because human effort is of less value to the survivability of the society.

 

Summary of money’s independence of time: Preparation often takes time, therefore effort often takes time. But money is dependent upon effort; irrespective of whether effort does or does not depend on time. Therefore, “Time is money” is indirect relationship, but not directly proportional in every case. Instead, interest is our way to related time to money.

 

 

VI. Value is in Human Effort (a.k.a Work), not in goods, traded:

 

If everyone was satisfied with exactly what they had, we may not have had the need to trade; but that doesn’t seem to be the case with human societies. Essentially, all goods are traded because of human need, comfort, greed, or survivability. We call it valuation, demand or supply of the goods, and try to set the price/cost of the goods sold. What is really being factored is not the price of goods w.r.t to money/gold, but the value of the goods to human needs for survivability, that are provided by other humans who want something else for it. So, essentially, I claim in this paper that we are giving a value to the human effort, and not to the goods themselves. When one person can do a certain task, so can another after training (this is one aspect of Economics’ relationship with learning/training/education). Only for those tasks that cannot be trained or replaced do we find the maximum price, irrespective of whether this is trading of diamonds or trading of software. Creating more experts in finding diamonds cheaply and in the trade of software manufacture/exchange will bring down the price we pay for such human effort.

 

Due to our monetary/fiscal systems, we pay positive money for tasks that are negative in their Progress Quotient. For example, an organization planting a bomb in a crowded street also runs by paying its employees/mercenaries money. To solve this problem, in the concept of Progress Quotient the currency is paid only to those whose work benefits human society, and currency is taken away from those who work against it – the payment being proportionate to the benefit or loss to human society. 

 

 

VII. Formulation of Economics w.r.t Population and Leadership:

 

From the formula D of (Macro) Economics, we sum up the Individual (Micro) Economies of each person in the community, state, nation, or region. However, an Economy is not directly (nor inversely, for that matter) proportional to the number of persons in the Economy alone. In other words, an Economy is independent of the size of population. Instead, an Economy is a function of the number of working individuals in the Economy to a great extent; but it is also really dependent on the demand (and supply, or valuation) of the collective effort of the persons in the society. All resources (available or scarce) are then dependent upon its need by the society – so a larger workforce may generate greater value (i.e., greater supply), but also depletes the resources necessary (i.e., greater demand). This is the reason why we cannot create a (direct or inverse) proportionality between Economics and the size of the population, or the size of the working population.

 

In this paper, I contend that all forms of leadership are (invariably) Economic Leadership. The leadership guides/aligns the human effort (a.k.a work) of its population, the better it does this, the more successful the leadership is in providing its population a better life style. So, in essence, leadership is in trying to attain fairness in implementing formula A. Fairness is attained by regulation of trade – either by defining what is allowed, legal, and permitted; or by defining what is disallowed, illegal and prohibited; or both. We discuss the importance of such regulation below in the section VIII. Regulations, w.r.t Black Market vs. Barter Exchange.

 

 

VIII. Regulations, w.r.t Black Market vs. Barter Exchange:

 

Leaders (or governments) can align trade in the community, state, nation, or region; or totally ruin it. They do either of these by aligning with the Economic principles stated in this paper, or misaligning with them by giving non-economic entities more importance than the Economic entities. For example, giving importance to material goods, protecting inferior home-made goods, taking advise from non-economic (or economically imbalanced/ignorant) advisors, etc., put states in peril of losing on economic alignment/guidance.

 

As humans are more prone to act based on their survival/position in the economic society: individual economies are usually guided by the emotional positioning for their survival. Regulation then simply becomes a set of laws aligned towards a longer term and macro scale vision that prevents the population from destroying/damaging themselves over their short-term individual economic needs. In order to understand leadership and its responsibility w.r.t to regulation; let us look at the three types of work w.r.t formula A.

 

   .... (Formula A)

 

  1. Produce: This is the type of work where human effort is spent on creating goods that can be traded. This creates the supply portion of the valuation of human effort in formula A. Each product may require a different understanding or technique, but the real purpose of this paper is to point out that each is a type of work that fulfills the needs of human society – needs again being either comfort, progress or survivability. Leadership provides guidance on how this production can be made effective and efficient to benefit the larger group.

 

  1. Consume: This is the type of work where human effort is spent on using the goods being traded. This creates the demand portion of the valuation of human effort in the formula A. Without the presence of this work, production itself becomes a mute point. In other words, this provides the need. Leadership provides guidance on how this consumption can be made optimal and fair for the larger group.

 

  1. Regulate: From the equation, only supply and demand components can be proved. However, there is a third component of work that is required on implementing this human concept of money on the society that tends to find ways to break this agreement. In an ideal world, the amount of money paid is exactly equal to the valuation of the human effort. However, there are creative means by which individuals and groups can defy the Economic exchange. In order to implement the agreement of exchange as stated in formula A, we need to have workers expending effort on implementing fair exchange.

 

There is a production (supply) regulation and a consumption (demand) regulation, making regulation itself a product. The relationship between regulation and money, however, can be misunderstood, unless we look at the formula A again.

 

Formula A is specifically about a particular transaction and not about money in an Economy. Our current monetary/fiscal policies (at Macro Economic scale) controls money without (necessarily) providing guidance to which transactions are being regulated. When a state controls/changes the supply of money, it affects both the transactions that were done fairly as well as those transactions that were unfair (w.r.t to the money valuation of the human effort). In this paper, I bring out that changing the supply of money by the state is itself unfair to the population that was trading fairly. Only by ensuring that the unfair trade is controlled, the state unfairly punishes the fair trade. When a state varies supply of money, the formula A is violated, thereby making money independent of human effort. The more the supply of money is skewed out of proportion, the more Economic instability it causes.

 

Therefore, the correct way to regulate is by creating guidance/alignment such that individual/specific transactions are regulated/controlled/guided, rather than shifting the supply of money (a.k.a varying interest rate). In other words, regulation must be directly proportional to the individual transactions or specific classifications of transactions.

 

In the previous paragraph, we created proportionality between individual transactions and regulation. However, looking closer at such regulations, as they are felt/perceived by an individual, we can derive that regulation affects an individual in direct proportion to his Individual Economy.

 

The places a state cannot control trade through monetary/fiscal policies are:

 

1.      Black Market: A black market can be created either by trading in a local currency that is not controlled by the state, or by a barter system (formula B), or by creating false money. Since there’s no central control for transactions taking place outside the agreed payment of money process as shown in formula A; the state is left out of such trade. However, the creation of false money that imitates state’s currency, the formula A is again defied/broken by changing the definition/agreement of money. Money that must be in exchange for goods is now being created for no exchange of goods/labor – as a result overvaluation (or devaluation) of human effort. [Note: Destruction of money causes similar overvaluation (or devaluation) of human effort. A non-paper electronic money that cannot be created/destroyed in non-government guided means, or one that replaces itself upon destruction/loss/robbery, may eventually solve this problem. This would require keeping an inventory/tab/census of all currency in the system at regular points in time! But a better approach would be a Progress Quotient based system that tracks each individual’s contribution to the progress/survivability of the society.]

 

2.      Barter Exchange: Regulating barter exchange (formula B) requires laws that guide moral behavior rather than monetary policy. Levying fines, for example, takes away money (i.e., previous reward for their effort) for unethical barter exchange. However, not all forms of barter trade can be regulated without making an inventory of all items individually/atomically trade-able in the Economy! A states’ unfairness in setting money’s definition in compliance with formula A, while turning a blind eye to barter exchange, social transition towards barter trade will take popularity. [With sophisticated trading platforms (like eBay) money transactions can be entirely avoided by finding exactly the items one needs and finding one level or multiple levels of trading with exactly those that one wants to sell. So, instead of sending a society into such unregulated barter trade, a government must keep control on how closely it complies with regulating/aligning definition of money in the Economy of the state.]

 

During uncontrollable depressions, and attempts to control the Economy through central/global monetary/fiscal policy, a leader may find that his stimulus or interest rates become independent of human effort. That happens because regulation is happening at a level that can be circumvented, or in itself is not regulating the problem but is concentrated on the entire Economy (akin to a medical attempt that deprives the energy of a patient in the hope that will cure him by weakening his cancer). All that is needed, instead, is the growth of targeted regulation at the same pace as trade (production and consumption).

 

  1. Agreement with interventionists: In this paper, I agree we must regulate, but for different reasons. We need to regulate only the amount of money to be a constant over a period of time and regulate it to achieve fair valuation of trade so that it approaches the ideals of the equation in formula A; or better still match Progress Quotient of each individual trade/exchange. For example, regulation to achieve fairness (w.r.t formula A) can be by prevention of coercion, associate actions/effort (or lack of it) to individuals/teams rather than by race/creed, etc.

 

  1. Agreement with non-interventionists: In this paper, I agree we must not regulate, but for different reasons. Do not regulate by changing the supply/amount of money in the system, because it is inherently unfair to fair traders who are being punished for/alongside the acts of unfair traders.

 

Summary of Macro Economic regulation: Amount of regulation required is directly proportional to the number of transactions taking place. By organizing the possible transactions (allowed) and classifying them in to categories to be regulated; the amount of regulation can be brought down to be directly proportional to the number of types/classifications of transactions taking place. The supply of money must be kept constant in the system and must be large enough to provide enough denominations and supply for its population. Technology may eventually help in creating money that cannot be destroyed or robbed. Irrespective of the means adopted to keep the money supply constant, the state can abide by its economic fairness only by complying with the agreement/compliance with formula A. Further, I deduce that the regulation coming towards an individual is directly proportional to his economic contribution to the rest. That is, the definition of leadership in that essentially it is: aligning the definition of “good” with “long-term economic good” (or Progress Quotient) of their population; and aligning the definition of “bad” with “long-term economic bad” of their population.

 

Theorem A: Production = Consumption = Regulation, for Economic Balance.

 

 

IX. Fixed Cost vs. Bidding:

 

In this paper, I have mentioned earlier that value is in the eye of the beholder. This essentially translates to every transaction being a bid. This is an important lesson, and could explain why the notion of scarcity increases demand as well as why uncertainty in gambling/bidding/stock-trading are attractive outlets.

 

Each transaction is actually a bid for the buyer, even in case of a fixed cost item. Only the bid has no negotiation capability, and the buyer has the only choice of buying it or leaving it. Using efficient and state-of-art mass manufacturing capabilities, selling organizations usually try to reduce the price so much that a person cannot make the same thing on his own at home/garage, and hope that they can create a need for their product in the buyers’ minds (through marketing and branding). However, from the buyers’ perspective it is a bid between whether he needs it and is willing to pay the quoted (fixed) price to have it.

 

Another motivation for fixed cost, besides simplicity and significant lower price through mass manufacture, is the open information to cross comparison between how two shoppers were priced. While this is not popular practice in many developed countries at each store (except, of course, ones like eBay or Priceline), price-haggling and negotiations are a common practice in many other countries. Besides the lack of remorse each buyer and seller has after having agreed to pay the price they settled for (lowest possible according to each of them), it really shows that the customer/buyer makes the transaction if a fixed pricing scheme is not followed.

 

The uncertainty in modeling such Financial systems scares both customers and corporations/dealerships in many developed countries, but still there are often places were such negotiations are the way of trade in these systems (e.g., stocks, eBay, Priceline, car purchase negotiations, home purchase negotiations, etc.)

 

Economic Relationships: Contrary to popular belief that relationships are formed based on emotional factors, in the hard realities of life, relationships are formed based on bidding for Economical factors (for survival, stability or ambitions/progress). This Economic model of relationships suggests that all families, friendships and other relationships are built on bidding for exchange of Economic needs. Even if money is not involved, there is an exchange of HumanEffort that follows the formula B. Leader and follower/population relationship discussed in Regulations above is one such relationship. (Discuss: Can you think of any other exceptions?)

 

 

X. Humanity as one entity, with individualized Progress Quotient:

 

A Macro Economic picture is linked directly to the Micro Economic picture. Besides the unification of Micro Economics with Macro Economics, we can use formula A to unite the purpose of why people buy products to begin with. Whether it is an individual or a state, people buy to help themselves survive. While some see the buying linked to progress and not to survival, I consider progress as a means to create a greater buffer with the chances of survival.

 

The Individual Economy of a person is then the human effort spent on producing goods relevant to the survival of the rest of the society. This society can be a township or a nation or the whole world – the greater the impact of a person’s human effort on the rest of humanity, the greater is his individual economic status. This is how I find Darwin’s evolution gets unified with Economy (survival of the Progress Quotient fittest), and thereby Economy gets unified with other Ecological behaviors.

 

Current forms of (Macro) Economics draw based on region/state/nation, but in actuality, that causes unfairness when any region/state/nation changes their definition of their money. More so, if they do so more erratically than the rest, they cause themselves pain in the process too!

 

Since the Economy requires both the seller and the buyer to be in the Economy, any trading community that is in connection with another cannot exclude the Macro Economics of the other in their Micro and Macro Economics. For doing so would skew the formula to not be able to account for something that had human effort and exchange of money, yet cannot be holistically accounted for. Therefore, a Macro Economics science can only be complete if you include all trading partners in a larger (“Macro Macro”) Economics.

 

Either a community must be entirely isolated in terms of trade and social exchange to be considered a complete Macro Economy; or it must be made a part of the whole Macro Economy. Also, formula A specifically refers to “human effort” (as in “human” effort/activity), thereby connecting “humanity” rather than goods/materials (e.g., the diamonds on Neptune/Uranus that we haven’t been able to reach) into one Economic system. In the possible future case of our trade with an alien civilization, a complete Macro Economy would then include the monetary (if they honor a valuation/exchange of money by providing a constant exchange rate) sum total of the Economies on all sides, creating a universal Macro Economy. But for now, a monetary Economy is limited only to humans, and thereby limited to being treated holistically by including all of humanity that is connected by Economic (or socially economic) trade.

 

However, it must be pointed that the Economy is the sum total of the individual economies. We give each person a right to trade and thereby create his role in the Economic activity. Of course, an Economy cannot be considered to be the sum total of all the goods/assets in it.

 

Objective Economic Value of a trade: In the section “value is in the eye of the beholder”, I presented the view that all trade happens because of the buyer. Essentially, the buyer gets into the exchange because of either a need for survival or emotional alignment with some individual goals he believes in. This makes the trade valuation very subjective, based on emotional valuation and difficult to universally agree upon. Combining this value in the eye of the beholder with the actual value that trade offers the rest of the community, a.k.a humanity, we arrive at the actual objective value of the trade. In other words, trades that have an individual (emotional) gain without a necessary global gain (e.g., one that creates pollutants) are considered uneconomical in the view of others, and especially those who think they understand either the short-term or longer-term implications or both. In this paper, I am asserting that the long-term or short-term economic advantage is not subjective in he who thinks they know more, but are definite/objective when taken with the view of survivability/progress of humanity as a whole. The solution/model for the framework of this view (that is built on top of Progress Quotient as the tiny basic/atomic/elementary entity) is beyond the scope of this paper and I intend to write it separately.

 

 

XI. Economic value of Learning, Training and Education:

 

When one person can do a certain task, so can another after training (this is one aspect of Economics’ relationship with learning/training/education). However, when learning increases, so does the value of the goods the labor generates increase. While it may seem to generate competition in individual Economies of the population, with a proportional increase in learning of regulation to guide/align Economic benefit to the larger community, such balanced learning actually generates greater value in the (regional/national) Economy due to the creation of more valuable products. Extending this to the concept of humanity as one entity; we would find that the life style (in terms of what goods are available in the market) will have risen.

 

Had we kept the supply of money constant and grown regulations proportionately, we would find a better life style for the same amount of work (human effort). We would also then be able to compare the value of money and its relationship to lifestyle over a period of several generations (independence of money over time). An increase in valuation of such money would signify progress and growth of humanity, and a decrease would signify regression and extinction of humanity.

 

 

XII. Analysis of continuous foreign aid and international loans:

 

Poorer nations in the world happen to be so because they don’t have the means/methods to trade with the rest of the world. From formula A, if human effort is spent on tasks/goods of high supply or low demand, the valuation of such effort in the global market is lower. Poorer nations produce goods with human effort worth near zero valuation for the other global nations, either because they don’t have scarce resources (like those of diamonds, oil, etc.) that can be traded at higher valuations (demand for “finding” such resources), or produce crops less efficiently in markets with excess supply. Remember, valuation = demand/supply.

 

Counter to intuitive logic of poorer nations suffering their fate or reaping consequences to their own actions; as shown in humanity as one entity above, we all reap their disadvantages. From formula D, we find that individual (micro) economies of persons in a community affect the total (macro) economy directly. So, if one individual dies in a community, the economic advantage of the economy goes down; and others are stressed to take up his share of the work, or trade with other communities for the work he used to do for them. Similarly, the individual (macro) economies of nations affect the total global economy.

 

In a scenario of foreign aid or international loans being given to poorer nations continuously, it sets the stage of double losses to humanity as a whole. Here’s how:

 

  1. Information Education/Training Disparity: The citizens of a poorer economy don’t work, or cancel their work with each other. When that happens, the sum total of what they can trade with other nations is very low. Let’s first look at why people don’t have an individual economy. Education and training are essentially ways to bring people into an individual economy, by showing them how to create goods that are useful for the survival of others – which then makes them capable of being able to buy goods for their survival. Therefore, there’s a direct proportionality between work (human effort) and education/training. Now let us look at the case where work on one person/team is cancelled by the other. In national economies with insufficient regulation, there is not enough economic leadership to align the work of its constituent individual economies. Further more, time spent without working is often spent for mischief that creates negative individual economies. This increases the load on an already economically burdened and economically incapable leadership, thereby, breaking social order and making the whole process difficult. The solution I present in the paper is that of global training to (a) get the individuals to work that lets them create their individual economies, and (b) get the leadership to have the regulations that are based on economic leadership.

 

  1. Work Stress Disparity: The nations that give aid essentially give away human effort of their people (individual economies) to feed the individuals of poorer nations. This is similar to the stress of having to make up for the dead workers or non-workers. By using the same solution of training the poorer nations do work that strains us, we reduce the amount of stress/deficit advanced economies endure.

 

The correct way to solve this is to create individual economies for people in the poorer nations, specifically training them in doing the work we are stressed with doing, and get done with it once. If not, we not only elongate our stress, we elongate their suffering – akin to keeping them on false respiration (neither letting them die, not curing their suffering). For instance, this suffering may often come back to the rest of the economically advanced world in the form of terrorism.

 

 

XIII. Tools and Progress Quotient:

 

In our formula A, if we could get more money for less HumanEffort, we would use our HumanEffort on things that are important not to others but those that are important to us. In other words, anything we give ourselves is fun; anything we give others is labor.

 

Tools are means to maximize money for minimum HumanEffort. Therefore, a tool creating faculty is often higher in demand than a labor based one. Since learning and knowledge are required to create tools, this shows that thinking and planning hold a greater demand towards finished tools, than a labor (force) employed to create the tool.

 

Learning and imparting of knowledge have been more difficult than working with tools, primarily because not many leaders see the Macro Economic value proposition in free and learned workforce that is created by helping others grow (Meritocracy). Helping others (or rest of humanity) grow has been considered a hero like quality, essentially meaning that all social heroes are essentially so because of their Economic leadership. Irrespective of their relative position in the society a leader is at, the quality of lifestyle and quantity of goods available to both leaders and the population is directly related to the learning of its people. In other words, had we had a single currency across the globe, the leaders who oppose merit-based society set themselves up to creating poorer societies in comparison to those that don’t. Meritocracies, in the same time, create tools through freedom and thought that generate more value (monetarily as well as Progress Quotient wise) for minimum HumanEffort.

 

Due to the variety of tools possible and using the resources available to humanity, more and more efficiency can be reached in helping guide leadership to align and regulate the work of their population economically as required by formula A. For example, the leadership can align work by eliminating hurdles, re-work and negative work (work that cancels out others’ work). It can regulate work through more flexible laws created through learning. Although resources are disproportionately distributed throughout the world/universe, had they been more proportionately distributed, the problem of “disproportionate learning and knowledge” would continue to plague humanity. A “proportionate distribution of learning and knowledge”, on the other hand is not a problem, instead it would be a solution for the current problems of “disproportionate distribution of resources”, through trade!

 

People cannot think of long-term Macro Economic value of their efforts unless their short-term Micro Economic lives have guaranteed survival – either through available opportunities to work, or through Economic leadership aligning their work into creating higher valuation products. The lack of opportunities creates frustration and often drives frequent changes in leadership. This self-fulfilling prophecy of short-term focus then consumes the population and leadership, both of which struggle too long in the short-term to even think/work towards their long-term Macro Economic prospects. Imparting learning in terms of regulations, specifically w.r.t creating diverse learning, equal opportunities and meritocracy, can help these doomed Economies realize the Macro Economic value of following the laws of Economics.

 

 

XIV. Money, historically:

 

Valuation of goods and human effort has changed during time. The best way to track this would have been to have set the currency constant in supply. But since gold, diamonds and rubies were continuously manufactured/discovered alongside holding them as the economic currency; we don't have a comparison of human labor over periods of time. Even though we now rely on currency standards less dependent on gold, etc., we still vary the supply and valuation of money itself, making comparisons over the eras virtually impossible. What has really changed is the valuation of human effort (per domain in each of those domains), but by having varied definition of currency in that era, we have lost the yardstick to say anything about such comparisons.

 

Using the formula above to assign a valuation of a constant supply of a large amount of unified and pervasive currency, we can track valuation of human effort and productivity over the ages. To circumvent this disadvantage of money, I've created a measure called Progress Quotient that is independent of the measure of the then prevalent currencies.

 

For instance, work done by a slave who was paid nothing but was fed enough to survive was unfair, but an economic performance nevertheless. In a current, comparatively modern economies, we work producing value (ideally in what we enjoy working for). The valuation in such freedom comes from the higher value of what we deliver to the rest of the community/humanity, not necessarily merely from being freer than the slaves who were bound to stricter regulations.

 

The concept of Progress Quotient takes into account the several shortfalls of current and past currencies, as it tracks the progress/survivability of all connected trading communities as one humanity for that time. Per individual's actions/trade, a Progress Quotient is assigned based on how his act has helped forward the then humanity.

 

 

XV. Money today:

 

Money today is a better vehicle of trade than has been in the past, mostly due to the economic understanding, economic leadership and economic laws/regulation. However, without regulation to align the individual transactions (or individual economy or individual economic advantage) to the whole, money can very well become the vehicle to short-term economic good of fewer individuals, without the much needed long-term vision/guidance/leadership for economic good of the entire community/humanity. The lack of this understanding was, I believe, probably why money was associated to greed and materialism, instead of economic guidance or laws of economy.

 

However, even today, we have monetary/fiscal policies at several regions/nations that are not aligned with the economic good of the larger humanity. For example, a shift in supply of money, change in interest rate, ad-hoc valuation of currency or goods, or a change in the exchange rate of a region/nation, etc., amounts to short-term balancing acts that provide non-optimal guidance over a longer-term. There are better ways to manage the same with the entire humanity as the central Macro Economy; and regulation being aligned with Economic good in a Macro Economic fashion.

 

For instance, regulation may be better spent on replacing destruction of money, rather than increasing the supply of money. What happens with such balancing acts is that we balance the lack of money, but don’t really give it back to the person who needed or deserved it – we just put it back into the circulation. On the same lines, by reducing the supply of the money in a system, we take away healthy innovative industries as well as the inefficient ones; whereas all that was needed was not a change in the supply of money but in the regulation of trade.

 

Certain improvements in our monetary/fiscal systems will improve the valuation of money towards actual progress due to it:

1)      Ascertain that money cannot be taken away without equivalent goods provided. In other words, robbery must not be a possibility if money has to be a trusted medium.

2)      Similarly, change in the supply of money must not be a possibility. If a certain amount of money was “burnt” in a bank or lost in a cervix, use technology to replace the missing currency. This may require some form of tagging or inventory of currency; but it is very well worth the effort!

3)      Lastly, regulate fairness in transactions at as much granularity as possible, not at global level of interest rates or supply of money.

4)      Stocks and bonds are products built on top of money. In other words these are forms of storage of human effort. The amount of regulation of these must be directly proportional to the amount of transactions, so that we guide the definition of these agreements.

5)      Taxes are one way of circulating populations’ work into helping the government regulate (and align) their collective work. However, regulation can also be done by private sector companies that follow common guidelines laid down to follow Macro Economic principles of Economic leadership.

 

 

XVI. Money vs. Progress Quotient:

 

Let me attend to a few prerequisite concepts before I take you into the main topic.

 

Need vs. Greed: It is important to remember that there is no economic distinction between need and greed. Both are means to consume. In the English sense of it, thought, basic needs are often considered need, greed is a need for a greater comfort. Furthermore, it can be derived from combining emotional psychology of trade with this Economic understanding to see that short-term economic advantage in an individual economy is seen as greed, and long-term economic advantage in individual economy is seen as justified or need.

 

Progress vs. Survivability: In the explanation of Progress Quotient, I point out that progress is another name for guaranteeing ease in survivability. Essentially in the English sense of it, survivability is being at the brink of survival with each economic decision, while progress is being not at the edge but creating more and buffer to that corner situation. I consider both progress and survivability as attempts to guarantee better/easier survival.

 

Now coming to the concept of money vs. the concept of Progress Quotient, there are subtle differences. We will use formula A to define these differences, since we do not have a period of time when money was kept constant. In formula A, it is possible to make more money by decreasing the supply when the demand is high – which has been done many times historically. This has been termed as greed – the need of one/few person(s) to hoard all the money of others. It has been forwarded that it brings progress to one/few, for the survivability needs of many. And the way the person(s) hoarding money went about getting exquisite products, often at exorbitant prices, were not from his own populace but by importing it from lands that had more freedom and innovation. In other words, the collective HumanEffort of many is traded with the average HumanEffort of foreign traders to fulfill the need/greed of few.

 

Wars are detrimental, but necessary in case a part of humanity tries to eliminate the survivability or progressiveness of its own humanity, due to seeing much smaller Economic value than the whole. Collaboration is better means to survival, but those who at some level try to ascertain their survival at the cost of others often lose the war against those who don’t – because they are fighting a war against economically advanced human societies and their developed systems. In other words, it is not the good that win, they win because they were good (collaborated effectively and efficiently).

 

All money attempts to do is to unify the multiple resources needed for survival and progress into a single acceptable medium of trade. Since Progress Quotient was itself designed as a theoretical concept to maximize fairness, survival and progress of humanity as a single entity; the following theorem represents its relationship to money:

 

Theorem B: The more closely you link money to Progress Quotient of a person, a team, an organization or a machine; the greater the fairness and happiness such system delivers to its human society.

 

 

XVII. Laws of Economics are universal:

 

Extending the laws of Economics to non-human barter exchanges in other eco-systems, viz., human body; circulation of money is like blood in human body. Ants, insects, plants, and entire eco systems follow the laws of economics, but their medium of exchange is a constant but large amount of energy. (Our primary source of energy for all life forms being the Sun!)

 

This definition of money is universal and it shows an important aspect of Economics - that even though money is a human definition, it has been following laws like any other physical phenomenon. However, it is our change in the definition of what we call money that shifts the balance and creates the difference in our current understanding of money.

 

One important point of the proportionality in theorem B is that money is directly proportional to energy (i.e., effort spent by a human to grow human life), especially, within context of that work having demand from other humans. Do not understand this as the physical energy spent by the human, but the rarity of such talent (low supply) despite its need (higher demand) by human society for its survival/progress/happiness. I myself understand it better by considering humanity to be a producing, consuming and regulation machine that grows by doing so; and as it grows takes more energy. Since expending human energy and money have been linked up in direct proportionality, it follows from conservation of energy that the amount of money in Economics cannot be changed by humans, nor can the human labor/effort, i.e., energy. However for growth in number of humans and improved chances of survival of humanity, amount of energy available to humans (or generalizing, intelligent life) will increase as long as the resources powered by the Sun continue to be the source of our energy.

 

Energy moves from non-living to living when we work for our benefit – that’s how living wins over the non-living. But there’s competition within the living, and humanity has to win in living against the living things that try to eliminate it. This is work too. In other words, we work to take control of our lives with factors that enable us to do so; and to protect ourselves from factors both living and non-living that try continuously to do the opposite. In essence, Economics is a collective game of survival.

 

Theorem C: Economics is related to the energy in the (intelligent) system being evaluated. The more energy human life forms (humanity) gain, the more humanity grows and progresses, economically.

 

The only notable difference between monetary Economics and eco-system Economics is in the theorem A: Production = Consumption = Regulation; in that regulation happens by laws of Physics following the laws of nature/universe in the case of eco-system, whereas humans need to put in work to ascertain regulation in the case of human concepts like money!

 

- End Part Two -

 

 

Executive Summary: The essence of this document is that: any Economics that is measured for the growth of the observer must first factor in the needs of the observer with respect to its survival/progress and then factor the resources/commodities that fit into those needs next. What happens today is in reverse order, in that we value resources/commodities of the economy with respect to only those who trade using a particular medium of money, while in reality the trading base is much more limited than the presence of resources/commodities.

 

A true Economic picture with current systems would emerge if we factored energy contained in the universe in all the resources, then used money to control the fraction of the energy it represents towards trade of resources in its system, and further factored the supply of money to be based on this calculation. Otherwise, the fraction of the energy/resources/commodities an Economic system trades in will not be a closed system, while our attempts will be to continuously work on compensating this open system (where energy/resources flow in and out uncontrolled) to simulate a closed system (without actually knowing what was added and removed from the system of our interest).

 

- END -

 


[1] Animals, plants, nature, angels, or aliens have no use for money. Money is a human-only concept. For instance, if you used a dog to fetch a duck, and sold it in the market; the dog wouldn’t care for your money, it would be your trade essentially. Further, if you pampered your dog with things you buy for it, it is you and not the dog that makes the transaction.

[2] Note that these are the minimum requirements to define money. If you know of any concept that breaks these requirements, we are essentially changing the definition of money without actually being able to affect the laws of Economics.