Appendix: Lonergan’s Earlier Treatment of Pure Surplus Income

Though as of 2013 the concept of pure surplus income has still not reached the academy, Lonergan had a developing understanding of the concept of pure surplus income in 1942. He posits the Theorem of the Surplus.

(Note: in this 1942 essay, surplus income and profit are synonymous with pure surplus income of the 1982 essay; and 1942’s secondary would be synonymous with 1982’s surplus.) Theorem of the Surplus: Because continuity presupposes the expenditure of income in its entirety, we have in equation (8) (DE’ + DE” = DI’ + DI”) the truth of the view that in the general case there are no such thing as profits. … However, not all of DE” need be spent on maintenance, repairs, and replacements. A certain fraction may be being devoted to … widening and deepening of existing industry. Further, this rate of expenditure at the secondary market, S.DE”, will not appear initially in the (income-statement)accounts of any individual or any firm under the heading of costs in the ordinary (bookkeeping) sense of that term; on the contrary, it is part of the flow of investment; it is the outlay of fresh (monetary) capital for (real) capital goods and services. … Thus we are led to posit the theorem of the surplus. Let the activity of widening and deepening be termed surplus activity, and let its rate be S.DA”. Then necessarily … there will be a surplus expenditure, S.DE”. And necessarily this surplus expenditure will generate surplus income S.DI”, for what is expenditure to Jones is income to Smith. … Now this theorem explains the obvious fact that, theory to the contrary, profits may exist in the general case. … there is poured into the secondary field a flow of investment expenditure, S.DE”, and this inflow makes it possible for traders to absorb from the circulation a surplus income, S.DI”. In other words, the condition of continuity expressed in equation (8), namely,

(DE’ + DE” = DI’ + DI”)

is satisfied not by the direct expenditure of total income but by the expenditure of a part of total income and by an inflow of investment compensating for an outflow of profits. …the people moved by the profit motive do not think of their investments as spending; they earn more than they spend by the simple device of calling part of their spending not spending but investment. … it is a net surplus, an excess profit that can be spent only by being invested. … Further, observe that surplus income is distributed among primary traders as well as secondary. [CWL 21, 49]

The internally-conditioned, circular series of monetary functionings constituting a circuit

outlays becoming incomes becoming expenditures becoming receipts becoming outlays

is in the form of

A to B to C to D to A

with the last event being the condition of the first. In this circular monetary functioning, one may analyze forward to identify use or backwards to identify source. While the possibility of delays and hastenings is acknowledged, continuity within a circuit requires a keeping of pace. The flow of incomes-expenditures effecting demand must keep pace with the flow of receipts-outlays effecting supply. There is a concomitance of the flow of production outlays and purchase expenditures with the production of goods and services and the vending of goods and services. Payments money must flow within (and between) the two interdependent circuits in the proper quantity and with the proper timing. And since the production process is intrinsically surge-ative, – one level’s surge is followed by another level’s surge – there is a series of phases as the process expands; there will be a systematic requirement for adjustment of pure surplus income according to the requirements of the pattern of the crescendos of the expanding productive process.

Note in the first sentence of this appendix the term “concept of.” A concept is a single term among a set of terms which are in a coherent relation with one another by virtue of an insight. As the concepts “center”, “equality of radii”, and “perfect roundness” cohere with one another in the understanding and definition of a circle; as the concepts of “mass,” “space”, “time”, “acceleration”, “distance”, and “gravitational constant” cohere with one another in the Newtonian understanding and definition of what is named mass; so the concepts of “rates of application of factors of production”, “point-to-point”, “payments velocity”, and “rate of emergence of the standard of living”, cohere with one another in the understanding of the basic productive process. Similarly, the concepts of “rates of application of factors of production”, “point-to-line”, “investment velocity”, “rate of emergence of the capital stock”, cohere with one another in the understanding of the surplus productive process, and the concepts of “circuit,” “crossover,” “concomitance,” “balance of velocities or accelerations” cohere with one another in the understanding and explanation of an equilibrated, dynamic economic process.

All data fall into a single perspective.

Moreover, once initial difficulties are overcome and basic insights are reached, the investigation approaches a supreme moment when all data suddenly fall into a single perspective, sweeping yet accurate deductions become possible, … [CWL 3, 47/71]

The flow of pure surplus income is a normal flow to be coordinated with the flow of ordinary surplus income for repair and maintenance of existing capital and the flow of basic income for the purchase of existing consumer goods. For an orderly sequence of capital-goods expansion followed by a consumer-goods expansion, dynamic equilibrium requires a.) continuity of flows within each circuit, b.) balance of flows between circuits, and c.) adequate flows of transactions money from the banking system.