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The Big Mac index is frequently mentioned in media, but I could never understand how it makes any sense. According to Wiki:

The Big Mac Index is published by The Economist as an informal way of measuring the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries.

Essentially the index is trying to say that if a Big Mac is more expensive in Switzerland compared to India, then the Indian rupee is undervalued or conversely that the Swiss franc is overvalued. But why would a Big Mac cost the same in all countries? Labor costs vary widely between different countries and so do costs such as real estate. There are even significant differences within the same country - a Big Mac in central London will cost you more than a Big Mac in a highway restaurant.

So why is the index taken at face value by anyone? How does it measure anything except the cost of producing a burger in different countries?

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Because of the Law of One Price, identical products are supposed to cost the same in different places. Since McDonald's applies standards for all the individual franchisees, the product is supposed to be identical even if it isn't perfectly identical. The law assumes there are no transportation costs. If lower costs exist in one place and there are no transportation costs you would move enough product until costs equalize. When the costs equalize the product price can equalize. This is not realistic for perishable products. The problems with this "law" are described in the limitations secton of the Big Mac Index entry in wikipedia.

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Humans like to eat fatty proteins, sugars and carbohydrates.

Big Macs are a standardised commodity internationally.

Big Macs rapidly satiate household daily Big Mac effective consumption desires.

The local prices of Big Macs reflect the social value of satiation (ie socially constructed wage for standard, or average, labour power). Both eaters and makers. The making of the Big Mac is standardised with a standard set of mechanisation and labour discipline in the factory. The Big Mac decomposes potential labour power to actually exerted labour in a standard form.

Big Macs regularise the value composition of the wage, ie the cost of reproducing labour, and thus allow an attempt to equate prices in terms of local standards of living, safety, hours of labour and intensity of labour.

The Big Mac index produces “social labour power” by allowing an equation of the varying elements of labour power costs internationally. It offers recomputation of prices on the firm foundation of the human desire to stuff itself with dairy and meat grease regularly. Building on this PPP labour power regularisation of national or sub-national socially average labour, it allows a useful time series. Momentary labour power values can be computed in PPP and then compared against inflation, %GDP or %GDP/cap.

The commodity bundle used might be small, but it is delicious and represents and atavistic desire to consume heated dead things supplied by others in a standardised commodity form.

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