This is a companion-piece to Facing Facts: The Ideal Of Constant Value Of The Currency vs. The Fact Of Inflation.  Please read both.

This past weekend, 11/4-5/2023, Cecilia Rouse, future President of The Brookings Institution, appeared on Bloomberg Wall Street Week with moderator, David Westin.  Under the pressure of scant time, they briefly, but inadequately, discussed the notion of a “theory of inflation.” It was opined that

“The reality is that in economics there’s not a fabulous theory and one theory of inflation.”

“…economics doesn’t have one solid and established theory of inflation.”

Also, commenting on the same topic, David mentioned that the Phillips Curve “correlation”, which is a staple of of the Fed’s thinking and decision-making, and which has been supposed by many economists to be a valid correlation of fluctuating wage rates and their resulting pressure on inflation with unemployment, has not been proven valid and reliable.  That is to say that its two main variables are not directly correlated and inextricably linked; that the supposed reliability is bogus; that no matter how often it is considered and bandied about internally among supposedly-expert economists and externally to the truth-seeking public, the Phillips Curve theory is simplistic, insufficiently nuanced, and has been debunked.

Lonergan’s Macroeconomic Field Theory is a comprehensive general theory. It has many aspects and relations, all of which can be grasped at once in a unified whole.  Also, this unified whole virtually and implicitly contains a set of terms and relations constituting a unitary theory of inflation.  So, obviously we disagree with the two opinions quoted verbatim above, but left hanging on Bloomberg Wall Street Week.

It is the viewpoint of the present inquiry that, besides the pricing system, there exists another economic mechanism, that relative to this (other) system man is not an internal factor but an external agent, and that the present economic problems are peculiarly baffling because man as external agent has not the systematic guidance he needs to operate successfully the machine he controls. [CWL 21, 109]

In the mid-70’s, economists were mystified by stagflation, the combination of stagnant production and rising prices. According to the Phillips Curve, the correlation of inflation with unemployment, stagflation should not happen. … the U.S. economy was experiencing the phenomenon of ‘stagflation’ – a clearly discernible overturning of the conventional economic wisdom about the tradeoff between inflation and unemployment so neatly expressed in the Phillips curve. So-called ‘Keynesian fine tuning onto the neoclassical track’ was not working; and forms of socialist planning only promised to deepen rather than resolve the anomalies of welfare economics. … (Lonergan) believed he had an explanation for what, in a statement from the essay we are editing, he described as a “situation – sometimes thought mysterious – in which consumer prices continuously inflate, new enterprise is evaded, unemployment becomes chronic, and despite inflation the value of stocks declines.” [CWL 15, Editors Introduction, xli]

TV commentators have a responsibility to convey a sound unified theory to their national audience.  We encourage them to gain understanding of an explanatory theory of macroeconomic dynamics in order to bring to their audience an understanding and a better appreciation of a theory of inflation. A good place for the commentators to begin to improve their knowledge is

Lonergan, Bernard (1999), Macroeconomic Dynamics: An Essay in Circulation Analysis, ed. Frederick G. Lawrence, Patrick H. Byrne, and Charles Hefling, Jr., vol 15 of Collected Works of Bernard Lonergan, (Toronto: University of Toronto Press) [CWL 15]

Quoting Lonergan re the objective situation with which we must deal and to which we must adapt,

… our inquiry differs radically from traditional economics, in which the ultimate premises are not production and exchange but rather exchange and self-interest, or later, exchange and a vaguely defined psychological situation.  Our aim is to prescind from human psychology (so) 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 and from that deducing what economic phenomena are going 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]Unlike the tenets of much vaunted price theory, the analysis of pricing is not first in the analysis; rather it is last in the analysis. (See CWL 15, 156-62) Economists must study and master the basic price-spread-ratio formulation, derived from the functional, implicit definition of Macroeconomic Expenditures and Macroeconomic Costs (CWL 15, 156-62).

Again,

It is the viewpoint of the present inquiry that, besides the pricing system, there exists another economic mechanism, that relative to this (other) system man is not an internal factor but an external agent, and that the present economic problems are peculiarly baffling because man as external agent has not the systematic guidance he needs to operate successfully the machine he controls. [CWL 21, 109)

Unlike the tenets of much-vaunted price theory, the analysis of pricing and its inflation and deflation is not first in the analysis; rather it is last in the analysis.  (See CWL 15, 156-62, titled “The Cycle of the Aggregate Basic Price Spread” ). Economists must a) understand that the theoretical interest rate – as contrasted with the negotiated and charged rental price of money, or the indexed secondary market rate implied in market bond prices – is a calculated rate approximating the growth rate, and b) must study and master the price-change patterns implicit in the basic price-spread ratio formulation, derived from the implicit definition of Macroeconomic Expenditures and Macroeconomic Costs as defined.

P’Q’ = p’a’Q’ +p”a”Q” (an implicit definition)

P’/p’ = a’ + a”(p”Q”/p’Q’, (derived basic price-spread ratio), i.e.

J = a’ + a”R, so

dJ = da’ + Rda” + a”dR (the differential) (CWL 15, 156-62)

The basic price-spread ratio supplies the intelligibility of basic price levels; and the differential equation provides the rule of changes in the ratio of basic price levels.  Note that their definition or specification of price levels was last in the analysis. (CWL 15, 156-62)  Unlike Adam Smith and others, Lonergan did not begin his intellectual effort by comparing and analyzing the prices of our everyday concrete getting and spending to find an intelligibility on which to base the science of macroeconomics; rather he first analyzed the hierarchical, lagged accelerative productive process – to which properly proportionate flows of money payments are to be correlated in magnitude and frequency – then correlated classes of payments with classes of products, then discovered new intelligibilities among aggregates and abstract meanings and relations for the conventional concrete terms “cost” and “profit” to explain the process; then he discovered the formulas relating the new terms among themselves in equations of scientific or explanatory significance.

Also, see The Labor Theory of Value Debunked

One cannot help but think that Bernard Lonergan had Functional Macroeconomic Dynamics clearly in mind as he treated the intelligibility of world process in CWL 3, Insight: A Study of Human Understanding – the most significant book of the twentieth century (Click here) – which book is very much an implementation or explanation of the acts of understanding of mathematicians and natural scientists.  In his own understanding of mathematics, the natural sciences, and the science of macroeconomics in particular, he grasped that the explanation of the dynamic concrete economic process is expressed by a conjoining of component abstract primary relationships with concrete secondary determinations from the non-systematic manifold of actual occurrences.  And these secondary determinations, such as particular prices and quantities, are to be interpreted in the light of the significant, abstract, explanatory variables rather than in the obscurity of the macrostatic IS-LM, and AD-AS models. (Click here)

Also, TV commentators would benefit from reading our past treatments of inflation; a few brief references:

• Facing Facts: The Ideal Of constant Value Of The Currency vs. The Fact Of Inflation
• The Economic Process is the Current Process, Grasped in a Unified Whole, Requiring The Contribution of Academics, Control Theorists, and System Dynamicists
• A  Closely Knit Frame of Reference; the Channels Account for Booms and Slumps, for Inflation and Deflation
• The Road Up Is The Road Down: The Mechanism of Rising and Falling Prices
• “Where Does All The Money Go?”
• Modern Monetary Quackery (MMQ)
• A Tale of Two Faulty Circulations
• John H. Cochrane’s “What Did We Learn From Inflation?”
• The Fundamental Quantum of Political Economy is Denoted by the Subscript “k“
• A Merely Theoretical Possibility and Simple-Minded Moralists

•  The Principle of Concomitance: The Foundation of Equilibrium, Continuity, and Explanatory Theory

• Field Theory in Physics and Macroeconomics. Click here 

• Key Concepts of Section 26, The Cycle of Basic Income, pp. 133-44

The implementing of Kelton et al‘s Modern Monetary Policy would be a disaster waiting to happen. In its unchecked extreme of printing money unconstrained by relation to the real flow of goods, and services, it tends toward rampant inflation and torture of the financial system, so as to bring about a) the severe impairment, or destruction of the financial system, and b) social chaos. The longer MMT’s unconstrained printing and irresponsible government borrowing would last, the greater would be the intractability of ultimate problems.

Now, we quote  separately for consideration by all TV commentators, academic economists, bank and government-agency economists, investment analysts, elected officials, and interested people on the street, a few paragraphs of pointers to the solid established theory of inflation.

Money is an instrument invented by man to make possible a large and intricate exchange process.  …  it remains true that variations in the volume, if not to result in inflation or deflation, postulate some variations in the quantity.  Now in the long run these variations in quantity can be had only by the introduction of a money of account, [CWL 21, 104]

Ideally, … the dummy (money would be) constant in exchange value, so that equal quantities continue to exchange, in the general case, for equal quantities of goods and services.  The alternative to constant value in the dummy is the alternative of inflation and deflation.  Of these famous twins, inflation swindles those with cash to enrich those with property or debts, while deflation swindles those with property or debts to enrich those with cash; in addition to the swindle each of these twins has his own way of torturing the dynamic flows; deflation gives producers a steady stream of losses; inflation yields a steady stream of gains to give production a drug-like stimulus. [CWL 21, 37-38] 

In the mid-70’s, economists were mystified by stagflation, the combination of stagnant production and rising prices. According to the Phillips Curve, the correlation of inflation with unemployment, stagflation should not happen.

… the U.S. economy was experiencing the phenomenon of ‘stagflation’ – a clearly discernible overturning of the conventional economic wisdom about the tradeoff between inflation and unemployment so neatly expressed in the Phillips curve. So-called ‘Keynesian fine tuning onto the neoclassical track’ was not working; and forms of socialist planning only promised to deepen rather than resolve the anomalies of welfare economics. … (Lonergan) believed he had an explanation for what, in a statement from the essay we are editing, he described as a “situation – sometimes thought mysterious – in which consumer prices continuously inflate, new enterprise is evaded, unemployment becomes chronic, and despite inflation the value of stocks declines.” [CWL 15, Editors Introduction, xli]

Now every unit of enterprise involves a turnover magnitude and a turnover frequency.  The statement would be merely a truism if it meant no more than that the rates of payment received and made by the unit of enterprise involved quantities and velocities of money.  But the statement is not a truism, for it involves a correlation between the quantities and velocities of rates of payment and the quantities and velocities of goods and services. (CWL 15, 57)

The existence of this correlation may be seen readily enough. … the quantity alternative in the rates of payment is conjoined with the quantity alternative in the rate of production, and the frequency alternative in the rate of payment is conjoined with the frequency alternative in the rate of production.  The two cases of quantity-velocity are not only parallel but also correlated. [CWL 15, 57]

in every unit of enterprise there is some determinate turnover magnitude and turnover frequency.  The magnitude of the turnover depends upon the number of items handled at once and the selling price of each item.  The frequency of turnover depends upon the period of production plus any time lag involved in sales and collection. (CWL 15, 58-59)

Now, if in each unit of enterprise the magnitude and frequency of payments depend upon the magnitude and frequency of turnovers, it follows that with respect to the aggregate of basic units and again with respect to the aggregate of surplus units we have quantities and circuit velocities of money determined by turnover magnitudes and frequencies.  (CWL 15, 59)

The channels of circulation (of Functional Macroeconomic Dynamics, AKA Macroeconomic Field theory) replace the overall dominance claimed for (Walrasian) general equilibrium theory, … More positively, the channels account for booms and slumps, for inflation and deflation, for changed rates of profit, …. (CWL15, 17)

The necessary and sufficient condition to avoid inflation and deflation:

It is now necessary to state the necessary and sufficient condition of constancy or variation in the exchange value of the dummy (money).  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. (CWL 21, 38-39)

Real analysis (is) identifying money with what money buys. If you want to treat payments as though they are not strictly correlated with the movements of goods and services, you will have a degenerate monetary theory, (such as Modern Monetary Theory) which disconnects flows of products from flows of money and will, systematically, sooner or later, cause stresses, torture the flows, and wreak social havoc.  The proponents of Modern Monetary successfully get their national headlines and their appointments advising ignorant politicians, but they have no understanding of the underlying laws of the process of production and sale. [See CWL 21, xxviii]

G = c”O” – i’O’ = 0 is the condition of equilibrium  [CWL 15, 54]

Also, see The Principle of Concomitance: The Foundation of Equilibrium, Continuity, and Explanatory Theory.

And consult Field Theory in Physics and Macroeconomics. Click here.

And, Key Concepts of Section 26, The Cycle of Basic Income, pp. 133-44

… Traditional theory looked to shifting interest rates to provide suitable adjustment (of the rate of saving to the requirements of the phase of the pure expansion).  In the main we shall be concerned with factors that are prior to changing interest rates and more effective.  [CWL 15, 133] (Consult Key Concepts of Section 26, The Cycle of Basic Income, pp. 133-44)

The existence of this correlation may be seen readily enough. … the quantity alternative in the rates of payment is conjoined with the quantity alternative in the rate of production, and the frequency alternative in the rate of payment is conjoined with the frequency alternative in the rate of production.  The two cases of quantity-velocity are not only parallel but also correlated. [CWL 15, 57]

Having the proper supply of money in the process is important.  Modern Monetary Theory, espoused by the advisor to B. Sanders, is a prescription for inflationary swindles, financial disaster, and social chaos. The magnitudes and frequencies of payments must be correlated and coordinated with the magnitudes and frequencies of productive turnovers.  The system must have the proper money supply in order to achieve the proper circulation of monies within and between the operative, productive circuits and, thus, avoid the swindles called inflation and deflation.

Lonergan’s intention was ‘to formulate the laws of an economic mechanism more remote and, in a sense, more fundamental than the pricing system…laws which men themselves administrate in the personal conduct of their lives. In 1978 he began to refer to Nicholas Kaldor in support of his judgment that the significance traditionally accorded to price theory by conventional economics since Adam Smith’s Wealth of Nations (1776) amounted to a virtual derailment of economic theory……….Lonergan’s interest in Kaldor’s sweeping statement was to emphasize that prices and their changes are not explanatory but accountants’ entities.  For a first approximation of what Lonergan means here, let us draw an analogy to empirical scientific inquiry.  The physicist’s antecedent job of measuring and plotting measurements on graphs in physical science might be compared to tracing movements of prices as the exchange economy ebbs and flows.  What Lonergan has called ‘grasping in the scattered points the possibility of a smooth curve,’ or determining an indeterminate function in physics, would then be comparable to working out an economic theory that specifies the channels through which money circulates. Lonergan insists that the mechanism of the pricing system does not furnish economists with distinctions among significant variables of aggregate surplus (or producer-goods) and basic (or consumer-goods) supply and demand with their determinate yet flexible velocities and accelerations, any more than Galileo Galilei’s discrete measurements of distances and times at the Tower of Pisa of themselves provided the law of the acceleration of falling bodies…….the lack of ultimacy that Lonergan ascribes to prices and price theory can scarcely be overemphasized. (CWL 15, Editors’ Introduction, xlvi-xlvi) 

Ragnar Frisch was a Norwegian economist and the co-recipient of the first Nobel Memorial Prize in Economic Sciences in 1969.

Frisch’s failure to develop a significant theory typifies the failure of economists who search for a dynamic heuristic.  As well as a fundamental disorientation of approach there is also a tendency to shift to an inadequate level of abstraction with a premature introduction of boundary conditions in a determinate set of differential and difference equations. [McShane, 1980, 114]

the Robinson-Eatwell analysis is hampered … by their building the economic priora quoad nos of profits, wages, prices, etc., into explanation, when in fact the priora quoad nos[1] are last in analysis: they require explanation. [McShane 1980, 124]

Adolf Lowe’s analysis in “The Path of Economic Growth”…is further limited by an early introduction of prices, the priora quoad nos of economics. (McShane, Philip, Lonergan’s Challenge to the University and the Economy, p. 112 )

Again,

… our inquiry differs radically from traditional economics, in which the ultimate premises are not production and exchange but rather exchange and self-interest, or later, exchange and a vaguely defined psychological situation.  Our aim is to prescind from human psychology (so) 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 and from that deducing what economic phenomena are going 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]

The Rouse-Westin session involved much talk about prediction; in that vein, see Prediction is Impossible in the General Case, and give serious thought to the idea of the “non-systematic manifold” of actual concrete events and occurrences. Click here.

Miscellanea:

Lonergan’s Macroeconomic Field Theory is a comprehensive general theory. It has many aspects and relations, all of which can be grasped at once in a unified whole.  This unified whole virtually and implicitly contains a set of terms and relations constituting a unitary theory of inflation.

So, we disagree with the two verbatim opinions left hanging on Bloomberg Wall Street Week.

1. “The reality is that in economics there’s not a fabulous theory and one theory of inflation.”
2. “…economics doesn’t have one solid and established theory of inflation.”

The serious, careful, insightful reader will also disagree.

Above we have given many pointers, but, regrettably, we do not have sufficient time to provide a neat coverage of all the relevant points; so, we have included below further pointers which are relevant and composite to a theory of inflation; and we leave it to the readers to understand and affirm their significance and formulate them themselves in a neat sequence comprising the existent unified whole.  We have other work to attend to and just cannot do a large tome; but all the elements of the unitary theory are above and below..

 

Please scroll down.

See CWL 15, Section 25, pp. 128-33, Price and Quantity Changes in Accelerating Circuits.

The excellence of the exchange solution becomes even more evident when contrasted with the defects of a bureaucratic solution.  The bureaucrat … (gives the people) what he thinks is good for them, and he gives it in the measure he finds possible or convenient; nor can he do otherwise, for the brains of a bureaucrat are not equal to the task of thinking of everything; only the brains of all men together can even approximate to that. … when a limited liability company has served its day, it goes to bankruptcy court; but when bureaucrats take over power, they intend to stay. … when the pressure of terrorism is needed to oil the wheels of enterprise, then the immediate effect is either an explosion or else servile degeneracy. … the exchange solution is a dynamic equilibrium resting on the equilibria of markets. … every product of the exchange economy must mate through exchange with some other product, and the ratio in which the two mate is the exchange value.  The generality of this equilibrium makes it indifferent to endless complexity and endless change; for it stands on a level above all particular products and all particular modes of production.  While these multiply and vary indefinitely, the general equilibrium of the exchange process continues to answer with precision the complex question, Who, among millions of persons, does what, among millions of tasks, in return for which, among millions of rewards?  Nor is the dynamic solution unaccompanied by a continuous stimulus to better efforts and more delicate ingenuity.  For the uniformity of prices means that the least efficient of those actually producing will at least subsist, while every step above the minimum efficiency yields a proportionately greater return. CWL 21, 34-35)

Taking into account past and (expected) future values (prices) does not constitute the creative key transition to dynamics.  Those familiar with elementary statics and dynamics (in physical mechanics) will appreciate the shift in thinking involved in passing from equilibrium analysis (of a suspended weight or a steel bridge)…to an analysis where attention is focused on second-order differential equations, on d²θ/dt², d²x/dt², d²y/dt², on a range of related forces, central, friction, whatever.  Particular boundary conditions, “past and future values” are relatively insignificant for the analysis.  What is significant is the Leibnitz-Newtonian shift of context. [McShane, 1980, 127]

Scarcity and Anticipation

How money should enter the system

From the premises and conclusions of this analysis it will the be argued 9) that prices can not be regarded (by academics or the stewards of the economy) as ultimate norms guiding strategic economic decisions, 10) that the function of prices is merely to provide a mechanism for overcoming the divergence of strategically indifferent decisions or preferences, and 11) that, since not all decisions and preferences possess this (strategic) indifference, the exchange economy is confronted with the dilemma either of eliminating itself by suppressing the freedom of exchange or of certain classes of exchanges, or else of effectively augmenting the enlightenment of the enlightened self-interest that guides exchanges. [CWL 15, 5-6]

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 (of the ideal pure cycle) into a (trade cycle of) boom (which must be followed out of systematic necessity by a correlative and devastating slump.)  This I believe is the fundamental lack of adaptation to the productive cycle that our economies have to overcome. [CWL15, 139-140]

Functional Macroeconomic Dynamics takes a higher viewpoint and operates at amore adequate level of abstraction so as to achieve a general and universal field-theoretic explanation of the economic process.

“Functional” is a technical term pertaining to the realm of explanation, analysis, theory; it does not mean “who does what” in some commonsense realm of activity … 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”…In Lonergan’s circulation analysis, the basic terms are rates – rates of productive activities and rates of payments.  The objective of the 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,  26-27  ftnt 27]

Part II – The Exchange Solution’s Higher Field-Theoretic Law of Costs and Expenditures:

 

P’Q’ = p’a’Q’ + p”a”Q” (CWL 15, 156-62), where c’O’ = p’a’Q’, and c”O” = p”a”Q”, is a law standing above the exchange solution; it expresses the concomitance of Outlays, Incomes, and Expenditures in the basic circuit as represented in the Diagram of Rates of Flow above.

A condition of circuit acceleration was seen … to include the keeping in step of basic outlay, basic income, and basic expenditure, and on the other hand, the keeping in step of surplus outlay, surplus income, and surplus expenditure.  Any of these rates may begin to vary independently of the others, and adjustment of the others may lag.  But any systematic divergence[1] brings automatic correctives to work.  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]

And G = c”O” – I’O’ = 0 (CWL 15, 45-54) is the condition of equilibrium between the basic and surplus circuits.

p’a’Q’ and p”a”Q” are “macroeconomic costs;” and they are defined by the impliecit equation, P’Q’ = p’a’Q’ + p”a”Q” .

There is a sense in which one may speak of the fraction of basic outlay that moves to basic income as the “costs” of basic production.  It is true that that sense is not at all an accountant’s sense of costs; … But however remote from the accountant’s meaning of the term “costs,” it remains that there is an aggregate and functional sense in which the fraction… is an index of costs.  For the greater the fraction that basic income is of total income (or total outlay), the less the remainder which constitutes the aggregate possibility of profit.  But what limits profit may be termed costs.  Hence we propose ….to speak of (c’O’  = p’a’Q’) and (c”O” = p”a”Q”) as costs of production, having warned the reader that the costs in question are aggregate and functional costs…. [CWL 15, 156-57]

Lonergan’s Summary of the Argument  (verbatim from CWL 15, 5-6)

The present inquiry is concerned with relations between the productive process and the monetary circulation.  It will be shown 1) that the acceleration of the process postulates modifications in the circulation, 2) that there exist ‘systematic,’ as opposed to, windfall profits, 3) that systematic profits increase in the earlier stages of long-term accelerations but revert to zero in later stages – a phenomenon underlying the variations in marginal efficiency of capital of Keynesian General Theory, 4) that the increase and decrease of systematic profits necessitate corresponding changes in subordinate rates of spending –  a correlation underlying the significance of the Keynesian propensity to consume, 5) that either or both a favorable balance of trade and domestic deficit spending create another type of systematic profits, 6) that while they last they mitigate the necessity of complete adjustment of the propensity to consume to the accelerations of the process, 7) that they cannot last indefinitely, 8) that the longer they last, the greater the intractability of ultimate problems.  From the premises and conclusions of this analysis it will the be argued 9) that prices can not be regarded (by the stewards of the economy) as ultimate norms guiding strategic economic decisions, 10) that the function of prices is merely to provide a mechanism for overcoming the divergence of strategically indifferent decisions or preferences, and 11) that, since not all decisions and preferences possess this indifference, the exchange economy is confronted with the dilemma either of eliminating itself by suppressing the freedom of exchange or of certain classes of exchanges, or else of effectively augmenting the enlightenment of the enlightened self-interest that guides exchanges.   [CWL 15, 5-6]

… , the normal entry and exit of quantities of money to the circuits or from them is by the transfers from the redistributive to the supply functions.  [CWL 15, 64]

One cannot identify a reduction (through savings) of basic income with an increase in the supply of money (for investment), – (such a reduction is a redirection, not an increase) – for a reduction of basic income is only one source of such supply; moreover, it is neither the normal nor the principal source of such supply; … principally the increase in the supply of money is due to the expansion of bank credit,which is necessary to provide the positive (S’,-s’O’) and (S”-s”O”) needed interval after interval to enable the circuits to keep pace with the expanding productive process. [CWL 15 142]

…, the following conclusions seem justified.  When the rate of saving is insufficient, increasing interest rates affect an adjustment.  This adjustment is not an adjustment of the rate of saving to the productive process but of the productive process to the rate of saving; for small increments in interest rates tend to eliminate all long-term elements in the expansion; and such small increments necessarily precede the preposterously large increments needed to effect the required negative values of dw_i.  Finally, the adjustment is delayed, and it does not deserve the name of adjustment.  It is delayed because the influence of increasing interest rates on short-term enterprise is small.  It does not deserve the name ‘adjustment’ because its effect is not to keep the rate of saving and the productive process in harmony as the expansion continues but simply to end the expansion by eliminating its long-term elements. (CWL 15, 144)

The traditional doctrine of thrift and enterprise looked to the supply of and demand for money to adjust interest rates and the adjusted rates to adjust the rate of saving to the requirements of the productive process.  But it can be argued that a) this view was not sufficiently nuanced in its estimate of the requirements of the productive process, b) that it missed the magnitude of the problem, and c) that it tended to lump together quite different requirements. … [CWL 15, 140, ftnt. 197]

The simplest manner of attaining a fairly adequate concept of basic income is to divide the economic community into an extremely large number of groups of practically equal income. … Hence, in migrations from low to less-low income groups, most of the increment of individual total income becomes an increment of basic income; but in migrations from high to still higher income groups, most of the increment of individual total income becomes an increment of surplus income.  Evidently, then, suitable migrations are a means of providing adjustments in the community’s rate of saving.  To increase the rate of saving, increase the income of the rich; while they may be too distant from the current operations of the economic process to judge, at least they can put their money into the bank or bonds or stocks, and perhaps others there will see how it can best be used.  To decrease the rate of saving, increase the income of the poor. … The foregoing is the fundamental mode of adjusting the rate of saving to the phases of the productive cycle. …(and) this fundamental mode of adjustment is complemented by a further mechanism of automatic correction.  (price changes) (CWL 15, 133-134)

Thus, the general theory of circuit acceleration is that it takes place in a constrained and limited way when quantities of money in the circuits are constant, but without let or hindrance (but not necessarily a runaway) when quantities of money are variable. Finally, provided (D’-s’I’), (D”-s”I”), G vary only slightly from zero, so that their action is absorbed by stocks of goods at the final markets, they exercise a stimulating effect in favor of positive or negative circuit acceleration; otherwise their action pertains either to superimposed circuits of favorable balances of foreign trade and deficit government spending, or else to the cyclic phenomena of booms and slumps.  (CWL 15, 64-65)

We recall that the condition of dynamic equilibrium in any current economic expansion is that a) the Fed have injected the proper amount of money into the system for the transactional requirements of the phase of the pure cycle, and that b) the monetary crossover flows between the basic and surplus circuits be balanced: