What is Productivity and why is Productivity so important to Money?

Our short stories have been concentrated on the development of the Aba community. Let’s now put a focus on the Gols. Recall that the Gol community is the trading partner with the Abaites and although of similar size, the Gols used Golcoins as Money made from a useless shiny metal called Gold rather than use the Abacus technology and rules to create a currency and issue Money.

The Gols also were very prosperous and were better off for trading with the Abaites even though the two communities had a different form of Money. The Abacus technology allowed for a simple exchange system and record keeping that the Gols accepted as the source of truth.

All was fine and dandy until something happened that would set off a chain of events that would threaten the lifestyles of both the Gol community and the Aba community.

One day a Gol farmer named Go was expanding his land under agriculture and was digging out old tree stumps. In the ground under a stump they found nuggets of that shiny metal, Gold. Go immediately recognised that this could be very valuable and so replaced the stump so no one else would know about the new source of Gold and they could have time to think what to do.

Go was no dumb cookie. They thought it was a good idea not to try to exploit the new gold deposit on they’re own. So he got together a group of Golites that he thought would like to enrich themselves without risk and hard work.

So Go got their team together and called it the Go Team. Go explained to the Go Team, the plan. Go and his Team were to mine the new gold deposit and melt it down into coins that appeared to be identical to Golcoins. The Go Team would then use those Golcoins as Gol Money to buy up all the excess produce from the Abaites. They would then sell that Aba produce at a higher price for original Golcoins both making more Golcoins and also cleaning their Money.

At first the Gols did not notice what was really going on. The Gols noticed that the Go Team seemed to have more Money and were doing fine through buying the Aba Community’s excess produce, but no Gol noticed how the Go Team was doing it.

As time went by, the Go Team accumulated more and more Golcoins at the expense of the other Golites and this started to look very suspicious. A few wise head Golites decided to do some investigation and found the unknown gold mine being mined by the Go Team and counterfeiting Golcoins.

The wise head Golites confronted the Go Team with the evidence that they were counterfeiting Golcoins to the detriment of the community as well as decreasing what the community produced by using resources to mine gold. Go defended the Team by arguing that the counterfeit Golcoins were ending up with the Aba Community and so little harm done.

The Go wise heads were flabbergasted at this rationale and horrified what was going to happen when the Aba Community finds out they’d been paid with counterfeit Golcoins. The Go Team must pay by forfeiting all their Golcoins and the Abaites must be told.

The Go wise heads and the Aba wise heads met to discuss the universe on Sunday morning. Once they’d got over the small talk, Go himself was made to get-up and confess to what he and his Team had done.

The Aba wise heads took the information calmly. Ab addressed the forum. “The way we Abaites see the situation is that the Go Team wasted their efforts to produce counterfeit shiny money at the expense of producing useful goods. Then they made up for their lack of productivity by using that counterfeit shiny money to buy the extra produce of the Abaites. The Go Team and anybody else cannot be allowed to enrich themselves by counterfeiting and reducing productivity and not by increasing productivity.”

Ab had a solution. “As the Gol community has many more Golcoins than it previously represented plus an extra Gold mine, we need to agree to reset the exchange rate from one Abacoin to one Golcoin to one Abacoin to two Golcoins. Decreasing the value of Golcoins will balance the extra Golcoins that were made and the lack of Gol productivity from so much Gold mining resources being wasted”

The Aba and Gol wise heads nodded in agreement and again were impressed by how Ab could quickly work through a problem and find a simple solution, but had Ab created a bigger problem?

What is Productivity and why is Productivity so important to Money?

Increasing productivity is the antithesis of Rent seeking.

A simple definition of productivity could be, “the resources used relative to the goods and services produced”. Increasing productivity is using less resources to produce more. Whilst the definition of “resources” is important, let’s leave that aside as we discuss productivity as it relates to Money.

Productivity is the key to a civil and stable society. Incentivising and increasing productivity is what has developed higher standards of living and less conflicts over the centuries. Historically, political regimes that allow and focus on productivity increases tend to improve the lives of its citizens. Unsurprisingly, democracies are where most productivity gains originate. Centrally controlled economies can innovate productivity gains, but history demonstrates that central control is not the most efficient way to stimulate productivity innovation in the long term.

Productivity gains do not of themselves create Money but they do increase the value of Money. Citizens can do more with the same amount of Money by paying less than previously for the same good or service. However, to borrow Money to create productivity gains, or to roll them out to citizens, creates Money that is used for productive purposes and therefore can be repaid from productivity gains and not from speculative asset inflation.

Money can also be created by selling the productivity technology offshore. Productivity gains allow Money to be circulated more quickly and widely. Whilst Money can also congregate to the owners of the technology that improves productivity, as opposed to Rent seeking, that Money is the cost paid by citizens for improving their lives and the value of their Money. By deduction, the Money cost can’t be higher than the benefit or it would be Rent seeking.

Productivity is key to all positive economic progress and increasing the value of Money. However, improvements need to be managed so as not to turn them into negatives. For instance, technology allows for productivity gains that cause a need for less labour. That has a negative effect if a citizen loses their job.  On the other hand, other opportunities must arise because no Money has been destroyed and the value of Money has increased and can be circulated more widely. Money is available to be invested in other productive pursuits that demand labour, thereby replacing lost jobs.

In Australia the suggestion that we have skill shortages is trotted out every day. In a country where the biggest exports are from the low labour-intensive mining and gas sectors, it’s hard to even imagine how a well-educated Australia could have skill shortages for jobs that are only required to service the internal population and are not export related. Australia does not have a skill shortage that can only be solved by importing people, we have a labour strategy management problem and a productivity problem. This situation is hardly surprising in a society dominated by Rent seeking. Immigration is not a solution to internal skill shortages, as immigration used for this purpose is also a form of Rent seeking through driving down fair wages for labour, i.e. dividing the available Money between more people to the benefit of the 1%ers.

Productivity is not about the immediate economic effect but needs to account for sustainability and environmental effects in the long term. Productivity gains that give a short-term sugar hit at a large cost for remediation in the future, are not gains but intergenerational wealth transfers.

It’s hard to understand the anti-eco brigade whose argument seems to be that if something’s working today then it’s ok to make it someone else’s problem to fix, when it all goes wrong, in the future. Not good planet management but a basis of conservatism.

Productivity is not just about computer systems or AI that replace human jobs. Health advances that allow people to live and work longer in productive capacities, increase productivity and the value of Money. Apparently Australia has an ageing population problem, based on historical analysis, which takes no account of productivity gains. It also does not account for increased productivity of individual workers as they age and live longer. Australia does not have an ageing problem; it has an ageing productivity benefit that must be managed and utilised. The productive aging worker must be a focus for government policy.

Unfortunately, ageism and ignoring productive aged workers is a thing, not only because of ignorance but mostly because it supports the false arguments for higher immigration and Rent seeking.

In Australia we do create some productivity gains of our own, but mostly we import productivity gains from offshore in the form of goods and services. Whilst this has been good for citizens while we can pay for the imports, it has also created the precarious debt situation that Australia has with the rest of the world. Selling rocks and gas to the world to balance our Money is fine while it lasts, but it is more likely that this strategy is severely limited and unsustainable. These commodities may very well allow other countries to create productivity gains that are lasting, but none of the value of producing those gains will accrue to Australia.

To repeat, our citizen’s modern lifestyles have been enabled by the productivity gains that have been developed over the thousands of years since homo sapiens could stand on two feet. All citizens and countries stand on the shoulders of giant inventors. There are buyers and sellers of productivity gains. For a country, you really want to be on the seller side of that line because that’s where the Money is. Australia needs to create productivity gains that it can sell as its Plan B.

So to Productivity Rule 14

Rule 14: Productivity gains are what improves all citizens lifestyles, improves the value of Money and gives choices to citizens. Australia needs to be a seller of productivity gains, not a buyer.

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