Dear Ting:

COMMUNITY-CENTERED ECONOMY

In a community-centered economy, firms are primarily for the sake of households and not vice-versa.

In Lonergan’s thinking, this logically follows from the purpose of a human community that aims at the sustainable development of its productive process. The productive process is “the aggregate of activities proceeding from the potentialities of nature and terminating in a standard of living” (MD-ECA p. 20). Its development for successive generations is sustainable if it succeeds in maintaining dynamic equilibrium between fluctuating demands of households and their supply by firms.

(The individual members of firms, whether employees or employers, are themselves members of households. This does not change the primary status of households and the subordinate status of firms.)

The demands of households for goods and services.are supplied by firms. Firms are motivated to supply these demands by payments that give them profit (or excess of bills receivable over bills payable in the stationary state). It is possible to distinguish between “normal profit, which can be constant, and a social dividend which varies. ... Constant normal profit must be had 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.” (MD-ECA p. 81)

The social dividend, or the excess over the constant normal profit, is not to be saved or hoarded when profit starts to slow down. It is to continue being invested. If it is not invested, the production-rate of producer goods and services will decelerate and thus also decelerating the production-rate of consumer goods and services. When profit starts to slow down and if investors are unable or unwilling to recognize the dividing line between constant normal profit and social dividend, a recession is bound to follow.. (See ibid. p. 82)

If investors continue to hoard the social dividend during a recession, the recession turns into a depression, and the depression into a crash where households (including investors and firms’ personnel, whether employers or employees) face food shortages. The distinction between the social dividend and the constant normal profit is often blurred by firm managers whose sole aim is to maximize profit. Its importance is acknowledged only in a community-centered economy that aims at maintaining dynamic equilibrium of the entire economy.

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