Autor: Bruce, Anderson and McShane, Philip

Buch: Beyond Establishment Economics

Titel: Beyond Establishment Economics

Stichwort: Definition: Basic Goods and Services; Surplus Goods & Services

Kurzinhalt: ... orthodox economists think unclearly of producer goods as used in the production of consumer goods

Textausschnitt: 23a The key to appreciating Bernard Lonergan's economic theory is to understand how he sharpens the orthodox distinctions between producer goods, consumer goods, and capital and then goes on to fully exploit the distinction he draws. The particular distinction Lonergan draws is one of the fundamental building blocks of his theory. (Fs)

23b Lonergan does not use the terms consumer goods or producer goods. Rather, he uses the terms basic goods & services and surplus goods & services. But don't be mislead by the terms. Basic does not mean essential to life and surplus does not mean extra, superfluous, or luxurious. Lonergan's explanation of basic goods & services is roughly analogous to consumer goods & services as understood by orthodox economists and his term surplus goods & services is roughly analogous to orthodox economists' description of producer goods and capital. But the analogy does not hold. There are important differences. Lonergan sharply distinguishes between basic and surplus goods & services. For him, these are fundamental elements in an economy. (Fs)

[...]

23d When I was a kid my parents gave me an allowance - a certain amount of spending money each week. I remember spending this money on things like chocolate bars, bus rides to the shopping mall, hockey sticks, camera film, bowling, skating. These expenditures were all made for basic goods & services. Today, I spend the money I earn on groceries, newspapers & spy novels, gas for my car so I can go sight-seeing, tickets' to see the Washington Capitals play hockey, beer, movie tickets, video rentals, wood for the kitchen table I am making, my phone bill, and rent. These sorts of things are also basic goods & services. I spend money on these goods & activities in order to survive, not to make money from them. (Fs)

24a So, in that precise way, my purchases are different from a fisherman paying to have his boat tuned up, a carpenter upgrading to the latest computer accounting program, a dentist buying a new dental chair, a bicycle courier upgrading the components on her bike, a shipping company adding a new fleet of airplanes, or a corporation building a new plant. In these situations goods are purchased & services are performed in order to maintain equipment, replace it as it wears out, or to buy new equipment. What makes these goods & services different from basic goods & services is that these goods & services are bought with the intention of using them to make other goods. These goods & services are part of the process of producing & selling other goods & services - catching fish, building an extension on a house, filling cavities in teeth, delivering packages, manufacturing new products. The engine tune-up, the accounting program, the dental chair, the bike components, the airplanes are not used just one time, but are used over & over again in the process of producing goods to be sold or in the process of performing services to be paid for. According to Lonergan's theory this distinguishes them as surplus goods & services. (Fs)

24b Perhaps you are thinking that there does not seem to be much difference between orthodox economists' descriptions of producer and consumer goods and Lonergan's distinction between surplus and basic goods & services. On both accounts consumer goods and basic goods are consumed, used up by entering the standard of living. On both views, producer goods and surplus goods continue to be part of the process of producing other goods & services to be sold. Further, for both orthodox economists and Lonergan the criterion for distinguishing between consumer and producer goods & between basic and surplus goods is how the goods are used. (Fs)

25a But orthodox economists think unclearly of producer goods as used in the production of consumer goods. An example is the use of sheet metal in automobiles. Sheet metal, for them, is a producer good that is used to make consumer goods, ie automobiles. For Lonergan, however, what determines whether a good is classified as basic or surplus is its use when it is sold as a finished product. A car used solely for leisure activities would be a basic product, but a new car purchased and used by a salesperson to sell printing presses would be a surplus good. The sport fisherman paying a mechanic for an engine tune up would be paying for a basic service, but the inshore fisherman would be paying for a surplus service. A cyclist who buys new gears so she can more easily ride around the countryside has purchased basic goods, but the bike courier who buys new gears so she can quickly deliver parcels has bought surplus goods. The home handyman who buys the same table saw as a carpenter has purchased a basic good, but the carpenter has purchased a surplus good. The recreational pilot who buys his own plane has purchased a basic good, but Air Canada has bought a surplus good. Orthodox economists don't make such clear distinctions. (Fs)

Autor: Bruce, Anderson and McShane, Philip

Buch: Beyond Establishment Economics

Titel: Beyond Establishment Economics

Stichwort: Angebot und Nachfrage (supply a. demand): Lonergan - Mankiw

Kurzinhalt: Differences in Supply & Demand: Monetary Circulation versus Snap-Shot Equilibrium; what for Lonergan is a tendency of markets, for Mankiw is the law of supply & demand

Textausschnitt: 6.1.3 Differences in Supply & Demand: Monetary Circulation versus Snap-Shot Equilibrium
116b It seems that an obvious site for comparing Lonergan & Mankiw would be supply & demand. It is easy to notice that for Lonergan there are two distinct types of demand - surplus demand & basic demand - and two distinct types of supply - surplus supply & basic supply - but that for Mankiw supply & demand are undifferentiated with regard to types of goods and types of payments. Supply & demand, for Mankiw, covers all types of goods & services regardless of their use in the economy. (Fs)

116c But the significance of this particular comparison fades when we compare Lonergan & Mankiw's treatment of supply & demand. Lonergan has a precise definition for supply and demand. Demand is the term Lonergan uses to denote sums of money held in reserve for expenditure. Supply is the term he uses to denote sums of money held in reserve for outlay.1 By contrast, Mankiw's uses the term demand - in the context of markets - to refer to what is common knowledge, namely that people will generally buy more goods when the price falls. He uses the term supply to refer to the fact that sellers will generally produce more goods when the price rises. This usage is less precise than Lonergan's in that Mankiw offers no measures of supply & demand and it does not seem possible to measure them. (Fs) (notabene)

116d But picking supply & demand as a point of comparison obscures larger differences between Lonergan & Mankiw. Demand does entirely different jobs for each of them. For Lonergan, surplus demand and basic demand are elements in the flow of payments in an economy. They are only part of the monetary circulation. For Mankiw, demand (along with supply) is the frame of reference which guides or directs all examinations of the economy. (Fs) (notabene)
117a Can we reconcile these two views? In particular, does Lonergan's analysis of monetary circulation encompass Mankiw's perspective on supply & demand? Can we fit Mankiw's view into Lonergan's larger perspective? At a glance the answer seems to be yes. Mankiw's explanation of how markets work seems to be consistent with Lonergan's description of the tendency of markets. Mankiw's argument is that an equilibrium price balances the supply & demand for goods; an equilibrium interest rate balances the supply & demand for loanable funds; the inflation rate balances the supply & demand for money; and the exchange rate balances the supply & demand for foreign-currency exchange. (Fs)
117b An excerpt from Lonergan captures how he reconciles analogous differences in perspective. (Fs)
M Leon Walrus developed the conception of the markets as exchange equilibria. Concentrate all markets into a single hall. Place entrepreneurs behind a central counter. Let all agents of supply offer their services, and the same individuals, as purchasers, state their demands. Then the function of the entrepreneur is to find the equilibrium between these demands and potential supply. (Fs)
The conception is exact, but it is not complete. It follows from the idea of exchange, but it does not take into account the phases of the productive rhythms. As has been shown, economic activity moves through a series of transformations and exploitations; and this series generates the succession of capitalist, materialist, cultural, and static phases. Now each phase in an exchange economy will have its exchange equilibrium, but the equilibria of the different phases differ radically from one another.1 (Fs)

117c There is, however, a crucial difference between Lonergan & Mankiw on this matter. For Lonergan the tendency of markets possesses a dynamic character in the sense that an equilibrium or uniform price is something that is never achieved even in a stable or steady-state economy. It is evident that prices of goods vary among stores, that interest rates & exchange rates vary among customers and vary each day, and that inflation rates are subject to drastic changes. Lonergan does not place supply & demand at the centre of his analysis. There is more to understanding how an economy works than supply & demand. For Lonergan, it is simply a fact that prices tend toward uniformity. (Fs) (notabene)

118a By contrast, what for Lonergan is a tendency of markets, for Mankiw is the law of supply & demand. Mankiw does not discuss the dynamic nature of markets. Rather, he presents his analysis of how markets work as a snap-shot. It is as if achieving the point of equilibrium freezes the frenetic activity of the market. The dynamic aspect is presented in terms of one-time shifts in the demand curve or the supply curve. (Fs) (notabene)

Autor: Bruce, Anderson and McShane, Philip

Buch: Beyond Establishment Economics

Titel: Beyond Establishment Economics

Stichwort: Lonergan, Mankiw: unterschiedliche Fragestellung als Ausgang der Analysen

Kurzinhalt: By contrast, for Mankiw the primary problem is How can we ensure that GDP grows over the long-run?

Textausschnitt: 6.2.1 First We Understand versus First We Act

118a The overarching concerns and problems that shape the inquiries of Lonergan & Mankiw are different. For Lonergan the important question is How does an economy work? The short answer is that the monetary circulation in an economy must keep pace with the dynamic rhythms of production. He believes that it is only after understanding how an economy ought to work, and in fact is working, that can we go on to take suitable actions in particular situations. (Fs)

On this model, circulation analysis raises a large superstructure of terms and theorems upon a summary classification and a few brief analyses of typical phenomena. Classes of payment quickly become rates of payment standing in the mutual conditioning of a circulation. To this mutual and, so to speak, internal conditioning there is immediately added a distinction between different types of circulation and their mutual conditioning through transfers from each to the other. This two-fold conditioning in the monetary order is correlated with the conditioning constituted by productive rhythms of goods and services, so that positive, zero, and negative changes in rates of payment are concomitant with various dynamic configurations in the productive process. There results a closely knit frame of reference that can envisage any total movement of an economy as a function of a sequence of changes in rates of payment, and that define the conditions of desirable movements as well as exhibit the causes of breakdowns. Finally, through such a frame of reference one can formulate the mechanism to which such a classical precept as thrift and enterprise is only partially adapted; and through it again one can formulate the fuller adaptation that has to be attained.1 (Fs)

119a By contrast, for Mankiw the primary problem is How can we ensure that GDP grows over the long-run? The answer is to increase productivity. For him the secondary problem is How can we avoid recessions in the short-run? He gives two answers: either we leave the economy alone or we stabilize or smooth out economic activities by manipulating aggregate demand or aggregate supply. (Fs) (notabene)

119b I want to stress that the fundamental differences in the analyses of Lonergan & Mankiw are related to the way they frame their key questions. Lonergan, first & foremost, is concerned with correctly understanding & explaining how an economy works. It is only after understanding how an economy actually works that we can begin to tackle the challenge of how to run it properly. By contrast, the search for understanding does not dominate Mankiw's frame of reference. His starting point is the GDP and his overriding concern is How do we make it grow? (Fs)

119d In order to avoid any confusion it is worth stating that of course Lonergan wants people everywhere to enjoy a better standard of living and that it helps if we avoid recessions & depressions. In fact, his explanation of how an economy actually works grounds an analysis of why things go wrong and what we should do to avoid them. Recessions & depressions are part of that discussion. The point I am trying to communicate is that Lonergan's concerns and the scope of his inquiry are far more comprehensive than those of Mankiw. Lonergan's stance is that in order to run an economy properly you have to know how it is working, and how it ought to work. The limitation of Mankiw's position is evident in his final chapter where his perspective is unable to shed any light on which side to take in the five policy debates. (Fs)

Autor: Bruce, Anderson and McShane, Philip

Buch: Beyond Establishment Economics

Titel: Beyond Establishment Economics

Stichwort: Lonergan, Maniw: Messung vs. Imagination

Kurzinhalt: 6.2.2 Different Mentalities: Measurement versus Imagination. Supply & demand are key elements in Mankiw's analysis yet he does not provide any measurements of them in his discussions

Textausschnitt: 6.2.2 Different Mentalities: Measurement versus Imagination

120a Lonergan & Mankiw have different positions on what counts as fact in the field of economics. This difference can be illustrated by examining how they treat measurement. Lonergan's view is straight-forward. In order to find out what is going on in an economy the significant economic variables must be measured. The mentality of Lonergan is that of a scientist. The rates of payments in the monetary circuit must be measured. There is no room for speculation or predictions in his analysis. This requirement means that we need new types of measures than those that currently exist if we want to understand what is going on in an economy. For example, the different charges levied by telephone & power companies and banks on ordinary consumers and corporate clients would need to be extended throughout the economy in a way that recognized the distinction between surplus goods & services and basic goods & services. It takes more than a little thinking to reveal the massive size of this challenge. (Fs)

120b By contrast, Mankiw's treatment of measurement is much looser. Mankiw does not share Lonergan's empirical mentality. Supply & demand are key elements in Mankiw's analysis yet he does not provide any measurements of them in his discussions. Of the 180 graphs in Mankiw's book only 27 graphs1 draw on measurements or data that were actually gathered. Of the many tables in his book, the only actual measurements provided are in tables found on just 7 pages.2 The remaining graphs and tables appear to be made-up or invented. You might argue that because the graphs in the book are meant to communicate complex ideas that it is legitimate to invent them. However, I disagree.3 My point is this non-empirical, non-scientific attitude can easily allow authors & readers to slip into a perspective where they no longer notice the difference between what actually occurred and what is imagined. The very serious problem is that this habit can lead to analyses & explanations in textbooks that are not relevant to what actually happens. Mankiw's textbook falls into this trap. (Fs)

121a As I see it, the absence of measurement means there is insufficient evidence to support the many claims Mankiw makes about the economy. Take the notion of total surplus, one of the legs of comparative advantage, as an illustration. The calculation of the consumer surplus rests, not on an empirical measure, but on what someone was willing to pay - but did not actually pay - for particular goods. The result is that total surplus, and hence the argument and judgment that trade makes people better off, rests on speculation, not facts. (Fs) (notabene)

121b To be more specific, Mankiw's portrait of the model of supply & demand - for goods, for loanable funds, for money, for foreign-exchange currency - falls into this trap. Measurements are missing from these analyses. The absence of measurements in this context undermines the effort to understand how the economy works. Measurements will help us judge whether or not the explanations of supply & demand are accurate descriptions of what actually happens. As they currently stand, these models have not been tested. This situation is serious enough to raise doubts concerning their adequacy as explanations of how an economy works. (Fs)