The first thing we see in Table B-1 is that equilibrium between money and inventory is indeed maintained over this six-months period. The table provides similarly schematic answers to all the other questions listed above. Taken as a whole, the table may be regarded as showing what happens in one tiny wedge-shaped slice of a job-market economy, that is, during a single production cycle that starts from "ground zero"-with no inventory on anybody's shelf and with zero balances in everybody's bank accounts (the 31 Dec row)-and then generates a quantity of product in the course of the next six months as well as a matching quantity of money, both quantities reaching their maxima on 31 May. Apparently the quantity of money generated during the production process is just sufficient to move both unfinished goods and materials around as well as to effect the ultimate purchase of the product by its end-users. After that culminating event the values of money and inventory return again, in all columns, to their original zero values, as is shown in the last row-the 30 Jun row-of the table.
Please notice one thing in particular. The finished product turns out to be worth 30C in inventory by 1 June-see the parenthetic entry '(+30)' at the intersection of column (xii) with the 1 Jun row-but it is then sold to consumers for a total price of 33C (that inventory value plus 10% profit, as is also shown in these rows) on 29 Jun, an event also recorded in column (xii). Where does that extra 3C come from? As we shall see later, these 3C do not come into the economy by generating money, as the costs of production do. Instead, they come into owners' hands as transfers of pre-existing funds earned as profit.
The table also shows how production involves the sequential participation of these three separate companies-many fewer, of course, than would be involved in the production of any real-world product-during this six-months interval. The three companies may be thought of as repeating this cyclical performance more or less indefinitely, thus contributing either successive or overlapping, but in either case similarly wedge-shaped, cycles of production. Each cycle is "wedge-shaped" in the dual sense that it can be indefinitely replicated (like the teeth on a saw), and that each wedge starts at zero "height", climbs steadily through increasing values of both inventory and generated money to some maximum height (in this case to 30C on each parameter on 31 May), then collapses to zero again when the product is purchased by its end-user. As we've noted, the collapse of money and inventory to zero on final purchase occurs on 29 Jun. Either the consumption of the product, which in effect means its destruction, or its withdrawal from the economy as an object of wealth, evidently took place on that date. The extinction of the cost portion of the money used to purchase that product-which is the 30C-part of the 30C-plus-3C price that the end-user paid-is a companion event to that purchase and also took place on this date; see column (v). All this is shown in the last few rows of the table.
The economy as a whole consists of hundreds of thousands of such wedge-shaped slices-which I will now, for simplicity, call "wedges" -each one contributing, on the average, half its "height" both to the national money-supply and to the national inventory during the period of its existence, here taken arbitrarily to be six-months. The "height" of a wedge is of course the maximum values of money and inventory that are reached during that cycle of production. In this case those maxima were reached on 29 Jun, and both had values of 30C on that date. Thus, during these six months of this year, this particular wedge contributed an average of 30C/2 = 15C in both money and inventory to the national economy.
At the same time, all the other wedges in the economy are contributing similar pairs of equal contributions to inventory and money-supply. The table therefore gives a microscopic demonstration of a fundamental truth: that if job-market conditions of money-generation and -extinction are satisfied, a job-market economy will stay in equilibrium on these two important parameters more or less indefinitely.
As noted, the length of this wedge is six-months. In this highly simplified view of production it takes these three companies that long to generate this amount of money and product. (In the real world, most wedges that involve manufacturing will be much longer than this, since the woods, metals, glasses, fibers, and plastics of which most manufactured objects are made take a lot longer than six months to move from the growth or extraction of the raw materials to their incorporation in a finished product.) When, on 29 Jun, the 30C-worth of finished product is sold, we have already observed that the end-user pays a cost-plus-10%-profit price of 33C to acquire it. (We have still to show where that "extra" 3C comes from.) The end-user then either eats the product (if it is a meal), enjoys it over a period of a few weeks or hours (if it is a ticket to some performance or conveyance), buys it in order gradually to resell it as a tool of production (if it's a capital good like a punchpress), or retires it to wealth (if it is a "consumer durable" like a house or a car). All this takes place schematically on 29 Jun in column (xii).
Notice, too, that in this same 29 Jun row of the table, but in columns (iv), (v) and (xi) of it, an amount of money representing the cost-portion of the price of the retired product-namely 30C of the 33C that was paid for it-is simultaneously extinguished by a certain department of the national bank called the Mint. Thus, in column (v), which shows the activities of the mint, 30C are extinguished by it on the same day that the 33C-priced product was removed from the economy. Also on that date, another department of the bank, known as the Treasury (whose activities are shown in column (iv))-a department that has evidently been keeping track of certain moneys "headed for extinction"-turns over to the Mint (see column (iv)) 20C of the 30C that must now be extinguished.
This 20C arrived in the treasury's hands in two separate payments, both recorded in column (iv). The first was in February, when 10C arrived from Company A as A's repayment of its "payroll loan", a loan taken out by A on 1 Jan (see column (v) on that date); and the second was in April, when another 10C arrived, this time from Company B as B's repayment of its payroll loan, one made to B on 1 Mar (see column (v) again). Company C, which manages among other things the retail outlet through which this product is sold, repays its 10C payroll loan-one made on 1 May (see column (v) again)-on 29 Jun, the very date on which the sale to the end-user is made. So the 20C headed for extinction that was paid to the treasury some time ago by Companies A and B is now joined by a similar repayment of 10C made by Company C at the end of the production cycle. Together these repaid moneys make up the 30C that is required to be extinguished on this date. Only the withdrawal of that much money from the national money-supply can balance the withdrawal of 30C-worth of product from the national inventory also occurring on that date.
How does the mint manage this extinction? It simply reduces its own bank balance by 30C on 29 Jun. This move brings the mint's own balance back to zero (it had been 30C on 31 May); and the mint carefully "neglects" to deposit the money it thus "withdraws" anywhere else. So the withdrawn money disappears altogether. In other words, money extinction, like money generation, is an act of "single-entry" bookkeeping. Unmatched single-entries-like those made on 1 Jan, 1 Mar, and 1 May in column (v)-start money circulating, while other similarly unmatched entries, like the one on 29 Jun, take it out of circulation. Permanently. This particular quantity of money will never be seen again. All this is shown in column (v).
Now let's look a bit more closely at the money-generation side of the picture, which is slightly more complicated than the money-extinction side. The first company on whose behalf money is generated-in this one little wedge of the economy, of course-is the "growing, mining, extracting" company, Company A. For this is the company-in the real world, there would be many such raw-materials-collecting and -processing companies-that supplies all the materials out of which this product will eventually be made. On 1 Jan Company A advises the mint that its workers have put in 10C-worth of work and need to be paid. So the mint makes a "routine" payroll loan to Company A-routine, because the mint cannot refuse this financial service to any duly licensed company-thus generating 10C of new money.
On 1 Jan the mint generates these 10C for A in column (v) and "takes note" that it has done so. One result appears on 31 Jan as the parenthetic entry '(-10)' in column (v), which means that the mint "remembers" that it has generated and disbursed that much money (for this wedge) during the month of January. Another result of the generation of this 10C of new money is that as soon as the mint has generated it on 1 Jan it promptly disburses it (disbursal is shown by the negative entry '-10' in column (v)) to the account of Company A, where it reappears on the same date as '+10' (the positive sign shows acquisition) in A's money-account in column (vii). The arrow shows the movement of this quantity of new money between the mint and A.
Company A is now funded to pay its workers. So A's computer now credits their individual bank accounts with the wages or salaries they have earned. This is reflected in a pair of January entries, '-10' in column (vii) and '+10' in the workers' bank accounts in column (ii). In (ii) we have lumped together the bank accounts of all the workers in this wedge. It is the sum of those accounts that has just been augmented by 10C.
We now notice that 10C-worth of inventory has appeared in a January row in column (vi). This is the cost-value of the materials grown or extracted by Company A. This 10C-worth of materials is, of course, the result of the 10C-worth of work performed by the workers of Company A, and the materials fashioned by them now rest on A's "shelves", ready to be transported elsewhere. The two numerical quantities are the same because that is how inventory is evaluated in job-market economies. The inventory value of a product or material is whatever it cost the economy to make. Thus no money paid as rent or profit is ever reckoned to be part of an inventory cost. It would destabilize a job-market economy to do so.
On 31 Jan we add everything up and find that the workers in this wedge still have 10C of money in column (ii). That quantity is now balanced by the 10C of inventory in column (vi). And these figures are carried over to the "national" columns, (xiii) and (xiv), where the contributions to the national economy of the workers and the companies in this wedge are continuously monitored.
We now move on to the month of February. This is a commercial month in this particular wedge. All that happens in February is that Company A sells and ships the whole of its inventory to Company B, who pays for it by paying A 11C, which is A's cost (10C) plus A's 10%-profit (1C). In column (ix) we see that B had to "borrow" from existing funds the 11C it paid A. It either borrowed them from the bank or, more likely, simply took them from its own cash-reserves. (We're simplifying the financial background of these commercial events in order to make the events themselves stand out more clearly.) That the entry '-11' in column (ix) is negative means that it is a disbursal.
In column (vii) we see that A has not only collected the 11C from B-the '+11' entry tells us of this acquisition-but that A has also repaid its 1 Jan payroll loan of 10C to the treasury, as it is obliged to do whenever the materials made by the work for which that loan paid were sold. The '-10' entry in column (vii) of the February rows tells us that A's January loan is now repaid, for this same 10C now shows up as an acquisition of '+10' in the treasury's bank account (in column (iv)). The bank puts all payroll-loan repayments in its treasury account. At the same time, it tags those funds repaid as "headed for extinction".
Notice that the bank does not extinguish these repaid moneys on their receipt. The reason is simple. If it did so before the product to which that work contributed had reached its end-user, the equilibrium between money and inventory would be destroyed. In particular, the money needed to buy the product might not be there when the time came to pay for it. So it would be a very serious accounting error in a job-market economy to extinguish money prematurely.
The amounts of money and inventory moved around in February do not affect this wedge's contribution to either the nation's inventory or its money-supply. We see this from columns (xiii) and (xiv) where these values remain, at 10 and 10 on 28 Feb, precisely what they were on 31 Jan. Inventory has, however, changed location. The total of 10C-worth of it that is now in this wedge has moved from the shelves of A to the shelves of B.
Money, however, is quite differently distributed at the end of February than it was at the beginning. Company A, which had no money at all on 31 Jan, has 1C in its bank account at the end of February. This is the profit it made on its transaction with B. We see now where that profit came from. This 1C of profit was probably a transfer from the pre-existing capital funds of B. Alternatively, it could have been part of a sum of money borrowed by B to make this purchase from A; but in both cases the funds are pre-existing. That is, no money has been added to the money-supply to enable B to pay the profit portion of its purchase.
Also, now that A's payroll loan has been paid, the 10C formerly in A's possession has shown up in the treasury's bank account (column (iv)). As a consequence, the treasury's bank-balance has gone from zero in January to 10C at the end of February...again, taking into account only the events that are taking place in this wedge. Note also that the 10C that the workers collectively earned in January is still unspent by the end of February. So the 10C balance in column (ii) remains unchanged. But notice that the owners now owe collectively 10C (as shown by the '-10' entry for 28 Feb in column (iii)). This is accounted for by the fact that the owners of Company B still owe 11C (shown by the '-11' entry in column (ix) for 28 Feb), which was their "investment" in the materials they bought from A; and that Company A now has a positive balance of 1C in its account due to the profit it made by selling those materials to B. So, though the aggregate sums are still the same, much has happened to money during this month.
The rest of the table reports similar events. March, like January, is a production month. Note that it is now Company B that, having received materials from A, is now doing the "producing". B is "adding value" to the materials it got from A, presumably by combining and reshaping them into some new product. In doing so, B, too, adds 10C of value to the moving inventory, and that allows B, too, to earn 1C as profit. This 1C, when added to the price B paid A, which was 11C, as well as to its own labor costs of 10C, makes B's price to C 22C. But the moving inventory, although now sold by B to C for 22C, is itself valued at the cost component of that moving price, namely at 20C.
Finally Company C, the seller to consumers of the product made by A, B, and C, receives the moving inventory from B, adds its 10C of value to 22C, which was the price C paid B for it, to which C is now entitled to add its own 1C of profit, making the final price to the consumer 33C, as anticipated.
The three amounts of profit of 1C each that were made by the three sets of owners are now lumped together as 3C available to the owners to be saved or spent. The unspent earnings of all the workers are also lumped together as 30C, and these funds are also now available to be saved or spent. (Notice that if saved, these funds will be loaned by the treasury and so spent; so in either case the funds are spent.) The two lumps are summed as 33C, and this amount is, unsurprisingly, exactly what is required to buy the six-months of production by this one wedge, and so to "retire" both 30C-worth of inventory and 30C of money from the economy.
The moment that happens, everything goes back to zero. The 30 Jun row of the table is now identical to the 31 Dec row, both being strings of zeroes. So everything can start over again.
This does not, of course, mean that the owners and workers in each wedge of a job-market economy are obliged to buy back the products that their own local wedge has made! This absurdity is an artifact of the model. To keep things simple, we have isolated one wedge of this economy from all its other wedges. But wedges are in fact not isolated from each other. In the real world, the contributions of all wedges to money and inventory are poured into the same two giant collecting pools. From these two national pools, matching quantities of money and inventory are then taken out by each buyer. If the buyer is an owner, he or she will buy producer goods like punch-presses and materials from the inventory pool as well as consumer goods like food and cars from it for his or her family's personal use and pleasure. If the buyer is a worker-except that workers, too, occasionally become owners-he or she will be taking out only consumer goods from the inventory pool. But whatever the producer-consumer mix of goods and services being sold in, or in the pipelines of, any job-market economy, the two pools of money and inventory will remain, at all times, exactly the same size.1
Note 1. Wallich (1995) reports that the "velocity" of money, a factor once thought to be an important predictor of inflation, is no longer held by European central bankers to be significant. One of its measures was the ratio of the amount of money in circulation to the GDP. This is similar to the ratio of the total amount of money in a job market economy to the cost value of its aggregate inventory at some moment, a ratio that is usually kept precisely at 1, the money-generating coefficient g and its extinguishing coefficient e both being also kept at 1.