“if we want a comprehensive grasp of everything in a unified whole, we shall have to construct a diagram in which are symbolically represented all the various elements of the question along with all the connections between them.” [McShane, 2016, 44]
The Diagram of Rates of Flow symbolically represents all the explanatory elements of a closed economy. The relations which it represents and which Lonergan formulates identify the conditions of continuity and equilibrium to which the private sector and the government sector must adapt in the personal conduct of their activities.
More positively, the channels account for booms and slumps, for inflation and deflation, for changed rates of profit, for the attraction found in a favorable balance of trade, the relief given by deficit spending, and the variant provided by multinational corporations and their opposition to the welfare state. [CWL15, 17]
If one grasps the necessary and sufficient conditions for continuity and equilibrium in the double-circuited, credit-centered system of flows, then one grasps all the concepts constituting the immanent intelligibility of the dynamic process. All the concepts tumble out together. One understands all in a unified whole.
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. If one grasps the necessary and sufficient conditions for the perfect roundness of this imagined plane curve, then one grasps not only the circle but also the point, the line, the circumference, the radii, the plane, and equality. All the concepts tumble out together, because all are needed to express adequately a single insight. All are coherent, for coherence basically means that all hang together from a single insight. [CWL 3, 12/36]
Input-output tableaux and sets of simultaneous equations “cannot rigorously ground a system’s universal relevance“. However, the Diagram of Rates of Flow represents, by “a set of precise aggregates, easy to follow up and handle“, “the interdependence of the whole.” “For its basic terms are defined by their functional relations.” The key discovery is the unification of the functional interdependencies among the functional activities constituting the whole process.
… 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 stage is 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] [#66]
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]
Macroeconomics must come of age; it must discover and communicate the dynamics of the objective economic process of production and exchange. The objective process has a determinate structure exhibiting its own determinate set of relations expressible as a determinate set of laws constituting a determinate macroeconomic field theory. The laws of this macroeconomic field theory are constituted by a cluster of insights which cohere (hang together) in a single, invariant, explanatory unity.
“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.” [CWL 10, 241-42]
… 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 system. But 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. [CWL 10, 241-42]
As Newton, according to the tale, forgot the distinction between planets swinging through the sky and apples falling in autumnal orchards, as he reached beyond Kepler’s and Galilei’s laws to the profounder unity of the theory of motion, so too we must forget distinctions between production, distribution, and consumption, and reach behind the psychology of property and the laws of exchange to form a more basic concept and develop a more general theory. [CWL 21, 11]
Newton set down laws of motion and proceeded to demonstrate that if a body moves in a field of central force, its trajectory is a conic section. He set out with a minimal cluster of insights, definitions, postulates, axioms and proceeded to account for the laws that had previously been empirically established, bringing them into a single explanatory unity. ¶A single insight yields a conception, a definition, an object of thought; but from a cluster of insights, you build up a system of definitions, axioms, postulates, and deductions. We have to note that a system is quite an achievement; systems are not numerous. There are Euclid’s geometry and subsequent developments in geometry, Newton’s mechanics and dynamics and the building upon Newton, and the Mendeleev table in chemistry. System, then, is the expression of a cluster of insights. [CWL 5, 52]
Macroeconomics must be as dynamic as the subject matter under investigation.
Lonergan agreed with Schumpeter on the importance of a systematic or analytic framework in order to explain, rather than merely record or describe, the aggregate phenomena of macroeconomics; he 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 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]
Macroeconomics must cease to be totally obsessed with external causes – final, material, instrumental, efficient. It must seek the whole, immanent, objective intelligibility of the process and make known the principles and laws to which the participants must adapt.
Ought there not to be introduced a technical term to denote this type of intelligibility? … The intelligibility that is neither final nor material nor instrumental nor efficient causality is, of course, formal causality…what we have called the intelligibility immanent in sensible data and residing in the relations of things to one another, might be named more briefly formal causality… [CWL 3, 78/101-102]
A government surplus or deficit and a foreign-trade surplus or deficit are simply and clearly explained in the form of a superposed circuit in the framework colloquially called Lonergan’s Baseball Diamond.
There are sets of phenomena, notably the favorable and unfavorable balances of foreign trade, deficit government spending, and the payment of public debts by taxation, that are analogous to the phenomena of the cycle. It is proposed to deal with them under the general title of ‘superposed circuits.’ (CWL 15, 162-63)
In our general account of the monetary circulation, two circuits, a basic and a surplus, were distinguished. They were interconnected with a crossover. But they involved no regular flow through the Redistributive Function. … There is, however, no impossibility of the Redistributive Function becoming a point through which a circuit regularly passes … On the other hand, such a circuit both presupposes and is distinct from the basic and surplus circuits already considered. Hence the name of superposed circuits, and also the mode of treatment. (CWL 15, 162-63)
No doubt the additions or subtractions (of the superposed circuits) modify these rates (in the fundamental operative circuits already considered, and) reinforce or counteract the tendencies of whatever phase may be in progress. Our purpose in representing them (as superposed circuits) is not at all to deny such interaction but rather to gain a viewpoint from which such interaction may be studied. The viewpoint adopted is that of the circuit. (CWL 15, 162-63)
… deficit government spending (is dealt with) under the general title of ‘superposed circuit. [CWL 15, 162]
any superposed circuit may be represented by rates of payment, Z’ and Z”, per interval added to variables of the circulation diagram as follows
- 1) (D’-s’I’) + Z’ (D”-s”I”) + Z”
- 2) E’ + Z’ E” + Z”
- 3) i’O’ + Z’ I”O” + Z”
- 4) (D”-s”I”) – Z’ – Z”
The foregoing additions and, in the last case, subtractions are supposed to be made to or from the other rates, (D’-s’I’), (D”-s”I”), E’, E”, and so on. [CWL 15, 163]
No doubt the additions or subtractions modify these rates, reinforce or counteract the tendencies of whatever phase may be in progress. Our purpose in representing them (as superposed circuits) is not at all to deny such interaction but rather to gain a viewpoint from which such interaction may be studied. The viewpoint adopted is that of the circuit:. … the redistribution function is a regular port of call in the superposed circuit. [CWL 15, 163]
As represented by the list of additions to the circuit diagram, a superposed circuit consists of the following four movements per interval: from the Redistributive Function Z’ to basic demand, … from basic demand Z’ to basic supply, … from basic supply Z’ to surplus demand, from surplus demand Z’ to to the Redistributive Function. In any given interval, Z’ may be zero, then there is no superposed circuit. [CWL 15, 163-64]
… further, the addition or subtraction always occurs in each of the four cases. These two conditions are necessary to have a circular movement of a sum of money, Z’, per interval. [CWL 15, 163]
… one may begin at any function to move in either direction. One may begin anywhere because the total movement is circular. One may move in either direction, for one may ask where the money goes or where it is coming from. … (all movements) occur within the same interval; the condition of a circulation is satisfied if they occur within the interval; and the condition of a circulation is the one condition required. [CWL 15, 165]
Government spending purports to promote the economic, social, and cultural overhead of the community. Exceptional expenditures may be funded by floating loans, but loans mean payments of interest and amortization. Ultimately, then, if not immediately, government revenues come from taxes. [CWL 15, 173]
Deficit spending arises when government expenditure exceeds its revenues. It may be represented by payments made to the circuits from the redistributional area in excess of payments made from the circuits to the redistributional area. [CWL 15, 173-74]
In each of these cases the balance of the circuits is upset. In the former case, the basic circuit is being drained of funds while the surplus circuit is invited to expand or inflate or deposit in excess in the redistributional area. In the latter case the surplus circuit is being drained of funds while the basic circuit is invited to expand or inflate or enter the redistributional market. [CWL 174-75]
As both Aristotle and Lonergan acknowledged, forms – such as those represented by the Diagram of Rates of Flow – are grasped by mind in images.
τα μεν ουν ειδη το νοητικον εν τοις φαντασμασι νοει
[Aristotle, De Anima, III, 7, 431b 2] and [CWL 3, title page]
Forms are grasped by mind in images [CWL 3, 677]