The Saturday-Sunday Wall Street Journal of 4/8-9/ 2023 featured an Interview by James Freeman of Paul Singer, founder of Elliott Management. P. Singer’s past predictions are notably congruent with the consequences systematically necessitated by, the deviations in policy of the executive and legislative branches from the norms of Lonergan’s Scientific Functional Macroeconomic Dynamics.
First, we quote some sections of Freeman’s interview of Singer; then we’ll quote brief sections to preview the treatment to follow. From the Interview:
Before the financial crisis of 2008, (P. Singer) tried to alert investors and public officials about the dangers of subprime mortgages. In the 15 years since, he’s repeatedly warned that the Dodd-Frank Act of 2010, and the expansive monetary policies along the way, were inviting disaster. (WSJ)
(P. Singer) has watched and worried for years as the Federal Reserve and other central banks settled into more or less permanent emergency footing in which the answer to virtually every economic and financial challenge is to create more money. (WSJ)
Since the 2008 crisis, the Fed and other central banks have undertaken various rounds of “quantitative easing” – creating money to buy government bonds and other assets. The artificial demand for such assets holds down interest rates, which enables political authorities to spend lavishly, run massive deficits and take countries deeper into debt. (WSJ)
(P. Singer) wrote in an April, 2020 letter to investors. “They did not normalize last time” – meaning after the 2008 crisis – “and the world has moved demonstrably closer to a tipping point after which money printing, prices and the growth of debt are in an upward spiral that the monetary authorities realize cannot be broken except at the cost of a deep recession and credit collapse.” (WSJ)
Saving, investment and commerce all depend on a trustworthy currency, so it’s imperative “to keep a good distance away from the tipping point in which confidence is destroyed.” (WSJ)
Brief sections to preview the treatment to follow:
The central adjustment is variation in the rate of saving, w, where w = I”/(I’ + I”).
While we can effect the anti-egalitarian shift with some measure of success, in fact the egalitarian shift (required for the basic expansion) is achieved only through the contractions, the liquidations, (and) blind stresses and strains …(CWL 15, 153-54)
… any systematic divergence of rates independently of the others brings automatic correctives to work. (CWL 15, 144)
Thus the greater the contraction, the less the rate of losses required; again, the greater the contraction, the weaker the position of the initially invulnerable6; in the limit the rate of losses will disappear, and a distorted equilibrium7 give place to a true equilibrium.8 [CWL 15, 155-56]
Now every unit of enterprise involves a turnover magnitude and a turnover frequency. … the quantity alternative in the rates of payment is conjoined with the quantity alternative in the rate of production, and the frequency alternative in the rate of payment is conjoined with the frequency alternative in the rate of production. The two cases of quantity-velocity are not only parallel but also correlated. [CWL 15, 57]
… positive or negative transfers to basic demand (D’ – s’I’) and consequent similar transfers to surplus demand (D” – s”I”) belong to the theory of booms and slumps. They involve … entrepreneurs receiving back more (or less) than they paid out in outlay (which includes profits of all kinds). The immediate effect is on price levels at the final markets, and to these changes (in price), enterprise as a whole responds to release an upward (or downward) movement of the whole economy. [CWL 15, 64]
Traditional theory looked to shifting interest rates to provide suitable adjustment. In the main we shall be concerned with factors that are prior to changing interest rates and more effective. … [CWL 15, 133-134]
Concomitance is the theoretical conjoinment of flows in respect to quantity and pace with one another. Some individual flows of products and payments are immediately concomitant with one another; and by lags and by crossovers between circuits all flows are ultimately connected in a whole organic unity with all other explanatory flows. The principle of concomitance is foundational. (End of preview)
P. Singer understands well the following:
(We) state the necessary and sufficient condition of constancy or variation in the exchange value of the dummy. To this end we compare two flows of the circulation: the real flow of property, goods, and services, and the dummy flow being given and taken in exchange for the real flow….Accordingly, the necessary and sufficient condition of constant value in the dummy lies in its concomitant variation with the real flow….More briefly, if there is concomitance between the two flows, then the proportion in which dummies and goods exchange remains the same. If there is lack of concomitance, then this proportion changes. But exchange value is a proportion. Therefore, the concomitance of the two flows is the condition of constant exchange value. (CWL 21, 37-39)
To be acceptable, money must have several properties. Money has several “values depending on the functional point of view. P. Singer is keenly aware that the government has violated the technical rules governing the issuance of money.
the real issue is the value of the dummy (enabling divided exchange rather than barter)..the relative value is its usefulness… the scarcity of the dummy is attended to by the technicians of the technical rules governing its issuance. Whether it issues from the printing press or from the credit structure makes no difference. The economic value lies in the human effort against scarcity… the exchange value is the ratio or proportion in which are exchanged the different categories of objects for which men strive because they are useful and scarce…. CWL 21, 37-39
As Singer insists, money is a promise between two parties to make one another whole. The use of money requires trust between the two parties.
If barter is replaced by the divided exchange (made possible by the introduction of money), selling here and buying there, the economic process can attain a vastly greater magnitude and intricacy. [CWL 21, 37-39]
Ideally, money would be constant in exchange value.
… the dummy must be constant in exchange value, so that equal quantities continue to exchange, in the general case, for equal quantities of goods and services. The alternative to constant value in the dummy is the alternative of inflation and deflation. Of these famous twins, inflation swindles those with cash to enrich those with property or debts, while deflation swindles those with property or debts to enrich those with cash; in addition to the swindle each of these twins has his own way of torturing the dynamic flows; deflation gives producers a steady stream of losses; inflation yields a steady stream of gains to give production a drug-like stimulus. [CWL 21, 37-38]
Again, and further, noting the phrase “concomitant variation”:
the (3) exchange value is the ratio or proportion in which are exchanged the different categories of objects for which men strive because they are useful and scarce… It is now necessary to state the necessary and sufficient condition of constancy or variation in the exchange value of the dummy. To this end we compare two flows of the circulation: the real flow of property, goods, and services, and the dummy flow being given and taken in exchange for the real flow….Accordingly, the necessary and sufficient condition of constant value in the dummy lies in its concomitant variation with the real flow….More briefly, if there is concomitance between the two flows, then the proportion in which dummies and goods exchange remains the same. (there is proper constancy of pricing) If there is lack of concomitance, then this proportion changes. (there is a deviation from the constancy of pricing) But exchange value is a proportion. Therefore, the concomitance of the two flows is the condition of constant exchange value. (CWL 21, 38-39)
The characteristics of money:
… the divided exchange postulates a dummy that will bridge the intervals, short or long, between contribution to the process and sharing in its products. Further, if this dummy is to work satisfactorily, if it is to bridge the intervals fairly and adequately, then it must fulfill certain conditions. The first of these is divisibility … The second condition is homogeneity … The third condition is that the dummy must be constant in exchange value … The fourth condition is that the dummy be universally acceptable within a given area, so that anyone willing to exchange will be willing to surrender property, goods, or services for the dummy. Whether this fourth condition is distinct from the other three has been a matter of dispute.… [CWL 21, 37-39]
For a stable and acceptable currency there is required the recognition and honoring of the normative correlation between the quantities and velocities of rates of payment and the quantities and velocities of rates of production and sale of goods and services.
Now every unit of enterprise involves a turnover magnitude and a turnover frequency. … the statement is not a truism, for it involves a correlation between the quantities and velocities of rates of payment and the quantities and velocities of goods and services. (CWL 15, 57)
The existence of this correlation may be seen readily enough. … the quantity alternative in the rates of payment is conjoined with the quantity alternative in the rate of production, and the frequency alternative in the rate of payment is conjoined with the frequency alternative in the rate of production. The two cases of quantity-velocity are not only parallel but also correlated. [CWL 15, 57]
Modern Monetary Quackery (carelessly and mistakenly dubbed “Theory”) would effect an artificial prosperity. MMT wrongly suggests, and government policy ignorantly and irresponsibly effects, a distortive superposed circulation upon the normative circulations implicit in scientific macroeconomics. Modern Monetary Theory has always been a disaster waiting to happen. In its unchecked extreme of printing money unconstrained by its normative magnitude-and-frequency correlation with the real flow of goods, and services, it would constitute an artificial prosperity. And, in its unconstrained extreme, it would stand to bring about rampant inflation, menace the financial system, and if continued, ultimately stand to bring about both the destruction of the financial system and social chaos. The longer egregious systematic divergences from the norm would continue the more intractable they would become. (Click here)
https://functionalmacroeconomics.com/2021/01/11/alberto-bisin-re-modern-monetary-theory/
Lonergan demonstrates that the economic process has laws which imply an exigence for the Diagram’s concomitance of Incomes with Outlays and Expenditures. Also, the proportion of point-to-line investment incomes and point-to-point consumption incomes to total incomes must adjust so as to equal the proportion required bu the phase of the expansion. The proper adjustments of the ratios of basic incomes and surplus incomes to total incomes is prior to shifting interest rates and more effective than manipulation (i.e. price fixing) of interest rates (the rental price of money or the payments by the Fed on idle reserves). Lonergan demonstrates clearly, based on his abstract explanatory terms and relations constituting the principles and laws of the concrete process, how the failure to adjust savings to the phase-ic requirements of the phases of an expansion causes a.) prices to become distorted by the imbalance of monetary flows within the channels, b.) inflationary price distortions in a distorted prosperity to become misinterpreted by units of enterprise as a signal to overexpand still further or in the opposite case as a signal to lay off employees and contract when pure surplus income systematically declines, c.) the Fed to manipulate double-edged interest rates, which c.i) adjusts the rate of production to the non-normative, manipulated rate of savings rather than the rate of savings to the normative rate of production, and thus c.ii) further stimulates the production functioning which it should be damping while killing the basic expansion which it should be implementing. (Click here)
The foregoing mechanism (of rising prices in the surplus expansion) provides an automatic adjustment to(wards) an increasing rate of savings. However, its operation is conditoned. Unless the quantity of money in circulation expands as rapidly as prices rise and, as well, as rapidly as the productive expansion of quantities requires, there will result a contraction of the process. … … (and) unless the increment in total monetary income goes to higher income brackets and so to surplus income, there will be no adjustment to the rate of saving. … These two types of failure of the automatic mechanism are interrelated. (CWL 15, 137)
(In the basic expansion) … There is the same automatic mechanism as before. Prices fall. This has the double effect of increasing the purchasing power of income and bringing about an egalitarian shift in the distribution of monetary income. The increase in purchasing power is obvious. On the other hand, the egalitarian shift in the distribution of income is, in the main, a merely theoretical possibility. The fall of prices, unless quantities increase proportionately and with equal rapidity, brings about a great reduction in total rates of payment. Receipts fall, outlay falls, income falls. The incidence of the fall of income is, in the first instance, upon the entrepreneurial class, and so in the main it is a reduction of surplus income. Thus we have the same scissors action as before: purchasing power of income increases, and the proportion of basic to surplus income increases; the rate of saving is adjusted to the rates of production as soon as the price level falls sufficiently. But just as there is an upward price spiral to blunt the edge of the mechanism when the rate of saving is increasing, so there is a downward spiral to have the same effect when the rate of saving should be decreasing. Falling prices tend to be regarded as a signal that expansion has proceeded too far, that contraction must be the order of the day. Output is reduced; the income of the lower brackets is reduced; the adjustment of the rate of saving fails to take place; prices fall further; the same misinterpretation arises, and prices fall again. Eventually, however, the downward spiral achieves the desired effect; surplus income is reduced to the required proportion of total income; and the prices cease to fall. [CWL 15, 138-39]
The normal entrance of money for expanding transactions is through the channels (S’ – s’O’) and (S” – s”O”) rather than through the demand function; that is to say, compensation is normatively justified by, and awarded for, productive contribution to supply.
In his explanation of the normative pure cycle of economic expansion for which the process has a systematic exigence, Lonergan identified velocitous “macroeconomic basic costs” and “macroeconomic basic revenues” as concomitant; they are obverse and reverse; they are mutually defining, mutually conditioning and constraining, thus correlated concomitant flows; and, as abstract explanatory conjugates they constitute invariant, universal explanatory relations applicable in any instance.
The concepts defining a circle and the concepts explaining Functional Macroeconomic Dynamics form sets of terms and relations.
Let us say, then, that for every basic insight there is a circle of terms and relations, such that the terms fix the relations, the relations fix the terms, and the insight fixes both. If one grasps the necessary and sufficient conditions for the perfect roundness of this imagined plane curve, then one grasps not only the circle but also the point, the line, the circumference, the radii, the plane, and equality. All the concepts tumble out together, because all are needed to express adequately a single insight. All are coherent, for coherence basically means that all hang together from a single insight. (CWL 3, 12/36)
Paraphrasing: … If one grasps in a single insight the necessary and sufficient conditions for the continuity, equilibrium, and normative functioning of the interdependent flows of goods and services, as represented by the double-circuited, credit -centered Diagram of Rates of Flow, then one grasps a) point-to-point relations, b) point-to-line relations, c) interdependent functional-flow velocities, d) basic incomes, e) ordinary surplus incomes, f) pure surplus incomes, g) the normativity of concomitance within circuits, h) the normative role of credit to bridge the gaps in time between outlays and receipts, etc. All the explanatory concepts tumble out together, because all are needed to express adequately the single sweeping insight grasping all in a single view. The terms fix the relations, the relations fix the terms, and the insight fixes both. All concepts and equations are coherent, for coherence basically means that all hang together from a single insight. (CWL 3, 12/36)
P’Q’ = p’a’Q’ + p”a”Q” (CWL 15, 158)
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]
Again,
P’Q’ = p’a’Q’ + p”a”Q” (CWL 15, 158)
There are sets of phenomena, notably the favorable and unfavorable balances of foreign trade, deficit government spending, and the payment of public debts by taxation, that are analogous to the phenomena of the trade cycle (of boom and slump) – (as contrasted) with the pure cycle of expansion in which there is no neeed for contraction and layoffs. It is proposed to deal with them under the general title of ‘superposed circuits.’ (CWL 15, 162-63) (Click here) (Also see CWL 15, pp. 162-77)
Lonergan identifies a pure cycle of expansion and contrast it with the deviant trade cycle of boom and slump. (Click here)
With reference to the double-circuited, credit-centered pattern of Outlays, Incomes, and Expenditures in the Diagram of Rates of Flow repeated below: We quote:
A condition of circuit acceleration was seen in Section 15 to include the keeping in step of basic outlay, basic income, and basic expenditure, and on the other hand, the keeping in step of surplus outlay, surplus income, and surplus expenditure. Any of these rates may begin to vary independently of the others, and adjustment of the others may lag. But any systematic divergence brings automatic correctives to work. (CWL 15, 144)
As Singer recognizes and understands. artificial prosperity is the cause of systematic correction.
… economic developments are finite, and so no economic development will accelerate indefinitely. They operate against an increasing resistance, to justify Juglar’s celebrated pronouncement: “the only cause of depression is prosperity.” (as quoted in Schumpeter, History 11240)
The automatic correctives do not resemble the movements of a stretched or compressed coiled spring but are rather in the corrective form of internal stresses and strains of a) prices versus quantities, b) circuit against circuit, c) relatively invulnerable units of enterprise against relative vulnerable units of enterprise, and d) relatively invulnerable recipients of income against relatively vulnerable recipients of income. The stresses and strains reverberate through the income tiers creating winners and losers and through the units of enterprise in the supply-and-sale chains constituting the production-for-sale economic process. In the booms and slumps there are winners and losers; and there are swindles. Moral considerations enter in.
The alternative to constant value in the dummy is the alternative of inflation and deflation. Of these famous twins, inflation swindles those with cash to enrich those with property or debts, while deflation swindles those with property or debts to enrich those with cash; in addition to the swindle each of these twins has his own way of torturing the dynamic flows; deflation gives producers a steady stream of losses; inflation yields a steady stream of gains to give production a drug-like stimulus. [CWL 21, 37-38]
The general form of change, as detailed in CWL 15, p. 109, is
DZ = PQ[(dP/P + dQ/Q + dPdQ/PQ) cos (A + dA) – 2 sin(dA/2) sin(A + dA/2)] (CWL 15, 109)
Z = Σ piqi [for expenditures] [CWL 15, 107-109]
Z + DZ = Σ(piqi + pidqi + qidpi +dpidqi) [for expenditures] [CWL 15, 107-109]
Therefore, Z = Σ(pi)(aqi) [for costs]
Z + DZ = Σ(piaqi + pidaqi +aqidpi +dpidaqi) [for costs]
Z = Σ piqi = P.Q = PQ cosA [CWL 15, 107-109]
Z + DZ = (P+dP)(Q + dQ) cos(A + dA) [CWL 15, 107-109]
Therefore, Σ(piqi + pidqi + qidpi +dpidqi) = (P+dP)(Q + dQ) cos(A + dA)
DZ = PQ[(dP/P + dQ/Q + dPdQ/PQ) cos (A + dA) – 2 sin(dA/2) sin(A + dA/2)] (21)
We are reminded that the principles of concomitance and correlation underlie Lonergan’s whole unified explanation of what is the unitary process.
Concomitance is, I would claim, the key word in Lonergan’s economic thinking. (Philip McShane, Fusion 1, p. 4, ftnt 10]
The concomitance of outlay and expenditure follows from the interaction of supply and demand. The concomitance of income with outlay and expenditure is identical with the adjustment of the rate of saving to the requirements of the productive process. (CWL 15, 144)
Some concomitances:
.1. Outlays with Expenditures [CWL 15, 144]
.2. Incomes between and with Outlays and Expenditures [CWL 15, 144]
.3. Basic and Surplus Incomes as the adjustment of the rates of each to the total incomes required in the current phase of the pure cycle [CWL 15, 144]
.4. Concomitant variation of two crossovers as the condition of equilibrium
.5. Proportionate concomitant flows of products and money payments to avoid inflation and deflation
.6. Magnitude and velocities of productive turnovers concomitant with magnitudes and velocities of payments
.7. Normative requirement of the balance of concomitant government spending and taxes (in both circuits)
(See The Notion of Organic Unity; Macroeconomic Field Theory as a Unified Systematic Whole)
The interlocking channels in the Diagram of Rates of Flow account for P. Singer’s inflation and deflation.
More positively, the channels account for booms and slumps, for inflation and deflation, for changed rates of profit, for the attraction found in a favorable balance of trade, the relief given by deficit spending, and the variant provided by multinational corporations and their opposition to the welfare state. [CWL 15, 17]
It is now necessary to state the necessary and sufficient condition of constancy or variation in the exchange value of the dummy. To this end we compare two flows of the circulation: the real flow of property, goods, and services, and the dummy flow being given and taken in exchange for the real flow….Accordingly, the necessary and sufficient condition of constant value in the dummy lies in its concomitant variation with the real flow. (CWL 21, 38-39)
Lonergan and P. Singer would agree: New money should enter the system to finance real production through the supply channels (S’-s’O’) and (S”-s”O”) rather than along (D’-s’I’) and (D”-said”). The purpose of money is to bridge the gap between outlays and incomes associated with real production and expenditures-receipts associated with real exchange. Entries such as the recent injections of trillions of dollars along (D’-s’I’) and (D”-s”I”) belong to the theory of booms and slumps.
… , positive or negative transfers to basic demand (D’ – s’I’) and consequent similar transfers to surplus demand (D” – s”I”) belong to the theory of booms and slumps. They involve changes in (aggregate basic or aggregate surplus) demand, with entrepreneurs receiving back more (or less) than they paid out in outlay (which includes profits of all kinds). The immediate effect is on price levels at the final markets, and to these changes (in price), enterprise as a whole responds to release an upward (or downward) movement of the whole economy. [CWL 15, 64]