at detail; Lewbel [22] observed that a number of aggregation schemes are equally valid.

Sharif [23] identified subsistence as an endogenous variable, contrary to a tendency for economists to treat it as exogenous, and directly useful for practical policy purposes. Sharif contended that subsistence is endogenous to people who live at or around poverty level; they aspire to live at a sustainable standard, and their perception of this standard is revealed in their economic behaviour. The consistent physical food calorie intake of the world population thus provides a conveniently stable basis for assessing purchasing power, especially as flexibility in the composition of healthy diet permits substitution of close alternatives within food groups when individual items become scarce.

4.2. Energy Markets

Spot prices for energy in international markets are erratic. The coal price is the only one of the set to which normal market forces may be considered to apply. Prices for natural gas are typically set in long-term supply contracts. Our numéraire requires data for wholesale electricity from hydro and nuclear power sources, but the market makes no distinction between these sources, so we use the publicised price for wholesale electricity in the spot market for both sources.

The most significant market distortion is in the oil market, where the Organisation of the Petroleum Exporting Countries (OPEC) has recently celebrated fifty years of unchallenged oligopolistic market domination, with the stated mission: “to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry”.

There are many oil suppliers who are not associated with OPEC, and it is possible to find indications of their marginal costs of supply. If the market should ever be liberated, perhaps by introduction of substitutes for oil in some uses, economists would expect the international price for the equivalent of a barrel of crude oil to stabilise at the marginal cost of producing sufficient oil to meet worldwide demand. Almost unlimited oil can be extracted from tar sands in Canada, and the cost of production there could thus set an upper limit to oil prices in a free market. Extraction of crude oil has been reported in trade publications to cost in the range Can$30 - Can$40 per barrel, and potentially even less as technology is improved. The Canadian Energy Research Institute [24] has observed that oil sands extraction already on stream can be profitable at crude oil prices in the range of Can$40 - Can$75 per barrel.

Fossil fuel consumers may soon be required to pay some form of “carbon tax”. Reported suggestions for carbon tax are in the range US$11 - US$85/t CO2; this implies minimum tax of about $13/barrel. Noting that the US Environmental Protection Agency Greenhouse Gases Equivalencies Calculator indicated an emission rate of 6.896 × 10−4 metric tons CO2/kWh (equivalent to 191.5 kg CO2 /GJ or 1.17 t CO2/barrel, using 3.6 MJ/kWh and 6.119 GJ/barrel), this takes the marginal cost of supply to at least about $53/barrel.

5. Conclusions

Exchange rates are more volatile than the real price of commodity goods, which strengthens the argument for adopting a unit of value based on one or more real physical commodities. The gold standard filled this need for a time, but gold has no definable relation to the value placed by a consumer on goods that are consumed. It is the cost of consumed commodities that determines whether an individual’s income is sufficient for that individual’s daily needs.

We stress again that our aggregation scheme for food and energy costs is not arbitrary, but is directly proportional in each case to measurable world consumption. We have shown that food commodity prices are stable in real terms, and likely to remain so. The duration of booms in food price is limited because supply is elastic and response times are relatively short. Market failure in the oil sector is at present preventing similar correction in energy prices, but the marginal cost of oil supply is predictable, likely to remain stable, and significantly lower than the wholesale oil price prevailing in 2010. Calibration of currency value using a yardstick such as our SI numéraire offers an unbiased measure of the consistently stable cost of subsistence in the face of volatile currency exchange rates.

We have thus shown that a commodity-based measure of monetary value is suitable as the basis of a currency unit for a group of countries, such as the countries of East Asia, with similarities in their patterns of consumption. There is as yet no data to indicate whether such a unit, specified by a standards agency rather than a banking institution, would indeed be inherently stable, but it would at least be free of the practice referred to as seigniorage, and the accompanying temptation to print money.

6. Acknowledgements

The author is grateful to the School of Agriculture, Policy and Development, University of Reading, for permission to make continuing use of the university research facilities.


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