The Diagram of Central Importance

We note that several instructors in Lonergan’s Functional Macroeconomic Dynamics give conceptual priority to his Diagram of Rates of Flow in their essays.

  • Burley, Peter (1985) “A Summary of Lonergan’s Economic Diagram.” Australian Lonergan Workshop, 3-11. [Burley, 1985]
  • Byrne, Patrick H.  Economic Transformations: “The Role of Conversions and Culture in the Transformation of Economics”  in  Fallon, Timothy P., S.J. and Philip Boo Riley, Editors; Religion and Culture: Essays in Honor of Bernard Lonergan, S.J. (1987) Albany, State University of New York Press [Fallon and Riley, 1987]
  • McShane, Philip (1995) Economics for Everyone; Das Jus Kapital, (Edmonton, AB, Canada: Commonwealth Publications); and (2017) Vancouver, BC, Axial Publishing [McShane, 1995] and [McShane, 2017]
  • McShane, Philip (2002)  Beyond Establishment Economics, No thank You Mankiw (Halifax, Nova Scotia, Axial Press) [McShane, 2002-1]
  • McShane, Philip (2002)  Pastkeynes Pastmodern Economics, A Fresh Pragmatism (Halifax, Nova Scotia, Axial Press) [McShane, 2002-2]

As one person said privately, referring to the “Preface to the 2017 Edition” in [McShane 2017],

All the basic insights are ‘there’ on pp. iii-v of Economics for Everyone (3rd edition).

All persons interested in Lonergan’s thought, but perhaps pressed for time, would do themselves a big favor by stopping and taking all the time necessary to master all the aspects of the Diagram of Rates of Flow in CWL 15, pp. 45-70.  And it might be helpful to read Notes Re Reading The Images and Graphs In CWL 15, pp. 121-25 , Understanding All in a Unified Whole,  and   Insight into the Baseball Diamond; Discovery for Implementation. 


I have spoken of the analysis as revealing channels and bringing to light an undertow.  My meaning may become clearer by referring to the distinction sometimes made between general equilibrium (Walras, Wicksell) and partial equilibrium (Marshall).  The channels of circulation replace the overall dominance claimed for general equilibrium theory, but they reveal the conditions under which partial equilibria can exist … 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]

… 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]



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