The Science of Scarcity
Posted February 10, 2021
Ever since the age of David Ricardo in the 18th and early 19th centuries, economics has been known as the “dismal science,” the science of scarcity. Lionel Robbins, the eminent British theorist of the 1930s, defined the subject as the “study of the use of scarce resources that have alternate uses.”
The environmental movement asserts that these scarce resources are primarily material, limited in quantity, and becoming ever scarcer with the growth of consumption and human populations.
In the early 1970s, the national debate began to congest with green goo. Jimmy Carter dithered in the White House while long queues of dour motorists were formed around gas stations. Paul Ehrlich’s Population Bomb rode high on best seller lists.
With petroleum prices soaring, theories of “Peak Oil” prevailed. The media alarmed the world with Ehrlich’s predictions of coming worldwide famines and plagues.
In 1971, Nicholas Georgescu-Roegen wrote The Entropy Law and the Economic Process ascribing the scarcity to physics itself, the second law of thermodynamics. He declared that this law is permanent and inexorable and fundamental to all economic activity. Everything is wearing down and running out. His conclusion was that measured economic growth is largely an illusion, with measured profits nullified by environmental depletion.
Pooley and Tupy point out that the assumption of scarcity merely reflects the infinitude of human wants. As the Rolling Stones proclaimed in 1969 and after, “You can’t always get what you want.” People nearly always want more than is available to them.
Scarcity in this sense is a subjective, elastic, and essentially unmeasurable condition, best left to the Rolling Stones.
Constantly Changing, Constantly Evolving
If scarcity gauges what we want and abundance what we have, abundance is more open to objective measurement. We can measure it through the price system. When something is economically scarce, the price goes up. When it is abundant, the price goes down. Thus, we can take the movement of prices up and down as signifying a growing scarcity or abundance.
However, there is a problem. Prices not only vary across national borders, they change constantly. Prices are reflected in money and represented in some 100 significant currencies. Led by the dollar, yuan, euro, yen and others, their values float against one another in international markets conducting some $6.7 trillion of currency trading every day — some 25X world GDP — up some 30% in the last measured three years, while trade flags and economic progress stagnates.
Economists compare these money prices through some gauge of “purchasing power parity” based on the prices of a basket of goods in different countries. Sushi may cost less in Japan than in Kansas. The Economist magazine solemnly recounts a “cheeseburger” index compiled at MIT. Others compare the cost of a fashionable man’s suit because this price has historically traced the price of gold.
Economists adjust these prices over time by a variety of “inflators” and “deflators” — the consumer price index (CPI), the GDP Deflator, the Producers Price Index, the Consumer Expenditures price index, the CPI minus allegedly volatile prices of food and energy, the Walmart price index of Hong Kong economist Charles Gave, and on and on.
Just as exchange rates measure values across national borders (across space), interest rates measure values across time. Presuming the you can resolve on the right index, the right currency values and the correct basket of purchasing power parities, you can come up with estimates of national and world economic growth. You can calculate “real interest rates” (adjusted for the inflationary devaluation of the currency) and you can guide central bankers and national treasuries in setting nominal interest rates.
If economics is the study of scarce resources, money mediates among all the alternative uses and trade-offs. Money serves as a measuring stick, translating into economics the fundamental scarcity of time. Time is what remains scarce when everything else becomes abundant. Central banks can print money, but they cannot print time.
As an instrument to measure abundance and scarcity around the globe, Tupy and Pooley have resolved on what they call “time-prices.” Time-prices register how much time it takes an average worker to earn the money to purchase a particular good or service.
This is a profound and revolutionary breakthrough in the economic sciences of measurement. It obsoletes all the complex, changing and politicized apparatus used to adjust prices and commodity baskets across time and space.
Using money as time in a measuring stick gauged in minutes and hours to buy a thing, they show that all prevailing economic data registering GDP, growth, real interest rates, rates of innovation and productivity growth, economic conditions between countries, eras, and generations are unnecessarily complex, deeply misleading, and simply wrong.
Measured as an information system, economics can continue even while its incentive systems are muddled and manipulated by governments. To measure life after capitalism, we must resort to the information theory of economics, ordaining that wealth is knowledge, growth is learning, and money is tokenized time.
Let Biden and his masked men and women rob the central bank and your retirement account. Entrepreneurs will continue to seek truth and power around the globe. We will follow them there.
Editor, Gilder's Daily Prophecy