Philanthropy: Anyone familiar with the medical and cultural institutions of Metropolitan Boston – upon which institutions the regional economy rides piggyback – cannot help but admire the beneficence, wisdom, and benefit of philanthropy: the Connors Center for Women’s Health and Gender Biology at Brigham and Women’s Hospital; the Connors Family Learning Center and the Clough Center for the Study of Constitutional Democracy at Boston College; the Yawkey Center for Outpatient Care and the Wang Building at Mass General; The Rosenberg Building at Beth Israel Hospital; the Salvation Army Kroc Center on Dudley St.; the Harry V. Keefe Library and the Clough Center for Global Understanding at Boston Latin School; the John A. Paulson School of Engineering and Applied Sciences at Harvard; the Carl J. and Ruth Shapiro Cardiovascular Center at Brigham and Women’s Hospital; museums, endowed scholarship funds, hundreds of endowed chairs, stained glass windows, etc.
There are many examples of philanthropic giving: established foundations to worthy causes; business owners to extraordinary employee benefits and to the spirit of the surrounding community; wage and salary recipients to their favorite causes; and the poor widow’s mite.
Also, there is a time for every purpose. Philanthropy has a shifting role to play in the series of phases of the economic process. Recall the Table of Possibilities in (CWL 15, 114) which distinguishes and relates the phases in an expansionary economic process. When to save and invest vs. to give philanthropically and how much to give might depend on the phase of the process. Recall the Table of Possibilities (CWL 15, 114):
The significance of the table is that it makes possible a distinction between different types of cycle. The trade cycle is a succession of expansions and contractions: it certainly is a movement up and down the table, and it may or may not also involve movements across the table. The contention of the present analysis is that there is a pure cycle at the root of the trade cycle. By a pure cycle is meant a movement across the table with no implication of a movement up or down the table. Thus the succession of surplus expansion, basic expansion, proportionate expansion, repeated as often as you please, would give a pure cycle. Of itself, it would not involve any contraction. … It can further be shown that the lack of such adaptation transforms the pure cycle into a trade cycle: the free economies of the present day are overadapted to the surplus expansion, which they exaggerate into booms, but underadapted to the basic expansion, which they convert into slumps. CWL 15, 115
The normative rate of justified saving and investing vs. consuming and gifting at any time can be considered in the context of the phase of the process. But we should not confuse the private sector’s proper management of the process with charitable giving. The higher wages and salaries given to lower-paid workers so as to adjust the rate of saving to effect adequate basic demand in the basic expansion is not philanthropy; rather it is the private sector properly managing demand so as to use existing capital to its full extent.
Section 26 in CWL 15 entitled the Cycle of Basic Income (pp.133-44) demonstrates how basic income is best increased, whether directly to employees by enlightened entrepreneurs, or by philanthropy:
I’ = Σwiniyi [CWL 15, 134]
dI’= Σ(widni+ nidwi+dnidwi)yi [CWL 15, 134]
Evidently, then, suitable migrations are a means of providing adjustments in the community’s rate of saving. To increase the rate of saving, increase the income of the rich. … to decrease the rate of saving, increase the income of the poor. … The foregoing is the fundamental mode of adjusting the rate of saving to the phases of the productive cycle. … [CWL 15, 135-37]
Lonergan mentions philanthropy in CWL 21 and implies that it is an alternative to taxation. Philanthropic goals stand for decision in the context of the phase of the objective economic process and of personal obligations, deserts, preferences and tax regulations.
the costs of which we speak do not include depreciation but do include taxes, ownership standard of living, and any type of philanthropy. [CWL 21, 77]
this entropy of the profit motive is not absolute, for profits are not identical with net surplus: profits include ownership standard of living, taxes, contributions to philanthropic ends; [CWL 21, 88]
the particular price spread of any given enterprise … includes not merely surplus but also primary income, such as income for ownership standard of living, taxes, philanthropy. [CWL 21, 91]
Freedom is important. Frederick G. Lawrence’s Editors’ Introductionin CWL 15 speaks about Lonergan’s convictions regarding liberty, education, and the propriety of allowing enlightened free participants to act freely in the economy. We quote briefly below, but recommend a reading of Lawrence’s Introduction in its entirety.
According to Lonergan, liberty is an originating value, the principle of the human good. [CWL 15,Editors’ Introduction xxxviii]
Questions for deliberation intend values conditioned by the technological, economic, and political orders that make them concretely possible. To the extent that people become reasonably sure that their choices of conditioned goods are also, at least implicitly, choices regarding the fulfillment of the prior or concomitant conditions that enable those goods to be achieved, they are humanly operating as fully free. [CWL 15, Editors’ Introduction xxxviii]
The one issue is the locus of that control. Is it to be absolutist from above downwards? Is it to be democratic from below upwards? Plainly it can be democratic only in the measure in which economic science succeeds in uttering not counsel to rulers but precepts to mankind, not specific remedies and plans to increase the power of bureaucracies, but universal laws which men themselves administrate in the personal conduct of their lives … [To] deny the possibility of a new science and new precepts is, I am convinced, to deny the possibility of the survival of democracy.[?]
Lonergan thought of his work in economics as a contribution to a vast educational program ‘to train and equip the masses for economic independence’; to release the spontaneity and the creativeness that reside … in free men. … He considered valid macroeconomic dynamic analysis ‘ an instrument that democracy must have, for it is the broad generalization, the significant correlation, that effectively organizes free men without breaking down their freedom.’ Thus, Lonergan called for an understanding of economics in which the economy is properly subordinated in a properly organized polity. [CWL 15, Editors’ Introduction xxxviii- xxxix]
Philanthropy is intrinsic to the economic process and is integral to any modeling or planning of the process. By philanthropic acts, money, which in the past or in the present has exited or is exiting an operative Demand Function into the Redistributive Function is redirected back into a proper Demand Function in the operative circuits for productive use.
In functional terms, the philanthropic are just consumers or investors, like any and all human participants, whether individually or collectively. They effect basic purchases if they currently purchase consumer goods for gifts to anyone whatsoever; they are investors if they give gifts of or for the expansion of capital or culture to improve the future standard of living.
Philanthropic gifts can constitute a flow as needed for normative balance or systematic correction: Models of the economic process, and the theory of which they are an image or representative, are instructive and enlightening.
In Lonergan’s Diagram of Rates of Flow (CWL 15, 55) , philanthropy may be represented as components of the flows of (D’-s’I’) and (D”–s”I”). Incomes not needed to support personal expenditures, but nevertheless required for the continuity of the process, may flow out of Demand along -s’I’ and -s”I”, but must simultaneously flow back into Demand along D’ and D”. These philanthropic subcomponents are (D’philanthropic= s’I’philanthropic) and (D”philanthropic=s”I”philanthropic).
Flows along -s’I’ and -s”I” can be routed ultimately as D’ and D” through either their own circuit or the other’s circuit. But the condition of dynamic equilibrium is that the two crossovers ultimately restore balance so that neither circuit is draining the other circuit.
In the case of long-established foundations, which long ago directed money out of the operative circuits into the secondary markets, a sudden release by these foundations into D’ or D” may inflate demand or work to counteract drains by the secondary market of the operative circuits.
When the norms of continuity and equilibrium are violated, philanthropy may assume a corrective role. Enlightened philanthropy is to be understood dynamically and normatively as an element of operative functional flows. It is an alternative to taxation and spending by the government, (See CWL 15, 162-64, 173-76) and, like government expenditures, it may be operative as either investment or consumption. Philanthropic donations reduce, but do not totally eliminate, the need for taxes by financing the performance of some services that would be otherwise demanded from the government – and by performing them better. Responsible and enlightened philanthropy may be classified as government by the intelligent, competent, and generous rather than criticized as rule by plutocracy.
One may posit four so-called “economic estates” – with the third and fourth having members in common:
- the fiscal estate (the legislative and executive branches of government)
- the monetary estate (the Central Bank combined with the banking system),
- the entrepreneurial estate (private-sector inventors, organizers, risk assumers, effectors)
- the philanthropic estate (recipients of large incomes or holders of static wealth who determine the use-for-good of their charitable donations)
In the absence of an automatic mechanism, the entrepreneurial and philanthropic estates must step up and effect the reduction of net aggregate savings smoothly and equitably.
The phenomena of our depressions can be explained by our lack of any mechanism that will reduce net aggregate savings smoothly and equitably. There results the distorted equilibrium conditioned by a rate of losses. This rate of losses forces a series of contractions and liquidations that characterize the depression. [CWL 15, 156]
It is critical that a basic expansion follows a surplus expansion. Often it does not.
In equity (the basic expansion following the surplus expansion) should be directed to raising the standard of living of the whole society. It does not. And the reason why it does not is not the reason on which simple-minded moralists insist. They blame greed. But the prime cause is ignorance. The dynamics of surplus and basic expansion, surplus and basic incomes are not understood, not formulated, not taught….. [CWL 15, 82]
The worst case of recession-depression-crash results because the economic process is misunderstood. Because of economic ignorance and blind instinct the basic expansion is not implemented; monetary demand is insufficient; quantities and prices spiral downward; contributors to the productive process are laid off; and there is much attendant misery. The failure to understand the functional dynamics of how the economic process should work leads to misinterpretations, recessions, and depressions characterized by contractions, liquidations, and painful layoffs. Enlightened philanthropy, private-sector employment policy, and unemployment insurance can head off the recession-depression-crash and, thus, mitigate or eliminate the misery.
When intelligence is a blank, the first law of nature takes over: self-preservation. It is not primarily greed but frantic efforts at self-preservation that turn the recession into a depression, and the depression into a crash. [CWL 15, 82]
Lonergan argued that previous depressions could be understood in terms of a tendency by producer-banker combinations with price fixing powers to hang onto the KN accumulation profit cum interest rather than raise wages, even after the economy was tooled up to the requirements of the new stationary state. [Burley and Csapo, 1992-1, 139]
Thus, in contrast to the normative “pure cycle”, there may occur the so-called “trade cycle” characterized by excess investment causing a “boom”, only to be followed by a systematically necessary correction called a “slump”. In the boom, even Bozo the Buffoon makes a lot of money; and in the slump, the most talented, hard-headed businessman may be driven to tear his hair out. A “slump” is consequent to a “boom”.
… 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, History1124)
Now in any expansion it is inevitable that quantities under production run ahead of quantities sold. Current production is with reference to future sales, and if there is an expansion, then future sales are going to be greater than current sales. But in the free economies the acceleration factors are not held down to the minimum that results from this consideration. During the surplus expansion the basic price-spread ratio J will increase from an increase of R, of a”, and also of a’. The advance of the price-spread ratio will work out through a rise of the basic price level, and selling prices generally will mount. Now, when prices are rising and due to rise further, the thing to be done is to buy now when prices are low and sell later when they are high. There results a large amount of liquid investment. Each producer orders more materials, more semifinished goods, more finished goods, than he would otherwise. Moreover, he makes this speculative addition to a future demand estimated upon current orders received, so that the further back in the production series any producer is, the greater [will be] the speculative element contained in the objective evidence of current orders received, the more rosy the estimate of future demand, and the greater the speculative element he adds to this estimate when he places orders with a producer still further back in the series. Thus an initial rise in prices sets going a speculative expansion that makes the acceleration factors quite notable, expands the price spread still more, and stimulates a pace of further acceleration that it will be quite impossible to maintain. Etc. [CWL 15, 160]
Now it is true that our culture cannot be accused of mistaken ideas on pure surplus income as it has been defined in this essay; for on that precise topic it has no ideas whatever. [CWL 15, 153]
Keeping in mind that our topic is philanthropy, we endeavor to place it in its shifting context of a series of phases. So, with reference to the Cycle of the Aggregate Basic Price Spread, which normatively expands and contracts through phases, [CWL 15, 156-62],
P’/p’ = a’ + a”(p”Q”)Ordinary Surplus/(p’Q’)
or J = a’ + a”R
δJ = δa’ + a”δR + /Rδa”
Lonergan comments on the implications of “boom”. The boom is constituted by excess investment over and above enlightened, reasonable, and absorbable normative investment. The excesses of the boom require the systematic correction of a slump.
This boom suffers no restrictions from a limited potential for short-term acceleration, since both stages are now expanding in long-term style. Both acceleration factors can mount to maxima and remain at the summits with da’ and da” both zero. Further variations of the price spread thus depend exclusively upon dR, and this becomes negative as the surplus expansion gives place to a basic expansion. When then prices begin to fall to effect the continual reduction of the price spread, there follows sooner or later the real and final crash. Speculative embarrassment makes both da’ and da” negative, to augment the rate of contraction of the price spread and intensify the embarrassment. Assets are frozen and then liquidated in a great drop of prices. Worse, there is no recovery; for the remainder of the cycle should be a basic expansion which our ill-adapted economies transform into a depression. [CWL 15, 161]
One is led immediately to the significance of the basic price spread and the concrete possibility of the business cycle and to the important conclusion that the business cycle is not primarily the result of entrepreneurial greed but of a failure to understand what is going on in an economic expansion…. [Gibbons, 1987, 313]
In equity (the basic expansion which must follow the surplus expansion) should be directed to raising the standard of living of the whole society. It does not. And the reason why it does not is not the reason on which simple-minded moralists insist. They blame greed. But the prime cause is ignorance. The dynamics of surplus and basic expansion, surplus and basic incomes are not understood, not formulated, not taught….. [CWL 15, 82]
When intelligence is a blank, the first law of nature takes over: self-preservation. It is not primarily greed but frantic efforts at self-preservation that turn the recession into a depression, and the depression into a crash. [CWL 15, 82]
Philanthropy has a role in achieving the good of order: Enlightened philanthropy contributes to the good of order. Its absence may cause the breakdown and decay of the good of order. For survival, if not for obvious moral reasons, a society should seek the good of order. Beneficial economic schemes of recurrence must be invented by creative people and be made to function properly by competent managers. For this to happen, participants must understand the dynamics of the process and adapt to its requirements so as to achieve the good of order. One of the adaptive actions is the intelligent beneficence called philanthropy.
In civil community there has to be acknowledged a further component, which we propose to name the good of order. It consists in an intelligible pattern of relationships that condition the fulfillment of each man’s desires by his contributions to the fulfillment of the desires of others, and similarly, protect each from the object of his fears in the measure he contributes to warding off the objects feared by others. This good of order is not some entity dwelling apart from human actions and attainments. … much … economic break-down and political decay are not the absence of this or that object of desire or the presence of this or that object of fear; they are the breakdown and decay of the good of order, the failure of schemes of recurrence to function. Man’s practical intelligence devises arrangements for human living; and in the measure that such arrangements are understood and accepted, there necessarily results the intelligible pattern of relationships that we have named the good of order. [CWL 3, 213-214/238-39]
The rules of order can be understood by free men and should be made to exist continuously rather than sporadically and accidentally.
Thus it is that in the history of human societies there are halcyon periods of easy peace and tranquility that alternate with times of crisis and trouble. In the periods of relaxed tension, the good of order has come to terms with the intersubjective groups. It commands their esteem by its palpable benefits; it has explained its intricate demands in some approximate yet sufficient fashion; it has adapted to its own requirements the play of imagination, the resonance of sentiment, the strength of habit, the ease of familiarity, the impetus of enthusiasm, the power of agreement and consent. Then a man’s interest is in happy coincidence with his work; his country is also his homeland; its ways are the obviously right ways; its glory and peril are his own. [CWL 3, 216/241]
Clearly schemes of recurrence exist and function. No less clearly, their functioning is not inevitable. A population can decline, dwindle, vanish. A vast technological expansion, robbed of its technicians, would become a monument more intricate but no more useful than the pyramids. An economy can falter, though resources and capital equipment abound, though skill cries for its opportunity and desire for skill’s product, though labour asks for work and industry is eager to employ it; then one can prime the pumps and make X occur; but because the schemes are not functioning properly, X fails to recur. As the economy, so too the polity can fall apart. … much…in a twilight of straitened but gracious living men await the catalytic trifle that will reveal to a surprised world the end of a once brilliant day. [CWL 3, 209-210/235]
Now the general theorem of continuity is that this (organic whole) has a nature that must be respected. … to violate this organic interconnection is simply to smash the organism, to create the paradoxical situation of starvation in the midst of plenty, of workers eager for work and capable of finding none, of investors looking for opportunities to invest and being given no outlet, and of everyone’s inability to do what he wishes to do being the cause of everyone’s inability to remedy the situation. Such is disorganization. Continuity, on the other hand, is the maintenance of organization, the stability of the sets and patterns of dynamic relationships that constitute economic well-being in a society. [CWL 21, 74]
Peter Burley and Laszlo Csapo [Burley and Csapo, 1992-1] have pointed out the unfavorable consequences of any participants’ extracting more pure surplus income from the economy than the economy is in fact producing, especially in the case of a static economy, i.e. an economy which can merely reproduce itself period after period, not produce more and more income for unneeded investment. Ever-more net profits of enterprise are mistakenly postulated as a criterion of successful management; but they become less and less available when the rate of expansion has passed its peak. (See CWL 15, 152-56)
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 functionally related to the rate of new fixed investment [CWL 15 152-53]
Paraphrasing: At the root of the depression lies a misinterpretation of the significance of both pure surplus income and basic income. In fact basic income is the monetary equivalent of the expanding consumption in the basic-expansion phase which completes a long-term expansion…..our culture can not be accused of mistaken ideas on basic income as it has been defined…; for on that precise topic it has no adequate understanding whatever… However the phenomena referred to by inadequate basic demand are well known. Selling prices and profits fall. There follows a vicious cycle of contractions, layoffs, reduced demand, reduced profits, contractions, layoffs, reduced demand, reduced profits, etc until the position of even the least vulnerable is undermined. Entrepreneurs are quite aware that there are times in which it is difficult to continue to grow the company, increase corporate income, and enjoy higher stock valuation; and the brilliant and the prudent may be driven to the wall ……….Thus basic income may be identified best by calling it the basis (the monetary correlate) of basic demand and viewing it as the functional monetary element required for the implementation of the basic-expansion phase of a long-term expansion and for the avoidance of a painful downward spiral.
The first difficulty is psychological. The static phase is a sombre world for men brought up on the strong drink of expansion. They have to be cured of their appetite for making more and more money that they may have more money to invest and so make more money and have more money to invest. They have to be fitted out with a mentality that will aim at and be content with a going concern and a standard of living. It is not so easy to effect this change, for as the Wise Man saith, the number of fools is infinite. [CWL 21, 97-98]
Rather than businessmen being content with stable pretax profits and personal income after an expansion has been completed, the goal per the mistaken criterion is to keep increasing income even though the economy in which the businessmen are participants is not producing increasing income. But norms calling for contentment can be violated. The normative flow is subject to distortion by the actions of different casts of characters. A distortive extracting may be effected by a) banker-producer combinations, through the interest charged over and above that warranted by expected returns and perilous risk, b) entrepreneurs in advantageous situations, c) labor unions misinterpreting the significance of pure surplus income, and d) various recipients of fixed fees.
- The Central Bank in concert with commercial banks can flood or drain money into or out of the economy. These dloods and drains torture and distort natural flows of investment and pure surplus income.
- bankers by agreement with the producers to whom they lend can extract excess pure surplus income by agreeing to excessively high contractual interest rates
- The legislative branch and the executive branch can work in concert to run distortive deficits causing excesspure surplus income on the obverse side (and vice versa in the infrequent case of a government surplus, aided perhaps by a bubble or artificial boom) Government can borrow so as to spend more than it takes in, thus, flooding the system with excess incomes.
- Top-tier commercial, entertainment and athletic stars can extract more money than needed for their current and future standard of living.
- contract workers, such as lawyers and unions, can create contractual cost rigidities which impede adjustment and equilibrium in the phases of an expansion of the system.
But the distortion or disequilibrium can be remedied by shifts in basic income treated in CWL 15, Section 26 or by philanthropy.
dI’= Σ(widni+ nidwi+dnidwi)yi [CWL 15, 134]
In Burley and Csapo’s von Neumann model [Burley and Csapo, 1992-1, p. 140], the formulas for the interest rate and growth rate, both of which are part of the immanent intelligibility of the process, indicate dependence of both rates on the several particular interrelated functional flows, which implicitly define and mutually condition one another: velocities of productivity (k, k’, l, l’), of consumption (c), and of depreciation (d, d’).
Thus, Burley and Csapo’s model implicitly contains a model for philanthropy. But, relevant to philanthropy, they also demonstrate the destructive consequence of ignorant participants’ “unphilanthropically” frustrating the normative growth rate by extracting more money and goods from the process than the process is generating.
“One could rework the calculations … replacing the c by s>c, where s-c corresponds to goods and money taken outside the equilibrium production model via an exogenous interest rate claimed by the banker-producer combination….Then the endogenous growth and interest rate…falls per the formula below. This would become negative if ccorresponded to the stationary state values of r=i=0. “[Burley and Csapo 2002-1, 140]
Burley and Csapo go on to point out the exigence of correction by philanthropy:
If, however, the s – c goods and corresponding money surplus were all (philanthropically) reinvested back into the equilibrium model, then our full employment could be maintained. Full employment could be maintained even if the surplus were not reinvested, provided that c could fall by the amount of the surplus; but if our c were downward rigid (as in a world of downward-rigid contractual salaries, fees, and wages) then the model would go into a negative growth phase, with increasing unemployment outside our model. This ongoing growth in unemployment would seem important to note in a world of high interest debt problems. … But it would seem important for analysis to be clear about the growing cost of an ongoing extraction of surpluses when living standards of employed workers are downward rigid. [Burley and Csapo, 1992-1, 140]
The extracted goods could possibly be hoarded for future use, rather than left to rot or depreciate. The extracted, productively-idle money could be reinvested philanthropically in production or cultural improvement, but it could also be rendered functionally useless by being stored under a mattress or used to buy the second-hand products of past production, such as art or secondary stocks. In either case an unnecessary contraction results with painful layoffs, declining skills, and rusting equipment.
Elsewhere Burley repeats the same conclusion regarding the extraction of more pure surplus income (“capital stage incomes”) than the process is producing. In the later stage of expansion the third and fourth estates must step forward to cooperate on a solution:
Lonergan’s point is that there is no automatic mechanism creating monetary boundary conditions for a shift into this final distribution and price system. Attempts to persist in accumulation (of capital) stage incomes would rather eventually be frustrated by the labour supply boundary condition…producers could only lay off workers to avoid a growing hoard of the new tool…Lonergan suggests we consider more cooperative solutions based on a collective understanding of his more sophisticated national income accounting which illustrates the full employment need to substitute for accumulation incomes which have lost their dynamic profit motivation. (i.e. they are sitting in the secondary markets doing nothing useful.) [Burley, 1992-2, 278]
Burley also points out that the banking system’s exogenous determination of a rigid combination of a) the money supply, and b) pricing necessary to cover excessive interest rates may constitute an extraction of excesspure surplus income; and it would systematically induce layoffs, declining skills, and rusting equipment. [Burley, 1992-2, 272]
Mod x could be determined by exogenous M and rigid contractual y: as in Foster (1987) for example. We might tackle problems of this general kind by multiplying our (Credit Money) Equation (4a) by a/b then subtracting and adding α(w-c) xWy on the left hand side giving:
αxAy + αxcWy + ax(w-c)Wy = (α/β)xBy
The dummy term, αx(w-c)Wy, could be interpreted as money hoarded by the workers while the corresponding goods are taken outside the model: (the money is not there to buy them at their rigid prices).
If the hoarded goods are perishable, and so do not pile up, Equation (3a) might take the form
αx[B-α(w-c)W]y = αxAy + αxcWy
where α is now reduced to equal β and the model is very simple: money and goods corresponding to e = α/β would be taken out each period. Other variations are also possible, as discussed at the end of Section 4.
In this latter case, goods for which there is not compensation sufficient for purchase, are produced and hoarded only to wind up in the dumpster.
Excessive extraction by some would require rebalancing by philanthropy of others as a corrective force reestablishing equilibrium. (One is reminded of a) Hooke’s simple law of the coiled spring, F = kx, or b) of the more complicated theory of the stresses and strains of elasticity. Departure from equilibrium necessitates a corrective force.)
Effective philanthropy by enlightened participants is preferred to a default to confiscatory or ineffective taxation; intelligent philanthropy can set the system right by keeping money circulating properly, i.e. by putting any excesses extracted from the dynamic system back into expenditures for public works, institutions, community activities, education, monuments, and other uplifting art, all of which benefit the economy and the ongoing and enduring culture of the community. This philanthropic spending by individuals in the private sector, who know how to direct money wisely to fruitful projects and activities, obviates taxing and squandering by bureaucrats.
Men are not equal; enlightened self interest by free people: Lonergan points out that expertise is broadly distributed among doers and that doers in the third and fourth estates know more than bureaucrats. He calls for the further enlightenment of enlightened self-interest to preserve a society of free people and to obviate a drift to totalitarianism, which causes “either an explosion or else servile degeneracy” :
The practical common sense, operative in a community, does not exist entire in the mind of any one man. It is parceled out among many, to provide each with an understanding of his role and task, to make very cobbler an expert at his last, and no one an expert in another’s field. So it is that to understand the working of even a static social structure, on must inquire from many men in many walks of life and, as best one can, discover the functional unity that organically binds together the endlessly varied pieces of an enormous jig-saw puzzle. [CWL 3, 211/236-37 ]
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 otherwise, 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]
The excellence of the exchange solution is palpable. It leaves each one free to do as he pleases; but if what pleases him is not what others want, then demand will be zero and his reward will be zero. It encourages inventiveness and initiative in anticipating others’ wants; for such anticipations are met with a strong demand and a high reward. It encourages each one to do his best, for excellence in performance creates favorable preferences or yields the efficiency which, when prices are uniform, produces a differential rent. It places the risks of production on producers, but it leaves control of production ultimately to the integration of consumers’ decisions to exchange or not exchange. It apportions the measure of reward each is to receive by the integration of individual decisions, but it leaves the precise reward each receives to his individual choice. [CWL 21, 34]
For the representation of the symbols, please refer to Peter Burley and Laszlo Csapo, Money Information in Lonergan-von Neumann Systems, Economic Systems Research, vol. 4, No. 2, 1992 p. 134
Burley and Csapo are suggesting that distortionally large flows of charged interest to bankers, producers, and rentiers may be responsible for high prices and high unemployment.