Modern Monetary Theory Again

Leave a reply

This past weekend’s Wall Street Journal featured a commentary entitled “Bidenomics, Also Known as MMT: The crazy economic theory that spending has no consequences”, co-authored by Arthur Laffer and Stephen Moore.

We have previously commented on Modern Monetary Theory and dubbed it Modern Monetary Quackery.  We agree with the authors’ conclusions on the particular matter of MMT, however, it would be good to inform the readers, not only of the technical issues involved in and stemming from MMT’s unconstrained spending, but also of the issue of unfairness.To that end we direct the reader to our other treatments and offer further comments.

Previous treatments:

Continue reading →

Three Paragraphs Foundational to Lonergan’s Discovery of Macroeconomic Field Theory

Leave a reply

The fundamental point to be grasped here is a point that has been made.  The absolute resides not on the level of sensible presentations but in the field of abstract propositions and invariant expressions. (CWL 3, 166/189-90)

Science does not advance by deducing new conclusions from old premises.  Deduction is an operation that occurs only in the field of concepts and propositions.  But the advance of science, as we have seen, is a circuit, from data to inquiry, from inquiry to insight, from insight to the formulation of premises and the deduction of their implications, from such formulation to material operations, which yield fresh data and, in the limit,  generate the new set of insights named a higher viewpoint.  A basic revision, then, is a leap.  At a stroke, it is a grasp of the insufficiency both of the old laws and of the old standards. At a stroke, it generates both the new laws and the new standards.  Finally, by the same verification, it establishes that both the new laws and the new standards satisfy the data. (CWL 3, 166/190)

What holds for standards, also holds for their use.  It is necessary to define as accurately as possible the precise type of magnitude that is to be measured.  It is necessary to define the precise procedure that leads from the measurable magnitude and the standard unit to the determination of the number named a measurement.  At each stage in the development of a science, these definitions will be formed in the light of acquired or presumed knowledge.  But at every subsequent stage, there is the possibility of further acquisitions and of new presumptions and so of the revision of the definitions.  Such a revision involves, not the deduction of new conclusions from old premises, but a leap to fresh premises.  Such is the generic notion of measurement. Clearly, it contains within itself the possibility of successive differentiations that result from revisions that occur in the abstract field of definitions, principles, and laws.  We have now to turn our attention to the revision involved in the notions of spatial and temporal measurements by the Special Theory of Relativity. (CWL 3, 166-67/190-91)

The Lack of Ultimacy in Price Theory: Prices are Last in the Analysis and Purely Relative

Leave a reply

Contents

.1. Preliminaries and preview

.2. Functional Macroeconomic Dynamics is a normative theory

.3. Microeconomics vs. Macroeconomics

.4. The normative systematics of prices is last in the analysis – We are doing neither introductory microeconomics nor aggregate microeconomics

4.a Preliminaries

4.b CWL 3, Chapter II: Excerpts and Paraphrases Relevant to Empirical Science and Macroeconomics

4.c Reference to other treatments

4.d Prices are treated in several contexts in CWL 15

4.e PRICES ARE FORMALLY TREATED LAST IN THE ANALYSIS

4.f The INTELLIGIBILITY OF PRICES as real and relative.

4.g “Absorbing several trillion Dollars of Free Money”

4.h Miscellanea

4.i The Concrete Intelligibility of Space, Time, Quantity, and Price

4.j The Abstract Intelligibility of Space and Time

.5. Monetary stability -correlation and concomitance of magnitudes and frequencies with magnitudes and frequencies

.6. Lonergan’s three assumptions in treatment of pure expansion

.7. Inflation due to scarcity or to mistaken anticipations – instances of inflation

.8. Divergences of particular flows and the requirement of systematic correction

.9. Miscellanea

.10. CWL 15, Section 28 spreadsheet

.11. Appendix: Indexes of textbooks re prices

Continue reading →

CWL 3, Chapter II: Excerpts and Paraphrases Relevant to Empirical Science and to the Science of Functional Macroeconomic Dynamics

Leave a reply

CWL 3, Chapter II:  “Heuristic Structure of Empirical Method”

Introductory

This entry focuses on a) the general form of explanatory classical science, and b) on scientific explanation vs. non-explanatory common sense. It is constituted largely by excerpts and paraphrases relevant to empirical science, and therefore, also to what constitutes the empirical science of macroeconomics. Though we are herein confined to excerpts and commentary, we recommend strongly that the serious self-educating student read CWL 3, Chapter II, in its entirety.

[CWL 3] Lonergan, Bernard J. F. (1957 ) Insight, A Study of Human Understanding, Longmans, Green and Co. Ltd., London; and (1997) Toronto: University of Toronto Press [CWL 3, 1957 edition/1997 edition] 

First, here are eight introductory pointers:

.1) Empirical inquiry has been conceived as a process from description to explanation.  We begin from things as related to our senses.  We end with things as related to one another.  Initial classifications are based upon sensible similarities.  But as correlations, laws, theories, systems are developed, initial classifications undergo a revision. Sensible similarity has ceased to be significant, and definitions consist of technical terms that have been invented as a consequence of scientific advance…. The basic notions of physics are a mass that is distinct from weight, a temperature that differs from the intensity of the feeling of heat, and the electromagnetic vector fields.¶ Now the principal technique in effecting the trqnsition from description to explanation is measurement. We move away from colours as seen, sounds as heard, from heat and pressure as felt. In their place, we determine the numbers named measurements. In virtue of this substitution, we are able to turn from the relations of sensible terms, which are correlative to our senses, to the relations of numbers, which are correlative to one another.  Such is the fundamental significance and function of measurement. (CWL 3, 164-5)

.2) Our direct understanding abstracts from the empirical residue. (CWL 3, 516/540)

Continue reading →

Abstraction in Macroeconomics; Classical and Statistical Laws

Leave a reply

Abstraction is enriching.  The relation of things to our senses must be transcended by abstraction. Abstraction yields explanatory concepts implicitly defined by their functional relations to one another.

The commonsense accounting relations constituting historical Gross Domestic Product must be supplemented by the abstract explanatory formulation of Current Gross Domestic Functional Flows.  All participants must have the scientific guidance of a normative theory in order to properly adapt their personal conduct to the principles and laws of the objective process. (Continue reading)

The Necessity of a Diagram

Leave a reply

Lonergan brought knowledge from several other fields, which knowledge was applied and foundational to his work on Functional Macroeconomic Dynamics.  During the writing of these pages, two different ideas frequently occurred to the author: 1) it was important to communicate the key background that Lonergan brought to Functional Macroeconomic Dynamics from mathematics and the sciences, and 2) perhaps specialists in pure and applied mathematics and physics, rather than heretofore economists, might be better candidates for understanding and appreciating Lonergan’s work.  If the readers themselves had backgrounds adequate to appreciate the full context of the foundation of Functional  Macroeconomic Dynamics, they would be more intrigued and interested.  How could the person who authored Insight not be innovative, perhaps revolutionary, when he sought to discover a scientific macroeconomics?  So, below are some background things about a) insight into diagrams and images, b) the importance of images to Einstein and other physicists, and c) the theoretical breakthrough represented by the particular diagram entitled Diagram of Rates of Flow. Continue reading

Just Thinkin’ 4/26/2024

Leave a reply

Would Diogenes be successful in finding an honest person in the Halls of Congress or the enclaves of the Executive Branch, where the desire to get and keep power overwhelms any sense of obligation to grasp and speak the truth?

Recommended reading: Graduate school professors of macroeconomics should assign the reading of CWL 3, Chapter 2, Subsections 2.2.3 “Classification and Correlation”; 2.2.4 “Differential Equations”; 2.2.5 “Invariance”; and 2.2.6 “Summary”. And the professors should require a report on the relevance of those sections to scientific Functional Macroeconomic Dynamics. Wrestling with Lonergan’s presentations will help the students appreciate the mind and learning that Lonergan brought to Functional Macroeconomic Dynamics.

I’m told that Burton Malkiel’s stock-market acumen (A Random Walk Down Wall Street) has been exceeded as to excellence only by his excellence in declamation at Boston Latin School   –  something about Shakespeare’s Julius Caesar and a “mewling infant.” Arma virumque cano …

We the people of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America:  We acknowledge as the exemplary and final causes of this Union of States the supreme act of understanding and its unity and identity with ultimate intelligibility; and we acknowledge as the unitary principle of this Union of States the unity and identity of this most supreme act of understanding with the primary Truth, the simple One, the Lovable Good, and the uncreated Light.

Which is the better principle of government? – The freedom of worship and speech, and the right to private property for the sake of one’s self-development, as stated in Centesimus Annus, or the totalitarian tyranny, closed-mindedness, controlled media, oppression and labor camps of a socialist-communist government? Re Centisumus Annus click here, and re the perils of Marxism click here.

… the materialist is condemned by his own principles to be no more that a manipulator.  He will apply to human beings the stick-and-carrot treatment that the Harvard behaviorist B.F. Skinner advocates under the name reinforcement.  He will maintain with Marx that cultural attitudes are the byproduct of material conditions, and so he will bestow upon those subjected to communist power the salutary conditions of a closed frontier, clear and firm indoctrination, controlled media of information, a vigilant secret police, and the terrifying threat of labor camps. [CWL 15, 104] 

Re higher compensation being a reward for invention, installation, and maintenance of higher systems which benefit all persons:

(CWL 3, 266/291-92) … we have noted the aesthetic liberation of human experience from the confinement of the biological pattern and the further practical liberation of human living that is brought about inasmuch as man grasps possible schemes of recurrence and fulfills by his own action the conditions for their realization. Now we must proceed to the root of these liberations.  They rest on two facts.  On the one hand, inquiry and insight are not so much a higher system as a perennial source of higher systems, so that human living has as its basic task in reflecting on systems and judging them, deliberating on their implementation and choosing between possibilities.  On the other hand, there can be in man a perennial source of higher systems because the materials of such systematization are not built in his constitution.  For an animal to begin a new mode of living, there would be needed not only a new sensibility, but also a new organism. An animal species is a solution to the problem of living, so that a new solution would be a new species; for an animal to begin to live in quite a new fashion, there would be required not only a modification of its sensibility but also a modification of the organism that the sensibility systematizes.  But in man a new department of mathematics, a new viewpoint in science, a new civilization, a new philosophy, has its basis, not in a new sensibility but simply in a new manner of attending to data and of forming combinations of combinations of data.  Seeing and hearing, tasting and smelling, imagining and feeling, are events with a corresponding neural basis; but inquiring and understanding have their basis, not in a neural structure, but in a structure of psychic contents.  Sensation supposes sense organs; but understanding is not another type of sensation with another sense organ; it operates with respect to the content of sensation and imagination; it represents a still further degree of freedom. … Intelligence is the source of a sequence of systems that unify and relate otherwise coincidental aggregates of sensible contents.  Just as the famous experiments on sea urchins reveal the immanent direction of the aggregation of aggregates of aggregates, so the constructive and repressive censorship exercised preconsciously by intelligence reveals a still higher immanent direction that controls the sensible and imaginative contents that are to emerge into consciousness. ¶  Man, then, is at once explanatory genus and explanatory species.  He is explanatory genus, for he represents a higher system beyond sensibility.  But that genus is coincident with species, for it is not just a higher system but a source of higher systems.  In man there occurs the transition from the intelligible to the intelligent. (CWL 3, 266/291-92)

The Learning Lonergan Brought to Functional Macroeconomic Dynamics

Continue reading →

Facing Facts: The Ideal Of Constant Value Of The Currency vs. The Fact Of Inflation

Leave a reply
    • Ideally, (dummy) money would be constant in exchange value.
    • Scarcity is the normal cause of inflation
    • The maladaptive cause of inflation is maladjustment of incomes as required by the current phase of the pure cycle of expansion
    • The quantity of money infused by the Central Bank must be properly calibrated to serve the normative requirements of the actual magnitudes and frequencies of turnovers in the productive process

      • Economists must carefully consider tiers of basic incomes and propensities to consume:

      I’ = Σwiniyi   (35) [CWL 15, 134]  and

      dI’ = Σ(widni + nidwi)yi (36) [CWL 15, 134]. 

      • Also, Economists must carefully consider expansion in phases and the interpretation of its effect on the Basic Price-Spread Ratio. (CWL 15, 156-62):

    • P/p = a’ + a”p”Q”/p’Q’   (CWL 15, 156-62) (45)

      i.e.,   J = a’ + a”R   (CWL 15, 156-62) (45)

      so,  dJ = da + a”dR + Rda”   (CWL 15, 156-62) (47)

Note: The treatments of price changes in CWL 15 are mainly in 1) pp.75-80, 2) 128-44, and 3) 156-62.

Sequence of Contents

  • Ideal and practical aspects of the economic process 
  • Ideally, money would be constant in exchange value 
  • The condition of constancy in exchange value 
  • Characteristics of dummy money in an exchange economy 
  • Promise and trust between two parties
  • The dynamic structure of the productive process and classes of monetary flows 
  • But prices do change.  The changes have causes and intelligibilities and the changes must be interpreted.
  • Concomitance and intensity among flows
  • Real analysis and the everyday use of money 
  • Price tendencies (prescinding from excess or deficient money supply) 
    • The first kind of cause of inflation – ordinary scarcity
    • The second kind of cause of inflation – disproportion between monetary and real consumer income
  • Misconceptions of professional economists as to interest rates and responsibilities
  • Adjusting the rate of saving to the phase of the expansion
  • Further re interpretation of price changes 
  • The basic price-spread ratio

To continue reading click here

Thanks to Catherine Blanche King for a Clarifying Paragraph

Leave a reply

Thanks to Catherine Blanche King for recommending the following paragraph re description vs explanation.

Seventhly. however, the questions that are answered by a pattern of internal relations are only questions that ask for explanatory system.  But besides things-themselves and prior to them in our knowing, there are things-for-us, things as described.  Moreover, the existents and occurrences, in which explanatory systems are verified, diverge non-systematically from the ideal frequencies that ideally would be deduced from the explanatory systems.  Again, the activity of verifying involves the use of description as an intermediary between the system defined by internal relations, and, on the other hand, the presentations of sense that are the fulfilling conditions.  Finally, it would be a mistake to suppose that explanation is the one true knowledge; not only does its verification rest on description but also the relations of thing to us are just as much objects of knowledge as are the relations of things among themselves. (CWL 3, 345)

We have often pointed out Lonergan’s intention to explain scientifically the dynamic economic process.  The above paragraph clearly points out the existence and importance of description in human knowing. A frequent quote:

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.  The two are not totally independent, for they deal with the same things and, as we have seen, description supplies, as it were, the tweezers by which we hold things while explanations are being discovered or verified, applied or revised. … [CWL 3, 291/316]