Practical Precepts For Free People – Consumers, Entrepreneurs, Bankers, Investors

One of our longer sections is of the same title: Practical Precepts for Free People – Consumers, Entrepreneurs, Bankers, Investors.  The precepts are based upon the norms yielded by the immanent intelligibility of the objective economic process. The precepts are mandated by a non-political, scientific Functional Macroeconomic Dynamics.

We extract a few of the precepts, but we encourage the reader to click onto the fuller entry (underlined above) , which includes several passages providing the scientific, explanatory basis for the precepts:

Surplus Expansion Phase

  1. Precept to Households: In a surplus expansion phase, save and invest. Do not demand with the increased income of this phase more consumer goods than the process is able to supply; that would be inflationary, it might menace the financial system, and cause the banking authorities to curtail the lending appropriate for a further beneficial expansion.
  2. Precept to Firms: Do not misinterpret the rising prices of a surplus expansion as a signal to overexpand, and then stimulate production beyond the bounds of normative technical relations into a boom to be followed by the systematic correction called a slump
  3. Precept to Governments: In a surplus expansion phase, allow and support an increase in the income of those higher-income risk-takers who will save for investment.
  4. Precept to Central Banks: In a surplus expansion phase, infuse enough money into the system to enable an increased number and magnitude of transactions.
  5. Precept to the Entire Banking System: Lend enough to support the increasing need for credit in the early years of the surplus expansion. Do not grant loans for excess investment. You must police the credit-granting process. Don’t imagine that the economic process can expand beyond its natural constraints.

Basic Expansion Phase

  1. Precept to Firms: In the basic expansion phase featuring an increasing bounty of consumer goods, keep workers employed and provide enough compensation for purchase of that increasing bounty of consumer goods. Do not interpret lower prices as a signal contractions and layoffs.  From the start of the basic expansion through the beginning of the static phase, expansionary investment  and its correlate pure surplus income (“net aggregate savings” or “macroeconomic profits”) will systematically diminish.  Sustained employment and increasing compensation to lower-income workers will be required to effect adequate monetary basic demand.  Do not set as a cross-purpose goal the continuing increase in accounting profits in opposition to the system’s natural, systematically necessary decrease in pure surplus income to zero.
  2. Precept to Households: In the basic expansion phase when surplus expansion has been completed, spend all your increasing income not needed to be saved for retirement, no matter how large your income and no matter how high your standard of living, on the increasing supply of consumer goods and services; enjoy the higher standard of living which is being supplied.
  3. Precept to Governments:  In the basic expansion phase, allow and support an increase in the income of those in the lowest income strata who will spend all their income.
  4. Precept to Secondary Market Investors: Understand that this basic-expansion phase requires companies to keep workers employed and to increase the incomes of the lower-paid workers. Do not demand ever higher corporate accounting incomes when pure surplus income is systematically declining.  The layoffs associated will magnify a downward spiral of the economy into recession or depression.
  5. Precept to Successful Risk-Takers:  Be philanthropic in a way that keeps money in circulation so as to utilize capacity and avoid recession, and improve the culture and its institutions.  (See The Role of Philanthropy to Achieve the Good of Economic Order: Notes Towards a Normative Economic Model, and Imaginary Letter From An Imaginary Billionaire)

Static Phase

  1. Precept to Firms: In the theoretical static phase constituted by zero growth in “macroeconomic profits”, be content with stable cash flows and strive to retain employees.  The system is not generating the increasing accounting profits which the mistaken criterion of ever increasing profits calls for.  In this phase some units of enterprise can achieve gains only by other worthwhile entities suffering counterbalancing losses. Better for all entities supplying worthwhile products to be content with stable incomes until their and others’ invention and innovation make the next surplus expansion a possibility.

The first difficulty is psychological.  The static phase is a sombre world for men brought up on the strong drink of expansion.  They have to be cured of their appetite for making more and more money that they may have more money to invest and so make more money and have more money to invest.  They have to be fitted out with a mentality that will aim at and with a going concern and a standard of living.  It is not so easy to effect this change, for as the Wise Man saith, the number of fools is infinite. [CWL 21, 97-98]

.3. Precept to Governments and Central Banks:  In the theoretical static phase, counsel the populace that the economy will be in a static phase until innovation creates new opportunities and that, presently, the types of growth that supply higher incomes do not exist.  And do not make loans for projects which ultimately will not generate the cash flow for repayment; i.e. do not diminish lending standards.

.4. Precept to the Entire Banking System: In the theoretical static phase, there is no need for an expansion of credit.Existing loans will be rolled over, but beyond that, the process has no need in the aggregate for your lending services.

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