Reading of the Treasury Department’s 2015 Intergenerational Report reveals some problems with the understanding of economics and finance held by policy makers.
The report focuses on the interplay between three elements that it calls population, participation and productivity. The relevant aspect of population is that the working population is shrinking relative to the ageing and non-working population. Participation refers to number of hours worked by people aged between 15 and 65 and labour productivity is ‘a measure of how much is produced on average for every hour worked’ and is increased by ‘capital deepening’ (investment in plant, utilisation of new technology etc.). Inevitably, the report claims, as participation rates fall owing to the aging population, growth, ‘an increase in the quantity of goods and services that a country produces’, will slow. The solution is to ‘encourage’ greater participation and investment in capital that will improve the productivity per worker.
Growth, defined like this, is a dubious national objective. But leaving that for now, I would like to focus on one central assumption of the report; that the quantity of output of the goods and services of industry is relative to number of people employed. Technological progress and process advances applied to the problem of production are so successful that they have dramatically reduced the requirement for people to do work. The role of people in industry is increasingly becoming that of a catalyst; a person makes a decision to run energy through a machine by the flick of a switch, and the machine does the work. In this relation between man and machine, the energy provided by the muscles of the man is irrelevant as a factor in the quantity of production. Monahan is quite right when he says, ‘The quantity of production is proportional to the total energy, not to the number of men involved.’1 This assertion is confirmed easily enough. Compare photos of a car production line 100 years ago with one operating now, or a field worked by scythes with one worked by a mechanised harvester and you will draw 2 conclusions; machinery increases productivity and depopulates industry. ‘In 1928 American farmers were using 45,000 harvesting and threshing machines, and with them had displaced 130,000 farm hands.’2 No one could seriously contend that quantity of grain produced decreased because these men were thrown out of work. And we don’t have to reach so far back as 1928. I attended a tour of the Tom Price mine in the Pilbara in 2013. We were told that by 2015 the mine would be operating 15 driverless trucks. Needless to say, this development was not expected to reduce the quantity of ore coming out of the mine. Examples of the application of technological advances increasing productivity and putting people out of work are so prolific that to claim that labour remains a significant factor in quantity of output is delusional.
But this is the critical assumption of the Intergenerational Report. In the Treasurer’s forward Joe Hockey writes ‘Our economic plan, aligned with the Intergenerational Report, will allow us to focus on the key drivers of economic growth – participation and productivity. Then on page 2 it says ‘projections for population and participation give the number of hours worked in the economy. Combining this figure with productivity gives the total quantity of goods and services produced in the economy’2(emphasis mine). Again on page 53 the report connects growth,’ an increase in the quantity of goods and services', with participation of people; ‘Economic growth rates are expected to decline gradually over the long run. This decline is expected to be caused by a slowing in population growth and a decline in the trend workforce participation rate as a result of population ageing.’ At no time in the report is the reader allowed to consider the enormous advantages of machine power as something separate from the insignificant contribution, in terms of energy, brought by humans to productive undertakings. It appears as though the authors of the report have failed to master the most basic lesson of the Industrial Revolution being that ‘men had used levers to raise great weights, but generally speaking the power to move the lever was human muscle. The power-driven machine is an entirely different thing. It does not magnify the effect of human effort; it displaces it.’3
Based on this erroneous conception, the solution to our economic problems is more employment. ‘To drive higher levels of prosperity through economic growth, we must increase productivity and participation. To achieve these goals we need to encourage those not in the work force, especially older Australians and women, to enter, re-enter and stay in work, where they choose to do so’ says the report. This ‘choice’ is to be ‘encouraged’ by raising access to the old age pension to 67 in 2023 and then to 70 by 2035, and taxpayer funded programs to pay for child care services and subsidise the wages of the elderly. Looking around at the surfeit of consumer goods on offer the question almost asks itself; what program of production is lacking sufficient labour to meet the demands of the public? Everywhere one looks one is confronted with the spectacle of gross over-consumption, waste and an environmental battering ram of a productive enterprise, armed with unscrupulous advertising, desperate to sell, sell, sell. How can the solution be more people making more goods?
The problem lies not with production but with distribution. The conventional view that says that the only legitimate claim to goods and services is employment is an anachronism in industrial societies. Industry aims to reduce cost by replacing men with machines thus reducing the proportion of cost made available as incomes to buy things. If we are to continue using machines to do our work we must supplement the incomes of consumers with debt-free money that does not have its equivalent in prices. In other words, we must make the money in consumer’s pockets equivalent to costs generated by industry. The underlying assumption of conventional economics, that industry distributes sufficient wages, salaries and dividends to meet prices, is quite simply wrong. Any attempt to deal with present economic friction by making more goods, exporting more, investing in more capital, contracting more debt, selling more assets or employing more people does not address cause and will only make the problem worse in the long run.
The situation is exasperating to observe. I cannot say what the authors of the Intergenerational Report know but if they believe what they write they are in a state of mind incapable of normal perception and, therefore, unfit to perform their roles. If they do understand the problem, and are obscuring it, that is worse still.
In 1971 David Ireland, in his Classic novel The Unknown Industrial Prisoner, wrote:
Meanwhile technology was in existence that would shortly make their labour an anachronism and their detention financially unsound. On the other hand it was certain to make their enforced future freedom politically unsound. And yet, in public places, great masses of constitutional machinery that with a little bringing up to date could have guided the use of this technology and this freedom lay rusting, unused.5
Monahan, B. W. (1947). An Introduction to Social Credit. Commercial Printing Company, Sydney (p. 10).
Douglas, C.H. (1933). The Monopoly of Credit. Bloomfield Books, England (pp. 35 -36).
Hattersley, C.M. (1937). Wealth, Want and War – Problems of the Power Age. The Social Credit Co-ordinating Centre, York (p.22).
The 2015 Intergenerational Report Australia in 2055. 2015. Available from: www.treasury.gov.au [11/03/2015]
Ireland, D. 1973. The Unknown Industrial Prisoner. Angus and Robertson Publishers, Sydney (p. 370)