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Time: The Anchor of Monetary Values

Futurists must have a sense of history, or else they end up caught in an endless uncorrected loop, recycling the errors of their ancestors.

To disprove the scarcity mongers of today, my friends Marian Tupy and Gale Pooley are debunking the myths of 19th century, Malthusianism.

Pastor Malthus was the early 19th century cleric who believed that population growth, which rises geometrically, inevitably outruns food production, which is merely additive. Food production is a proxy for the plenitude of the planet, comprising energy and everything else.

With his specious math, Malthus persuaded most of the era’s paramount “dismal scientists” that the world was headed for famines and plagues. Even the titan David Ricardo succumbed to Malthusianism.

You think that’s irrelevant to our future?

Thronging our Universities today are doomsday Adventists, gathering on mountaintops of big data to predict the apocalypse. They uphold the same myths of 19th century Malthusianism. Sometimes they call it “climate change,” sometimes “overpopulation,” sometimes “choice,” sometimes animal rights, sometimes CO2 “pollution.” But it’s all the same idea that human life is a “plague on the planet.”

Just as today, experts in the 19th century drastically underestimated the impact of new technology and learning. They also imagined that resources are physical and are running out. Similar to today they believed that the world was hopelessly overpopulated with humans and under endowed with resources.

The Time-Price Theory Reigns Supreme

By 1980, the world’s population had grown by some 2.5 billion, but Paul Ehrlich in a famous best-seller The Population Bomb thought it portended inevitable famine. By 2019, the world had added another 4 billion people. But still Malthusianism reigned on the campuses. People wrung their hands at the prospect of bearing more children.

In the 19th century, they missed the upside of the industrial revolution. Now they miss the huge productivity gains of the information age, expanding the ability of the planet to sustain life far faster than modern life could expand population. The technological advances increased real incomes, reduced real costs, and enlarged real resources drastically faster than economists could measure before Pooley and Tupy wrought their time-price revolution.

Returning to the actual data of the Malthusian era as he did with the data of today, Gale Pooley applied time-prices to disprove Malthus at the source.

Declining time-prices register abundance by showing that workers of the day could buy all they needed with an ever-diminishing number of hours of work. These are the real prices, not the manipulated money prices that governments publish.

Pooley wrote:

“If Malthus had done his research he would have realized that as population was increasing, incomes were increasing faster than food prices, making their time prices cheaper, thereby defeating his theory.

From 1700 to 1798 population in England increased by 49.1%. Nominal GDP per capita increased by 93.7%.

Malthus thought the end was near, but England was enjoying accelerating abundance, a condition where time-prices are decreasing while population is increasing. More people were making things cheaper for everyone else.”

The time theory of money moves on to new triumphs. Affecting every business decision, money essentially translates into the economy the inexorable limits of time: time is what remains scarce when everything else grows abundant.

Today we live in a cornucopian world of abundance, with time-prices plummeting everywhere while population continues to grow. Since 1980, world population has grown 71% while time-prices have dropped 72%.

Real Money and the Scarcity of Time

The time theory applies both to money and to commodities.

The mistake most economists make is to imagine that money is a commodity itself rather than a metric for valuing commodities. Thus they have thrust all money measurements into a muddle of floating currencies and arbitrary inflation indices and purchasing power parity guesswork.

Monetary values remain stable only when they are anchored in time. Investors must be faced with the real scarcities of life: the speed of light and the span of life.

In practice, for money, the relevant anchor is the time it takes to extract, mine or mint new money.

When the time to create money decreases, the money gets less valuable. For example, since the end of the gold standard in 1971 and the rise of fiat monies printed massively by central banks, the value of the dollar has dropped 97%.

By contrast to the dollar, the time to acquire an additional troy ounce of gold has scarcely changed at all in a thousand years. Cancelling out the improvements in mining gear and techniques has been the increasing difficulty of mining ingots from ever deeper and more attenuated lodes. While in the past panhandlers could sieve nuggets from flowing streams, now it takes almost a decade to open a new goldmine.

Money costs therefore are governed by the time it takes to create more money. Whether bitcoin or gold, real money reflects the scarcity of time as an unchanging measuring stick.

This does not mean that money must not expand. For all we know, time extends infinitely into the future. It is distributed equally to all. But it cannot be accelerated or manipulated or redistributed.

Fractional reserve banking was a critical invention that enabled money supplies to be created and enlarged.

But in a monetary economy, banks can loan only as much money as investors can commit to potentially profitable projects governed by the inexorable scarcity of time. They cannot break free of time into the false economy of government guarantees and subsidies financed by printed figments of fiat value. They cannot escape the time-constraints of humans working by the hour as the famous “flash boys” do with their gigahertz computerized derivatives.

Today’s Prophecy

Real money does not float any more than the second or hour can float. It is a measuring stick.

Time-prices of commodities, on the other hand, measure the prices of goods and services by the hours and minutes of work required buy them. As in the Malthusian era, shrinking time-prices mean rising abundance.

Under capitalism, profits arise from the difference between the unchanging time to create real money and the diminishing time required to create everything else. New learning and better tools, the subject of these prophecies, are the only routes to real economic growth and progress.

The time theory of money ordains that the Federal Reserve may be able to print dollars, but it cannot print time.

We are given our complement of time and our gift of mind and we turn them into life and work, resources and recipes, learning and progress.

Resources are not material. By physical law, matter is conserved. There is no change in the physical endowment of the planet. Humans rearrange the existing molecules and atoms in different ways and we call them resources. But they are really the products of our minds.

Let us use them to guide investments on the frontiers of the new economy.

Regards,

George Gilder
Editor, Gilder’s Daily Prophecy

 

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George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology — and its impact on our lives.

He’s an established investor, writer, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

And he’s certainly no stranger to the financial newsletter...

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