Free open markets work better than central bureaucracies.
The excellence of the exchange solution becomes even more evident when contrasted with the defects of a bureaucratic solution. The bureaucrat … (gives the people) what he thinks is good for them, and he gives it in the measure he finds possible or convenient; nor can he do other wise, for the brains of a bureaucrat are not equal to the task of thinking of everything; only the brains of all men together can even approximate to that. … when a limited liability company has served its day, it goes to bankruptcy court; but when bureaucrats take over power, they intend to stay. … when the pressure of terrorism is needed to oil the wheels of enterprise, then the immediate effect is either an explosion or else servile degeneracy. … the exchange solution is a dynamic equilibrium resting on the equilibria of markets. … every product of the exchange economy must mate through exchange with some other product, and the ratio in which the two mate is the exchange value. The generality of this equilibrium makes it indifferent to endless complexity and endless change; for it stands on a level above all particular products and all particular modes of production. While these multiply and vary indefinitely, the general equilibrium of the exchange process continues to answer with precision the complex question, Who, among millions of persons, does what, among millions of tasks, in return for which, among millions of rewards? Nor is the dynamic solution unaccompanied by a continuous stimulus to better efforts and more delicate ingenuity. For the uniformity of prices means that the least efficient of those actually producing will at least subsist, while every step above the minimum efficiency yields a proportionately greater return. (CWL 21, 34-35)
Yet further macroeconomic equilibria must be maintained by the enlightened private sector in cooperation with the enlightened fiscal sector. The responsibility of the Federal Reserve Bank is simply to supply enough money to the operative circuits to enable expeditious transactions; despite Congress’s mandate to the Fed to intervene so as to achieve goals of low inflation and high employment, it has neither the tools nor the techniques to satisfy this mandate. Most of what observers consider to be the Fed managing the economy is just the economy operating on its own despite the Fed’s interventions.
Further, without further clarification Schumpeter acknowledged that dynamic analysis called for a new light on equilibrium. Such new light arises when, over and above the equilibria of supply and demand with respect to goods and services, there are recognized further equilibria that have to be maintained if an economy chooses to remain in a stationary state, to embark on a long-term expansion, to distribute its benefits to the vast majority of its members, and so to return to a more affluent stationary state until such further time as further expansion beckons. (CWL 15, 92)
The Diagram of Rates of Flow (on the left below) provides the scheme of intelligible interdependencies and the condition of equilibrium – that the crossovers should balance –
G = c”O” – i’O’ = 0 is the condition of equilibrium [CWL 15, 54]
to the four diagrams of the phases of expansion (on the right below); simultaneously, the diagrams of the phases of expansion provide magnitudes and frequencies to the Diagram of Rates of Flow.
It is a common saying that savings equals investment. On the present showing it would be more accurate to say that the crossovers should balance, that a sustained lack of balance portends ruin, … [CWL 15, 70]
The process has an exigence for an equilibrated pure cycle. Lonergan discovered patterns of functional interdependencies in which always there is 1) a normative, universally-relevant equilibrium, and 2) a path of central tendency, determined in general by the pure cycle and particularly by the current particular technical coefficients in the interdependencies among functionings. There is a systematic necessity for adaptation in accord with the primary relativities grounded in the fundamental analytical distinctions. These primary relativities constitute the abstract laws universally relevant to any particular concrete expansion’s serial path through component phases. And, any economic evolution can be explained by the combination of primary relativities plus secondary determinations of prices and quantities.