The Details

I. M=Monetary Supply


This term represents the total amount of a given currency in the global economic system, measured in units of currency.  As a result of the following definition of the “Value" of currency, the monetary supply will have no effect on the determination of the “Power” of currency.


II. V=Value of Currency


What has worth in the world is work.  Work is equivalent to energy, and it’s energy that is crucial to the sustainability of global civilization.  Consequently, the work that a nation, or union of nations, can do forms the basis for the value of its currency.  This provides a means to define “Value” as a measurable quantity in terms of fundamental physical units:

The term “Efficiency” here means the currently maximum rate at which a given energy source can be converted to usable work.  For example, a barrel of oil is equivalent to a specific amount of energy (that is, a certain number of Btus which can then be converted to a certain number of Watt-hours); however some of that energy, in practice, will be lost in forms such as heat and sound, and therefore only a certain percentage of that energy will actually be used to do work.  It’s the percentage of the energy produced that can actually be used for work that has value.  This value serves as the primary basis for the calculation of a currency’s “Power.”



III. P=Power of Currency


The “Power" of a currency is a measure in Watts (the International System of Units unit of power) that is derived by solving the equation of exchange (see also: Simplified Power Equation).



The ratio of two currencies’ powers in Watts gives the rate of exchange between them, making the concept essentially equivalent to “price.”  Herein lies the fundamental driving force behind the system: the desire of nations or unions of nations to possess the most powerful currency.

There remains, however, a major component in the determination of power yet to be defined:  the “Index of Health.”



IV. H=Index of Health


The Index of Health is a dimensionless quantity that takes into consideration both economic and environmental factors, and is broadly defined in the following way:



Where Q=Index of Economic Health, and E=Index of Ecologic Health




V. Q=Index of Economic Health


The Index of Economic Health, measured in hours, is defined as the ratio of Total Public Debt to Gross Domestic Product for a given time period. 





VI. E=Index of Ecologic Health


The Index of Ecologic Health is a quantity also measured in hours that is defined in the following way:



Defining “Natural Reserves” in cubic kilometers (please see The Equation Expanded) implies that if a given area of land is declared to be natural reserve, then so also is the earth beneath it and the atmosphere above it.

A nation’s “Territory” is defined by the set of line segments from the center of the Earth, through that nation’s border, to the outermost "edge" of the atmosphere.

“Public Potable Water” means that water which is held in public trust, or is made available to the public for consumption at or below the cost of producing it.  That water which is commoditized is considered as an element in the calculation of GDP (as “goods” or “exports” – whichever may apply). 


VII. The Pollution Factor


Whereas quantities such as population density, natural reserves, potable water, and territory are fairly readily definable, there are several concerns regarding the implementation (particularly the measurement) of the pollution factor.  Broadly defined, the pollution factor is:




 However, there may not be one particular sort of measure for the “Toxicity” of a chemical substance that is appropriate for all types of pollution, nor necessarily a single measure that can take into account the various array of effects due to exposure to these substances.  The term is currently placed in the equation in such a way that it becomes greater with increased quantity and increased toxicity (under the assumption that a substance is more toxic if exposure to less of it causes the same effect), which causes a currency’s power to decrease.  We may find that some way or combination of ways to calculate pollution is more appropriate; perhaps some or all of these measures may be better understood in terms of “getting smaller”, in which case, it is necessary only to place these measures into the numerator of the Index of Ecologic Health.

It also remains to be determined with what resolution these measures should be taken, weighing thoroughness against practicality.  Ideally, pollution measurement would be done by means of an automated system and uploaded to a database that is accessible to anyone at any time in order to ensure both transparency and objectivity.  However, despite these currently unresolved issues, by temporarily setting the pollution factor equal to one, the shift to the “Work Standard,” and the prioritizing of the other elements of the Index of Health, could be done with little or no delay.



VIII. Consequences


The first consequence resulting from the implementation of this equation of exchange would be that it would return a physical backing to the global economic system (by returning that backing to each individual nation’s economy).  Since the value of a currency is defined in terms of work/energy, and since energy is equivalent to mass multiplied by the speed of light squared, the value of an entire nation’s currency can be represented by a relatively small amount of matter.  For example, one tonne (1,000 kilograms) of any material is equivalent to approximately 2.4965*10^16 Watt-hours, which is sufficient to back most, if not all, countries’ economies for an entire year.  In other words (assuming annual recalculation of power), a given country’s treasury need hold and preserve only around one tonne of any material(s) to return a physical backing to the entirety of their economy.  Faster recalculation of power would require even less material.

If, for example, gold were chosen as the representative material, then a nation or nations could create a monument or attraction where it would be possible for its citizens to go and see that actual thing (that quantity of gold) that gives value to their currency.  Likewise, each currency unit could once again be made redeemable for a literal amount (particularly, the mass equivalent) of that representative material.

Secondly, by setting a standard of 10 kilo-Watt-hours per currency unit, the precise amount of currency to be printed or retracted from the system is determined.

Third, since the frequency with which the power of a currency is recalculated is determined by the length of the time period for which measurements are taken, it is limited only by the availability of information. Regardless, the rate at which the Foreign Exchange Market fluctuates would be under direct human control.

ly, it would place responsibility on nations to affect the following changes: to increase energy production (amount and number of sources), the efficiency with which work is extracted from an energy source, productivity (particularly energy surplus export, which counts positively both in the determination of value and the calculation of GDP- promoting the construction of international energy grids and better methods for storing and transporting energy), population density (reigning in urban sprawl), natural reserves (reigning in urban sprawl and promoting urban agriculture), and potable water (production and reserves), as well as the quality, availability, and affordability of health care (reflected in both average life expectancy and death rate); and to decrease total public debt, pollution, and death rate.



IX. Considerations


One last issue that needs to be addressed is the possibility for system collapse (some nation or nations possessing currency with infinite power).  Several places have arisen where this could have occurred.  The first possibility was for a nation or union of nations to have no debt.  However, the possibility for collapse to occur in this way has been averted by introducing one hour into the numerator of the Index of Health.

The second possibility would be for a nation to have a death rate of zero.  While this hardly seems worth mentioning, it is not entirely outside the realm of possibility.  No steps have been taken to avert this possibility, as it does not seem to be a realistic threat to the system.

The final possibility for system collapse would be for nations to have zero pollution.  The possibility for collapse to occur this way remains in the equation; its being imminent would be cause for celebration, as it would mean that nations have found ways to coexist sustainably, and would be a call for a new equation of exchange.



X. Acknowledgement

Irving Fisher, his 1911 equation of exchange “MV=PT,” and the subsequent “MV=PQ” which served as the cornerstones for the equation presented here; merely a formalization of the concept of work as value, which itself is by no means new; and Albert Einstein, and his equation “E=MC^2” which serves as the bridge between the vast quantities of work/energy that give value to a currency and the concrete, physical representation thereof.