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Oliveira2012-A New Global Price Unit Independent From Currency Units Proposed as Solution for the World Economic Crises

Oliveira2012-A New Global Price Unit Independent From Currency Units Proposed as Solution for the World Economic Crises

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Published by Kostas Georgioy

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Published by: Kostas Georgioy on Mar 16, 2012
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This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
Original article
A new global price unit, independent from currency units,proposed as solution for the world economic crises
Francisco V de Oliveira, Jr., São Paulo, Brazil.This article proposes the creation of a global price unit/scale independent from currency units as a way toachieve stabilization of the world economy. It is based on the reasoning that prices do not need to beexpressed in terms of currency units and that such traditional way of expressing prices is wrong andmisguides decisions of investment or disinvestment, leading economies to crises. As an alternative to theuse of currency units to express prices, it is proposed the use of an abstract price unit/scale, similar toother scientific abstract scales, like the Kevin scale, associated with the use of variable conversion rates torelate the abstract price unit to currency units. With such new global price system composed of anindependent price unit and conversion rates markets can lessen monetary effects upon prices and have aclearer view of real relative price variation, achieving economically sound decisions of investment ordisinvestment and, thus, stabilization of the world economy. Since this proposal has a great potentialimpact on the global economy, further discussions and experimental tests are still necessary. The article iswritten with a true or false question after each theoretical item to facilitate evaluation of its entire orpartial merit and correction or improvement of its theoretical foundations where needed.Key-words:
economics, economic crisis, monetary reform, price theory, price system, price unit, currencyreform, poverty solution, economic stabilization.
Proposed theory
Separation of currency scales from the price scale, by means of creation of an abstract price unit, is a solutionto achieve long-term stabilization of the world economy and prevent economic crises. (True or false? 01)
Theoretical background
The same unit with which quantity of money is expressed, for example, 1000 dollars, is also used to expressprices, for example, a thing called X costs 1000 dollars. Is it really necessary or even beneficial? This is themain question. To answer it the following theoretical steps must be understood.Economic stabilization is not a matter of continuous economic growth. Indefinite growth will lead tooverproduction and overpopulation of the world with industrial products. Marginal utility of things willsharply decrease. (True or false? 02)Economic stabilization is a matter of balanced supply and demand. (True or false? 03)
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
Regarding a product, increasing demand pushes for increase of supply and decreasing demand pushes fordecrease of supply. (True or false? 04)To balance the economy, that is to say to balance supply and demand, economic agents must perform suchmovements of increasing or decreasing output accordingly to the increase or decrease of demand. (True orfalse? 05)What happens when such dance of supply around demand is not well performed? Note that the followingdiscussion is done without citing the concept of prices, further the concept will be introduced. Consider aninitial balanced economy.When increase in supply of some product does not follow increase in demand, the gap between demand andsupply sharpens. Undersupply increases marginal utility level of the product. Consumers will likely disputethe low supply and some of them will get a low portion of the product output, while others will get more.Larger portion of their purchase power will be directed to such dispute and other products will sufferdemand reduction due to less portion of purchase power directed to them. So the entire economy will bedirected to a state of supply and demand for every product conditioned (maintained) by the first unbalanceof supply and demand of that first product discussed. Other products will then have their supply and demandunbalanced and the spiral grows creating an unbalanced economy. (True or false? 06)When decrease in supply does not follow a decrease in demand (or, in other words, when supply is increasedbut demand has not increased proportionally before), a gap between supply and demand will also becreated, there will be oversupply. Oversupply decreases marginal utility level of the product. Consumers willdirect their purchase power to other products and the entire economy will be directed to a state of supplyand demand of every product conditioned by the oversupply of that first product. Other products will thenhave their supply and demand unbalanced and the spiral grows creating an unbalanced economy. (True orfalse? 07)More background: Decisions of investing/disinvesting are the causes of increase or decrease of supply.Those decisions are taken by economic agents. (True or false? 08)Under a continuous unbalanced economy, with high risk of creating oversupply and consequently debt,economic agents will fear decisions of investment and the economy will probably go into a recession ordepression: crisis. (True or false? 09)How to solve the need of having an efficient balance of supply and demand in the economy? How economicagents know when demand of their specific products is consistently increasing or decreasing?This is one of the most important theses of this article: Economic agents know when demand of their specificproducts is consistently increasing or decreasing by looking at changes in the relative prices of the products.Now the concept of relative price is introduced in the analysis.By relative price it is meant here the quantity of other products exchanged for one unit of a product in agiven time in a given market.The more important function of relative prices is information about levels of supply and demand of aproduct. When the relative price of some product increases, it is a signal for agents to increase supply of the
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
product. When the relative price of some product decreases, it is a signal for agents to decrease supply of theproduct. (True or false? 10)If prices are consistent, which means only affected by real economic factors like market conditions, theeconomic agents know when to invest or disinvest. Economic decisions are taken on a sound basis andsupply will flow around demand without creating harmful gaps (underproduction or overproduction). (Trueor false? 11)So, economies must have a consistent price system. (True or false? 12)
Our inconsistent price system
The great problem, however, is that prices are not consistent due to a persistent error all economies undergofor a very long time: using quantity of money to express prices.Quantity of money is controlled by monetary authorities and other agents like banks. These agents can varythe quantity of money at their sole discretion. And they indeed do that. (True or false? 13)When quantity of money increases, prices, expressed in monetary units, also increase. When quantity of money decreases, prices, expressed in monetary units, also decrease. (True or false? 14)
Variation of price levels of a given product due to variation of amount of circulating money isn’t real variation
of its relative price. (True or false? 15)Prices then lose their informational function regarding variation of real relative prices and variation of realsupply and demand. (True or false? 16)The economic agents, however, interpret monetary inflation or deflation like they are set to interpret realinflation or deflation: they use the signal to decide whether invest or disinvest in production. And the signalreaches first some sectors. (True or false? 17)Under or overproduction, is the situation above, is likely to occur, since prices are not giving information of real relative price variation, fundamental for correct decisions of investment or disinvestment. They areindeed giving information about monetary manipulation and misguiding economic decisions. (True or false?18)Crisis is always ahead that scenario.
The solution
In this article a solution to rehabilitate the original and fundamental informative function of the price system,which is informing variation of the relative price of products, is proposed.

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