Commonsense Economics vs. Scientific Economics

A sound theory is a good thing to keep around.  Clerk-Maxwell’s electromagnetic theory and Kirchoff’s laws of electric circuits are good systematics to consult when one is designing a system to deliver electricity.  Similarly, when one is seeking to understand, affirm, and manage the economic process, a reliable, scientific macroeconomics, which both explains how the process actually works and yields norms for adaptation by human participants, is a good thing to have around.

Common sense is different from science.  Common sense describes; science explains.  Common sense relates things to us; science relates things to one another.  And scientific Macroeconomic Field Theory, also called Functional Macroeconomic Dynamics, is different from the mere commonsense compilation of descriptive accounting aggregates called Gross Domestic Product.

Here are several snippets from the treatment to follow:

Our … main topic was the relation of common sense to science, and our fundamental assertion is that the two regard distinct and separate fields.  Common sense is concerned with things as related to us.  Science is concerned with things as related among themselves.  (CWL 3, 293/318)

The procedure of sound common sense is not to generalize nor to argue from analogy, … (CWL 3, 297/322  )

The longer cycle (of decline) results from general bias, that is,  the general tendency  to be content with the particular specialty, common sense, and to consider other specialties irrelevant or useless. (CWL 15, 94)

… insensitivity, oversights, the blindness of passion, the flimsy excuse, the plausible fallacy, the distortion of compromise, the waywardness of indulgence, all create a human world made in their own image and likeness. … Such is the dialectic of decline.  Spontaneously it keeps making things ever worse. … For it gives evil the status of fact.(CWL 15, 94)

… a generalization proposed by common sense has quite a different meaning from a generalization proposed by science.  The scientific generalization aims to offer a premise from which correct deductions can be drawn. (CWL 3, 175-76 /199)

… the heuristic assumptions of science anticipate the determination of natures that always act in the same fashion under similar circumstances, and as well the determinations of ideal norms of probability from which events diverge only in a non-systematic manner. …  Terms, then, must be defined unambiguously, and they must always be employed exactly in that unambiguous meaning. (CWL 3, 175-76 /199)

Common sense is a general bias in favor of non-explanatory description ….

The totalitarian (finds in common sense) a secret of power.. … (CWL 3, 232/257)

(Common sense) has exercised a conspicuous influence on events through the liberal doctrine of automatic progress, through the Marxian doctrine of class war, through the myths of nationalist totalitarianism.  … the remedy has to be the attainment of a higher viewpoint. (CWL 3, 234/258-9)

… unless common sense can learn to overcome its bias by acknowledging and submitting to a higher principle, unless common sense can be taught to resist its perpetual temptation to adopt the easy, obvious, practical compromise, then one must expect the succession of ever less comprehensive viewpoints and in the limit the destruction of all that has been achieved. (CWL 3, 234/259)

… while there is progress and while its principle is liberty, there also is decline and its principle is bias.  (CWL 3, 234-5/259  )

There is needed a critical culture that is “an independent factor that passes a detached yet effective judgment upon capital formation and technology, upon economy and polity.”

What is necessary is a cosmopolis … that is founded on the native detachment and disinterestedness of every intelligence, that commands man’s first allegiance, that implements itself primarily through that allegiance, that is too universal to be bribed, too impalpable to be forced, too effective to be ignored. (CWL 3, 238/263)

the main difficulty is the subtle absence of the scientific spirit in contemporary economics. … The real difficulty is in the scientific perspective that can come to grips with precise functional distinctions. [McShane 2002-2, 21-22]

The most famous instance … is John Hicks’ simplistic focus on interest  –  in the financial sense  –  in 1937 which turned Keynes’ effort of 1936 into a simpler business of jollying along with IS/LM curves.   [McShane 2016, 33]

(the) whole structure (of Functional Macroeconomic Dynamics) is purely relational.  A macroeconomic functioning is not a compilation or aggregation of particular income statement categories, such as wages or interest expense.  A macroeconomic functioning is implicitly defined by its functional relation to other functionings. [McShane 1980, 117]

Functional Macroeconomic Dynamics is “not understood, not formulated, not taught.” “When intelligence is a blank, the first law of nature takes over: self-preservation.”

simple-minded moralists … blame greed.  But the prime cause is ignorance.  The dynamics of surplus and basic expansion, surplus and basic incomes are not understood, not formulated, not taught….. [CWL 15, 82]

When intelligence is a blank, the first law of nature takes over: self-preservation.  It is not primarily greed but frantic efforts at self-preservation that turn the recession into a depression, and the depression into a crash. [CWL 15, 82]

End of snippets.  We proceed:

An ‘accountant’s unity’ is a category used in (conventional) accounting.  For Lonergan, (conventional) accounting generally denotes an enterprise within common sense which uses descriptive, as contrasted with explanatory terms (on these terms see CWL 3, 37-38/61-62, 178-79/201-3, 247-48/272-73).  Insofar as that is true, the accountant’s unity is not an adequate index for the normative, explanatory analysis of the productive process. [CWL 15, 26, ftnt 26]

Functional Macroeconomic Dynamics is a theory which explains.

“Functional” is for Lonergan a technical term pertaining to the realm of explanation, analysis, theory;  … Lonergan (identified) the contemporary notion of a function as one of the most basic kinds of explanatory, implicit definition – one that specifies “things in their relations to one another” … [CWL 15  26-27  ftnt 27]

Familiar descriptive terms get redefined as systematically-conceived explanatory conjugates.

Lonergan’s key technical terms are ‘basic’ and ‘surplus’.  As systematically conceived they modify terms familiar to us from analyses based on the pricing system such as expenditure, receipts, outlay, and income.  The usual meanings of those words as they are used in the supply and demand framework of conventional macroeconomics are transformed by these modifiers in a manner that is both novel and incommensurate with ordinary economic meanings.  It is not that the realities referred to by these terms are never discussed or elaborately diagnosed in conventional economics; indeed they are.  But they are not mutually defined and related systematically and functionally in these other analyses the way they are in the “Essay”.  For Lonergan, ‘basic’ and ‘surplus’ name the significant variables that specify the aggregates and interdependencies among them, and enable us heuristically to diagnose the breakdowns revealed by the events from 1929-1933.  As operating within a dynamic analysis, these variables measure velocities and accelerations of flows and are applicable to a changing, evolving economic reality.  … Hence, Lonergan believed that he had managed to expound the main lines of dynamic analysis of the fundamental macroequilibria of production and exchange by means of a method of analyzing monetary circulation. (CWL 15, Editors’ Introduction lvii lviii)

The set of definitions generated by this analysis are achieved independently of concepts of value theory, or postulates regarding value, and of deductions concerning scarce objects with alternative uses.  They are derived directly from the exigencies of monetary circulation itself as immediately reflective of the aggregates of initial, transitional, and final payments, which in turn are functionally related to the processes and rhythms of production.  (CWL 15, Editors’ Introduction lviii)

Our … main topic was the relation of common sense to science, and our fundamental assertion is that the two regard distinct and separate fields.  Common sense is concerned with things as related to us.  Science is concerned with things as related among themselves.  In principle, they cannot conflict, for if they speak about the same things, they do so from radically different viewpoints. (CWL 3, 293/318)

The procedure of sound common sense is not to generalize nor to argue from analogy, but to retain the insights gained in former experience and to add the complimentary insights needed in fresh situations.  The collaboration of common sense aims, not at establishing general truths, but at building up a core of habitual understanding that is to be adjusted by further learning in each new situation that arises. … Common sense, then, has its own methodological precepts of keeping to the concrete, of speaking in human terms, of avoiding analogies and generalizations and deductions, of acknowledging that it does not know the abstract, the universal, the ultimate.  Precisely because it is so confined, common sense cannot explicitly formulate its own nature, its own domain, its own logic and methodology. (CWL 3, 297/322-3)

Culture suffers from the general bias of common sense.

The shorter cycle (of decline) results from group bias, the egoism of a group that approves its own attitudes and consequent deeds … The longer cycle (of decline) results from general bias, that is,  the general tendency be content with the particular specialty, common sense, and to consider other specialties irrelevant or useless.  As group bias, so too general bias awakens opposition.  But the opposition is that of learned minorities, and they, when no longer simply ignored, can be put out of court by massive appeals to the masses. (CWL 15, 94)

Now just as sustained attentiveness, insight, reasonableness, and responsibility create a situation ever more in consonance with intelligent advance and ever more responsive to it, so too every bias away from human authenticity brings about a situation ever more inhuman and intractable.  It is up to man to be intelligent, act intelligently, and make his situation intelligible. On the other hand, insensitivity, oversights, the blindness of passion, the flimsy excuse, the plausible fallacy, the distortion of compromise, the waywardness of indulgence, all create a human world made in their own image and likeness. … Such is the dialectic of decline.  Spontaneously it keeps making things ever worse. … For it gives evil the status of fact.  That is the way things are, the way that things are done, the only way that one can live, indeed the way that all successful and respectable people live.  (CWL 15, 94)

… a generalization proposed by common sense has quite a different meaning from a generalization proposed by science.  The scientific generalization aims to offer a premise from which correct deductions can be drawn.  But the generalizations issued by common sense are not meant to be premises for deductions.  Rather they would communicate pointers that ordinarily it is well to bear in mind.  Proverbs are older far than principles, and like rules of grammar they do not lose their validity because of their numerous exceptions.  For they aim to express, not the scientist’s rounded set of insights that either holds in every instance or in none at all, but the incomplete set of insights which is called upon in every concrete instance but becomes proximately relevant only after a good look around has resulted in the needed additional insights.  Look before you leap! (CWL 3, 175-76 /199)

… the heuristic assumptions of science anticipate the determination of natures that always act in the same fashion under similar circumstances, and as well the determinations of ideal norms of probability from which events diverge only in a non-systematic manner. Though the scientist is aware that he will reach these determinations only through a series of approximations, still he also knows that even approximate determinations must have the logical properties of abstract truth.   Terms, then, must be defined unambiguously, and they must always be employed exactly in that unambiguous meaning. (CWL 3, 175-76 /199)

In each particular situation, common sense requires a another good look around.

Common sense, on the other hand, never aspires to universally valid knowledge and it never attempts exhaustive communication.  Its concern is the concrete and the particular.  Its function is to master each situation as it arises.  …  It would be an error for common sense to to attempt to formulate its incomplete set of insights in definitions and postulates and to work out the presuppositions and implications.  For the incomplete set is not the understanding either of any concrete situation or of any general truth.  Equally, it would be an error for common sense to attempt a systematic formulation of its completed set of insights in some particular case; for every systematic formulation envisages the universal; and every concrete situation is particular. (CWL 3, 176-7/200)

Common sense is a general bias in favor of non-explanatory description and a solution when one is confronted by a practical situation.

What is the subsequent course of the longer cycle generated by the bias of common sense?  In so far as the bias remains effective, there would seem to be only one answer.  The totalitarian has uncovered a secret of power.. … (CWL 3, 232/257)

In the first place, the general bias of common sense cannot be corrected by common sense, for the bias is abstruse and general, and common sense deals with the particular. … In the third place, the longer cycle of western civilization has been drawing attention repeatedly to the notion of a practical theory of history. … It has exercised a conspicuous influence on events through the liberal doctrine of automatic progress, through the Marxian doctrine of class war, through the myths of nationalist totalitarianism.  In the fourth place, a remedy has to be on the level of the disease; but the disease is a succession of lower viewpoints that heads towards an ultimate nihilism; and so the remedy has to be the attainment of a higher viewpoint. (CWL 3, 234/258-9)

The needed higher viewpoint is the discovery, the logical expansion and the recognition of the principle that intelligence contains its own immanent norms and that these norms are equipped with sanctions which man does not have to invent or impose. … unless common sense can learn to overcome its bias by acknowledging and submitting to a higher principle, unless common sense can be taught to resist its perpetual temptation to adopt the easy, obvious, practical compromise, then one must expect the succession of ever less comprehensive viewpoints and in the limit the destruction of all that has been achieved. (CWL 3, 234/259)

What is the higher principle? … our immediate answer can be no more than a series of notes. ¶ In the first place, there is such a thing as progress and its principle is liberty. … However, while there is progress and while its principle is liberty, there also is decline and its principle is bias.  There is the minor principle of group bias which tends to generate its own corrective.  There is the major principle of general bias and, though it too generates its own corrective, it does so only by confronting human intelligence with the alternative of adopting a higher viewpoint or perishing. … … Secondly, as there are sciences of nature, so also there is a science of man. … (CWL 3, 234-5/259-60)

There is needed a critical culture that is “an independent factor that passes a detached yet effective judgment upon capital formation and technology, upon economy and polity.”

… human aberration makes an uncritical culture its captive.  Opinions and attitudes that once were the oddity of a minority gradually spread through society to become the platitudes of politicians and journalists, the assumptions of legislators and educators, the uncontroverted nucleus of the common sense of a people.. … Indiscriminately, each of the new arrivals rests upon the good it brings, upon the opposite defects of the old, and upon a closer harmony with the fact of the social surd.  In the limit, culture ceases to be an independent factor that passes a detached yet effective judgment upon capital formation and technology, upon economy and polity.  To justify its existence, it had to become more and more practical, more and more a factor within the technological, economic, political process, more and more a tool that served palpably useful ends.  The actors in the drama of living become stage hands; the setting is magnificent; the lighting superb; the costumes gorgeous; but there is no play. (CWL 3, 237262)

Clearly, by becoming practical, culture renounces its one essential function and, by that renunciation, condemns practicality to ruin.  The general bias of common sense has to be counterbalanced by a representative of detached intelligence that both appreciates and criticizes, that identifies the good neither with the new nor with the old, that, above all else, neither will be forced into an ivory tower of ineffectuality by the social surd nor, on the other hand, will capitulate to its absurdity. (CWL 3, 237/262)

Marx looked forward to a classless society and to the withering of the state. … (But) what is both unnecessary and disastrous is the exaltation of the practical, the supremacy of the state, the cult of the class.  What is necessary is a cosmopolis that is neither class nor state, that stands above all their claims, that cuts them down to size, that is founded on the native detachment and disinterestedness of every intelligence, that commands man’s first allegiance, that implements itself primarily through that allegiance, that is too universal to be bribed, too impalpable to be forced, too effective to be ignored. (CWL 3, 238/262-3)

There is needed a universally valid scientific macroeconomic dynamics.

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 (static) equilibrium analysis … to an analysis where attention is focused on second-order differential equations, on d2θ/dt2, d2x/dt2, d2y/dt2, on the primary relativities of a range of related forces, central, friction, whatever.  Particular secondary boundary conditions, past and future pricings and quantities, are relatively insignificant for the analysis of the primary relativity immanent in, and applicable to, every instance of the process.  What is significant is the Leibnitz-Newtonian shift of context. [McShane, 1980, 127]

I am inclined to think that the main difficulty is the subtle absence of the scientific spirit in contemporary economics. … The real difficulty is in the scientific perspective that can come to grips with precise functional distinctions. [McShane 2002-2, 21-22]

The most famous instance … is John Hicks’ simplistic focus on interest  –  in the financial sense  –  in 1937 which turned Keynes’ effort of 1936 into a simpler business of jollying along with IS/LM curves.  (On debates around the IS/LM muddlings, see my Pastkeynes Pastmodern Economics, 65-69) [McShane 2016, 33]

“Functional” is for Lonergan a technical term pertaining to the realm of explanation, analysis, theory;  … Lonergan (identified) the contemporary notion of a function as one of the most basic kinds of explanatory, implicit definition – one that specifies “things in their relations to one another” … [CWL 15  26-27  ftnt 27]

(the) whole structure (of Functional Macroeconomic Dynamics) is purely relational.  A macroeconomic functioning is not a compilation or aggregation of particular income statement categories, such as wages or interest expense.  A macroeconomic functioning is implicitly defined by its functional relation to other functionings. The whole structure is purely relational.  “Lonergan’s analysis is concrete but heuristic.  It focuses on functional relations intrinsic to the productive process to reach eventually a general theory of dynamic equilibria and disequilibria.” [McShane 1980, 117]

Functional Macroeconomic Dynamics is “not understood, not formulated, not taught.” “When intelligence is a blank, the first law of nature takes over: self-preservation.”

In equity (the basic expansion following the surplus expansion) should be directed to raising the standard of living of the whole society.  It does not.  And the reason why it does not is not the reason on which simple-minded moralists insist.  They blame greed.  But the prime cause is ignorance.  The dynamics of surplus and basic expansion, surplus and basic incomes are not understood, not formulated, not taught….. [CWL 15, 82]

Lonergan argued that  previous depressions could be understood in terms of a tendency by producer-banker combinations with price fixing powers to hang onto the KN accumulation profit cum interest rather than raise wages, even after the economy was tooled up to the requirements of the new stationary state.   [Burley and Csapo, 1992-1, 139]

When intelligence is a blank, the first law of nature takes over: self-preservation.  It is not primarily greed but frantic efforts at self-preservation that turn the recession into a depression, and the depression into a crash. [CWL 15, 82]

Addendum from CWL 14;

Common sense commonly feels itself omnicompetent in practical affairs, commonly is blind to long-term consequences of policies and courses of action, commonly is unaware of the admixture of common nonsense in its more cherished convictions and slogans. (CWL 14, 53/52)

The systematic exigence not merely raises questions the common sense cannot answer but also demands a context for its answers, a context that common sense cannot supply or comprehend.  This context is theory, and the objects to which it refers are in the realm of theory.  To these objects one can ascend from commonsense starting points, but they are properly known, not by this ascent, but by their internal relations, their congruences and differences, the functions they fulfill in their interactions.  As one may approach theoretical objects from a commonsense starting point, so too one can invoke common sense to correct theory.  But the correction will not be effected in commonsense language but in theoretical language, and its implications will be consequences, not of commonsense facts that were invoked, but of the theoretical correction that was made.  … Mass, temperature, the electromagnetic field are not objects in the world of common sense.  Mass is neither weight nor momentum. A metal object will feel colder than a wooden one beside it, but both will be of the same temperature.  Maxwell’s equations for the electromagnetic field are magnificent in their abstruseness. … there are, then, a realm of common sense and a realm of theory.  We use different languages to speak of them. (CWL 14, 82-3/79-80)

So the worlds of theory and of common sense partly interpenetrate and partly merge.  the results are ambivalent. … But it will also happen that theory fuses more with common nonsense than with common sense, to make the nonsense pretentious and, because it is common, dangerous and even disastrous. (CWL 14, 98/94)

… modern science … also is a principle of action, and so dit overflows into applied science, engineering, technology, industrialism.  It is an acknowledged source of wealth and power, and the power is not merely material.  It is the power of the mass media to write for, speak to, be seen by all men.  It is the power of the educational system to fashion the nation’s youth in the image of the wise man or in the image of a fool, in the image of a free man or in the image prescribed for the Peoples’ Democracies. (CWL 14, 99/95)

Fifthly, there is the emergence of systematic meaning.  Common sense knows the meanings of the words it employs, not because it possesses definitions that obtain “omni et soli” but, as an analyst would explain, because it understands how the words might be employed appropriately. … Socrates was opening the way to systematic meaning, which develops technical terms, assigns them their interrelations, constructs models, and adjusts them until there is reached some well-ordered and explanatory view of this or that realm of experience.  There result two languages, two social groups, two worlds mediated by meaning.  There is the world mediated by commonsense meaning, and there is the world mediated by systematic meaning.  There are the groups that can employ both ordinary and technical language, and the group that can employ only ordinary or commonsense language. (CWL 14, 304/283-84)

Addendum from CWL 10:

In a way, common sense is prelogical.  Levy-Bruhl, the French sociologist, introduced theorem ‘prelogical’ in describing primitives.  I do not wish to use the term in that sense, but rather to mean that common sense does not use terms, propositions, and syllogisms as a technique for clarification and development of intelligence.  It proceeds in a much more direct fashion.  The Greek discovery of the ‘logos’ was the discovery of language, and consequently of concepts and judgments, and attention was drawn to the words, to the propositions, to the arguments, as a means, a tool, to make intelligence more complete and more adequate. (CWL 10, 72) (Lucien Levy-Bruhl, “Les functions mentales dans les societies inferieures (Paris: Presses Universities de France, 1951)

That was the beginning, the Greek beginnings of the intellectual pattern of experience, a differentiated pattern of experience.  The Greeks introduced reasoning, the “logos.” … Thus Heraclitus is full of praise of the “logos.”  But reasoning is fruitful only if your terms are accurately defined.  If the meaning of your terms is not settled, then your reasoning process just bogs down in endless verbal disputes.  Thus not only do we have with Socrates, according to the attribution of Aristotle, the introduction of universal definitions, definitions that will hold in every case, but with definitions as a basis of reasoning there is discovered the need of a few basic propositions, and there is introduced the idea of a science as an ordered body of definitions and implications exploring a delimited field of possible human knowledge.  Such a formulation of the intellectual pattern of experience was the specific Greek achievement. ¶ The meaning of the Greek discovery of the “logos,” is that insights can be expressed in a form that is universally valid, and that on the basis of universal definitions, long chains of reasoning can be built.  The discovery of an ideal science, conceived in terms of definitions, axioms, postulates, problems, and theorems, was based upon that structure.  It was a specific achievement of the human spirit.  And it was novel to the Athenians, who did not like it and put Socrartes to death. ¶ It is also a distinguishing feature of theWest. (CWL 10, 119-20)

Not only does the empirical scientist select aspects of data and measure them; he also relates the measurements “to one another.”  With that last step science moves totally outside the viewpoint of common sense.  When Galileo moved from measuring distances and times to correlating distances and times, he was bringing together two objective, measurable features of objects.  He was relating thing to one another.  Whenever the scientist is seeking to determine some indeterminate function, he is relating things to one another.  And that is just what common sense does not do.  It understands things in their relations to us.  Thus we have Whitehead;s two worlds. CWL 10, 139-40)

Common sense, like grammar, is egocentric; it concerns the intelligibility of things for “me.”  I grammar, time and tense relate to “my” time. “my” present.  The meaning of fundamental adverbs like “here” and “there” is related to “me.”  The first person is the point of reference.  If you draw a map of city, you are expressing a relation of things to one another; and when one looks at a map in a strange city, one can ask, Where am I?  How do I correlate my “here” with this map?  Similarly when you ask What time is it? you want to correlate your “now” with the public reference references obtained from a clock.  The scientific procedure of relating things to one another builds up maps and clocks that leave the whole commonsense approach to things out of the picture. (CWL 10, 140)

The canon of complete explanation demands that the scientific world, which expresses the relations of things to one another, be constructed completely.  It is not the world of common sense. (CWL 10, 144)

Now such a recession of the horizon within the scientific field meets with resistance.  The subject dreads to change, to remodel the organization that is himself, his living in the scientific world.  Max Planck, who made the fundamental discoveries connected with quantum theory (black-body radiation), asked in his autobiography what it is that puts a new scientific theory across.  Is it the clarity of the observations or the exactness of the measurements or the coherence of the hypothesis or the rigor of the deduction or the decisiveness of the observational or experimental results? No, he said, it is none of these; they have nothing to do with it.  Rather a new scientific theory gets across when the present generation of professors is retired. ¶ However, though there isa resistance within the field of mathematics and science, still, after a relatively brief lag the resistance is overcome universally and permanently.  First it is overcome universally: a recession in the scientific horizon is not followed by a splintering into schools, where the schools endure indefinitely, where there are fruitless debates or such an impossibility of communication that there is no debate at all.  A broadening of the scientific horizon becomes accepted by all the scientists.  there is not a division of scientists into certain schools, after a certain lag.  Secondly, that universal acceptance is also permanent: there is no tendency to revert to earlier positions; what has been achieved is retained, and a higher viewpoint is introduced the includes all that was had and adds to it; there is no going back.  It is this property of scientific development that commands the great esteem in which science is held.  Scientists will disagree; they will fight; the period of crisis and reformulation presents a spectacle of insecurity; but; usually within a relatively brief period of time, these problems are overcome, and when they are overcome, the achievement is universal and permanent (CWL 10, 93-4)

Also see (CWL 3, 207-209/232-34) entitled Practical Common Sense.

 

 

 

 

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