Utz-Pieter Reich on the Nominal and the Real

What oft was thought, but ne’er so well expressed1:

The lack of realism in microeconomic value theory has been overcompensated by an unquenched desire for `real’ figures. Idealism in the concepts of theory has resulted in a plethora of empirical concepts for real value, and the development of index number theory is thus characterised by an inventive sequence of euphemistic terms. We have an `ideal’ index, a `true’ (cost of living) index, an `exact’ index, a `superlative’ index and, last but not least, a `hedonic’ index.

At the same time, the word `real’ is employed in more than one sense in economics. It can mean the opposite to `nominal’, in other words a value figure corrected for a change in the value of the currency unit through a general price index. It can also mean `volume’, which is correction by means of a price index specifically tailored to the aggregate under consideration. It may mean `material’ as in `real’ assets rather than `financial’ assets, or the `real sector’ which produces such assets, as opposed to the `financial sector’, which deals with non- produced assets. In none of these uses is `real’ opposed to `fictitious’, but to the layman the difference is nevertheless unclear. The very act of `speaking in real terms’ conveys the idea that one has happily left behind the cloudy and unreliable world of bookkeeping and institutional regulations, and settled safely in the world of tangible objects. …

But the operational issues stirred up by using these terms have not been adequately addressed. To obtain such real variables, nominal figures are simply divided by some notional price index without regard to the ways in which this index is produced and the change in meaning it may imply for the resulting aggregate. …

In this [book] we make every effort to convince the reader that nominal values are real values in the sense of `actual’, and of what is observable as a statistical fact, while real values, as conceived by economic value theory, are constructs. They are imputations in the proper sense of the word… The dual character of the national accounts, distinguishing between institutional units and transactions on the one hand, and functional units and product flows on the other, provides the theoretical background for this view.

From Utz-Pieter Reich, National Accounts and Economic Value

  1. Oft thought by me, at least. Like here.

3 thoughts on “Utz-Pieter Reich on the Nominal and the Real”

    1. Market prices are the scheinvert
      To a deeper dynamic
      socially determined
      commodity value
      law of motion

      Put crudely
      The contradiction between
      use value and exchange value

      1. Real
        In real v nominal
        points toward social use value
        Thru some adjusted lense
        Social of exchange value

        This market fed contrivance
        Is indeed forever and a day
        A Distorted rendering of the deeper notion of exchange value
        Seen thru this contrived
        Surface variant of
        The market price path
        Distorted
        Though not beyond a weary recognition

        BTW
        Too much time gets
        absorbed
        by Scraps over

        Market prices v exchange value

        TOO LITTLE
        BY deeper delving into
        THEORIES OF Surplus value

        Exploitation and all that

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