A McShane Sampler Relevant to Functional Macroeconomic Dynamics

Philip McShane had a strong background in mathematics and theoretical physics; thus he was able to understand the scientific significance of Bernard Lonergan’s macroeconomic field theory in an Einsteinian context.

First we display, in brief, key excerpts, many of which contain analogies from physics and chemistry, relevant to the science of Functional Macroeconomic Dynamics; then we show the same excerpts more fully within lengthier quotes.

In brief:

attention is focused on second-order differential equations, on d2θ/dt2, d2x/dt2, d2y/dt2, … .  Particular boundary conditions, “past and future values” are relatively insignificant for the analysis.  What is significant is the Leibnitz-Newtonian shift of context. [McShane, 1980, 127]

I recall expressing my wonder….that Lonergan had gone, in economics, from Tycho Brahe to Laplace. [Philip McShane, www.philipmcshane.org, Fusion 9, p. 1]

I have brought you face to face with the first page of the most significant book of the twentieth century, Bernard Lonergan’s Insight, A Study of Human Understanding. …  What is your next move? Obviously, if you are an economist, you get moving towards a Nobel Prize. [McShane, 2017, Preface xii]

Concomitance is, I would claim, the key word in Lonergan’s economic thinking. [www.philipmcshane.org, Fusion 1  page 4 ftnt 10].

My other extravagance (in preparing the index) is to bring into focus, by entries under ‘Concomitance,’ the total challenge of the new political economy.  Are we to respect the heart-pulses of the productive machine, or are we to continue the ‘absurdity’ (see Index) of counterpulsing, locally and globally?  (Can we say with Wordsworth) “And now I see with eye serene, the very pulse of the machine” (CWL 21, 326)

Millenia of alchemy and descriptive chemistry preceded the breakthroughs of Mendeleev and Meyer in the 1860s … That shift in chemistry (the relational structuring of elements) stands out as the major paradigm shift in the field.  Is something similar possible in economics? [McShane, 2017, 8]

Part Two, entitled Fragments, belongs almost entirely in what I call the Einsteinian context of Part Three, in contrast to the Newtonian achievement of Part One [CWL 21, 325]

The entire tradition slipped past Lonergan’s simple move.  I describe the move as paralleling Newton’s move.  Newton started within an old culture of two flows: an earthly flow and, to recall ancient searchings, a quintessential flow.  Newton went from two to one.  Lonergan started with a dominant one-flow economic analysis  –  think in terms of the household-firm diagram  –  and separated it into two flows “to form a more basic concept and develop a more general theory.” 21  [McShane 2017, viii]; also see [CWL 21, 11]

(The account leads to the specification of) the adequate human adaptation to the demands of the process, and also to (an identification and) determination of inadequate strategies of adaptation such as variations of interest rates, varieties of taxation and monetary policy.  [McShane, 1980, 125]

… a science of economics that is to clean up the mess of finances that has destroyed businesses and nations and cultures in the past one hundred years. [McShane, Philip, Picketty’s Plight 11]

… what else can (Picketty) offer but a centralist solution, taxation, to history’s drunken careening. [McShane 2014, 53]

… (the) broad backing of centralism and bureaucracy are signaled, in the long run, for phlogiston flushing. [McShane 2014, 56]

It is like trying to have a clear view on fire-hazardous chemicals prior to the emergence of the perspectives of Lavoisier and Mendeleev. [McShane, 2017, 87]

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 …[McShane, 1980, 114]

the Robinson-Eatwell analysis is hampered … by their building the economic priora quoad nos of profits, wages, prices, etc., into explanation, when in fact the priora quoad nos[1] are last in analysis: they require explanation. [McShane 1980, 124]

There is no doubt that the solar system, even macrodynamically speaking, involves an aggregate of bodies.  Was, then, the solution of the two-body problem irrelevant?  Again, there is no doubt that tidal waves are not sinusoidal.  Should we then drop the dynamic question and settle for some equivalent of photography and comparative statics?  [McShane, 1980,  104-106, and 118-119]

The analysis is functional and leads us to define five monetary functions which reveal a set of circulations of money. [McShane 1980, 121]

Now whatever the difficulties of measurement, the functional distinction is undeniably valid. [McShane 1980, 121]

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 (botany), so a Praxisweltanschauung on efficient world productivity provide the upper blade for dynamic economics. McShane, Lonergan’s Challenge p.127

… but I must note immediately how intimately the ordering is within the perspective of Praxisweltanschauung: as the hypothesis is the principle in mathematics so the end is the principle in praxis. The movement of Lonergan’s analysis might be described as a paradigmatic descent from a concrete heuristic of the productive processdetermined by the end of that process. McShane, Lonergan’s Challenge p.125

Lonergan started with a dominant one-flow economic analysis  –  think in terms of the household-firm diagram  –  and separated it into two flows “to form a more basic concept and develop a more general theory.” 21  [McShane, 1995] and [McShane, 2017, viii]… much …The distinction was never built scientifically into a systematics of dynamic economics [McShane, 1995] and [McShane, 2017, viii, ftnt. 22]

Spelling out the shift to serious empirical work remains to be done, for the new science of economics is to be solidly empirical.32 [McShane, 1995] and [McShane, 2017, x-xii]

When Keynes does come close to our central topic, the treatment is pretty shabby.9 See The General Theory of Employment, Interest and Money, chapter 22: “Notes on the Trade Cycle.” [McShane, 1995] and [McShane, 2017xx]

At all events, one must note that an activity is identifiable by its economic function. [McShane, 1995] and [McShane, 2017, 8]

The distinction (between basic and surplus production) lifts you beyond households and firms, houses and factories, to the challenge of understanding economic process in terms of explanatory functions. [McShane, 1995] and [McShane, 2017, 17]

Chemistry was bogged down, for centuries, by the obviousness of fire burning, and the obvious conclusion that there was such a reality as phlogiston.  Lavoisier offered a discomforting shift from the obviously observed.  I am inviting you to a like shift, from the obviousness of the edge of economic process  –  buying and selling, profit and gross product  –  to the functional heart of the process.  [McShane, 1995] and [McShane, 2017, 23]

A range of difficulties can occur to you at this stage, especially if you are versed in the strategies of Keynesians or /Friedman, or share common clouded notions: that investments equal savings; that interest rates call the play; that retained earnings are key; that gold grounds confidence; that government is the mother of progress. [McShane, 1995] and [McShane, 2017, 67]

the diagram is an aid to separating and understanding functions.  The circles are not places, nor are they, say, groups of capitalists, workers, bankers, exporters. … The diagram represents the functional journeys. [McShane, 1995] and [McShane, 2017, 79]

I make the outrageous claim that the basis of serious criticism and construction is lacking in the ruling economic community.  Peter Drucker wrote in the eighties, “By now we know, as Schumpeter knew fifty years ago, that every one of the Keynesian answers is the wrong answer.”8 Peter Drucker, “Schumpeter and Keynes,”  Forbes, <ay 23, 1983, 125-26 But this we does not seem to include the vast majority either of economics professiors or economic advisors. [McShane, 1995] and [McShane, 2017, 84] 

 The problem is one of massive disorientation, especially in the universities, regarding what a theory or a theoretic preconception is. [McShane, 1995] and [McShane, 2017, 101]

More fully:

Taking into account past and (expected) future values does not constitute the creative key transition to dynamics.  Those familiar with elementary statics and dynamics (in physical mechanics) will appreciate the shift in thinking involved in passing from equilibrium analysis (of for example a suspended weight or a steel bridge)…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 values” are relatively insignificant for the analysis.  What is significant is the Leibnitz-Newtonian shift of context. [McShane, 1980, 127]

When I first battled with his 1944 typescript in the 1970’s I recall expressing my wonder….that “Lonergan had gone, in economics, from Tycho Brahe to Laplace.” (Philip McShane, www.philipmcshane.com, Fusion 9, p.1)

I have brought you face to face with the first page of the most significant book of the twentieth century, Bernard Lonergan’s Insight, A Study of Human Understanding. There the man suggests: 1) that a key move is to pause over little things, 2) that Archimedes invented the permanent science of hydrostatics by focusing on a crown-weighing problem. You are on the edge of the invention of the permanent science of econo-dynamics. What is your next move? Obviously, if you are an economist, you get moving towards a Nobel Prize. [McShane, 2017, Preface xii]

Concomitance is, I would claim, the key word in Lonergan’s economic thinking. [www.philipmcshane.org, Fusion 1  page 4 ftnt 10].

My other extravagance (in preparing the index) is to bring into focus, by entries under ‘Concomitance,’ the total challenge of the new political economy.  Are we to respect the heart-pulses of the productive machine, or are we to continue the ‘absurdity’ (see Index) of counterpulsing, locally and globally?  (Can we say with Wordsworth) “And now I see with eye serene, the very pulse of the machine” (CWL 21, 326)

An analogy may help here.  Millenia of alchemy and descriptive chemistry preceded the breakthroughs of Mendeleev and Meyer in the 1860s.  There is nothing obvious about the relational structuring of elements that these two men brought into scientific being.  Nor was there a rush to accept it: but now the periodic table is part of our culture.  That shift in chemistry (the relational structuring of elements) stands out as the major paradigm shift in the field.  Is something similar possible in economics? [McShane, 2017, 8]

Part Two, entitled Fragments, belongs almost entirely in what I call the Einsteinian context of Part Three, in contrast to the Newtonian achievement of Part One; (however, that Fragments section) is still somewhat transitional in system and expression.  So, for example, to take the central character in the drama, pure surplus income is there named systematic profits.  In Part One it is named net surplus or even surplus. [CWL 21, 325]

The entire tradition slipped past Lonergan’s simple move.  I describe the move as paralleling Newton’s move.  Newton started within an old culture of two flows: an earthly flow and, to recall ancient searchings, a quintessential flow.  Newton went from two to one.  Lonergan started with a dominant one-flow economic analysis  –  think in terms of the household-firm diagram  –  and separated it into two flows “to form a more basic concept and develop a more general theory.” [McShane 2017, viii]; also see [CWL 21, 11]

(Functional Macroeconomic Dynamics’) account (of the monetary distributions analytically distinguished as basic and surplus incomes) springs from a (scientific) characterization of possible types of productive rhythms which lead (in turn) to the (scientific) specification of the adequate human adaptation to the (intrinsically cyclical) demands of the process, and also to (an identification and) determination of inadequate strategies of adaptation such as variations of interest rates, varieties of taxation and monetary policy.  [McShane, 1980, 125]

All this is summed up in the slogan … : there are two types of firms.  Taking that into account – and into accounting – leads to a science of economics that is to clean up the mess of finances that has destroyed businesses and nations and cultures in the past one hundred years. [McShane, Philip, Picketty’s Plight, 11]

We are at the heart of Picketty’s plight: he has no clue of the needed grip on the grounds of the inequality in history.  So, what else can he offer but a centralist solution, taxation, to history’s drunken careening. [McShane 2014, 53]

(the) broad backing of centralism and bureaucracy are signaled, in the long run, for phlogiston flushing. [McShane 2014, 56]

The difficulty here is the absence of the functional classifications, basic and surplus, and the rhythmic ramifications.  It is like trying to have a clear view on fire-hazardous chemicals prior to the emergence of the perspectives of Lavoisier and Mendeleev. [McShane, 2017, 87]

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 to an inadequate level of abstraction with a premature introduction of boundary conditions in 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 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 … by their building the economic priora quoad nos of profits, wages, prices, etc., into explanation, when in fact the priora quoad not are last in analysis: they require explanation. [McShane, 1980, 124]

There is no doubt that the solar system, even macrodynamically speaking, involves an aggregate of bodies.  Was, then, the solution of the two-body problem irrelevant?  Again, there is no doubt that tidal waves are not sinusoidal.  Should we then drop the dynamic question and settle for some equivalent of photography andcomparative statics?  Or should we not make sense of elementary rhythms, momenta, etc., acknowledging that we are only paving the way for such developments as Fourier analysis? [McShane, 1980,  104-106, and118-119]

The analysis is functional and leads us to define five monetary functions which reveal a set of circulations of money. [McShane 1980, 121]

Now whatever the difficulties of measurement, the functional distinction is undeniably valid. [McShane 1980, 121]

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 provide the upper blade for dynamic economics. (McShane, 1980, 127)

In chapters one and six I have already discussed the enlarged perspective of Praxisweltanschauung:  what we are more closely dealing with in the present context is the ordering of assumptions in that perspective.  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. 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. (McShane, 1980, 125)

Lonergan started with a dominant one-flow economic analysis  –  think in terms of the household-firm diagram  –  and separated it into two flows “to form a more basic concept and develop a more general theory.” 21  [McShane, 1995] and [McShane, 2017, viii]… much …The distinction was never built scientifically into a systematics of dynamic economics [McShane, 1995] and [McShane, 2017, viii, ftnt. 22]

Spelling out the shift to serious empirical work remains to be done, for the new science of economics is to be solidly empirical.32 [McShane, 1995] and [McShane, 2017, x-xii]

When Keynes does come close to our central topic, the treatment is pretty shabby.9 See The General Theory of Employment, Interest and Money, chapter 22: “Notes on the Trade Cycle.” [McShane, 1995] and [McShane, 2017xx]

At all events, one must note that an activity is identifiable by its economic function. [McShane, 1995] and [McShane, 2017, 8]

The distinction (between basic and surplus production) lifts you beyond households and firms, houses and factories, to the challenge of understanding economic process in terms of explanatory functions. [McShane, 1995] and [McShane, 2017, 17]

Chemistry was bogged down, for centuries, by the obviousness of fire burning, and the obvious conclusion that there was such a reality as phlogiston.  Lavoisier offered a discomforting shift from the obviously observed.  I am inviting you to a like shift, from the obviousness of the edge of economic process  –  buying and selling, profit and gross product  –  to the functional heart of the process.  [McShane, 1995] and [McShane, 2017, 23]

A range of difficulties can occur to you at this stage, especially if you are versed in the strategies of Keynesians or /Friedman, or share common clouded notions: that investments equal savings; that interest rates call the play; that retained earnings are key; that gold grounds confidence; that government is the mother of progress. [McShane, 1995] and [McShane, 2017, 67]

the diagram is an aid to separating and understanding functions.  The circles are not places, nor are they, say, groups of capitalists, workers, bankers, exporters. … The diagram represents the functional journeys. [McShane, 1995] and [McShane, 2017, 79]

I make the outrageous claim that the basis of serious criticism and construction is lacking in the ruling economic community.  Peter Drucker wrote in the eighties, “By now we know, as Schumpeter knew fifty years ago, that every one of the Keynesian answers is the wrong answer.”8 Peter Drucker, “Schumpeter and Keynes,”  Forbes, <ay 23, 1983, 125-26 But this we does not seem to include the vast majority either of economics professiors or economic advisors. [McShane, 1995] and [McShane, 2017, 84] 

 The problem is one of massive disorientation, especially in the universities, regarding what a theory or a theoretic preconception is. [McShane, 1995] and [McShane, 2017, 101]

 

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