Preliminaries

• Products are generally produced in batches for efficiency's sake. Each kind of product has a current natural "order size," which is what the current state of production determines to be the normal (efficient) number of units of the product to produce in one batch.
• When a capitalist firm plans to produce a batch of products, it draws up a budget, and then pays money out from that budget for workers' wages, materials, tools and machinery, etc. It gets that money by borrowing it from the bank, so it incurs a debt. When it sells the product, it recoups that money, plus some for profit, and pays off the debt to the bank. In a labor-time economy, the firm still has a budget, but there is no bank. Instead, it borrows the hour credits of work from society as a whole, conceptually, and incurs a debt. This debt is the promise to provide the finished goods to those in the society who need them. When it sells the goods for hour credits, it uses that revenue to pay off its debt, i.e., to track how well it has fulfilled its promise. The GIC calls the budget line item for this debt te prd. In this notes below, we shall call it, simply, debt or debt to society.

Without Stockpiles

First, for simplicity, let us review the sequence of events and transactions in a labor-time economy without considering any inventories along the way to store goods locally.

• A person needs a product p, so that person buys a unit of p from a distributor.
• The distributor has a plan to sell a batch ("order size") of units of p.
  • This plan has a (fake) order attached to it so as to identify the product (p) and the quantity (one or more batches of size "order size"). In effect, the distributor orders the distribution of p and hands the order to itself to be filled.
  • The plan also includes a budget, including
    • The estimated cost of machinery, which is 0 (to simplify matters for now).
    • The estimated cost of input (upstream) products, which, here, is the price per unit of p times the size of the order (some multiple of the product's natural "order size").
    • The estimated labor involved in stocking the shelves, etc.
    • The debt to society incurred by these expenditures. These expenditures bring with them a promise to distribute the goods to customers. The debt takes the form of the additive inverse (the negative) of the sum of the costs in the budget, which, in this case, is simply the cost of labor to distribute the products. (This is the entry called prd.)
• The distributor has to get that batch of products p, so it sends an order (a real one!) to a producer for "order size" of p. Let's call this producer A
• The producer A receives the order and attaches it to a plan to fill the order. The plan has a budget to account for making the batch of p:
  • Estimated machinery depreciation costs.
  • Estimated input product ("raw materials") costs.
  • Estimated work ("living labor") costs.
  • A debt to society — the promise to deliver the planned goods requested in the order — a negative number whose magnitude equals the sum of all of the costs.
• The producer A executes the plan to make "order size" of product p. To start, it gets all the upstream input products (materials) it needs — from other producers. For each such input product, it sends an order to a producer of that input product. (It also orders machines, but it does that when the machines wear out, not whenever it starts a new production plan.)
  • Each upstream producer goes through the same process — it accepts the order, writes up a plan that contains a budget, and then executes the plan to make and deliver the product.
• The workers of producer A, now that they have all they need, set about making the batch of product p.
• When A is finished making the batch of p, it delivers the batch to the distributor who had ordered it.
• In return, the distributor pays the cost out of its input products (materials) budget belonging to the plan to distribute p.
• The producer A uses that payment to reduce the magnitude of the debt entry in the budget of its plan to make an order of product p. If all goes well, that cancels the debt, showing that A has put the work into making a batch of p and delivered on its promise to ship the order to the party that needed it — here, the producer.
• Whenever a customer buys a unit if p from the distributor, the customer's payment reduces the distributor's debt. When enough customers buy units of p, that debt will become 0, and the plan to distribute p will also be complete.

With Stockpiles

It makes little sense for a distributor to order a batch of products in response to a single customer's purchase without having any place to put the extra units of the product. Instead, the distributor would keep an inventory of the products it sells, and sent out orders to producers whenever those inventories need to be re-stocked.

Likewise, every producer should keep a stockpile of each of the input products that it needs to produce its output product, and order those input products whenever the inventory needs to be re-stocked. In addition, a producer may keep a stockpile of its output product. The two different sets of stockpiles follow different rules regarding replenishment, however:

• When a producer runs low on an input product, it orders a batch of that product from some other producer. When that same producer runs low on its own product, it must set up a plan and produce that product itself. How shall we model this latter case?

One way is to order a new batch of the product from itself, and hold the customer's order and associated plan on the side. It then drafts and executes a plan as usual, with a budget as usual, to fill its own order, and delivers the batch of goods to the stockpile. The batch that the customer (distributor or downstream producer) had ordered gets delivered to the customer out of the newly-replenished stockpile, and the customer's payment reduces the debt created in the restocking plan. However, the order to restock was distinct from the customer's order for a batch of goods, and the quantities may be different. (All the quantities will generally be multiples of "order size.") So the customer's payment may not bring the restocking plan's debt entry up to 0. The restocking plan needs to "hang around," incomplete, until enoug customers have ordered goods that the debt goes to 0.

When a producer starts executing a plan to produce its product, the plan has a budget to spend on input products, but it may have those input products already in its inventory of input products. It still needs to account for its expenditures on input products as if it had no local stockpiles. So each stockpile needs to have its own account of stored hour credits. Whenever the producer needs input products to execute a production plan, it gets the products from the stockpile and pays for them out by transferring the cost from the plan's budget (input products entry) to the stockpile account. Whenever the stockpile is low and needs to be replenished, the producer orders the goods from another producer, and, when the goods come in, the producer pays for them out of the stockpile account.

It is possible to design the system without input product stockpiles, but, in this case, the producer cannot order a whole batch of input products at a time. It must order exactly as many products as it needs to produce its batch of output products.