**New foundations** for a **new science of macroeconomics** are grounded in

- a scientific, dynamic heuristic
- the technique of
**implicit definition** - precise, purely relational, a
**nalytic distinctions**between abstract fundamental terms and relations from which a superstructure of complete explanation may be deduced - the relativistic, field-theoretic
**functional interrelations**among interdependent, mutually-defining,**explanatory functional flows**

This section is necessarily cryptic. The excerpts herein are quoted often and at greater length elsewhere on this website, Though the excerpts deserve careful reading, it will be okay to skim this first time ‘round in order to keep within the 30-minute limit. So let’s get started. Subheadings will be:

- Science and explanation vs. description and common sense in economic analysis
- The technique of implicit definition; and scientific significance in Functional Macroeconomic Dynamics
- The Leibnitz-Newtonian shift to a dynamic analysis
- Macroeconomics is not a branch of psychology, sociology, or anthropology
- Generalization at an adequate level of abstraction
- Why analyze the structure of the productive process first
- Functionings explain; accounting unities do not
- There is a pure-cycle production function at the root of the trade cycle
- Functional Macroeconomic Dynamics is an economic field theory of interdependent, mutually conditioning, functional flows
- Interdependence necessitates concomitance for continuity and equilibrium
- Traditional theory is incorrect about the effects of the manipulation of interest rates
- The interest rate is conceptually an internal relation rather than an efficient-causal lever
- A conflict of criteria
- Need for a diagram
- Understanding vs. ignorance on the part of the government and private enterprise
- A new triple: monetary policy, fiscal policy, private-enterprise policy
- Superposed circuits of deficits and surpluses
- At the root of the depression lie ignorance and misinterpretation
- Real analysis and mistaken monetary theory
- How money works; the velocity of money
- Criticism requires a normative theory
- The Bureau of Economic Analysis must develop an explanatory arrangement of Gross Domestic Functional Flows

**1. Science and explanation vs. description and common sense in economic analysis**

A **distinction **has been drawn between **description and explanation**. Description deals with things as related **to us**. Explanation deals with the same things as related **among themselves**. … description and explanation envisage things in fundamentally different manners. The relations of things among themselves are, in general, **a different field **from the relations of things to us. … The scientist selects the **relations of things to us **that lead more directly to knowledge of the relations of things **among ****themselves**. Ordinary description is free from this ulterior preoccupation. [CWL 3, 291-92/316-17]

** “Functional” **is for Lonergan a technical term pertaining to the realm of **explanation**, analysis, theory;… In Lonergan’s circulation analysis, the **basic (dynamical) terms are functional rates (implicitly defined by their functional relations to one another)**– rates of **mutually **conditioning, and **interdependent **productive activities and rates of mutually conditioning, and interdependent payments. The objective of analysis is to discover the … functional (inter)relationships (which **implicitly define **these rates and **explain the dynamics **of these rates to one another). [CWL 15, 26-27 ftnt 27][1]

The **whole structure is purely relational**: one cannot conceive the terms without the relations nor the relations without the terms. Both terms and relations constitute a basic framework to be filled out, first by the advance of the sciences and, secondly, by full information on concrete situations. [CWL 3, 492/516]

An ‘accountant’s unity’ … generally denotes an enterprise within **common sense **which uses **descriptive, as contrasted with explanatory **terms. 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, page 26, ftnt. 26]

**2. The technique of implicit definition; and scientific significance in Functional Macroeconomic Dynamics**

Lonergan illustrates his basic meaning of ‘**explanation’ **by referring to D. Hilbert’s method of **implicit definition. **[CWL 15, 26-27 ftnt 27]

Lonergan is looking for an explanation in which the terms are defined by the relations in which they stand, that is, by a process of **implicit ****definition**. This technique (implicit definition) has been used to great effect by David Hilbert in his *Foundations of Geometry *in which, for example, the meaning of a point and a straight line is fixed by the relation that two, and only two points, determine a line. “The significance of implicit definition is its complete **generality**. The omission of nominal definition is the omission of a restriction to objects which, in the first instance, one happens to be thinking about. The exclusive use of explanatory or postulational elements concentrates attention upon the set of relationships in which **the whole scientific significance is contained**.” [Michael Gibbons, *Economic Theorizing in Lonergan and Keynes *p313]

Implicit definition supplies terms related to one another and, thus, of scientific and systematic significance.

In Lonergan’s circulation analysis, the **basic (dynamical) terms are rates (implicitly defined by their functional relations to one another) **– rates of **mutually **conditioning, and **interdependent **productive activities and rates of mutually conditioning, and interdependent payments. The objective of analysis is to discover the … functional (inter)relationships (which **implicitly define **these rates and **explain the dynamics **of these rates to one another). [CWL 15, 26-27 ftnt 27][2]

**3. The Leibnitz-Newtonian shift to a dynamic analysis**

The scientist must have a scientific and dynamic heuristic. A heuristic is a guide to an inquiry. It will state the type of answer to be sought and the method to be used. Lonergan, and we, adopt a scientific and dynamic heuristic

… heuristic structures and canons of method constitute an a priori. They settle in advance the general determinations, not merely of the activities of knowing, but also of the content to be known. [CWL 3, 104-105/128]

A science of velocities will be characterized by differential and difference equations.

The development of economic dynamics within the present perspective will have its clusters of differential equations and probability functions. [McShane, 2002-2, 68]

Paraphrasing [McShane, 1980, 127]:

Taking into account past and (expected) future values does not constitute *the creative key transition to Functional Macroeconomic Dynamics.* Those familiar with elementary statics and dynamics (in physical mechanics) will appreciate the shift in thinking involved in passing from (static) equilibrium analysis (of a suspended weight with subscripts for time not needed)…to an analysis (of, say, the motions of planets or pendula) where attention is focused on second-order differential equations, on d^{2}θ/dt^{2}, d^{2}x/dt^{2}, d^{2}y/dt^{2}, on the primary relativities of a range of related forces, central, friction, whatever. Particular secondary boundary conditions in Functional Macroeconomic Dynamics, past and future pricings and quantities (analogous to a planet’s particular past or future position, velocity, acceleration), 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]

**4. Macroeconomics is not a branch of psychology, sociology, or anthropology**

The science of macroeconomics is not a science of the protean psyche.

our inquiry differs radically from traditional economics, … . **Our aim is to prescind from human psychology **that, in the first place, we may define the **objective situation **with which man has to deal, and, in the second place, define the **psychological attitude that has to be adopted **if man is to deal successfully with economic problems. Thus something of a **Copernican revolution **is attempted: **instead of taking man as he is or as he may be thought to be**… **we take the exchange process in its greatest generality **and attempt to deduce the **human adaptations **necessary for survival. [CWL 21, 42- 43]

A study of the mechanics of motor-cars yields premises for a criticism of drivers, precisely because the motor-cars, as distinct from the drivers, have laws of their own which drivers must respect. But if the mechanics of motors included, in a single piece, the anthropology of drivers, criticism could be no more than haphazard. CWL 21, 109

**5. Generalization at an adequate level of abstraction**

We are not going to (describe and) discuss (the particular economics of) wealth or value, particular price levels and price patterns, **interest and profits**, production, distribution, and consumption. Because we are not, it certainly will be objected that our discussion has nothing to do with economic science, for economics is precisely the study of wealth and value, and so on. The answer is as follows. The discussion moves on a more **general **(field theory) to terminate in a more **general **conclusion. Because the **general **includes the particular, a **generalized **economics cannot but include the particular economics. [CWL 21, 8]

**Generalization **comes with Newton, who attacked the **general **theory of motion, laid down its pure theory, identified Kepler’s and Galileo’s laws by inventing the calculus, and so found himself in a position to account for any corporeal motion known. Aristotle, Ptolemy, Copernicus, Galilei, and Kepler had all been busy with particular classes of moving bodies. Newton dealt in the same way with all. He did so by turning to a field of greater **generality**, the laws of motion, and by finding a deeper unity in the apparent disparateness of Kepler’s ellipse and Galilei’s time squared. … Similarly the non-Euclidean geometers and Einstein went beyond Euclid and Newton. … The non-Euclideans moved geometry back to premises more remote than Euclid’s axioms, they developed methods of their own quite unlike Euclid’s, and though they did not impugn Euclid’s theorems, neither were they very interested in them; casually and incidentally they turn them up as particular cases in an enlarged and radically different field. … Einstein went beyond Newton by employing the new geometries to make time an independent variable; and as Newton transformed the formulation and interpretation of Kepler’s laws, so Einstein transforms the Newtonian laws of motion. … It is, , a scientific **generalization **of the old political economy and of modern economics that will yield the new political economy which we need. … Plainly the way out is through a more **general **field. [CWL 21, 6-7]

**Paraphrasing**

Lonergan dealt in the same way with all macroeconomic phenomena. He did so by turning to a field of greater **generality**, the **field theory **of macroeconomic phenomena, and by finding a **deeper unity at a more adequate level of abstraction **in the apparent disparateness of neoclassicism, Keynesianism, monetarism, and behaviorism. … Lonergan went beyond the schools and isms by employing implicit definition, precise analytical distinctions, and functional analysis. It is a scientific **generalization **of the old political economy and of modern economics that will sublate and transform the isms and yield the new (sublation) which we need. … Plainly the way out is through a more **general **field. [CWL 21, 6-7]

**6. Why analyze the structure of the productive process first**

Quick answer: Money is to buy goods and services. Payments of money are congruent with the network of the production and provision of goods and services. The production of goods and services is *prior in the order of understanding *to the correlated payments for goods and services. Therefore, the structure of the current, purely dynamic, productive process – as to factoral makeup, functional interdependencies, flow quantities, and timing – sets the pattern for the pattern of payments. It is conceptually prior to, and really determinate of, the normative flowings of money.

** real analysis **(is) identifying money with what money buys. … And that is the source of the problem in real analysis. If you want to treat money that doesn’t make a difference, you can have a beautiful liberal monetary theory. But it doesn’t say the way the thing works. [CWL 21, xxviii]

… the questions are put in such an order that, once the first is solved, the solutions to the others follow with almost no difficulty. Therefore, because the later solutions are connected to the first as conclusions are connected to some principle, all solutions after the first seem to be the proper province of knowledge. [CWL 12, 25]

Lonergan made precise analytical distinctions between point-to-point and point-to-line correspondences upon which to construct a superstructure comprising a complete theory.

… a system of definitions is introduced through which the solutions can be formulated, and because a technical terminology is developed for expressing the defined concepts. [CWL 12, 25]

analysis begins from matters of fact, say, the conspicuous recurrence of changes in plant and equipment and the *concomitance *of such changes with the business cycle. Next analysis turns from such instances of *concomitance *to lists of successful and unsuccessful changes. Finally, from a study of such instances, by a process of trial and error, analysis aims to arrive at an ever fuller understanding of business cycles. [CWL 15, 9]

So, Lonergan orders his treatment wisely. He seeks to put *analysis *of the process in its right order. He begins from matters of fact; “the conspicuous recurrence of changes in plant and equipment and the *concomitance *of such changes with the business cycle.” He seeks to understand the principles which are first in an order. His understanding of the productive process is “such as virtually to contain in itself the answers to the rest of the questions.” “the solutions to others follow almost with no difficulty.” “the concepts and terms in which the first problem and the first solution are defined and expressed cannot be significantly changed if they are to serve to define and express the later problems and solutions.” … “it is … the interconnected questions and solutions themselves that demand both systematically formed concepts and a technical terminology that corresponds not to any concepts whatsoever but to systematic concepts.”

He places the productive process first in his ordering, and then identifies monetary flows as *correlative by projection*.

These differences and correlations (of the productive process of a hierarchical, advanced economy) have now to be projected into their monetary correlates to set up classes of payments. Thus a restrictive supposition is introduced into the argument. The productive process is now envisaged as occurring in an exchange economy. It will be supposed to be an economy of notable size, complexity, and development, with property, exchange, prices, supply and demand, money. [CWL 15, 39]

To our knowledge, no one else considers the **functional **distinctions between different kinds of productive rhythms (the rhythms based upon the distinctions between basic and surplus and their order of timing) *prior to, and **more fundamental than*, wealth, value, supply and demand, price levels and patterns, capital and labor, interest and profits, wages, and so forth … [CWL 15, Editors’ Introduction lxii]

**7. Functionings explain; accounting unities do not explain 7**

An ‘accountant’s unity’ … generally denotes an enterprise within common sense which uses descriptive, as contrasted with explanatory terms. 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, page 26, ftnt. 26]

** “Functional” **is for Lonergan a technical term pertaining to the realm of **explanation**, analysis, theory; Lonergan illustrates his basic meaning of ‘**explanation’ **by referring to D. Hilbert’s method of implicit definition: … In Lonergan’s circulation analysis, the **basic (dynamical) terms are rates (implicitly defined by their functional relations to one another)**– rates of mutually conditioning, and interdependent productive activities and rates of mutually conditioning, and interdependent payments. The objective of analysis is to discover the … functional (inter)relationships (which **implicitly define **these rates and **explain the dynamics **of these rates to one another). [CWL 15, 26-27 ftnt 27][3]

**8. There is a pure-cycle production function at the root of the trade cycle**

By a pure cycle is meant a … succession of surplus expansion, basic expansion, proportionate expansion, … **Of itself, it would not involve any contraction**. [CWL 15, 115]

The pure cycle is not a monotonous sine wave going equally up then down. Rather it is an expansion or surge from a lower level of output to a higher level of output. **Of itself, it would not involve any contraction**.

The **trade cycle **is a succession of **expansions and contractions (colloquially, booms and slumps)**. … The contention of the present analysis is that there is a **pure cycle at the root of the trade cycle**. … It can further be shown that the lack of (proper) adaptation transforms the pure cycle into a trade cycle: the free economies of the present day are **overadapted **to the surplus expansion, which they exaggerate into booms, but **underadapted **to the basic expansion, which they convert into slumps.[4][CWL 15, 115]

A systematic **explanation**, then, requires a normative theoretical **framework**. The basic terms and relations of such a **framework **would specify the distinctions and correlations that articulate the causes, which are not necessarily visible, of events that are apparent to all. The **framework **would thus stand to the ordinary apprehension of the **booms and slumps of the trade cycle **in much the same way that the explanatory grasp of acceleration as the **second derivative **of a continuous function of distance and time stands to the ordinary, commonsense grasp of what it is to be going faster. [CWL 15, Editors’ Introduction lv]

**9. Functional Macroeconomic Dynamics is an economic***field theory*of interdependent, mutually conditioning functional flows

Newton conceived of his forces as efficient causes, and the modern mechanics drops the notion of force; it gets along perfectly well without it. It thinks in terms of a **field theory**, the set of relationships between *n *objects. The field theory is a set of intelligible relations linking what is **implicitly defined by the relations themselves**; it is **a set of relational forms**. The form of any element is known **through its relations to all other elements**. [CWL 10, 154]

** Paraphrasing **

… as to the notion of cause, macroeconomists mistakenly conceive of subjective preferences as formal causes. Functional Macroeconomic Dynamics drops the notion of subjective preferences; it gets along perfectly well without it. It thinks in terms of a field theory, the set of relationships between *n *interdependent, implicitly defined functional activities. The field theory of FMD is a set of intelligible relations linking what is **implicitly defined by the relations themselves**; it is **a set of relational forms**. The form of any functioning is known **through its relations to all other functionings**. …. Macroeconomic field theory is a matter of **the immanent intelligibility **of the objective phenomena. [See CWL 10, 154]

**10. Interdependence necessitates concomitance for continuity and equilibrium**

**Concomitance **is, I would claim, the key word in Lonergan’s economic thinking. [Philip McShane]

analysis begins from matters of fact, say, the conspicuous recurrence of changes in plant and equipment and the * concomitance *of such changes with the business cycle. Next analysis turns from such instances of

*to lists of successful and unsuccessful changes. Finally, from a study of such instances, by a process of trial and error, analysis aims to arrive at an ever fuller understanding of business cycles. [CWL 15, 9]*

**concomitance**The **concomitance** of outlay and expenditure follows from the interaction of supply and demand. The **concomitance** of income with outlay and expenditure is identical with the adjustment of the rate of saving to the requirements of the productive process. [CWL 15 144]

(We) state the necessary and sufficient condition of constancy or variation in the exchange value of the dummy. To this end we compare two flows of the circulation: the real flow of property, goods, and services, and the dummy flow being given and taken in exchange for the real flow….Accordingly, the necessary and sufficient condition of constant value in the dummy lies in its **concomitant** variation with the real flow….More briefly, if there is concomitance between the two flows, then the proportion in which dummies and goods exchange remains the same. If there is lack of **concomitance**, then this proportion changes. But exchange value is a proportion. Therefore, the **concomitance** of the two flows is the condition of constant exchange value. CWL 21, 37-39

**11. Traditional theory is incorrect about the effects of manipulation of the interest rate**

Traditional theory looked to shifting interest rates to provide suitable adjustment of the rate of saving to the phases of the pure cycle of the productive process.. In the main we shall be concerned with factors that are prior to changing interest rates and **more effective**. [CWL 15, 133]

traditional (and contemporary) theory looked to shifting interest rates to provide suitable adjustment (of) the rate of saving … to the phases of the pure cycle of the productive process. In the main we shall be concerned with factors that are **prior to **changing interest rates and **more effective**. [CWL 15, 133]

The difficulty with (traditional) theory is that a.) it **lumps together **a number of **quite different **things and b.) it **overlooks the order of magnitude **of the fundamental problem… [CWL 15, 141-144]

**12. The interest rate is conceptually an internal relation rather than an exogenous, efficient-causal lever**

We must distinguish between an intrinsic and normative interest rate and a market exchange rate. The normative current interest rate is a determinate *internal relation ***among current functional flows**. It should not be misunderstood and construed as a magic lever **external **to the operative economic process. While it’s manipulation is one of the few tools of the Fed, this manipulation is no more theoretically valid than any other type of price fixing. The responsibility for righting the economic ship lies with the government and private enterprise through implementation of appropriate fiscal and private-enterprise policies.

Dollars of interest payments circulate just like any initial, transitional, or final payments. There is a **purchase of the lender’s service. **The interest payment received by the lender circulates just like the receipts of a grocery store for a bag of oranges. There’s no mystery here.

**13. A conflict of criteria**

… the dominant guiding precept of corporate governance is, Satisfy the criterion of ever increasing net income. And when, while the process transitions from the surplus expansion to the basic expansion and selling prices are falling because the lower income strata are not receiving enough more basic income to purchase the greater quantity of basic products now available, executives seek to preserve the long gone systematically high profits of the expansion and shovel demand-reducing layoffs into the relentlessly rising need for increasing demand. Individual actions mistakenly thought to be appropriate prove to be collectively counterproductive and only make the situation worse.

The method of implementation of higher incomes is given in CWL 15, 134-35.

**14. Need for a diagram**

if we want to have 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, 2014, 151] (quoting CWL 7, 151)

Turned 90 degrees:

the diagram can be said to have **heuristic significance**. … For example, while the text of §13 works out in great detail sets of relations among terms, the diagram makes it easy to understand that the exchange economy consists of **two circuits of payments**, basic and surplus; that these circuits are

**mutually and dynamically interdependent**(because of the ‘crossovers’); and that these circuits are

**dependent upon the activities of the Redistributive Function**. It also seems to have played an important heuristic role in helping Lonergan himself have insights into the nature of … a ‘favorable balance of trade’ and ‘deficit spending’. Subsequent study may reveal that there is considerable additional heuristic value to this diagram. [CWL 15, 180]

**15. Understanding vs. ignorance on the part of government and private enterprise**

One is led immediately to the **significance of the basic price spread **and the concrete possibility of the business cycle and to the important conclusion that the business cycle is not primarily the result of entrepreneurial greed but of a **failure to understand **what is going on in an economic expansion…. [Michael Gibbons, Economic Theorizing in Lonergan and Keynes p. 313]

**16. A new triple: 1) monetary policy, 2) fiscal policy, 3) private-enterprise policy**

Conversations:

Timmy: What are you up to?

Teddy: I’m building condos in Milford.

Timmy: Isn’t there an oversupply of condos out there now?

Teddy: Yes, but it’s all I know how to do. I just keep borrowing and building, borrowing and building, and borrowing and building. It’s the only thing I know.

Joey: What’s going on at the bank now?

Manny: We’re doing a lot of new lending.

Joey: But isn’t there too much credit out there now?

Manny: Yes, but it’s all we know how to do. We just keep lending and lending and lending. It’s how we earn a living. It’s the only thing I know.

The responsibility of the **Fed **with respect to monetary policy is

- to supply
**only**enough money to the system to enable transactions to be completed on a timely basis - educate banks as to technical and financial constraints and limits for a given state of culture and technology
- monitor, advise ,and restrain banks in their assumption of risk
- that is to say that banks should not grant excessive credit and bring about a situation where borrowers can’t pay their bills

The responsibility of the **government **with respect to spending and personal income taxation is to

- be efficient; people don’t like to pay taxes for waste
- balance its budget, and
- let the rich get richer in a surplus expansion and the poor get richer in a basic expansion

The responsibility of **private enterprise**– let’s call it **private-enterprise policy **and always include it in any discussion of **monetary policy **and **fiscal policy**– is to

- invest responsibly in both material capital and human capital for the good of the overall process, and
- adjust compensation so that the rich get richer in a surplus expansion and the poor remain employed and get richer in a basic expansion (See Practical Precepts for Free People)

**17. Superposed circuits of deficits and surpluses**

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 the 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

**18. At the root of the depression lie ignorance and misinterpretation**

At the root of the depression lies a misinterpretation of the significance of pure surplus income. In fact it is **the monetary equivalent of the new fixed investment of an expansion**…..our culture can not be accused of mistaken ideas on pure surplus income as it has been defined…; for on that precise topic **it has no ideas whatever**………However the phenomena referred to by …”pure surplus income” are well known. … pure surplus income may be identified best by calling it net aggregate savings and viewing them as **functionally related **to the rate of new fixed investment [CWL 15 152-53]

Previously I have suggested a lack of adaptation in the free economies to the requirements of the pure cycle. What that lack is can now be stated. It is **an inability to distinguish** between the **significance of a relative and an absolute rise or fall of monetary prices**. A relative (i.e. “real”) rise or fall is, indeed, a signal for a relatively increased or reduced production (of one product relative to another)………(much)……..Inversely, the **rising prices of the surplus expansion** are not real and relative but only monetary and absolute rising prices; to allow them to stimulate production is to convert the surplus expansion into a boom (which must be followed out of systematic necessity by a correlative and devastating bust). This I believe is the fundamental lack of adaptation to the productive cycle that our economies have to overcome. The problem, however, has many ramifications of which the most important is the relativity of the significance of profits (“pure surplus income”). To this we now turn. [CWL15, 139-140]

**19. Real analysis and mistaken monetary theory**

**real analysis **(is) identifying money with what money buys. … If you want to treat money that doesn’t make a difference, you can have a beautiful liberal monetary theory. But it doesn’t say the way the thing works. [CWL 21, Editors’ Introduction xxviii quoting Lonergan]

**20. How money works; the velocity of money**

A change in the rapidity with which money changes hands is in itself impotent to effect a circuit acceleration; what is needed is a change in the circuit velocity of money, in the rapidity with which money performs a * circuit of work *moving, say, from expenditure through receipts, outlay, income back to expenditure. This difference is important. For, while the rapidity with which money changes hands is a highly indeterminate concept, the rapidity with which it performs a circuit of work may be

**correlated exactly**with the turnover frequency of commerce and industry. [CWL 15, 56]

the work for money to do is to move, say, wheat from the western plains to the householder’s table, and increasing the number of owners that intervene in the process gives no more than a phenomenal increase in the velocity of money. … the velocity of money in the main circuits is tied to the velocity with which goods are produced and sold. …the velocity of money in the main circuits coincides with the velocity, the time interval, between the initiation of production and the moment of final sale. [CWL 21, 61-62]

**21. Criticism requires a normative theory**

A study of the mechanics of motor-cars yields premises for a criticism of drivers, precisely because the motor-cars, as distinct from the drivers, have **laws of their own which drivers must respect**. But if the mechanics of motors included, in a single piece, the anthropology of drivers, **criticism could be no more than haphazard**. CWL 21, 109

A systematic explanation, then, requires a **normative theoretical framework**. The basic terms and relations of such a framework would specify the distinctions and correlations that articulate the causes, which are not necessarily visible, of events that are apparent to all. The framework would thus stand to the ordinary apprehension of the **booms and slumps of the trade cycle **in much the same way that the explanatory grasp of acceleration as the second derivative of a continuous function of distance and time stands to the ordinary, commonsense grasp of what it is to be going faster. [CWL 15, Editors’ Introduction lv ]

**23. The Bureau of Economic analysis must develop an explanatory arrangement of Gross Domestic Functional Flows**

The Bureau of Economic analysis must develop an explanatory arrangement of Gross Domestic Product which demonstrates, in particular, the amount of credit being put into present operations.

[1]I have rearranged the quote. The original wording is as follows:

**“Functional”**is for Lonergan a technical term pertaining to the realm of **explanation**, analysis, theory; ¶Lonergan illustrates his basic meaning of ‘**explanation’**by referring to D. Hilbert’s method of implicit definition: … In Lonergan’s circulation analysis, the basic terms are rates – rates of productive activities and rates of payments. The objective of analysis is to discover the underlying, intelligible and indeed dynamic (accelerative) network of **functional**, mutually conditioning, and interdependent relationships of these rates to one another. CWL 15 26-26 ftnt 27[1]

[2]I have rearranged the quote. The original wording is as follows:

**“Functional”**is for Lonergan a technical term pertaining to the realm of **explanation**, analysis, theory; ¶Lonergan illustrates his basic meaning of ‘**explanation’**by referring to D. Hilbert’s method of implicit definition: … In Lonergan’s circulation analysis, the basic terms are rates – rates of productive activities and rates of payments. The objective of analysis is to discover the underlying, intelligible and indeed dynamic (accelerative) network of **functional**, mutually conditioning, and interdependent relationships of these rates to one another. CWL 15 26-26 ftnt 27[2]

[3]I have rearranged the quote. The original wording is as follows:

**“Functional”**is for Lonergan a technical term pertaining to the realm of **explanation**, analysis, theory; ¶Lonergan illustrates his basic meaning of ‘**explanation’**by referring to D. Hilbert’s method of implicit definition: … In Lonergan’s circulation analysis, the basic terms are rates – rates of productive activities and rates of payments. The objective of analysis is to discover the underlying, intelligible and indeed dynamic (accelerative) network of **functional**, mutually conditioning, and interdependent relationships of these rates to one another. CWL 15 26-26 ftnt 27[3]

[4]Lonergan is commenting on his table of “the possibility of different types of phases. CWL 15, 113-14.

Fully:

The significance of the table is that it makes possible a distinction between different types of cycle. The trade cycle is a succession of expansions and contractions: it certainly is a movement up and down the table, and it may or may not also involve movements across the table. The contention of the present analysis is that there is a pure cycle at the root of the trade cycle. By a pure cycle is meant a movement across the table with no implication of a movement up or down the table. Thus the succession of surplus expansion, basic expansion, proportionate expansion, repeated as often as you please, would give a pure cycle. Of itself, it would not involve any contraction. … I can further be shown that the lack of such adaptation transforms the pure cycle into a trade cycle: the free economies of the present day are overadapted to the surplus expansion, which they exaggerate into booms, but underadapted to the basic expansion, which they convert into slumps. CWL 15, 115