Essentially, Part III will serve only as a means to understand key terms for your use later on in the series. There will be no boring text book definitions here. I’ll explain concepts in my own manner. The last two items (inflation and the UBI) will serve as a segue into Part IV.
In Part II concerning automatic stabilisers, I covered consumer spending, and in the addendum, I did so a bit more in depth, describing how it affects production. Please refer to both articles should you need to refresh your memory.
Production is a thing. Without it, you do not have an economy. Many UBI advocates won’t wish to hear this, but production requires human effort to be involved. Said another way, production requires the employment of human labour – a thing we call “jobs”. It doesn’t matter if we are talking about a capitalist framework, or a socialist framework. In both cases, human labour will be required to supply society with the goods and services that it needs to survive.
The year is not 30,000 BC. We are not wandering about in a nationless world wearing animal skins, where hunter/gathering behaviour is necessary for the survival of our small tribes. The year is 2023, and we live in a highly-sophisticated world, containing many nations which have large populations that we call “societies”.
Rather than spending each day employing our labour power hunting for food and gathering the things that we need for survival, we now expend our labour power each day producing the things society as a whole needs for survival, which in turn means that we can meet our individual needs much easier and much more efficiently. People are trained to associate the word “production” with capitalism. But, in fact, even in a 100% socialist economy, production remains a necessity to provision society.
All production is social production
The key thing here is that human work continues, regardless of how sophisticated we become. It is unavoidable. Without humans working, regardless of what type of work that is, you have nothing.
People are employed in the production process by going to work for a business. The individual then expends his or her labour power working to produce goods and services for society itself, and in return, the individual is compensated for his or her labour in the form of a wage. The worker then spends that wage at the local grocers to easily obtain food, and at shops to obtain clothing.
The wage, then, becomes the object of expending our labour power, which in turn allows us access to goods and services at shops, which is the efficient means for society as a whole to obtain basic needs and wants.
As such, all production is social production, even within a capitalist framework. Unless you make your own, the very clothes that you are wearing are the result of society provisioning itself. Or, did you think that the particular brand of shirt that you’re wearing created it only for you?
Producing goods and services down to Inputs and Outputs
Though the means of production are privately-owned in a capitalist framework, the goal from society’s perspective still remains: to produce goods and services to provision society. That provisioning might be less at one point or greater at another, but society itself survives. This is not the place to go into the political aspects of profit, wealth, and the like. Remember, we are just explaining production here and nothing else.
So, in sum, production is the process of creating goods and services, which either increases, remains constant, or decreases as a reaction to consumer spending. Lots of things go into producing goods and services, but in general, we can boil it all down to two main categories: inputs, and outputs.
Inputs are the things necessary to produce goods and services – Raw materials, computers, chairs, labour, etc. Human beings are required as inputs to produce goods and services. Advocates of the UBI can rant and rave all they like about automation, but the argument is a non-starter. I will deal with the automation question later on in the series.
For now, suffice it to say that at all points in history where automation eliminated certain jobs, human labour was always redirected to some other useful endeavour.
Go to Morrisons. Go to Walmart. Look on the shelves. There you will find output. Output is the final result of production; the product for sale where human labour came together with other inputs to create the things that you both need and want. They are easily obtainable by you with your wages earned than were you to go out and hunt for game, and gather berries 24/7/365.
III. The Labour Supply
The labour supply is the total available workforce to a nation, which can become smaller depending on various factors. True, you can increase the size of it like David Cameron and George Osborne did by hiring private firms to declare the terminally ill, the elderly, and infirm “fit for work”, and then forcing them to look for jobs that aren’t there. Or, you can do like Republicans in America and pass legislation allowing ten year old children to work in factories 40+ hours per week. But, for our purposes, let’s keep things on a more humane, rational level, shall we? Fine.
Should the workforce become smaller for whatever reason, the output of goods and services can also contract. A serious reduction in the supply of labour, without immigration, or other countermeasures being introduced, will at some point negatively affect the price of goods and services. Now then, let’s briefly return to outputs, tie all of this together, and finish up Part III.
IV. Prices and the UBI
Outputs have a price, and that price is denominated in the central government’s unit of account (£, $). That is the obligation (debt) you must satisfy in order to obtain the good or service that you need or want. Notice that both the price and your wages are denominated in the same central government’s unit of account (£, $). This is a big red flag as to the entity that is in charge of the economy: the central government. As a bonus educational opportunity concerning what money actually is and how it works, see my article, Understanding Money: A Prerequisite to MMT.
Setting an economic and social agenda for the nation
Though you might not be able to see it directly, when the central government engages in fiscal policy, it is influencing your ability to obtain the goods/services that you need and want. But, fiscal policy isn’t just about money in and of itself. It is ultimately about setting a particular economic and social agenda for the nation. If a central government’s fiscal policy is one of aggregate demand (total consumer spending) enhancement that also, as a consequence, results in the shrinking of the labour supply, eventually you’re going to run into a problem with production and output.
If the central government saw fit to provide a UBI to all at, say, £150, $190.71 US, and $285.58 AUS per month as of the time of this writing, the effects on production, output, the labour supply, and the inflation rate would be quite minimal. However, were that monthly payment to be as high as the basic income to be trialled in England – £1,600, $2,034.24 US, and 3,486.18 AUS, it would negatively impact the labour supply, and, in turn, negatively affect production, output, and the price of that output. I will examine why such a large UBI will have this effect in the next instalment.
Up Next: Part IV – The Fallacy of Composition, the UBI, and Demand-Pull Inflation