If it was good enough for Sir Isaac Newton¹, Sir Isaac Asimov², and the philosophers that brought us thermodynamics, then it is good enough for me. These people provided the world with very important laws of science fiction and fact and this week I thought I would add to the genre with my theory of economic gravity.

Now I don't claim to be the first to tackle this concept. Others have gone before and I include some references at the end of this article^3,4. But don't bother to read them. They are like the flat earth society. They don't have the advantage of having worked in such a complex and insightful environment as agriculture, and the dairy industry in particular. They just can't see the big picture. This is the real truth and will eventually be proved as such by a prominent entry in Wikipedia - or at least equally as prominent as the other 500 entries associated with this concept.

By way of introduction, consider what drives the flow of money from one place to another, how does it behave along the way, and how is economic wealth is created? Economic gravity is the theory that underpins and explains these phenomena. It has universal application but I am going to use agriculture and associated industries as the model system and proof. The laws that I will outline in this series of articles define what will happen and how this theory describes the meaning of economic everything.

Xcheque's First Law:

The fundamental unit of economic wealth creation is work - Wealth cannot be created if not associated with work

Or, in the words of other giants of the field, Milton Friedman⁵ and Robert Heinlein⁶:

There's no such thing as a free lunch

Definitions of work and economic wealth

I need to start by defining work and economic wealth.

Economic wealth is something physical that is essential to long term human survival, or something intangible that makes a real contribution to the creation or maintenance of physical wealth.

Note that who has custody and control of the economic wealth does not come into the equation just yet. In simple terms however economic wealth can be owned, or at least controlled, by individuals, a group of two or more people (partnerships, companies, co-operatives), communities, states, or nations. There are undoubtedly more structures you could name but I'm not prepared to concede that there is any consensus on shared global economic wealth. The current situation in Copenhagen is living proof of that.

Note also that I advise not to associate the terms tangible and intangible assets with economic wealth. The accounting definition of assets is only loosely connected to real economic wealth and it is risky to assume they are the same thing.

And the final point to note here is that I make no judgement about the importance and value of spiritual wealth in comparison to physical economic wealth. It's quite possible, and perhaps even very likely, that spiritual wealth is part of the subset of intangible economic wealth but I'll leave that for others to consider.

Work is an action by a person that is an essential part of creating physical wealth.

If you are not in the business of creating something physical, don't worry, providing services and developing and communicating ideas are also work - as long as they are essential to the process of eventually creating something physical.

Units of measure - the tanstaafl

In recognition of Mr Heinlein's contribution I have termed the universal unit of measure for wealth the tanstaafl or tan for short (symbol: † ).

The tanstaafl transcends currencies and exchange rates which are just artificial mechanisms of moving tans between countries and economies. It even transcends this notion of GDP which is measured in terms of the current value of the local currency and its exchange rate to other currencies.

A tan doesn't change it's value just because somebody is prepared to pay more or less dollars for it - a carton of milk is a carton of milk is a carton of milk. It is the same whether it is sold at a standard price of $2.45, discounted to $1.99 or sold at a premium for $3.50 in the local service station.

But wait you say, you are off your rocker Dr Hauser. I measure my wealth in dollars or euros or pounds, not cartons of milk or this strange concept of a tanstaafl . Yes, yes, these are measures of wealth, but they are not static. The value can change without recourse to anything actually happening - that is why they are called 'currencies'. The value you think you own in dollars is just the current local measure of the tan. It could change at any time and probably will.

Not convinced? Then consider this.

If you sold everything you own except for the shirt off your back and put the money you received in the bank, do you think that your wealth would stay the same for ever? Certainly not if you were living in South America in the 1980s. Back then hyperinflation gobbled up people's savings in a microsecond. What they would do to manage this was take their pay check and rush down to the supermarket to buy what they needed until the next pay check. Meanwhile, the exchange rate to the tan galloped away and next month they were given a whole lot more in local currency terms to pay for the real wealth that they had worked for (or perhaps had simply taken from other people).

Now consider the alternative situation where you own a piece of land and you have no debt on that land. I am dreaming at this point but bear with me. What you own is solid and relatively unchangeable wealth. In Australia the value of good dairy properties is roughly †100 to the acre. I don't really track the exchange rate closely but I think that last week this equated to about $AU 6,000 / acre (~ $AU 60 / tanstaafl). The dollar value will have changed this week but it will still be worth the same in tans - and that is because the farm is still producing the same product at about the same rate. It is the land and the product it can produce that represents intrinsic wealth, not the dollar value that is attributed to this.

Just as an aside here, if you do have debt on your land then you don't really own this wealth - at best you share it with the bank or your lender. That's a tricky situation because your loan is unlikely to be written in tans. If the exchange rate and interest rates move against you it could be that you don't own as much as you think you do. My advice is to transfer as much of the debt as possible to equity, which is more closely associated with tans. You should do this even if it means you need to ask your parents or in-laws to take an equity stake in the property, at least then you will keep ownership of your tanstaafls in the family.

Units of measure - the solaris

The universal unit of work is the solaris. This shortened to sol or symbol §. This is the measure of the ideas and actions that create a tanstaafl. Think about this as something akin to mass and energy. The tan is the mass - the thing that is created when work is done. The sol is the energy - the thought process and action that leads to the creation of a tan.

In my research I have found it very difficult to measure the true value of the sol for differing situations. I believe that is because the ownership of wealth is not related to the amount of work done and neither is the process of exchanging of tans. So when you look at the ownership of tans and the apparent amount of work done there is a pretty loose connection. I'll talk more to the issue of transfer of tans between people in a later article but, just to give you an idea of the complexities, compare the production of a painting by Picasso with the production of a carton of milk.

I'm not sure how much time and energy senór Picasso put into his paintings but I guess that by the time you trace the work done to put milk into a carton and deliver it to your refrigerator it must be a close run thing - alright so senór Picassos paintings are equivalent to a few cartons of milk but you get my meaning. The point is that according to many people, the paintings are worth a hell of a lot more tans than the milk - hence my difficulty in assigning an appropriate number of sols to each work activity.

This complexity may have something to do with Heisenberg's uncertainty principle but I can't quite nail the theory. I also haven't quite developed the theory to the point where I can demonstrate that work and wealth are interchangeable - but I'll keep working on it.

Xcheque's first law

So as above, the first law says that there is no such thing as a free lunch. Pretty obvious really and that is part of the beauty and elegance of the economic gravity theory.

Cows don't milk themselves. Grass and feed needs to be managed. The milk needs to be picked up, processed, packaged and distributed before it can sit amongst the rest of the economic wealth in your refrigerator. It all takes work and, if you don't do some in turn, to generate the required tanstaafls, to buy the milk, then there is every chance you won't be healthy, wealthy and wise.

I can hear the clamour of objections coming thick and fast but I am going to cut this short so that I have more to write about next week. Needless to say that I can answer all of those objections and will be willing to do so when you have been given a better appreciation of the first law. All I will say at this point is that in the economic gravity theory, work and wealth are absolute. On the other hand, what you know as currency is not and, as noted earlier, the ownership and/or control of wealth is not related to the amount of work done by the owner(s).

References