Global Price Unit Equals the Law of One Price!

by Douglas Ungredda
(Caracas, Venezuela)

Mr Oliveira'S proposal assumes same accounting and technological standards.

This proposal falls short of reinstating the Law of One Price espoused by Purchasing Power Parity theorists back in the XVI century, where one good made in countries A and B bears a same price equalized by the going exchange rate.

Mr Oliveira proposes the dismantlement of the currency markets transforming prices just like it was a temperature unit of measurement or a unit of length, or what might have you for argument' s sake.

This could also be Marxist theory of value revisited. Same work under the same conditions should bear one same salary. The point here is that qualitative differences cannot be compared because of subjective values and supply and demand conditions of labor, natural resources and climate, etc.

China's labor costs are a fraction of Japan's, better off at robotics. If its difficult to accurately asses the resources needed to produce anything with a Leontief's input output table, now its impossible to engage in such an exercise.

Other considerations follow.

1-Hypothesizing uniform methodologies and production processes to a price unit standard, these suffer from the same distortions as currencies.

2- Currencies serve as a pricing unit denominator for millions of variables that play into an economy, being technology, labor input, services, consulting, climate, natural resources, just a few. Attempting a price standardization exercise becomes impossible.

3- In a sense, Mr Oliveira eliminates a currency to create zillions of new pricing standards in exchange. How could we envisage one same price standard for many qualitative differences among goods and services?

4- Last but not least, the world currency market has approximately 125 currencies (pricing standards) and still falling. His methodology could prove useful if he managed to reach one and same pricing standard, dispensing with billions of qualitative considerations required to compare goods among themselves.

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Author's reply
by: Francisco Oliveira

Thanks for your comments.

You may have misunderstood the point that the proposal does not defend invariable prices. Prices in the new scale that we can call "units of price" would vary according to supply and demand of the respective product, so that the price of product X could be 5 units of price in one market and 6 in other, etc. The proposal however introduces another variable, the currency-price exchange rate, to accommodate (separate) overall variations of currency supply. For example, if currency supply increases in the whole market, currency-price exchange rate would vary (instead of prices in "units of price); if only one product supply increases, currency-price exchange rate would stay the same, and the price in "units of price" of that product in that given market would vary.

Also, the proposal does not imply elimination of any currency. They would be issued and used just like today, no change, except for the currency-price exchange rate and that the prices would no more be expressed in currency values, but in "units of price".

Try to evaluate this explanation carefully to see which of your comments points still remain valid.

Pricing Units or the End of Global Money Illusion
by: Douglas Ungredda

Your proposal sidesteps the issue of how the G-4 countries use existing monetary asymmetries to their advantage, to preserve the geopolitical status quo. This means that the rest of the world gladly accumulates these liabilities and represents then as reserve assets.

USA, Japan the Eurozone and England are presently engaging in Quantitative Easing policies to "hopefully" stoke inflation.

This is precisely the point. In this conjuncture within the group of G-7 countries as depression is still a possibility low and very low growth in consumption, no investment in added capacity and employment is below expectations. Therefore the fear is that these economies might fall into recession or even depression.

Besides:

1- The USA or the other G-4 countries won't give up their privileges to issue domestic currency liabilities at will.

2-USA will not relinquish for this purpose his role of lender last resort to the world.

3- Therefore, entertaining price units to adequately price goods for this matter means the end of price myopia.

Therefore, eliminating "negative effects" of currency supply overhangs does not address these restrictions.

I hope this clears the debate.

The political barrier
by: Francisco Oliveira

Thanks again for your suitable comments.

Indeed, you explored one of the main barriers for this proposal, the political one. Only if it proves itself feasible through several research simulations we can imagine that the political world would begin considering it.

So, first step is to achieve successful scientific test. Moreover, scientific validity is independent from the will of politicians.

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