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Date: 2019-05-20 Page is: DBtxt001.php L0700-UA-EC-ECONOMIC-CAPITAL

UNITS OF ACCOUNT
for ECONOMIC CAPITAL
THE UNIT OF ACCOUNT FOR THE FINANCIAL ECONOMY

MONEY WEALTH / MONETIZED VALUE
Money / Profit growth / GDP growth / Stock Prices / Cost push inflation / Wages chasing prices

Many economic / financial metrics show growth and are considered good

Stock market

Intangible value

Money supply

World GDP growth

US GDP growth
Metrics about social performance are less positive and mostly ignored

GDP v GPI

Value of $ down

Wages flat
Environmental issues are alarming but ignored by decision makers and general public
CO2 concentration
Temp v CO2

Sea level rise

CO2 emissions

PURPOSE OF MONEY
PURPOSE OF MONEY
Everyone is familiar with money as a unit of account.
Money serves two purposes:
(1) as a medium of exchange for the transaction; and
(2) as a store of value.
Money and double entry accounting was a very powerful system for accountability when the economy was relatively small and impact on society and the environment could be ignored without much consequence.
But the 21st century is different. The population of the world has increased to almost 8 billion people compared to just 1.7 billion in 1900. The degradation of the environment in many different ways has now become consequential.
There is a need now to account for ALL the impacts associated with economic transactions, not just the financial impact, and for this a complete set of UNITS OF ACCOUNT are needed, and not simply the MONEY metric that is being used for financial transactions.
The way money works needs to be better understood. There are some very disturbing aspects of money that are being ignored ... maybe because it is complicated, or maybe because the system of money simply does not have any foundation that will be understood.
WHY IS THE VALUE OF A DOLLAR DIMINISHING?
It feels a lot like the general population are being treated like little children ... having more money makes people feel good, even though this money is smaller than it once was and cannot buy very much.
TPB comment: I worked a lot in Nigeria during a period of a couple of decades post 1974. I was friendly with many Nigerians, and I remember one of the Chiefs observing to me that he had always wanted to be a millionaire, but he wanted to achieve this by his wealth going up and not the value of the local currency (the Naira) coming down! In 1974 the Niverian Naira was worth $1.50. Some years later, $1.00 was equivalent to 400 Naira!
Money is not a good measure.
The measures for distance do not change
The measures for mass (weight) do not change
Bluntly put ... we do not have a measure for wealth - financial or otherwise!
What value is a house ... a home?
TPB note: I grew up in this house. In 1948 my parents bought this house as sitting tennants for £800. A few years ago, around 2010, this house changed hands for around £480,000. I am sure that there has been some modernization of the house, but the change in the relationship between the house and the money is ridiculous.
In 1976 I bought a house in New Jersey, USA for $59,000. We lived in the house for a few years and then sold it for a modest amount more. Around 2015 this house sold for something in excess of $700,000. It makes no sense ... but it does reflect the reality that modern money has been devalued massively relative to real assets!
More about FINANCIAL CAPITAL Open L0700-CS-FC-FINANCIAL-CAPITAL



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TrueValueMetrics (TVM) is an Open Source / Open Knowledge initiative.
It has been funded by family and friends plus donations from well wishers who understand
the importance of accountability and getting the management metrics right.
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