A Double Coincidence of Medium of Account

Yup, I didn't exactly make that clear in yesterday's post: new community "starts" would also rely on a local medium of account. It would represent time capacity separately for a monetarily compensated and aggregated base, whereas the primary monetary medium of account exists in normal economic context. This (still quite imaginary) reality of a double coincidence would exist for communities or local areas which would want to start fresh in economic terms. So how does one juggle the idea of money as central to the economy, while aggregate time use also holds a central function?

Aggregate time use would create a base in the form of a startup or entry (wealth creation) function, which then connects to local resource and investment potential. This is a better form of economic integration, than the base function a guaranteed income would provide for inadequate labor force participation.  Any form of guaranteed income is a static response, hence problematic in that it remains incapable of adaptation to constantly changing supply side conditions. One might say life isn't "fun", when populations end up arguing for improvements of underrepresented constituencies on their "behalf". What's more, this form of compassion does little to improve unresolved supply side issues.

Okay, the above paragraph also includes an idea why I believe a double coincidence of medium of account would be worth the bother. Time use aggregates allow producer and consumer functions at individual and local levels which are otherwise not possible. Instead of a static afterthought of an income base, create a dynamic time use base. The (parallel) medium of account function provides a direct monetary anchor for what otherwise does not always appear as monetary activity - given the barter aspect of coordinated time use. When I titled this post, a quick look at Wikipedia made me recognize my post title as an attempt to solve a double coincidence of wants:

The coincidence of wants problem...is an important category of transaction costs that impose severe limitations on economies lacking money and thus dominated by barter or other in-kind transactions.

Wait...what? This description is quite useful but our problem is not for want of money - it's for want of time. There's plenty of money to be had for overall resource representation, and yet it continues to exist in tight monetary conditions in that time is not well represented. Small wonder these discussions can get so confusing. Hence my suggestions for coordinated time arbitrage alongside the production residual which provides abundant money...if somehow inexplicably limited output, as recent blog "battles" can attest. It's difficult to imagine aggregate time constraints as a central factor in all of this. And understandably so, because most individuals who participate in these dialogues already receive adequate time compensation though additional resource aggregates.

Once and for all: I need to disassociate the idea of time use or skills arbitrage from barter in general. What's more, that holds true either in terms of time or resource use. The above linked Wikipedia source explains a bit of the friction involved, particularly in resources or commodities separate from time:

In-kind transactions have several limitations,  most notably timing constraints. If you wish to trade fruit for wheat, you can only do this when the fruit and wheat are both available at the same time and place...

Fortunately, this is the kind of constraint that pricing mechanisms have overcome so well for goods and commodities. On the other hand, service functions have suffered in that we attempt to provide them by generating time use negatives (gross skills devalue) within aggregate settings. In some circumstance, surplus resources (and the money which represents them) are capable of substituting for unnecessary time deficiencies.

Often however, not so much. Since the Great Recession, resource substitutions for aggregate time loss are less effective, hence the painful pullback in output potential. Monetary policy could have maintained output on a steady trajectory in 2008. Instead, the Fed and other central bankers strongly overreacted to a general perception that it is impossible to reconfigure the services supply side, for continued growth in the long term.

Growing use of a double medium of account, could eventually recapture the earlier growth trajectory. What's more, accounting for time use in a direct monetary sense (even in limited scenarios) can shift pubic perception regarding time use as central to monetary representation. This is important within the context of income or wage targeting. Over time, the resultant increase in production/output, would give impetus to real GDP formation that could eventually close the output gap and give further credence to the option of a nominal targeting rule.

How might one consider the possibility of inflation in the interim, as knowledge use systems gain public acceptance and start to multiply?  Chances are, this would not be problematic, because monetary compensation for time arbitrage is more direct than the open market operations which have attempted to compensate for inadequate labor force participation. As time arbitrage becomes integrated into the overall economy, greater demand alongside further asset formation would follow. While various forms of guaranteed income (on the other hand) could provide economic "relief" they would not be capable of integration at this level.

Let's consider some long run implications of time use arbitrage. Perhaps the most important is that a growing use of time arbitrage would make it possible to shift economies toward time use and knowledge use as primary wealth. This is particularly important in the face of gradually declining fossil fuel consumption, for time use aggregates also mean the capacity to reach economic goals in smaller population densities. The creation of high density knowledge use environments is a step in the right direction, to maintain a strong GDP growth trajectory, well into the future.

What about the sticky wages aspect? In a short term sense, time arbitrage appears as though a partial solution for sticky wages but this is understandably a tough selling point. Time use arbitrage is likely not for most individuals who have a good chance of turning an expensive college degree into a well paid career. Rather, those at the margin in income based terms would have greater incentive to seek alternative economic strategies.

What happens if these new economies become prosperous over time? Their compensated time use base becomes more substantial, thus new entries into these original formations become more limited - just like today's existing desirable cities which can only take so many comers. The solution is generating further knowledge use economies which work towards the same forms of prosperous maturity. One could imagine a long term scenario for some new communities, in which local production becomes so substantial that even the local time use base approaches median income levels. A time use medium of account acts as starter fuel for new communities, where others have already matured.

Last but not least I need to explain why I have gradually moved from the definition of skills arbitrage towards time arbitrage. Certainly, the arbitrage of skills sets - as composites of education, local production aggregates and life experience, are primary. However, skills sets are but a medium of exchange within a potential medium of account framework. Community based time optimization seeks to provide greater value for skills sets than they might realize in today's institutional settings. That is, communities would seek to build a greater medium of account, through the medium of exchange which skills sets can offer. This is why I have gradually moved the framing of skills arbitrage towards a time arbitrage, medium of account framework.