Larry Summers is Right on the Money and Right on the Money

On this weekend’s Bloomberg Wall Street Week, Larry Summers is right on the money and right on the money. (sic)  In the light of all we’ve said about a) the explanation of inflation, b) the ineffectiveness of the Fed’s tools and the ineptness of the Fed’s actions re money supply and interest rates, c) the distribution of income between the two circuits based on the phase of the objective process, etc, judge for yourself. Continue reading

Scientific Generalization by Functional Analysis of the Network of Interdependent Rates

The non-Euclideans moved geometry back to premises more remote than Euclid’s axioms, they developed methods of their own quite unlike Euclid’s, and though they did not impugn Euclid’s theorems, neither were they very interested in them; casually and incidentally they turn them up as particular cases in an enlarged and radically different field. Continue reading

The Animal Organism and the Economic Organism

CONTENTS:

  1. THE STUDY OF ORGANISMS – ANIMAL AND ECONOMIC
  2. DETERMINISM AND INDETERMINISM – DISAGREEING WITH EINSTEIN
  3. CORRESPONDENCE IN THE CURRENT BASIC DYNAMIC, ORGANIC PROCESS; A DETERMINATE ALGEBRAIC FUNCTION OF THE FIRST DEGREE
  4. CORRESPONDENCE IN THE SURPLUS DYNAMIC, ORGANIC PROCESS; AN INDETERMINATE POINT-TO-LINE CORRESPONDENCE
  5. AVOIDING A VICIOUS CIRCLE OF CRITICISM
  6. THREE IMPLICITLY-DEFINED CIRCULATORY ORGANS
  7. THE TRANSITION TO SYSTEMATIZATION
  8. THE ROLE OF MIND IN THE DEVELOPMENT OF THE HUMAN AND THE ECONOMIC ORGANISMS

 .1. THE STUDY OF ORGANISMS – ANIMAL AND ECONOMIC:  (Continue reading)

 

John Greenwood and Steve H. Hanke’s “The Monetary Bathtub is Overflowing”

In an article in the 10/21/2021 Wall Street Journal,  John Greenwood and Steve H. Hanke evoked an image with which we are all familiar, water flowing in and out of a bathtub.  The simple image was to be representative of monetary flows.  The image attracted attention, which was good thing; however, Macroeconomic Field Theory finds it more instructive to put forth a more adequate representative image of flows. Continue reading

Understanding the Causes of Boom or Slump, Inflation or Deflation

(Lonergan’s) massive part-time investment of his surplus intellectual energy in an effort to understand the “causes” of the Depression was a response specifically to the boom and bust dimension of that problem.  His response came in his exploration of the functional correlation between production, exchange and finance in an economy.  Central was the question, how in aggregate in an economy does money circulate?  His subsequent insights led him to divide it into distinct basic and surplus circuits causally interacting with a redistribution financial zone.  As a result he was able to show how with better financial management of that circulation the emergent standard of living of an economic community could advance cyclically to a higher level without any downward negative swings. [Mathews, 2009, 150] Mathews’ website

The economic process is constituted by production, exchange and finance.

… a business cycle theory is to be found in the interpretation of the whole. (CWL 15, 8)

Facing Facts: The Ideal Of Constant Value Of The Currency vs. The Fact Of Inflation

 

We have recited some aspects of the dynamic economic process:

    • (Dummy) money “must be constant in exchange value.”
    • Prices alone do not explain the economic process. Prices must be interpreted in the light of those significant variables which actually explain the economic process.
    • The economic process of production and exchange always is the current, purely-dynamic process
    • The economic process is an organic whole
    • The process has an exigence for a normative pure cycle of expansion.
    • Equilibrium requires the keeping of pace and balance among interdependent flows of products and money
    • Scarcity is the normal cause of inflation
    • Maladjustment of incomes is the maladaptive cause of inflation
    • Just as the surplus phase of the expansion is anti-egalitarian in tendency, postulating an increasing rate of saving, … so the basic phase of the expansion is egalitarian in tendency; it postulates a continuously decreasing rate of saving [CWL 15, 139]
    • The central adjustment to the respective phases of the process may be formulated as adjustment of I”/(I’ + I”), the ratio of surplus income to total income
    • Interpreters of prices must distinguish between real and relative price increases monetary and absolute changes in prices We have recited some aspects of the dynamic economic process: (Continue reading)

Lonergan’s “Macroeconomic Field Theory” (MFT), AKA “Functional Macroeconomic Dynamics” (FMD)

  • Functional Macroeconomic Dynamics seeks not merely to “view” and describe the economic process; rather it seeks to understand in order to explain and properly manage the economic process. (Continue reading)

A Vicious Circle; The Welfare State

Now this type of surplus is not confined to warlike concerns.  Once the possibility of an unbalanced budget is established, the precedent can be invoked to persuade politicians to carry on other wars: wars on illiteracy, on poverty, on ill health, on unemployment, on insecurity.  Where the profit motive does not prove efficacious, the state must intervene. … the increasing volume of transactions requires a larger money supply, and the central bank can be persuaded to meet the demand. … it appears to be less evident that a vicious circle of ever more demands for a larger money supply with no increase in real income is inflationary … In any case there has emerged in fact if not in name the welfare state. … Its mechanism is rather strikingly similar to that of the favorable balance of foreign trade. The debt once owed by colonies to richer countries now is replaced by the national debt. … now the long overdue basic expansion is doled out to one’s fellow countrymen under the haughty name of welfare. [CWL 15, 85-86]

Understanding The Whole Organic System; Purely Intelligible Relations Among Explanatory Terms

The human mind seeks understanding of the whole.

For the human mind is such that it does not wonder about things just individually but, understanding individual elements, goes on to ask how they are connected with one another. [CWL 12, 17]

Lonergan was seeking the explanatory intelligibility underlying the ever-fluctuating rhythms of economic functioning.  To that end he worked out a set of terms and relations that ‘implicitly defined’ that intelligible pattern. [CWL 15, 179-80]

Continue reading

Alexander William Salter’s “Fed Tapering Won’t Beat Inflation”

The Wall Street Journal of 10/29/2021 featured Alexander William Salter’s article “Fed Tapering Won’t Beat Inflation”.  Professor Salter is courageously tackling an important issue.  We respectfully suggest that he consider the following: Tapering is not reversing.  It is a negative acceleration but, still, a positive velocity.  Continue reading