What is Life? Life seems to be one of those things that we all know more or less what it is but seem quite at a loss to define it. A quick look at the definition in the Oxford English Dictionary seems to back up this statement. “Life — The condition or attribute of being alive; animate existence; Opposed to death.” While we recognize that sometimes it is hard to know for sure if something is alive (a coral, a virus, an animal or plant near death), we generally are quite confident in our judgments of the presence of life. One of the reasons for this “feeling for life” is that we ourselves are living beings. We experience ourselves as living unities in relation to an environment. We feel a kinship with other living things and dread the loss of life, which we call death. Because life is the basic fact and condition of our being human, we also use the word in many metaphorical and analogical senses to describe the exuberance that we feel about many things. This exuberance can vary from the mundane, “She was the life of the party,” to our deepest religious experiences, “I am the resurrection and the Life [John 10:24].” But while life seems to evade simple definition, it is clearly something that can be studied through the methodologies of the physical and life sciences, primarily biology and chemistry. This study already has its roots in pre-Christian times (think of Aristotle’s writings on biology) but has seen its greatest flowering in the last one hundred years with developments in physiology, genetics, biochemistry, and molecular biology. Biologists and those in related disciplines are gradually teasing out the mechanisms and processes by which life differs from nonlife. Many in the biological community would argue that the question “what is life?” is simply a biological question for which we either already have or soon will have rather complete answers. What possibly can the philosopher bring to the discussion? To ask this question dredges up a whole raft of questions upon which there is little consensus. It involves the classical philosophical questions of the possibility of human knowing and the nature of human knowledge. More recently, such questions have re¬emerged in the somewhat different context of the philosophy of science. What are the goals of the physical and life sciences? What does science have to tell us? Does science in some sense describe the “real world”? And finally, what is the relationship of philosophy to science? Is philosophy primarily a way to tidy up scientific statements and language, as some of the earlier analytic philosophers would seem to suggest? Or does philosophy provide a sort of “separate window” on the world, which can then be brought into dialogue with the results of the physical and life sciences? In the course of this paper, some of these questions will be dealt with in at least an indirect manner. However, it is not my intention to spell out a full philosophy of science or philosophy of biology. To clarify matters, let me make some comments on my personal philosophical starting point. These points will be made with minimal argumentation. For those interested in the background I would suggest consulting the author who has had the greatest impact on my own thinking, Bernard Lonergan. For my own slant on Lonergan’s thought and especially on how it relates to problems in the contemporary physical and life sciences, you may wish to consult my own papers listed in the footnotes. (1) Both the physical and life sciences and philosophy are, in a generalized sense, empirical. Both science and philosophy begin with experience. Philosophy begins with the experience of the human person in the process of knowing and deciding. Science begins with either the direct or indirect experience of the material things that science studies. (2) This experience of either myself or the things around me is only the first component of human knowledge. Knowledge implies further questions coming out of that experience and the answering of those questions in a reasonable and coherent way. A true increment in knowledge is had only when the adequacy of those answers is confirmed in judgment. Knowledge implies a triple cord — experience, understanding, and judgment. (3) The special role of philosophy, especially in relation to the sciences, is to experience ourselves as knowers, to understand ourselves as knowers, and finally to judge whether our understanding of ourselves as knowers is correct or incorrect. In this sense, philosophy has its own role, one that cannot be simply subsumed under the sciences. It is not because philosophy gives us some “superview,” but because philosophy examines human knowing and, for better or worse, knowing is the only way we know things. (4) So far so good. What we have said seems reasonable and would even have its points of contact with later linguistic philosophy.4 There is, however, a further step, which is clearly more difficult. Does the nature of human knowing tell us anything about the nature of what is known? Kant’s preliminary answer was “yes,” but then he realized that the a priori categories fatally prejudiced the possibility of true knowledge. All we can know with certitude is the phenomenal world; the deeper noumenal world remains, at best, obscure. Lonergan’s answer to the same question is a clear, but limited affirmative. The structure of human knowing reveals something about the structure of the real. This is not the place to unpack this assertion. But let me give an example by which everyday science makes the same kind of assertion; the way we ask questions already tells us something about the way we presume things really are. When I teach elementary quantum mechanics, I tell my students that the time-dependent wave function describing a particle is a function of space and time, in one dimension we write y = y(x, t). Why a function of x and t? Maybe another choice of variables would be better? OK, check it out. But why use a functional relationship at all? I would suggest that it is because the things that physics studies are intelligibly related and that mathematical functions are a good way to represent those intelligibilities. (We could conceivably use geometry the way poor Galileo did before the development of algebra. But most would argue that there is an intelligible isomorphism between the geometric and algebraic ways of expressing the relationships.) Some philosophers of science would suggest that this is the reason why a denial of scientific realism is the only course. I would suggest, and I think most scientists would agree, that we are justified in presuming intelligible relationships at least between some variables. In other words, we make presumptions about the nature of reality based on the way we know. Lonergan describes this isomorphism between cognitional structures and the object of our knowing in terms of “heuristic structures.” The nature of human cognition tells us something about the nature of what is known. (5) If knowing is all we have, then we should be very careful to limit Our knowledge to what we can know — nothing more and nothing less. Knowing reality is about experience, understanding, and judgment. Lonergan’s nemesis is that most of us tend to truncate our knowing to the level of experience. Or to put it in other terms, we make the criterion of reality our ability to imagine it or what we might call a “hard sense of reality.” Our knowledge begins with experience, but the real is ultimately verified intelligibility. Enough of this for now, let’s get back to the question of this paper, “What is life? — Current scientific and philosophical perspectives.” 2. LIFE FROM THE POINT OF VIEW OF THE LIFE SCIENCES The life sciences obviously have a great deal to tell us about the particulars of living systems, but what do they have to tell us about the more general question, “what is life?” In general the life sciences have been extremely successful in explaining more complex entities in terms of what are usually referred to as more basic entities. Thus the macroscopic phenomenon of reproductive inheritance is explained in terms of the laws of genetics and basic units referred to as genes, which in turn are explained by the chemistry of DNA and associated molecules, which is explained in terms of the chemistry of large polymers, and so down the line. Erwin Schrodinger in his 1944 classic What Is Life? stated the basic presupposition of many scientists very clearly, How can the events in space and time, which take place within the spatial boundary of a living organism, be accounted for by physics and chemistry? The preliminary answer, which this book will endeavor to expound and establish, can be summarized as follows: The obvious inability of present-day physics and chemistry to account for such events is no reason at all for doubting that they can be accounted for by those sciences. Schrodinger wrote this statement in 1944 before the discovery of the structure of DNA and the many subsequent advances in molecular biology and biochemistry. Sixty years later one would be hard pressed to deny the chemical and physical basis of all living systems. But is biology just chemistry? Is there something about life that goes beyond the chemistry? Most biologists and biochemists would probably argue for some variety of physicalism. Physicalism claims that all living things are physical objects. If you take an organism, no matter how complex, and break it down into its constituents, you will find matter and only matter there. Living things are made of the same basic ingredients as non-living things. The difference is in how those basic ingredients are put together. The physicalist stance is usually contrasted with what is called. vitalism. Definitions of vitalism vary, but in general they argue that living beings require something more than just the right combination of molecules and atoms.? Henri Bergson referred to this something more as the élan vital, a “vital force” responsible for the dynamism seen in evolution.8 We will later comment further on the physicalist-vitalist dichotomy. However, as mentioned above, most biologists would argue for the physicalist account of life. But all would agree that there are problems. One way to approach these problems is to ask a simple question. If biology is really just chemistry and physics, then can all biology be fully explained in chemical or physical terms? This is the so-called problem of epistemological reductionism. Can statements made in the science of biology — physiological explanations, evolutionary theory, ecology, whatever — be fully reduced to statements in chemistry or physics? In some cases it may be true that a biological explanation is fully reducible to a chemical or physical explanation. For example, such and such an illness is always due to a defective gene at such and such a position in the DNA of the human person. However, most situations are not so simple. Take for example the concept of evolutionary fitness.9 The particular biological and chemical trait that makes for fitness in one organism will be very different from that in another organism. And even the same organism, under different environmental pressures, may have a different genetic makeup that we would describe as fit. Clearly there is no one-to-one mapping from biology to chemistry to physics. Examples could be multiplied at will. This situation is logically referred to as supervenience. Supervenience implies a nonsymmetric hierarchy of explanation. Properties at the lower level are presumed to determine the higher-level properties, but not viceversa. Higher-level properties do not determine lower-level properties in a deterministic way. A certain genetic trait, with its corresponding physical trait, determines the fitness of a particular animal. However, the biological trait of fitness can be embodied in innumerable ways in various animals and in various environments.10 Supervenience allows a more nuanced understanding of physicalism and also indicates why the higher-level sciences such as biology or psychology are important, even in an essentially reductionistic account of living things. The well-known theologian Nancey Murphy argues that the concept of supervenience allows for a “non-reductive physicalism.” Her main concern is whether the human mental states can simply be reduced to neurobiology. However, similar arguments would hold for the relationship of biology to chemistry or chemistry to physics.11 As a logical concept that helps clarify explanatory relationships at various levels, it seems uncontroversial. Whether it can bear the weight of allowing a truly “nonreductive” physicalism when considering the relationship between conscious states and the neurological substrate or between living and nonliving things is a more controversial question.12 The question of what is the “something more” that distinguishes life from nonlife (or more importantly for us, the human from other animals) will not go away. The problem with vitalism is that it seems too much like a magic something added to a chemical system to make it come alive. Biologists are slow to accept it, because it seems almost by definition to be outside the gamut of their investigation. A concept that is used with increasing frequency in theoretical biology and in philosophy is that of emergence. It is a slippery concept, but its proponents want to recognize that there are really new things that emerge without denying the physical and chemical basis of living things and of human persons.13 The root of the concept of emergence is the perceived complexity of the universe we inhabit. Complex things exist that are on the one hand based on lower-level things (molecules are made of atoms) but at the same time involve a clearly defined subset of all possible variations at the lower level. This rule of limitation is described by Harold Morowitz as a “pruning rule” or “pruning algorithm.” The most commonly given example of this pruning algorithm is the Pauli principle which allows the emergence of the periodic table and chemistry from a much larger possible range of subatomic entities.14 It is suggested that the emergence of life must involve similar pruning algorithms. What constrains the chemistry in a living cell such that only a certain subset of possible chemical behaviors are present in living systems?15 On a physicalist understanding, emergence would seem to simply point to the appearance of new entities through a rearrangement of the component parts. These new entities are explained by concepts that supervene on lower levels of explanation. Molecules are a certain. arrangement of atoms that allow a new class of entities to be studied. This new emergent science (chemistry) has many explanatory concepts that do not simply correspond one-on-one with the concepts of atomic physics. Chemical concepts such as valence, reactivity, and isomerism supervene on the lower-level atomic and physical concepts. However, on this understanding of emergence, ontological priority is still given to the smallest element. Many, though not all, would presume that the lower levels completely determine the higher-level emergent properties. There are problems with this simple physicalist understanding of emergence. One problem is “Where to put the pruning algorithm?” To what level should we assign the capacities that allow integration at a higher level — to the lower level or the higher level? For example, the Pauli principle is often cited as the principle that allows the emergence of the periodic table, which is basic to chemistry and ultimately biology. Does the need to deal with higher-level entities lead to an “enlargement of the lower-level science?”16 Is the Pauli principle, which allows the formation of atoms, a basic property of subatomic matter or an emergent property of chemical systems? The position argued in this paper is that (a) there are truly emergent properties that can only be understood at the higher level of integration and (b) to learn at what level a certain scientific principle is active is primarily a question for science to determine. There are also emergent phenomena that seem difficult to understand in the pure physicalist framework — life on the level of organism and cognition and consciousness on the level of the human person. Terrence Deacon, a physical anthropologist now at Berkeley, is concerned with the development of the human mind.17 He argues for three categories of emergence.18 The first level involves the emergence of higher-order collective properties, which can be explained in terms of the component parts. Using statistical thermodynamics, the properties of liquid water can be explained in terms of the collective properties of the water molecules. Second-order emergence adds in a feedback mechanism that will amplify certain properties and diminish others. Oscillating chemical reactions and developments studied in chaos theory would come under this rubric. First-order emergence is essentially independent of time. In second-order emergence, the emergent properties are a function of time and in more complex (chaotic) systems, the longer the period of time, the less the possibility of predicting future states of the system. The third category of emergence adds development and/or evolution to the second category. Information at one level of development is “remembered” and acted upon in such a way that it may either be amplified or lost, with the resulting divergence of new types of entities. Evolution is the primary example of third-order emergence. Because of the global nature of the evolutionary process, except in very controlled experiments, it will be impossible to predict the products of third-category emergence. As is often noted, neo¬Darwinian evolutionary theory is explanatory but in most cases not predictive. This is in contrast to the properties of liquid water, which can, in principle, be determined from a study of the collective properties of H2O molecules. So what is life? As suggested above, this is primarily a scientific question. First of all, essentially all scientists would agree that it is the result of an extremely complex process, what we might call layered third-category emergence. And what are the unique properties of living systems as opposed to other complex systems? This again is a scientific question. Schrodinger in his 1944 lectures stressed the order that is maintained in living organisms despite the randomness of physical processes. He had only vague hints of DNA and RNA and so suggested a-periodic crystal structures as the basis of the stability and evolutionary development of living things. His lectures are an amazing, if still vague, prediction of what molecular biology would bring to light during the second half of the twentieth century and right up until our own time. Beyond the tension between stability and the possibility of evolutionary development, organisms require an energy-processing mechanism. This is usually referred to as metabolism. For essentially all living systems, bacteria to human beings, the key molecule in this complex process is usually identified by a three-letter acronym — ATP (adenosine triphosphate). But just as DNA by itself explains very little but is at the heart of a very complex web of chemical reactions, so ATP is at the heart of the complex chemical processes usually referred to as the “metabolic pathways.”19 Stuart Kaufmann, a • theoretical biologist and complexity theorist, while recognizing the tremendous strides that have been made in biochemistry and molecular biology, argues that a real answer to the question “what is life?” still alludes us. Kaufmann understands living things as “autonomous agents.” “An autonomous agent must be an autocatalytic system able to reproduce and to perform one or more thermodynamic work cycles.”20 The definition essentially retains the two key notions in the above paragraphs, reproduction and metabolism. But to this it adds the concept of “autonomous agent.” There is a certain “selfness” in any living thing. Living things are unities that are somehow separated from their environments and can thus develop in unique ways. Kaufmann then asks if there are laws for the emergence and evolution of biological systems, somehow analogous to the Pauli principle in chemistry. In his most recent book he suggest four candidate laws for the construction of a biosphere.21 We will not review these suggestions here, but only note that they are attempts to understand the constraints (pruning algorithms) that allow the emergence of living things from their chemical precursors. 3. WHAT DOES PHILOSOPHY HAVE TO TELL US? So far much of what we have said seems to be more science than philosophy, even if it is not the detailed science that is moving forward in laboratories all over the world. The title of this paper suggests that we consider philosophical as well as scientific perspectives. I suggested earlier that at least one of the purposes of philosophy was to consider the very process by which we can know anything at all —DNA, ATP, autonomous agents, and so forth. Is any of this stuff really true? How do we know it is? There are many good philosophers who would deny the possibility of really knowing the truth of modern biology. They doubt not only the possibility of knowing whether current theories are true, but even the possibility of there being any kind of process by which incorrect or incomplete understandings can be improved upon. Given this situation, can philosophy give us some clue about what we can know and what we can’t? Many of those with a scientific bent have argued that sense knowledge is the one thing that is common to all of us — if we can all agree on certain sensible phenomena there is some hope of saving objectivity. The problem, of course, is that science, whether physics, chemistry, or molecular biology, is not just about sense knowledge but also about very complex understandings and equally complex ways of verifying these understandings. Here I now return to the five points I made at the beginning of the article, which outlined my personal philosophical starting point. Knowledge is based on the triple cord of experience (both experience of the “outside” world and experience of myself), understanding that experience, and finally judging the adequacy of that understanding. Each level calls forth the next. The process of knowing is all we have, and we affirm it even when denying the possibility of knowledge. For even the most adamant relativist will argue that his particular understanding of the nature of reality is somehow verifiable. Science is an extremely complex web of knowledge where much of what we know is dependent on other areas of science. This weblike nature of scientific knowing imparts a tentativeness to scientific knowing that is not present in commonsense knowing. However, when all is said and done, science does tell us something about the real world. During the last fifty years humankind has gained real knowledge of the mechanism of living things. But what does it mean to say that I know something? Does it mean that we have a picture, something like a photograph? Does it mean that we use some kind of inner model to correlate various sense impressions? Lonergan’s work reveals that when we say we know something about subatomic particles, quarks, strings, atoms, molecules, metabolic pathways, and other objects of scientific knowledge, we are simply answering questions and then doing our best to verify that those answers are correct. In saying this we are broaching a topic, which sets Lonergan’s thought apart from our normal intuitive feelings about knowing. Because all of our knowing begins from experience, we tend to make experience —a sense of hardness or imaginability — the criterion of reality. But what scientific practice reveals is that the criterion of reality is verified intelligibility, nothing more and nothing less. Now what does this have to do with biology? If the imaginability of certain objects of knowledge is the criterion of their reality, then the smallest pieces will have ontological priority. A next step is often to presume that these smallest components (quarks, strings, or whatever) completely determine the reality of larger things. We are left with a strong mechanistic determinism.23 Ontological priority is given to the smallest chunks of matter, which determine the nature of all complex systems. This kind of thinking is behind the “physical monism” that is presumed by most to be implied by contemporary physics, chemistry and biology. But what is the alternative? Who could deny that physics is the basis of chemistry and that chemistry is the basis of biology and that biology is the basis of human psychology? Are we to return to vitalism, the idea that “something new” is added for life to emerge from nonlife or for the human person to emerge from the biological matrix? To answer this question we must ask about the nature of the tiered levels of reality that are the objects of our science. As argued above, all knowing, at least in the universe in which we live, involves a triple cord: experience, understanding, and judgment. We experience data, whether its size, shape, weight, color, and so forth. From this experience we seek to gain understanding. We may seek to understand the way things operate, either in an explanatory mode (things in relation to each other), or in a descriptive mode (things in relation to us). In the explanatory mode, we are ultimately seeking to understand the basic laws of physics, chemistry, biology and so on. We also attempt to understand things — unity, identity, wholes such as atoms, molecules, living organisms, or human persons, which we experience and ultimately understand in their oneness. Finally, we may attempt to understand the complex arrangements of things in both space and time — what Lonergan refers to as “schemes of recurrence.” Such schemes of recurrence would include everything from our solar system, to social and economic systems, to the complex artifacts of human ingenuity. However, not all understandings are correct, Whether of scientific laws, our understanding of the nature of the things that make up our universe, or complex schemes of recurrence. Ultimately our knowing requires verification in judgment. To describe the properties of things and events, Lonergan uses the technical term “conjugates.” “Experiential conjugates are correlatives whose meaning is expressed, at least in the last analysis, by appealing to the content of some human experience.”24 Colors and tastes, as well as the categories of descriptive science, such as anatomy or geology, are examples of descriptive conjugates. “Pure (or explanatory) conjugates, on the other hand, are correlatives defined implicitly by empirically established correlations, functions, laws, theories, systems.”25 Explanatory conjugates, since they involve things in relation to each other, are implicitly defined by the equations and explanatory networks of the sciences. Lonergan defines the notion of a thing “as an intelligible, concrete unity differentiated by experiential and explanatory conjugates.”26 Things exist on various levels and are the unities, which are explained —subatomic particles, atoms, molecules, cellular organisms, sensitive organisms, human persons that can transcend themselves in knowing and loving. Science knows each level through the descriptive and explanatory conjugates correlative to the thing under study. The criterion of reality of both conjugates and things is simply their verified intelligibility. Each level of reality has its own set of explanatory conjugates, which are the particular subject of the science of that level — physics, chemistry, biology, sensitive psychology, and so forth. No set of conjugates or any level of things is more real than any other. The real is verified intelligibility at whatever level one is operating. Having said that each level is equally real is not to deny the clearly verified conclusion of levels of reality. At each level the random conjugates of the lower level are unified in a higher integration. Chemistry systematizes what would be merely coincidental events on the atomic level allowing the emergence of an autonomous science of chemistry. Biology is an autonomous science integrating what would be merely coincidental events on the level of chemistry. The integration of coincidental manifolds at a new level does not take away the autonomy of the lower levels. The reality of the biological organism includes the conjugates of chemistry and physics. Because of this, the most exciting areas of science will be the cross disciplinary areas — molecular biology, chemical physics, and so forth. Here science attempts to understand how those lower-level conjugates are systematized at the new level. As noted above, a thing for Lonergan is an “intelligible, concrete unity differentiated by experiential and explanatory conjugates.”27 Experiential conjugates refer to the properties of the thing in relation to the knower, while explanatory conjugates refer to properties implicitly defined by scientific laws and correlations, which consider things in relation to things. Lonergan then makes use of the traditional categories of potency, form and act. In keeping with Lonergan’s starting point of cognitional analysis, these three are related to each other, as are experience, understanding, and judgment. Thus central form refers to the intelligible unity of a given thing, while conjugate form refers to the intelligibility of its properties (that is, conjugates). Central and conjugate acts refer to the in-principle verifiable existence of the thing itself (central act) or of the properties of the thing (conjugate act). With these definitions we are now ready to define “emergence.” Lonergan defines emergence as the process by which “otherwise coincidental manifolds of lower conjugate acts invite the higher integration effected by higher conjugate forms.”28 For example, on the level of subatomic physics there exist things such as protons, electrons, and neutrons. Lower conjugate acts here refer to the existing properties of these things on this level. These conjugate acts are intelligible, and this intelligibility is in accord with what Lonergan describes as both classical and statistical laws of physics. However, there exists a basic randomness, which on one level a physicist might describe as a collection of random particles or events, and what Lonergan describes as a “coincidental manifold.” However, given the right set of initial circumstances, in other words, the right probabilities, from this random situation (what Lonergan calls “coincidental manifolds of lower conjugate acts”), there may emerge a higher integration with its own conjugate forms. What is the nature of these emergent entities? Here Lon.ergan distinguishes between two levels — schemes of recurrence and new things. As noted above, schemes of recurrence refer to intelligible systems that circle in on themselves. If A occurs then B occurs, if B occurs then C occurs, and so to the point that A recurs and the circle begins again29. Lonergan likes to use the example of the planetary system. Somehow in the development of our corner of the Milky Way, there emerged a group of planets that orbit around our sun. The recurring pattern of the orbits leads to the emergence of a degree of stability in what otherwise would be random movement. Examples of schemes of recurrence are essentially infinite — from the subatomic through the artifacts of human industry to human society and economics. In the emergence of schemes of recurrence, new conjugate forms will arise. We can describe the mechanics of the solar system, the nature of phase changes in chemistry, the symbiotic relationship of plant species, or the nature of business cycles in economics. Yet, as can be seen from the examples given, schemes of recurrence are ontologically reductive. Given the right circumstances, the classical and statistical laws governing the elements of the scheme will allow us to predict the nature of the scheme of recurrence. But besides the emergence of new schemes of recurrence, there is also the fact of the emergence of truly new things — things now used in Lonergan’s technical sense. As noted above, Lonergan defines the notion of a thing “as an intelligible, concrete unity differentiated by experiential and explanatory conjugates.”3° In what many consider one of Lonergan’s more puzzling chapters, he argues that there are no things within things. This seems to be at odds with atomic and molecular theory of matter, which is now part and parcel of contemporary science. To understand we must return to our understanding of the real as verified intelligibility. An animal is a concrete unit whose basic conjugates are the subject of zoology. The lower-level conjugates of atomic physics (atomic mass and number, electronic structure) are integrated at the new level of chemistry. And the conjugates of chemistry (valence, reactivity, and so forth) are integrated at the level of the biological. Thus an animal, say a rabbit, is a unity in which each of the various levels of matter are integrated to form a unity-identity-whole. On the level of bodies, of course the rabbit has various organs — heart, liver, brain, and so forth — but these are all integrated in one living unity, the rabbit. Terms like respiration and metabolism refer to this the unity-identity-whole that is the particular rabbit. Above I noted that when talking of schemes of recurrence, or more simply when talking of simple aggregates, the new properties (conjugates) that emerge are in principle reducible to the lower-level properties. I can explain the movement of the planetary system solely in terms of the laws of physics. However, when we speak of the emergence of new “things” —atoms, molecules, bacteria, animals, persons — “the higher integration effected by higher conjugate forms” is indicative of a new central form, a new center of intelligibility. 4. WHAT IS LIFE? So what is life? From the point of view of science, we argued that life must involve metabolic processes for the utilization of energy and some form of hereditary reproduction. The organism must also be set apart from the rest of the world, a certain “selfness” for which Stuart Kaufmann coined the term “autonomous agents.” This is not meant to be an exhaustive definition. Other characteristics could be added, for example, a system far from equilibrium, which obtains its sustenance from the environment, or we could add laws similar to those suggested by Kaufmann and alluded to earlier. From the point of view of philosophy, life is a higher integration of chemical conjugates with the corresponding emergence of a new central form and a new unity — the living organism. As a higher integration of chemical conjugates, the laws of chemistry remain in tact. To understand the organism, one has to know chemistry, and for that matter atomic physics and subatomic physics and on down the line. But at the same time the organism is a unity-identity-whole (“unity-idenity-whole” is a technical term in Lonergan, perhaps use hypens.), unifying the chemistry under higher level biological conjugates such as metabolism and reproduction. The nature of these conjugates is a matter for the sciences to explore. Philosophy will not provide a short cut. And where does this put us on the physicalism-vitalism continuum discussed earlier? I would suggest that neither alternative will do. Physicalism, at least in most of its forms, is dependent on what Lonergan calls the myth of “knowing as looking.” For something to be real, beyond the somewhat spartan categories of verified intelligibility, the physicalist adds the criterion that the real must be analogous to the objects of sensation. In this scenario ontological priority is given to the smallest particles — little solid chunks — and the hierarchy of complexity that the sciences reveal is simply due to increasingly complex combinations of the fundamental building blocks. My contention is that at each new level there emerge truly new unities that integrate the lower-level conjugates. Vitalism is mistaken in that it more or less presumes the physicalist interpretation — the real is ultimately comprised of little chunks of matter — and then finds itself at a loss on how to explain living things. So at the last minute an unimaginable “vital force” is added. The suggestion here is that at each level there emerge new unities that integrate the lower level conjugates. The new central form is not an extra something added to a set of lower-level building blocks but rather the central reality of the integrated unit.31 There exist on these various levels different categories of things and these categories imply both experiential and explanatory conjugates at the level at which they are understood. Thus there are the relatively autonomous sciences of subatomic physics, atomic physics, chemistry, biology, and sensitive psychology. At any level, including the macroscopic level of sciences such as physiology and anatomy, the criterion of the real is not ultimately the ability to experience the organism as a unity but to gain verified understanding of the organism as a unity. Having said the above, I should add that there is a sense in which physical monism is correct. Abstaining for the moment on the subject of the human mind and human intentionality, the various levels of things are all material. Their materiality consists not in their ability to be felt or imagined — what does it mean to “feel” a quark or a string? — but in their being individuated objects in space and time.32 The nature of space and time are primarily physical questions currently understood in terms of the theories of special and general relativity. The emergence of a new thing requires a subtle interplay of classical and statistical laws. The term Lonergan uses for this engine of emergence is “emergent probability.” Given the right set of conditions, there will emerge new schemes of recurrence and new things. The only way to understand the details of the process of emergence is to do the interdisciplinary science — in the case of living things, molecular biology is the key to understanding the emergence of life in terms of the chemical conjugates. A question that is often asked is whether scientists will be able to create life forms in the laboratory. My own belief is that sooner or later, scientists will be able to tweak probabilities so that a living thing will emerge from the chemical matrix. This has already been accomplished twice with viruses.33 Scientists still argue whether viruses can be described as living things. They do not seem to fit the definition quoted earlier from Kaufmann above. But they are very close to being living things, and while the simplest bacteria are far more complex, all indications are that sooner or later living things will be “created” in the laboratory from organic starting materials. 5. RELIGION, SCIENCE, AND PHILOSOPHY This paper was originally presented at the conference “Cosmology —Religion and Science in Dialogue.” What does all this have to do with the religion and science dialogue? First, it must be stated that the really key question for the religion-science dialogue is the nature of the human person. All religious traditions are concerned with the human person and his or her relationship with ultimate reality. Believers in the monotheistic traditions share the belief that the human person is created in the image of God. Christians believe that the person Jesus is God incarnate — God among us. In one sense what has been presented here is preparatory for the larger question of the nature of the human person and what is referred to in many religious traditions as the human soul. But to say that this work is preparatory is not to say that it is not important. The human person is also an emergent reality. Just as there is an autonomous science of biology, there also exist autonomous sciences of the human person. But also just as a complete understanding of life must include an understanding of the lower-level conjugates of chemistry and physics, so a complete understanding of the human person requires an understanding of the lower-level biological, chemical, and physical conjugates.34 Thus the answer to the question “what is life?” provides the framework for what Christians would call theological questions. Human persons are part and parcel of the material world. They are emergent entities of this world and not just some sort of spiritual beings acting out their lives on a material stage. Christians believe that God entered this material world in the person of Jesus. As emergent unities — and not just a clever combination of the basic constituents — human persons stand apart and transcend other organisms. As individuals who are capable of knowledge and love, we, are truly “autonomous agents.” Our dignity is to know and love and to be known and be loved as the emergent unities that we are. Frank Budenholzer, SVD First presented at the International Conference on Cosmology: Religion and Science in Dialogue, Fu Jen Catholic University, Hsinchuang, Taiwan, November 26-28, 2004

A “paralyzed” Federal Reserve Bank, in its “final days,” held hostage by Wall Street “robots” trading in markets that are “artificially medicated” are just a few of the bleak observations shared by David Stockman, former Republican U.S. Congressman and director of the Office of Management and Budget. He is also a founding partner of Heartland Industrial Partners and the author of The Triumph of Politics: Why Reagan’s Revolution Failed and the soon-to-be releasedThe Great Deformation: How Crony Capitalism Corrupts Free Markets and Democracy. The Gold Report caught up with Stockman for this exclusive interview at the recent Recovery Reality Check conference.

The Gold Report: David, you have talked and written about the effect of government-funded, debt-fueled spending on the stock market. What will be the real impact of quantitative easing?

David Stockman: We are in the last innings of a very bad ball game. We are coping with the crash of a 30-year–long debt super-cycle and the aftermath of an unsustainable bubble.

Quantitative easing is making it worse by facilitating more public-sector borrowing and preventing debt liquidation in the private sector—both erroneous steps in my view. The federal government is not getting its financial house in order. We are on the edge of a crisis in the bond markets. It has already happened in Europe and will be coming to our neighborhood soon.

TGR: What should the role of the Federal Reserve be?

DS: To get out of the way and not act like it is the central monetary planner of a $15 trillion economy. It cannot and should not be done.

The Fed is destroying the capital market by pegging and manipulating the price of money and debt capital. Interest rates signal nothing anymore because they are zero. The yield curve signals nothing anymore because it is totally manipulated by the Fed. The very idea of “Operation Twist” is an abomination.

Capital markets are at the heart of capitalism and they are not working. Savers are being crushed when we desperately need savings. The federal government is borrowing when it is broke. Wall Street is arbitraging the Fed’s monetary policy by borrowing overnight money at 10 basis points and investing it in 10-year treasuries at a yield of 200 basis points, capturing the profit and laughing all the way to the bank. The Fed has become a captive of the traders and robots on Wall Street.

TGR: If we are in the final innings of a debt super-cycle, what is the catalyst that will end the game?

DS: I think the likely catalyst is a breakdown of the U.S. government bond market. It is the heart of the fixed income market and, therefore, the world’s financial market.

Because of Fed management and interest-rate pegging, the market is artificially medicated. All of the rates and spreads are unreal. The yield curve is not market driven. Supply and demand for savings and investment, future inflation risk discounts by investors—none of these free market forces matter. The price of money is dictated by the Fed, and Wall Street merely attempts to front-run its next move.

As long as the hedge fund traders and fast-money boys believe the Fed can keep everything pegged, we may limp along. The minute they lose confidence, they will unwind their trades.

On the margin, nobody owns the Treasury bond; you rent it. Trillions of treasury paper is funded on repo: You buy $100 million (M) in Treasuries and immediately put them up as collateral for overnight borrowings of $98M. Traders can capture the spread as long as the price of the bond is stable or rising, as it has been for the last year or two. If the bond drops 2%, the spread has been wiped out.

If that happens, the massive repo structures—that is, debt owned by still more debt—will start to unwind and create a panic in the Treasury market. People will realize the emperor is naked.

TGR: Is that what happened in 2008?

DS: In 2008 it was the repo market for mortgage-back securities, credit default obligations and such. In 2008 we had a dry run of what happens when a class of assets owned on overnight money goes into a tailspin. There is a thunderous collapse.

Since then, the repo trade has remained in the Treasury and other high-grade markets because subprime and low-quality mortgage-backed securities are dead.

TGR: Walk us through a hypothetical. What happens when the fast-money traders lose confidence in the Fed’s ability to keep the spread?

DS: They are forced to start selling in order to liquidate their carry trades because repo lenders get nervous and want their cash back. However, when the crisis comes, there will be insufficient private bids—the market will gap down hard unless the central banks buy on an emergency basis: the Fed, the European Central Bank (ECB), the people’s printing press of China and all the rest of them.

The question is: Will the central banks be able to do that now, given that they have already expanded their balance sheets? The Fed balance sheet was $900 billion (B) when Lehman crashed in September 2008. It took 93 years to build it to that level from when the Fed opened for business in November 1914. Bernanke then added another $900B in seven weeks and then he took it to $2.4 trillion in an orgy of money printing during the initial 13 weeks after Lehman. Today it is nearly $3 trillion. Can it triple again? I do not think so. Worldwide it’s the same story: the top eight central banks had $5 trillion of footings shortly before the crisis; they have $15 trillion today. Overwhelmingly, this fantastic expansion of central bank footings has been used to buy or discount sovereign debt. This was the mother of all monetizations.

TGR: Following that path, what happens if there are no buyers? Do the governments go into default?

DS: The U.S. Treasury needs to be in the market for $20B in new issuances every week. When the day comes when there are all offers and no bids, the music will stop. Instead of being able to easily pawn off more borrowing on the markets—say 90 basis points for a 5-year note as at present—they may have to pay hundreds of basis points more. All of a sudden the politicians will run around with their hair on fire, asking, what happened to all the free money?

TGR: What do the politicians have to do next?

DS: They are going to have to eat 30 years worth of lies and by the time they are done eating, there will be a lot of mayhem.

TGR: Will the mayhem stretch into the private sector?

DS: It will be everywhere. Once the bond market starts unraveling, all the other risk assets will start selling off like mad, too.

TGR: Does every sector collapse?

DS: If the bond market goes into a dislocation, it will spread like a contagion to all of the other asset markets. There will be a massive selloff.

I think everything in the world is overvalued—stocks, bonds, commodities, currencies. Too much money printing and debt expansion drove the prices of all asset classes to artificial, non-economic levels. The danger to the world is not classic inflation or deflation of goods and services; it’s a drastic downward re-pricing of inflated financial assets.

TGR: Is there any way to unravel this without this massive dislocation?

DS: I do not think so. When you are so far out on the end of a limb, how do you walk it back?

The Fed is now at the end of a $3 trillion limb. It has been taken hostage by the markets the Federal Open Market Committee was trying to placate. People in the trading desks and hedge funds have been trained to front run the Fed. If they think the Fed’s next buy will be in the belly of the curve, they buy the belly of the curve. But how does the Fed ever unwind its current lunatic balance sheet? If the smart traders conclude the Fed’s next move will be to sell mortgage-backed securities, they will sell like mad in advance; soon there would be mayhem as all the boys and girls on Wall Street piled on. So the Fed is frozen; it is petrified by fear that if it begins contracting its balance sheet it will unleash the demons.

TGR: Was there some type of tipping that allowed certain banks to front run the Fed?

DS: There are two kinds of front-running. First is market-based front-running. You try to figure out what the Fed is doing by reading its smoke signals and looking at how it slices and dices its meeting statements. People invest or speculate against the Fed’s next incremental move.

Second, there is illicit front-running, where you have a friend who works for the Federal Reserve Board who tells you what happened in its meetings. This is obviously illegal.

But frankly, there is also just plain crony capitalism that is not that different in character and it’s what Wall Street does every day. Bill Dudley, who runs the New York Fed, was formerly chief economist for Goldman Sachs and he pretends to solicit an opinion about financial conditions from the current Goldman economist, who then pretends to opine as to what the economy and Fed might do next for the benefit of Goldman’s traders, and possibly its clients. So then it links in the ECB, Bank of Canada, etc. Is there any monetary post in the world not run by Goldman Sachs?

The point is, this is not the free market at work. This is central bank money printers and their Wall Street cronies perverting what used to be a capitalist market.

TGR: Does this unwinding of the Fed and the bond markets put the banking system back in peril, like in 2008?

DS: Not necessarily. That is one of the great myths that I address in my book. The banking system, especially the mainstream banking system, was not in peril at all. The toxic securitized mortgage assets were not in the Main Street banks and savings and loans; these institutions owned mostly prime quality whole loans and could have bled down the modest bad debt they did have over time from enhanced loan loss reserves. So the run on money was not at the retail teller window; it was in the canyons of Wall Street. The run was on wholesale money—that is, on repo and on unsecured commercial paper that had been issued in the hundreds of billions by financial institutions loaded down with securitized toxic garbage, including a lot of in-process inventory, on the asset side of their balance sheets.

The run was on investment banks that were really hedge funds in financial drag. The Goldmans and Morgan Stanleys did not really need trillion-dollar balance sheets to do mergers and acquisitions. Mergers and acquisitions do not require capital; they require a good Rolodex. They also did not need all that capital for the other part of investment banking—the underwriting business. Regulated stocks and bonds get underwritten through rigged cartels—they almost never under-price and really don’t need much capital. Their trillion dollar balance sheets, therefore, were just massive trading operations—whether they called it customer accommodation or proprietary is a distinction without a difference—which were funded on 30 to 1 leverage. Much of the debt was unstable hot money from the wholesale and repo market and that was the rub—the source of the panic.

Bernanke thought this was a retail run à la the 1930s. It was not; it was a wholesale money run in the canyons of Wall Street and it should have been allowed to burn out.

TGR: Let’s get back to our ballgame. What is to keep the U.S. population from saying, please Fed save us again?

DS: This time, I think the people will blame the Fed for lying. When the next crisis comes, I can see torches and pitch forks moving in the direction of the Eccles building where the Fed has its offices.

TGR: Let’s talk about timing. On Dec. 31, the tax cuts expire, defense cuts go into place and we hit the debt ceiling.

DS: That will be a clarifying moment; never before have three such powerful vectors come together at the same time— fiscal triple witching.

First, the debt ceiling will expire around election time, so the government will face another shutdown and it will be politically brutal to assemble a majority in a lame duck session to raise it by the trillions that will be needed. Second, the whole set of tax cuts and credits that have been enacted over the last 10 years total up to $400–500B annually will expire on Dec. 31, so they will hit the economy like a ton of bricks if not extended. Third, you have the sequester on defense spending that was put in last summer as a fallback, which cannot be changed without a majority vote in Congress.

It is a push-pull situation: If you defer the sequester, you need more debt ceiling. If you extend the tax expirations, you need a debt ceiling increase of $100B a month.

TGR: What will Congress do?

DS: Congress will extend the whole thing for 60 or 90 days to give the new president, if he hasn’t demanded a recount yet, an opportunity to come up with a plan.

To get the votes to extend the debt ceiling, the Democrats will insist on keeping the income and payroll tax cuts for the 99% and the Republicans will want to keep the capital gains rate at 15% so the Wall Street speculators will not be inconvenienced. It is utter madness.

TGR: It is like chasing your tail. How does it stop?

DS: I do not know how a functioning democracy in the ordinary course can deal with this. Maybe someone from Goldman Sachs can come and put in a fix, just like in Greece and Italy. The situation is really that pathetic.

TGR: Greece has come up with some creative ways to bring down its sovereign debt without actually defaulting.

DS: The Greek debt restructuring was a farce. More than $100B was held by the European bailout fund, the ECB or the International Monetary Fund. They got 100 cents on the dollar simply by issuing more debt to Greece. For private debt, I believe the net write-down was $30B after all the gimmicks, including the front-end payment. The rest was simply refinanced. The Greeks are still debt slaves, and will be until they tell Brussels to take a hike.

TGR: Going back to the triple-witching hour at year-end, if the debt ceiling is raised again, when do we start to see government layoffs and limitations on services?

DS: Defense purchases and non-defense purchases will be hit with brutal force by the sequester. As we go into 2013, there will be a shocking hit to the reported GDP numbers as discretionary government spending shrinks. People keep forgetting that most government spending is transfer payments, but it is only purchases of labor and goods that go directly into the GDP calculations, and it is these accounts that will get smacked by the sequester of discretionary defense and non-defense budgets.

TGR: I would think to unemployment numbers as well.

DS: They will go up.

Just take one example. According to the Bureau of Labor Statistics monthly report, there are 650,000 or so jobs in the U.S. Postal Service alone. That is 650,000 people who pretend to work at jobs that have more or less been made obsolete and redundant by the Internet and who are paid through borrowings from Uncle Sam because the post office is broke. Yet, the courageous ladies and gentlemen on Capitol Hill cannot even bring themselves to vote to discontinue Saturday mail delivery; they voted to study it! That is a measure of the loss of capacity to rationally cognate about our fiscal circumstance.

TGR: In the midst of this volatility, how can normal people preserve, much less expand their wealth?

DS: The only thing you can do is to stay out of harm’s way and try to preserve what you can in cash. All of the markets are rigged or impaired. A 4% yield on blue chip stocks is not worth it, because when the thing falls apart, your 4% will be gone in an hour.

TGR: But if the government keeps printing money, cash will not be worth as much, either, right?

DS: No, I do not think we will have hyperinflation. I think the financial system will break down before it can even get started. Then the economy will go into paralysis until we find the courage, focus and resolution to do something about it. Instead of hyperinflation or deflation there will be a major financial dislocation, which means painful re-pricing of financial assets.

How painful will the re-pricing be? I think the public already knows that it will be really terrible. A poll I saw the other day indicated that 25% of people on the verge of retirement think they are in such bad financial shape that they will have to work until age 80. Now, the average life expectancy is 78. People’s financial circumstances are so bad that they think they will be working two years after they are dead!

TGR: Finally, what is your investment model?

DS: My investing model is ABCD: Anything Bernanke Cannot Destroy: flashlight batteries, canned beans, bottled water, gold, a cabin in the mountains.

TGR: Thank you very much.

David Stockman is a former U.S. politician and businessman, serving as a Republican U.S. Representative from the state of Michigan 1977–1981 and as the director of the Office of Management and Budget under President Ronald Reagan 1981–1985. He is the author of The Triumph of Politics: Why Reagan’s Revolution Failed and the soon-to-be released The Great Deformation: How Crony Capitalism Corrupts Free Markets and Democracy.

Stockman was the keynote speaker at last weekend’s Casey Research Recovery Reality Check Summit. This event featured legendary contrarian investor Doug Casey, high-end natural resource broker Rick Rule, New York Times bestselling author John Mauldin and 28 other financial luminaries. Over the three-day summit, they provided investors with asset-protection action plans and actionable investment advice. And even if you were unable to attend, you can still hear every recorded presentation in the Summit Audio Collection.

(Source: marketoracle.co.uk)

I realize this is rather silly, but the question is whether there should be a really helpful product warning. Cigarettes and other tobacco products have warning labels as well as a host of other products including drugs, alcohol and many others.

I don’t smoke, but if I did, I can’t say that the warning label would be particularly helpful. The same goes for most of the other products too. But there is one warning label I would really like to see. It would be something that would instantly grab my attention and modify my behavior.

I would like to see a great big WARNING! on single-ply toilet paper. There are a number of household toilet paper brands that do NOT have warnings of any kind, yet their packaging is confusing and can easily lead someone to purchase a product they have no intention of buying. I am not big on all the useless warnings, but I would love to see a consumer protection warning for single-ply toilet paper.

By Ron Paul

Last week the Supreme Court heard arguments concerning the constitutionality of the Obamacare law, focusing on the mandate requiring every American to buy health insurance or pay fines enforced by the IRS. Hopefully the Court will strike down this abomination, but we must recognize that the federal judiciary has an abysmal record when it comes to protecting liberty. It’s doubtful the entire law will be struck down. Regardless, the political left will continue its drive toward a single-payer, government run health care system.

The insurance mandate clearly exceeds the federal government’s powers under the interstate commerce clause found in Article I, Section 8 of the Constitution. This is patently obvious: the power to “regulate” commerce cannot include the power to compel commerce! Those who claim otherwise simply ignore the plain meaning of the Constitution because they don’t want to limit federal power in any way.

The commerce clause was intended simply to give Congress the power to regulate foreign trade, and also to prevent states from imposing tariffs on interstate goods. In Federalist Paper No. 22, Alexander Hamilton makes it clear the simple intent behind the clause was to prevent states from placing tolls or tariffs on goods as they passed through each state— a practice that had proven particularly destructive across the many principalities of the German empire.

But the Supreme Court has utterly abused the commerce clause for decades, at least since the infamous 1942 case of Wickard v. Filburn. In that instance the Court decided that a farmer growing wheat for purely personal use still affected interstate commerce—presumably by not participating in it! As economist Thomas Sowell explains in a recent article, the Wickard case marked the final death of federalism: if the federal government can regulate “anything with any potential effect on interstate commerce, the 10th Amendment’s limitations on the power of the federal government virtually disappeared.”

It is precisely this lawless usurpation of federalism that liberty-minded Americans must oppose. Why should a single swing vote on the Supreme Court decide if our entire nation is saddled with Obamacare? The doctrine of judicial review, which is nowhere to be found in Article III of the Constitution, has done nothing to defend liberty against extra-constitutional excesses by government. It is federalism and states’ rights that should protect our liberty, not nine individuals on a godlike Supreme Court.

While I’m heartened that many conservatives understand this mandate exceeds the strictly enumerated powers of Congress, there are many federal mandates conservatives casually accept. The Medicare part D bill— passed under a Republican President and a Republican House—mandates that you submit payroll taxes to provide prescription drugs to seniors. The Sarbanes-Oxley bill, also passed by Republicans, mandates that companies expend countless hours of costly manpower producing useless reports. Selective service laws, supported by defense hawks, mandate that young people sign up for potential conscription. I understand the distinction between these mandates and Obamacare, but the bigger point is that Congress routinely imposes mandates that are wildly beyond the scope of Article I, Section 8.

Perhaps the most important lesson from Obamacare is that while liberty is lost incrementally, it cannot be regained incrementally. The federal leviathan continues its steady growth; sometimes boldly and sometimes quietly. Obamacare is just the latest example, but make no mistake: the statists are winning. So advocates of liberty must reject incremental approaches and fight boldly for bedrock principles. We must forcefully oppose lawless government, and demand a return to federalism by electing a Congress that legislates only within its strictly limited authority under Article I, Section 8.

More Ugly Babies ???

This post is simply an exploration of an interesting thought that emerged at the most unlikely of places. Our remote foundation is the “The Hamptons” episode of Seinfeld. [I think that’s the one, but am not 100% sure.] In the episode, George has to deal with some of his complexes, but the part about which I was thinking was the ‘ugly baby’.

Obviously an ‘ugly baby’ is a bit silly and, it must be said, rare, but the question is whether there are bound to be more ugly babies in the future.

As more and more people possess themselves of the advances of cosmetic surgical procedures and at an earlier age, are we not moving towards a ‘classless’ society in which acceptable aesthetic proportions for human appearance are modifying the ‘look’ of the average person? Is the common female high school senior going to look increasingly like an on-camera employee of Foxnews? Or, perhaps, some other conditioned and accepted ‘look’? And, it is not just the girls. More and more guys are going for a particular ‘look’ too.

The point is that more and more people are surgically modifying the effects of genetics in such a way that the appearance of an individual is no longer determined by their particular genetic makeup. In effect their ‘genetic’ appearance is latent or, perhaps, repressed.

Now, most couples begin to meet their partners in part on account of appearance. Anyone who has taught high school for more than a day-and-a-half can attest to this phenomenon. But as more and more people are revealed in an appearance that suppresses their true genetic proportions, it could very well be that couples are coming together who otherwise would not.

Were a couple to be attracted on account of a pseudo-genetic ‘look’, and later marry and have children, their offspring could exhibit genetic characteristics that don’t represent their own modified ‘look’. One might suspect that some characteristics might even be exacerbated by the coupling of parents whose own appearance — having been significantly modified — was the condition for the possibility of their being a couple in the first place.

So, it could very well be that an increasing number of new parents might be surprised that their babies are ugly when they consider themselves as being among the ‘beautiful’.

Bruce Anderson

Introduction

In recent years the debate over free trade has heated up
and has taken the form of violence in Seattle, Washington
D.C., Quebec, and Genoa. Groups either embrace free trade or
condemn it. In fact, it seems impossible to reconcile the
arguments put forward by the supporters and the protestors. In
this paper I want to investigate the problem by using Bernard
Lonergan’s work on economics. I begin by presenting the
predominant view of economists, namely that trade benefits
everyone. Next I turn to evidence that supports the claim that
trade in the real world is not necessarily beneficial. Then I
summarise Lonergan’s analysis of the relation between the
production of goods and services and the circulation of money
in an economy in order to make the point that, if we want to
make judgments about the merits or demerits of trade, we must
first understand how economies actually work.

In the light of recent discussions about what counts and
does not count as work pertaining to the functional speciality
Dialectics, it is worth noting that my analysis does not belong
to any of the functional specialities outlined by Lonergan in
Method in Theology. Even though I address opposed points of
view, I am not engaged in Dialectics, and even though I
present a version of Lonergan’s economic analysis, I am not
engaged in Interpretation. Rather, I am simply trying to
communicate an aspect of economics to readers who have little knowledge of economics and who are not themselves engaged
in a particular functional speciality.

1. The View of Establishment Economics
Most economists believe that “trade can make everyone
better off.” Their view is that “trade allows all countries to
achieve greater prosperity.” Gregory Mankiw, for example,
presents the rationale for international trade in terms of
opportunity cost and the principle of comparative advantage.
He claims that differences in opportunity cost and comparative
advantage create the gains from trade. When each person
specialises in producing the good for which he or she has a
comparative advantage, total production in the economy rises,
and this increase in the size of the economic pie can be used to
make everyone better off. In other words, as long as two
people have different opportunity costs, each can benefit from
trade by obtaining a good at a price lower than his or her
opportunity cost of that good. “These benefits arise because
each person concentrates on the activity for which he or she
has the lower opportunity cost.” “Trade can benefit everyone
in society because it allows people to specialise in activities in
which they have a comparative advantage.” According to
Mankiw:

[The] effects of free trade can be determined by
comparing the domestic price without trade to the
world price. A low domestic price indicates that the
country has a comparative advantage in producing the
good and that the country will become an exporter. A
high domestic price indicates that the rest of the world
has a comparative advantage in producing the good
and that the country will become an importer.

When a country allows trade and becomes an
exporter of a good, domestic producers of the go are better off [because domestic prices rise to equal
the world price], and domestic consumers of the good
are worse off [because they must pay a higher price].
Trade raises the economic well being of the nation,
for the gains of the winners exceed the losses of the
losers. [The sum of consumer and producer surplus is
greater.]
When a country allows trade and becomes an
importer of a good, domestic consumers of the good
are better off [because the price is lower], and
domestic producers of the good are worse off
[because they sell their goods at a lower price.] Trade
raises the economic well-being of a nation, for the
gains of the winners exceed the losses of the losers.

Trade in the Real World
After the debt crises in the 1980s orthodox views of trade
such as Mankiw’s were used to justify “the argument that the
rapid liberalisation of trade, finance and investment would
allow developing countries to overcome resource and foreign-exchange
constraints on accumulation and growth.” The
claim was that “Trade liberalization would ensure the best
allocation of resources according to comparative advantage,
securing the export revenues needed to import key ingredients
of faster growth. Financial liberalization would attract foreign
capital seeking high returns in these capital-scarce countries,
allowing developing countries to invest more than they save
without running into a payments constraint.” Further, “a more
liberal trading environment would open markets in industrial
countries to exports from developing countries.”

However, according to the analysis of the UNCTAD Trade
and Development Report 1999, “after more than a decade of
liberal reforms in developing countries, their payments
disorders, which had earlier ushered in a rethinking of policies, remain as acute as ever, and their economies depend even more
on external financial resources for the achievement of growth
rates sufficient to tackle the deep-rooted problems of poverty
and under-development.” Growth in developing countries in
the 1990s has recovered from 1980s levels. But it is below the
average growth rate of 5.7% in the 1970s by 2% per annum.
Further, the average deficit of developing countries (excluding
China) in the 1990s is higher by 3% of GDP than they were in
the 1970s. In other words, “In recent years, developing
countries have had greater current-account deficits as a
proportion of their GDP than in the past, but without achieving
faster growth rates.”

These growing deficits have been due to the balance of
trade. Export earnings have not kept pace with rapid import
expansion. In almost one half of the developing countries the
trend is increasing trade deficits plus falling or stagnant growth
rates. Where trade balances have improved, growth and
imports have slowed. For most countries that achieved faster
growth their trade balances deteriorated due to inflows of
private capital. The problem was that these inflows couldn’t
always be sustained and there were currency crises, economic
contractions, and massive import cuts. (China and Chile
combined faster growth with improved trade performance.)
Rapid trade liberalisation in developing countries has
added to their trade deficits. Their imports increased sharply,
but exports failed to keep pace. (The current account deficit in
Latin America increased from $65 billion to $90 billion from
1997 to 1998. The trade deficit in Latin America in the 1990s
averaged about 4%.) In the first two years of trade
liberalisation, imports grew faster than exports in all countries
except Ghana, Morocco, and Tunisia where the real exchange
rate depreciated. Trade liberalisation was associated with real
appreciations, which added to import surges generated by tariff cuts particularly in Argentina, Kenya, Mexico, and Turkey.

More statistics help round out the picture.
In the 1990s the average trade deficit of oil exporting
developing countries was 3% higher than in the 1970s. The
average growth rate fell by 2% per year.

In the 1990s the trade deficit of non-oil producing
developing countries is the same as the 1970 level. But the
average growth rate is 2% lower than in the 1970s. 19
Since the 1980s, policies and structural reforms to
overcome the balance of payments constraint on growth have
failed.

In Latin America, the average growth rate was 3% lower
in the 1990s than in the 1970s. Trade deficits remained the
same.

In 51 of 84 developing countries the trade balance
worsened from the 1980s to the 1990s and in ½ of the
countries GDP stagnated or declined.

“Among the countries that have raised their growth rates
in the 1990s, the majority have seen a deterioration in their
trade balances, financed by large inflows of private capital; in
some cases the deficits and capital inflows could not be
sustained, eventually leading to payments crises, economic
contraction, and sharp turnaround in trade balances.” Only a
few countries have combined faster growth with improved
trade performance.

External indebtedness of developing countries is
increasing in relative and absolute terms. For example, in
Latin America the ratio of debt to exports was 191% in 1997.
The ratio in 1998 was 203% (and there was an increase in the
ratio of interest payments to exports).

The evidence above does not support Mankiw’s view that
trade makes everyone better off. What, then, is the strategy for
economic growth? How can people in developing countries improve their standard of living? The establishment view is that developing countries can export themselves out of poverty. Exports don’t just earn foreign exchange for imports and investment. They also provide markets for goods that would
not otherwise be produced or produced only to meet domestic
consumer demand. Hence domestic savings can increase
without a proportionate increase in domestic consumption.
However, the expansion of exports depends on foreign capital
to finance it.

It is widely accepted that capital accumulation and
economic growth in developing countries depend on foreign
capital because:

1. If a developing country does not have enough savings, “external capital flows allow developing countries to invest more than they can save, thereby closing their savings gap.”
2. If a developing country does not have enough foreign exchange to import intermediate and capital goods, capital inflows provide foreign exchange so that investment is not constrained, thereby closing the foreign exchange gap. Even if domestic savings are sufficient to finance all investment needs, imported intermediate and capital goods have to be imported and paid for.

The UNCTAD Report on Trade and Development 1999
describes the link between exports and investment in the
following way. “Since export expansion depends on
investment, a sustainable growth process requires mutually
reinforcing dynamic interactions between capital accumulation
and exports, or an ‘export-investment nexus.’” The nexus is
that, initially, the savings and foreign exchange gaps are large,
but over time they narrow as exports and domestic savings
grow faster than imports and investment. In this way, an
economy can continue to grow rapidly despite a relative
decline in real resource transfers from abroad. But if this nexus
between exports and investment cannot be established, growth will depend on external resources and will be restrained when
such resources are in short supply.

As I see it, the writing about the investment-export nexus
is vague. The nature of this link is not explained with any
degree of precision. Why it is that increasing imports and
decreasing exports will help developing countries grow is not
explained. I want to use Bernard Lonergan’s writings on
economics to introduce an explanatory context in which to
analyse economic problems that is more adequate than the
current vague views informed by superficial economic models
and analyses. In particular, my aim is to provide a fuller
context in which to help you appreciate the links between trade
and monetary circulations in an economy in order to help
understand the nature of the links between trade and
investment.
2. Lonergan’s Circulation Analysis
Bernard Lonergan’s explanation of how an economy
works is quite different from the views of establishment
economists. Philip McShane has referred to it not as a
paradigm shift, but as the invention of economic science. In
order to have any appreciation of how international trade
affects an economy you first have to understand Lonergan’s
explanation of how an economy with no foreign trade and no
government sector works. The problem is that an effort to
communicate that perspective would comprise many pages.
Hence all I can do in this paper is simply to state the key
elements in his perspective and hope that you take the
additional time necessary to understand his ideas.

What are the basic elements of an economy?
Establishment economists distinguish between capital
goods and consumer goods. A capital good is a commodity that
is used in the production of other goods and services. For
example, a pencil bought for use in a drawing-office is a capital good, but a pencil bought for a child is a consumer
good. A consumer good is any good purchased by households
for final consumption.
By contrast, Lonergan pushes this distinction. He sharply
distinguishes between surplus goods and services and basic
goods and services. For Lonergan, goods produced in order to
produce other goods are surplus goods. Machine tools,
transport trucks, cargo ships, tractors would be surplus goods.
Goods that are not made in order to produce other goods to be
sold are basic goods. For example, groceries, movie tickets,
spy novels, clothes would be basic goods.
In fact, for Lonergan, the production and sale of surplus
goods and services and the money that is used to make and buy
them amounts to a distinct productive process with its own
corresponding monetary circulation. Moreover, the production
and sale of basic goods and services and the money that is used
to make and buy them amounts to a distinct productive process
with its own corresponding monetary circulation. In other
words, there are two distinct types of exchanges: 1) surplus
exchanges and 2) basic exchanges. Establishment economists
do not make this sharp distinction.
The complicating aspect of the distinction is that the same
goods and services can be classified as either surplus or basic.
Their classification depends on how they are used. The
purchase of a car solely for the work of a travelling salesperson
would be a surplus expenditure, but the purchase of a car solely
for going on picnics would be a basic expenditure. The
purchase of a table saw by a carpenter would be a surplus
expenditure, but if a do-it-yourselfer bought a table saw it
would be a basic expenditure.
The third distinct type of exchange Lonergan identifies are
redistributive exchanges. These exchanges, strictly speaking,
do not involve the production and sale of goods and services.
The exchange is merely a change, or transfer of, property rights
in items such as shares, debt, buildings, second-hand goods,
insurance pay-outs, government transfer payments. The point
is that exchanges of this type are not part of the productive
process per se.
When someone buys shares the ownership is transferred from the seller to the buyer. This is simply a redistributive
exchange because nothing new has been produced. A broker’s
fee for handling the transaction is, however, another story. The
fee the broker collects for his work may be used to buy basic
goods or it may be saved and later directed to, and spent as, an
investment in surplus goods or services.
Let’s recap. The basic elements of an economy are: 1) a
surplus exchange comprising the production and sale of surplus
goods and services and the corresponding monetary flow that
makes this possible, 2) a basic exchange comprising the
production and sale of basic goods and services and the
corresponding monetary circulation that makes this possible,
and 3) a redistributive exchange comprising changes solely in
property rights and the corresponding monetary circulation that
makes this possible.
These exchanges can be captured by diagrams. It is
worthwhile studying these diagrams as they express the
essence of Lonergan’s view.

The Links Between the Surplus and Basic Monetary Circuits
I presented the surplus and basic exchanges as if they were
independent of each other. But they are actually connected to
each other. The suppliers and producers of basic goods may
need to buy surplus goods such as new tools or machines for
their businesses. A florist may need to buy a new truck – a
surplus good – to deliver flowers. A grocer may need to buy a
new fridge – a surplus good – to store ice cream. Hence some
of their outlay will be directed to the surplus exchange to buy
surplus goods and services. In this way, money leaves the basic
monetary circuit and enters the surplus monetary circuit.
On the other hand, the producers and suppliers of surplus
goods and services use part of their outlay to pay the wages of
their employees. Because people must eat, pay mortgages or
rent, buy clothes, buy movie tickets, and buy spy novels, a
portion of the outlay by the suppliers of surplus goods and
services will be directed to the basic monetary circuit to be
used to purchase basic goods and services. In this fashion,
money flows from the surplus monetary circuit to the basic
monetary circuit.
Lonergan calls these two connections or links between the
surplus and basic exchanges cross-overs. They are captured by
the vertical lines in the diagram.

The Redistributive Exchange is Linked to the Surplus and
Basic Circuits
I stated above that, strictly speaking, redistributive exchanges were involved in transferring property rights
(ownership, possession, etc.) concerning items like shares,
debt, insurance pay-outs, loans, second-hand goods, and I
stressed that this monetary circuit did not correspond to the
production and sale of goods and services, either surplus or
basic. Nonetheless, the redistributive exchange is connected to
the surplus monetary circuit. Money from the redistributive
exchange flows to the surplus circuit when the producers and
suppliers of surplus goods borrow money from a bank to
expand their business. Money flows in the opposite direction
when they make a bank deposit.
The redistributive exchange and the basic circuit are also
linked. Money flows from the redistributive exchange and
joins the basic circuit when people use their credit cards to buy
groceries, obtain a bank loan to buy a new car, and when
producers and sellers of basic goods borrow money to finance
a new delivery truck.30 When consumers and sellers of basic
goods and services make bank deposits, money flows from the
basic circuit to the redistributive exchange.
This diagram captures the additional connections,
expressing the basic elements of an economy. The Rules of Thumb, Norms, or Policies for Running a Closed
Economy Properly
1 (a) The surplus circuit cannot be allowed to expand by
draining money from the basic circuit. We do not want the
production and sale of basic goods and services to
collapse.
(b) The basic circuit cannot be allowed to expand by
draining money from the surplus circuit. We do not want
the production and sale of surplus goods to collapse.
(c) Hence the cross-overs must be balanced. The amount
of money flowing from the basic circuit to the surplus
circuit per interval must equal the amount of money
flowing from the surplus circuit into the basic circuit.
(d) The cross-overs can be balanced by directing a portion
of surplus or basic monetary flows to and from the
redistributive exchange as required.
2 (a) The production and sale of surplus goods and services
and the surplus monetary circuit must be kept in step with
each other. If you increase the production and sale of
surplus goods you must increase, interval by interval, the
amount of money in the surplus monetary circuit. If you
decrease the production and sale of surplus goods you
must decrease proportionately the amount of money in the
surplus circuit to keep step with production and sale.
(b) The same rule applies to the production and sale of
basic goods and services and its corresponding monetary
circulation.
(c) The consequence of not matching the money in the
circuits to the needs of the productive process is price
spirals – up or down.
(d) The job of redistributive exchanges is to supply, or
remove, money from the two circuits.
3 Money (in the form of short-term capital flows,
government transfer payments, ODA, donations)
indiscriminately added to, or removed from, either the
surplus or basic monetary circulations has the potential to
adversely affect an economy. Phases in the Economic Cycle
Establishment economists are concerned with keeping an
economy in equilibrium, balancing the supply and demand of
goods, services, money, etc. In an effort to combat inflation
they advocate manipulating the money supply. Their aim is to
keep the economy on an even keel. So, when the production
and sale of goods and services grows rapidly, central bank
economists increase the interest rate in order to combat
inflation. This follows the standard paradigm, since
establishment economists don’t distinguish between the effects
of interest rate changes on producers and on consumers.
Moreover, the production and sale of goods and services is
forced to adjust to the money supply. In other words,
production is at the beck and call of the needs of money.
By contrast, in Lonergan’s opinion, an economy is
cyclical, not static. To be more specific, the relation between
the turnover size and frequency of the production of surplus
goods (and its monetary circuit) and the turnover size and
frequency of the production of basic goods (and its monetary
circuit) can vary. Further, the monetary circulation of an
economy should be allowed to vary as production increases
and decreases. To put it another way, the presumed needs of
money should not be allowed to dictate levels of production.
Rather, money should keep step with the needs of the
productive process. The point is that variations in the
production of surplus and basic goods must be recognised and
dealt with intelligently. Variations should not be smoothed out.
What types of variations in production and sale are there
in an economy? I’m sure you can imagine various
combinations: a steady production of surplus and basic goods,
an increasing production of surplus goods and a steady
production of basic goods, a steady production of surplus
goods and an increasing production of basic goods, an
increasing production of surplus goods and a falling production
of basic goods, a falling production of surplus goods and
increasing production of basic goods, an increasing production
of both surplus and basic goods, a falling production of both
surplus and basic goods.
Lonergan argues that if an economy is to function properly the varying relations between the production of surplus goods
and the production of basic goods should take particular forms
and occur in a particular order. By phases Lonergan means the
particular relations between the surplus and basic circuits. The
occurrence of these phases in their proper order comprise a
cycle. The names of the phases are steady-state, surplus
expansion, and basic expansion.
The Steady-State Phase
Imagine an economy in which the production and sale of
surplus goods is constant. Surplus goods are repaired as needed
and replaced when they wear out, but the production of surplus
goods is not growing and it is not falling. Also, the production
and sale of basic goods is constant. There is a steady sale of
basic goods. In this state of affairs the cross-over flows from
the basic circuit to the surplus circuit and from the surplus
circuit to the basic would be balanced. The amount of money
leaving the basic circuit for the surplus circuit each interval
would be equal to the amount of money entering the basic
monetary circulation from the surplus monetary circulation.
Nothing dramatic is happening in this economy.
The Surplus Expansion Phase
Imagine that someone had a brilliant idea and invented
computers. Of course, they want to go into the business of
making and selling them to everyone. They would need to
borrow money in order to start up the business – to buy land,
build a factory, design an assembly line, purchase machines,
pay workers, and so on. When their computers are sell rapidly
they may want to expand their business. They would likely
need to borrow money to expand. They might come up with
further brilliant ideas. Even more money is required. Other
people may want to get in on the act. They may start their own
competing companies. Others may start a new business to
supply the computer company with parts. Existing businesses
may expand their factories to meet the new level of demand.
An expansion in the production of surplus goods is underway.
Interval by interval, more and more money is needed to
keep the expanding production of surplus goods going as more
and more companies want to get in on the act. This money is supplied to the surplus circuit through various financial
instruments – loans, bonds, new share issues, etc.
The production and sale of surplus goods is booming.
Lonergan stresses that this cannot happen at the expense of the
proper functioning of the basic circuit. Money in the basic
circuit should not be diverted to be used for the surplus
expansion. The production and sale of basic goods should be
maintained at a steady-state. (Money required for the surplus
expansion should come from the redistributive exchange.)
Lonergan recognises that during a surplus expansion more
money will be available for spending on basic goods and
services as the production of surplus goods takes off. But he
argues that when the surplus expansion is underway purchasing
increasing amounts of basic goods would prematurely curtail
the surplus expansion. There would be less money available to
finance the surplus expansion because money would be spent
on basic goods. If people used their wages to buy basic goods
during a surplus expansion the prices of basic goods would
rise, and more and more money would be diverted from the
surplus expansion to the basic circuit. The consequences would
be inflation and the surplus expansion coming to a premature
end, i.e., ending before it reached its peak of production.
To re-cap, in the surplus expansion phase the production
and sale of surplus goods increases dramatically (and the
circulation of money in the surplus circuit keeps pace with the
production of surplus goods). The production and sale of basic
goods remains steady. The cross-overs are kept in balance by
workers saving their money; they do not increase their
spending on basic goods. They direct their savings to the
redistributive exchange and ultimately to the surplus circuit.
The Basic Expansion Phase
After a time sufficient factories have been built to meet the
market projections of surplus goods and of future sales of basic
goods. The production of surplus goods has slowed down from
a frantic pace to a new higher rate sufficient to cover repairs
and replacements. For the moment basic production is still at a
constant rate. The economy is now poised to shift from a
surplus expansion to a basic expansion.

Lonergan refers to this as a shift from an anti-egalitarian
phase to an egalitarian phase, from a phase in which the
income of high income earners grows (and they invest their
increased incomes in the surplus expansion) to a phase in
which the incomes of lower income groups grows so that they
can purchase the new basic products being produced as a result
of the production and sale of more surplus goods and services.
One might think of the production of surplus goods such as
tractors leading to an increase in basic goods such as the
production of more potatoes.31
The basic expansion proceeds until it reaches its maxima
and levels out to a new higher steady production of basic goods
and services. Then, perhaps, someone with another good idea
comes along and a surplus expansion begins.
Lonergan emphasises that the transitions from one phase
should be done intelligently. Even though an expansion may at
some time proceed at a frantic pace, it must be intelligently
managed so that it slows and reaches a steady-state before the
next phase gets underway. Otherwise, a cycle of boom and bust
will result.
3. Foreign Trade
Establishment economists distinguish between a
favourable balance of trade and an unfavourable balance of
trade in goods and services. When a country has a favourable
balance of trade the value of its exports is greater than the
value of its imports. If a country has an unfavourable balance
of trade its imports are greater than its exports. They fail to
separate surplus and basic goods and services in their analyses.
Because there are two distinct productive processes each
with its own corresponding monetary circulation, Lonergan
distinguishes between:
1. a favourable balance of trade in surplus goods,
2. a favourable balance of trade in basic goods,
3. an unfavourable balance of trade in surplus goods, and
4. an unfavourable balance of trade in basic goods.

In discussing trade, one must bear in mind that goods or
services leaving one economy for another have passed beyond
the productive process of the exporting country. For Lonergan,
they have become redistributive goods and services sold on the
redistributive markets of the importing country. Goods or
services entering an economy enter as redistributive goods or
services, even if they enter the productive process for further
fashioning or for sale in a regular commercial channel.32
A Favourable Balance of Trade in Surplus Goods
Take the export of surplus goods such as table saws,
plows, transport trucks. When a country has a favourable
balance of trade in surplus goods and services money is added
to the exporting economy’s surplus circuit interval by interval.
Let’s examine how this occurs. The diagram captures the flow
of money in an economy exporting goods and services.

What are the consequences of adding money to the surplus
circuit in this way? The additional pure surplus income (i.e.
income over and above all outlay such as wages, rent, dividends, maintenance, repairs, replacements of machines)
can be used to help solve the problem of finding everincreasing
amounts of money to invest during a surplus
expansion. The pure surplus income can be invested in
businesses devoted to the production of surplus goods and
services.
The problem is that a surplus expansion could be
prolonged by exporting the increment in surplus goods and
services. In this scenario the basic expansion of the domestic
economy would be inhibited or dodged. By selling abroad the
surplus goods and services not needed by the domestic
economy, it becomes unnecessary to lower higher incomes and
raises lower incomes in order to enable lower income groups to
purchase the increasing number of basic goods coming on the
market during a basic expansion. In the exporting economy an
increase in the production of basic goods would not occur
because the surplus goods that ultimately lead to a basic
expansion have been exported. To state it another way, the
pure surplus income continues to flow to the owners of
businesses. That pure surplus income, in turn, is saved by
higher income groups, directed to the redistributive exchange,
and ultimately invested (or spent) on surplus goods and
services (invested) that are exported.
A Favourable Balance of Trade in Basic Goods and Services
Let’s trace how the money circulates in an economy with a
favourable balance of trade in basic goods.
Consider the export of bananas, coffee, perfume, spy
novels, ski boots, yachts, etc., from the perspective of an
exporting economy. The consequence of a favourable balance
of trade in basic goods and services is that any income over
and above what is needed for domestic outlay (wages, sinking
funds, insurance, taxes) can be saved and ultimately used to
expand businesses by purchasing surplus goods. Hence this
additional flow of money is beneficial to a surplus expansion.
However, the basic expansion may be inhibited or dodged by
not lowering higher incomes and raising lower incomes when
the production of surplus goods reaches its maximum. Like
higher income truck manufacturers and suppliers during a surplus expansion, higher income banana exporters can
maintain their high salaries, savings, investments because pure
surplus income is continuing to flow to them from the foreign
economy.
An Unfavourable Balance of Trade in Surplus Goods and
Services
Now consider an unfavourable balance of trade in surplus
goods and services from the point of view of an economy
receiving the imports. Let’s follow the monetary circulation of
an economy which is maintaining a steady import of tractors,
machine tools, assembly lines, printing presses, tractors, etc.,
interval after interval.
The problem with an unfavourable balance of trade in surplus
goods and services lies in precisely locating where the money
for buying the imported goods such as tractors comes from. If
the importing economy uses the money received from domestic
sales of surplus or basic goods, the monetary circulation
corresponding to the production and sale of surplus and basic
goods will be squeezed and their production and sales
adversely affected. On the other hand, in order not to squeeze
the domestic economy money must be borrowed from abroad
at a steady rate. Here the problem is a growing foreign debt that requires ever growing interest payments.
But the situation becomes even more precarious when you
consider how the borrowed money could be spent. The money
borrowed from foreign sources could be used to import surplus
goods to be used for repairing worn out surplus goods and
replacing surplus goods that are worn out. In this scenario,
there is no surplus expansion and hence the phase required if a
basic expansion is to get underway will not occur.

If the borrowed money is used to encourage a surplus
expansion, the amount borrowed must increase at an everincreasing
rate, thereby creating a substantial foreign debt and
proportionate interest payments.
In either scenario the economy is weak. An ‘importing’
domestic economy borrowing to buy replacements of surplus
goods cannot maintain itself. An economy borrowing to fund a
surplus expansion cannot accelerate itself. Investing in the
‘importing’ domestic economy would be unattractive, since
any hope of returns on investments would depend on everincreasing
capital inflows, i.e., more foreign debt.

An Unfavourable Balance of Trade in Basic Goods and
Services
If an economy has an excess import of basic goods such as
bananas, perfume, roses, and spy novels the problem is to
precisely locate where the money to purchase these goods
comes from. If money from the surplus circuit is diverted and
used to purchase these goods then the production and sale of
surplus goods is squeezed. Of course, if the economy is in the
surplus expansion phase, pure surplus income could be used to
buy these imported basic goods. But the problem is that the
surplus expansion would be prematurely curtailed by not
allowing it to reach its maximum.
If money in the basic monetary circuit is used to buy the
imported basic goods, then the production and sale of domestic
basic goods would be squeezed interval by interval. There are
more basic goods and services than monetary income to pay
for them at current prices. The consequence is a depression –
prices fall, sales drop, production is curtailed, unemployment
rises. Ultimately, people cannot afford to buy the imported or
domestic basic goods. The economy crashes.
In order for a domestic economy not to contract in the face
of importing more basic goods than it exports, Lonergan
explores the consequences of a domestic economy borrowing
money from abroad. Remember that the problem is to figure
out how the excess basic imports can be paid for without
upsetting the surplus and basic circuits. One possibility, letting
basic credit grow rapidly, would only lead to a growing debt
that would eventually have to be re-paid and hence the
economy would be faced with the same problem – debt –
except it would be larger this time around. To put it bluntly,
borrowing money abroad and directing it to the basic circuit
does not seem to be the answer.
An alternative is to borrow money from abroad and direct
it to the production and sale of surplus goods and services. The
idea is to jump-start a surplus expansion that would enable
workers to spend a larger portion of their now larger wages on
the imported basic goods. However, the problem is that in
order to maintain a surplus expansion the amount of money
needed per interval to purchase imported basic goods must be borrowed and directed to the producers and suppliers of
surplus goods who will expand their production. An additional
equal amount of money must be borrowed and made available
to people in the form of loans so they can purchase the newly
produced surplus goods. Thus, twice the value of purchased
imported basic goods must be borrowed and directed to the
surplus circuit each interval in order to finance a surplus
expansion and to finance the purchase of the imported basic
goods.

When the surplus expansion reaches its maximum and a
basic expansion follows we are back where we started – with
an increasing production of basic goods relative to basic
monetary income – the very problem we started with. The
solution would be to export more basic goods than were
imported. That would end the unfavourable balance of trade in
basic goods and services. But that is exactly the problem we
started with.

Lonergan’s summary of the situation is that “…there is
insufficient income derived from domestic production to
purchase both domestic products and the excess import.”33
General Conclusions
In the light of Lonergan’s perspective on trade, what
conclusions can we draw?
1. Without distinguishing between trade in surplus goods
and trade in basic goods we really do not know what is actually
going on in an economy.
2. Trade liberalisation will not necessarily make everyone
better off. The exports of one country can upset the circuits of
another country. Also, an economy with an unfavourable
balance of trade in surplus or basic goods is an economy in
trouble. Even an economy exporting surplus goods or basic
goods may not be better off because the basic expansion could
be dodged by prematurely curtailing a surplus expansion.
3. The investment-export nexus is far more complex than
indicated by the UNCTAD Report. Not only is it crucial to
distinguish favourable and unfavourable trade balances in
surplus and basic goods but, it is also essential to distinguish
different phases when discussing foreign trade and
investments.
4. Increasing investments themselves (i.e., long-term
capital flows and ODA from abroad and capital derived from
exports) will not solve the problem of how to increase the
standard of living in developing countries. Rather, the phases
of an economic cycle must be managed intelligently. And this
requires understanding economies in terms of three exchanges
and their corresponding monetary circulations and respecting
their needs.

Bruce Anderson

Introduction

In recent years the debate over free trade has heated up
and has taken the form of violence in Seattle, Washington
D.C., Quebec, and Genoa. Groups either embrace free trade or
condemn it. In fact, it seems impossible to reconcile the
arguments put forward by the supporters and the protestors. In
this paper I want to investigate the problem by using Bernard
Lonergan’s work on economics. I begin by presenting the
predominant view of economists, namely that trade benefits
everyone. Next I turn to evidence that supports the claim that
trade in the real world is not necessarily beneficial. Then I
summarise Lonergan’s analysis of the relation between the
production of goods and services and the circulation of money
in an economy in order to make the point that, if we want to
make judgments about the merits or demerits of trade, we must
first understand how economies actually work.

In the light of recent discussions about what counts and
does not count as work pertaining to the functional speciality
Dialectics, it is worth noting that my analysis does not belong
to any of the functional specialities outlined by Lonergan in
Method in Theology. Even though I address opposed points of
view, I am not engaged in Dialectics, and even though I
present a version of Lonergan’s economic analysis, I am not
engaged in Interpretation. Rather, I am simply trying to
communicate an aspect of economics to readers who have little knowledge of economics and who are not themselves engaged
in a particular functional speciality.

1. The View of Establishment Economics
Most economists believe that “trade can make everyone
better off.” Their view is that “trade allows all countries to
achieve greater prosperity.” Gregory Mankiw, for example,
presents the rationale for international trade in terms of
opportunity cost and the principle of comparative advantage.
He claims that differences in opportunity cost and comparative
advantage create the gains from trade. When each person
specialises in producing the good for which he or she has a
comparative advantage, total production in the economy rises,
and this increase in the size of the economic pie can be used to
make everyone better off. In other words, as long as two
people have different opportunity costs, each can benefit from
trade by obtaining a good at a price lower than his or her
opportunity cost of that good. “These benefits arise because
each person concentrates on the activity for which he or she
has the lower opportunity cost.” “Trade can benefit everyone
in society because it allows people to specialise in activities in
which they have a comparative advantage.” According to
Mankiw:

[The] effects of free trade can be determined by
comparing the domestic price without trade to the
world price. A low domestic price indicates that the
country has a comparative advantage in producing the
good and that the country will become an exporter. A
high domestic price indicates that the rest of the world
has a comparative advantage in producing the good
and that the country will become an importer.

When a country allows trade and becomes an
exporter of a good, domestic producers of the go are better off [because domestic prices rise to equal
the world price], and domestic consumers of the good
are worse off [because they must pay a higher price].
Trade raises the economic well being of the nation,
for the gains of the winners exceed the losses of the
losers. [The sum of consumer and producer surplus is
greater.]
When a country allows trade and becomes an
importer of a good, domestic consumers of the good
are better off [because the price is lower], and
domestic producers of the good are worse off
[because they sell their goods at a lower price.] Trade
raises the economic well-being of a nation, for the
gains of the winners exceed the losses of the losers.

Trade in the Real World
After the debt crises in the 1980s orthodox views of trade
such as Mankiw’s were used to justify “the argument that the
rapid liberalisation of trade, finance and investment would
allow developing countries to overcome resource and foreign-exchange
constraints on accumulation and growth.” The
claim was that “Trade liberalization would ensure the best
allocation of resources according to comparative advantage,
securing the export revenues needed to import key ingredients
of faster growth. Financial liberalization would attract foreign
capital seeking high returns in these capital-scarce countries,
allowing developing countries to invest more than they save
without running into a payments constraint.” Further, “a more
liberal trading environment would open markets in industrial
countries to exports from developing countries.”

However, according to the analysis of the UNCTAD Trade
and Development Report 1999, “after more than a decade of
liberal reforms in developing countries, their payments
disorders, which had earlier ushered in a rethinking of policies, remain as acute as ever, and their economies depend even more
on external financial resources for the achievement of growth
rates sufficient to tackle the deep-rooted problems of poverty
and under-development.” Growth in developing countries in
the 1990s has recovered from 1980s levels. But it is below the
average growth rate of 5.7% in the 1970s by 2% per annum.
Further, the average deficit of developing countries (excluding
China) in the 1990s is higher by 3% of GDP than they were in
the 1970s. In other words, “In recent years, developing
countries have had greater current-account deficits as a
proportion of their GDP than in the past, but without achieving
faster growth rates.”

These growing deficits have been due to the balance of
trade. Export earnings have not kept pace with rapid import
expansion. In almost one half of the developing countries the
trend is increasing trade deficits plus falling or stagnant growth
rates. Where trade balances have improved, growth and
imports have slowed. For most countries that achieved faster
growth their trade balances deteriorated due to inflows of
private capital. The problem was that these inflows couldn’t
always be sustained and there were currency crises, economic
contractions, and massive import cuts. (China and Chile
combined faster growth with improved trade performance.)
Rapid trade liberalisation in developing countries has
added to their trade deficits. Their imports increased sharply,
but exports failed to keep pace. (The current account deficit in
Latin America increased from $65 billion to $90 billion from
1997 to 1998. The trade deficit in Latin America in the 1990s
averaged about 4%.) In the first two years of trade
liberalisation, imports grew faster than exports in all countries
except Ghana, Morocco, and Tunisia where the real exchange
rate depreciated. Trade liberalisation was associated with real
appreciations, which added to import surges generated by tariff cuts particularly in Argentina, Kenya, Mexico, and Turkey.

More statistics help round out the picture.
In the 1990s the average trade deficit of oil exporting
developing countries was 3% higher than in the 1970s. The
average growth rate fell by 2% per year.

In the 1990s the trade deficit of non-oil producing
developing countries is the same as the 1970 level. But the
average growth rate is 2% lower than in the 1970s. 19
Since the 1980s, policies and structural reforms to
overcome the balance of payments constraint on growth have
failed.

In Latin America, the average growth rate was 3% lower
in the 1990s than in the 1970s. Trade deficits remained the
same.

In 51 of 84 developing countries the trade balance
worsened from the 1980s to the 1990s and in ½ of the
countries GDP stagnated or declined.

“Among the countries that have raised their growth rates
in the 1990s, the majority have seen a deterioration in their
trade balances, financed by large inflows of private capital; in
some cases the deficits and capital inflows could not be
sustained, eventually leading to payments crises, economic
contraction, and sharp turnaround in trade balances.” Only a
few countries have combined faster growth with improved
trade performance.

External indebtedness of developing countries is
increasing in relative and absolute terms. For example, in
Latin America the ratio of debt to exports was 191% in 1997.
The ratio in 1998 was 203% (and there was an increase in the
ratio of interest payments to exports).

The evidence above does not support Mankiw’s view that
trade makes everyone better off. What, then, is the strategy for
economic growth? How can people in developing countries improve their standard of living? The establishment view is that developing countries can export themselves out of poverty. Exports don’t just earn foreign exchange for imports and investment. They also provide markets for goods that would
not otherwise be produced or produced only to meet domestic
consumer demand. Hence domestic savings can increase
without a proportionate increase in domestic consumption.
However, the expansion of exports depends on foreign capital
to finance it.

It is widely accepted that capital accumulation and
economic growth in developing countries depend on foreign
capital because:

1. If a developing country does not have enough savings, “external capital flows allow developing countries to invest more than they can save, thereby closing their savings gap.”
2. If a developing country does not have enough foreign exchange to import intermediate and capital goods, capital inflows provide foreign exchange so that investment is not constrained, thereby closing the foreign exchange gap. Even if domestic savings are sufficient to finance all investment needs, imported intermediate and capital goods have to be imported and paid for.

The UNCTAD Report on Trade and Development 1999
describes the link between exports and investment in the
following way. “Since export expansion depends on
investment, a sustainable growth process requires mutually
reinforcing dynamic interactions between capital accumulation
and exports, or an ‘export-investment nexus.’” The nexus is
that, initially, the savings and foreign exchange gaps are large,
but over time they narrow as exports and domestic savings
grow faster than imports and investment. In this way, an
economy can continue to grow rapidly despite a relative
decline in real resource transfers from abroad. But if this nexus
between exports and investment cannot be established, growth will depend on external resources and will be restrained when
such resources are in short supply.

As I see it, the writing about the investment-export nexus
is vague. The nature of this link is not explained with any
degree of precision. Why it is that increasing imports and
decreasing exports will help developing countries grow is not
explained. I want to use Bernard Lonergan’s writings on
economics to introduce an explanatory context in which to
analyse economic problems that is more adequate than the
current vague views informed by superficial economic models
and analyses. In particular, my aim is to provide a fuller
context in which to help you appreciate the links between trade
and monetary circulations in an economy in order to help
understand the nature of the links between trade and
investment.
2. Lonergan’s Circulation Analysis
Bernard Lonergan’s explanation of how an economy
works is quite different from the views of establishment
economists. Philip McShane has referred to it not as a
paradigm shift, but as the invention of economic science. In
order to have any appreciation of how international trade
affects an economy you first have to understand Lonergan’s
explanation of how an economy with no foreign trade and no
government sector works. The problem is that an effort to
communicate that perspective would comprise many pages.
Hence all I can do in this paper is simply to state the key
elements in his perspective and hope that you take the
additional time necessary to understand his ideas.

What are the basic elements of an economy?
Establishment economists distinguish between capital
goods and consumer goods. A capital good is a commodity that
is used in the production of other goods and services. For
example, a pencil bought for use in a drawing-office is a capital good, but a pencil bought for a child is a consumer
good. A consumer good is any good purchased by households
for final consumption.
By contrast, Lonergan pushes this distinction. He sharply
distinguishes between surplus goods and services and basic
goods and services. For Lonergan, goods produced in order to
produce other goods are surplus goods. Machine tools,
transport trucks, cargo ships, tractors would be surplus goods.
Goods that are not made in order to produce other goods to be
sold are basic goods. For example, groceries, movie tickets,
spy novels, clothes would be basic goods.
In fact, for Lonergan, the production and sale of surplus
goods and services and the money that is used to make and buy
them amounts to a distinct productive process with its own
corresponding monetary circulation. Moreover, the production
and sale of basic goods and services and the money that is used
to make and buy them amounts to a distinct productive process
with its own corresponding monetary circulation. In other
words, there are two distinct types of exchanges: 1) surplus
exchanges and 2) basic exchanges. Establishment economists
do not make this sharp distinction.
The complicating aspect of the distinction is that the same
goods and services can be classified as either surplus or basic.
Their classification depends on how they are used. The
purchase of a car solely for the work of a travelling salesperson
would be a surplus expenditure, but the purchase of a car solely
for going on picnics would be a basic expenditure. The
purchase of a table saw by a carpenter would be a surplus
expenditure, but if a do-it-yourselfer bought a table saw it
would be a basic expenditure.
The third distinct type of exchange Lonergan identifies are
redistributive exchanges. These exchanges, strictly speaking,
do not involve the production and sale of goods and services.
The exchange is merely a change, or transfer of, property rights
in items such as shares, debt, buildings, second-hand goods,
insurance pay-outs, government transfer payments. The point
is that exchanges of this type are not part of the productive
process per se.
When someone buys shares the ownership is transferred from the seller to the buyer. This is simply a redistributive
exchange because nothing new has been produced. A broker’s
fee for handling the transaction is, however, another story. The
fee the broker collects for his work may be used to buy basic
goods or it may be saved and later directed to, and spent as, an
investment in surplus goods or services.
Let’s recap. The basic elements of an economy are: 1) a
surplus exchange comprising the production and sale of surplus
goods and services and the corresponding monetary flow that
makes this possible, 2) a basic exchange comprising the
production and sale of basic goods and services and the
corresponding monetary circulation that makes this possible,
and 3) a redistributive exchange comprising changes solely in
property rights and the corresponding monetary circulation that
makes this possible.
These exchanges can be captured by diagrams. It is
worthwhile studying these diagrams as they express the
essence of Lonergan’s view.

The Links Between the Surplus and Basic Monetary Circuits
I presented the surplus and basic exchanges as if they were
independent of each other. But they are actually connected to
each other. The suppliers and producers of basic goods may
need to buy surplus goods such as new tools or machines for
their businesses. A florist may need to buy a new truck – a
surplus good – to deliver flowers. A grocer may need to buy a
new fridge – a surplus good – to store ice cream. Hence some
of their outlay will be directed to the surplus exchange to buy
surplus goods and services. In this way, money leaves the basic
monetary circuit and enters the surplus monetary circuit.
On the other hand, the producers and suppliers of surplus
goods and services use part of their outlay to pay the wages of
their employees. Because people must eat, pay mortgages or
rent, buy clothes, buy movie tickets, and buy spy novels, a
portion of the outlay by the suppliers of surplus goods and
services will be directed to the basic monetary circuit to be
used to purchase basic goods and services. In this fashion,
money flows from the surplus monetary circuit to the basic
monetary circuit.
Lonergan calls these two connections or links between the
surplus and basic exchanges cross-overs. They are captured by
the vertical lines in the diagram.

The Redistributive Exchange is Linked to the Surplus and
Basic Circuits
I stated above that, strictly speaking, redistributive exchanges were involved in transferring property rights
(ownership, possession, etc.) concerning items like shares,
debt, insurance pay-outs, loans, second-hand goods, and I
stressed that this monetary circuit did not correspond to the
production and sale of goods and services, either surplus or
basic. Nonetheless, the redistributive exchange is connected to
the surplus monetary circuit. Money from the redistributive
exchange flows to the surplus circuit when the producers and
suppliers of surplus goods borrow money from a bank to
expand their business. Money flows in the opposite direction
when they make a bank deposit.
The redistributive exchange and the basic circuit are also
linked. Money flows from the redistributive exchange and
joins the basic circuit when people use their credit cards to buy
groceries, obtain a bank loan to buy a new car, and when
producers and sellers of basic goods borrow money to finance
a new delivery truck.30 When consumers and sellers of basic
goods and services make bank deposits, money flows from the
basic circuit to the redistributive exchange.
This diagram captures the additional connections,
expressing the basic elements of an economy. The Rules of Thumb, Norms, or Policies for Running a Closed
Economy Properly
1 (a) The surplus circuit cannot be allowed to expand by
draining money from the basic circuit. We do not want the
production and sale of basic goods and services to
collapse.
(b) The basic circuit cannot be allowed to expand by
draining money from the surplus circuit. We do not want
the production and sale of surplus goods to collapse.
(c) Hence the cross-overs must be balanced. The amount
of money flowing from the basic circuit to the surplus
circuit per interval must equal the amount of money
flowing from the surplus circuit into the basic circuit.
(d) The cross-overs can be balanced by directing a portion
of surplus or basic monetary flows to and from the
redistributive exchange as required.
2 (a) The production and sale of surplus goods and services
and the surplus monetary circuit must be kept in step with
each other. If you increase the production and sale of
surplus goods you must increase, interval by interval, the
amount of money in the surplus monetary circuit. If you
decrease the production and sale of surplus goods you
must decrease proportionately the amount of money in the
surplus circuit to keep step with production and sale.
(b) The same rule applies to the production and sale of
basic goods and services and its corresponding monetary
circulation.
(c) The consequence of not matching the money in the
circuits to the needs of the productive process is price
spirals – up or down.
(d) The job of redistributive exchanges is to supply, or
remove, money from the two circuits.
3 Money (in the form of short-term capital flows,
government transfer payments, ODA, donations)
indiscriminately added to, or removed from, either the
surplus or basic monetary circulations has the potential to
adversely affect an economy. Phases in the Economic Cycle
Establishment economists are concerned with keeping an
economy in equilibrium, balancing the supply and demand of
goods, services, money, etc. In an effort to combat inflation
they advocate manipulating the money supply. Their aim is to
keep the economy on an even keel. So, when the production
and sale of goods and services grows rapidly, central bank
economists increase the interest rate in order to combat
inflation. This follows the standard paradigm, since
establishment economists don’t distinguish between the effects
of interest rate changes on producers and on consumers.
Moreover, the production and sale of goods and services is
forced to adjust to the money supply. In other words,
production is at the beck and call of the needs of money.
By contrast, in Lonergan’s opinion, an economy is
cyclical, not static. To be more specific, the relation between
the turnover size and frequency of the production of surplus
goods (and its monetary circuit) and the turnover size and
frequency of the production of basic goods (and its monetary
circuit) can vary. Further, the monetary circulation of an
economy should be allowed to vary as production increases
and decreases. To put it another way, the presumed needs of
money should not be allowed to dictate levels of production.
Rather, money should keep step with the needs of the
productive process. The point is that variations in the
production of surplus and basic goods must be recognised and
dealt with intelligently. Variations should not be smoothed out.
What types of variations in production and sale are there
in an economy? I’m sure you can imagine various
combinations: a steady production of surplus and basic goods,
an increasing production of surplus goods and a steady
production of basic goods, a steady production of surplus
goods and an increasing production of basic goods, an
increasing production of surplus goods and a falling production
of basic goods, a falling production of surplus goods and
increasing production of basic goods, an increasing production
of both surplus and basic goods, a falling production of both
surplus and basic goods.
Lonergan argues that if an economy is to function properly the varying relations between the production of surplus goods
and the production of basic goods should take particular forms
and occur in a particular order. By phases Lonergan means the
particular relations between the surplus and basic circuits. The
occurrence of these phases in their proper order comprise a
cycle. The names of the phases are steady-state, surplus
expansion, and basic expansion.
The Steady-State Phase
Imagine an economy in which the production and sale of
surplus goods is constant. Surplus goods are repaired as needed
and replaced when they wear out, but the production of surplus
goods is not growing and it is not falling. Also, the production
and sale of basic goods is constant. There is a steady sale of
basic goods. In this state of affairs the cross-over flows from
the basic circuit to the surplus circuit and from the surplus
circuit to the basic would be balanced. The amount of money
leaving the basic circuit for the surplus circuit each interval
would be equal to the amount of money entering the basic
monetary circulation from the surplus monetary circulation.
Nothing dramatic is happening in this economy.
The Surplus Expansion Phase
Imagine that someone had a brilliant idea and invented
computers. Of course, they want to go into the business of
making and selling them to everyone. They would need to
borrow money in order to start up the business – to buy land,
build a factory, design an assembly line, purchase machines,
pay workers, and so on. When their computers are sell rapidly
they may want to expand their business. They would likely
need to borrow money to expand. They might come up with
further brilliant ideas. Even more money is required. Other
people may want to get in on the act. They may start their own
competing companies. Others may start a new business to
supply the computer company with parts. Existing businesses
may expand their factories to meet the new level of demand.
An expansion in the production of surplus goods is underway.
Interval by interval, more and more money is needed to
keep the expanding production of surplus goods going as more
and more companies want to get in on the act. This money is supplied to the surplus circuit through various financial
instruments – loans, bonds, new share issues, etc.
The production and sale of surplus goods is booming.
Lonergan stresses that this cannot happen at the expense of the
proper functioning of the basic circuit. Money in the basic
circuit should not be diverted to be used for the surplus
expansion. The production and sale of basic goods should be
maintained at a steady-state. (Money required for the surplus
expansion should come from the redistributive exchange.)
Lonergan recognises that during a surplus expansion more
money will be available for spending on basic goods and
services as the production of surplus goods takes off. But he
argues that when the surplus expansion is underway purchasing
increasing amounts of basic goods would prematurely curtail
the surplus expansion. There would be less money available to
finance the surplus expansion because money would be spent
on basic goods. If people used their wages to buy basic goods
during a surplus expansion the prices of basic goods would
rise, and more and more money would be diverted from the
surplus expansion to the basic circuit. The consequences would
be inflation and the surplus expansion coming to a premature
end, i.e., ending before it reached its peak of production.
To re-cap, in the surplus expansion phase the production
and sale of surplus goods increases dramatically (and the
circulation of money in the surplus circuit keeps pace with the
production of surplus goods). The production and sale of basic
goods remains steady. The cross-overs are kept in balance by
workers saving their money; they do not increase their
spending on basic goods. They direct their savings to the
redistributive exchange and ultimately to the surplus circuit.
The Basic Expansion Phase
After a time sufficient factories have been built to meet the
market projections of surplus goods and of future sales of basic
goods. The production of surplus goods has slowed down from
a frantic pace to a new higher rate sufficient to cover repairs
and replacements. For the moment basic production is still at a
constant rate. The economy is now poised to shift from a
surplus expansion to a basic expansion.

Lonergan refers to this as a shift from an anti-egalitarian
phase to an egalitarian phase, from a phase in which the
income of high income earners grows (and they invest their
increased incomes in the surplus expansion) to a phase in
which the incomes of lower income groups grows so that they
can purchase the new basic products being produced as a result
of the production and sale of more surplus goods and services.
One might think of the production of surplus goods such as
tractors leading to an increase in basic goods such as the
production of more potatoes.31
The basic expansion proceeds until it reaches its maxima
and levels out to a new higher steady production of basic goods
and services. Then, perhaps, someone with another good idea
comes along and a surplus expansion begins.
Lonergan emphasises that the transitions from one phase
should be done intelligently. Even though an expansion may at
some time proceed at a frantic pace, it must be intelligently
managed so that it slows and reaches a steady-state before the
next phase gets underway. Otherwise, a cycle of boom and bust
will result.
3. Foreign Trade
Establishment economists distinguish between a
favourable balance of trade and an unfavourable balance of
trade in goods and services. When a country has a favourable
balance of trade the value of its exports is greater than the
value of its imports. If a country has an unfavourable balance
of trade its imports are greater than its exports. They fail to
separate surplus and basic goods and services in their analyses.
Because there are two distinct productive processes each
with its own corresponding monetary circulation, Lonergan
distinguishes between:
1. a favourable balance of trade in surplus goods,
2. a favourable balance of trade in basic goods,
3. an unfavourable balance of trade in surplus goods, and
4. an unfavourable balance of trade in basic goods.

In discussing trade, one must bear in mind that goods or
services leaving one economy for another have passed beyond
the productive process of the exporting country. For Lonergan,
they have become redistributive goods and services sold on the
redistributive markets of the importing country. Goods or
services entering an economy enter as redistributive goods or
services, even if they enter the productive process for further
fashioning or for sale in a regular commercial channel.32
A Favourable Balance of Trade in Surplus Goods
Take the export of surplus goods such as table saws,
plows, transport trucks. When a country has a favourable
balance of trade in surplus goods and services money is added
to the exporting economy’s surplus circuit interval by interval.
Let’s examine how this occurs. The diagram captures the flow
of money in an economy exporting goods and services.

What are the consequences of adding money to the surplus
circuit in this way? The additional pure surplus income (i.e.
income over and above all outlay such as wages, rent, dividends, maintenance, repairs, replacements of machines)
can be used to help solve the problem of finding everincreasing
amounts of money to invest during a surplus
expansion. The pure surplus income can be invested in
businesses devoted to the production of surplus goods and
services.
The problem is that a surplus expansion could be
prolonged by exporting the increment in surplus goods and
services. In this scenario the basic expansion of the domestic
economy would be inhibited or dodged. By selling abroad the
surplus goods and services not needed by the domestic
economy, it becomes unnecessary to lower higher incomes and
raises lower incomes in order to enable lower income groups to
purchase the increasing number of basic goods coming on the
market during a basic expansion. In the exporting economy an
increase in the production of basic goods would not occur
because the surplus goods that ultimately lead to a basic
expansion have been exported. To state it another way, the
pure surplus income continues to flow to the owners of
businesses. That pure surplus income, in turn, is saved by
higher income groups, directed to the redistributive exchange,
and ultimately invested (or spent) on surplus goods and
services (invested) that are exported.
A Favourable Balance of Trade in Basic Goods and Services
Let’s trace how the money circulates in an economy with a
favourable balance of trade in basic goods.
Consider the export of bananas, coffee, perfume, spy
novels, ski boots, yachts, etc., from the perspective of an
exporting economy. The consequence of a favourable balance
of trade in basic goods and services is that any income over
and above what is needed for domestic outlay (wages, sinking
funds, insurance, taxes) can be saved and ultimately used to
expand businesses by purchasing surplus goods. Hence this
additional flow of money is beneficial to a surplus expansion.
However, the basic expansion may be inhibited or dodged by
not lowering higher incomes and raising lower incomes when
the production of surplus goods reaches its maximum. Like
higher income truck manufacturers and suppliers during a surplus expansion, higher income banana exporters can
maintain their high salaries, savings, investments because pure
surplus income is continuing to flow to them from the foreign
economy.
An Unfavourable Balance of Trade in Surplus Goods and
Services
Now consider an unfavourable balance of trade in surplus
goods and services from the point of view of an economy
receiving the imports. Let’s follow the monetary circulation of
an economy which is maintaining a steady import of tractors,
machine tools, assembly lines, printing presses, tractors, etc.,
interval after interval.
The problem with an unfavourable balance of trade in surplus
goods and services lies in precisely locating where the money
for buying the imported goods such as tractors comes from. If
the importing economy uses the money received from domestic
sales of surplus or basic goods, the monetary circulation
corresponding to the production and sale of surplus and basic
goods will be squeezed and their production and sales
adversely affected. On the other hand, in order not to squeeze
the domestic economy money must be borrowed from abroad
at a steady rate. Here the problem is a growing foreign debt that requires ever growing interest payments.
But the situation becomes even more precarious when you
consider how the borrowed money could be spent. The money
borrowed from foreign sources could be used to import surplus
goods to be used for repairing worn out surplus goods and
replacing surplus goods that are worn out. In this scenario,
there is no surplus expansion and hence the phase required if a
basic expansion is to get underway will not occur.

If the borrowed money is used to encourage a surplus
expansion, the amount borrowed must increase at an everincreasing
rate, thereby creating a substantial foreign debt and
proportionate interest payments.
In either scenario the economy is weak. An ‘importing’
domestic economy borrowing to buy replacements of surplus
goods cannot maintain itself. An economy borrowing to fund a
surplus expansion cannot accelerate itself. Investing in the
‘importing’ domestic economy would be unattractive, since
any hope of returns on investments would depend on everincreasing
capital inflows, i.e., more foreign debt.

An Unfavourable Balance of Trade in Basic Goods and
Services
If an economy has an excess import of basic goods such as
bananas, perfume, roses, and spy novels the problem is to
precisely locate where the money to purchase these goods
comes from. If money from the surplus circuit is diverted and
used to purchase these goods then the production and sale of
surplus goods is squeezed. Of course, if the economy is in the
surplus expansion phase, pure surplus income could be used to
buy these imported basic goods. But the problem is that the
surplus expansion would be prematurely curtailed by not
allowing it to reach its maximum.
If money in the basic monetary circuit is used to buy the
imported basic goods, then the production and sale of domestic
basic goods would be squeezed interval by interval. There are
more basic goods and services than monetary income to pay
for them at current prices. The consequence is a depression –
prices fall, sales drop, production is curtailed, unemployment
rises. Ultimately, people cannot afford to buy the imported or
domestic basic goods. The economy crashes.
In order for a domestic economy not to contract in the face
of importing more basic goods than it exports, Lonergan
explores the consequences of a domestic economy borrowing
money from abroad. Remember that the problem is to figure
out how the excess basic imports can be paid for without
upsetting the surplus and basic circuits. One possibility, letting
basic credit grow rapidly, would only lead to a growing debt
that would eventually have to be re-paid and hence the
economy would be faced with the same problem – debt –
except it would be larger this time around. To put it bluntly,
borrowing money abroad and directing it to the basic circuit
does not seem to be the answer.
An alternative is to borrow money from abroad and direct
it to the production and sale of surplus goods and services. The
idea is to jump-start a surplus expansion that would enable
workers to spend a larger portion of their now larger wages on
the imported basic goods. However, the problem is that in
order to maintain a surplus expansion the amount of money
needed per interval to purchase imported basic goods must be borrowed and directed to the producers and suppliers of
surplus goods who will expand their production. An additional
equal amount of money must be borrowed and made available
to people in the form of loans so they can purchase the newly
produced surplus goods. Thus, twice the value of purchased
imported basic goods must be borrowed and directed to the
surplus circuit each interval in order to finance a surplus
expansion and to finance the purchase of the imported basic
goods.

When the surplus expansion reaches its maximum and a
basic expansion follows we are back where we started – with
an increasing production of basic goods relative to basic
monetary income – the very problem we started with. The
solution would be to export more basic goods than were
imported. That would end the unfavourable balance of trade in
basic goods and services. But that is exactly the problem we
started with.

Lonergan’s summary of the situation is that “…there is
insufficient income derived from domestic production to
purchase both domestic products and the excess import.”33
General Conclusions
In the light of Lonergan’s perspective on trade, what
conclusions can we draw?
1. Without distinguishing between trade in surplus goods
and trade in basic goods we really do not know what is actually
going on in an economy.
2. Trade liberalisation will not necessarily make everyone
better off. The exports of one country can upset the circuits of
another country. Also, an economy with an unfavourable
balance of trade in surplus or basic goods is an economy in
trouble. Even an economy exporting surplus goods or basic
goods may not be better off because the basic expansion could
be dodged by prematurely curtailing a surplus expansion.
3. The investment-export nexus is far more complex than
indicated by the UNCTAD Report. Not only is it crucial to
distinguish favourable and unfavourable trade balances in
surplus and basic goods but, it is also essential to distinguish
different phases when discussing foreign trade and
investments.
4. Increasing investments themselves (i.e., long-term
capital flows and ODA from abroad and capital derived from
exports) will not solve the problem of how to increase the
standard of living in developing countries. Rather, the phases
of an economic cycle must be managed intelligently. And this
requires understanding economies in terms of three exchanges
and their corresponding monetary circulations and respecting
their needs.

Obama Signs the National Defense Authorization Act, a Bad Week For Freedom

Politics / US Politics Feb 15, 2012 - 08:22 AM

By: James_Quinn

“We have two American flags always: one for the rich and one for the poor. When the rich fly it means that things are under control; when the poor fly it means danger, revolution, anarchy.”- Henry Miller

With each passing week it seems this country spirals further into the depths of a frightening dystopian fantasy reminiscent of Huxley and Orwell’s dark world of isolation, fear and government brutality portrayed in their masterpieces Brave New World and 1984. I keep speculating whether it’s me that’s crazy and not the things I’m witnessing on a daily basis. The President signs the National Defense Authorization Act, passed by an overwhelming majority of Congress, which allows the government to imprison American citizens indefinitely without charge. And there is barely a squeak from the docile masses as they are soothed by Obama promising to never use that part of the law. I bet you $10,000 a President will invoke that portion of the NDAA in the very near future.

Jon Corzine, a card carrying member of the ruling elite .01%, remains free to roam one of his five palatial estates after stealing $1.6 billion from the accounts of farmers, widows, and thousands of other “clients” of MF Global. In his spare time he raises money for Obama’s re-election campaign. The Federal government, Federal courts and Wall Street banking cabal have circled the wagons and declared the money just vaporized, even though it sits in Jamie Dimon’s vaults at J.P. Morgan. No one is being prosecuted for this deliberate thievery. The psychopathic Wall Street criminals have been getting away with murder for so long they act invulnerable to societal mores and scoff at our laws, rules and regulations. Those are for the 99%. When you control the politicians, regulators, courts, and mainstream media, it’s easy to get away with murder. The jackals and hyenas are laughing in their NYC penthouse suites as they continue to collect $20 million bonuses for a job well done.

After this past week I’m apoplectic with rage and fury as the rule of law has been discarded and the Constitution trampled upon by a wealthy connected oligarchy bent upon using their absolute power to further enrich themselves. The Wall Street banks that committed the largest financial crime in history, including: fraud in the inducement, forgery, fabricating documents, bribing rating agencies to rate toxic mortgages as AAA, selling fraudulent derivatives to customers, shorting the derivatives they sold to their customers, throwing millions of Americans out of their homes, charging inflated and bogus fees during the foreclosure process, and conducting a colossal cover-up, were slapped on the wrist and made to pay a miniscule $5 billion to the millions of victims of their crimes. Not one banker has been prosecuted. Not one person has gone to jail. Justice in this country is a putrid joke. There has been no outrage from the general public. The propaganda spewed by the corporate media instructs the masses to rejoice at this fair and just verdict. The truth is that 95% of the population didn’t know or didn’t care about the 50 state foreclosure-gate settlement. They were engrossed by the huge controversy over M.I.A. flipping the bird during the Super Bowl halftime show and whether Madonna was upset about the incident.

“Free” Healthcare

While this travesty of justice was playing out, we were treated to a glimpse into the future of healthcare in America administered by politicians and bureaucrats based upon vote count expediency. The government drones at DHHS mandated from on high that every woman in America would receive “free” contraceptives from their employers. Obama had made this decision and instructed his minions to implement his visionary dictate. The outrage and anger from religious groups and employers was instantaneous. Obama saw the 2012 election slipping away and reversed course within a day. He is quite the man of principle. His “solution” was to force insurance companies to provide “free” contraception to any employee of a religious employer that didn’t provide that coverage in their insurance plan. When I hear these sociopathic politicians use the word “free” when describing healthcare or any of their thousands of bankrupt government programs, I have an overpowering impulse to smash something. Insurance companies will not provide “free” contraceptives to women. Insurance premiums will rise for everyone.

Remember Obama’s assertion about his government takeover of healthcare:

“As a consequence of the Affordable Care Act, premiums are going to be lower than they would be otherwise; health care costs overall are going to be lower than they would be otherwise.”

The next government program that reduces costs, provides better service, and is more efficient than the private market will be the first government program to do so. Examples of government ineptitude, corruption and waste include: Social Security, Medicare, Welfare, the Energy Dept., the Education Dept., and the Dept. of War. Jonathan Gruber, MIT economist and chief architect of Obamacare and Romneycare, recently admitted the truth about Obamacare:

“After the application of tax subsidies, 59% of the individual market will experience an average premium increase of 31%. My findings reflect the high cost of folding state high risk pools into the [federal government’s] exchange — without using the money the state was already spending to subsidize those high risk pools.”

Based on what Obamacare has done for the American people before its full implementation in 2014, you’ll be begging for a death panel to put you out of your misery. The following “free” healthcare services were required to be covered by insurance companies in 2010:

• Cover preventive care without co-pays or deductibles.
• Allow adult children to stay on parents’ policies until age 26.
• Increase annual coverage limits.
• Cover children without regard for preexisting conditions.

Obama’s promise that families would save $2,500 per year in the future might come up a tad short, as insurance premiums skyrocketed by 9% in 2011. Not only have premiums soared, but many companies have increased co-pays from $10 to $25 for doctor visits.

Only a deceitful government busybody do-gooder would actually argue that forcing insurance companies to cover millions more Americans and cover pre-existing conditions would result in lower costs for the average family. I wonder what will happen in 2014 when 30 million more Americans are guaranteed “free” healthcare under Obamacare. The saddest part of this oncoming train wreck is that millions of willfully ignorant people actually believed the blatant lies and false storyline fed to them by sociopathic politicians who desire to control every aspect of their lives. These people believe they know what is best for you. They believe they are smarter than you. They do not care what means are required to achieve their ends of absolute domination over your life. Personal freedom, individual liberty and a critical thinking populace are the antithesis to the desires of the governing elite.

Home Sweet Home

The central planners within government and inhabiting the Federal Reserve are never in doubt that their theories, programs, solutions, mandates and schemes will achieve their desired outcome. The trouble for the American people is the desired result is not designed or planned to actually benefit them. The psychopaths drawn to politics, regulatory agencies, and government bureaucracies have no remorse or qualms about lying, utilizing propaganda, and instilling fear to achieve the ends that endorse their self serving agenda. Every dime of government spending is seized from the people by force or created out of thin air by an all knowing self-proclaimed Great Depression expert named Ben Bernanke. This Ivy League professor who has spent his entire life in academia and government thinks he knows which levers to pull to revive an economy that he destroyed. His wisdom is borne out in his prescient assessment of the U.S. housing market as it was imploding:

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” – July 2005

“House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.” – October 2005

“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.” – February 2006

“All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.  The vast majority of mortgages, including even subprime mortgages, continue to perform well.  Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.” – May 2007

It should be clear to everyone that Ben is a goddamn genius. You can see why the mainstream corporate media hangs on his every utterance. He has accepted no responsibility for his part in producing an epic housing collapse and the subsequent recession that continues to this day. His lack of conscience comes in handy as he has destroyed the finances of millions of senior citizens dependent upon interest income to make ends meet. Having no guiding principles or ethics allows him to declare with a straight face that inflation is well contained as gas prices approach $4.00 per gallon, food prices surge 10%, and his inflationary policies contribute to revolutions around the globe.

Last week this sage spoke to the Home Builders Association and left no doubt that he has no interest in what is best for the American people. His economic remedies are the exact opposite of what is needed to cure the disease of a debt ravaged society. Dr. Bernake’s prescription is more debt fueled spending by consumers to refill the coffers on Wall Street. This is not surprising considering he is nothing but a puppet of Dimon, Pandit, Blankfein and the rest of the Wall Street cabal. His speech revealed his allegiances:

“One of the effects of declines in housing wealth is to reduce the ability and willingness of households to spend. It appears that recent declines in housing wealth may be reducing consumer spending between $200 billion and $375 billion per year. That reduction corresponds to lower living standards for many Americans. And, importantly, lower sales of goods and services also reduce the incentives of firms to invest and hire, thereby slowing the recovery. Low or negative equity creates additional problems for households. It reduces financial flexibility: Homeowners who are underwater on their mortgages cannot tap home equity to pay for emergency health expenses or their children’s college educations.”

Whenever I read Bernanke’s words, I’m reminded of George Orwell’s quote about intelligent people:

“There are some ideas so wrong that only a very intelligent person could believe in them.”

This is a man who believes he knows better than the market. He’s an economics professor that doesn’t believe in the law of supply and demand as taught in Econ 101. He thinks he can control home prices. He thinks he knows the ideal interest rate. He thinks he knows just how much money printing will revive the economy. He believes a healthy economy is driven by artificially propping up home prices, encouraging people to spend money they don’t have, recommending that homeowners borrow against their homes ($3 trillion borrowed and pissed away from 2003 through 2008), and forcing banks to make loans to subprime borrowers – again. His solution to the millions of bank owned homes is to use the taxpayer owned Fannie and Freddie to initiate bulk discount sales of these homes to his friends in the .01% so they can turn around and rent them to their former owners. I wish someone could explain to me how this helps the 99%. It is another backdoor bailout of Wall Street on the straining backs of the American taxpayer.

Obama’s housing solutions in 2009-2010 included multiple home buyer tax credits, loan modification programs, and a myriad of other Keynesian claptrap spending schemes. Bernanke supported all of those measures. They spent $30 billion of your tax dollars in an effort to artificially prop up home prices. Home prices have fallen 10% since they threw your money down the rat hole where all government programs reside, and they continue to fall. These central government planners don’t like to publicize the fact they continue to operate Fannie Mae, Freddie Mac, and the FHA as a way to shift losses from Wall Street to Main Street. Fannie and Freddie have lost $160 billion of your tax dollars since 2008, but amazingly the losses don’t show up in the Federal budget because reality has no place in politics or governmental accounting. The FHA just announced they will require a taxpayer bailout for the first time in their 78 year existence, as they lose $5 billion of your money per year on behalf of the Wall Street banking cartel. The toxic mortgages that don’t reside on the books of Fannie, Freddie and the FHA are sitting on Ben’s balance sheet. They reside, hidden from public view, in the “Other Assets” section of the chart below. His tripling of the Federal Reserve balance sheet was done for one reason only – to save the Wall Street bankers, their shareholders, and their bondholders. His actions have in no way benefitted the American people or the American economy.

It is mind boggling the degree to which central planners like Bernanke, Geithner, Obama and Congress will inflict their vision of how the economy and world in general should operate upon the trusting masses. The American people want to believe their leaders are doing what is best for them. They like dwelling in a land of delusion, security and luxury, where government guarantees to protect them from: terrorists; Iranian invasion; saving for retirement; looking out for their own health; educating themselves; and accepting the consequences of living above their means. Their ability to distinguish between truth and propaganda has been thoroughly degraded by years of government proscribed education. We have chosen to become a knowingly ignorant nation of true believers. There is no time for critical thinking while we anticipate our next tweet about the death of drug addicted pop singer. We have been taught to love our servitude.

“…most men and women will grow up to love their servitude and will never dream of revolution.”– Aldous Huxley – Brave New World

The fallacy of government protecting you, taking care of you and providing you “free” benefits is so ingrained in the American psyche that it is virtually impossible to voluntarily reverse the trend. The truth that Americans refuse to acknowledge is that nothing is free in this life. We are not entitled to own a home, a free education, free healthcare, or a comfy privileged existence. Everything government provides is taken by force from someone else. Everything government does has a cost. Americans have traded freedom and liberty for the appearance of safety and security.The cost is constant war, getting groped by TSA perverts, surveillance by government agencies, threat of imprisonment without charges and a $1 trillion price tag per year. The cost of “free” healthcare is mind numbingly ludicrous rules and regulations for doctors and patients, massive fraud, outrageously expensive procedures and medications, and a $100 trillion unfunded liability left for future generations. The ultimate cost of an overbearing, all controlling government will be economic collapse and revolution.

Who Decides?

“Those who vote decide nothing. Those who count the vote decide everything.” – Joseph Stalin

The concluding act during this bad week for freedom occurred on Saturday in the great state of Maine. When it became clear that Ron Paul was going to win the Maine caucuses, the GOP establishment, that has already anointed Mitt Romney the Republican nominee, decided the people of Maine would be told who won. Using the excuse of an impending snowstorm (less than 1 inch), the powers that be cancelled the caucuses in Washington County where a large contingent of youthful Ron Paul supporters dominated. The Girl Scouts didn’t cancel their event in the same county that day. The men who cancelled the caucus are strong Romney supporters. This was a blatant Stalinist act of voter disenfranchisement. The GOP leaders declared those votes would not count in the totals. Despite this despicable act of rigging an election, Ron Paul doubled his vote percentage from 2008. His message of freedom, liberty, non-interventionism, sound money and self-reliance is reverberating across the land among young people who have not been programmed by the governing elite and the corporate mass media. The establishment will do everything in their power, including vote fraud, to prevent Ron Paul’s anti-establishment message from being heard.

A small delegation of authoritative, rich men continues to pull the strings in this country. The examples I’ve sited in the last week prove we are moving ever more rapidly towards what Friedrich Hayek described as a‘dictatorship of the proletariat’. The actions of the governing class point to no other conclusion as described by Simon Black:

• Hundreds of thousands of mortgage contracts abrogated by the Federal government;
• Suspension of gun rights by several local governments;
• The continued criminalization of protest and free assembly;
• Increased surveillance and police state tactics;
• Authorization of military force and detention against the citizens;
• Seizing and/or voiding pension systems into which workers have paid lifelong contributions;
• Rejection of long-standing senior debt positions in favor of labor unions;
• Executive and police agencies ruling by regulation and policy, not by legislative process;

When you pose the possibility of a dictatorship in America, the defender of freedom and democracy, old timers scoff and laugh off the possibility. We are the bright shining light on the mountaintop – that preemptively invades other countries; murders suspected foes with predator drones; imprisons and tortures foreigners in secret prisons; and plans to have 30,000 spy drones patrolling the skies over U.S. cities within the next few years. The government now has the authority to imprison U.S. citizens without cause for as long as they see fit. The government plans to lock down and control the internet. How could we possibly descend toward dictatorial rule? The conditions are perfect for sociopaths dwelling in government bureaucracies to make their move, as elucidated by Doug Casey:

“You may be thinking that what happened in places like Nazi Germany, the Soviet Union, Mao’s China, Pol Pot’s Cambodia and scores of other countries in recent history could not, for some reason, happen in the US. Actually, there’s no reason it won’t at this point. All the institutions that made America exceptional – including a belief in capitalism, individualism, self-reliance and the restraints of the Constitution – are now only historical artifacts.On the other hand, the distribution of sociopaths is completely uniform across both space and time. Per capita, there were no more evil people in Stalin’s Russia, Hitler’s Germany, Mao’s China, Amin’s Uganda, Ceausescu’s Romania or Pol Pot’s Cambodia than there are today in the US. All you need is favorable conditions for them to bloom, much as mushrooms do after a rainstorm.”- Casey Report

Call me a raging optimist, but I see positive signs that an irate tireless minority of Americans are coming to their senses and preparing for a showdown with the ruling oligarchy. The tremendous support for Ron Paul’s message among those under the age of 30 is inspiring. His devoted followers have incredible enthusiasm and will be a force to be reckoned with. The upcoming election will be won or lost based upon whether Ron Paul decides to run as a 3^rd Party candidate, spreading his inspirational message. The Occupy Movement is also being driven by people under the age of 30. Their courage and audacity in standing up to brutal establishment military tactics and focusing the attention of the world on the greed, avarice and corruption rampant throughout our economic and political system has given me hope that the good guys can win. Every day the Millenial generation gains strength as the power of the older generations slowly wanes.

The internet has proven to be the best weapon in the fight against the governing elite. It offers people the freedom to ignore government sponsored propaganda being blasted by the corporate media. Critical thinkers can connect with other critical thinkers, while seeking the truth and spreading ideas. You can examine websites like Zero Hedge, Jesse’s Café Americain, Of Two Minds, and Mish to comprehend what is really happening in your world. The tumult and outrage exhibited by millions when the despotic Congressional jackals attempted to pass SOPA and PIPA was inspirational. The people’s voice was heard loud and clear. The politicians ruling over our lives have no guiding principles or moral code. They peddle their votes to the highest bidder. They conduct polls to determine what their constituents want to hear and then shockingly tailor a message that voters find to be exactly what they think. These sociopaths only respond to one thing – being exposed as liars and thieves. When they are confronted by an irate citizenry they scatter like roaches in a West Philly row house kitchen when you turn the light on. Yes votes on SOPA turned to No votes quicker than the Federal government can spend a billion of your tax dollars (10 hours). Obama showed how principled his positions are by backtracking on his “free” contraception mandate in less than 24 hours. If we speak loud enough they will listen, or else.

The “or else” is reflected in the chart below showing gun purchases over the last ten years. Millions of good law abiding Americans are armed. The accelerating trend is a hopeful sign that we will not allow a small contingent of corrupt politicians backed by shadowy rich men (22 men have contributed 67% of all the Super Pac money in the GOP primaries), hiding from public view, to treat this country as their personal playground.          

It was a bad week for freedom loving people, but I believe there are enough patriots left in this country to change our course. We are being buried under a blizzard of lies on a daily basis. We have a choice. We can support the existing corrupt crony capitalist establishment (Obama & Romney) or we can declare war on lies, deceit and misinformation by rallying behind the only person who would truly attempt to reverse decades of corruption, sleaze, incompetence, bloat, debt accumulation, and a warped version of free market capitalism – Ron Paul. He is the only public figure willing to level with the American people and tell them the truth. Will we let the concept of truth fade out of the world? The choice is ours. 

“In our age there is no such thing as ‘keeping out of politics.’ All issues are political issues, and politics itself is a mass of lies, evasions, folly, hatred and schizophrenia. The very concept of objective truth is fading out of the world. Lies will pass into history.” –   George Orwell

“Truth is treason in an empire of lies.” – Ron Paul

Join me at www.TheBurningPlatform.com to discuss truth and the future of our country.

By James Quinn

quinnadvisors@comcast.net

James Quinn is a senior director of strategic planning for a major university. James has held financial positions with a retailer, homebuilder and university in his 22-year career. Those positions included treasurer, controller, and head of strategic planning. He is married with three boys and is writing these articles because he cares about their future. He earned a BS in accounting from Drexel University and an MBA from Villanova University. He is a certified public accountant and a certified cash manager.

These articles reflect the personal views of James Quinn. They do not necessarily represent the views of his employer, and are not sponsored or endorsed by his employer.

© 2011 Copyright James Quinn - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

(Source: marketoracle.co.uk)

The following is Ron Paul’s response to Obama’s mandate.