A simple pricing model for software & medicine

Homepage Disclaimer to these pages Part XXXVIII Part XXXIX Index to birth of Kweb

Extra text to 19 October

This is just a pricing model, I have chosen software and medicine for a lot of reasons. Let me mention two reasons:

1) Software and medicine are two basic components you need to build nations from.
2) Software and medicine have a basic characteristic in common, the development costs are rather high while that actual production is relatively cheap.

In words one can say that this pricing model is matching median incomes between counties (or between two different currency zones). Let me spare you the formal equations and only give you an example:

There are two countries A and B and a product P that is produced in A is traded with B.
Suppose (for extreme simplicity) that product P has a producing price of 25 in the local standard currency. This 25 includes 10 for commodity costs and 15 labor costs.

Suppose furthermore that median hourly income in country A is 10 while it is 2 in country B. So it would take 1,5 'median labor hours' for production in country A.

The price for which this product P has to be sold to country B is: 10 + 1,5*2 = 13 of the standard country A currency.

That's all, the median incomes are fitted and that defines the price (beside a profit margin and transportation costs and all the rest).

Although very simple and better for global trade in the long run, in the short run it is not in the interest of companies and countries or economical zones to enforce this simple model. And so wealth differences will only grow in absolute and relative measures.

A clear hinder of this pricing model is the vulnerability to smuggling, yet I consider the smuggling problem minor to the benefits that are clearly there too. Another problem is that it takes a lot of accountancy to measure the commodity / labor costs split out, but it doesn't have to be exact four decimals behind the comma. It is the rough axe that estimates the price for basic things like medicine and software.

Also the 'poor country' (country B in the example above) does not have some right to import unlimited amounts of the products falling under this pricing regime. But it must have some right of importing that amount that is needed to keep their society functioning.

So that's it, just fix median incomes in the price and in the long run this is better for global wealth distribution. And don't get me wrong I am not hanging to the opinion that global wealth distribution has to be flat by definition, I only thing that countries where things have gone terribly wrong have some right for survival of the population. That's what I think, now what do you think?

End of this simple pricing model.

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At last just a few examples on this, lets only look at software:

-A simple but advanced enough version of operating systems for (personnel) computers? The price model must be applied to civilians too. So not only basic government structures, hospitals and so.

-More advanced software like statistical packages, engineering software and so on. When clearly needed for basic and important government departments the price has to be applied. But why should loose civilians need engineering software (beside for learning purposes)? So advanced software can definitely fall under the price model but it can only be limited to important government institutions, hospitals and so on.

-As long as there is peace and no imminent national security threat in the short turn, it makes sense to exclude military forces from the price model. (When a relatively poor country wants to have expensive army when it's not directly needed, it is better to discourage that.)

-Fancy software like video rendering software? As long as we live in a world with our present currencies there is no reason to apply the model. (It is not forbidden of course, but this is all about basic survival stuff so countries have a realistic possibility to enter the international economic system again.)

For medicine the same kind of reasoning counts but with medicine also into account must be taken the number of people that can be helped with appliance of this simple price model.

At last a remark upon 'history': Until a few decades back we had a golden standard while using paper bank notes and coins from other metals. Before that we had golden, silver and other coins. Of course the use of gold made a lot of sense in the economies from those days, but the economical landscape changes and in the last century we left the golden standard.
These years and decades currency values are more and more build upon 'trust'. It made a lot of sense to leave the golden standard, in the end this standard was a hinder for economical development. The present central banker of the USA (my dear friend Alan Greenspan) has written on this subject himself in the 1960's, some of his articles I have read with interest. Alan had some criticism on leaving the golden standard, in some sense this old criticism still stands. Greed has become more dangerous when you build it all on 'trust'.

All in all I think these decades it might make sense to adopt a new 'golden standard' and that is the value of one hour of unschooled labor. The above price model for software and medicine is just a small step into adoption of this new standard.

And will rigid enforcement of this labor standard work towards a better global economy? Well I have given lots of thought upon that, but for me it is hard to see what the detailed results will be. What the exact benefits and drawbacks are in the long run. But just like that ancient farmer that was confronted with golden coins for the first time (and did not know what to think of that), I think we should move that way towards a labor standard and declare the golden standard for executed right here and now.

Sincerely yours,

TheKillerOfTheGoldenStandard.

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A simple pricing model for software & medicine.