Financial Planning Requires a “Concrete” Unit of Accounting
If you want to see a financial system that promotes savings and investments, a society needs a “concrete” Unit of Accounting. Economists have taught for 100 years that “money” is just worth the trust people put into it. What happens when such trust fades?
- The conceptual “concrete” detail of this idea is that it makes the financial paper (bonds, deferred payments), which could use this Unit of Accounting seem “more trustworthy.”
Visualize the problem most people face when challenged by financial planning decisions, such as for a distant retirement. What is the frame of reference in which someone is supposed to weigh some future value (in “dollars”)?
- [ Pretend you are not as well-informed about finance and economics as the professionals you are consulting. How well can they predict the future?]
A lifetime of retirement beginning in 20 years, planned in “dollars,” cannot be compared to any standard of living referent (rental costs, food costs, taxation) in terms of familiar “dollars” today. The numbers do not allow a comparison of values because they have no relation except as the passage of time may reveal. You have to predict the Consumer Price Index 20-40 years from now.
- What will a dollar get you next year? Less?
No one can successfully do financial planning today in terms of “dollars.”
A gold coin would remain a gold coin and whatever your deferred-payment contract says, it would promise to pay you that equivalent way (in the same kind of gold coinage). Creditors could be paid in a gold coin, but more likely in some transfer of ownership of other paper assets to discharge the debt, but denominated in the gold coinage. Final settlements could be done by any other, different paper-credit methods (at the option of the obligee).
The supposed “stable price level” objective of measuring, would be knowing or trusting the relative value of something you want/need, and what you can trade to obtain it. We might not be able to predict the exchange rate of an ounce of gold vs. a pound of beef in 25 years, but it would not be a whim of imagination.
- I would be more comfortable thinking about coin vs. beef than about $100 today vs. $1,000,000 in 25 years, and wondering which would be more valuable?
Net present value calculations collapse to the shortest time horizon when future money values are uncertain. “Uncertainty” is subjective.
The “unit of accounting” in your mind should possess some “object permanence.” It ought to be a foundation of “Constitutional Money” to have the government’s Unit of Accounting be a concrete thing. In the old days of 1785 and 1792, the “dollar” was an object – a silver coin. Your property is your private ownership; so would a coin-object be;
- . . . but what is the status of the “account balance” your bankers owe you in promised bank-draft credit to pay your expenses? Do you use direct debits or checking? If your “account balance” happens to be denominated in government-accounting units ( “d-o-l-l-a-r-s” ), you should have a right to know if those are not shrinking or “melting away” as a matter of government (or Federal Reserve “central planning”) policy?
Your banker relies on Federal Reserve Accounting-Unit U$D, his reserves on deposit with the Fed.
“F.R.A.U.D.s” would be an insulting acronym for those accounting units.
See also Gold As a Parallel Currency.
One thought on “Financial Planning Requires a “Concrete” Unit of Accounting”