Work is Intrinsic to our Identity

As people start to grasp the power of a currency issuer thoughts lead to the idea of a universal basic income. Rejections against it are based on ‘not wanting to give money to millionaires’. Then there are those that advocate for a basic income. An income for people that choose not to work.

The first step in understanding why currency has ‘value’ (why we use it) is because of the coercive nature our governments use demanding the currency they issue back in taxes. In order of operations a tax liability comes first, then the spending, then the taxes.

In helping to understand that concept I use the story of ‘the hut tax’. When the British colonised Malawi, to create labourers they needed a mechanism to coerce the locals into needing to accept the colonisers currency. They placed a hut tax on the dwellings and if the tax wasn’t paid they were removed by force. (source) There are other examples of tax liabilities to drive a currency. The colony of New South Wales had liquor licensing to quell the unruly behaviour that stemmed from the production of spirits (the rum trade) In 1824 an act was set up introducing the ‘Spanish dollar’ as a currency and liquor licensing brought in to drive its acceptance. note: the early colony didn’t have a means to mint their own coins. Spanish pesos with holes drilled through the middle were used.

The first reason why I disagree with basic incomes, universal or otherwise, is it undermines the coercive nature of the tax liability. This is a contrived example but it is to emphasis a point. Imagine a society where most people chose to remain on a basic income but we are short of nurses. What coercive mechanism would we use to drive people off basic income into work. The payment of an unconditional income after the tax liability undermines the reason for the tax liability in the first place. That is an error many people make.

The second reason is that ‘work’ however defined is intrinsic to our own identity.

When we try to formulate the psychological effects of unemployment, we lose the full, poignant, emotional feeling that this word brings to people.

Eisenberg, P., & Lazarsfeld, P. F. (1938). The psychological effects of unemployment. Psychological Bulletin, 35(6), 358–390. https://doi.org/10.1037/h0063426

The study cited above is from 1938. I chose that study to demonstrate that the effects of unemployment have been studied for quite a while now. The paper discusses unemployment leading to an increased instability and lowering an individuals moral. We create social networks through work, use it to develop and improve skills and create a sense of purpose for ourselves. Not only in terms of a self-identity but through social networks we develop and the sense of contributing to something bigger than ourselves. There are also issues with respect to children and youth growing up in unemployed households. You witness lower self-esteem and declining grades amongst children in unemployed households and of course poverty as a result of insufficient income.

Redefining Work

Another point basic income advocates miss is the idea we need to redefine the definition of productive work. The definition of what constitutes productive work was part of the debates happening around the 1930s. It was deemed anyone working and creating a profit was ‘productive’.

Overtime we’ve advocated for social services and provisioning of education, healthcare and utilities to be provided as public goods. This is often seen as a ‘cost’ to society under flawed framing of ‘tax and spend’. Though we would say that workers in those sectors are productive. However, overall ‘work’ as we define it today is viewed as needing to be earning a profit or it is otherwise ‘subsidised’ by taxes.

Work can be defined as something much broader. We can include parenting, the arts, cultural and indigenous knowledge, community work. The list is endless. Basic income advocates use arguments that ‘someone should be allowed to create and develop their art’ and I am all for that. Though there is an idea of reciprocity. We could develop a Job Guarantee where someone can choose a job to develop their artistic skills, undertake courses and provide work of community benefit. They may be required to assist in designing the artwork for a community festival and working with others to discuss ideas and theory. Art isn’t created in a vacuum. There is a social context and artworks often reflect social upheavals and social movements from the era they were created.

Work is about giving back

I chuckle at the idea that if someone chooses not to work we should support them in that endeavour. There are various migrant communities were work is essential in terms of defining their place within their communities and contributing to the survival of those community.

I am a generation removed from subsistence living. My grandparents with their children grew up in a rural village with no electricity. They produced most produce themselves. They would make the bricks to build their houses, locals (usually family) taught in the school and each family took turns in producing various agricultural products. Fruit trees, vegetables, chickens, goats, cheese, olives were all part of the mix.

My grandmother tells me her street, which was made up of her brothers, would take turns in milking the goats to make the cheese. One week it was her turn and it would move up and down the street until it came back to her house. Imagine within that setting you refused to make a contribution. You would be ostracised by the community and not allowed to share in the rest of the produce that was grown.

Conclusion

The basic income undermines the coercive nature of the tax liability that is implemented to create workers in the first instance. That is just a technical fact.

Work is responsible for more than just an income. It allows for social mobility, a setting that allows personal and skill development, it gives us a social standing within our communities, it assist in the development of social networks, and allows for children to grow up in households were they see value in what their parents create in a broader community. This stuff is immeasurable.

There is an idea of reciprocity. I find it difficult to comprehend that someone that expects a high level of social services and public goods feels that they can choose to opt-out of work and be provided with a subsistence living. That wouldn’t fly in a small rural village and I don’t see why it is a valid argument in our modern societies.

The idea should be to redefine productive work and include things that have public purpose and enhance our communities making them better places to live.

If you demand a high level of public services and want our government to ensure enough work for all the other end of that bargain is contributing to your potential to make our communities desirable places to live.

We Treat the Unemployed with Disdain

It’s Thursday and I have decided I will write three posts a week. Tuesday, Wednesday and Thursday. Today’s post continues on from yesterdays Unemployment is a Political Choice which described when, why, and how we started counting the unemployed. How it began in an era of Full Employment where the Australian Government aimed for spending in aggregate to target more jobs advertised than demanded. I described some detail around what was involved in aggregate spending and finally why unemployment is a political choice. Governments with their monopoly on the currency can always purchase what is for sale, including idle labour.


In yesterday’s post I mentioned the recently elected labour governments decision to maintain below poverty unemployment benefits and maintain the pernicious system of ‘mutual obligations’ that penalises those on the unemployment benefit if they fail to complete certain tasks. This ABC article gives you an overview of what is happening with the changes to the system. The system is summarised

….more than 750,000 people will be placed into one of two Workforce Australia streams: an online portal for self-managing job searches, or into the management of a new job provider for face-to-face appointments.

Significantly, those who will be required to complete mutual obligations will also transition to a process where they will earn points for activities in return for income support.

Which may seem ‘fair’. Absolutely we should aim to have those that can work into work. That includes creating workplaces and designing work for people with disabilities so they too can feel a sense of belonging, a sense of contributing to their communities and an ability to feel in control of their lives with enough income to be able to do that. However, our unemployment system doesn’t do any of that. Some of the nastiness pieces of the system are being retained by the ALP. (emphasis mine)

ACOSS acting chief executive Edwina MacDonald said her organisation welcomed some of the changes outlined by Mr Burke, but voiced concern about the continuation of the “punitive” work-for-the-dole program and automated payment suspensions.

The system automates payment suspensions and we require some people to work for their unemployment benefit while they look for work to receive their below poverty line payment.

I decided to look at the number of people seeking work and the number of jobs advertised. This relationship is known as the Beveridge curve named after a conservative member of the House of Lords in the UK, William Beveridge. You can read why the conservatives decided to deal with the rising levels of unemployment in my post Advocating a Right to Work.

Anyway back to the Beveridge Curve. Wikipedia tells us The curve is a graphical representation of the relationship between unemployment and the job vacancy rate which is the number of unfilled jobs expressed as a proportion of the labour force. The ABS says more less the same thing. The Beveridge Curve is widely used to depict the relationship between the unemployment rate and the job vacancy rate. Economists will study this curve and hope that as vacancy rate increases, unemployment decreases. i.e the higher the vacancy rate, the lower the unemployment.

Beveridge Curve – ABS

When you grasp that as a monopolist of the currency – the government chooses the level of unemployment the Beveridge curve becomes somewhat pointless, unless you wanted to measure how much the private sector is contributing to economic activity.

I ran some numbers on the number of job vacancies v the number of unemployed and underemployed workers. As of the March quarter 2022 there is 0.88 jobs for every unemployed worker. This doesn’t take into account skills mismatches or location.

The ABS gives the quarterly figures for job vacancies at a different quarter to the unemployment figures to make comparisons a pain in the arse. Anyway I did it!

The first image is a table of job vacancies and numbers of people who are seeking work. The last column is the number of jobs advertised relative to the number of unemployed people.

The graph is a visual depiction of the table. The blue columns are the number of advertised jobs and the grey and yellow lines are the number of unemployed and underemployed people in the quarter.

To calculate quarterly figures for those two groups I found the monthly data and calculated an average. The data then matched the ABS job vacancy figures. The orange line is the underutilisation rate – which is the unemployment + underemployment rate.

Sadly, our Government thinks it is fine to force people to seek work that does not exist in sufficient quantity for all those that desire it and punish them for not jumping through bureaucratic hoops to receive a below poverty level payment. In some cases asking them to work for it!

Conclusion

Policy positions a progressive party should be taking;

  • Immediately lift the unemployment (and other support payments) to $88 a day. 
  • Stop mutual obligations 
  • Transition the unemployment benefit (not other benefits) into a voluntary living wage Job Guarantee run under a nationalised unemployment agency.  
  • The new national unemployment agency would form a ‘key pillar’ in a newly established full employment policy – helping those in the JG with education and training and seek employment in the public service or private sector. 
  • Establish a full employment policy with things like expansion of the public sector (childcare, better resourced heath and education etc…)

The labour movement has a history of fighting for ‘the right to work’. I believe this should be at the forefront of any labour movement. The ALP like the Liberal Party are protecting the unemployment industry in Australia – a series of privately owned companies paid to punish those without employment under a system that ensures there is insufficient work.

That is all from me!

*Update: there were minor errors in my spreadsheet and graph. I corrected these and updated accordingly. Update II graph is fixed now. Administrative spreadsheet error.

Unemployment is a Political Choice

I read this article on SBS news today. It is to do with our pernicious system of ‘mutual obligations’ needed to be performed in order to receive the below poverty line unemployment benefit of $46 a day. The ALP is ‘wiping’ the demerits accrued under the previous government and ‘tweaking’ the points based system. The advocacy of the Australian Unemployed Workers Union (AUWU) is highlighted in the article.

But Unemployed Workers Union spokesperson Jeremy Poxon said it was “incredibly disappointing” the new government had maintained its support for mutual obligations, and not removed them completely. ***
“The problem is this new system will just immediately start forcing people to accrue demerits again in huge numbers.” 

The commentary from the AUWU is juxtaposed against the Australian Council of Trade Unions who said

ACTU assistant secretary Scott Connolly said the union welcomed the Albanese government’s new approach to “helping people get back to work.”

The commentary from the ACTU is more than disappointing. It ignores the frame that unemployment is systemic, a political choice and chosen by the government of the day and places the fault of the unemployment onto the individual who needs ‘help to get back to work’

I don’t deny there are those who need assistance in getting back to work. However, a system that cuts people from a below poverty line payment for not seeking work that doesn’t exist in enough numbers is a sad reflection on how we treat some of the most vulnerable people in society. There is little change in the new governments attitude to the unemployed.

Counting the Unemployed under a Policy of Full Employment

I’ve ordered a copy of Inventing Unemployment by Anthony O’Donnell. Unemployment as we know it is a relatively new concept. In his conversation piece he says;

As I outline in my book, Inventing Unemployment, before the second world war censuses tended to divide the population differently – into breadwinners and dependants. 

A breadwinner who wasn’t employed would be recorded as a breadwinner rather than unemployed (with their usual occupation noted). 

That’s probably because until the 20th century, irregular work was the norm.

https://theconversation.com/how-we-invented-unemployment-and-why-were-outgrowing-it-183545

The way we conceive unemployment and count it started in 1947 in Australia and a quarterly survey counting a labour force and dividing it into ’employed’ and ‘unemployed’ started in the September quarter 1959.

It was the post war consensus that gave rise to full employment policies, and albeit under a ‘male breadwinner’ model aimed to ensure

This policy for full employment will maintain such a pressure of demand on resources that for the economy as a whole there will be a tendency towards a shortage of men instead of a shortage of jobs.

http://www.billmitchell.org/White_Paper_1945/index.html

The quote above is from the Australian 1945 tax white paper written by H.C Coombs who would later become Governor of the Commonwealth Bank and serve a variety of roles within the Australian public service. His essay From Curtin to Keating is well worth a read to see his views on the demise of full employment policies.

The way the framework for counting the unemployed was devised operated under different policy settings where the Government would ensure spending in aggregate would aim to ensure there were more jobs than needed to match the workforce preferences. Menzies in 1961 match the then opposition ALP promise to increase the deficit and bring the unemployment rate back below two percent.

I have included a historical graph of the participation rate going back to August 1966. The participation rate rate is the number of people employed or seeking work. You can see under full employment policies (and male breadwinner model) the participation rate for males was higher. The rise in female participation rate is a result of changing social attitudes towards women in the workforce. It used to be the case for instance women were no longer allowed to work once they were married. That is why the female rate is lower in August 1966 than 2022.

https://www.abs.gov.au/articles/historical-charts-august-1966-may-2022

The way we count the unemployed hasn’t changed but a policy of ensuring more hours of work available than those seeking work isn’t in place today. That change of policy has to do with the way economists view the role of fiscal policy. Within the public discourse today you will hear aims of ‘reducing the deficit’ and needing to ‘pay down debt’. Over the full employment era government ‘budgets’ were referred to as full employment or high employment budgets. The fiscal position was not an aim of itself. I’ve wrote what fiscal policy *should* be about in the below posts and the demise of Full Employment here.
Budgets Should Target Socioeconomic Well-Being.
What is the purpose of fiscal policy?

What Causes Unemployment?

When economist speak about spending needing to increase they are referring to several aggregates that make up Gross Domestic Product. These are Government Spending (G), Investment (I), Consumption (C), and Exports (X). Reasons are given for why one sector can/ can not increase or what incentives should be made to increase one aggregate over another. However, spending in aggregate is the aggregate of G, I, C, and X and whether it is sufficient with Full Employment.

Depending on your theory of macroeconomics there are different ways of thinking about Government Spending. These are a bit like religions and economists pick and choose different aspects from different schools of thoughts.

Keynesians/Post Keynesians – budget deficit are warranted to maintain full employment but should be balanced over the business cycle. Governments invest in productive infrastructure and grow GDP to shrink debt:GDP ratio over time.

Monetarist/New Keynesians – aims for budget surpluses, strong incentives for private enterprises, governments should eliminate debt, remove fiscal policy as primary tool of economic management, focus on monetary policy.

Modern Monetary Theorist – Governments that issue their own currency face no insolvency constraint. They can purchase whatever is for sale. Fiscal positions are outcomes and shouldn’t be targets. Monetary policy is a poor tool for controlling aggregate spending.

While there is different thinking with the role of government spending and the definition of what constitutes full employment, there is consensus unemployment arises as a lack of insufficient spending.

Enter the MMT Money Story

MMT places the tax liability as the foremost thing a currency issuing government needs to do to have its currency accepted. The tax liability causes unemployment and government spending alleviates the unemployment. It is always within the governments power to increase its spending and purchase what is for sale, including idle labour. Thus unemployment is a political choice.

That is what is meant by ‘tax liability’ creating a demand for a governments unit of account. It is a coercive mechanism.

(2002) where she describes Colonial Africa as an illustration of a tax driven currency.

“Historians of the African colonial experience have often remarked on the manner in which the European colonizers were able to establish new currencies, to give those currencies value, and to compel Africans to provide goods and services in exchange for those currencies.”

Tcherneva cites Sticher (1985) [In Malawi there was an] imposition of a Sh.3 annual hut tax over the whole colony in 1896. This was a high figure for the northern areas. And undoubtedly stimulated further labor migration [to find work paying shillings].

Tcherneva, P., Monopoly Money: The State as a Price Setter, Oeconomics Volume V, winter 2002

Further evidence of taxation driving a currency can be found during the colonisation of Nyasaland.

It is sometimes forgotten that the plantation sector in Nyasaland dates from as early as the 1890s. During the early years of colonial occupation, most officials shared the opinion of Sir Harry Johnston, the first Commissioner and Consul General, that “the one hope of this, country lies in plantation work and in the cultivation of coffee, tobacco, sugar, etc., for which cheap labour is necessary”.3 Some 800,000 acres were alienated to settlers in the Shire Highlands, the most fertile and densely populated area in the country; hut tax was introduced from 1891 as a means of introducing “the native labourer to the European capitalist”4 and coffee was grown with such success that in 1900 a thousand to exported worth 62,00 making Nyasaland the centre of European agricultural enterprise in Central Africa”

McCracken, J.,Peasants Planters and The Colonial State: The Case of Malawi, 1905-1940; Journal of Eastern African Research & Development, Vol. 12, 1982, pp. 21-35

Conclusion

Unemployment is caused by a lack of spending in aggregate. Currency issuing governments can always hire the unemployed, thus making unemployment a political choice. If the vast majority of the population understood that we could begin to dismantle pernicious unemployment system that punishes people for a failure of our governments to create enough work for all.

Comments from ACTU on ‘helping people get back to work’ are not helpful unless they are backed by a call to abandon targeting of fiscal positions and have a full employment policy. There seems to be little understanding from the ACTU leadership unemployment and underemployment is one of the largest factors that act as wage suppression. As there are more people seeking work, employers have their pick of employees. It is a disservice to the workers they represent. Though workers have come harder to find for some sectors, there are still just under 1.4million under-utilised workers in Australia.

Solidarity with under-utilised workers would call for an end to mutual obligations, an abandoning of fiscal targets, lifting the unemployment rate to at least $88 a day, a full employment policy that guaranteed more hours of work available than demanded and the implementation of a Job Guarantee.

E is for Effort

Alan Kohler wrote his first piece for The New Daily. It’s a rather optimistic piece where he says thankfully we haven’t entered a long depression as many feared. Irrespective of labels and what you define 2020 as, it has demonstrated that currency issuing governments always have financial capacity to deal with a collapse in spending.

First, 2020 wasn’t the beginning of another Great (Long) Depression, as understandably feared in March.

Why not? Because after the GFC, monetary authorities (central banks) decided to do whatever it takes to combat recessions.

Central Banks (The Reserve Bank in Australia) have the powers to deal with monetary policy. That is interest rates. They choose a ‘target rate’ for banks to loan to each other. In the same way you have an account with a bank, that financial institute has an account at the central bank (these are called exchange settlement accounts [ES]). These accounts need to be positive at the end of each day. If a bank is short it will borrow from another bank with surplus reserves. This is the rate the central bank aims to set. Currently the offical rate is 0.1% in Australia. Though the actual rate is much lower because of the banks QE program (more on that below)

What is Quantitate Easing?

As described above financial institutes hold exchange settlement accounts with the Reserve Bank of Australia. I’ve describe detail of various operations here, here and here. The RBA not only is able to set the rate of interest banks loan to each other (Cash rate) it can also set the yield on any Government bond. It currently has a target of 0.1 percent on 3 year Australian Government Securities (bonds)

What does this mean? As treasury spends via fiscal policy it adds reserve to the system by marking up these exchange settlement accounts. It is then a choice to issue a bond. These are offered for various lengths 1, 3, 5 year etc…by The Australian Office of Financial Management. The RBA has purchasing these bonds on the secondary market. So the steps are

  1. Treasury spends by marking up accounts at the RBA
  2. AOFM issues bonds – in Australia they are called Australian Government Securities (AGS). Financial Institutes purchase these from currency in their ES Accounts
  3. This operation drains ES Accounts and adds them to securities accounts
  4. The RBA has then been buying AGS to lower their yields and ensure the target rate on a 3 year AGS is 0.1 percent. You can read about it here

It is important to note that when the RBA is purchasing bonds it is switching the asset portfolio. More reserves in ES Accounts as it purchases back AGS that have been issued by the AOFM and it now ‘owns’ bonds that were issued by treasury.

This is usually called ‘money printing’ however by definition all spending by treasury is ‘new’ money entering the financial system.

Treasury spends via appropriation bills and the central banks use a computer to mark up the relevant bank account. This process is the same irrespective of past fiscal positions. It’s ‘cost’ in terms of the real resources used is the same irrespective of the interest rates. 

Bond issuance (govt debt) is an after the fact operation. It switches currency in reserve accounts (that financial institutes hold with the reserve bank) to securities accounts (which earns interest).

There isn’t a need to issue debt. Ask yourself where financial institutes obtain currency to purchase bonds? 

Treasury departments hold public accounts with the central bank. These are purely there to record the transactions that take place. The balance in that account is irrelevant to the governments ability to spend.

Seeing the powers that central banks have is to target an interest rate and NOT direct fiscal policy, there is very little they can do to deal with collapses in spending. The mainstream parade that interest rate movements will encourage or discourage spending. That is ridiculous. The manipulation of a rate banks loan to each other or a yield on a bond in no way encourages or discourages investment. The power lies with fiscal policy and that is held by treasury.

So, massive fiscal stimulus (which should really be called compensation) followed massive monetary stimulus from central banks – that is, money printing and rate cuts to zero and below.

It is true treasury engaged in spending to a level most of us haven’t seen before. None of this was financed by central bank operations. None. Bond issuance intrinsically has to work after the fact the issuer has spent. The fact interest rates are 0 or the RBA is purchasing bonds via QE program is irrelevant in treasury’s ability to spend.

Businesses are getting ready to catch that money and transfer it to their own bank accounts: Private sector job vacancies in Australia rose 24.2 per cent between August and November to a record high of 228,800.

That’s only a quarter of the 942,100 people still unemployed – but even in good times there are usually three unemployed people for every vacancy.

Obviously you are going to have a large increase in job vacancies when you emerge from a lockdown. That figure isn’t telling us much. It’s just a big number. The reality is there are still millions of under and unemployed. This is a policy setting by the government of the day. The Australian Government as a monopolist of The Australian dollar can always purchase idle labour. It chooses the unemployment rate.

The savings ratio is the inverse of consumption expenditure. Obviously when the lockdown happened people couldn’t spend and that caused the unemployment in the tourism, hospitality, arts sectors etc…It doesn’t tell us much more than that.

Meanwhile, the Reserve Bank is still pumping cash into the system.

In December it bought $20 billion worth of government bonds, bringing the total bought in 2020 to more than $100 billion, using freshly created money. That’s about half what the government actually issued.

Central banks pumping money into the system is, as descried above, switching currency in accounts at the Reserve Bank of Australia. It’s a smokescreen. QE has had The RBA purchasing bonds that are issued by the AOFM. Now treasury ‘owes’ money to the RBA. Yet within the mainstream media there is no acknowledgment that all spending has to originate from treasury as it marks up an account at the central bank. That is what the banks use to then purchase bonds!

Australia is only half pregnant with MMT because the RBA governor Philip Lowe insists that there is no such thing as a free lunch. Meanwhile governments elsewhere are munching on cost-free cash for lunch.

This is one of those myths that gets paraded around to invoke a fear of inflation. If we keep spending and if we continue to ‘fund’ treasury, eventually we will impoverish future generations and there will be inflation.

News flash: We have literally seen the Australian Government spend billions of dollars from nothing – we have seen the RBA engage in bond buybacks (QE) to expand the balance sheets of the banks and we had deflation.

Kohler gets that correct

Maybe the bill will be presented later in the form of inflation, as Dr Lowe confidently predicts, maybe not. But central banks have been printing money for 10 years so far and inflation hasn’t stirred.

I don’t describe it as ‘printing money’ but his comment that what central banks told us, that inflation will stir as a result, is spot on.

Conclusion

The policy prescriptions that you can advocate are thus different by viewing government spending through the lens that issuers spend first and tax and issue bonds after the fact.

The policy positions we need to wind down support measures (unemployment benefits) are shown to be purely spiteful. They ignore that governments choose the unemployment rate and can always purchase idle labour. We thus force people into poverty and punish them as a result of failed government policy to ensure enough jobs.

The positions taken by the mainstream economics that we should ‘spend now because rates are low’ are wrong too. Watch as they begin to attack government spending again at the first chance they can. We should spend as much as is politically desired on public infrastructure and full employment. Removing the lens that taxes fund our expenditure (rather than government spending funding our ability to pay tax) and ending the nonsense that states ‘bond issuance (government debt) ‘funds’ the government’ allows us to have better, more truthful discourse on the public services we should be providing.

The Right to Work

I’ve finally finished the site design and colour scheme. It took me much longer than expected as it proved more difficult than expected. Alas, I have a final design. Today’s topic is a continuation from my post Full Employment Demise and is a history of ‘The Right to Work’

The right to work movement has its origins in the 14th century. Now a days, within a USA context, it is a term used for anti union laws under the guise of a right to not be a member of a union. They are laws designed to limit organising and collective power.

Work on a a lords land circa 14th century was usually for a subsistence living and the surplus value of your labour (literally your harvest) was the property of the lord. The peasants that occupied the land were not its owners. Agrarian property was controlled by a class of feudal lords. Their were limits on travel for working people, ‘Villeins regardant’ were usually granted plots of lands to farm for a subsistence and these plots along with those on them could be bought and sold. ‘Bordarri’ who were usually tradesmen/artisans were usually granted a cottage to live in exchange for their labour. Conditions of servitude were inherited and you were bound in perpetuity. Under capitalism the exchange value disguises the use value of your labour and the capturing of surplus value by the capitalist class is more opaque.

There was growing demand for wage labour (most likely because of the leaving of taxes demanded a necessity for the sovereigns currency) Waged-labour was more cost effective than feudalist servitude as it absolved the owners of needing to house and feed their workforce. There was less direct need for surveillance and motivation came from the workers needing to obtain income.

As waged-labour became more common there were a series of laws through Britain and the rest of Europe to preserve distress amongst the unemployed. The notion that it ‘built character’, ‘unemployment acted as a motivator and increased the productivity of the working class’, and it limited what the capitalist class saw as ‘excessive wages’ as workers competed for scarce work.

There were laws that under the guise of ‘providing for’ or to ‘assist’ the unemployed acted as a mechanism for forcing the unemployed to take any job at any condition. Elizabethan poor laws, such as the system of Speemhamsland, which was a sliding scale payment tied to the price of grain, designed to mitigate against rural poverty but ended up as a wage subsidy and resulted in increases in the price of grain, leaving the poor no better off.

There were also workhouses during the 19th and 20th century. The unemployed would be required to work in dangerous conditions, usually in a factory, for their below subsistence welfare payment. Conditions were often so pernicious, it resulted in death. It is similar to today’s modern day mutual obligation requirements under our welfare system. Welfare recipients are required to undergo Work for the Dole or Community Development Program (CDEP) for their below subsistence payment. It is mandatory and there have been cases of workers dying as a result of the conditions. The CDEP is often work for a private for profit corporation.

By 1848 during the Second Republic of France and the idea of a ‘right to work’ had gained traction having been popularised over the proceeding decade by Louis Blanc. The abolition of unemployment was a goal of the Parisian workers who had backed the Second Republic. ‘National Workshops’ were established where unemployed Parisian workers could show up and be paid. The scheme was contentious and had divided the cabinet, that resulted in a chaotic scheme. Many within cabinet wanted political reform not necessarily social reform such as the elimination of unemployment and wealth redistribution. The municipal engineers organising the work resented the use of unskilled labour. Often there was no planned work for the idle workers they would be paid one and a half francs a day to do nothing or two francs when work was given. The program started at approximately 14,000 workers and within half a year and expanded to 117,00 workers.

False promises were made to expand the program throughout The Republic however, the ‘right to work’ was withdrawn which led to what is known as ‘The June Day Uprisings’, warfare amongst the national guard and the workers which left thousands of protestors dead.

The ‘right to work’ movement reached the political discourse in Britain in 1889 and became a goal of the Independent Labour Party. Ken Hardie an ILP member in parliament breathed life into the unemployment debate. His maiden speech to parliament called for a policy on employing the unemployed.

“…we ought to have some permanent machinery to deal with the unemployed, the conditions of which should be twofold. In the first place it should be elastic. Labour should be organised in what he might call skeletal battalions, which might be filled in times of distress to their full strength, and which might go down again to skeletons when employment was plentiful. In the second place, the employment should be of a temporary character, and not such as to induce the recipients of it to remain in it in preference to seeking employment elsewhere”

The right to work and having the government act as an ‘employer of last resort’ gained traction across the political spectrum over this period. The choice for policy makers was, admit they had the capacity to employ the unemployed during downturns and they could set up works to to do or they could leave the unemployed to face destitution and misery, risk electoral defeat or a social revolution. The conservatives came with a counter offer found in the works of a conservative member of the House of Lords, William Beveridge in Unemployment: A Problem of Industry.

Beveridge argued in 1909 though unemployment was a result of the capitalist system it was only necessary to eliminate frictional unemployment and provide relief for the unemployed through unemployment insurance. The conservative alternative to Labour’s ‘Right to Work’ was a system of labour exchanges between the public and private sectors and and a contributory unemployment insurance scheme. By 1911, this was the system in place in Britain.

In 1919 E.G Theodore, Queensland Premier with the Australian Labour Party attempted to pass the Unemployed Workers Bill. The goal was to place the full resources of the State and Local Government in the hands of a council dedicated to the elimination of unemployment. The State Government would undertake major works to increase the number of jobs, there were powers that would order private employers that could assist to augment their projects, while local authorities would delay or expedite programs to deal with the seasonal variations in the number of jobs available. The councils role would be to undertake research and commission vocational training. Welfare payments were to be transitional while employment was being organised.

Naturally there were objections from the capitalist class towards this goal. Headlines described this system as a ‘loafers paradise’ by The Courier Mail

“The so-called “Unemployed Workers” Bill and its extraordinary provisions were widely discussed in the city yesterday. Needless to say, the measure was very strongly condemned as a premium upon idleness…”

Mainstream media warned of communist atrocities and the perils of socialism. The bill never passed but we saw a shift in the language used by opponents of full employment. Whereas in Hardie’s 1908 bill we saw opposition to full employment, laying open the capitalist class opposition to a system of full employment by 1919 arguments were around how methods of achieving full employment were flawed.

Much of the ‘economic’ theories being used (Quantity Theory of Money;late 19th early 20th century, Loanable funds theory;circa. 1930s) were funded by industrialist and used as justification on why full employment was ‘unachievable’.


Throughout history there have been different ‘monetary systems’ in place. Today we operate under a ‘fiat’ system. (Literally Latin for by decree). A fiat monetary system is one where a sovereign power issues its own currency and floats it on an exchange rate for trade.

The monetary system in use during post WWII was a gold standard. Governments would specify a particular amount of gold specie in return for the currency that they issue. Thus currency was limited by the supply of gold.

During war periods the gold standard was often suspended. This allowed a government to spend without concern toward the gold supply. During the Napoleonic wars Britain entered a period know as ‘The Restriction’ which suspended the gold standard and they invested in building their navy and colonising half the world. Similarly the gold standard was suspended over WWI and WWII.

During times of war, it is ‘normal’ to have all real resources, including labour in use. There is often a shortage of raw materials and labour power. Hitler used a fiat system to build Germany’s military. Japan avoided a Great Depression because the Japanese Prime Minister, Takahashi Korekiyo, took Japan off the Gold standard in 1931, and introduced a major fiscal stimulus with central bank credit. (Jargon for issuing money without issuing a bond)

The Great Depression was largely a result of insufficient spending, being tied to a gold standard and opposition to full employment by the capitalist class. Full employment policies have enormous political consequences as the threat of unemployment is taken away. It ensures workers have higher bargaining power, politically we have more power to ensure greater provisions of public service, which erodes capitals claims on national income.


The period of WWII in Australia saw full employment in Australia. As I mentioned in this post. Australia experienced a period of a full employment policy were unemployment seldom rose above two per cent. The work of J.M Keynes and his General Theory influenced most western policy towards achieving this goal. Full employment was defined as more jobs advertised than demanded (Beveridge curve) and Keynes ‘pump priming’ was used to ensure aggregate demand (total spending) was sufficient with this goal. Keynes very clearly articulated unemployment was a result of insufficient aggregate demand. (Spending in total)

Pump priming is a mechanism where you stimulate the economy enough to increase the marginal propensity to consume and the additional spending reaches enough to generate full employment.

Conclusion

The right to work was once a goal of workers movements in France, Britain with the Independent Labour Party, and an early goal of the Australian Labour Party. It sat alongside universal suffrage and the eight hour day.

Systems of unemployment insurance were compromises over policy goals of guaranteed employment. Today the workhouses of the 18th century are back in a modern form (WftD, CDEP), the pernicious nature of making unemployment so unattractive so the unemployed take any available job, no matter how atrocious the conditions.

Full employment policies were introduced post WWII though didn’t use a system of guaranteed jobs and provided unemployment insurance while workers waited for work to be created. However, there was a clearly defined goal of ensuring more jobs than work demanded. Today definitions of full employment are pathetically defined.

The next post will look at how a fiat currency can always be used to employ all available labour using a Job Guarantee as a buffer stock mechanism and changing the definition of productive work!

Full Employment Demise

I’ve recently been reading a number of different sources on unemployment, its causes and its use as tool of social domination.

Article 23 on the UN declaration of Human rights

(1) Everyone has the right to work to free choice of employment, to just and favourable conditions of work and to protection against unemployment.

Throughout history there has always been opposition to full employment policies. During the post WWII era Australia defined a full employment as;

a society as one in which there are more jobs on offer than people seeking them, so that work providing a secure dignified existence may be easily obtained by all. (Beveridge, 1944, Full Employment in a Free Society)

Our current system of more people chasing fewer jobs than demanded and the pernicious work for the dole (WftD) and community development employment program (CDEP) uses unemployment as a fear to ‘force’ individuals to accept terrible working conditions and lower wages. Our current system punishes people without work because we have made a policy choice to ensure a shortage of jobs.

Our employment system wasn’t always like this. During WWII and the post WWII period unemployment seldom rose above 2%. This policy was guided by the 1945 tax white paper on Full Employment, under a public servant by the name of H.C Coombs. It was a fundamental aim of The Australian Government to ensure enough jobs for all up until its abandonment in the mid nineteen-seventies.

This policy for full employment will maintain such a pressure of demand on resources that for the economy as a whole there will be a tendency towards a shortage of men instead of a shortage of jobs. This does not, of course, mean that at any particular time everybody will be at work: some people will be away from work because of sickness, some will be taking a spell between seasonal or periodical employment, some will be in the process of changing from one employment to another offering better prospects, some will take time to acquire new training to equip them for other employment. These reasons for unavoidable absences from work can gradually be made less important. but in any case there is no need for them to entail poverty, insecurity and the feeling of being unwanted for the individuals concerned. (1945 Tax White Paper on Full Employment)

Our current system justifies high rates of unemployment and underemployment under a concept called the non accelerating inflation rate of unemployment (NAIRU) that determines there is some natural market determined rate of unemployment that if we were to fall below would trigger inflationary pressures.

During the 1970’s the prevailing school of thought became that we needed a pool of unemployed to discipline the rate of inflation. It ignores that for a quarter of a century Australia managed to eliminate involuntary unemployment, matching the labour market to the hours desired. It was an enormously successful policy that kept in place because the public understood that the Government of the day chose the unemployment rate. They witnessed it during WWII when every available resource in the country, including labour, was devoted to the war effort and there was consensus that we could maintain this after the war.

Unemployment is far more costly than inflation. There are physical and psychological costs to unemployment. It is a cause of a loss of skill, the longer you are employed the longer you are unable to participate meaningfully in society. There can be, a sense of isolation, family and relationship breakdowns, a loss of security, homelessness, and our communities are poorer because of it.

The oil shocks of the 1970s caused supply side inflationary shocks throughout most of the world. We had what is termed ‘stagflation’ high unemployment and high inflation and the prevailing school of thought that was emerging was from Milton Friedman. On a tour through Australia The Age newspaper on 11 November 1975 reported “…The inflation rate was caused primarily by an excessive broth in real wages, which led the professor to opine that our long cherished arbitration system ‘seems to be highly unfortunate’ in the way it sets wages…” Despite oil rising over 400% Friedman’s lectures focused only on demand-side pressures.

The primary objective of this era became fight inflation first. In the dying days of the Whitlam Government, The treasurer, Bill Hayden, reversed commitment to Full Employment and caved into the consensus of Treasury who wished to have unemployment remain high until the underlying rate of inflation fell. Whitlam’s embarkment of Swedish style ‘active labour market policies’, principal job creation scheme (Regional Employment Development) and public sector job creation was cut from the 1976/77 budget.

From the Fraser government onwards the political discourse turned to excessive wage growth causing unemployment. It was a message targeted towards unions and an excuse to deunionise the workforce. Attacks on real wages began, the language turned from a full employment economy being able to provide welfare assistance to welfare assistance induced people to be unemployed and used a justification for cutting welfare.

There has always been an understanding amongst the capital class that unemployment is necessary to further their interests. Cabinet meetings from 1951 in the Menzies Cabinet;

McEwan: Inflation results from two things: too much money and too little work. The circumstances of full employment are the greatest single cause of inflation.
Menzies: If we can reduce public spending and private investment we will be attacking that problem.
McEwan: It is a terrible thing to think that the fear of unemployment is the only way that men can be made to work harde
r.

During the proceeding decade both major parties had ‘stop inflation first’ policies by using the unemployed. The Hawke years saw the Prices and Income Accord which saw real wages fall by 7 percent over 5 years. Coombs called this a ‘return to scarcity’ The average duration of unemployment grew from 3 weeks in 1966 to 9 weeks in 1973, 28 weeks in 1978, 47 weeks in 1984 and 49.7 weeks by May 1988.

This increase in the period people were unemployed saw public sector reforms to drive productivity. This included huge changes to the Commonwealth Employment Service such as including activity tests where incomes could be stopped or reduced for non-compliance. It arks back to the philosophy that the fear of unemployment marks people work harder. This was the fundamental idea around theses changes. Public sector job creation was cut and there was emphasis on private sector job creation. By 1991 the Keating Government was saying ‘this is the recession we have to have’ Keating saw unemployment as international, necessary and inevitable. ‘It is the unemployment we had to have’. There was one incidence where he was so animated in discussing the need for the unemployed he was made to promise that he would never perform like that in public.

By 1998, under the Howard Liberal Government the CES was shut and it was outsourced to the Job Network. Despite criticising the policy for twelve years, when the ALP won office in 2007 they maintained it. The Prime Ministers wife had made millions as a Job Network service contractor.

Conclusion

This is a very brief overview of the demise of what was once a bi-partisan policy that worked to ensure jobs for all. Today the policy for unemployment has to be masked behind false sentiment that the government is doing all it can to create jobs. The reality is as a monopolist of The Australian dollar, the Government can purchase whatever is for sale in Australian dollars, including idle labour.

Later I’ll look at Right to work movements in France, Britain and Australia and solutions to ending unemployment and underemployment through public sector job creation and a Job Guarantee (JG). The JG is an alternate to the NAIRU approach mentioned above and rather than using a buffer stock of unemployed, it uses a buffer stock of employed. The idea is then to transition people from the buffer stock of employed people into a public or private sector job.