The **process** is always the current, purely dynamic process. The **analysis** is purely functional, purely relational and explanatory analysis. The **theory** is general and universally applicable to concrete determinations in any Instance; The theory is a **normative theory** having a condition of equilibrium.

Our subheadings in this treatment are as follows:

**Always the Current Process:****A Purely Dynamic Process Requiring a Dynamic Heuristic:****A Purely Functional Analysis:****A Purely Relational, Explanatory Analysis:****A Theory, General and Universally Applicable to Concrete Determinations in Any Instance:****A Normative Theory Having a Condition of Equilibrium:**

**Always the Current Process:**

The economic process is **always the current process**. It has evolved to the present and it will continue to evolve on into the future; but the analyst is concerned with the governing principles, laws, and primary relativities applicable to the current process; his theory is to be general, universally applicable, and explanatory of any configuration at any instance. Just as the swing of the ideal simple pendulum or just as the purely elliptical orbit of a massive body has a primary relativity that is general, explanatory and universally applicable to any configuration of the variables at any instance, so Lonergan’s Functional Macroeconomic Dynamics deals in the same way with all macroeconomic phenomena and is general, universally applicable, and explanatory of any configuration of the variables at any instance.

The productive process is, then, the

(current)aggregate of activitiesproceeding from the potentialities of nature and terminating in a standard of living.Always it is the current process, and so it is distinguished both from the natural resources, which it presupposes, and from the durable effects of past production. [CWL: 15, 20]

The current **process **is constituted by **interdependent, mutually conditioning flows** of productive contributions and payments of money. As flows, these constituents are **velocities**; and thus the **explanatory terms will be velocities** or rates of activity.

(It is a fact that) the

current process is always a rate of activity, that this rate of activity differs from the potentialities of nature, from which itproceeds, and that it differs from its finished products, which,ex hypothesi, areno longer in processbut already produced. … Goods that have been completed arenot goods in process; services that have been rendered are not services being rendered. Again, goods inprocessare not the natural resources from which they are derived; and services being rendered are not the natural potentialities from which they are derived. There can be resources and potentialities without goods or services being derived from them.; and while they are in process of being derived, the goods are not yet produced and the services not yet rendered. … Thus the productiveprocessisa purely dynamic entity. [CWL 15, 21]

The analyst seeks to discover the **primary dynamical relativities **which can be applied to the current co-incidental **secondary determinations of prices and quantities** to explain the process in a standard interval . Just as, for the determination of the actual current location and velocity of a body moving in an elliptical orbit, it would be necessary to apply the primary explanatory relativities of elliptical motion to secondary measurements of initial position and initial velocity, so, the macroeconomist seeks first to make **precise analytical distinctions** among **terms of explanatory significance**, then discover the primary relationships among the terms, and, then, apply these primary relativities to the secondary measurements in the non-systematic manifold, so as to explain the current, concrete process.

Paraphrasing [McShane, 1980, 127]: Taking into account past and (expected) future values does not constitute

the creative key transition to Functional Macroeconomic Dynamics.Those familiar with elementary statics and dynamics (in physical mechanics) will appreciate the shift in thinking involved in passing from (static) equilibrium analysis (of, say, a suspended weight with subscripts for time not needed, or of a static equilibrium of supply and demand within and between circuits)…to an analysis (of, say, the motions of planets or pendula) where attention is focused on second-order differential equations, on d^{2}θ/dt^{2}, d^{2}x/dt^{2}, d^{2}y/dt^{2}, on theprimary relativitiesof a range of related forces, central, friction, whatever.Particular secondary boundary conditionsin Functional Macroeconomic Dynamics, (such as) past and future pricings and quantities (analogous to a particular planet’s particular past or future angular position, velocity, acceleration), arerelatively insignificantfor the analysis of theprimary relativityimmanent in, andapplicable to, every instance of the process. What is significant is theLeibnitz-Newtonian shift of context.

Lonergan dealt **in the same way **with all macroeconomic phenomena. He did so by turning to a field of greater **generality**, the **field theory **of macroeconomic phenomena, and by finding a **deeper unity at a more adequate level of abstraction **in the apparent disparateness of neoclassicism, Keynesianism, monetarism, and behaviorism. Lonergan went beyond the schools and isms by employing implicit definition, precise analytical distinctions at an adequate level of abstraction, and functional analysis.

It is … a scientific

generalizationof the old political economy and of modern economics that will (sublate and transform the isms and) and yield the new political economy which we need. … Plainly the way out is through a moregeneralfield. [CWL 21, 7]

Prices and quantities in the current process are secondary determinations in a non-systematic manifold, not primary magnitudes of universal, scientific significance at an adequate level of abstraction.

**A Purely Dynamic Process Requiring a Dynamic Heuristic:**

Lonergan agreed with Schumpeter that … to be able to **explain **the booms, slumps, and crashes of the trade or business cycles the economist’s analysis had to be **as dynamic as **the subject matter under investigation; and he agreed that the economist had to know **what are the significant (functional) variables in the light of which price changes are to be interpreted**. According to Lonergan, standard economic theory had successfully achieved none of these desiderata. [CWL 15, Editors’ Introduction liii]

Again,

(It is a fact that) the

current process is always a rate of activity, that this rate of activity differs from the potentialities of nature, from which it proceeds, and that it differs from its finished products, which,ex hypothesi, are no longer in process but already produced. No doubt the three are closely related, but relation presupposes distinction, and before relations can be grasped adequately, the distinctions must be grasped. Goods that have been completed are not goodsin process; services that have been rendered are not servicesbeing rendered. Again, goods in process are not the natural resources from which they are derived; and services being rendered are not the natural potentialities from which they are derived. There can be resources and potentialities without goods or services being derived from them.; and while they are in process of being derived, the goods are not yet produced and the services not yet rendered. … Thus the productive process isa purely dynamic entity. [CWL 15, 21]Thus the productive process is a

purely dynamic entity. We began by saying how broadly the term was to be taken. But it is also necessary to insist how narrowly. It is not wealth, but wealthin process. … It is none of its own effects, if by effects are understood what has been completed. It is neither the existence nor the use of durable consumer goods, of clothing, houses, furnishings, domestic utensils, personal belongings, or indeed any item of private or public property that can be listed as a consumer good and has passed beyond the process to become an element of the community’s standard of living. On the other hand, with regard to producer goods a distinction has to be drawn: they are in the process as a means of production; they are in the process in the sense that labor is in the process or that management is in the process, namely, their use forms part of the process; but once they are completed they are no longer under process, any more than labor or management is under process and being produced. … factories and machinery, railways and power units, warehouses and offices are in the productive process only while being produced; once they are produced, they themselves have passed beyond the process to enter the category of static wealth, even though their use remains a factor of production. CWL 15, 21-22

The current, **purely dynamic** process is constituted by the current flows constituting production, exchange, and finance. These velocitous flows are so much or so many every so often; thus they are **dynamic**, and they are represented mathematically as dQ/dt, or ΔQ/dt, or d^{2}Q/dt^{2}, or ΔQ^{2}/dt^{2}. The **scientific** and **dynamic heuristic** of the analyst mandates complete explanation of the **dynamic process** in terms of the velocities and changes in velocities of the **interdependent**, functional, constituents of the process.

Frish’s failure to develop a significant theory typifies the failure of economists who search for a

dynamic heuristic. As well as a fundamental disorientation of approach there is also a tendency to shift toan inadequate level of abstractionwith apremature introduction of boundary conditionsin a determinate set of differential and difference equations. [McShane, 1980, 114]One might be reminded here of a parallel in hydrodynamics: if what is at issue is a general specification of the

dynamicsof 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 ofparadigmatic heuristic thinkingin a field whose principles involve ends, but also by their building the economicpriora quoad nosof profits, wages, prices, etc., into explanation, when in factthe[McShane 1980, 124]priora quoad nosare last in analysis: they require explanation.

**A Purely Functional ****Analysis:**

An

‘accountant’s unity’… is a category used in (conventional) accounting. For Lonergan, (conventional) accounting generally denotes an enterprise within common sense which uses descriptive, as contrasted withexplanatory terms(on these terms see37-38/61-62, 178-79/201-3, 247-48/272-73). Insofar as that is true, the accountant’s unity isInsightnot an adequate index for the normative, explanatory analysis of the productive process. [CWL 15, 26, ftnt 26]

“Functional”is for Lonergan atechnical termpertaining to the realm ofexplanation, analysis,theory; it does not mean “who does what” in some commonsense realm of activity. … Lonergan illustrates his basic meaning of ‘explanation’ by referring to D. Hilbert’s method ofimplicit definition: Let us say, then, that for every basic insight there is a circle of terms and relations, such that the terms fix the relations, the relations fix the terms, and the insight fixes both. Thus themeaningof both point and straight line isfixed by the relationthat two and only two points determine a straight line. … Lonergan went on to identify the contemporary notion of a“function”as one of the most basic kinds of explanatory, implicit definition – one that specifies“things in their relations to one another”(CWL 3, 37-38/61-62)…In Lonergan’s circulation analysis, thebasic terms are rates– rates of productive activities and rates of payments. The objective of the analysis is to discover the underlying intelligible and dynamic (accelerative) network of functional, mutually conditioning, and interdependent relationships of these rates to one another. [CWL 15, 26-27 ftnt 27]Now as the

statisticalapproach differs from thedescriptive, theanalyticdiffers from both. Out of endless classificatory possibilities it selects not the one sanctioned by ordinary speech nor again the one sanctioned by facility of measurement but the one that most rapidly yields terms which can be defined by thefunctionalinterrelationsin which they stand. [CWL 21, 112]

A macroeconomic functioning is not a compilation or aggregation of particular income statement categories, such as wages or interest expense. A macroeconomic functioning is implicitly defined by its **functional relation **to other **functionings**. The whole structure is purely relational.

(Again:) … the terms fix the relations, the relations fix the terms, and

the insight fixes both. Thus themeaningof both point and straight line isfixed by the relationthat two and only two points determine a straight line.“Lonergan’s analysis is

concrete but heuristic. It focuses onintrinsic to the productive process to reach eventually afunctionalrelationsgeneral theory of dynamic equilibria and disequilibria.”[McShane 1980, 117]I have insisted on focusing on the central issue: the need of a

of the productive process and its correlated monetary flow. [McShane 1980,200]functionalanalysis

The explanatory theory must not be contaminated by sociological, political, proprietary, or material categories; nor by a premature introduction of boundary conditions such as prices and quantities.

The division is not a matter of social relations or of property or of the properties of things: it is a

. … The aim of the analysis is to reveal the possibilities of the productive process as a dynamic system. [McShane 1980, 119-20]functionalanalysisNow whatever the difficulties of measurement, the

is undeniably valid. [McShane 1980, 121]functionaldistinctionThe distinction between basic and surplus is not a material nor a proprietary but a

. There are types of enterprise that in themselves arefunctionaldistinctionindifferently basic or surplus… [CWL 15, 118]

Further regarding functions click here and here.

**A Purely Relational, Explanatory Analysis:**

The scientific and dynamic heuristic mandates that **complete explanation of the concrete process** will require **real** analysis. The **pattern of flows of dummy money** must be identified with the **structural dynamics** of **what money buys**. **First** must be the analysis of the **structure** of the **process of production** and sale which the dummy money makes possible. The analysis must be **real **analysis.

real analysis(is) identifying money with what money buys. … And that is the source of the problem in real analysis. If you want to treat money that doesn’t make a difference, you can have a beautiful liberal monetary theory. But it doesn’t saythe way the thing works. [CWL 21, xxviii]

**In real analysis money is a dummy invented by man **to make possible a vast and intricate process of production and exchange of goods and services.

Again,

The

whole structure is relational: one cannot conceive the terms without the relations nor the relations without the terms. Both terms and relations constitute a basic framework to be filled out, [CWL 3, 492/516] (In addition, read in the entirety CWL 3, 491-6/514-20)Lonergan illustrates his basic meaning of ‘

explanation’by referring to D. Hilbert’s method ofimplicit definition.[CWL 15, 26-27 ftnt 27]Lonergan is looking for an

explanationin whichthe terms are defined by the relations in which they stand, that is, by a process ofimplicitdefinition. This technique (implicit definition) has been used to great effect by David Hilbert in hisFoundations of Geometryin which, for example, the meaning of a point and a straight line is fixed by the relation that two, and only two points, determine a line. “The significance of implicit definition is its completegenerality. The omission of nominal definition is the omission of a restriction to objects which, in the first instance, one happens to be thinking about. Theexclusive use of explanatory or postulational elements concentrates attention upon the set of relationshipsin whichthe whole scientific significance is contained.” [Michael Gibbons,Economic Theorizing in Lonergan and Keynesp. 313]

**A purely relational explanation, **in the form of a **field theory, **resides in the relations of things to one another. This is in contrast to a) **description** which states the relations of things to us, e.g. hot, cold, red, orange, near, far, pleasurable, painful, impoverishing, enriching; and b) **deduction from absolutes** which are assumed to be 1) either too basic to require definition by relation and known as true in and of themselves, or 2) endogenous primary givens from which analysis begins.

Lonergan systematized a macroeconomic **field theory **rather than a macrostatic theory of efficient causes. Macroeconomics, which relates the interdependencies and interactions among functional flows is **a set of intelligible relations linking what is implicitly defined by the relations themselves; it is a set of relational forms**. **The form of any element is known through its relations to all other elements. **The Diagram of Rates of Flow represents this field theory. (Click here and here.)

Functional Macroeconomic Dynamics is **a set of relational forms**.

again, as to the

notion of cause, Newton conceived of his forces as efficient causes, and the modern mechanics drops the notion of force; it gets along perfectly well without it. It thinks in terms of afield theory, the set of relationships betweennobjects. The field theory isa set of intelligible relations linking what is implicitly defined by the relations themselves; it is a set of relational forms.The form of any element is known through its relations to all other elements.What is a mass? A mass is anything that satisfies the fundamental equations that regard masses. Consequently, when you add a new fundamental equation about mass, as Einstein did when he equated mass with energy, you get a new idea of mass.Field theory is a matter of the immanent intelligibility of the object. [CWL 10, 154]

Paraphrasing:again, as to the notion of cause, macroeconomistsmistakenlyconceive of subjective preferences as formal causes. Functional Macroeconomic Dynamics drops the notion of subjective preferences; it gets along perfectly well without it. It thinks in terms of a field theory, the set of relationships betweenninterdependent, implicitly defined, real functional activities. Thefield theory of Functional Macroeconomic Dynamicsis a set of intelligible functional relations linking functionings which are implicitly defined by the relations themselves; it isa set of relational forms. The form of any functioning isknown through its relations to all other functionings. …. Thefield theory of macroeconomics is a matter of the immanent intelligibility of the objective, dynamic functional process.Lonergan agreed with Schumpeter on the importance of

systematicoranalyticframeworkin order toexplain, rather than merely record or describe, the aggregate phenomena of macroeconomics; he agreed with Schumpeter that to be able toexplainthe booms, slumps, and crashes of the trade or business cycles the economist’s analysis had to beas dynamic asthe subject matter under investigation; and he agreed that the economist had to knowwhat are the significant variables in the light of which price changes are to be interpreted. According to Lonergan, standard economic theory had successfully achieved none of these desiderata. [CWL 15, Editors’ Introduction liii]

To measure and relate changes in functional monetary flows in the process of production and sale: Let Z stand for the aggregate of functional basic expenditures, P’Q’, for consumer goods; then one may express gross production and monetary flows, aggregates of productive contributions (i.e. application of factors of production) and their compensations, in terms of their macroeconomic components:

**q**_{i}= ΣΣq_{ijk ; }[factoral composition], [CWL 15, 30]**Q**_{i}= ΣΣQ_{ijk ; }[factoral composition], [CWL 15, 30]*Z =**Σ*[for expenditures], [CWL 15, 107-109]**p**_{i}q_{i ; }*Z + DZ =*[for expenditures], [CWL 15, 107-109]**Σ(p**;_{i}q_{i}+ p_{i}dq_{i}+ q_{i}dp_{i}+dp_{i}dq_{i})*Therefore, Z =**Σ*[for costs], [CWL 15,157-159]**(p**;_{i)(a}q_{i})*Z + DZ =*[for costs], [CWL 15,157-159]**Σ(p**;_{i}aq_{i}+ p_{i}daq_{i}+aq_{i}dp_{i}+dp_{i}daq_{i})*Z =**Σ**p*_{i}q_{i }= P**[CWL 15, 107-109]**Q = PQ cosA**;[CWL 15, 107-109]**Z + DZ = (P+dP)(Q + dQ) cos(A + dA)**;*Therefore,**Σ(p*_{i}q_{i}+ p_{i}dq_{i}+ q_{i}dp_{i}+dp_{i}dq_{i}) =[CWL 15, 107-109]**(P+dP)(Q + dQ) cos(A + dA)**;[CWL 15, 107-109]**DZ = PQ[(dP/P + dQ/Q + dPdQ/PQ) cos (A + dA) – 2 sin(dA/2) sin(A + dA/2)]**;- (See ) [ VNR Encyclopedia, 1977 p. 235; Sums and Differences of Trigonometric functions]

By a set of parallel equations one may express gross productive and monetary flows in the surplus circuit, aggregates of productive contributions and their compensations, in terms of their macroeconomic components

**A Theory, General and Universally Applicable to Concrete Determinations in any Instance:**

Functional Macroeconomic Dynamics is a theory of equilibria and disequilibria; FMD holds in any number of instances.

General lawscontain aprimary relativityand are applied to the concrete “only through the addition of further determinations, and such further determinations pertain toa non-systematic manifold. …it is not enoughto think aboutthe general law;one has to addfurther determinations that arecontingentfrom the very fact that they have to be obtained from anon-systematic manifold. [CWL 3, 492/516]

: TheParaphrasingfrom several sources“formal cause”of the economic process is itsimmanent intelligibility.The formal cause consists in theprimary relativitiesorgeneral lawsof the process , which holdin any number of instances. In the formal cause we apprehend many things asone; we graspall in a unified view. The formal cause contains the normative theory but explains both equilibria and disequilibria.Particularboundary conditions, such as past and future prices and quantitiesare relativelyinsignificant for the analysis; these boundary conditions are further determinations that arecontingentfrom the very fact that they have to be obtained from anon-systematic manifold.(CWL 3, 491-6/)

Paraphrasing [CWL 21, 6-7]:Lonergan dealt in the same way with all macroeconomic phenomena. He did so by turning to a field of greatergenerality, thefield theoryof macroeconomic phenomena, and by finding adeeper unity at a more adequate level of abstractionin the apparent disparateness of neoclassicism, Keynesianism, monetarism, and behaviorism. … Lonergan went beyond the schools and isms by employing implicit definition, precise analytical distinctions, and functional analysis. It is Lonergan’s scientificgeneralizationof the old political economy and of modern economics that will sublate and transform the isms and yield the new (sublation) which we need. … Plainly the way out is through a moregeneralfield.

- See Lonergan’s Goal
- See Emergence of Science
- See Understanding All in a Unified Whole
- CWL 5, 52, ¶2 and paraphrase

**A Normative Theory Having a Condition of Equilibrium:**

A

systematic explanation, then, requires anormative theoretical framework. The basic terms and relations of such a framework would specify the distinctions and correlations thatarticulate the causes, which are not necessarily visible, of events that are apparent to all. The framework would thusstand tothe ordinary apprehension of the booms and slumps of the trade cycle in much the same way that the explanatory grasp of acceleration as the second derivative of a continuous function of distance and timestands tothe ordinary, commonsense grasp of what it is to be going faster. [CWL 15, Editors’ Introduction, lv]

The **primary relativities of the systematic explanation supply the norms and precepts for the continuity and equilibrium **of the process. As flexible and as involving the boundary values of prices and quantities determined by humans, the norms and precepts can be violated by the human agents. Just as one can drive the automobile into a ditch, so can one and all the human agents misinterpret monetary events, such as pricing of both products and rentals of money, price changes, the flow of incomes for investment, and respond by driving the economic process into stagflation, or into an overexpansionary boom systematically requiring a corrective slump.

In the case of a failure by the government-private-sector-combine to honor the precepts in all distinct phases and, especially, to **implement the basic expansion **in the basic-expansion phase naturally subsequent to the capital-expansion phase, demand is rendered insufficient and the process contracts in a downward spiral of quantities and prices, characterized by associated contractions, liquidations, and painful unemployment. And, though

The idea of an expansion is not a future contraction. [CWL 21, 104],

until the position of the strong

^{1}is undermined by the general and prolonged contracting, the requirement^{2}for the rate of losses continues, and with it the depression. … [CWL 15, 155-56]

In the case of simple overexpansion, colloquially called a boom, there arises a systematic necessity for a correction.

This

boom suffers no restrictionsfrom a limited potential for short-term acceleration since both stages are now expanding in long-term style. Both acceleration factors can mount to maxima and remain at the summits with da’ and da” both zero. Further variations of the price spread thus depend exclusively upon dR, and this becomes negative as the surplus expansion gives place to a basic expansion. When the prices begin to fall to effect the continual reduction of the price spread,there follows sooner or later the final crash. Speculative embarrassment makes both da’ and da” negative, to augment the rate of contraction of the price spread and intensify the embarrassment. Assets are frozen and then liquidated in a great drop of prices. Worse, there is no recovery; for the remainder of the cycle should be a basic expansion which our ill-adapted economies transform into a depression. [CWL 15, 161]

** **Universally and devastatingly the macroeconomics textbooks conceive the process of production and exchange as a single-circuit of interactions between households and firms with sideline pipes to the banking system and to the government as a false third party.

It is a common saying that savings equals investment. On the present showing it would be more accurate to say that the crossovers should balance, that a sustained lack of balance portends ruin, … [CWL 15, 70]

Need the moral be repeated? There exist two circuits, each with its own final market. Theequilibriumof the economic process is conditioned by thebalance of the two circuits: each must be allowed the possibility ofcontinuity, of basic outlay yielding an equal basic income and surplus outlay yielding an equal surplus income, of basic and surplus income yielding equal basic and surplus expenditure, and of these grounding equivalent basic and surplus outlay. But what cannot be tolerated, much less sustained, is for one circuit to bedrainedby the other. [CWL 15, 175]As the table makes clear, a variation in G’ is much more significant that a variation in G”. … Inversely, when G” is 90% and G’ is really 10% but estimated to be 20% by over-zealous depreciation charges and by depressed wages, then a normative proportion of 9 is given a monetary distribution corresponding to a proportion of 4.5. The result is an overproduction or an insufficient purchasing power or a maldistribution (or whatever it is safe to call it, for superficial economists fancy the thing cannot exist) that generously slices off about half of existing economic activity. We say ‘about half’ for the proportion 4.5 is a relative term: secondary activity may increase, and then the proportion is four-and-a-half times something greater than what it was nine times greater; on the other hand, as eventually will be the case, secondary activity may decrease, and then the proportion becomes 4.5 times something smaller than before [CWL 21 55 (for full explanation of “about half”)]

** **