NOTE AND DISCLAIMER: Below are raw notes taken by AB during the above discussion. There are many errors of spelling, mis-hearing and misinterprtation. Therefore NONE OF THIS MATERIAL MAY BE CITED NOR USED IN ANY WAY EXCEPT FOR PRIVATE STUDY, AND NONE MAY BE MADE PUBLIC.
Held on: Friday 7 June 2024
Present: CA, CM, JC, TBC, AB
Disclaimer: This is a transcript of a real-time discussion, and so wording and even content do NOT necessarily express properly the views of the participants. Moreover, sometimes the audio was unclear. The material is being shared for the purposes of personal reflection, to progress the discussion on contemporary economics. You may NOT cite or otherwise use this material in any adverarial way.
The main purpose of these RLDG discussions is to develop our Foundation for Rethinking Economics, and also to serve as an archive of ideas and insights into economics from a pre-theoretical stance.
This 28th discussion is part of the series of the RLDG discussions, which started at the 2020 Reith Lectures. The main topics discussed was dissemination.
[This is annotated notes of the 28th RLDG discussion.
AB typed notes during the discussion, then went through transcribing the audio recording, correcting spelling errors, inserting links, and notes and comments in square brackets (9 December 2024). This time there are no summaries at the end of each section, but instead there are indications of how various points have been incorporated into the Rethink. Some stumbles and blind alleys and extra words like "yknow", "basically", etc. have been omitted where they do not contribute to the meaning, but retained some where they might.
AB adopted two roles, (a) of editor, "Ed.", e.g. giving links to other material, adding "***" to important points attaching unique labels for future reference (actually only places for labels to be added later), or explaining things; and (b) of contributor ("AB:"), inserting responses to what had just been said, especially some that he would have made had be not been taking notes. AB's responses are added in order to further the discussion, especially in a way that could contribute to our Rethink. Sometimes he will criticise himself for what was said on the day!
"??xx??" indicates where what was said is unclear. "..." indicates missing content (spoken but not written into the notes). Square brackets = content added by editor that was not in the discussion. ]
[recording started]
[checked from here 18 November 2024]
# AB: Welcome everyone. This is the 28th discussion we have had. You three have been on for quite a number of them. So thank you very much.
# Last time, we discussed a lot about the media and how to disserminate and so on. I sent round a list of actions, some of which I have done and some of which I have not. But I won't do a report on that just now because, if I did, we would spend the whole of this discussion talking about that.
# I want to think especially about three topics, maybe four, that need to be beefed up in our Rethink. There are others, but I selected three, and we can do more if we wish. They are:
# Now, we did discuss unpaid activity way back; I think that JC might remember, but I don't know whether CA and CM remember. But TBC especially wanted to say something about that. These are all ones that DH was interested in but I have not heard from him, on whether he would be with us today.
# Inflation, we really do not have anything on it, but it is an important topic. And productivity, ditto.
# And so, I would like to, if I may, I would like to get your ideas on these things so that we can build up something that is reasonable.
[AB did something with files.]
# So, shall we start with Inflation.
[02.35]
Contents
[AB: I arrive with this hypothesis: The main reason inflation occurs is self-protection and greed (dysfunction in the ethical aspect). Producers protect themselves by raising prices; consumers protect themselves by demanding higher income - both despite the fact that 87% of them could still survive with a cut. I want to see to what extent that stacks up. Of course, attitude (self-centredness or its opposite) is hidden, so not likely to be frequent in theories and models, but it might be important. ]
# AB: What I have decided to do [in the Rethink], rather that have a big discussion of these topics within the chapters, I have decided to have a summary of bullet points of how we treat these things, and then have a separate file in which they are discussed.
# And there are two sections [to the summary]. One is The Problem, of whatever it is, like Inflation and so on, and the other is Our Approach.
# Now "The Problem" is not just the problem of inflation or whatever [as such], but it is the problem of how it is thought out and discussed. So bear that in mind. It can be the two of them.
[Ed. Actually, three sections: Problem with the issue, e.g. inflation, Problem with current approaches, Our Approach. ]
# And there are three things [within The Problem] (I can put these up on the screen if you like):
# I do not really know what inflation is.
# There has been a lot of talk about it. And people like More or Less [BBC Radio 4 statistical economics programme] point out that when governments promise that inflation will go down, well inflation is likely to go down anyway, just because of the mathematics of it. Because inflation is the differential between prices now and prices a year ago. And low inflation does not mean they are not going up; it means that they are going up a less steep rate or something.
# But, anyway, can you / what would you like to say about inflation?
[04.50]
# JC: It's a necessary evil of our capitalist structure right now.
# You have to create more capital and flood the system to create new investment.
# Therefore with the creation of new capital and without the ability to ??erase?? existing capital you naturally increase prices because the higher amount of "little bits" and ones and zeroes that account for capital currency. So we take /
# AB: Right, can you say that again; there is a lot in that. It is a necessary evil, but why is it necessary?
# An example of why it is a necessary evil is QE, QE1, QE2, it's quantitative easing. The idea on a fiat currency structure which ??it is??you just?? create ??on??from?? the central bank the existence and increase of money supply on a digital automated base is to hopefully create the ??ideal?? incentive for cash to be inside the economy, moving. It naturally increases prices. That increase in price is an example of inflation.
# AB: Why does money moving increase prices?
# JC: Money moving increases prices because the cost of goods continue to increase because, on the labour side of things, labour requires more pay, because of the need for paying higher standards, higher rates, and so when you basically (on the micro level) transfer (from the micro to the macro level) more pay into the workers, more pay and more benefits that cost money, naturally increases the products and goods and services that are sold. And so that is a necessary impact of increased monetary supply.
# And what the theorists believe - and CA, CM and you AB are more pro than me - but I come from a very, I would say, free-market oriented structure, undergraduate education, the idea of increasing money supply means more participants in the economy, ergo, prices stay low. That does not work.
[07.00]
# AB: OK, why would they think that? Why does it not work? Why does increasing money supply / Increasing money supply does what? # JC: Increases the prices. # AB: But there was a theory that it should keep prices low, is that right? # JC: Yes.
# CM: But the argument is that the two are incompatible. # JC: Yes.
# CM: So, if you are injecting more money into the economy, whether through QE (1a) or some other excess government spending (1b), or for that matter allowing the creation of money through bank-created money as credit (2), rather than the base money coming out of government, if any of those three mechanisms /
# (Well, the first two are the same, but one is money-creation going into finance, the other is money-creation going into government spending, in other words, deficit spending) /
# [contd] if you ??either of??pilot??divide up?? those from the government or you allow loose credit with bank-created money / # AB: If any of those two mechanisms what? # CM: If any of those two-and-a-half (1a, 1b and 2) if any of those happen, and you are injecting that into the economy, and not extracting it and removing money in some other way, then you will get inflation.
# Because you have got more nominal money (I mean, money is just a virtual entity, right) you have got more nominal money chasing the same amount of goods, assets and output, to goods, services and assets. So you get one or more of several things.
# You either get asset bubbles, which we have actually seen from QE - property assets and other things going up - which is where people are dropping money into asset purchase - but then that money continues to circulate because the vendor of the asset then has more spending power. So ultimately you always end up chasing more consumption.
# If you cannot meet that consumption with actual output then the price of a unit of production or price of a unit of consumption inevitably goes up in nominal terms.
# JC: ??There?? we go.
[09.30]
# CM: So the so the purchasing power of a unit of money, nominal money, goes down.
# Because the two have to be in balance.
# So, in effect, the abstracted definition of inflation is a decline in the real purchasing power of nominal money. # AB: OK. # CM: So, one dollar, one pound, pme euro, buys you less stuff.
# One pound used to buy you a decent large loaf of bread, now you go back a year later, or a few months later in some cases, and it is one pound and ten pence.
# AB: Why must the two be in balance?:
# JC: There is certainly a time lag.
# And what's in balance, that is why you, AB, CM and CA, this is where you introduce interest rates as the balancing mechanism, on a macro economy.
# So, the introduction of interest rates allow the supply hypothetically go down.
[10.50]
# The mechanisms that that happens through CA and CM can address. I know from the theory structure, that balances out the overall costs of goods in time.
# But it hurts the individual consumer and lender. Like my wife and I trying to buy a house right now - interest rate high.
# CM: Yes, if it hurts the borrower, the thing with using interest rates (# JC: borrower [Ed. JC corrected himself]) # CM: (and this is where we do get a bit political) because the thing with using interest rates as the control mechanism, is actually /
# well it is both a very weak control mechanism because the speed of its impact is low. (It is like turning a supertanker with a rudder that is very small in relation to the momentum of the overall system.)
# But also, as you say, JC, when interest rates go up, those who are debtors have to pay more to service their debts. So that is typically people who do not have savings or capital or assets. And those who do have savings obviously get more. So, the creators of money, or those who have already accumulated money then get more.
# But the other problem with that mechanism is that money can go into savings of various sorts /
# now if it goes into savings in the finance sector, those savings will recirculate because they have to be invested in order to extract further income, real income, from actual economic activity in order to pay the interest.
# Whereas, if they go into the government savings sector, which is (wrongly in my opinion) called "national debt" (it is national savings) - if the government puts up the interest rate it is offering on its bonds and other financial instruments that the government offers, then of course that money just sits in the government coffers.
# But it has to be ??spent?? at some point; the money has not been destroyed; it is sitting in the government accounts.
# AB: Can I just ask: "if it goes into gold, did you say, or what?" # CM: No, bonds. # AB: Bonds. # CM: Purchasing gold would just be an asset bubble. So the prices / # AB: Sorry, I just did not hear your word. # CM: Government bonds. So Treasury Gilts, as we call them in the UK - gilt-edged stocks, which are government bonds. So, yknow, five-year, ten-year, whatever it is, bonds at a certain nominal interest rates they sell it at ??cost??. # AB: If it goes ?? / # CM: Then you have to pay that interest rate back eventually, or you pay it every year, but you have to pay the capital back.
# AB: If it goes into bonds, what what is happening? # CM: It sits in the accounts of the government's debt office, which is a subsidiary of the Treasury.
# AB: And so it does not flow, you mean? # CM: It does not flow, because it is sitting in the government's coffers, as it were. (I mean, it is all digital now.) # AB: But does not the government itself / because it is sitting in the government coffers, the government has more money to spend on various things? # CM: No. No, because it has got to keep that as credit it is then going to pay back. ***
[AB: An example of money that is not flowing: keeping some as credit so that one can pay back when called upon to do so,]
/# CM: It can create more money, but that is a different action.
[14.30]
[AB: Comment: Is there a third way of, effectively, creating more money? That is, via unpaid economic activity such as voluntary work, caring or housework? It is equivalent to creating more money if we see money as enabling us to do stuff; here we are doing that stuff? If that is valid, it should become part of our rethink. ]
[All above checked. 18 November 2024]
# CM: But now I talking MMT theory [Modern Monetary Theory].
# Because I disagree with the idea that what the government gets in tax and what it gets in selling bonds and bringing in money that way, I disagree with the idea that actually generates money in the government's bank account that can then be spent. ***
[AB: Interesting: All this, including the possibility of disagreeing like that, shows that money is not easy to understand. It is not just a commodity, store of value. *** ]
[14.50]
# This is the sovereign fiat currency argument. The government actually sovereignly creates fiat currency whenever it spends.
# That is the mechanism that happens. It tells the Bank of England that it wants to spend so many billions on something, and the Bank of England then puts it there in the account.
# AB: You broke up; can you repeat please.
# CM: Sorry, yeah. The government says it wants to spend so many billion on something. If you are ignoring anything to do with tax or bonds that it sold, the government can say "We want to spend so-much pm the health service this month or year, or whatever" and the Bank of England puts it into its account and government can then transfer that to all the suppliers, to the health trusts or the private companies or whoever is working for it.
# And that then will start circulating in the economy. It will generate tax revenue, depending on what it is spent on and how those things are taxed.
# And then eventually it will all finally come back to the government in the form of tax or in terms of bonds that the government has sold in the future.
# But when the government sells those bonds, the money that is represented by these bonds always ends up going back into the economy eventually, later on.
# It goes into the economy in drips over the period of the bond because we have to pay the interest on the bonds. But then eventually you get the maturity of the bond, and then it goes back 100% of the actual value of the bond goes back into the economy.
# So that is the temprorary extraction. Whereas the tax is a permanent extraction of money.
[16.35]
# AB: When you say "A tax is a permanent extraction of money," what do you mean? Because a tax, like income tax or something, is / the money is then used for something else. So it is not /
# CM: That is what I am saying.
# I am putting the Modern Monetary Theory argument that says that when the government taxes it actually destroys that money, because it has removed it from the economy ??? [zoom collision of voices].
[AB: In what way does tax take money out of the economy? Surely, the funds the government receives via tax then flow out as government spends it. Whether earmaeked or not. ]
# JC: [Something at home]
[17.10]
# AB: OK, so Modern Monetary Theory / I think we have actually got something on MMT in a [previous discussion].
# CM: Now this is at odds, of course, with the argument of most mainstream economists. ***
# They do not accept that this is the reality of the way money is created and circulates around and around and comes back to the government as tax, and then ends up disappearing.
# They actually put the start of the process somehow - and I think it is slightly magical! They start it off the other end. They say "There is money there already, and it comes in as tax. And then gets transferred from the tax office across to the spending department of the Treasury, who then put it into a different account in the Bank of England and then agree that the government can spend it. And that is where you get this argument (sorry, coming back to the political thing at the moment) "We have maxed out on our credit card; we cannot afford it because we cannot put up taxes."
# CM: That is not actually true.
# The argument against the way I have described it is the argument that JC enlisted at the beginning, which is that if the government creates too much money and starts injecting it, the system /
# JC: [speaking to family, then apologised]
[18.45]
# CM: The argument is that if the government creates too much money and spends too much, either by pumping it into banks through QE (in a sortof smoke and mirrors that hardly anybody really understands how it works, but they pump that into the finance system, and then it goes in the economy).
# Or they do it by literally spending more by hiring more teachers, more policemen, more whoevers - spending on them, then, if they do that and there is not the actual resource - the real resource - in the economy, on which that money could spent, then you have basically created more money for the same amount of stuff - "stuff" meaning goods, services, everything - you have created more money and it is chasing the same amount of stuff. So the automatic result will be inflation.
# CM: But the counter-argument to that is "Well you, therefore, have to control the amount of money circulating."
# One way of doing that, we have already discussed, is by extracting it and parking it in the sense of selling bonds and parking that in the Bank of England, sorry, the Treasury's bond office account.
# The other way is taking it out as tax, in which it never goes back into expenditure again.
[AB: But surely, tax is used to pay for things. ]
[20.05]
# The fundemntal problem is: What is the amount of physical resource available for goods and services to be provided in the Economy?
# So the reason for inflation is fundamentally, if you have more money chasing the same amount of that, and no other way of getting it, you cannot get more people back into work and start circulating more money through their salaries and what they purchase and so forth. Or you find more stuff, you dig up more stuff, and so forth, you create more stuff, you expand production at factories, because people work longer hours or you put on shifts and so forth, and you use your resources more, and produce more.
# You therefore get economic growth. If you do not have economic growth, you get more money into the Economy, then you get inflation.
[21.00]
[tbc arrived]
# CM: But there can be other causes of infla/ For a given national economy there can be other causes of inflation.
# Because you can have / things that you are importing become more expensive, and you have no control over that. So you have actually squeezing the national economy for example by putting up interest rates so most people cannot afford so much stuff, because they are spending more on interest on their property, or bank loans for their business, or whatever. If that happens because you put up interest rates, you actually won't really affect inflation.
# You will in the longer term, because you basically extracting money as interest, particularly when it is interest on government bonds, it is coming out of / sorry, not interest on government bonds, but interest on bank loans / It is coming out of people's pockets. But that does not actually solve the problem of too much money chasing too much stuff. That is not really the root cause of the inflation.
# The root cause of inflation [in this case] is that people outside the boundaries of your national economy are demanding more money from your country to be paid overseas for the same amount of input.
So all of the oil that you are buying from non-British sources becomes more expensive, so you have more pounds or dollars flowing out of the UK [or whatever country!] to buy natural gas and whatever else that we are importing.
# All the minerals that we are importing become more expensive. All the cooking oil becomes more expensive because Ukraine is not exporting cooking oil any more. And so on.
# That is an external source. It is not to do with too much money in our own economy.
[23.05]
# AB: CA?
# Welcome TBC. What we are doing is we are talking about inflation. Because we need to say something substantial about inflation, that is good. So I am listening to the other three.
# So, CA, what have you got to say? To add to that.
[23.30]
# CA: Yes. I just wanted to say that:
# One good example is to look at what happened when Liz Truss was the Prime Minister.
# So, if you look at what Liz Truss did, she was trying to reduce taxes and she was trying to increase the borrowing. So the idea was was, "If I am going to get more borrowing, then we are going to get more economic growth, and we are going to get economic growth faster."
# But this actually backfired. It backfired because people started to think "Is that the right way to go about it?"
# Because, when we talk about taxes, when we say we are reducing the taxes, who is it actually benefiting? It is actually benefiting the rich people. Think about the poor people: how much tax do they pay? So you are going to reduce their taxes, they are just going to pay a little bit more less.
# But the big chunk of money which is coming from the rich people is not going to come to us any more, it is going to reduce the taxes.
# So people said "That is not working; we not believe in you Liz Truss; we do not believe in what you are doing. And we do not want to invest in Britain." So there wes a lot of foreign investors taking out their money from Britain, so we lost a lot of investment from foreign investors.
# And then there was the local people, who were investing, which is in government bonds, and we are saying "Why should we be investing in government bonds? When we think that we are going to borrow more money. And they are going to use my money here to go and borrow more. So why should I put my money in the government bonds? Since they are going to do more borrowing. Let them go and do more borrowing; why should I put my money in the bonds?"
[25.41]
[AB: inflation: re government bonds impacts?? ]
# So, nobody put money into bonds, then the bonds start to slump.
# So now we have less money. So now what we have to do is we have to ??? increase the interest rate. So this is where the (to stop things from getting even worse) so quickly the Bank of England comes in and says "We do not know who those people are, but we need to save this economy and the only way to do this is we are going to increase the interest rate."
# Because, when we increase the interest rate, then we are pulling back those people to come and invest in us, to say "Hey, yknow what: we have got this under control. Don't worry ???, we are going to pay you more. So please come and put your money back into our accounts."
# So that is basically what happened. We increase the interest rate, (which is great for people who are saving, but it was bad for people like JC and all of us over here who are paying for our houses, now we have to pay a higher interest rate).
# So that is why whatever happens when it comes to inflation, although Liz Truss is pointing it through Ukraine, it is Ukraine is the problem. (Actually, it is not; it is not Ukraine that is the problem, you are. ??? I am sorry, but that is basically / [silence]
[27.15]
# AB: OK, but why /
# CM: I disagree a little bit, AB. But you know I am a bit of a maverick in some of this. /
# AB: Hold on a minute. Let me just / there was a question I had from what CA said. So, you increase interest rates to try and attract people back, right. And that benefits the rich and the people outside, but not the people here, right?
# CA: So, that was the taxes.
# AB: Yeah, why / what / I cannot remember exactly what the question was. But it was something like "Why is that a bad thing?" ***
# It was not particularly /
# CA: What is a bad thing?
# AB: Why is it bad to decrease / increase interest rates so that people outside and the wealthy benefit more?
# CA: When I was talking about the wealthy, I was talking about taxes [not interest rates].
# AB: Ah! So interest rates does not benefit the wealthy.
# It [increasing interest rates] benefits who?
# CM: Well, it's ??burgen?? isn't it.
# CA: No, when I said about wealthy, I was talking about the taxes. I said about if you reduce the taxes, who is it that is benefiting? It is not the / it is nothing for people who are poor, because the amount that they pay is just very little. The one who is benefiting [from cutting taxes] is actually the rich people.
# AB: But what about interest rates? I have got the taxes one. But what about interest rates?
# JC: Those that lend the money are those that benefit from interest rate hikes. This ??buried it??very?? simple.
# AB: "Those that win the money"? # JC: Lend. Those that lend money benefit from higher interest rates. # AB: Ah.
[Summary: 1. Those who benefit from tax cuts are the wealthy. 2. Those who benefit from interest rate increases are the lenders. ]
[29.45]
# CA: OK, so for example, in our economy, we want to make sure that the prices do not go up. For the prices not to go, we have to make sure that we have an economy where there is growth.
[AB: Why so? Why does economic growth prevent prices from going up? ]
# So that is why, every time you see the Prime Minister [Ed. Liz Truss, UK] talking about "growth, growth, growth". Because growth is the one that is / if there is growth in the economy, then your inflation level is low, the interest rate is low.
# So that is why they keep banging on about "Growth, growth, growth, growth. We want growth. We want more people to do work, and we want growth in the economy."
# So that is exactly what Liz Truss was trying to do. But she went about it in the wrong way. She got the equations mixed up.
# AB: So, growth is a thing that keeps inflation low, is that right?
# CA: Yes. But when you have high growth levels, then the inflation is at its low.
# And why this whole thing goes round and round and round is - think about this, right - is, when there is economic growth, everybody gets a pay rise. Right. People get pay rise, companies start to open up another business, everybody has a lot of money, that is because I have a pay rise, I have a lot of money now. I am going to start spening it. The company has a lot of money. They have given me a pay rise. Now they are going to open up a new business. They are going to open up a new factory. They are going to open up a new yknow, a shop in the High Street. All that is more investment, investment, money, money, going up. going up. So there is lot of money in the economy.
[31.30]
# CA: So now because there is too much money in the economy, what happens is now the inflation starts to creep up. Because now the prices start to go up. And now we say, "Hey, it is already too much. Too much of money in the economy. It is too much ??? of things.
# AB: Why? Why? Why does inflation / Why prices go up?
# CA: So there is a lot of money chasing too little goods.
[AB: The idea of chasing, what does it mean? It sounds like a metaphor. The standard answer is that more people want something scarce so they are going to bid higher than others for it. If everyont bids higher, then the average price goes up. ]
# You only have X number of goods there. But now there is so much investment. Everybody is rich, everybody has a lot of money. Of course everybody is going to spend. I am not one [pair of] shoes, I am going to buy a hundred of shoes.
# And there is not a hundred shoes out there, for me to buy, because there is only X amount of production which is happening.
# AB: Why? Why does prices [go up]?
# AB: Ah, JC.
# JC: So, what CA is explaining is exactly what necessary on the demand side, that keep prices up.
# JC: So you also have to look at the human factor of incentivizing spending.
# When interest rates are so low, there are very / there is low motivation for saving. Because there [zoom blank] interest prime rates are so low, you wanna use your money for either speculative or consumptive practices. And so that is why it continues to create pressure on those inflationary ??firm??.
# Because the interest rate, which could naturally go up if you save, but we humans, specifically in the West, don't [save].
[33.10]
# And so because we don't save, there isn't that private balance, the kindof decrease naturally on the consumer side of things, ??prices??. We just, as CA says, buy, buy, buy, buy, buy, buy, buy stuff stuff stuff stuff stuff stuff.
# And that continues to boost up the price of inflation, and interest rates have to come on to do some sort of incentivization via the banking structure to help create more money for them, or more profit for the banks to hold it, because people are not putting money into their savings account and other traditional mechanisms that banks can make money on.
# CM: ???
# JC: It is kindof pernicious, to be blunt.
[AB: Some reasons why prices go up:
- lot of money chasing too little goods;
- the human factor of incentivizing spending;
- people tend not to save any more, so banks do not get the income on which they can make money;
- (and this is not mentioned above) people are self-protective, greedy, etc. and if prices go up then they expect more pay even though they are well off, and if they have surplus income, they spend it on non-essentials rather than being content.
]
# CM: I agree with that but I would also point out that the idea of using interest rates to control inflation, as I have already hinted, I think it is actually a very weak / It is not a steering wheel on a truck, it is a rudder on a supertanker. Just in terms of its effectiveness and the amount of inertia and the time lags and so on. ***
# Particularly because quite a lot of debt, which then has to be rolled over and serviced at higher interest rates, does not mature. Yknow, that rolling over does not occur immediately, neither in business and particularly in the domestic asset market of housing, at least in the UK, because people have fixed-term fixed-interest deals over finite terms, sometimes quite long.
# And so, a squeeze on consumer expenditure is not as harsh.
# But the idea is that there should be a squeeze on expenditure because for example the thing about big-ticket items like somebody buying consumer goods like buying a car, or spending on credit where they actually incur debt - incur interest, I mean, on debt- as some people do with loans for other things: home improvements and things like this.
# All of those, if the interest rate is higher, people's ability to pay the ongoing cost of that debt will be less, all other things remaining equal. So their salaries and so on for the moment remaining equal and remaining the same in nominal terms, but they are going to have to pay more, so they are going to have less disposable income. And so a smaller proportion of the population will be willing to incur that extra expense.
# So the amount of bank money that is created through creating additional loans on the demand of people of that sort to borrow in order to spend, the amount of bank money created will then slow down and be reduced.
# So that will actually cool the economy. Because there will be less rapid rates of money creation in the economy.
# Whatever the particular rate of growth is. Let us assume that is still remaining basically the same.
# But you just jump up interest rates, immediately somebody goes to their bank or building society to borrow more money to extend their house of buy a car or something the next week, and they discover that it has gone up by 1% or something dramatic. And then they think, "Oh gosh, so my / I did the calculation last week that I could afford this monthly payment. Now I do not think I can. Because I will not have enough for everything else."
# And so some people take that decision [to not spend], which cuts that demand out of the economy.
# And so you reduce the problem of too much demand for not enough stuff, which is what is causing the inflation.
# That is the way that mechanism is supposed to work.
[36.50]
# CM: I mean, the other issue is to do with equality and the results of the the circulation of money accrue to different sectors of the population and the economy.
# And that is the point that CA is making very strongly, that the increased debt that is loaded onto poorer people often hurts them much more. Richer people tend to have a higher / a lower rate of debt, they tend to have a higher net worth, and some of that then actually generates more income for them. They have more savings which then are earning interest or / either directly or indirectly through the money finance market and so they actually extract more interest. ***
# And so what you get then is you get an increase in inequality of both income and wealth. [Ed: Does he mean wealth of the individual, or overall wealth, as with inequality?]
# Particularly, if the economy is actually squeezed hard enough, what you get is deflation. You don't get growth any more, you get deflation, or at least flat-lining with no growth, and that usually /
# chat: JC: [01:12:21] Deflation bad
# The effect of that is then usually to weaken the bargaining power of workers. So again wage rises will flat at that point. You ask too much money, you get fired, because the companies are not growing, and they are not making enough profits. And they are not expanding in the way that CA described. They are not booming, because they do not want to borrow the money, because the bank again has got higher interest rates. Again they do their calculation of the rate of return on their investmennt in a business, and they are not going to make enough to pay that debt. So they do not invest.
[AB: Not always fired. Some companies that are led by people functioning well in the ethical aspect will absorb costs. It is only on the presupposition of absolute self-interest that people get fired automatically. ]
# And that is actually often what tends to cause these business cycles that you see. Irrespective of the long-term trend of growth (which is a different subject entirely perhaps), but within that you get these cycles of more rapid growth and then overheating, normally an increase in the interest rates. And that they squeezes things.
# And there is a trade-off usually between inflation and the rate of unemployment. ***
# Now that is arguable. ***
# But in classical economics there is a thing called the Philips Curve which gives you a sortof relationship, that if you allow higher inflation you have lower unemployment. Because basically you are allowing that growth and that increase in employment in the economy.
[Ed. The Philips Curve is =====]
# If you squeeze inflation through whatever mechanism, through for example the interest rate mechanism, which is the normal one, you slide the economy down by reducing the amount of bank credit being created, and also by motivating people, as JC says, to move money into savings rather than into consumption.
# So those two mechanisms actually then reduce consumption in the economy, which then reduces demand, which reduces employment. So unemployment goes up as inflation starts to come down.
[AB: That seems to contradict the Philips Curve. ]
# CM: And that is precisely what the Bank of England has already been doing in the UK.
# And we will probably start to see that during this current year, because the Bank of England has overshot seriously, using that mechanism. It is like the supertanker, they turn the rudder very hard in one direction, the supertanker eventually starts turning and then they fail to realise how far it is going, and it has got a momentum in that trajectory, and they actually should have been cutting interest rates but they did not.
[40.30]
[AB: All the above shows that the apparently simple thing that is money is actually very complex and not sufficiently understood. 1. What are the assumptions behind all this which are meaningful in the economic aspect? 2. All this is reasoning about it from the economic aspect alone. What about functioning in other aspects of these situations (as e.g. self-interest mentioned in previous note)? 3. Can the Philips Curve or its failure be explained by aspectual functioning? ]
# AB: OK. Thank you. Em. [Zoom mix of voices]
# CM: Not many people know this. But the Bank of England started acting before Krazy Kwarteng, as I call him, the Chancellor that Liz Truss had, before he actually stood up and suddenly there was this great furore and the bond market started to go unstable. But the Bank of England had actually acted a day or two before that already. They saw some of it coming. ***
# And I think they actually did it deliberately. You could almost / If I was a conspiracy theorist I would say they did it deliberately to destabilize things and undermine the Governmnt. But then, OK, I won't go there.
# AB: Questions.
# So, there is two things there. One is to question why is inflation good or bad, and when is it good or bad. And the other is about attitude, whereby people take advantage of things.
[42.20]
# AB: CA, you were going to respond to one of those?
# CA: Yes. So, when we talk about economic growth and economic recession, these are things that are happening in a loop.
# I cannot say that we are going to have economic growth all the time, because it is always followed by economic recession. /# And so your inflation is working up and and going down, based on economic boom, economic recession. /# Because we know what happens in boom: everybody starts spending, everybody has a lot of money, everybody is trying to get 100,000 shoes but there is only 20 shoes in the market. So we are all having a lot of money, trying to grab as many products as we can, but there is not much production out there. So, because the supply is less, and the demand is more, so the price goes up.
# AB: Let us take shoes. People are buying shoes, not because they really need them, but because yknow they are available and they think "Oh, I fancy a new pair of shoes" or whatever. And so the suppliers take advantage of this, right? And put the money [price?] up, thinking "Ah, I can get some more money". But if the suppliers were not selfish, and just kept the prices as they are, then you would not get inflation?
[AB: Sounds foolish, I know. But I have heard of several cases like that. One shop in my town, I asked the owner, "Why do you not charge more?" to which he responded "I don't need to." He was a person who was community-minded. Another example is from centuries ago. I heard that John Wesley, or someone, when he was first employed as a church leader, his salary was £100 per year, he found he could live on £30 per year so he gave away £70, and when his salary went doubled to "200, he found he could still live on £30 so he gave away £170. Those examples might be rare, but they do exist. That is why I do not take selfishness for granted, but ask that question. ]
[Ed. Sellers not growing is discussed below. ]
# CA: Yeah, but think about this. Who knows what is the demand. I may be not having an income. I am waiting for yknow for the economic boom to happen. And now I have got an income, I have a good job, I am happy and now I want to get some shoes. So that is my reason to get 3 pairs of shoes. [Ed: i.e. because I had to wait: the time element].
[44.30]
# OK, other people may have a reason to get one or two or three or whatever.
# So that is not the supplier's idea, to think "Who needs what these shoes is for?" Is it because they were poor before and have become rich enough? And all their shoes is torn and they need five pairs of shoes? Or is that person greedy? ***
# Who is thinking about these type of things?
/# AB: There are people who do.
[AB: The difference between real need, and greed. Interesting: the buying more than needed not because of greed but because of having had to wait, and maybe not certain that I will be able to get them again in future. A valid reason for buying more. And thus a cause of inflation. ]
# CA: But we need more shoes and we make sure we can produce more shoes for these people.
# Because the supply was down, we could only produce ten because we thought only ten is going to sell. But now there is more people coming. Great! So now we are going to increase our production over here to make more shoes. Right. We need more money for that [to increase production]. So let us increase the prices of those shoes. At least we can get some of the money to increase production over here. ***
[AB: Good. This implies that what we need to take into account is the reasons why people need more shoes. Does that link inflation into the issue of essential and non-essential economic activity? But there, buying extra is not non-essential, but because people do not trust they can get more later. ] ***
[AB: Another reason why prices go up: they are put up by suppliers in order to invest to be able to produce more then an upturn happens. ]
# AB: Well, there are people who do. Yknow, I have heard to people who do keep the prices down and do not take advantage. I mean, they are few and far between, but I have heard of people who do that. Especially in the house buying market. I came across somebody who sold their house cheaply [AB: in a period of high inflation they sold the house at the price they bought it for, i.e. zero inflation; this was in the 1970s] because they felt it was the right thing to do, rather than just yknow make as much money as they could.
[AB: I think AB might have misunderstood what CA was saying. She was talking about need and greed in a market of commodities; AB was talking about voluntary generosity, and his example of house selling was a one-off sale not a commodity. That he misunderstood seems to be backed up by CA's response as follows. ]
# CA: I have got a question. Now, just for example, you want to do a business. What is the first thing that people are thinking about? If you go into the management and marketing classes, one of the things they are saying is, when you become a CEO of a company, what is the thing you are thinking about? You are thinking about growth.
# Thinking about "Where can I set up my next store?" The next store, the next store, the next store. This is what people are thinking about. Nobody is thinking about "I just want to have one shop as a small shop and it's just going to sell whatever." Nobody thinks like this. /# The management people do not think like this. What they are telling to the students and everybody who is taking up their course is "You just have one shop and you just sell it at whatever price" - they do not teach you like that. They say "You need to grow."
[AB: Actually, some people I have encountered do want just one shop. And, have not economics and management university courses been criticised for being too theoretical and not sufficiently aligned with real life? However, I think that the point that CA is making is that, usually, people think growth, especially when we think about big companies. So this raises the question: "Why has it come about that people usually think like this?" Probably CA gives the answer: we are taught to think like this on university courses. If this kind of thinking is deleterious, then we have another question: "Do we need to change presuppositions, attitudes, etc.?" rather than just alter taxes or interest rates? ] ***
# Because: Why do we have all these big companies? All these multi-billion dollar companies? Because they all started off thinking "We need to grow. We cannot be just one small company. We need to grow and we need to open up all over the place."
# Because the CEO of the company's pay is dependent on how many shops he opens. That is how he is being judged. And if he does not want to open up shops all over the place, nobody wants him. People are saying "Who is this guy?" and brings someone else. Because that is the way everything is working.
[47.30]
[AB: Good point. What we are getting into here is mindset and attitude of both the person who is CEO, and the shareholders and directors. What underlay AB's point was that though what CA says is the usual, it is not necessarily a good thing, and also and importantly is not necessarily fundamental to economics as it should be. Good point coming out there. ] ***
/# CM: Or, more precisely, he is ???
/# AB: JC you came in when I put "Why do people put prices up", JC you came in then. Are you still there? /# JC: I am still here. AB, you are asking a very / /# AB: JC, when I asked "Why put prices up, why not be selfless or whatever," you indicated you wanted to come in. What were you going to say?
[Ed. There are other reasons prices go up, later. ]
# JC: You are asking a very interesting question.
# In your assessment of greed, you are assuming that someone that desires to make a choice with their time, provide a good service, should not be paid.
# There should be an inherent almost moral level of what they should make. They are making the individual risk in what they are doing with their time, whether they are selling shoes, creating a new technology, talking on zoom with four other scholars about Dooyeweerd and economics.
# You are making a judgment upon that person's trade of their time. And you are inherently tapping that thing, you are specifically AB. But your question is inherently tapping the attitude, and ??? rate at which that person can be compensated. ***
# So that is a deeper question.
# Kindof a critique on the idea that what is a person's value of time?
# And the market, in our current context, determines that.
[AB: Excellent. Yes, I suppose AB was making a judgment. He has the idea of some kind of morality or goodness that transcends humans, and by which we can be judged. I like the fact that JC brought in an example of unpaid activity too (our discussion!). This puts it firmly into the consideration of the Good that human economic activity can do. ]
[49.30]
# CM: I agree with that. And I think it more broadly in terms of the businesses, much as CA's talking about, whether they are selling shoes or software, or anything in between, to quote, "The inherent nature of the profit-making capitalist system is that they do not operate to actually meet people's needs, in terms of the customers."
[50.00]
# They talk a lot about that, they even act about that to some degree, because they need those customers to buy from them rather from somebody else.
# In a monopoly situation they hardly have to worry about their customers because there is no choice. Either / "You want this, you have got to come to us. You pay what we ask."
[AB: Competition: It seems (through the lens of the economic aspect) to have some value in keeping prices down - except that it does not. The reason however is not visible in the economic aspect, but in other aspects. And it brings in other evils too. ]
# And so "the business of business is business" - I think it was Milton Friedman who said something like that.
# AB: And he's wrong.
# CM: The catch-phrase is always "maximizing shareholder value." So maximizing profits coming in to the trading account of the company. And then turning that into distributed profits through dividends, which boost the capital value of the actual shares. And raises their value in the market.
# And so that is the objective of most businesses. And the share / [AB interrupted but CM continued.] Top executives are not the owners, they are normally incentivized to be driven according to that.
[AB: That is argument from purely economic aspect. In reality, however, many monopolies often still compete however, e.g. with other monopolies. It is the mindset of competition. So, for example, monopolies will try to get people buying more than they need so that they can grow even bigger. It is partly the thrill of achieving something - formative aspect - and selfish self-focus (ethical aspect dysfunction) and mindset that competing is good (pistic belief). ]
# CM: Now what I wanted to get onto though was /
/# AB: OK thanks.
[AB: Very useful. For Rethink. Each of those seems to be meaningful in a different aspect: Formative (to manage effectively), Psychical and social (the personal touch), Ethical-pistic (content with enough), Ethical (wanting to provide good service), Pistic (belief in importance of e.g. environmental). ] ***
[52.20]/# CM: So, some people take that decision even in business. But it is rare.
# [Especially rare] for very large corporations because they are driven at publicly-owned, shareholder-owned corporations and that impulse to maximize the return primarily to their shareholders. And all the rest is just about making that smoothly, within a profit-driven capitalist system.
[52.45]
[Ed. See CA's discussion of cooperative, ethical banks and businesses later. ]
# AB: Yeah, but you see / CM, what our rethink is NOT assuming a profit-driven capitalist system is the thing that / yknow, we are not accepting that as the inevitable. I mean, of course we accepting it as an empirical fact at this moment but we are not accepting it as an inevitable.
[AB: To explain: We are trying to understand the very nature and possibilites of economics, not economics as it happens to be here today. ]
# CM: Yeah, I get that but then it comes down to human nature and yknow Adam Smith - I cannot get the quote rightly but the quote within which that hidden hand phrase is embedded - a much misused or misquoted hidden hand. But he says something like, "It is not because of the benevolence of the candle-maker, the butcher and the baker, that these things all work together."
# Because somehow the mechanism of them each trying to get their own advantage and make a better life by getting more money for themselves, that somehow manages to work together to balance out and the system actually operates, and indeed grows.
# Particularly in his era things grew dramatically in some cases.
[54.00]
[AB: Yes, the "invisible hand". We have reinterpreted this, to be the way the economic aspect operates - to bring some good even if in other aspects people are functioning evilly. See Our Discussion of Adam Smith. ]
# That is probably a segway into the discussion about productivity, which maybe we will get onto.
# AB: Yeah, but, I think /
# CM: Maybe we get the idea that yknow /
# I agree that we are talking about economics in the broadest sense, in the human relational sense, but / And you can say Yeah that there /
# CM: I think primarily, where you have a monetized economy, that is driven by value in things according / Well, putting a value on things which is signalled by monetary price, then you inevitably get this impulse to increase that price to therefore feel that what I as the producer, the vendor or whatever, of that thing is doing is more valuable because I get actually more money for it.
# I mean, that is how we rate people's jobs, isn't it. "What sort of salary do you get?" A top surgeon gets whatever it is these days - 100k or 200k a year - and the cleaner going into the lavatory in the hospital ward gets a tenth of that.
# They are considered less valuable and because "Anybody can do that job".
# Then you get the thing of supply and demand, and bargaining power in the economy.
# People bump up prices when they have got bargaining power and people are still willing to pay - which is the old supply and demand crossover.
[AB: But not if they are governed by the ethical aspect of self-giving - just like CM's list of reasons why companies might decide not to grow. ]
# CM: More people are willing to pay rather than less (so if you can reduce your price you get more volume) but you may or may not get profit from that.
# So I disagree with a little detail with what CA said. Companies do not always want to grow; what they want to do is increase profit and return on capital, to satisfy their owners, their shareholders.
# CM: There are some companies in Britain dramatically over the last 40 years 50 years really, they have actually downsized.
# They sell off unprofitable subsidiaries. They concentrate on core competence (and other management speak like that) and focus on particular things, which they can do well and do efficiently. Product.
# Productively - which is the productivity angle. And productivity then tends to relate to profitability, at the level of the firm.
# CM: So they are making more profit even though they may not be as big.
# So, CEOs like to be CEOs of big companies, so they do tend to do mergers and acquisitions. Just in order to have the bigger office and the bigger name ??inans?? so forth.
# But on the other hand, that may not be profitable.
# CA: [CA began to say something, but CM continued]
# CM: And in fact it often proves not to be profitable. They grow through mergers and they are not profitable from that.
[56.50]
[AB: C.f. Olympic sports and other sports competitions! ]
[AB: An example of what CM has just said: I was in ICI plc, Britain's largest company, from 1980 to 1986. During that period it grew enormously by acquisition, and its slogan was changed to "World Class". And its share price soared, according to one magazine, because Sir John Harvey Jones, it Chair, spoke up the share price. He obviously wanted the 'bigger office and bigger name"! Actually, I always thought it was world class before, but the senior management were comparing themselves with the larger Dow Chemicals, and obviously wanted to become like them. But soon after I left, it decided to reverse that, and split itself up into companies with different core interests. (Maybe JHJ had left by this time?.) One was Zeneca, with pharmaceutical interests, which then joined the Swedish company Astra, to become Astra-Zeneca, which is what we have today. ]
# AB: JC, you chatted something. You put my name into the chat. What was it.
# JC: Sorry, in a practical sense, I realise there was a way that we could all have fun with this. [laughter]
# You could create a game - AB, I know that you like your video games - You create a game in which you introduce the new sort of economic model and see how it plays out. That is one of the key hires on huge huge huge video games nowadays, the economic modelling professionals. So, one of the people / You are one of the clear interest in this.
# And I thank you for bringing it back to where we are trying to imagine a new system.
# Figure out the assumptions and then create a game around it. ***
/# ACTION AB: One possibility for practical work: create a game around our economic model.
[57.45]
[AB: To do that, we would need first to specify our economic model in detail. We have a long way to go on that. Maybe two of its properties would be (a) taking all aspects into account, (b) especially ethical and pistic impact on behaviour. ]
# CA: Can I suggest something? # AB: Yeah.
# CA: I suggest that we look at something like corporate banks and conventional banks. So, we can look at, like cooperative banks. And then we can look at a high bank like HSBC bank for example. So we can put them side by side.
# Now, if we look at their profit and loss statement, we see the HSBC [conventional] bank profit and loss statement, the profit is always high, sales is always high, they are / yknow, the shareholders are always very happy, their share price is really high, everybody is doing really well. Everybody is happy.
# Then you have the cooperative banks. So the cooperative bank is structured very differently from the conventional bank like HSBC. So if you look at the cooperative bank, their structure is: people are sitting in the shareholders position and members (they are called "members", they are not called "shareholders") and they say, "Yknow what, we are farmers" (say) "I am a farmer and I know that it is really hard out there for me to do my job. Because I have been a farmer forever. So now I want to support the farmers out there. And I want to be the member in this cooperative bank, who is helping the farmers. I am not looking for profit."
# And if you look at cooperative bank, their profit is so much lower. Yknow, share price and everything is very low.
# And they say "That is not our concern. We do not really care about all of those things. We are concerned about the community. We are concerned about the farming. We are concerned about the farmers."
# They have to fight with all this Tesco and all of these [supermarket] people who are trying to get their price down, and get their goods produced and sell them at a very high price. So we are worried about all these things.
# "Now, we want to help these farmers, and we want to give them a clear projectory. We want to help them in every way possible."
# And this is basically what the cooperative bank is doing.
[1.00.20]
# And now, with the climate change, things are getting even worse [for farmers etc.].
# But are they changing course? No they are not. They are sticking with the course. They are sticking with the course; the members say "We are not getting a lot of money as we used to get, because of the climate change. But, you know what! We are OK with it."
# Because the intention is not the profit. "The intention is for us to help people who are farmers like us."
# So it is not only people who are in the farming, they also help people who are in sustainable businesses. (Whatever your definition of sustainable business is. Like some people are working on like second-hand clothes and things like this. Or they have all these second-hand clothes where they send it out to the factory, and the factory rips off all of this materials and things and then takes them apart, and takes all the materials and then dyes them and put a different colour, and sort of recycles the clothes, and come up with a new design and then put them out. And these type of businesses. Sustainable businesses.
# And these are what the cooperative bank is doing. OK, it is not shouting out and telling, "Hey, I am doing all these things." It has a very low profile. But they are not doing very well when it comes to profit margins and everything.
# But yknow, I think that we call them in banking, the ethical bank. Because they are doing everything to help the community, whatever the cause is, as long as it is a good cause.
[1.02.10]
# AB: Thanks.
[AB: Sounds similar to CM's description of companies for whom growth is not the main aim. What it means is that different banks find different aspects important, and also cooperative banks function well in the ethical aspect. ]
# CM: The Nationwide Building Society is of course the classic example really, because it is the biggest nationally known institution. And it is absolutely mutual. It does not even have shares. So, it is owned by every member who has an account and keeps it open. And so they do not aim to produce anything more than an operating profit, which then feeds back into reserves and enables them to expand or develop the business in appropriate ways. So they do not have any returns at all.
# There is nothing of the extractive form of ownership, where you have owners earning what in economics terms one can call rents. They happen to own something, they do nothing, they just get an income out of it by virtue of owning it.
# That does not happen in a mutual organisation like that, because it is owned by everybody who participates.
Ed. C.f. Marianna Mazzucato, who castigates the "rentier economy". Discussed in Discussion 8 and Discussion 10.
# CM: But the thing there is / I can start a whole argument about banking, and its weaknesses and problems.
# But one of the fundamental problems there is that a mutual bank, or building society like that, of course, is purely operating as an intermediary.
# There are time lags and so on, so there are ebbs and flows of capital, but they basically have to have reserves, which cover all of their liabilities, which / So they are an intermediary between people who want to save (with their various offerings: bonds and just interest-bearing accounts, and so on) and people who are willing to borrow. ***
# And so they can in a sense create credit, but in the macro sense they cannot create money in the way that the credit-creating commercial banks are licensed by the government to do.
[1.04.15]
# CM: The commercial banks do not have to have enough reserves to cover every possible liability, in the instant. They do in terms of banking regulations in a controlled manner - [for example] it there was a sudden call on their assets, they do have to have assets which they can then liquidate. But they do not have to have those in the way mutual building societies does.
# Because they are not not just operating as intermediaries, they are actually licensed by the Bank of England to be money creators through creating credit money - as we discussed earlier on when we talked about too much money being created and put into the economy.
# If the government does not create it then the commercial credit-creation banks can create it.
[AB: Why is it that creating credit is not creating money? ]
[1.05.00]
# That is a big ??deal??. They create it on the basis of then extracting profit from the productive activities.
# So there is an ethical question there, that a bank: why should a bank be licensed to create money and give it to people for them to use for productive work but then actually extract additional benefit from that by way of profit?
# That is actually a / there is a / Which I think is one of the reasons why Biblically speaking there is quite a lot said about the negative aspects of interest, that it being an unhealthy thing in the Bible. Even forbidden in some sense; or excessive interest maybe. That is another more detailed argument.
[1.05.50]
[AB: I still feel uneasy about treating money as a commodity. So, can the above be re-cast in terms of money as an enabler of functioning? To think out.]
# AB. Thank you.
# CM: Perhaps we talk about productivity, if you want to get to that.
# AB: Well I was thinking this. But first, TBC, you have been listening very patiently. Is there anything you wanted to say, or shall we go onto productivity?
# TBC: Just a big thank you for allowing me to join in the ffrst place. /// I was glad to hear that you are still on. Thank you.
# AB: Right, productivity.
# ///
# Productivity. That is something.
# What I will try with inflation is that I will try to put something together about how we understand it. I still not sure I understand. I will have to really just re-read all you have said.
# ACTION AB: Bring together all that has been said about inflation.
# CM: AB, I on that, I won't say more now but I will try and find a link. There is an American economist (who has got some opinions that some people do not agree with - of course, because we all argue amongst ourselves); he is called Tom Palley. But I will look up a link for you.
# He posted a piece not so long ago about the different types of inflation and their causes. I think he had five or six.
# And one of the ones that I mentioned was this thing of foreign shocks. Like suddenly the Arab nations bump up the price of oil, and so we get inflation as a result.
# AB: Very helpful yes.
# CM: The domestic money chasing not enough stuff is only one element of that.
# Worth a read.
# ACTION CM: Post link to Tom Palley's article on types of inflation.
[1.07.45]
# CA: I think there is a reason why they actually bumped up the prices. ***
# AB: Productivity. I put six questions here:
# CA: I have got a question: What is productivity in your world? ***
# CM: Well, in the world of business that I circulated in, if that is the right word, for quite a long time, particularly the technical engineering end of it, productivity of course in the most general sense is the amount of output for a unit of input.
# And you have already highlighted that in your second line of questions, AB, I think, in "Productivity of what?"
# So you can get the reduction in manpower used, not not less man-hours, but much more energy. That is essentially the essence of the Industrial Revolution, in a / starting with coal, and now oil and gas, and so forth. /# AB: Go to CA's question. /# So, that is a key definition of what productivity is. ***
[1.10.40]
[AB: We might answer "Productivity of what?" by reference to aspects. Each aspect defines a different kind of value and different kind of resourceness. Productivity is output over input of some meaningful thing treated as resource. ]
[AB: Is it only better technology and techniques that increases productivity? No; attitude and commitment also increase or decrease productivity. ]
# Because you ultimately have to harmonize or (what's the word) homogenise or synthesize together, all of the costs of the different inputs of some productive process. And basically, money is used to do that. Or some number, and money / it is normally expressed as money.
# So the total cost of an hour of human labour is so-much; the total cost of the unit of fuel is so-much; the total cost of a certain raw material - and so on.
# You meld all those together and you come up with a total cost of a unit of output.
# And that unit of output, of course, does not necessarily need to be an actual physical thing. It can be a service, it could a a healthy patient who leaves a hospital. (So it is valid to talk about productivity in a hospital context.) /# But you have to measure it correctly, in terms of, well, you fix their broken leg and bound them up and they got healed over a few days. They were able to walk, you lend them a crutch, and they get out of the hospital. That's the output.
# CM: Well, is it?
# No, actually the output should be something bigger than that. ***
# But that then comes back to aspects and the whole multi-aspectual view of what the purpose of life is. And of economics within that. ***
[1.12.55]
# AB: OK.
# But it may not be a productive good. In the sense that /
# Let us say, the musicians playing the Beethoven string quartet, don't really get very well paid for doing that. But they have another job on the side, which is more productive [AB: in terms of money?] but they only have to do it for 10 hours a week in order to produce enough that the value of that in society subsidises them performing Beethoven very well. And not charging a lot for it. Or even if they do it for a hobby, because they are just amateurs. /# But they are ??seemly??so-evenly?? productive that they have got time to rehearse and produce beautiful artistic product. Or grow stuff on a community allotment, or their own home or wherever. /# That gives you more and more time to do other things that are useful.
[1.14.20]
# CM: And of course there is a famous Keynsian paper (written by Keynes, that is) in the 1930s, where he talked about the economic opportunities for our grandchildren. And he assumed productivity would grow. (He was right in a sense, because it has, it has grown tremendously.) He assumed it would grow, and we would actually be satisfied with the relatively modest increases in our material wealth and comfort and our acquisition of physical things, which require effort to produce in the economy, we would become satisfied with that, such that what we desired to do was limit our demand for those, and therefore have more time to do more creative things. And that society would be a lot better for that.
# And he envisaged that we would be only working 15 or something hours a week. We would have enough. We would have enough food. We would have enough clothing, and housing, and material goods of various sorts that we wanted.
# But it has not happened. What you actually can see is that people work almost as much as they did before. (A bit less; they get a bit more holidays, depending on the country; they work a few less hours a week than they did if you go back 50 or 100 years. But not much.
# And actually, what we have done is we have used productivity just to consume more and more stuff. Both in services, but especially in goods. ***
# And that of course becomes the negative of productivity. That if it allows you to create a lot more stuff, then you are consuming a lot more input. Which is actually unsustainable within a finite world.
[1.16.00]
[silent period]
# AB: Thank you very much.
# CM: Particularly of course in the modern era, where those inputs have especially been able to increase productivity by using energy inputs derived from non-renewable sources.
# [silence]
# AB: So, "why is productivity good?" - we have got that.
# [Next questions:] Which productivity is not good? and when is productivity meaningless?
# CM: Well, I think I partly answered at least the second half of that.
# The good part is you can get more stuff for less input.
# So, in one sense there might be less waste. Waste is an element of productivity that we want to reduce. So in one sense that can actually be a good thing. Even increasing productivity to produce the same amount of stuff for less input can actually reduce your environmental impact because you are using less resources.
# A more efficient, a more productive / let's say you have productivity of steel and you find a way of doing that without consuming so much water and so much power to melt and process and then chill and heat-treat and everything else on the steel. (Happened to do that years and years ago, that was my first job.)
# But you find a way to do that more efficiently (different word but not exactly a synonym of productivity) but you do it more efficiently with less inputs, that has got to be a good thing. All other things remaining equal. You are using less water and less energy to produce the same amount of steel to meet your needs.
# So, there it is a good thing, in the sense of reducing inputs for the same stuff.
[AB: Notice: "All other things remaining equal" - which they usually are not; see below re Jevons Paradox. The tendency of affluent humans to increases their demands as efficiency increases. And rebound effect paradox. ]
# CM: It becomes a bad thing, as I have already said, when because you get increased productivity then the price of things comes down, if the input prices are remaining the same, but you are using less of them to get the same stuff, the danger then is that the price of the product goes down.
# And this is the Jevons Paradox, that you get reduced price of inputs and therefore they get consumed more as a result. People are not actually satisfied because they are willing to pay the same amount and therefore consume more. Again, all other things remaining equal, people's disposable income is basically the same. ***
# So I think there is a negative.
[AB: That is one answer to when productivity is not good: productivity seems to reduce inputs but then increasing inputs overall. But there are two reasons for productivity to be not good. 2. But also surely productivity is not good when it is generating harmful output, and productivity generates more of it. And also exacerbated by the Jevons effect. This is alluded to next, in 'extgernalities'. *** ]
# CM: And also productivity is often based on the price of inputs, not reflecting the full externalities of their costs. Which is the fossil fuel problem.
# Fossil fuels should be massively more expensive. We should have a carbon tax and so on, reflecting their impact on the environment and their non-renewable nature. Which would then cause people to shift over to renewables.
[1.19.10]
# But then / Sorry, I lost my way slightly with another part of the question. It was "When is it meaningless?"
# CM: Oh, when is it [productivity] meaningless?
# Well, I think it is meaningless with goods - but not so much with goods perhaps but certainly with services - that are immeasurable in conventional economic terms.
# Where the value cannot really be / to simplify, cannot be equated to price, market-driven price.
# AB: Are you saying that those ones that are immeasurable are meaningless? Or are you saying /
# CM: The artistic creation thing, the value of an artistic creation, be it a temporal one such as a musical performance or a theatrical performance, or a physical embodied one, a piece of art or a sculpture, whatever - the value of that is effectively immeasurable. Because beauty is in the eye of the beholder.
# People pay a price for that. I would go to London to the opera if the train tickets were reasonably cheap and the opera cost me a fiver every time, I'd be there every week because I love opera. But I cannot, because it is not five pounds, it's fifty or a hundred or something awful these days. Has been forever, for ages.
# AB: But, are you saying that /
# CM: The market-driven price, which relates partly to the [cost of] production of that artistic service (we should call it a service because it is not a product) that artistic service, but it also relates to the market's willingness to pay, which reflects the financial valuation of that service, which is actually invaluable or value-less, but I think invaluable, or immeasurable in terms of real financial value. ***
# AB: Yeah, but that is not meaningless. When is productivity meaningless?
[AB: I think AB was flogging a dead horse, because he had misunderstood what CM was saying. ]
# CM: Well, productivity is meaningless because the actual emotional, psychological, spiritual, whatever-else output of the whole process, that is what you ultimately get. You get people who come out after being two or three hours in the theatre, or concert hall or whatever, and they are changed because they have had an experience. And that is the output , and that is not a tangible, measurable thing. ***
[1.22.00]
# CM: Well, it could be: Here is an interesting thought. Now I am thinking out loud and starting to disagree with myself.
# It could be measured, if you decided that you would measure, not GDP, but something like Gross Happiness. If you had a Gross Happiness Index. ***
# And the fact that lots of performances like that were available that lifted people's spirits, so they generally felt happier every week, then they would score higher on a Happiness survey, and your nation would be more valuable.
# So then you do need to think that is being productive.
# And I have kindof contradicted myself.
[AB: But is increasing happiness really being more productive? Maybe. ]
[1.22.30]
# CM: Maybe we need ??annet?? try to bring it back to Dooyeweerd. I know we Haven't said much about him and all the aspects during this conversation.
# But if you use the aspects, you could say that where the good or service (in the economic sense) where the goods or services are only evaluated according to the (I hesitate) the lower level aspects, the more physical and economic aspect, if they are only evaluated according to that, then productivity can have a meaning.
# But if the goods or services are evaluated significantly - not just ephemerally ("O well that is a nicer shaped car" there is an aesthetic there, but that is not the substance of it, is it, for most people) - but if they are significantly evaluated according to the higher level aspects, then I think we can conceive of productivity where the evaluation of the input only relates to lower-level aspects, then it becomes a meaningless equation. ***
# Because you are creating a multi-aspectual (across all the spectrum of aspects) thing, event, product - but you are creating that using only things that are determined only by lower level aspects of the process, and then I think you cannot relate the two.
# Because it is actually a category error, isn't it.
[AB: Not quite clear what he means here. If input is e.g. hours put in, then it is meaningless to talk about productivity of a musical performance. (I suppose one could say that someone who needs less practice is more productive, but it is better to think just in terms of input rather than productivity.) But is CM saying that if the input is of the same late aspect then it is meaningful to talk about productivity? I do not see how that makes sense. Need an example. ]
[AB: Is the aesthetic enjoyment about use value, whereas productivity is about labour or produced-goods value? Maybe. But the performer often gains too. ]
# Can you evaluate spiritual productivity? You can evaluate how many hours of sermon preparation and preaching a Bible teacher does, but you cannot evaluate (until the Last Judgment or something - then we will know eventually the number of souls that are lifted and blessed and open to the Spirit of God) - then that is ridiculous.
# And you can get a feel for it, in the number of people who turn up at the building and the things people say afterwards, but you cannot ultimately do an evaluation.
[AB: That one is about the value that is meaningful in the pistic aspect. It seems to be nothing about inputs. ]
# AB: OK, thank you.
# CM: Which is why ??? some of my colleagues in overseas mission, but that is another story. They do evaluate like that. ??? the number of baptisms or whatever.
# AB: Not so much as they did. # CM: No.
[1.25.00]
[AB: But why do we want to measure? ]
[AB: Notice the link between productivity and technology or technique. This makes a strong link with the formative aspect. ]
# CA: Wanted to say something. But I am looking at the time: it is 8 minutes past 4. # AB: Carry on CA.
# CA: Just wanted to say that when we look at it from an economic perspective, it looks like it is in the economics eyes, it is looking from our eyes, what do we think is valuable?
# What do you think is valuable, and therefore the productivity is based on that.
# But we do not talk about barriers to entry. /# Ss, think about somebody who is living in the Northeast [of England], for example, and the person is a woman, a woman who is living in the Northeast, and she has children. And she works out that it is cheaper for her to stay at home, and look after the kids than to go out there to work. /# There is a productivity there, but the productivity / there is a barrier to the productuvuty because she cannot go out there to work because of the circumstances that she is in. /# So, these things are not captured in economics. /# Just like we talk about unpaid work: it is not captured.
/# So is not this productivity?
[Ed: To clarify, I think perhaps that CA mentions two issues there: (a) Unpaid work is actually productive yet not measured by conventional ideas of productivity. (b) There are barriers to women obtaining employment that is deemed 'productive'. ]
/# So this is why the question is, "What is productivity?" In the eyes when we talk from the economic perspective: What is productivity? /# Because you may think, that lady who is 'sitting at home', she is not doing anything.
/# Right, we are not talking about the barriers here. We are not talking about why is that the situation. /# And I think that this then goes down to the policies that are in place. /# AB: CA, can I ask: you say that the lady at home, we say that she is not doing anything, were you about to say "But in fact she is doing something"?/# CA: But of course! It is just like we have a childminder and then we have another who is a housewife who is at home. Just look at these two: this childminder is said to be productive because she has money coming into her pocket, and, basically, one person is being paid and one person is not being paid. And there is productivity here, and what about this? "Oh, there is no productivity there because there is no monetary return coming from there."/# So, what is productivity [taking into account unpaid activity]?/# This is why it gets confusing.
[Ed. See also below]
[AB: ===== add that into r5-val]
[1.28.40]
# And I think that is a highlight from what CA mentioned about Unions, which is to do with the low level of unionization and the loss of bargaining power as to how the cake gets divided.
[AB: There is lot in that about culture, mindset, etc., which are our functioning in the ethical and pistic aspects. ]
# CA: One good example, CM, that we can look at, is the example of the prison officer and the priest. /# So, if you look at the prison officer, the prison officer is going to say, "I come to come to work for 8 hours and this is my pay. That is it! No negotiation. And the pay must be high, because I am working with prisoners here and my mental health is affected. You have got to pay me more money." And there is no negotiation. That's it! That's it!
/# But when you look at the priest, who is taking on more, when we talk about mental health and stuff, because people are coming with saying all sorts of things; they don't have money; like, people are holding three jobs, ant they still cannot afford to pay for food and stuff. That is really bad, and that is exactly what is happening here. /# So, people are saying "We have this problem; what can we do?" And the priest is thinking, "We already have less money; how am I going to help you and everybody else. OK, let me think of something." Actually, people working in churches, they are actually ??having?? loads of time spent with people and thinking like "How can we help them?" and they talk to them, yknow with no cost of anything. "I am talking with you for ages and you are telling me about your problem. I'm ??send?? and listening to you." /# Compared to, like, if you go out there, you have to pay somebody to listen to the story. /# So, they [priests] do not ask for a lot of money. Whatever they get from the churches, that are given to them, and they are happy with it. They do not ask for more, whatever it is. If they get a house, great; it they do not get a house, that is even good, tha's OK, I am fine. And they have children and everybody else ??wants?? to think about. But it is different [from prison officer, etc.]./# So, these things are not taken into consideration. And why that is that so. /# AB: Are you saying that the priest is actually doing more for less than the prison officer.
# CA: Yes. Yes.
[1.37.35]/# CA: You get a phone call in the middle of the night, and somebody is saying "Things are happening to me" and the priest is taking that phone call and listening to that conversation. Do you think the prison officer is going to do that? He is going to think "I am finished. This is not my hours any more; I am going home. I need to look after my mental health. And you are not paying for it." /# AB: Yeah.
[See also above]
# CM: This intersects with the question about unpaid work. /# So you can have the underpaid work, in a sense, where somebody does a lot more hours, that are not really paid for, but there is an expectation from those that they serve in that situation (talking about the ministry). /# Or that there is a willingness on their part as well - perhaps until they finally get exhausted and crack up and retire or go back to working in office or something - which does happen, of course, sadly.
# In the extreme case, of the mum that CA already mentioned, sitting at home with her kids. Well, "she's not producing anything." There is this horrid phrase that has come into people's / now that the election has taken over in this country. But prior to that, there was a lot of talk about people / with the growth question, and the problem with people who were "not economically active". /# And it is really irritating me, every time that phrase came up, because they (a) are economically active; they are alive. /# Surely they are economically active; they must be spending money, or somebody is spending money for them; they are not just sitting around eating fruit that has fallen off a tree in front of them and breathing free air. So, they are economically active.
# What you mean is, they are not being paid to produce anything, in terms of 'doing a job'. Cleaning the lavatories in the hospital or wherever, right through to performing high level brain surgery. /# They are not doing any of those things so they not deemed to be economically active, because they are not producing any number that gets aggregated into GDP.
/# And this is what got me so mad. The first time I really thinking about it with Gordon Brown, when he started introducing all these credit systems for mothers, for families and for mothers, and some of it was to give them more money and now of course we have the nursery vouchers thing: give them money so that they can spend that money - probably plus a lot of their own as well, because you cannot get anything of value of the voucher. But they will spend that on somebody else doing a job that, if they were CA's person, they were at home and they would be doing that job. They would be minding their own children, and maybe helping out a neighbour or a relative or something as well, but not being paid for it.
# Which of those is actually better in terms of the overall output? /# Economically, if you are measuring it in money terms, and money circulating, and wages and tax and GDP, clearly the Gordon Brown model, of giving them some government money and then multiplying that, they they spend some more of their own, and then they get paid, and they circulate that money in the economy, and that's the multiplier thing, that they consume, so that goes round and round, and GDP goes up. And it's good investment for the government if they concentrate on GDP. /# AB: Are you saying the Gordon Brown model is good or bad? /# CM: I am suggesting that it is bad, because it actually undermines the immeasurable aspects. ***/# (Again, gotta try keeping Dooyeweerd back into it because I am bad at not remembering that.)/# Because that model does not measure those aspects; it only measures the pbysical, the financial, the economic, and some of the others. # CA: GDP. # CM: And primarily it is using / eventually everything comes down to literally money evaluation. Which then goes into GDP. /# That is bad model, because it does not recognise the value of all the unpaid work. /# It is not just that it is unpaid work, it is not just / people say "Unpaid work, you mean like volunteering and litter-picking free, and not having to pay the Council for it."
/# No, no, it's not just that; it is literally relational work, like the priest, like the family member, like the fact that Mum is there for the children when they come home from school, she's not parking them with a child minder or with somebody who then looks after them for another three hours; and by the time Mum comes home, they are half way to bed already. So you miss all of those other non-monetizable elements of a flourishing society.
# Which I think you can then highlight those by using the aspectual framework, actually, to identify them.
[1.42.30]/# AB: Thank you very much. That is very helpful./# CM: Anyway, those are my thoughts about it. ...
# AB: That is actually very helpful, because unpaid work is the third thing that we had on the list to discuss. And we have discussed a bit of it. We won't do any more. It is particularly interesting to TBC, I think, unpaid work, and so on.
# I think it is time to draw this to a close. Because when you have got two hours of recording to transcribe it takes three months to do it. [Laughter] [Ed. Actually 6 months for this one!] This is why the the recording of the last one was only put up a few days ago. /# None of you have come back and said "I need this changed" (in RLDG 27). But it is up there, and I redacted TBC's name from it, just put xxx. So, thank you very much, everyone.
/# AB: TBC, do you want to say anything? The other two will shut up if you want to say anything. /# TBC: Well, why should they. It has been good listening, very educational.
/# AB: Well, if you don't mind folks / If there is something burning to say, send me an email and I will incorporate it. If I allow any of you speak again, it will go on for another half hour, and I don't want that :-). For the reasons I have just given. /# CM: Touché AB. /# AB: I have been listeming. I will go through it. I will try and make something of it. I think we have now got a load of stuff we can put in [our rethink]. I will let you see it, I hope. The results of this, not just of the transcript but and then so you can comment on it. /# So, thank you very much, folks. /# I have been doing things that we talked about last time; I won't comment on them. /# I would just like to close in prayer and thank the Lord for you all, and for this time together. [AB closed in prayer]/# TBC: Amen. # CA: Amen. # CM: Amen; thank you AB, and thanks again for all your efforts.
/# AB: So you can read it and / One thing I have been doing, is I have been responding to DH's thing that needs editing and I am half way through Chapter 4; that is the first chapter that I have done, but it is a big chapter, like 20-30 thousand words, and I find it needs a lot more editing than I was hoping, to knock it into shape. So it is going to take some time before it really what DH would call presentable. But pray that I will be efficient and productive as I do it. Thank you.
[1.47.00]
[Most left]
# CA: Hi AB, I thought I would just ask you a few questions. ...
[recording stopped]
[About what is valuable, about Liz Truss, about timelines, and some other things. Then with SJ. ]
# ACTION CA: Write down thoughts on what is valuable.
Created by AB: 9 December 2024. Last updated: