GDP Replacement and Explaining Adam Smith's Digression on Silver



The Digression on the Value of Silver in Chapter 11 of Book 1 is one of the longest and most difficult chapters in Adam Smith's The Wealth of Nations. I started publishing the simplified version of The Wealth of Nations from Book 3 instead of Book 1 simply because I knew that simplifying the Digression in Book 1 would require a lot more time and effort.

The first step is to organize the Digression which starts at Paragraph 96 and ends at Paragraph 239. For reference, I used both the 'capitalist' econlib version and the 'socialist' marxist.org version



The first step is to organize the digression into topics as below:


Digression



The second step is to explain why Smith arranged his topics in that order:


Smith wanted to prove that gold and silver prices are not correlated with the wealth or poverty of society. Instead, he wanted to prove that it is the money price of some rude produce relative to the main food grain (such as wheat), which is the clearest indicator of a society's wealth or poverty.

To do this, he had to:

In the same way, we want to objectively prove that GDP (measured in dollars) is not a proof of the wealth of a country, so we follow Smith's methodology in getting the 'grain values' of key rude produce to easily say whether the US or China or the EU is really wealthier and which country's wealth is based more on real value, instead of fake or nominal value. Who wouldn't want to live in a country that has more real value and is more resistant to economic crises?



Value of the Digression on Silver for SORAnomics


SORAnomics uses two measures combined to replace GDP as a measure of a country's wealth. One is purchasing power and the other is the ratio of rude produce to grains, as stated in the Digression. Purchasing power (PP) alone indicates the revenue or demand of a person, while the price ratio of goods and produce to each other only indicates their supply.


The Big Mac index has some of the basic ideas of Smith's commodity-based valuation system, explained in the Digression, as it uses a real, useful thing to valuate a mere piece of paper with a number written on it.

Together, they can give a fairer measure of the wealth of a society, by objectively measuring how their supply matches their demand. This is better than GDP which only measures the dollar value of the sales or revenue of businesses or the merchant class. This is made worse by the fact that dollars are fiat or backed merely by trust or faith which is a metaphysical thing, and not a real or physical thing at all.

However, this lack of a 'real' and solid base permits 'arbitrage', as profits of those who live by profits. This is why the basis of value has slowly shifted from real things to abstract things: from barter & commodity trading (18th century), bimetallism (19th century), to the gold standard (20th century), to the current fiat system (21st century). Notice how the store of value has slowly shifted from a variety of real things towards nothing or fiat, just so that arbitrage can be achieved faster. According to this pattern, the fiat system must eventually crash, forcing the 'economic' system to revert to barter & commodity trading, or back to real valuation.

Under Economics, a country can theoretically have a single giant corporation exporting everything, having huge GDP while its workers starve to produce those exports at low cost. A GDP standard would still rate the starving country as wealthy. Our SORAnomic PP + 'digression ratio', on the other hand, would properly expose the real poverty hidden by the nominal wealth. In addition, our dual index eliminates the need for complicated subjective factors that are present in other indices like the Human Development Index, Happy Planet Index, Better Life Index, etc. In contrast, our dual index can be applied in any society, from remote tribal villages to the largest urban centers.


Economics subtly allows modern slavery because it values money over everything, unlike SORAnomics which values moral sentiments.


The Digression is extremely important in our new economic science because it gives our system a robust model-replacement of GDP while giving it specific policy 'settings' for the backward, advancing, and advanced economic states. All of these can then be coded into software which will act as the 'sovereign' regulator which maintains economic wage-earners, profit-earners, and rent-earners, by letting them trade through their mobile devices to pay for purchases or creating 'digital contracts' monitored by artificial intelligence. This software can then be packed and deployed into any human society to transform it from the rude state into the opulent state, even in future human colonies in Mars.



400px-concept_mars_colony
Mars is in a zero state of cultivation. Smith's Digression can be applied in early human colonies there to properly measure its wealth as it evolves from the zero state to the rude state, since 'GDP in fiat currency' will be totally irrelevant
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