Debunking Marx’s “Exploitation”; The “Iron Law” of Consumer Expenditures; (CWL 15, footnote 34; CWL 21, ftnt. 14 [Editor’s Intro] and 87)

In explaining the normative pure cycle of economic expansion for which the process has a systematic exigence, Lonergan redefinedcosts” and “profits”,

There is a sense in which one may speak of the fraction of basic outlay that moves to basic income as the “costs” of basic production.  It is true that that sense is not at all an accountant’s sense of costs; … But however remote from the accountant’s meaning of the term “costs,” it remains that there is an aggregate and functional sense in which the fraction… is an index of costs.  For the greater the fraction that basic income is of total income, the less the remainder which constitutes the aggregate possibility of profit.  But what limits profit may be termed costs. Hence we propose ….to speak of (c’O’  = p’a’Q’) and (c”O” = p”a”Q”) as costs of production, having warned the reader that the costs in question are aggregate and functional costs…. [CWL 15, 156-57]

Since a monetary circulation is internally conditioned by the supply-demand monetary events constituting the circulation, “its own final market” constituted by final expenditures-receipts necessarily involves the concomitant conjugate Outlays-Incomes which become Expenditures-Receipts.  The Editors added the next helpful footnote regarding so-called profits and the now-debunked labor theory of value to make it clear that Functional Macroeconomic dynamics also debunks Marx’s notion of exploitation in his psychopolitical, deficient, non-scientific theory. (CWL 15, 33-4, ftnt. 34.)

Lonergan’s meaning of  ‘exploitation’ in this sentence moves in just the opposite direction from Marx’s usual meaning, … ¶ Exploitation for Marx generally refers to the systemic relations of production that regularly cause the expropriation of the surplus part of the labor value produced by the workers so that it becomes the profits of capitalists, while the workers’ standard of living collectively approaches the mere subsistence level.  That Lonergan was quite aware of Marx’s position is shown from a supplement handed out in his class in 1979: ‘We, on the other hand, have to distinguish basic and surplus [prices and quantities], P’ and P”, Q’ and Q”.  for unless surplus is conceived as a distinct circuit with its own final market, the Marxists object that the basic final market is demanding payment not only for basic goods and services but also for surplus as well; hence the accusation [that] profit is robbing workers of part of the labor value of their ‘contribution.’  ¶ In the present context of Lonergan’s presentation of the surplus stage of the pure cycle of production, the point is that the new basis for overall production of the standard of living of the total economy brought about by the significant addition of more and/or new plant and equipment is to be exploited in the widening and deepening of basic production that raises the standard of living of everyone, but especially of the workers (or, as he used to say in class, ‘of widows and orphans’).  The whole point of Lonergan’s analysis, then, is to emphasize what he also makes clear in the 1979 page mentioned above: ‘And now with the circuits distinguished, the crossover makes it manifest that it supplements the wages paid in the basic circuit, so that profits are not robbery and there is no need for the gifts of bank credit to supplement workers’ basic wages.’ (for a fuller quotation, see footnote 87 next) (CWL 15, 33-34, ftnt. 34)

Thus it is technology that is exploited, not a labor value.  Marx’s labor theory is doubly debunked, first by the idea of exchange value, second by the distinction of two circuits and the existence of the crossover.  Both circuits together pay workers fully by outlays.  The analysis is functional!  Lonergan’s revolutionary theory reveals the systematic subtleties of the interactions between the basic and surplus circuits better than anyone previously or since.

(CWL 15, 71-2, ftnt. 87) In 1979, at which time Lonergan was using Robert J. Gordon, Macroeconomics, 1st ed. (Boston: Little, Brown and Co., 1978) as an introductory text, he distributed a two-page supplement to the section on “measuring change in the productive process”, showing more clearly both his agreements and his disagreements with commonly accepted ways of relating prices and quantities.  The relevant passage from that supplement is as follows:

‘Gordon has a very simple way of deriving P and Q, viz.,

GNP = PQ = Y;   Q = Y/P

‘We, on the other hand, have to distinguish basic and surplus [prices and quantities], P’ and P”, Q’ and Q”,  for unless surplus is conceived as a distinct circuit with its own final market, the Marxists object that the basic final market is demanding payment not only for basic goods and services but also for surplus as well; hence the accusation [that] profit is robbing workers of part of the labor value of their ‘contribution.’  Again, the proponents of social credit argue that the wages paid workers in the basic process are unequal to purchase the products of the basic process, and so should be supplemented by monthly gifts of bank credit to raise purchasing power to the level of prices which charge not only for basic products but also for the services of the surplus circuit.

The solution, in its most comprehensible form, is to distinguish basic and surplus, Y’ and Y”.  Then, as before,

Y’ = P’Q’;    Y’/P = Q’

Y” = P”Q”;     Y”/P” = Q”

‘And now with the circuits distinguished, the crossover makes it manifest that it supplements the wages paid in the basic circuit, so that profits are not robbery and there is no need for the gifts of bank credit to supplement workers’ basic wages.’  (CWL 15, 71-2, ftnt 87)

And, in a note to P. McShane,

The contrast regarding expectations between Lonergan’s expectations and the present tradition is neatly brought out by a comment on Robert Gordon’s text on Macroeconomics: “I now know how my analysis differs from Gordon’s and presumably others. He gives as the empirically determined propensity to consume 75% and to save as 25%.  For me these are variables with saving increasing in the surplus expansion and consumption increasing in the basic.” (CWL 21, Editor’s Introduction, xxvi note 14 re Letter of Lonergan to Philip McShane, 10 January 1979 …)

And,

This cumulative action of C‘ and C” reveals an iron law regarding consumer expenditure, namely unless both primary and secondary consumers in the aggregate spend all their income, then they are decreasing their income by the amounts they are failing to spend.  In other words, in the aggregate, neither primary nor secondary consumers should save; if they do, they exchange a rate for a mere quantity, and income for an equal lump sum, a dollar for a dollar; moreover, they change a real (basic) expansion into a static phase, and a static phase into economic decline.  The slogan is, then, Spend what you get or you won’t get it (back) to spend. (CWL 21, 72)

In Kalecki’s words implying the existence of two distinct circuits and circulations discovered and explicated clearly and Maxwellianly by Lonergan: “capitalists get what they spend; workers spend what they get.”

Lonergan got to know Kalecki’s work in his later years and used the Kaleckian quip, “capitalists get what they spend; workers spend what they get.” … Kalecki has received general acclaim as a great economist of the twentieth century; the man who arguably discovered the theory of effective demand prior to and independently of Keynes.” (Andrew B. Trigg, ‘On the Relationship between Kalecki and the Kaleckians,” Journal of Post-Keynesian Economics 19 [1944] 923) Lonergan’s view of effective demand is a much richer achievement. (CWL 21, , 212-3, ftnt. 9)

 

 

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