Functional Macroeconomic Dynamics acknowledges and affirms a non-systematic manifold of secondary determinations (such as prices and quantities), a Canon of Statistical Residues, and the impossibility of prediction in the general case. However, FMD affirms the existence of both human intelligence and the abstract, primary, immanent intelligibility of the objective, dynamic economic process. It is this abstract, primary, immanent intelligibility by which the process must always be understood so as to be properly managed.
Knocking a pendulum slightly out of its existing oscillation does not necessitate a search for a new theory of the pendulum in order to correct the mishap. The abstract theory of the pendulum in Newtonian mechanics still applies; the abstract intelligibility of the pendular motion is always relevant, in any instance, in any configuration of initial angle and initial velocity. The theory still applies, though the motion may be on a new basis determined by new initial conditions or boundary values.
The length of the arm of the pendulum, in and of itself, is neither the efficient cause nor the formal cause of the oscillations of the pendulum. The formal cause, i.e.the immanent intelligibility, is the set of primary terms and relations given by the insight at an adequate level of abstraction, which explains the oscillations of the pendulum. [Brauer and Nohel, 10]
d2θ/dt2 + (g/L)sinθ = 0
The length, L, of the arm is a secondary concrete determination, a “further determination that is contingent from the very fact that it has to be obtained from a non-systematic manifold.” The external efficient cause of the particular pendulum’s oscillations is the imparting of the initial velocity at a certain angular position. Its actual course is determined by the application of the initial velocity at a certain angular position; i.e. the application of secondary, coincidental, initial conditions to the general, always-relevant, primary relativity of the process.
Similarly, if a zephyr forces a projectile out of its existing parabolic motion, the Newtonian mechanics of projectile motion are still applicable to the altered course.
The first approximation to the law of projectiles is the parabola: one might, if one chose, consider the projectiles as aiming at or tending towards the ideal of the parabola yet ever being frustrated by wind resistance; one might elaborately describe the trajectory of the projectile as an indefinite series of parabolas, each one in succession the goal of its tendency only to be deserted because adverse circumstance set it on another track. In such a description of trajectories there is to be found at least a superficial resemblance with the statement that an economy is tending towards equilibrium at every instant, though towards a different equilibrium at every successive instant. But whatever the resemblance, and however deep and significant the difference, we here propose to take a circuit and examine first the implications of this law and then the second approximations that are relevant to our inquiry. [CWL 21, 142-43]
Similarly, if a pandemic strikes the economic process, even though the configuration of the flows of supply and demand in the basic and surplus circuits are altered, the primary relativities of the process still apply, and they can be applied to the changed boundary conditions of quantity and price in the non-systematic manifold.
Again, Functional Macroeconomic Dynamics acknowledges and affirms a non-systematic manifold of secondary determinations (such as prices and quantities), a Canon of Statistical Residues, and the impossibility of prediction in the general case. However, FMD affirms the existence of both human intelligence and the abstract, primary, immanent intelligibility of the objective, dynamic economic process. It is this abstract, primary, immanent intelligibility by which the process must always be understood so as to be properly managed.
Thus, the question becomes: What is the framework of analysis and what are the primary explanatory relativities of the economic process to be referenced by macroeconomists in their teaching and consulting and by politicians in their management of the process? Is it a static commonsensical IS-LM or AD-AS framework, or is it an abstract, field-theoretic, macroeconomic dynamics adequate to explain the dynamics of the overall dynamic functioning? Is it a guess at an unpredictable seriation of static balances; or is it the employment of a unitary set of tightly interrelated explanatory conjugates, applicable in any configuration in any instance? Is the process a serial mystery of psychological reactions or a unitary set of always-currently-interrelated functions, which a) constitute the theory of the dynamic process, b) explain the dynamic process, and c) are to be used to manage the process?
For further guidance, see on this website Explanatory Macroeconomic Dynamics; Relevant in any Instance and So-Called Modern Monetary Theory Does Not Qualify as Scientific Macroeconomics .
our inquiry differs radically from traditional economics, in which the ultimate premises are not production and exchange but rather exchange and self-interest, or later, exchange and a vaguely defined psychological situation. Our aim is to prescind from human psychology that, in the first place, we may define the objective situation with which man has to deal, and, in the second place, define the psychological attitude that has to be adopted if man is to deal successfully with economic problems. Thus something of a Copernican Revolution is attempted: instead of taking man as he is or as he may be thought to be and from that deducing what economic phenomena are going to be, we take the exchange process in its greatest generality and attempt to deduce the human adaptations necessary for survival. [CWL 21,42- 43]
Lonergan shared Alfred Marshall’s willingness in his Principles of Economics to make economics utterly independent of ethics and politics, insofar as this meant establishing the intellectual autonomy of economic science. [CWL 15, Editors Introduction xlii]
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. … Einstein went beyond Newton by employing the new geometries to make time an independent variable; and as Newton transformed the formulation and interpretation of Kepler’s laws, so Einstein transforms the Newtonian laws of motion. … It is, we believe, a scientific generalization of the old political economy and of modern economics that will yield the new political economy which we need. … Plainly the way out is through a more general field. [CWL 21, 6-7]
Paraphrasing:
Lonergan moved macroeconomics back to premises more remote than Walrasian statics, microeconomic price theory, neoclassical macroeconomics and Keynesian macroeconomics; he developed explanatory formulae quite unlike others’, and though he did not impugn them, neither was he very interested in them; casually and incidentally combinations of prices and quantities turn up as particular boundary conditions in an enlarged and radically different field. … Lonergan employed a new dynamics to make aggregate, mutually-defining, velocitous functionings the basic interdependent variables; and as Newton transformed the formulation and interpretation of Kepler’s laws, so Lonergan transforms the neoclassical and Keynesian laws of economic motion. … He achieved a scientific generalization of the old political economy and of modern economics that yields the new political economy which we need. … Plainly the way to analyze the process and to settle disputes about economic change is through a sublating, more general, dynamics of interdependent, mutually-defining functionings.
Much of the normative immanent intelligibility of the economic process is represented by The Diagram of Rates of Flow, a diagram of interdependent velocities (Figure 14-1, CWL 15, 55).
Unwittingly, first out of ignorance and now as necessitated by a pandemic, some nations, including the U.S., are wandering into the ultimate menace to the financial system, the application of unscientific Modern Monetary Theory. (Click here and here) The systematic result of MMT’s unconstrained printing of money, unjustified by corresponding production of goods and services, is rampant inflation in prices for either goods and services or financial assets.
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 say the way the thing works. [CWL 21, Editor’s Introduction, xxviii]
The alternative to constant value in the dummy is the alternative of inflation and deflation. Of these famous twins, inflation swindles those with cash to enrich those with property or debts, while deflation swindles those with property or debts to enrich those with cash; in addition to the swindle each of these twins has his own way of torturing the dynamic flows; deflation gives producers a steady stream of losses; inflation yields a steady stream of gains to give production a drug-like stimulus. [CWL 21, 37-38]
If severe inflation occurs quickly so as to cause rampant inflation of either goods and services in the operative circuits or of securities in the secondary markets – depending on how the money circulates – it will be necessary, at some point, for the government to remove strategically and with careful timing the money “unjustified by production” from the system.
The intelligibility of government deficits is represented by the Diagram of Government Spending and Taxes (Figure 31-1, CWL15, 174) and the surrounding context on pages pp. 162-65, 163-76.
Now it is important to distinguish two different aspects of equations (39) and (42). Under a certain aspect these equations express a truism: if entrepreneurial receipts and payments equate, then they equate not only among entrepreneurs but also between entrepreneurs and the third party, demand. But under another aspect the same equations, so far from expressing a necessary truth, express an almost unattainable ideal, namely a dynamic equilibrium to which any actual process continually attempts to approximate by varying prices and changing quantities of supply. To study the truism is to study bookkeeping, to study the art of double entry, and to learn the magic of the variable items, profit and loss, which perforce make the books balance. To study the ideal is to study equilibrium analysis. The bookkeepers are wise after the event. But if the entrepreneurs are to be wise, they have to be wise before the event, for their payments precede their receipts, and the receipts may equal the payments but they may also be greater or less, to give the entrepreneur a windfall profit or loss. Such justification or condemnation of payments by receipts the bookkeeper records but the entrepreneur has to anticipate, and the grounds of his anticipations, their effects upon his decisions, and the interaction of all decisions form the staple topic of equilibrium analysis. Now the viewpoint of the present discussion is neither that of the bookkeeper nor that of the equilibrium analyst. Equations (39) to (42) are regarded not as a set of facts recorded by bookkeepers, nor as an ideal which entrepreneurs strive yet fail to attain, but as a first approximation to the law of circulation in the basic circuit. The first approximation to the law of projectiles is the parabola: one might, if one chose, consider the projectiles as aiming at or tending towards the ideal of the parabola yet ever being frustrated by wind resistance; one might elaborately describe the trajectory of the projectile as an indefinite series of parabolas, each one in succession the goal of its tendency only to be deserted because adverse circumstance set it on another track. In such a description of trajectories there is to be found at least a superficial resemblance with the statement that an economy is tending towards equilibrium at every instant, though towards a different equilibrium at every successive instant. But whatever the resemblance, and however deep and significant the difference, we here propose to take a circuit and examine first the implications of this law and then the second approximations that are relevant to our inquiry. CWL 21, 142-43