Macroeconomists must grasp the difference between economic value and exchange value.
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. (CWL 21, 34-35)
… Adam Smith and all the proponents of the “labor” theory of value were never able to clarify the relationship between exchange value and “toil and trouble” as the measure of value. Lonergan shifted the issue entirely by explaining that an “economic value relates an object to human effort, but an exchange value relates objects among themselves.”31 (CWL 21, 31) [Fred Lawrence; “Money, Institutions, and The Human Good,” in Liddy, 2010, 183-84]
… , like Smith, Locke, Ricardo, and Marx later on, Aristotle did not seem to understand money in terms of exchange value, and therefore as relating objects among themselves in relation to the concomitance or lack of concomitance between “the real flow of property, goods, and services and the dummy flow being given and taken in exchange for the real flow.”39 CWL 21, 40 Still less did they grasp that in an advanced industrial society, the real flow and the money flow are channeled within two separate circuits of production and circulation functionally distinguished into producer goods and consumer goods, and operating in real time in accord with distinct phases of expansion. Besides misunderstanding money of account, they misunderstood the relationship of money to time. [Fred Lawrence; “Money, Institutions, and The Human Good,” in Liddy, 2010, 186]
The first quote above more fully re the peril of the bureaucratic solution in contrast to the excellence of the exchange solution:
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)
The generalized intelligibility of the economic process will postulate a transformation to a higher synthesis. This generalization will drive Marx and his imbecilic class conflict into the shadows. The implementation of the explanatory higher synthesis in the concrete, real, objective, dynamic process, with its practical precepts for free people, will a) attack the neglect of economic education and dispel ignorance, b) effect full employment, c) undermine the opportunity for peculation corrupting central governments and party politics, d) clarify the functional interdependencies explaining the dynamic process, and e) eliminate at a stroke both the problem of wages and the complementary problem of trade unions. Lonergan’s explanatory macroeconomic field theory is a higher synthesis and radical generalization; it constitutes an advance from a theory of external efficient cause to a set of functionings as they are related among themselves. It is the responsibility of academia to understand, verify, and teach this higher synthesis which is necessary for survival.
Just as the surplus expansion is anti-egalitarian in tendency, postulating an increasing rate of saving, and attaining this effectively by increasing, in the main, the income of those who already spend as much as they care to on basic products, so the basic expansion is egalitarian in tendency; it postulates a continuously decreasing rate of saving, a continuously decreasing proportion of surplus income in total income; and it achieves this result effectively by increasing, in the main, the income of those who have a maximum latent demand for consumer goods and services. [CWL 15, 139]
In equity (the basic expansion following the surplus expansion) should be directed to raising the standard of living of the whole society. It does not. And the reason why it does not is not the reason on which simple-minded moralists insist. They blame greed. But the prime cause is ignorance. The dynamics of surplus and basic expansion, surplus and basic incomes are not understood, not formulated, not taught….. [CWL 15, 82]
“A scientific generalization of the old political economy and of modern economics will yield the new political economy which we need. … Plainly the way out is through a more general field.” (CWL 21, 6-7)
A generalization of macroeconomic theory will postulate a transformation not only of the old guard and its abuses but also of the reformers and their reforms; it will move to a higher synthesis that eliminates at a stroke both the problem of wages and the complementary problem of trade unions; it will attack at once both the neglect of economic education and the blare of advertisements leading the economically uneducated by the nose; it will give new hope and vigor to local life, and it will undermine the opportunity for peculation corrupting central governments and party politics; it will require the brain trust but it will make the practical economist as familiar a professional figure as the doctor, the lawyer, or the engineer; it will find a new basis both for finance and for foreign trade. The task will be vast, so vast that only the creative imagination of all individuals in all democracies will be able to construct at once the full conception and the full realization of the new order. [CWL 21, 36-37] [#70]
our inquiry differs radically from traditional economics, in which the ultimate premises are not production and exchange but rather exchange and self-interest, or later, exchange and a vaguely defined psychological situation. Our aim is to prescind from human psychology (so) that, in the first place, we may define the objective situation with which man has to deal, and, in the second place, define the psychological attitude that has to be adopted if man is to deal successfully with economic problems. Thus something of a Copernican revolution is attempted: instead of taking man as he is or as he may be thought to be and from that deducing what economic phenomena are going to be, we take the exchange process in its greatest generality and attempt to deduce the human adaptations necessary for survival. [CWL 21, 42- 43]
Generalization comes with Newton, who attacked the general theory of motion, laid down its pure theory, identified Kepler’s and Galileo’s laws by inventing the calculus, and so found himself in a position to account for any corporeal motion known. Aristotle, Ptolemy, Copernicus, Galilei, and Kepler had all been busy with particular classes of moving bodies. Newton dealt in the same way with all. He did so by turning to a field of greater generality, the laws of motion, and by finding a deeper unity in the apparent disparateness of Kepler’s ellipse and Galilei’s time squared. … Similarly the non-Euclidean geometers and Einstein went beyond Euclid and Newton. … The non-Euclideans moved geometry back to premises more remote than Euclid’s axioms, they developed methods of their own quite unlike Euclid’s, and though they did not impugn Euclid’s theorems, neither were they very interested in them; casually and incidentally they turn them up as particular cases in an enlarged and radically different field. … Einstein went beyond Newton by employing the new geometries to make time an independent variable; and as Newton transformed the formulation and interpretation of Kepler’s laws, so Einstein transforms the Newtonian laws of motion. … It is, we believe, a scientific generalization of the old political economy and of modern economics that will yield the new political economy which we need. … Plainly the way out is through a more general field. [CWL 21, 6-7]
For besides statistical predictions, there exist the fully accurate predictions that are exemplified by astronomy and that rest on the existence of schemes of recurrence. Moreover, the intelligent manner of making these predictions is to analyze the schemes into their component classical laws. Copernicus corrected Ptolemy’s imaginative scheme; Kepler corrected the circles of Copernicus; but it was Newton who worked out the underlying laws and Laplace who revealed the periodicity of the planetary system. From that discovery of laws the great movement of thought, named modern science, received its most powerful confirmation. It did so because it ended, at least for two centuries, the more common human tendency to speak, not of precise laws, but of the common run of events or the ordinary course of Nature. [CWL 3, 112/135]