4/7/2021: Yahoo Finance today featured an article by Julia La Roche entitled ‘The fault line is inequality’: J.P. Morgan’s Dimon calls for fixing America’s ‘self-inflicted’ problems. La Roche was reviewing the Public Policy section of Dimon’s 67-page Chairman and CEO Letter to Shareholders. Mr. Dimon seeks to end the nation’s self-infliction of problems threatening the culture, the economy and the polity. He particularly regrets “false arguments of fanatics, the certitude of ideologues and cycles of intolerance.” Continue reading
We have recited some aspects of the dynamic economic process:
- (Dummy) money “must be constant in exchange value.”
- Prices alone do not explain the economic process. Prices must be interpreted in the light of those significant variables which actually explain the economic process.
- The economic process of production and exchange always is the current, purely-dynamic process
- The economic process is an organic whole
- The process has an exigence for a normative pure cycle of expansion.
- Equilibrium requires the keeping of pace and balance among interdependent flows of products and money
- Scarcity is the normal cause of inflation
- Maladjustment of incomes is the maladaptive cause of inflation
- Just as the surplus phase of the expansion is anti-egalitarian in tendency, postulating an increasing rate of saving, … so the basic phase of the expansion is egalitarian in tendency; it postulates a continuously decreasing rate of saving [CWL 15, 139]
- The central adjustment to the respective phases of the process may be formulated as adjustment of I”/(I’ + I”), the ratio of surplus income to total income
- Interpreters of prices must distinguish between real and relative price increases monetary and absolute changes in prices We have recited some aspects of the dynamic economic process: (Continue reading)
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)
We ask all serious graduate students and professors of macroeconomics, government economists, conscientious politicians, poorly educated journalists, and financial-talk-show “pundits” to please read Bernard Lonergan’s Macroeconomic Dynamics, (CWL 15), Section 26, “The Cycle of Basic Income”. That section addresses several important economic issues:
- the adjustment of the rate of saving to the phases of the pure cycle of expansion in the economic process
- the complementary mechanism of changing prices
- the significance of a relative and an absolute rise or fall of monetary prices
- the difficulty with the theory of manipulating interest rates in that a) it lumps together a number of quite different things, and b) overlooks the order of magnitude of the fundamental problem
- the ineptitude of the procedure of manipulating interest rates.
Then, after the first reading, please read that section a second time.
[CWL 15] Lonergan, Bernard (1999), Macroeconomic Dynamics: An Essay in Circulation Analysis, ed. Frederick G. Lawrence, Patrick H. Byrne, and Charles Hefling, Jr., vol 15 of Collected Works of Bernard Lonergan, (Toronto: University of Toronto Press)
To indicate to the serious reader the editors’ helpfulness in placing Functional Macroeconomic Dynamics in its historical and theoretical context, we list here the headings of the Editors‘ Introduction to Lonergan’s Macroeconomic Dynamics: An Essay in Circulation Analysis (CWL 15):
Editors’ Introduction, Frederick G. Lawrence ; xxv
- Lonergan’s Entry into Economics, 1930-1944 / xxvi
- Democratic Economics: An alternative to Liberalism and Socialism / xxxii
- Liberalism and Socialism as Economistic Ideologies / xxxv
- Free Enterprise as an Educational Project
- Lonergan’s Reentry into Economics, 1978-1983 / xxxix
- Lonergan’s Interlocutors in Economics / xliii
- Lonergan and Marx / xlvi
- Lonergan and Marshall / xlvii
- Lonergan and Keynes / xlviii
- Lonergan, Kalecki, and Others / li
- Lonergan and Schumpeter / li
- Macroeconomic Dynamic Analysis as a New Paradigm of Economic Theory / liv
- The Systematic Significance of the Fundamental distinction between Basic and Surplus Production and Exchange
- Profit / lxiii
- Interest / lxvii
- Lonergan’s Critique of ‘Supply-Side’ and ‘Demand-Side’ Economics / lxvii
- Lonergan’s Critique of Secularist Ideologies: The Need for a Theological Viewpoint / lxix
N. Gregory Mankiw’s two textbooks – Principles of Microeconomics (Fourth Edition, 2007) and Brief Principles of Macroeconomics (Fifth Edition, 2009) – have their first chapter entitled “Ten Principles of Economics.” The first four of the ten principles deal with the concept of efficient cause consisting in the subjective psychology of human participants as they make microeconomic decisions about their personal economic well-being. In contrast, Lonergan’s Macroeconomic Dynamics: An Essay in Circulation Analysis (1999) first treats the objective macroeconomic situation to whose laws the psychological participants must adapt in the conduct of their lives. Lonergan seeks the immanent macroeconomic intelligibility of the objective system of production and exchange. Both Mankiw and Lonergan deal intelligently in the micro and macro realms. Lonergan seeks to treat “first thing first.” Continue reading
Preliminary note: In this section we are addressing the proper understanding and management of the economic process in normal, non-pandemic times. We affirm that the current pandemic calls for extraordinary measures.
Unwittingly, first out of ignorance and recently as necessitated by a pandemic, some nations, including the U.S., are wandering into the ultimate menace to the financial system, the spending without constraint blessed and recommended by unscientific Modern Monetary Theory. (Click here and here) The systematic result of MMT’s unconstrained printing of money, unjustified by corresponding, concomitant production of goods and services, is rampant inflation in prices for a) goods and services and/or b) financial assets. (Continue reading)
Functions are not seen, but must be understood. (Catherine Blanche King, private communication)
A systematic explanation, then, requires a normative theoretical framework. The basic terms and relations of such a framework would specify the distinctions and correlations that articulate the causes, which are not necessarily visible, of events that are apparent to all. (CWL 15, Editors’ Introduction, lv) (Continue reading)
(Lonergan’s) economic theory differs in six distinctive ways: Continue reading
McShane, Philip, “Implementing Lonergan’s Economics”; in Liddy, Richard M. ed. The Lonergan Review, Vol. III No. 1 – Spring 2011, Copyright 2011, The Bernard Lonergan Institute, Seton Hall University, South Orange, New Jersey
I, (Philip McShane) list here six areas of non-functional economic intervention: there are more pointers elsewhere, and more to come from our collaboration. ¶ First, then there is a matter of competence. What Lonergan envisaged is democracy of sufficient understanding of economic rhythms, … ¶ Secondly, there is the challenge of influencing school economics. … What is needed now, and feasible, is the supplementing of present texts – that have to be taught in fairness to students – with a few initial classes that, as well as raising the issue of the good life and good credit, raise bluntly the deep yet obvious mistake that I mention next. ¶ Thirdly, there is the challenge of a multi-faceted intrusion into present economics that would draw attention to the massive mistake regarding basic variables. Ftnt. 20
Footnote. 20: It seems best to note here a strategy not listed: that of comparison and contrast. Present economic theory, application, criticism, is grounded in erroneous fundamental variables, and overlaid with stupidities about money, credit, market indicators, interest rates, government responsibilities. These flaws certainly need exposure. But the larger challenge is the redoing of the statistical work of the past century, as best we can, in the light of the new variables.
¶ Fourthly, there is the central issue … of the nature of credit, implicitly raising – at many levels – the question, What is money? … ¶ Fifthly, there is a massive foundational theoretical effort needed that is quite beyond present economists. Without the doctrines emergent from such foundational efforts, the subtle idiocy of treating money not as a promise but as a commodity will continue its casino frenzy. ¶ Sixthly and finally, I return to the issue of school education, … Under secondly, above , there was the immediate possibility of competent (firstly) Lonergan people persuading grade 12 economics or social studies teachers to build into the accepted course, say, my single class on proper economic variables. …