In his discovery of the new theory of Functional Macroeconomic Dynamics, Lonergan developed new terms and assigned new meanings to traditional terms of microeconomics. By foundational precise analytic distinctions he achieved a new purely relational understanding of aggregate and functional macroeconomic costs, aggregate and functional macroeconomic profits, point-to-point vs point-to-line relations of factors of production to basic goods, etc. In its beginning and at its base, Functional Macroeconomic Dynamics is constituted by analytic, purely functional relations.  In 1979 Lonergan introduced the term social dividend as a replacement for the term pure surplus income.

The socialist version of commonsense bias wields the ‘haughty name of welfare’ (MD:ECA 86) and sets up an irrational weighting of entitlements that spawns a permanent underclass.  And so bias has in one way or another kept both capitalist and socialist outlooks from achieving a correct understanding of profit as a ‘social dividend.’… According to Lonergan, profit as coopted by bias systematically excludes an intelligible account of the ‘social dividend’ which would be the reasonable return on entrepreneurial activity that ramifies throughout the entire society (CWL 15, 133-44, 144-56).  For in the measure that it is unbiased, being an entrepreneur means taking initiative in improving the social and cultural order of a society in its provision of goods and services by transforming and exploiting the means of production.  Accordingly, profit is the flow of an economy’s resources for the sake of a major transformation … [CWL 15, Editors’ Introduction lxiv]

Surplus income is not the same as (conventional accounting) profits. The latter are a simple matter of the excess of accounts receivable over accounts payable.  They include a firm’s additions to its portfolio, and living expenses (no matter how high) of the upper echelons.  This accountant’s concept of profit pertains not to macroeconomics but to microeconomics. …Surplus income as a macroeconomic concept is the social dividend (rate of saving: see note 186)[1]that results from the functioning of an expanding economy.  It receives contributions from basic outlay (I’O’), as well as from surplus outlay (I”O”) …  But in macroeconomics, which is aware of the need of a crossover balance for equilibrium, the basic price spread is to a greater or less extent a part of the social dividend (rate of saving) in an expanding economy.  It is only in the static economy that it justifies a rise in wages. … On any turnover, then, the possible sources of surplus income are the flows of money into surplus transitional receipts, namely, 1.) existing surplus firms maintaining the level of the previous turnover by spending on surplus supply the sum of I”O” and I’O’, 2.) existing surplus firms increasing the level of previous turnover by drawing on the redistributional function by (S”-s”O”), 3.) emergent surplus firms drawing on the redistributional function by (D”-s”I”) to acquire plant and equipment. [CWL 15 145]

Lonergan defines the social dividend as

• Income over and above the “standard of living,” “rent,” interest, maintenance and replacement of capital equipment
• [the means given] to entrepreneurs, investors, because they are the most likely to be able to interpret what it is for, namely, the successful introduction into the economic process of technological, commercial, or organizational improvements
• (income for investment in) the possible improvements that would succeed?’
• Surplus income as a macroeconomic concept is the social dividend (rate of saving: see note 186) that results from the functioning of an expanding economy.

… With this definition of social dividend, compare a quotation from Schumpeter, History894, which Lonergan included in another supplement: ‘[John Bates] Clark’s contribution was the most significant of all: he was the first to strike a novel note by connecting entrepreneurial profits, considered as a surplus over interest (and rent) with the successful introduction into the economic process of technological, commercial, or organizational improvements.’ [CWL 15, 133]

• Five terms may be used synonymously to denote the same phenomenon:
  • Monetary correlate of pure expansionary investment
  • Pure surplus income
  • Betterment money
  • Net aggregate savings
  • The social dividend

The phenomenon called pure surplus income or the social dividend is a flow per period, i.e. a functioning functionally related to other phenomena.

• As a flow, it is a rate, a so much every so often or so much per period.
• The word social connotes some existence within society, i.e. it connotes an ethos of wisdom and obligation.
• The word dividend connotes a distribution of what is available after normal requirements.
• The word income indicates a normative heading towards expenditure in the real circuits of the real economy
• The word saving denotes a non-spending on consumer goods correlated with investment in capital goods

Consequently, Lonergan is suggesting the following:

• Pure surplus income is the monetary correlate of capital expansion. Its source is previous outlays or current credit for capital expansion
• In the operative circuits, it completes its circulation through investment outlay to investment income to investment expenditure to final receipt, then on to the next round of a similar circulation
• So, its high purpose is to circulate for investment rather than consumption
• The sustaining of circulation is a normative requirement for continuity in the economic process
• As normative, it is a requirement in the process and an obligation for those who best know how to put it to good use. There is an ethos associated with capital expansion.
• If it is directed by individuals to the “bank of previously issued stocks and bonds,” other individuals are able to redirect it out of that bank into its normative functioning as circulating capital
• In a long-term expansion, this so much per period may initially increase exponentially, then uniformly, then reach a peak and return to zero as the expansion tapers off.
• This phenomenon may be misunderstood. If accounted for in bookkeeping as high salaries or net profit, it may be mistakenly misinterpreted as wasteful excess rather than money available for a justifiable improvement of the economy and culture.
• Ignorance and/or egoistic bias may oppose and thwart its return to zero.
• The criterion of ever increasing accounting profits may oppose and thwart its return to zero.
• Group bias may seek its continuance for the benefit of the group.
• The bias of common sense (i.e. not acting according to theory) may seek the continuance of this apparent operating profit as the accepted commonsense norm of enterprise.
• Therefore, the social dividend’s return to zero may be resisted; money may be drained out of the basic circuit into the surplus circuit to sustain accumulation-stage incomes, the basic-expansion phase may be thwarted, and the expansion may be contracted into a slump.

Entrepreneurs are persons who take the initiative.  They are doers.  They get things done.  Many of them have learned a lot from experience in the trenches.

For in the measure that it is unbiased, being an entrepreneur means taking initiative in improving the social and cultural order of a society in its provision of goods and services by transforming and exploiting the means of production.  Accordingly, profit as the flow of an economy’s resources for the sake of a major transformation and expansion of capital goods would be ’pure surplus income.’ [CWL 15, Editors’ Introduction lxiv]

‘To increase the rate of saving [social dividend] increase the income of the rich; while (some of them) may be too distant from the current operations of the economic process to judge, at least they can put their money into the bank of bonds or stocks, and perhaps others will see how it can best be used.’ (at note 190 in the text).  Lonergan introduced the phrase ‘social dividend’ instead of the rate of saving in 1979.  See note 186, there, for a fuller notion of social dividend. [CWL 21, 286 ftnt 2 referring to CWL 15]

Lonergan thought that Western economic policies were often based on ‘mistaken expectations’ (CWL 15, 80-86) fostering a lack of adaptation to the demands of what he called ‘the social dividend of pure surplus (producer-goods) income’ in relation to ‘basic (consumer-goods) markets’ (CWL 15, 144-156)  He believed he had an explanation for what … he described as a ‘situation – sometimes thought mysterious – in which consumer prices continuously inflate, new enterprise is evaded, unemployment becomes chronic, and despite the inflation the value of stocks declines’ (CWL 15, 175) [CWL 15, xli]

Bias is a subjective disposition.  There is the egoistic bias of the individual, the group bias of the tribe, the dramatic bias of the person coping in the world, and the commonsense bias of the multitude opposed to pure theory.  But, of course, pure theory is of practical use.  Again,

The socialist version of commonsense bias wields the ‘haughty name of welfare’ (CWL 15, 86) and sets up an irrational weighting of entitlements that spawns a permanent underclass.  And so bias has in one way or another kept both capitalist and socialist outlooks from achieving a correct understanding of profit as a ‘social dividend.’ … According to Lonergan, profit as coopted by bias systematically excludes an intelligible account of the ‘social dividend’ which would be the reasonable return on entrepreneurial activity that ramifies throughout the entire society (CWL 15, 133-44, 144-56).  Again, for in the measure that it is unbiased, being an entrepreneur means taking initiative in improving the social and cultural order of a society in its provision of goods and services by transforming and exploiting the means of production.  Accordingly, profit as the flow on an economy’s resources for the sake of a major transformation and expansion of capital goods would be ’pure surplus income.’ [CWL 15, Editors’ Introduction lxiv]

The basic mistaken expectation (fostering a lack of adaptation to the demands of what he called ‘the social dividend of pure surplus (producer-goods) income’ in relation to ‘basic (consumer-goods) markets’) (CWL 15, 144-156)  rests on a failure to distinguish between normal profit, which can be constant, and a social dividend which varies.  It mounts in the major surplus expansion; it declines as that expansion tapers off; it vanishes when the expansion has finished. [CWL 15, 81]

the transformation of the surplus expansion into a slump is due to the fact that the one precept (save and invest) works less well; as the above-normal profit, the social dividend, has to shift from anti-egalitarian tendency of the surplus phase to the egalitarian tendency of the basic phase. [CWL 15, 116 ftnt 148]

… in macroeconomics, which is aware of the need of a crossover balance for equilibrium, the basic price spread is to a greater or less extent a part of the social dividend [rate of saving] in an expanding economy.  It is only in the static economy that all of it justifies a rise in wages. [CWL 15 145 ftnt 201]

[1]The purpose of this section is to inquire into the manner in which the rate of saving W¹⁸⁶is adjusted to the phases of the pure cycle of the productive process. Ftnt 186: In this sentence Lonergan originally wrote: ‘the rate of saving, G.’  A substitution of W and a change to ‘social dividend’ are both prescribed in the 1979 supplement mentioned in note 185 above; the original phrase ‘rate of saving’ has been retained throughout the present section. … The supplement defines the social dividend as

• Income over and above the “standard of living,” “rent,” interest, maintenance and replacement of capital equipment
• [the means given] to entrepreneurs, investors, because they are the most likely to be able to interpret what it is for, anamely, the successful introduction into the economic process of technological, commercial, or organizational improvements
• who else would know which are the possible improvements that would succeed?’

… With this definition of social dividend, compare a quotation from Schumpeter, History 894, which Lonergan included in another supplement: ‘[John Bates] Clark’s contribution qas the most significant of all: he was the first to strike a novel note by connecting entrepreneurial profits, considered as a surplus over interest (and rent) with the successful intgroduction into the economic process of technological, commercial, or organizational improvements.’ [CWL 15, 133]