Independent Circulation Analysis, A Better Way to Handle Many Economic Issues

One can labor studying particular relations of particular economic situations with the textbook tool kit of a snapshot economics without the slightest suspicion that these situations are merely particular cases needing to be explained by a more general theory of the dynamic process. On the other hand, one can attempt an independent, more general circulation analysis, in which the formation of concepts, the choice of postulates, and the seriation of deductions are dictated … by the more immediate and germane consideration of the correlations among the dynamic functional interdependencies which constitute the monetary circulation itself. In that fashion, one would obtain a more general unified theory which, from its compactness, simplicity, explanatory power, and universality would prove more efficient in the solution of certain types of problems. (a paraphrase and modification of CWL 21, 113-52, PART TWO: FRAGMENTS, Section 8: A Method of Independent Circulation Analysis: containing Subsection 1: Frame of Reference; Subsection 2: Normative Phases; Subsection 3: The Cycle of the Normative Phases; Subsection 4: The Effect of Net Transfers; Appendix).

The productive process of an exchange economy offers the most favorable starting point for a study of a monetary circulation. (CWL 21, 113) (Click here)

Lonergan has gone beyond conventional textbook macrostatics. He studies the always current, purely dynamic process of production, exchange and finance. His analysis is a functional analysis. His analysis does not get bogged down or imprisoned in isolated microeconomic particulars. His field is the enlarged, more general, all encompassing field of the explanatory interdependencies among constituent functional activities themselves.. Like Euclid, his achievement “was to bring together many scattered theorems by setting up a unitary basis that would handle all of them and a great number of others as well.” He has discovered and formulated a more general, unified Macroeconomic Field Theory

It is, we believe, 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]

The non-Euclideans went beyond Euclid. In macroeconomics the way out of the morass of isms and schools is through a more general field.

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, we believe, 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]

… despite Lonergan’s explorations of the possibility of a pure cycle of progress in the economy, no solution exists in current mainstream economics to the problem of boom and bust. The April, 2009 G20 meeting in London acknowledged this in its remark that there was a need to simply temper its swings rather than finding an alternative. The questioning imagination of economists needs to be liberated out of this mental prison and to pursue the discovery of better ways to run the economy for the benefit of all. [Mathews, 2009, 167]

Lonergan searched for a new understanding of the immanent intelligibility of the expansion of the economic process of production, exchange and finance. Modern mechanics drops the notion of force; modern macroeconomics drops descriptive categories – such as wealth, interest rates, accounting profit, etc. – and conceives point-to-point activities, point-to-line activities, etc.; its theory, is concerned with functional activities implicitly defined by the functional relation in which they stand with one another. Its pure theory is an explanatory science – applicable in any instance – of activities implicitly defined by their functional relations.

… again, as to the notion of cause, 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. What is a mass? A mass is anything that satisfies the fundamental equations that regard masses. Consequently, when you add a new fundamental equation about mass, as Einstein did when he equated mass with energy, you get a new idea of mass. Field theory is a matter of the immanent intelligibility of the object. (CWL 10, 154)

The point I wish to make is that modern science is not simply an addition to what was known before. It is the perfecting of the very notion of science itself, of knowing things by their causes, by analysis and synthesis. What are the causes? The field of intelligible relations that implicitly define the objects. The objects with which a science deals are whatever is defined by its field of intelligible relations, whatever falls into that field. The causes are formal causes; it is only applied science that is concerned with (external) agents and ends. (CWL 10, 155)

Macroeconomics became a science in the full sense when it became an organized system. “There is a point in the history of any science when it comes of age, when it has a determinate systematic structure to which corresponds a determinate field.”

… A science emerges when thinking in a given field moves to the level of system. Prior to Euclid there were many geometrical theorems that had been established. The most notable example is Pythagoras’ theorem on the hypotenuse of the right-angled triangle, which occurs at the end of book 1 of Euclid’s elements. Euclid’s achievement was to bring together all these scattered theorems by setting up a unitary basis that would handle all of them and a great number of others as well. … similarly, mechanics became a system with Newton. Prior to Newton, Galileo’s law of the free fall and Kepler’s three laws of planetary motion were known. But these were isolated laws. Galileo’s prescription was that the system was to be a geometry; so there was something functioning as a system. But the system really emerged with Newton. This is what gave Newton his tremendous influence upon the enlightenment. He laid down a set of basic, definitions, and axioms, and proceeded to demonstrate and conclude from general principles and laws that had been established empirically by his predecessors. Mechanics became a science in the full sense at that point where it became an organized system. … again, a great deal of chemistry was known prior to Mendeleev. But his discovery of the periodic table selected a set of basic chemical elements and selected them in such a way that further additions could be made to the basic elements. Since that time chemistry has been one single organized subject with a basic set of elements accounting for incredibly vast numbers of compounds. In other words, there is a point in the history of any science when it comes of age, when it has a determinate systematic structure to which corresponds a determinate field. [method, 241-42]

Newton set down laws of motion and proceeded to demonstrate that if a body moves in a field of central force, its trajectory is a conic section. He set out with a minimal cluster of insights, definitions, postulates, axioms and proceeded to account for the laws that had previously been empirically established, bringing them into a single explanatory unity. ¶A single insight yields a conception, a definition, an object of thought; but from a cluster of insights, you build up a system of definitions, axioms, postulates, and deductions. We have to note that a system is quite an achievement; systems are not numerous. There are Euclid’s geometry and subsequent developments in geometry, Newton’s mechanics and dynamics and the building upon Newton, and the Mendeleev table in chemistry. System, then, is the expression of a cluster of insights. [CWL 5, 52]