Inequality should be measured in terms of the time it takes for us to earn the money to buy the things we need. And everyone is getting wealthier.
The metric of the price of time – the ratio of an item’s price to income generated in an hour – lends itself more readily to analysis than prices and wages, claim scholars Marian Tupy and Gale Pooley in this innovative report. They provide cogent arguments that time is a more absolute and less subjective means by which to measure changes in living standards and degrees of economic disparity among individuals and countries. Executives, analysts and students of economics will find this a thought-provoking piece.
- Physical resources are finite, but knowledge is not.
- Measuring prices by time rather than money reflects the knowledge value of goods.
- Time inequality is a better measure of wealth disparity than income inequality.
Physical resources are finite, but knowledge is not.
Knowledge is potentially limitless. Human beings throughout the millennia have availed themselves of the Earth’s resources, but today’s inhabitants possess extensively greater know-how in using those resources. That accounts for rising life expectancies since the 1800s. Human knowledge adds immense and conceivably boundless value.
“While there are a finite number of atoms on our planet, the value derived from those atoms is potentially infinite. The difference between finite atoms and infinite value rests in human knowledge. It is knowledge that makes combination and recombination of atoms ever more valuable. And knowledge is not constrained by the laws of physics. It is potentially infinite.”
Time measures growth in knowledge, and while money buys things, time pays for them. A “time price” is the ratio of an item’s money price compared to an hourly wage at the moment of a transaction. For example, if a plate of pasta costs $15 and you earn $15 per hour, the time price for that plate is 60 minutes. However, if the cost of that plate of pasta rises to $25 and your hourly earnings increase to $30, the time price declines to 50 minutes. This metric implies that “if you can produce the same amount in half the time, you’re twice as smart. Your knowledge has doubled.”
Measuring prices by time rather than money reflects the knowledge value of goods.
Time prices reflect the advantages of innovation, which decreases costs and raises income. Time prices do not need inflation adjustments, because they rely on nominal prices and hourly wages for inputs.
“Time cannot be inflated or counterfeited.”
All goods have a time price in every currency, anywhere and at any time. For instance, you can easily compare the time prices of lamb in Australia and the United States, or the time prices of olives in Spain in 1936 and 2002, without having to adjust for purchasing power or inflation. And time is the same for everyone, allowing for the easy comparison of living standards among income and wealth classes.
Time prices are more accurate than income for measuring and comparing wealth across persons, countries and historical periods.
Because knowledge is always increasing, changes in time prices over defined intervals indicate improving standards of living. The time price of a basket of commodities declined on average by 75% from 1980 to 2020. In other words, in the time needed to earn enough to purchase one basket in 1980, you could buy slightly more than four baskets 40 years later, an increase of more than 300%. In that time period, the world’s wealth swelled by 608%.
“Some believe that our objective should be sustainability, but sustainability is thinking in finite atoms. Innovation is thinking in knowledge. We can’t create more atoms, but we can create more knowledge and, therefore, more wealth for everyone on the planet.”
Because everyone has the same number of hours in a day, time may be the better metric by which to compare inequality than money. Time inequality decreases with the growth in wages and knowledge, affording earners greater efficiency and buying power. Whereas sustainability is finite, innovation is an infinite function of knowledge that improves the well-being of humanity.
About the Authors
Marian Tupy is the editor of HumanProgress.org, a Cato Institute senior fellow at the Center for Global Liberty and Prosperity, and the co-author of The Simon Abundance Index. Gale Pooley is an associate professor of business management at Brigham Young University–Hawaii.