Measurement, Reduced Transaction Costs, and the Ethics of Efficient Markets for Human, Social, and Natural Capital

Abstract

Measurement quality is a fundamental factor in determining the cost of transactions within organizations and markets. A huge gulf separates the meaningfulness and precision of business metrics as currently achieved from the quality that has been routinely obtained for decades in research and in limited commercial applications. The transformation of ordinal, instrument-dependent, and nonlinear test, survey, and assessment scores into interval, invariant, and linear measures stands as a major technical achievement of the last 80 years. Unfortunately, few in business or economics are aware of these advances or their implications for the efficiencies of markets for intangible assets. This essay links the state of the art in measurement theory and practice to recent work (a) integrating human, social, and natural capital into a comprehensive economic framework, (b) presenting the pursuit of perfection as the ideal of lean production, (c) on the ethics of transparent representation, and (d) describing the co-production of social orders across scientific, economic, and political domains. The essay concludes with a brief listing of the advantages of improved measurement, how they might contribute to the establishment of an Intangible Assets Metric System, and the need to harness the energy of the profit motive as the driver for the re-invention of capitalism as a system that rewards value for life.