I stated that it was impossible to measure the production of an economy. I also stated that it was impossible to measure the value of the production of an economy. I will use the attached diagram and table to attempt to explain those statements.

The bubbles in the diagram represent the categories or units of goods in this economic system (obviously greatly reduced in size). The categories were first arranged horizontally as represented by the X-axis. The 1^st row in the diagram represents units of economic goods. Each row above represents a logical grouping of the economic goods into categories. These categories become more and more abstract as we move to the top of the chart as represented by the Y-axis.

I would like to point out at this time that monetary units e.g. the dollar consist of another economic good at the same level of abstraction as do hats, houses, and cornflakes.

The goods on the first level cannot be aggregated or some because they lack a common unit of measurement. Likewise, the categories on the 2^nd and succeeding levels cannot be some because they to lack common units of measure. In addition, as we move up the levels of abstraction the units of measure become less and less meaningful. At the top, what I have labeled as economic units, represent a completely abstract concept of the total production of this economy. These “economic units” have meaning only on a theoretical basis.

The z-axis, which I have labeled aggregates, represents the only way in which these categories can be some. We can total the pounds of bacon produced or the numbers of shirts produced, but we have no way of creating a meaningful measure of the total bacon and shirts produced. At higher levels of abstraction we might be able to aggregate the tons of food or the items of clothing but again we have no way of meaningfully combining these 2 aggregates.

Many might say that although we cannot aggregate the units of production we do have a way of measuring their value by simply adding up the dollars (or other monetary units) exchanged for these goods.

Dollar prices, however, do not represent measures of value. The dollars in dollar prices are just another economic good accepted in exchange for some other economic good. In the exchange of any to economic goods the goods received — in the preference scale of the receiver — always have more measure than the goods given up. We cannot say, however, how much more the goods received are valued, for we have no uniform measure of value.

The same holds true when we some the numbers of dollars exchanged in multiple transactions for a number of heterogeneous economic goods. The best we can say is that in general the dollars given have less value than the goods received (in the minds of individual economic actors).

Does this then mean the dollar prices, either for individual goods or for multiple goods, do not have any useful meaning?

No. Prices for individual goods have a great deal of meaning. In the case of a single transaction we know that the buyer and seller each valued what they got more than what they gave up. In the case of multiple transactions prices display a pattern of behavior that indicates how buyers value a good relative to dollars. This pattern in turn can give us an idea of the structure of the market, sometimes described in terms of supply and demand.

In the attached table I have attempted to represent numerically the same concept that I presented diagrammatically in the preceding chart. (Keep in mind that the numbers used in this table are completely arbitrary and do not represent actual prices in the market.)

In the 1^st part of the table I have summed the categories at each level of abstraction. Based on the initial premise that exchanges occur based on a difference in value the sums shown on this table have less and less meaning with each level of abstraction.

In the 2^nd part of the table, using level 1 as an example, I have tried to demonstrate the absurdity of aggregating or averaging any of these figures. If one were to total the quantities, what unit of measure would have meaning? Likewise, to average prices would create an equally meaningless figure.

I have attempted to keep this description as brief as possible. I think you can see that in a large-scale economy that production cannot be calculated based on units of measure for the goods, and value cannot be calculated based on a good used in the transactions and established by individuals based on their own preferences.