Time Is Money, Money Is Time
Time is money. The two seem to be entangled. In finance class we all learn about something called a net present value. This is an attempt to collapse a temporal string of cash flows into a single figure for comparison with other similarly collapsed numbers. More importantly it is an attempt to collapse time itself. An NPV is a statement in the present about the future. It is an attempt to make the future a property of the present, rather than leaving the future as a separate reality all to itself. By doing this we create an illusion that unforeseen features of the future – lurking in that separate reality – have become much more knowable, and thus manageable, properties of the present.
We deploy clever tricks to pull off this illusion. We assign risks and discount rates. We make judgements. We have expectations. Then we try to package all this inside a technical looking framework that gives off an aura of control and solidity unjustified by all the uncertainty we have tried to circumvent in the process. The goal is to elide the consequences of time. Business needs to be set on a sound footing in order for decisions to be made. Time undermines such a footing, so an NPV is one of many devices businesses use to regain stability and to make decisions. The risk analysis that blew up in the faces of the banks is an sample of this kind of thinking. Projecting the past into the future makes, apparently, for a very uncertain present.
When you think about it for long, time is much the same problem as is money.
Economists usually avoid both topics as best they can.
Money is a problem because it is a device rather than a substantial product in its own right. It is a simple thing. Yet it mucks up analysis is all sorts of ways. Money is just a way to grease the skids of transaction making. It is much like a catalyst in chemistry: it’s there to help things along and not to play a role in its own right. Or at least most of the time.
Because of its catalyst like quality classical economists ignore money. They call money a veil. They base their theories on a barter style economy in which so-called real things such as products, services, resources, and preferences all interact directly without money. As Keynes pointed out, much to the chagrin of the classical folks, there are times when money is not a neutral catalyst, but has active properties. Money matters. As when people make decisions to hoard it rather than spend it. As when they get confused between the relative values of money denominated prices and real prices. And so on. This lack of adroit handling of money is one reason why classical economists muck up their thinking about banking so easily – banking is much better handled through a Keynesian lens, as Minsky demonstrated.
Similar issues led economists to abolish time from their theories. Indeed the treatment of time is less life like than the treatment of money in most theoretical economics. At least money is ignored. Time is scrunched and twisted about in all sorts of unnatural ways. The distortion can be grotesque.
It seems most classical economists believe in a reality that we call ‘presentism’. That is, they don’t believe the future has any reality of its own. They simply append some ‘futuresque’ stuff into their present based models in order to take into account anything that exists in another time other than the present. But they give no structure to the future itself. They don’t acknowledge that the future has properties not found in the present. The future, to them, is simply an extension of the present.
This is like saying that we include an election result for the upcoming presidential election in our model for today’s political scene – we make November’s result a property of today – and by so doing we can be more precise about it. We can talk more confidently about the election this way because all its properties are contained in the present. We thus know them. We can discuss them. We can predict outcomes based upon them. Analyzed this way, there is nothing in the future that can make our models deviate from a well worn and well known path. We can assign risks to outcomes, but these risks reflect what we know. They do not reflect what we don’t know. Since what we don’t know is a feature of the future, and since we deny the future a reality of its own, we neatly side step any problems that it holds. By collapsing time we strip away the one essence of the future – its ‘unknowness’ – and substitute a more certain, or risk adjusted, cipher in its place. This makes our model more tractable. It also makes it less sensitive, and prone to egregious error. Which is one reason why economic theories focus on description of economic artifacts like the mechanics of markets rather than on forecasting outcomes. Economics is a very static theoretical construct. This is true even when it tries to be dynamic. By denying the future any true reality, by insisting on the concreteness only of the present, economics deploys time only as an attribute of today. There is no future in its own right. There is no true consequence of time.
You can get a glimpse of this problem whenever you ask an economist about equilibrium.
They tend to wander off into discussions of short term versus long term equilibrium without ever specifying what, precisely, they mean. Is the equilibrium today? Is it tomorrow? Does it extend over three days? Two months? A year? And what, exactly, is the value of an equilibrium that is smeared across many time periods? Does it even exist in any credible way if it is muddled about through time?
And how, do tell, does an agent within an economy ‘know’ that an equilibrium exists? How does the information travel? Instantaneously? It defies the laws of physics? Just how real is that notion? Not at all.
Even the greats of economics, people like Marshall and Keynes, get into a mess when they describe when an equilibrium happens. To them it is a real phenomenon. They just can’t quite nail it down. It’s as if they know a sunset exists, but not quite when it happens. At the end of the day is not the same as 7:30 p.m., yet economists treat the one as if it were the other. They feign an exactitude entirely lacking from their thinking. Equilibrium is thus very vague, but is venerated as a key feature for analytical purposes. To many economists an equilibrium plays an iconic and vital role in theorizing, even if they’ve never quite managed to see one in real life. Even if it slips though their fingers whenever interrogated about the exact timing of one.
This entanglement with time does grievous harm to most economic theorizing. The inability to accommodate time within classical economics, in particular, is a legacy of the era within which the foundations of economics were laid down: it predated a later era when the more nuanced explanations of time that now infuse physics were developed. Since economists are largely cut off from modern ideas outside their own realm they have never properly adjusted to them. Instead they are doomed to do violence to time as they seek to inject an air of dynamism into what can never be anything other than static analysis.
An outsider to economics would be confused by the realization that both money and time present such difficulties to a subject whose very core is affected by both so much. They are both more complex than economists admit or care to account for. But lacking the modernization that has enabled physics to come to grips with time, economics still stands as testimony to the past and to a methodlargely discarded elsewhere.
Then again, perhaps economists by being so committed to the present deny the past a reality as well. How convenient. That means they are always up to date.
That solves that then.
