On Hyperinflation

Previously, we asserted that the standard definition of money was in error.  Money does not constitute a store of value.   Money, fiat money, has no intrinsic value.   It only constitutes a store of demand.  In particular, it is demand on the real production of goods and services of the society whose government recognizes the money as ‘tender.’  (Money has various forms, which may also be exchanged for each other. This distorts its actual exchange value.)  Even more exactly, money is a token offered in exchange for either other tokens, other ‘forms of money,’ or for goods and services produced by the economy, or needed or used by the economy.  (We will call any of these things, or any combination of these things, (real) resources.)  Its current value is roughly determined by the ratio of the flows of goods and services to the (opposite directed) flow of money. The flow of money is nominal, in the sense that, for a given rate of flow of goods and services, the greater number of units of money in the countervailing flow of money, the lower the value of each unit. Thus, the value of the unit, the dollar, is determined by the ‘physical quantity’ of goods and services exchanged in the economy divided by the number of units, of dollars, those goods and services are exchanged for.    Money’s value is not directly affected by the amount which is exchanged for other forms of money, nor the (lesser) amount of goods and services exchanged in barter.

Aside from the flow of money, there is a stock of money, just like there is a stock of real resources and assets, which, at any given moment, are not being actively exchanged. The standard definition of money implies that this stock of money constitutes an asset, a 'financial' asset. And therefore, according to the standard definition, the value of all this money should be added to the stock of real goods, services and real assets in the economy when calculating the total 'value' of capital in the economy.  

However, money is only an 'asset' to the individual.  The total value of a society, of all its assets and production, is independent of the total quantity of money.  Money is not an ‘asset’ to society, in the sense that the ‘value’ of the total quantity of money in a society is added to the total value of society.  It is only an asset in the sense that it enables certain forms of exchange.  In this sense, it acts as a multiplier of value. (Multiplication of value I discuss elsewhere.  I only mention here that its value as a multiplicative factor depends on its distribution, and not its nominal quantity.)

Invert the usual definition.  Money has value in terms of the things it is buying. In traditional macroeconomics, money's value is given by the so called "Equation of Exchange:"  M= P x Q/V.  In this equation, M is the stock of money, the total number of dollars, P is the Price level of things, sort of  the 'average' number of dollars exchanged for each thing, Q the quantity of  things exchanged, and V the average velocity of the total amount of money.  Now this equation is usually used to evaluate the total quantity of money M in an economy, so V can change. But really, the velocity of the money in circulation does not change, unless the velocity and/or number of things in circulation changes, so when the V of the equation changes, what it is showing is the share of the total money supply which is actually in circulation in the real economy, and what share of the total money supply is in savings or bonds or other financial instruments. It shows the proportions that M is divided between circulation in the real economy, and the 'churn,' where different forms of money, bonds and other instruments of debt, are traded among themselves.*  Thus, when V goes down, money is being taken out of circulation in the real economy and 'invested' in the churn.  When V goes up, money is being taken out of the churn, and put into the real economy.  

With this understanding, we can simplify the equation to:  M = P x Q,  where the terms are as described above. This can be understood in either macroeconomic terms, in terms of average price level times some quantity measure of all things exchanged, or in terms of microeconomics, as the average price of any particular good, times the quantity of that good, giving the total quantity of money, the number of dollars, (or in general the number of units that P is expressed in. which need not be dollars.) that is being exchanged for that particular good. It can be visualized as the flow of money, and the opposing flow of the good or service, in its own particular channel.

 If we rearrange, then the price of any particular good, or of the price level of all goods if we are talking about the economy as a whole, can both be expressed as:  P = M/Q.   If M increases, and/or if Q declines, the price or a good, or the price level of an economy, goes up.

We have talked about what we call the churn.  The stock of money experiences activity separate from its motion in the real economy. It is not kept in mattresses, (although in a sense it might as well be,( churning:  Forms of money are exchanged for other forms of money.  However, this ‘churn’ usually has no immediate effect on the value of money in the real economy, as long as it does not affect the movement of money out of the churn and into the real economy, or out of the real economy and into the churn.)  Similarly, barter, the direct exchange of goods,  does not affect the value of money, although changes in the amount of barter, where they alter the amount of goods exchanged for money, would change the value of money in the opposite direction.  That is, if a greater percentage of goods were being exchanged in barter, then the money in circulation would be chasing fewer goods.  This would result in inflation.  (This analysis ignores the effect of the expectations of participants, which may indeed alter the value of money in the real economy.)

Demand as debt.

Many have heard about instances on hyperinflation, and tales of wheelbarrows of money being exchanged for loaves of bread.  During the Weimar hyperinflation in Germany in 1923, before computerized money, they couldn’t print the money as fast as it was being inflated.  Bills printed with already outrageous denominations had to be restamped with denominations hundreds and thousands of times higher, before they could actually be issued, because the original denominations were already to small to be useful.

What we don’t hear about, however, are busloads of money being exchanged for houses. It would be rare, one would think, but surely, if it happened, it would be memorable.  But no one sells houses during periods of hyperinflation. Or automobiles, or appliances, or many of the more ‘advanced,’ but in the end, less immediately essential  products of an economy.

For what happens is that the monetary economy collapses onto essential goods, the most essential being food and fuel.  But the circulation of these goods, in the modern economy, and the quantity of money exchanged for them, takes up only a small portion of the market of the entire economy.  So the total quantity of money in circulation, whose value (as tokens of demand) was originally based on fact that things demanded consisted of the entire quantity of goods and services in the whole economy, is nominally much greater than the nominal value of the circulation of essential goods and services like food and fuel.  The supply of valuable goods contracts to only those which are essential.  Demand is now concentrated on a much smaller portion of the economy.  Meanwhile, the value of non-essential goods crashes, as well as essential goods held in surplus.

In our equation:  P = M/Q, then, what first happens is that M increases, not as a result of government printing, but as money is taken out of the churn, and put into the real economy. This is mostly rich people panicking, although ordinary people are also taking their money out of the banks.   As this process progresses, the economy begins to contract onto essential goods. Thus the quantity Q of goods exchanged for money decreases.  

Imagine that suddenly, all that anybody wanted to buy in the economy was bread.  With over $!.4 trillion of dollars cash in circulation, M0,  M2 the larger measure of less liquid money is over $13 Trillion, M3, still money but no longer counted, we may estimate, from recent trends at at least $19 Trillion. If M2 tells us the amount of money in mattresses, the difference between M2 and M3 we might consider money buried in backyards.  It will all come out.  With the market for bread at the outset about 1 billion dollars the price of that bread would become extremely high extremely fast.  Of course, there are other forms of food, which may be regarded as equally essential, (although high priced foods might also be priced out of the market.)  The size of the retail food market in the US is around $50 Billion per week, or  $2.5 Trillion per year.

 And this is what happens at the outset of the progression of hyperinflation.  The government doesn’t have to print money.  The money is already out there. Some of it is just being used for ordinary business in ordinary ways. Much, perhaps even most of it, is in the churn:  Ordinary savings accounts for ordinary people, high powered financial instruments for the wealthy.  But as runaway inflation, and then hyperinflation begin to take hold, people increasingly see money as overvalued.  Durable goods and fixed assets also begin to be seen as overvalued, at least in terms of money.  And they see other people seeing that, too. Therefore everyone wants to exchange their money for (basic) goods as fast as possible. As the demand becomes ever more concentrated on essential goods, the velocity of money also increases.

 As inflation progresses, increasingly goods become sorted into their essential value. The value of non-essential goods and assets decreases, relative to essential commodities.  Money becomes preferentially spent on those of greatest essential value, and the prices of these increase the most as demand becomes concentrated on them.   Those holding money in savings and other financial instruments, withdraw and liquefy them, and bring them into the real economy, where they add to the already increasing forces of inflation.    

The government faces a choice:  Either to take money out of circulation  as fast as possible, or to print money.

The proper response of government is not to print money in an attempt to stay ahead of it. This merely aggravates the problem and drives the accelerating inflation.   While initially, government issued money is not the problem, as the government issues money at an ever greater rate, the entire nominal value of money in circulation does becomes government issued. (In the limit.)

The proper response of government is to take money out of circulation as fast as possible.   One way is a high sales tax. However, this will not prevent the entry of money into the circulation of the real economy from the churn, the stock of money circulating in banking and finance. Therefore, the liquid assets of the wealthy, and foreign holdings, must also be frozen, and offshore financial assets prevented from repatriating.  So far as the wealthy control the government, this is resisted. 

When the wealthy become aware, not only that the stock of money is too greatly over valued, but aware that others also know,  we may expect a rush into more tangible assets, with ordinary people, by which I mean basically the entire 99%, priced out of essential goods and services.

And or course, it can always be that the government actively pursue the destruction of its unit of money. One consequence of this would be to consolidate the gains of the wealthy, and so a government under the control of an oligarchy might do this.
                                                  __________________

*[Edit:22-04-2020] The activities financial sector don't directly affect the price of things in the real sector, except as the financial sector, because it is the source for nominal profits, attracts and holds money away from the real sector.

The Standard Definition of Money is in Error

The standard definition of money is in error. 

The standard definition of money is given in terms of its three functions:

                  1:  Money is a medium of exchange.

                  2:  Money is a measure of value.

                  3:  Money is a store of value.

Number 1 is at best misleading.  Numbers 2 and 3 are simply wrong, and these things are easy to show.  It is also easy to show that this is important.

First, the actual definition of money:

                  1:  Money is a token, or instrument, of demand, which is exchanged for goods or services.  Or simply: Money is demand. 

                  2:  Money is a measure of demand.

                  3:  Money is a store of demand.

In the standard definition, Number 3 cannot possibly be true.  Were Number 3 true, money would have value of itself.  The value of money would be independent of what ever else an economy produced. But consider, the best monies are those instruments which have no intrinsic value whatever.  How can any amount of something which has no value, be a store of value?  Even where commodities have been used for money, (and this may be the origin of the error,) they have tended to be those commodities, precious metals, for instance, which, because of their properties, were of only limited economic use. The reason for this is known and simple:  These commodities had to be more valuable as money than they were valuable as commodities.  If they were more valuable as commodities, they would be consumed, and so their use as money would disappear.  But this implies that the value of these commodities, as money, over their value as a commodity, is not intrinsic, but as with plain fiat money, purely a matter of other factors.  That is, the value of the commodity as money is not based on any intrinsic value of the commodity to the economy. 

So fiat money has no intrinsic value, and therefore cannot be a store of value. If the economy produced only money, that money would have no value.  It does not have value as, say, a refrigerator full of food has value, or a tank filled with gasoline.  But, what the third function of money actually is is as a store of demand.  If you have $100 in the bank, or in your pocket, you have a store of demand, which you can keep as long as you want, and when you choose to, you can spend it.   You can demand something which is offered for sale, to the amount of $100.

Then you can take your $100 of tokens of demand and you can go to the grocery store and with it buy $100 worth of food.  This shows that money is also a measure of demand:  You have as much demand for food, or anything else, as $100 will purchase.  If you have more money, you have more demand.  If you have less money, you have less demand.  If you have no money, you have no demand.

Money is not a store of value.  Can it reliably be a measure of value?  Economically worthless things may be in much demand, and therefore command a price beyond their value.  Yachts, for instance.  Economically valuable things may be in little demand, or supplied at prices below their value.  Water, for instance.  With money, you have demand for these things, at the prices they are offered.  But their prices do not reflect their economic value, only the amount of demand, the amount of money, which must be exchanged for them.

This counters the claim that the only value a thing has is that set and measured by the market:  The toys of the wealthy are much in demand, but of little value.  The goods needed by the poor are to them of great value, but it may be that those poor are only able to demand a meager portion of them.  Markets only measure demand.  They need not measure value.  This is the primary inadequacy of markets. 

So because money is demand, or more exactly a token or instrument of demand, it serves as a 'medium' of exchange:  Because money is not demand for any particular good or service, but is demand for any offered good or service, it may be exchanged for any offered good or service. Money is a medium not in the sense of being an environment for exchange, but in the sense of being a generalized instrument.  It is an abstract good, which is offered in exchange for other goods and services. The individual who exchanges his good or service for money then himself has equal demand on others for different goods or services.  Money thus flows opposite to the flow of goods and services, not to the degree of the value of these goods and services, but according to the demand for these goods and services that are offered.

Goods or services are thus exchanged for an equal demand on other goods or services.  Money, then, is an instrument for comparing the demand for dissimilar objects.  However, we have shown it is not reliable for comparing the value of dissimilar objects. 

By mistaking demand for value, the standard definition of money thus implicitly fails to distinguish between the value of an object, and the demand for that object.  In an informal sense, this results in the failure to distinguish between the needs of an economy, and its wants.To provide another example, the economy 'needs' streetlights in Highland Park, Mi.  It 'wants' yachts in Newport, RI.

If we regard the economy as like a tree, money cannot distinguish between the fruits of a tree, and its roots.

There is a larger issue. The standard definition of money goes back, essentially unchanged, to 1875. See eg. Wikipedia.  It is, implicitly, a key part of the foundations of the entire field of economics.  That it is in error calls into question the soundness of the entire economics project.

Sectors Combine in Non-Linear Manner.

This is a work in progress:

Sectors are considered to add value to each other.  However, sectors combine in nonlinear manner.  That is they do not just add value between each other, they also multiply between each other, and with themselves.   

Consider transportation.   Transporting an object across country does not add value to that object.  It multiplies that object’s value, say by a factor of, for example, 1.3.  This would ‘add’ 30% to the value of the object, but the real process is not addition. If the process were addition, then driving an empty truck across country would add value to nothing. (Unless the truck were more valuable on one side of the country than the other.  Then the truck’s value would be multiplied.)  But this is absurd.  On the other hand, multiplying with nothing still gives you nothing. 

Manufacturing a good is multiplicative. Each step in the manufacturing process multiplies the value of factors, and the value of the final product is the ‘product’ of these steps. 

Profit is multiplicative.  Where nothing is produced, no profit can be made.  A product or service is sold at a multiple of its value:  Greater than one for a profit, less than one for a loss.   

Government, then, which is basically in the business of redistributing, transferring, demand, is multiplicative.  It is in the business of rearranging factors, seeking to maximize the total produced by the economy.  However, it can really only tax agriculture and other extractive sectors, mineral mining and energy extraction. This implies that the product of the tax (a factor less than one), and the subsidy (greater than one), is always less than one, because of the cost.  That is the cost is always greater than the benefit. But where the government transfers demand from non-productive sectors to productive sectors, that is, where the subsidy is fictitious, an economy can experience real benefit.    

There are cross terms  And powers of terms. The church (charity) is another. It transfers demand down the social scale,  thus expanding the base of consumption and giving more members of society a stake in that society.    

Libertarian states minimize the government source of cross terms, and thus cannot compete against larger effective governments which increase cross terms, and thus greatly magnify the economy. 

Putting Armed Guards in All the Schools is Nuts

Putting armed guards in all the schools is nuts.  There's like 100,000 public schools in the US, which, with (just) two guards apiece, at say $60,000 per year comes to $1.2 Billion.  This is a cold calculation, but this investment would have to stop the killing of about 300 people, children, valued at $4 Million a person, a child, each year to be worth the cost to the economy.  Note the phrase: "would have to stop the killing of."  Even with this security there is no guarantee of efficacy.  Besides, there's the school buses, too, which would have to be protected.  And then there are shopping malls, public parks, and all kinds of public events where people gather.  A society is simply a soft target, which is why societies have traditionally sought to fight their wars somewhere else besides their home turf.   

 The $4 Million figure is roughly the economic contribution made by a person to society (in the US) during his lifetime. Figure 150 Million people actually working in a $15 Trillion per year economy makes the average of each person’s contribution $100,000 per year. Figure 40 years effective working life, $4 Million total contribution.  The actual average contribution is probably a little less, (although one can argue also considerably more, as much of an individual’s contribution to society is not measured,) so even this overvalues the economic value of a life. This site gives a figure of $5 Million, depending:

 http://www.lifeslittlemysteries.com/2764-infographic-the-dollar-value-of-a-human-life.html. 

The EPA in 2010 said $9.1 Million as the value of a life, but that’s too much, and overvaluing life is as harmful as undervaluing it. If you spend too much money trying to save lives you don’t spend enough money living life.   Suppose you valued people’s lives at $1 Trillion dollars each.  Then you would spend that much money keeping each person from getting killed. But you’ve only got $15 Trillion to spend, so you could only keep 15 people per year from dying. You and everyone you knew would spend your entire labor insuring those 15 people didn't die. And then you wouldn’t have any money for anything else.  

About 2,500,000 people die each year in the US, and gun violence, especially when you subtract out gangs, is not more than a blip. Deaths due to medical error is about (at least, either about 100,000 or 200,000, depending on who you ask) 10 times as much, and one can argue that 'guns to protect people’s rights' is, like medicine, a necessity, despite the unfortunate statistics, for both the gun industry and medicine.

Homicide of all sorts came in at number 16 in leading causes of death in the entire population, in 2011, firearms accounting for 11,100 or so.  But... If you tease the data a little bit, homicide is 3rd or 4th leading cause of death up to age 34, comparable to suicide, ahead of cancer, and only clearly behind unintentional injury, (ie accidents, I suppose,) compared to which rate it is about a third.  This will get you to the site:
http://webappa.cdc.gov/sasweb/ncipc/leadcaus10_us.html  About 4/5ths of these homicides are gun related.  So for that age group at least, gun control advocates have an issue.

But I don't think it is worth the cost, given history and the culture.  Although I also think gun advocates are off a little, too.  Organization, not individual gun ownership, is necessary to protect against tyranny.  And here, for instance, the effective destruction of labor unions, which many gun owners favored, has removed one of the people’s great barriers to tyranny .  Militias?  As long as the government can concentrate force, and is the corrupted captive of Finance...

Also, there is a certain amount of hypocrisy behind the gun lobby’s proposal.  It is often the same people who argue against universal health care.  If they really valued those children’s lives, they would favor universal health care, since the denying of insurance is effectively a devaluing of life.  They propose to spend $40 Million per saved life due to gun violence, ( and expand the government’s police force by 200,000,) but they won’t spend the thousands per life, and save the many thousands of lives, to reduce the death rate of the not so well to do to one or another possible medical problem. 

What is a life worth?

Well, on the one hand, it is priceless. But from an economic point of view, a life is only worth about $4,000,000. Of that, $2,000,000 is the person’s worth to himself, and any others he provides for. The other $2,000,000 is the person’s worth to the rest of the economy. How much the rest of the economy benefits from his life’s labor. These figures are very rough, the mean, and of course vary greatly from person to person.


But how do we figure? First, we figure a person is only worth to an economy what he contributes to society. So we figure from a labor force of 150 Million we have a GDP of 14 Trillion. Round that to make the annual contribution to the economy per worker an even $100,000. Times say 40 years labor, about the number of years we suppose the average worker to work in a lifetime. $4,000,000. About half of that goes to the worker, about half to the rest of the economy. That’s the mean. The median worker only gets about$1.4M, but the median worker also probably contributes less than $4M. But what about the people who don’t contribute to the GDP? Well, here we’re counting them the same. Perhaps we shouldn’t. After all, someone who is compensated more than he contributes to society has a negative value to society. But we can also figure not all contributions to an economy show up in the GDP.


This has important ramifications. Such a heartless calculation actually suggests important ways individuals, and society, benefit. It means, for instance, that it is beneficial to individuals if we don’t spend too much saving a life. For instance, we wouldn’t want to spend $1 Trillion to save one life. Everyone else would be that much poorer. The economy would be out $999,996,000,000. That’s just dollars, but the equivalent in lives (valued at $4,000,000) is 249,999. It is 499,999 lives if we take the value a life is worth to the rest of the economy. We would be trading that many lives for one life. This is a bad deal for an economy. If it did this too much, it would literally kill itself.

What about pain and suffering? People are not just economic mechanisms. They have feelings. They feel pain. Can we put a dollar value on that? Sure. Let’s say $1 Trillion on a person’s feelings. Would we want to spend $1 Trillion on a person’s life? We just went through that calculation, and the point is the same. It would overvalue that life, and be a bad deal for the rest of the economy, which is to say, everyone else. It wouldn’t be fair. You can spend $1 Trillion to save one life, but you can’t spend $1 Trillion per person on everybody else, to save their lives. In fact, it works out you can only spend less than $100,000 per year per person. On average.

We can look at it this way: The economy exists to save, and is essentially saving, everybody’s lives, all the time. We’re all on life support. And since the average each worker contributes is less than $100,000 per year, that is all we can spend, on average, per person, per year.

This shows that it is important not to overvalue life. A society which takes excess precautions against the loss of life is the poorer for it. In a sense, it is literally killing more people to prevent the loss of fewer.

Hospitals already often use a rule of thumb. Their guideline is, (often) for spending up to $100,000 per year of life extension. This is equal to our total annual contribution to the economy per worker. For instance, consider extending the life of an elderly person. On the one hand, society typically does not gain any benefit. On the other, the elderly person has already contributed his share to society, and in a sense has earned this consideration, as a kind of savings. And it provides an incentive for people to keep working. But the figure of $100,000 per year is probably too high, considering the limits of the current health care system’s ability to supply health care, and the high rents already collected from it, and contributes to the high costs of medicine today. The rents imply that the benefits to the patient are far less than the $100,000 expended, so the actual value of life is lower than the nominal one. Indeed, if we consider the rent to be 40% of the system, that is, 40% is ‘wasted’ compared to the health care systems of other advanced economies, then the actual value of a person-year is $60,000. This suggests an economic value of $2.4M for a life, lower than our calculated value of $4M.


One interesting, if perverse, example of the extreme is the California death penalty, reinstituted in 1978, which has cost $308M per person (13) executed. Indeed, its total cost $4B, is a substantial share of the California deficit. We can make this calculation: $308M divided by $4M is the total destruction of the lifetime production of 77 people. In this case, the state is effectively killing (the productive capacity of) more people than the criminal ever did. From another perspective, the annual cost of $184M is equal to the total annual contribution of 1840 workers to the economy, almost twice as many as are actually on death row. The work of 1840 workers, wasted.

The EPA, now, gives a figure of $7.9 Million for the value of one life, almost twice the total economic value we calculated, or 4 times the net value of a life to the economy. http://thenewamerican.com/tech-mainmenu-30/environment/6013-epa-reevaluates-the-value-of-human-life

Not a very good trade off. Of course, there is also quality of life. Clean air is better than polluted air, even if the polluted air doesn’t kill you.

Regulations impose costs on producers. By not permitting the externalization of costs, (pollution of one sort or another for the EPA) which by the EPA’s calculations, would cause an increase in death (and disease,) things cost more to produce, and these costs are passed on to consumers. But it also results in less of those things being produced, and since resources are consumed in all production, less being consumed. So in the case of environmental regulations, other benefits accrue than just the saving of lives. Resources are conserved, other things which might be expensive to remedy are reduced. Such things might be considered to be included when the value of a life is overestimated.

Undervaluing life has its own costs. Negative externalities, excess pollution, is encouraged. Overproduction of stuff is encouraged. (This could be an argument for undervaluing life, where increasing the amount of stuff is equated to economic progress!) There are more accidents, as insufficient precautions are taken. There is loss of life and quality of life.

Note, when an economy is poorer, the capitalization per person, and what depends on it, the individual’s ability to contribute to society, thus the value of life, is less. Kenya for instance has a GDP per capita of $1600, $66B/41M but a labor force of 18M, so the average economic contribution per worker is about $3700, times 40 years or about $150K over a lifetime, (average life expectancy about 60, but do they have retirement?) so that is the mean economic value of a life, there.

Back to the US:
A child, on the other hand, has the potential to contribute $4,000,000 to society. But society has not yet invested in him. In fact, (our) society, on the average will invest somewhere around $350,000 in raising a child to adulthood, not counting the opportunity cost of parenting. Most of this cost is born by the family, so does not subtract from the $2,000,000 net contribution. A six year old, for instance, has about $70,000 invested in him, by his family: $60,000 direct costs, and $10,000 or so for his first year of schooling, which one way or another is borne by taxes. Now families are not the only ones to pay these taxes, so there is some subsidy of education by the rest of society. This omits cost- the opportunity cost to the self for his education, when, instead of capitalizing in himself, he could be doing something else.

In fact, it could be argued that the only real loss to society is this investment, and not the inferred profits society takes from his labor. And this investment is all society should be insured against. (This argument is also carried out in: http://en.wikipedia.org/wiki/Value_of_life )

Of course, the actual capitalization may be more or less than that figure, depending on the efficiency of parenting and the educational system, and the social system of the community. Much of the cost of the educational system now seems to be going to rent, judging from the reported decline in results. So the actual capitalization is less.

Further consideration indicates that the health care system may be considered part of the capitalization of individuals. Consider a child who needs a $50,000 surgery to survive and be productive. He is capitalized, by age 20, to $400,000, and so similarly for all medicine. Currently about $2.4T total health care expenditure per year, or $8K per person per year. This ups the capitalization for our six year old to about $120K. (There seems to be some double counting here, unless the family is fully covered from other, social, sources. One might also consider the fact that, except for young children, the expenditure on health up to middle age is probably less than $8K per year, and higher than $8K afterward.) Anyway, the capital investment per person would be $600K ($8K x 75years) + $350K or essentially $1M invested by society in each person, over their lifetime. On an annual basis about $13 K per year per person..

Other considerations enter in. For instance the average life is that of a 38 year old, round off to 40 year old. He has cost $670K capitalization by society, and produced about $2M. Net contribution $1.33M to society. Should we make this the average economic value of a life?

Suppose we were to nuke a city of 1M people. Which would be the loss to society?
Well, the fixed assets would be $180B ($54T/300M x 1M.) But the total loss of human capital would be about $670K x 1M = $670B. So the total is $850B (Compare this calculation with: http://anamecon.blogspot.com/2010/03/nuclear-equivalent-to-war-on-terror.html)
Here we are just counting what we have invested in the city, rather than the loss of any potential gains we had hoped to obtain from it. Just by the way, The wars in Afghanistan and Iraq have cost $1.2T since 2001, the equivalent, in terms of capital investment, of a city of 1.4M people, or larger than San Antonio, the 7th largest city in the US. Estimates of the total costs of the War on Terror run to $4T, but a figure of $2.4T (http://www.homelandsecurityresearch.com/2008/05/cost-of-war-on-terror/) places the cost at slightly more than Chicago, 3rd largest city in US. (If we were just counting physical structure, no loss of life, it would be almost 5 times the city of Chicago, more than the entire state of Illinois, leveled. This is equivalent to the 28 million houses of my earlier post.) Annualized, we are nuking the equivalent, inhabitants included, of Newark, NJ (pop 277K), or Greensboro, NC, (pop 270K) every year. 40 Years of the War on Drugs has cost about $1T, or by this calculation a city almost 1.2M population, or about the size of Dallas, the 9th largest city in the US. (If it helps with the imagination, you can imagine slightly larger cities just depopulated, since the actual physical destruction of buildings, homes and factories just adds on about a quarter of the value of destruction.)

One thing we see is that the value of a life depends on the calculation we are performing with it.

There is an implied social/moral choice in undervaluing or overvaluing a life. When you overvalue a life, you are sacrificing society for the individual. When you undervalue a life, you are sacrificing the individual for society. But sometimes society pays, anyway, when many individuals are sacrificed.

But of course, society is just made up of individuals. Or, individuals make up society.