Tag Archives: inflation

The Mars Bar Unit of Account

The fluctuating weight of the Mars Bar is quite a contentious issue here in the UK. Answering a query as to whether economists take this into account (and not just price fluctuations) when calculating inflation using the Retail Prices Index, economist Tim Harford offers some entertaining information regarding the Mars Bar unit of account.

The Mars Bar has been worthy of scrutiny ever since the late Nico Colchester noted in the Financial Times back in 1981 that it was a very stable unit of account. It is a veritable ingot of basic commodities (sugar, milk, cocoa) that has kept its value relative to the price of other goods such as small cars, which have cost about 20,000 Mars Bars for the past 70 years.

As Colchester wrote,

The Mars Bar […] is a long-established basket of staple commodities (cocoa, vegetable fats, milk solids, sugar) packaged with great consistency. […] As such it is a reliable unit of account certainly more reliable than gold, which is prone to speculation and it preserves a remarkably constant real value.

No mention of deep-fried Mars Bars, however.

Grade Inflation

With news that Cambridge University is to demand A* grades at A-Level as a prerequisite for entry (a grade that currently doesn’t exist), there is much in the news about ‘grade inflation’.

However “grade inflation” is actually the answer; the problem is “grade distortion”:

True grade inflation would mean each grade was equally devalued, with A grades superseded by AA, AAA and AAAA as new labels for superlative performance became necessary. One hundred per cent would become 110 per cent.

Yet examiners are reluctant to award 110 per cent and there are no AAAA grades. What we see is not inflation but a classic price distortion. Eventually all students will get A grades and they will be meaningless. A* grades are a small, belated step in the right direction.

Grade distortion is a serious affair. Students and their teachers are forced to switch to grey market transactions denominated in alternative currencies: the letter of recommendation, for example. Like most alternative currencies, these are a hassle.

Grade distortions, like price distortions, destroy information and oblige people to look in strange places for some signal amid the noise. Students are judged not on their strongest subjects – A grade, of course – but on whether they also picked up A grades in their weakest. When excellence cannot be displayed, plaudits go instead to those who deliver pat answers without stumbling.