The Editors’ Introduction in Macroeconomic Dynamics: An Essay in Circulation Analysis [CWL 15] contains a 4½-page Section 5 (pp. liv-lix) entitled Macroeconomic Dynamic Analysis as a New Paradigm of Economic Theory. It is difficult to imagine that any graduate student or professor of macroeconomics, having read that section, would fail to be motivated to study so as to master Lonergan’s Functional Macroeconomic Dynamics. That 4½-page section should be read in its entirety.
In 1980, in Lonergan’s Challenge to the University and the Economy, Philip McShane alerted the world that Bernard Lonergan had achieved a new paradigm and had lifted macroeconomic dynamics from an exercise in description to a project of science. McShane understood Lonergan’s macroeconomic dynamics better, even then, than anyone has since.
Wedded to the difficulty of conceiving capital … is the difficulty of conceiving change. Nor can this be surprising if the accusation of macrostatic thinking is valid. … An early villain was Leon Walras. … As Schumpeter notes, “the exact skeleton of Keynes’ system belongs, to use terms proposed by Ragnar Frisch, to macrostatics, not macrodynamics.” [McShane 1980, 105]
The issue of “a new paradigm” demands attention. Today the phrase rings a bell; it gets the attention of people who might otherwise turn away from lack of curiosity, lack of time, just plain laziness, or fear of repudiation of the methods and theory of macrostatics in which they are vested – such as Walrasian statics, or Keynesianism, or neo-classicalism, or rational behaviorism.
Here are some of the particular subjects treated in Macroeconomic Dynamic Analysis as a New Paradigm of Economic Theory.
- If we understand the utterance “paradigm” in the general sense of defining for a science ‘the type of relationships to be investigated and the methods and abstractions to be regarded as legitimate within a particular problem area,’ it makes sense, then, to characterize the nature and formulations of Lonergan’s work in economic theory as elaborating a new paradigm.
- The familiar phenomena of booms and slumps … can be analytically specified only by a system of basic terms in which the terms are defined by their relations to each other, and the relations are fixed by the terms
- There are pitfalls of failing to achieve satisfactory theoretical answers to questions calling for explanatory answers
- Definitions … must be implicit definitions as are the definitions of basic terms like ‘point’ and line’ in David Hilbert’s rigorous restatement of classical geometry
- A systematic explanation of the macroeconomic field will yield a normative theoretical framework.
- An ‘explanatory’ understanding grasps things-in-relation-to-one–another. In these explanatory relations of the immanent functional intelligibility lies the basic meaning both of theory … and of a systematics as opposed to a commonsense account.
- Explanatory understanding … grasps an immanent lawfulness or intelligibility or normative regularity in data as empirically apprehensible
- The set of terms and relations capable of explaining the phenomena of the business or trade cycle would not be the same as any given pricing system that automatically coordinates a vast coincidental manifold of decisions of demand and decisions of supply
- The relevant set of explanatory terms and relations would have to expose … both the dynamic elements and the differentials of the economic mechanism which reveal the significance of aggregate changes and of prices that by themselves are in need of interpretation.
- Functional analysis of production and circulation reveals an explanatory system known-first-in-itself. Only such an explanatory framework will enable the all-important discrimination either of a) causes and the variation in prices (CWL 15, 75-80, 113-120) or of b) “a relative and an absolute rise or fall of monetary prices”, and only such an explanatory framework will make possible a correct interpretation of their significance.
- A rather complex superstructure is needed in order to avoid the static approaches that, according to Schumpeter, have virtually obliterated the dynamic and the differential dimensions of the significant variables in the economic processes since the nineteenth century.
- The realities referred to by ‘basic’ and ‘surplus’ are not mutually defined and related systematically and functionally in other essays the way they are in this Essay.
- The set of definitions generated by this analysis are achieved independently of a) concepts of value theory, b) postulates regarding value, and c) deductions concerning scarce objects with alternative uses.
- After reading Brian Loasby’s ‘Hypothesis and Paradigm in the theory of the Firm,’ … which applied to issues in economics Thomas Kuhn’s distinction in the Structure of Scientific Revolutions between scientific theories or hypotheses and paradigms, … Lonergan began to think of himself as working out a new paradigm for economics.
(the model and the analysis) involves an enlargement of perspective and a proper ordering of assumptions. But I must note immediately how intimately the ordering is within the perspective: “as the hypothesis is the principle in mathematics so the end is the principle in praxis.” (Lonergan: Theology and Praxis) The movement of Lonergan’s analysis might be described as a paradigmatic descent from a concrete heuristic of the productive process determined by the end of that process. The monetary order is conditioned by, and correlated to, the rhythms of production adequate to the end. Only later in the analysis can one arrive at an adequate account of the monetary distributions commonly called wages and profits. That account springs from a characterization of possible types of productive rhythms…Thus, for example, one determines the oscillations of basic income which may be briefly described as anti-egalitarian during basic expansions. Again, distinctions are required within surplus income: what requires attention during expansion is that fraction of I, which we may call pure surplus income, that goes to new fixed investment. It is evidently subject to cyclic variation. [McShane 1980, 125-126]
One might be reminded here of a parallel in hydrodynamics: if what is at issue is a general specification of the dynamics of free water waves, a premature introduction of general boundary conditions or worse, specific channel conditions, botches the analytic possibilities….the Robinson-Eatwell analysis is hampered, not only by an absence of paradigmatic heuristic thinking in a field whose principles involve ends, but also by their building the economic “priora quoad nos” of profits, wages, prices, etc., into explanation, when in fact the “priora quoad nos” are last in analysis: they require explanation. [McShane 1980, 124]
In a developed economy undergoing a major technological change there is no single balanced growth rate. Some processes and goods grow while others, based on the old technical goods, cease/decline in transient economies…The Lonergan paradigm is in fact specifically concerned with the heuristics of money in the dynamic solutions which cover the partially decomposable system which exists while a cluster of major innovations are spreading through an economic system. This is a more complex and uncertain case than anything solved in mathematically general terms to date. [Burley 1992-2, 274]
Further mathematical work will be needed to clarify the effects of various policies concerning final stocks and to suggest the precise applicability of analogues of turnpike theory. Sufficient however has been done here, at least in a heuristic way, to show that the von Neumann tool-kit can be used to represent the Lonergan production analysis. This provides a basis for a new paradigm of disequilibrium macrodynamics which, inter alia, responds to Schumpeter’s challenge that, … “has not taken any special cognizance of the process of creative destruction which we have taken to be the essence of capitalism.” (Schumpeter, Capitalism, Socialism, and Democracy. P.104) [Burley, 1989, 120-21 ]
Schumpeter, pessimistically, envisaged a growing state control over a free-market capitalism whose very success in innovating created the social conditions for the removal of the freedom of action it depended on. ¶ Lonergan, more hopefully, sought to develop an analysis which could facilitate more democratic ways of achieving macrodynamic efficiency in innovation cycles. He proposed a new paradigm which could speak to free people…[Burley, 1993, 254]
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]