Unquestion #9: When the PPF Produces Only Income

Production on the PPF

The PPF, the Production Possibilities Frontier, is what every productive entity lives within. A sole farmer, family farm, entrepreneur, firm, or other entity that combines factors toward production operates on one. Labor, land, skills, capital, time, knowledge, and risk enter those production tradeoffs in the pursuit of income. The PPF is where income from production is pursued. This we know.

Production is easy to see when it appears as a crop, a machine, a phone, or a service. It is harder to see when income arrives later as a wage, salary, return, transfer, budget, or saving already held. Yet that income begins in production somewhere. Wages and salaries arise from labor entering another PPF. Returns arise from income or assets placed into productive use or exchange from which further income is expected. A budget only allocates income for use, and that income, or claim on income, must come from production somewhere. For the producer, what is realized through the PPF becomes income available to allocate, leaving little beyond sustenance where little income is realized. Production on a PPF sits somewhere behind all income. This too we know.

Repeated exchange across PPF cycles is where production keeps becoming income beyond what the producer uses directly for sustenance. Goods and services are sold, income is realized, and that income is then used to buy what others produce. This we now know.

What the PPF produces

The PPF produces only income that the producer can realize, nothing else. Economists describe what is produced on the PPF as output, yet the producer does not choose output as output. The producer chooses among possibilities according to the income that can be realized, and the stability and risk that come with it. Where income is none or little to start, and income ahead is not visible, the producer settles on the stability of sustenance on the PPF. Where income is visible, the producer pursues the maximum income that can be realized on the PPF. This we know.

Income realized on the PPF is where poverty and prosperity first become visible for the producer and then, across many PPFs and the incomes they generate, for a place. Yet we also speak of food security, growth, transformation, entrepreneurship, value chains, resilience, sustainability, conservation, and biodiversity as though they sit on the PPF in the same way. They do not. Some follow from income being generated across PPFs. Some are responses organized around income expected ahead. Others can conflict with the income the producer can realize. The producer makes the tradeoffs on the PPF to realize income. This we Question.

What income brings into use

Every producer seeks the greatest income visible and realizable on the PPF, from one cycle to the next. Labor also moves toward those PPFs where wages and salaries become worth pursuing. We use and rely on public goods and infrastructure in that pursuit of income. We account for opportunity costs and foreseen risks before production starts, then adjust for unforeseen risks through production. Only what adds income is added. What reduces it or places income at risk is reduced or avoided. We seek and use only the information required for the income we pursue on the PPF. This we know.

PPFs into chains

PPFs with income connect to form value chains with each PPF in the chain seeing income ahead. Those value chains connect with others, building the wider web of PPFs in a place. The web they form is the economy of a place. This too we know.

Income scales as more PPFs move and expand. Income is generated on those PPFs, while labor entering them earns wages and salaries. This we know.

From one PPF to the many

Sustained income on a PPF can improve the life of the producer and her household. A smallholder and her household can escape poverty if there is enough income on her PPF, cycle after cycle. This we see.

A separate path can appear where income is visible on one PPF in a place. But prosperity of a place depends on income becoming visible across many PPFs and reaching the many through production, wages, and salaries. Where that does not happen, the path remains separate. The place remains poor while income remains out of sight across its PPFs and does not reach the many. This we Question.

Poverty and prosperity are experienced through the income people realize. Prosperity emerges in a place where income generated across PPFs reaches the many, while poverty remains where that income does not. This we see.

Just as average yields settle where income sits across the PPFs in a place, prosperity settles with the income those PPFs generate. This we see.

From PPFs to GDP

The economy of a place emerges from production across its PPFs and the incomes that production generates. Some income is realized directly on those PPFs; some reaches people as wages and salaries for labor entering them. GDP is simply the record of what has already been produced and realized as income. This is in the record.

The more income that is generated across the PPFs in a place, the greater the GDP of the place. Prosperity depends on how widely that income reaches the many. Where little income is generated, GDP per capita remains lower; where income does not reach the many, poverty can persist behind that GDP. This too is in the record.

Poverty across PPFs

Ending poverty of a place is inseparable from income being generated across its PPFs and reaching the many. It cannot begin elsewhere because income must first be made somewhere. This we Question.

The PPF has been in motion in every economy, in every place, all along. Where income becomes visible across PPFs, they move and expand, drawing labor and spreading income further through wages and salaries. What later appears in GDP, and what must change for prosperity to persist, is visible first on the PPF. This we Question.

So here is the Unquestion:

The more we Unquestion, the more clarity we gain. The more we Unquestion now, the less future generations will have to.

We are not lost.
We simply avoid the turn.
Once we Unquestion, the direction is already clear.

Thank you for seeing.