The Nature and Function of Prices in the Visible and Invisible Production Process of Products in the Monetary and Physical Tables: The Case Study of Germany’s Tables

Abstract

In the combined domain of economy and environment, the process of production of goods and services contain three intertwined cycles: primary cycle (natural resources), secondary cycle (intermediate and final goods and services) and the end cycle (overflows, wastes or waste disposal to the environment). The Monetary Input - Output Table (MIOT) organizes only the visible production process of goods and services and data are in terms of price - quantity simultaneously. Prices in MIOT are ordinary, homogeneous and positive for an accounting period. The other two cycles are exogenous with zero prices. As they are outside of the accounting system, we call them invisible cycles. In order to remove this limitation, the Physical Input - Output Table (PIOT) has been designed by some of European countries at the end of 20th Century. This table considers simultaneously all the three cycles in the visible manner. The data are of physical in nature (in tons) without prices and mass unit instead of value unit is used. The design of the PIOT parallel to the MIOT is triggered by two major questions among the analysts in the 21th Century. Firstly, which one of the two tables can reveal the interworen physical nature of economic-environment and sustainable development? Secondly, analogous to the basic theory of MIOT, is it possible to model the PIOT? With respect to the questions posed, the existing literature in the past fifteen years are classified into three groups: The empirical evidences of the first group show that as compared to the MIOT, the PIOT has more potentiality in revealing the physical nature of the combined economic-environment in relation to the sustainable development. This finding is questioned by the second group. The third group has cast doubts to the pros and cons of the treatment of waste as input or output and suggest that the differences are not in the treatment of waste as an input or output. According to them, the root of the differences lies in the nature and the function of prices in both the MIOT and PIOT. The third group overshadows two points: One is that they have not identified the use of the different types of prices like; implicit, unit and homogeneous or implicit matrix prices in converting PIOT to MIOT. Second is that they have not discussed the issue of the balancing of the converted PIOT to MIOT. Based on the 1990 PIOT and MIOT of Germany, we demonstrate first of all that the double deflation method cannot convert the PIOT into MIOT and secondly, use of the implicit matrix price under the assumption of the zero price of waste can convert the PIOT into the MIOT.

Keywords

• physical and monetary tables
• sustainable development
• visible and invisible cycles