Distinctions of Dynamic Significance; The Interdependence of the Whole (Brief Item #81)

[5/2/2020] … , the task of developing a dynamic theory is very difficult and cannot be accomplished simply by adding dynamic qualifications to static theory.  It requires new techniques and raises fundamental problems of its own.  An example of the new techniques required is the theory of difference equations.  An example of the new fundamental problems is economic equilibrium, which, if considered from a dynamic standpoint, appears in a new light.  (Schumpeter, Joseph A., History of Economic Analysis (London: Oxford University Press, 1954, page 110, as quoted in CWL 15, 91]

While we agree with Schumpeter that Walras’s system implicitly includes the aggregates commonly considered in macroanalysis, (Walras’s system) can hardly be credited with distinctions between basic and surplus expenditure, receipts, outlay, income, and much less with an account of their various dynamic relations.  But until such distinctions are drawn and their dynamic significance understood, the aggregates and relations cannot be contained implicitly in any (explanatory) system. [CWL 15,  91-92]

Taking into account past and (expected) future values does not constitute the creative key transition to dynamics.  Those familiar with elementary statics and dynamics will appreciate the shift in thinking involved in passing from equilibrium analysis – even if one is discussing virtual displacements – to an analysis where attention is focused on second-order differential equations, on d2θ/dt2, d2x/dt2, d2y/dt2, on a range of related forces, central, friction, whatever.  Particular boundary conditions, “past and future value”, are relatively insignificant for the analysis.  What is significant is the Leibnitz-Newtonian shift of context.  As second-order differential equations are the upper blade in large areas of physics, as the heuristics of genetic development are the upper blade for an integral study of plants, so a Praxisweltanschauung on efficient world productivity provides the upper blade for dynamic economics.  [McShane, 1980, 127]

… it will be well at once to draw attention to J.A. Schumpeter’s insistence on the merits of the diagram as a tool. (Schumpeter, History 240-43, on the Cantillon-Quesnay tableau.) … First, there is the tremendous simplification it effects. From millions of exchanges one advances to precise aggregates, relatively few in number, and hence easy to follow up and handle. … Next come the possibilities of advancing to numerical theory.  In this respect, despite profound differences in their respective achievements, the contemporary work of Leontieff may be viewed as a revival of Francois Quesnay’s tableau economique. Most important is the fact that this procedure was the first to make explicit the concept of economic equilibrium.  All science begins from particular correlations, but the key discovery is the interdependence of the whole. … While it is true that a tableau or diagram cannot establish the uniqueness of a system or rigorously ground its universal relevance, it remains that the diagram (of the interconnections of a few precise aggregates) has compensating features that Quesnay’s system of simultaneous equations may imply but does not manifest. … There is the tremendous simplification (a diagram) effects; the aims and limitations of macroeconomics make the use of a diagram particularly helpful, …  For its basic terms are defined by their functional relations.  The maintaining of a standard of living (distinct process 1) is attributed to a basic process, an ongoing sequence of instances of so much every so often.  The maintenance and acceleration(distinct process 2) of this basic process is brought about by a sequence of surplus stages, in which each lower stageis maintained and accelerated by the next higher.  Finally, transactions that do no more than transfer titles to ownership (distinct process 3) are concentrated in a redistributive function, whence may be derived changes in the stock of money dictated by the acceleration (positive or negative) in the basic and surplus stages of the process. … So there is to be discerned a threefold process in which a basic stage is maintained and accelerated by a series of surplus stages, while the needed additions to or subtractions from the stock of money in these processes is derived from the redistributive area. … it will be possible to distinguish stable and unstable combinations and sequences of rates in the three main areas and so gain some insight into the long-standing recurrence of crises in the modern expanding economy. [CWL 15, 53 and 177] [#81] (Click here for previous “Single Paragraphs” or “Brief Items”)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s