A time price is the money price divided by hourly income. It converts dollars and cents to hours and minutes. Using time prices instead of money prices provides a host of benefits including:
- Time prices contain more information than money prices. Since innovation lowers prices and increases wages, time prices more fully capture the benefits of valuable new knowledge.
- Time prices transcend all of the complications associated trying to convert nominal prices to real prices.
- Time prices can be calculated on any product with any currency at any time and any place.
- Time is an objective and universal constant.
There are also a number of advantages that time prices can provide in terms of quantitative analysis and perspective.
Percentage Change in the Time Price Once you have two time prices you can calculate the percentage change over time. For example if bananas cost $1.50 a pound and you are earning $15 an hour, a pound of bananas cost one-tenth of an hour or six minutes. If in three years the price increases to $1.67 a pound but your hourly income increases to $20 an hour, the time price has decreased to five minutes. The time price has decreased from six minutes to five minutes or 16.7 percent.
Time Price Abundance Multiplier The ratio of the initial time price divided by the end time price is the time price multiplier. In our banana example it would be six divided by five or 1.2. This tells us how many units you now get for the same amount of time it took to earn one unit at the initial point in time.
Percentage Change in Abundance The percentage change in abundance measure how much abundance has increased from the initial point. It is the time price abundance multiplier minus one. In our banana example this would be 20 percent. You now get 20 percent more bananas for the same time.
Compound Annual Growth Rate This value is useful for standardizing and comparing growth for different resources over different periods. You can use the RATE function in a spreadsheet program or a financial calculator to calculate this value. For our banana example, abundance increased from 1.0 to 1.2 over a three year period. This would be a Compound Annual Growth Rate or CAGR of 6.26 percent a year.
Years to Double This is a common measure for quickly comparing growth rates. It is also know as the rule of 70s. The years to double is approximately equal to 70 divided by the Compound Annual Growth Rate. In our banana example it would to 70 ÷ 6.26 or around 11.2 years.
Growth in 100 Years This measure is also useful in forecasting. Use the Future Value function in a spreadsheet or financial calculator. In our example, if banana abundance increased by 6.26 percent a year, one pound would grow to 433 pounds in 100 years.
In conclusion, time prices offer a number of useful tools to provide additional perspectives on changes in abundance over time. Thinking in time can make much more sense than thinking in money.
Excerpt from our forthcoming book, Superabundance.