Tom  Keene Is Correct To Call For Analysis By Deciles; Lisa Abramowicz has Good Reason to Wonder About the Real Strength of Consumers’ Balance Sheets

Colleagues Tom Keene and Lisa Abramowicz (Bloomberg Surveillance) are non-plused.  Tom is correct in calling for a “partition by deciles” of the population’s Incomes in order to understand properly the ability of particular segments of the population to deal with inflation.  Lisa properly wonders why credit card debt is rising if the “consumer’s balance sheet”, according to some analysts, is “in good shape,” i.e. shows an historically-large cash balance. Continue reading

A Flood of Money into the Operative Circuits plus a Speculative Boom in the Stock and Bond Markets

The flooding of the operative circuits and the Redistributive Function with free money for Demand will, absent basic and surplus expansion of production, cause product prices to rise.  This flooding of the economic process with non-productive money may be accompanied by a speculative boom in the stock market to further swell Demand and make the situation even worse.

It is to be recalled that the account given of the cycle of the basic price-spread ratio supposes (D’ – s’I’) to be zero throughout.  A speculative boom in the stock market which encourages basic spending may be represented by a positive (D’ – s’I’); there is an excess release of money from the Redistributive Function to the basic demand function.  Alternatively, it may be represented by an upward revision of the fractions wi of total current income going to basic demand, while the fact that the surplus final market suffers no contraction then results from the excess of the rate of new fixed investment over the rate of pure surplus income, so that D” is positive.  In either case, a movement of this type with its basis in redistributional optimism will offset any tendency towards a contraction of the price spread and will reinforce any tendency of the price spread to expand.  On the other hand, the subsequent stock market break intensifies the crisis of the circuits, removing the props that had hitherto swollen expansive tendencies, and leaving the system with a greater height from which to fall. (CWL 15 162 )

Alienation And Ideology: A Civilization In Decline Digs Its Own Grave

As we said at the beginning of our entry “Centesimus Annus; The Hundredth Anniversity of Rerum Novarum”,

“This website focuses on the technical aspects of Lonergan’s macroeconomic dynamics. However, we have also pointed out that the science of economics must accept its rightful place within the broader culture consisting of technology, economics, and politics.  And this culture itself stands within a hierarchy of values. Further, we have emphasized the need to achieve The Good of Order.  (Also, Click here; and see CWL 12, 496-7)” Continue reading

Alan S. Blinder re Transitory But Not Permanent

… the prime cause (whether it be of inequity or inflation) is ignorance.  The dynamics … are not understood, not formulated, not taught….. [CWL 15, 82]

man as external agent has not the systematic guidance he needs to operate successfully the machine he controls. [CWL 21, 109]

Academia’s failure threatens economic liberty.

Lonergan realized that failure to understand correctly what is needed if the economic process is to perform well is gravely threatening to democratic liberty.  That is why he undertook his serious study of economics. [CWL 15 Editors’ Introduction, xxx] Continue reading

A Closely Knit Frame of Reference; the Channels Account for Booms and Slumps, for Inflation and Deflation,

The interconnected channels of the Diagram of Rates of Flow provide a closely knit frame of reference.  The channels account for booms and slumps, inflation and deflation.

The method of circulation analysis resembles more the method of arithmetic than the method of botany.  It involves a minimum of description and classification, a maximum of interconnections and functional relations.  Perforce, some description and classification are necessary; but they are highly selective, and they contain the apparent arbitrariness inherent in all analysis.  For analytic thinking uses classes based on similarity only as a springboard to reach terms defined by the correlations in which they stand.  To take the arithmetic illustration, only a few of the integral numbers in the indefinite number series are classes derived from descriptive similarity; by definition, the whole series is a progression in which each successive term is a function of its predecessor.  It is this procedure that gives arithmetic its endless possibilities of accurate deduction; and, as has been well argued, it is an essentially analogous procedure that underlies all effective theory. [CWL 21, 111] Continue reading

Table of Contents of Editors’ Introduction in CWL 15

To indicate the editors’ helpfulness in placing Functional Macroeconomic Dynamics in its historical and theoretical contexts, we list below the headings of the EditorsIntroduction to Lonergan’s Macroeconomic Dynamics: An Essay in Circulation Analysis (CWL 15).  We encourage  all in the community of economists – graduate students, professors, investment analysts, corporate and government economists – to read the Introduction.

Editors’ Introduction, Frederick G. Lawrence ; xxv

  1. Lonergan’s Entry into Economics, 1930-1944 / xxvi
  2. Democratic Economics: An alternative to Liberalism and Socialism / xxxii
    1. Liberalism and Socialism as Economistic Ideologies / xxxv
    2. Free Enterprise as an Educational Project
  3. Lonergan’s Reentry into Economics, 1978-1983 / xxxix
  4. Lonergan’s Interlocutors in Economics / xliii
    1. Lonergan and Marx / xlvi
    2. Lonergan and Marshall / xlvii
    3. Lonergan and Keynes / xlviii
    4. Lonergan, Kalecki, and Others / li
    5. Lonergan and Schumpeter / li
  5. Macroeconomic Dynamic Analysis as a New Paradigm of Economic Theory / liv
  6. The Systematic Significance of the Fundamental distinction between Basic and Surplus Production and Exchange
    1. Profit / lxiii
    2. Interest / lxvii
    3. Lonergan’s Critique of ‘Supply-Side’ and ‘Demand-Side’ Economics / lxvii
  7. Lonergan’s Critique of Secularist Ideologies: The Need for a Theological Viewpoint / lxix

Lonergan was a polymath.  He was expert at systematizing fields in which others could not discover order. As the Editors’ Introduction states, his work in macroeconomics is of systematic significance.

In brief Lonergan is looking for an explanation in which the terms are defined by the relations in which they stand, that is, by a process of implicit definition. … No doubt Keynes was an economist first and a methodologist second … Lonergan, for his part, is perhaps a methodologist first and an economist second, but he was able to push his economic reflections further than Keynes because he had a firmer grasp of the essentials of an effective theory.  … Lonergan’s critique (shows that) … the emphasis shifts … to searching heuristically for the maximum extent of (functional) interconnections and interdependence; and that the variables (of the mechanism) discovered in this way might not resemble very much the objects (or the aggregates) (such as coincidental prices) which, in the first instance, (the non-methodologist) was thinking about.   [Gibbons 1987]

… A science emerges when thinking in a given field moves to the level of system. Prior to Euclid there were many geometrical theorems that had been established.  The most notable example is Pythagoras’ theorem on the hypotenuse of the right-angled triangle, which occurs at the end of  Book 1 of Euclid’s elements.  Euclid’s achievement was to bring together all these scattered theorems by setting up a unitary basis that would handle all of them and a great number of others as well. … similarly, mechanics became a system with Newton.  Prior to Newton, Galileo’s law of the free fall and Kepler’s three laws of planetary motion were known.  But these were isolated laws.  Galileo’s prescription was that the system was to be a geometry; so there was something functioning as a systemBut the system really emerged with Newton.  This is what gave Newton his tremendous influence upon the enlightenment. He laid down a set of basic, definitions, and axioms, and proceeded to demonstrate and conclude from general principles and laws that had been established empirically by his predecessors.  Mechanics became a science in the full sense at that point where it became an organized system. … again, a great deal of chemistry was known prior to Mendeleev.  But his discovery of the periodic table selected a set of basic chemical elements and selected them in such a way that further additions could be made to the basic elements.  Since that time chemistry has been one single organized subject with a basic set of elements accounting for incredibly vast numbers of compounds.  In other words, there is a point in the history of any science when it comes of age, when it has a determinate systematic structure to which corresponds a determinate field. [CWL10, 241-42]

Readers may find it helpful to peruse the image below, What Lonergan Brought to Functional Macroeconomic Dynamics.

A Bernard Lonergan Sampler

I hope that this Sampler will a) demonstrate the breadth and depth of the knowledge that Lonergan brought to Macroeconomic Dynamics, and b) inspire readers to compare their perspective to his in regard to science and macroeconomics.  His thinking ranged over mathematics, natural science, method, history, philosophy, theology, and art.  This sampler is arranged in groups of excerpts from particular  books of Lonergan.  Scroll down to see the arrangement.

CWL 3, Insight: A Study of Human Understanding

“The most significant book of the twentieth century,” (Philip McShane)

A distinction has been drawn between description and explanation.  Description deals with things as related to usExplanation deals with the same things as related among themselves.  …  description supplies, as it were, the tweezers by which we hold things while explanations are being discovered or verified, applied or revised. … [CWL 3, 291/316]

The concrete intelligibility of Space is that it grounds the possibility of those simultaneous multiplicities named situations.  The concrete intelligibility of Time is that it grounds the possibility of successive realizations in accord with the probabilities.  In other words, concrete extensions and concrete durations are the field or matter or potency in which emergent probability is the immanent form of intelligibility. (CWL 3, 172) Continue reading

The Road Up is The Road Down; The Mechanism of Rising and Falling  Prices

“The road up and the road down is one and the same. (Heraclitus)
ὁδὸς ἄνω κάτω μία καὶ ὡυτή

Archaeologists and scholars have not found the context of this isolated fragment of Heraclitus.  What “road” was he referring to, and was he was speaking literally or figuratively? I simply like the statement as an introduction to the ups and downs of distinct price-quantity flows, whether in a pure cycle of expansion or in a distorted cycle of boom and corrective slump. Continue reading

Concomitance and Credit;  A New Paradigm for the Federal Reserve Bank; Functional Macroeconomic Dynamics Drives Establishment Economics into the Shadows

The macroeconomics textbooks feature three key macrostatic models, all three of which are sublated by the purely relational field theory called Functional Macroeconomic Dynamics.  The textbooks’ three featured graphs are two momentary intersections of supply and demand curves plus the Phillips Curve correlation of unemployment and interest rates:

  1. the intersection of the supply and demand curves at a certain price of goods and services (the macrostatic AD-AS model),  
  2. the intersection of the supply and demand curves at a certain interest-rate, rental-price of money (the macrostatic IS-LM model),  plus,
  3. the now-debunked Phillips Curve correlation of unemployment and interest rates.

The key elements grounding the discovery and formulation of the immanent, field-theoretic intelligibility of the organic, unified, whole economic system include: (Continue reading)