The economics of time

Time is one of the most important, and the most invisible of all economic resources. Every productive process needs time, and most of them are impossible to be understood without time. Time is at the root of all elements of human activity, and is the inevitable ingredient of all productive powers. The Austrian School of Economics has established the famous dictum «Capital is time»; but it could have equally said «Labor is time» or «Land is time», because all economic resources are really time. Even when we abstract from time, like the synchronic Walrasian model, all economy is time.

Every economic element, like consumption, production, investment, and all the crucial trajectories of the economic system are inseparable from time. This fact is explicitly acknowledged when, in popular presentations, the general improvement of any private endeavor or national economy is described as «acceleration of life», thus pointing to the changes progress generates in the time dimension of the motion.

Time, although crucial for economic activity, is at the same time the most rigid and merciless of all resources. Time only goes forward, and always at the same pace. Everybody has only one moment at a time, it passes in a flash, and will never come back. It is impossible to accumulate time, to transfer time, buy time, hoard time. The only thing we can do, if we do not use time, is loose time; and, when time is lost, it is impossible to recover, as nobody will benefit by time lost (this is the fourth of the five Marshall’s «peculiarities of labour»; see Principles of Economics, 1890, VI, 5, 1).

It is true that, through financial systems, economics tries very hard to control and manipulate time. By using the price of time, the interest rate, we believe to be buying, selling, bending and controlling time. Through credit, we are even able to anticipate value, to send value into the past, thus cheating the Theory of Relativity, which declares the impossibility of traveling back in time. But physical reality is never far behind our economic models. Even with all the recent technological and financial innovations, which allegedly drastically accelerated life, the rigidity of time is as visible today as it always was.

There is another problem related to time, the most terrible of all problems: time is, not only rigid and merciless, but is also cruel. This results from one of the most sinister of all the natural properties of time, one which is usually presented as the «second law of thermodynamics». This basic principle of reality states that «total entropy of an isolated system can never decrease over time». In time, things naturally and always tend to decay, decline and rot. Time brings default, failure, recessions, unemployment, inflation, depreciation, obsolescence, inadequacy, death. Time is a fierce master, not only in our bodies, but also in our institutions, activities, labors and achievements. In particular, it is a terrible enemy of our economic systems and entities.

As a result, we can even consider all economic activity, all production, even all consumption as forms of battle against entropy; against time. The economic system is never an isolated system, because human effort, through both labor and capital, can change it, and thus revert entropy. This is what we call economic evolution. Without that effort, decadence would take over. In this respect, economic development is a continuous fight against time.

All these considerations, maybe too philosophical, are important to understand the evolution of the economy. Development has been recently one of the most visible aspects of our era. Humanity has accomplished great improvements in the latest decades. We live one of the most extraordinary epochs of history, with exciting and amazing novelties being presented every day. Welfare and even happiness have been extraordinarily enhanced in almost all regions of the planet and in most of the dimensions of human life.

After so many decades of improvement, people tend to take advance as the natural tendency of life. It is not. The natural tendency is entropy, paralysis, disaster. Not only upgrading, but even maintenance are the result of a continuous struggle against decay. The obvious consequence is that underdevelopment is the easy phenomenon to explain; what is hard to understand is development. This is one of the most basic principles of economics, which, like most of them, gets frequently lost in popular discussions.

Many persons declare their puzzlement on the face of ruins, bankruptcies, crisis and disasters. Their basic expectation is success, progress, improvement. There is an endemic «ideology of development», which sees humans in the cockpit of reality. This attitude has two varieties: the first is the naïve belief in progress, innovation and entrepreneurship as an ordinary and all-powerful force; the second, sometimes even more noxious, is the ultimatum to end all deprivations and shortages, as if it was possible to have everybody rich. This is a benevolent and well-meaning purpose but, being unrealistic, eliminates gratitude for the achievements and generates constant complaints.

Many politicians promise what they cannot fulfill, many policies ensure what is impossible to warrant. But progress, even when it looks normal, easy and common, is always the exception. Death is the final master, especially in firms, projects, products, and enterprises.

Economics was born precisely by the acknowledgement of a surprisingly case of reduced entropy: «It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest» (Adam Smith The Wealth of Nations, book I, chapter 2. par. 2). Smith was astounded he had his dinner. Everybody around him took the dinner for granted; however, considering the huge amount of work necessary for the attainment of the meal, the simple fact it exists is really amazing. Smith was surprised by order, not by chaos. What he wanted to understand was how such a complex entity as a dinner could rise into existence, without anybody really planning it. The fact this philosopher was surprised by his dinner created a new science.

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