All Commentary
Tuesday, July 5, 2016

Let the Market Standardize Weights and Measures

In 2001, the stock markets in the United States completed their conversion from quoting prices in fractions, such as three-eighths, to quoting them in cents. At the time, the exchanges balked at the cost of conversion. To be sure, there were costs involved. But, now that the change has been made, the conversion is merely an historical factoid. Thus was taken another step in the standardization of counting and measuring, along with the standardization of just about everything involving mass, space, energy and time.

There is no denying the advantages of standardization. In a word, it reduces transaction costs. With lower transaction costs, more mutually-advantageous specialization and trade can occur. In the case of the conversion of the American stock markets to decimals, people relatively unfamiliar with fractions are able, more easily, to deal with stock prices. Who, after all, immediately recognizes whether eleven-thirty-secondths is greater or less than three-eighths? With continuing standardization, and the necessary political arrangements, people from all over the world are increasingly able to trade, contract, partner and in other ways cooperate with each other.

According to the U.S. Constitution, it is for Congress to set weights and measures. Yet, the truth is, over the years, more – and better! – standardization has occurred through the market process than by government decree.

Synchronizing Commerce

Consider the case of Standard Time. Standard Time came to the United States on November 18, 1883 through the aegis of the railroad companies of that day. At the time, most of country was on “local time,” as determined by the sun. Except, as one story went, there was a town in Arkansas that was so small it didn’t have any local time.

Standard Gauge seems to derive from the wheel width of the common horse-drawn carts of England, going back to the days of the Roman occupation.

The multiplicity of local times made it very difficult for the railroads to operate their increasingly long-running trains according to published timetables. Therefore, they decided to divide the country into four time zones, and the companies put giant clocks on their passenger terminals so as to communicate Standard Time to their surrounding communities.

Even with this effort, various governments were slow to adopt Standard Time. Call it “local pride.” Detroit, for example, for about thirty years, went back and forth on the issue of Standard Time versus local time. After Congress got involved, it thought to improve on Standard Time by adopting Daylight Savings Time, and generally messed thing up.

A similar thing happened with Standard Gauge. For a long time, railroads in the United States had a variety of gauges. The Erie featured broad gauge (6’), while northern roads generally had (what was to become) Standard Gauge (4’ 8½”). The southern roads generally had Southern Gauge (5’). And there were others.

For all of the supposed engineering advantages of one versus another gauge, the variety of gauges hindered the transportation of passengers and cargo over long distances. The businesses that were involved in the transfer of passengers and cargo from one train to another at junction cities – cabbies, baggage-handlers, hotel operators, and so forth – opposed standardization. But, eventually, the gain from standardization overcame the opposition.

What’s kind of funny about Standard Gauge is that it appears that the width, 4’ 8½”, represents the wheel width of the common horse-drawn carts of England, going back to the days of the Roman occupation. And, with the development of the standard container, as is pulled by eighteen-wheelers on our highways, placed on railroad flatbed cars, and stacked on ocean-plying container ships, this standard has been projected well into the future, globally, and across several modes of transportation.

From Grammar to Grain

Standard English is generally thought to have been developed from a Central Midlands dialect during the Middle Ages by the clerks in the king’s Chancery. Even so, the role of privately-published dictionaries in the promulgation of standardized spelling and pronunciation of words cannot be ignored. And, for the rules of grammar, there’s Strunk’s Elements of Style for the Queen’s English. For our version, American English, the best reference still is H.L. Menken’s The American Language: An Inquiry into the Development of English in the United States.

When futures trading began in Chicago, in the mid 19th Century, it required the promulgation of standards.

During the late 20th Century, standardization of English was further advanced by the new electronic media. Midwestern dialect became the American standard because that’s where Johnny Carson was from. Nowadays, standardization of English is being promoted on a worldwide basis by the syndication of “Baywatch” and “Wheel of Fortune.”

The governments of the world, on the other hand, are on a rampage against standardization of language. In our country, it’s called “bilingual education,” which means teaching children in their ancestral languages so they never learn English. In other countries, it involves the suppression of English, Spanish or Arabic, and the promotion of distinct national, provincial and tribal tongues.

Mother Earth provides us, directly, with only a few homogeneous commodities. Almost all agricultural products feature significant heterogeneity, and many minerals occur in polyglot form. Thus, when futures trading began in Chicago, in the mid 19th Century, it required the promulgation of standards. With standards, and a credible process of inspection, buyers and sellers could join into transactions for wheat, corn, beef cattle, and other agricultural products distant in time and place. And, with its futures market, the “City of the Big Shoulders” emerged as the great transshipment point for the agricultural products of the Midwest destined for the east and beyond.

Proliferate and Standardize

There are, simultaneously, two big drivers of economic progress today: the relentless reduction of cost made possible in part by standardization, and the increase in value by the matching of differentiated consumer goods to individuals. While some goods are being standardized, others are being differentiated. There’s a continuous process going on involving the introduction of new, differentiated products, often in amazing variety, followed by their standardization.

Postscript: The small denomination notes shown are scrip issued at various times during the early 19th Century. Usually this happened when the banks were in a general suspension and coins disappeared from circulation. The Dollar, you see, was adapted from a Spanish coin, the real or “piece of eight.” A “bit,” or a one-eighth part of the dollar, was therefore worth 12½ cents, and a half-bit 6¼ cents. While it took some time for decimalization to take hold on Main Street in America, it took much longer for it take hold on Wall Street.

  • Clifford F. Thies is the Eldon R. Lindsay Professor of Economics and Finance at Shenandoah University. He received his Ph.D. in economics from Boston College.