Lonergan used the idea of a superposed circuit to explain a) imbalances in foreign trade, and b) deficits and surpluses of government operations. The same intelligibility of the superposed circuit can be used explain the immediate and ultimate inflationary effects of the Fed’s recent fooding of money into the two operative circuits and the Redistributive Function.
Note in the second image below – Diagram of Government Spending and Taxes – that there is no productive activity symbolized by payments of Z’ and Z” in the channels of monetary flows from O’ to I’ and from O” to I”. New money simply flows from the Redistributive Function to basic monetary demand I’ and surplus monetary demand I”, then back ultimately -to the Redistributive-Function location of financial assets.. The Fed simply creates the money by debiting Government- and Government-Backed Assets and crediting Money in Circulation. A more accurate name for the credit account might be Free Money Unjustified by Associated Production. The flows are intrinsically inflationary.
Important: Please consult CWL 15, Sections 29-31, pp. 162-176.
Also, see on this website the subsection titled “Superposed Circuits” in the Post entitled Understanding All in a Unified Whole.
As there are two circuits, we must distinguish in government spending (Z) in any interval between Z’ paid into basic demand and Z” paid into surplus demand. Similarly in taxes (T), we have to distinguish between T’ withdrawn from basic demand and T” withdrawn from surplus demand. (CWL15, 174)