Pure Surplus Income and The Social Dividend

This pure surplus income is quite an interesting object.  … it is a rate of income over and above all current requirements for the standard of living, … and as well over and above all real maintenance and replacement expenditure … , [CWL 15, 146]

At the root of the depression lies a misinterpretation of the significance of pure surplus income. In fact it is the monetary equivalent of the new fixed investment of an expansion…..our culture can not be accused of mistaken ideas on pure surplus income as it has been defined…; for on that precise topic it has no ideas whatever………However the phenomena referred to by …”pure surplus income” are well known.  Entrepreneurs are quite aware that there are times of prosperity in which even a fool can make a profit and other mysterious times in which the brilliant and the prudent may be driven to the wall……….Thus pure surplus income may be identified best by calling it net aggregate savings and viewing them as functionallyrelated to the rate of new fixed investment [CWL 15 152-53]

 Depending upon the aspect of the current, purely dynamic process being considered – incomes, costs, savings, growth, product type – , several phrases are used to designate a distinct functional flow:

  • Pure surplus income
  • Purely expansionary income
  • The monetary correlate of capital expansion
  • Net aggregate savings
  • Net “macroeconomic profits”
  • The social dividend
  • That income which is “over and above” what is used for consumption

Lonergan clarifies the meaning of pure surplus income or the social dividend:

  • [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[1]CWL 15, 133
  • the excess over that part that would be profit in the stationary state if the firm is not to go bankrupt and if the persons responsible for the firm’s emergence and continued existence are to have a proportionate standard of living that is normal in the stationary state … [CWL 15, 81]
  • 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]

In the context of Functional Macroeconomic dynamics, the meaning of the words social, surplus,and pure must be made clear.

The meaning of “social”  may be gleaned from Lonergan’s phrasings:

  • [the means given] to entrepreneurs, investors, because they are “the most likely to be able to interpret what it is for,”
  • being an entrepreneur means taking initiative in improving the social and cultural order of a society.
  • If the society has the potential for economic improvement and expansion, the funds to effect this betterment and expansion should go to those who will spend it wisely, and it is entrepreneurs and savvy investors who, unlike bureaucrats, best know how to spend net aggregate savings or “pure surplus income,”or the “social dividend,” or that income which is “over and above” what is used for consumption.

The economy is an aspect of the society, so this monetary correlate of capital expansion is a social element.

The word surplus has not the negative connotation of “too much”; a “surplus product” is simply a point-to-line item; “surplus income” is income to be spent for the purchase of capital for maintenance and repair or for expansionary investment rather than for a standard of living.  If capital is to be produced and installed, surplus income –  either borrowed or previously earned  – must exist.  Surplus income is a good thing.  It is to be cheered and valued.

The word “pure” simply means “exclusively for capital expansion” and “not for repair and maintenance of existing but depreciated capital”; thus pure surplus income is income to be spent exclusively on additions to the existing stock of capital.  A better phrase for pure surplus income might be purely expansionary income or the monetary correlate of expansionary investment.