In the Wall Street Journal of Thursday, 12/2/2021, Senator Tom Cotton had an article entitled ‘No’ on Jerome Powell at the Fed. Senator Cotton was correct regarding a) the possibility of worst-case and less-catastrophic scenarios of inflation, b) the possibility of inflation wiping out wage gains, and c) that the result of the Fed’s policies is to boost prices in both the basic consumables (point-to-point) circuit and in the Redistribution Function’s secondary stock and bond markets.

Senator Cotton, as always, is to be admired for his courage; but he and all in government and the private sector must learn the principles and laws of how the objective economic process actually works.  A lot depends on a knowledgable government acting in the best interests of the entire populace of free people. Some would say it’s a matter of the survival of human liberty.

As we’ve quoted many times, both inflation and deflation are swindles. (Click here and here and here and here)

We add, cryptically, in contradiction and in supplement to Senator Cotton’s affirmations:

• The Fed is mandated by Congress to achieve full employment while maintaining a stable currency. Full employment is properly the responsibility of the enlightened private and government sectors, not the Fed.  And the Fed can achieve a stable currency only by understanding the magnitude-and-frequency theory of the velocity of money and infusing the correct amount of money needed for expeditious transactions.
• Flooding the system with flows of money in excess of the flows of real goods and services is intrinsically inflationary.
• The result of the Fed’s policies and interventions has been to boost prices in both a) the basic circuit, and b) the Redistributive Function’s secondary stock and bond markets. This harms lower-paid workers and stimulates unrest.
• There are several culprits:
  • Academics are the primary culprits; they have not discovered how the economic process really works;

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]

• • Congress, who, in their ignorance, have assigned responsibilities to the Fed, who a) lacks the tools to accomplish these assigned responsibilities, and b)  does not itself understand how the real process of rectilinear production meeting circulatory dummy money works.

… real analysis (is) identifying money with what money buys. … If you want to treat money that doesn’t make a difference, you can have a beautiful liberal monetary theory.  But it doesn’t say the way the thing works. [CWL 21, Editors’ Introduction, xxviii  quoting Lonergan]

• • The Fed, which has its own academic economists, who should know a) how the real pretio-quantital economic process of production and exchange works, and b) that one meaning of the utterance “interest rate” is that of an internal mathematical relation among several solidary functional productive flows.
  • The Executive Branch, which also has its own academic economists, and must share responsibility for overspending and failing to be sufficiently persuasive in its dealings with Congress regarding management of the economic process.
  • The U.S. Treasury and the Bureau of Economic Analysis, which must come to understand, appreciate and communicate the damage done to citizens, sooner or later, by the inflationary annual deficits and cumulative national debt, which, by the way, these organizations fail to understand, measure, and critique.
  • Financial talk shows, whose moderators must a) learn how the economic process works, b) not bring a political slant to objective facts, and c) ask intelligent questions of their so-called expert guests.
  • The industrial and commercial private sector, which violates the precepts for a well-ordered economy by compensation structures and layoffs which reduce demand rather than implementation of the basic expansion which would effect full employment while conforming to the laws of the process
  • That of which all participants are ignorant:  the unknown fundamental clash of theory and practice constituted by the mistaken criterion of, on the one hand, ever expanding earnings when, on the other hand, in the final basic-expansion phase of a long-term expansion, the process is not furnishing these higher earnings. (See CWL 15, Section 27: The Cycle of Pure Surplus Income, pp. 144-56)

Lonergan … was seeking the explanatory intelligibility underlying the ever-fluctuating rhythms of economic functioning.  To that end he worked out a set of terms and relations that ‘implicitly defined’ that intelligible pattern.  When all was said and done the relations, and the terms they implicitly defined, were markedly different from either the terms of ordinary business parlance or the terms of neoclassical and Keynesian economic theory.  Moreover, not only did Lonergan’s terms differ, but he also indicated that these aforementioned terms (of neoclassical and Keynesian economic theory) were permeated, as were the terms of Newton’s theory of gravitation, with descriptive, nonexplanatory residues.  Hence, just as a mathematical equation may be said to be the most adequate expression of purely intelligible relations among explanatory terms in certain instances – for example, Einstein’s gravitational field tensor equations – something closely akin to Lonergan’s diagram (and the equations it represents) seems necessary for the realm of dynamic economic functioning.  So, for example, the existence and manner of dynamic mutual interdependence of the two circuits of payment, basic and surplus, is not adequately expressed either by descriptive terms (since this pattern does not directly relate to the senses of anyone operating in a common-sense way in a concretely functioning economy) nor by the series of (simultaneous) equations that do not explicitly manifest the interchanging of ‘flows.’ [CWL 15, 179]

Our aim is to prescind from human psychology that, in the first place, we may define the objective situationwith 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] 

The old political economists were champions of democracy; and if the content of their thought has been found inadequate, its democratic form is as valid today as ever.  That form consisted in the discovery of an economic mechanism and in the deduction of rules to guide men in the use of the economic machine, a rule of laissez fairefor governments and a rule of thrift and enterprise for individuals … but it is still insufficiently grasped that new and more satisfactory rules have to be devised.  Without them human liberty will perish.  For either men learn rules to guide them individually in the use of the economic machine, or else they surrender their liberty to be ruled along with the machine and a central planning board …the one issue is the locus of control.  Is it to be absolutistfrom above downwards?  Is it to be democratic only in the measure in which economic science succeeds in uttering not counsel to rulers but precepts to mankind, not specific remedies and plans to increase the power of bureaucracies, but universal laws which men themselves administrate in the personal conduct of their lives. (reference?)

The idea of engineering human welfare is repugnant to Lonergan, for ‘managing people is not treating them as persons.  To treat them as persons one must know and one must invite them to know.’  Making the survival of democracy possible by ‘effectively augmenting the enlightenment of … enlightened self-interest’ cannot be identified merely with the Enlightenment’s project of steering public opinion from unenlightened to enlightened self-interest.  Instead, Lonergan envisaged a vast and long-term educational effort.  He insisted that rational control of the economy ‘can be democratic only in the measure in which economic science succeeds in uttering not counsel to rulers but precepts to mankind, not specific remedies and plans to increase the power of bureaucracies, but universal laws which men themselves administrate in the personal conduct of their lives.’(CWL 15, Editors’ Introduction, lxxi)

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]

See Two Summaries in Functional Macroeconomic Dynamics especially Part .II.

Again,

Lonergan … was seeking the explanatory intelligibility underlying the ever-fluctuating rhythms of economic functioning.  To that end he worked out a set of terms and relations that ‘implicitly defined’ that intelligible pattern.  When all was said and done the relations, and the terms they implicitly defined, were markedly different from either the terms of ordinary business parlance or the terms of neoclassical and Keynesian economic theory.  Moreover, not only did Lonergan’s terms differ, but he also indicated that these aforementioned terms (of neoclassical and Keynesian economic theory) were permeated, as were the terms of Newton’s theory of gravitation, with descriptive, nonexplanatory residues.  Hence, just as a mathematical equation may be said to be the most adequate expression of purely intelligible relations among explanatory terms in certain instances – for example, Einstein’s gravitational field tensor equations – something closely akin to Lonergan’s diagram (and the equations it represents) seems necessary for the realm of dynamic economic functioning.  So, for example, the existence and manner of dynamic mutual interdependence of the two circuits of payment, basic and surplus, is not adequately expressed either by descriptive terms (since this pattern does not directly relate to the senses of anyone operating in a common-sense way in a concretely functioning economy) nor by the series of (simultaneous) equations that do not explicitly manifest the interchanging of ‘flows.’ [CWL 15, 179]

Again, Senator Cotton, as always, is to be admired for his courage; but he and all in government and the private sector must learn the principles and laws of how the objective economic process actually works.  A lot depends on a knowledgable government acting in the best interests of the entire populace of free people. Some would say it’s a matter of the survival of human liberty.