A Peter Burley Sampler

In our Acknowledgment and Thanks section we have emphasized our debt to Professor Peter Burley.  With a PhD in Physics (Adelaide, 1965) and a PhD in Economics (Princeton, 1968) he was well qualified to understand the revolutionary nature of Lonergan’s Macroeconomic Field Theory.

He had a distinguished teaching career as Professor of Econometrics at LaTrobe University; he traveled widely to participate in conferences; and he authored a variety of scholarly papers in both physics and economics.  Thus, University Professors in both Physics and Macroeconomics might say, “He’s one of us.  We should take his ideas seriously.”  (Burley’s Curriculum Vitae.)


[Burley, 1985] Burley, Peter (1985) “A Summary of Lonergan’s Economic Diagram.” Australian Lonergan Workshop,3-11.

 I know of no work quite like this Essay (in Circulation Analysis).  Its detailed development of technical details of macro-economic dynamics is not the sort of thing one normally finds in social ethical treatises.  At the same time its co-operative spirit puts it outside the liberal or socialist literatures.  It certainly owes many of its technical insights to Schumpeter, but seems to me to have a more systematic core than that many-sided, but unmathematical, genius ever specified. [Burley, 1985, 3]

According to Lonergan, discussion in a science like economics is systematic when all its terms are defined: the derived terms by means of their relations to the basic terms, and the basic terms by means of their relations to one another.  The Essay gave a set of basic terms to what may be described as a development of a (later) Schumpeterian analysis.  Prima facie this would seem very promising… .  One can only guess at (professional economist readers’) reasons for (not attending to Lonergan’s Essay).  Perhaps they did not know their Schumpeter, or felt it was wrong.  Perhaps they found the Keynesian vogue more familiar and/or more congenial to them.  Perhaps they saw no use for an analysis whose basic terms were so unfamiliar and apparently (mistakenly to them) unobservable.  Perhaps they thought it unrealistically ambitious in the demands it made on human intelligence and mutual responsibility. [Burley, 1985, 4]

According to Lonergan, discussion in a science like economics is systematic when all its terms are defined; the derived terms by means of their relations to the basic terms, and the basic terms by means of their relations to one another.  The Essay gave a set of basic terms to what may be described as a development of a (later) Schumpeterian analysis5. Prima facie this would seem very promising, but at the time no-one, including some professional economist readers, seemed to know or care what it was all about. ¶ One can only guess at their reasons for this.  Perhaps they did not know their Schumpeter, or felt he was wrong.  Perhaps they found the Keynesian vogue more familiar and/or more congenial to them.  Perhaps they saw no use for an analysis whose basic terms were so unfamiliar and apparently unobservable.  Perhaps they thought it unrealistically ambitious in the demands it made on human intelligence and mutual responsibility. [Burley, 1985, 3-4]

… it is important to realize that, unlike the neo-classical and Keynesian models, Lonergan’s analysis is essentially macrodynamic.  It is concerned with the process of economic change, rather than with static equilibrium explanations of why things don’t change.  It is a highly novel analysis, and uses a specialized terminology which has to be studied in its original context to be properly understood and appreciated.  It has, however, as a financial core, some basic flows of funds which he has illustrated in a compact, if little understood, diagram.  Perhaps I can try to summarize this in relation to more conventional economic jargon; but with the above-mentioned caveats in mind.  [Burley, 1985, 4-5]

(Lonergan) considered it essential for macrodynamic analysis to distinguish between “velocities” and “accelerations”, i.e. between steady flows and changing flows.  This is a more basic distinction in his approach than that between wages and profits which is so important to post-Keynesians.  Wages and profits he considered rather as accounting terms, and ones which easily sidetrack people into more complex and institutionally dependent debates between the ideological right and left.  [Burley, 1985, 9]

Lonergan suggests, rather more constructively, that our macroeconomic problems arise as early as the third stage of meaning, rather than at the fourth.  We do not yet know what we are doing.  We develop dynamic systems we do not understand very well.  Hence, while he points to the macrodynamic weaknesses of individualistic market mechanisms, he questions the rationale of well meaning, but economically obtuse, reformist solutions.  Thus he shows how, in his analysis, dynamically unsophisticated redistributions can strangle new innovation booms at birth, and hence choke off future economic progress.  There is a need for all parties to understand the whole dynamic system better. [Burley, 1985, 9]

He aspires to a very general understanding of the historical dynamics of progress,… This illustrates Lonergan’s concern for a historical basis for economic thinking which, unlike neoclassical theory, is not static conceptualist.  It is in fact more reminiscent of the rival German “Historical School” led by Roscher late last century.  Lonergan would share their interest in being attentive to the data of economic life and seeking insight into it.  He also shows similar interdisciplinary breadth, and an aspiration to integrate economic analysis into a general scheme of historical development which looks to the intellectual and moral progress of humankind. [Burley, 1985, 310]

… Mark Perlman, in H Frish (ed.), Schumpeterian Economics, Praeger Publishers, Eastborne, 1981, observes by way of summary:  “Schumpeter’s tours de horizon are monumental because they are epistemological rather than social science oriented”. [Burley, 1985, 10, ftnt 4]

[Burley, 1989] Burley, Peter (1989), “A von Neumann Representation of Lonergan’s production problem” Economic Systems Research, 1 (3),

(Schumpeter) made innovation the centerpiece of a comprehensive economic analysis which remains pertinent.  As one modern writer has put it, “it may equally be said of the study of technological innovation that it still consists of a series of footnotes upon Schumpeter.” [13] … ¶ Lonergn developed the Schumpeterian paradigm in a number of ways, and notably into a normative analysis to find conditions for avoiding the slump after an innovation boom [4].  [Burley, 1989, 103]

Illusions of indefinite progress, however, can hold back the requisite redistribution to consumption at this t >T stage when there is no longer a social warrant for investing in further capital accumulation.  This kind of hoarding of surpluses by investors (aggravated by very important monetary complications) is essential to Lonergan’s model of the disequilibrium waste in Schumpeterian slumps.  [Burley, 1989, 112]

Further mathematical work will be needed to clarify the effects of various policies concerning final stocks and to suggest the precise applicability of analogues of turnpike theory.  Sufficient however has been done here, at least in a heuristic way, to show that the von Neumann tool-kit can be used to represent the Lonergan production analysis.  This provides a basis for a new paradigm of disequilibrium macrodynamics which, inter alia, responds to Schumpeter’s challenge that, … “has not taken any special cognizance of the process of creative destruction which we have taken to be the essence of capitalism.” (Schumpeter, Capitalism, Socialism, and Democracy. P.104) [Burley, 1989, 120-21 ]

[Burley and Csapo, 1992-1] Burley, Peter and Csapo, Laszlo, (1992) “Money Information in Lonergan-von Neumann Systems”, Economic Systems Research, Vol 4, No. 2, 1992

 In an earlier article (Burley, 1989) one of us showed how the production model of van Neumann (1945-46) can be adapted to cover Schumpeterian evolution in the roundabout methods of production decomposition suggested by Lonergan (1983a).  The present paper adds a dual side … so as to move on to the question of prices and money.  ¶Our analysis is especially concerned to reflect the way credit money, with the traditional means of exchange, unit of account and store of value properties, can act as a bridge between the present and the future in the world of evolutionary writers such as Schumpater (1939), Lonergan (1983b), Aglietta and Brender (1984 and Arestis and Eichner (1988) .  [Burley and Csapo, 1992-1, 133]

The credit multiplier gives our ‘banks’ wide discretionary powers as to whom they will create credit money for, and for what.  Lonergan argued that  previous depressions could be understood in terms of a tendency by producer-banker combinations with price fixing powers to hang onto the KN accumulation profit cum interest rather than raise wages, even after the economy was tooled up to the requirements of the new stationary state.   [Burley and Csapo, 1992-1, 139]

(In Burley’s game-theoretic models, [Burley and Csapo, 1992-1, 133-41] [Burley, 1992-2, 269-80]), the normative interest rate is an inner relationship; it equals the productive growth rate provided by the (root – 1) of the model’s characteristic equation; and this interest rate changes throughout the accelerations and taperings of the expansion of the process.)

“One could rework the calculations … replacing the c by s>c, where s-c corresponds to goods and money taken outside the equilibrium production model via an exogenous interest rate claimed by the banker-producer combination….Then the endogenous growth and interest rate given by the Newton-Raphson formula … falls (per the formula below).  This would become negative if c corresponded to the stationary state values of r=i=0. “ [Burley and Csapo 1992-1, 140]

[Burley, 1992-2] Burley, Peter (1992) Evolutionary von Neumann Models”, Journal of Evolutionary Economics 2 , 269-80

 This economy can easily be seen to have both the old and the new stationary state production systems as completely decomposed solutions.  In addition it can be seen that we also have the possibility of a partially decomposed transition solution between them, in which workers moving from the old to the new techniques abandon excess stocks of the old K, as in the “creative destruction” of Schumpeter (1950) [Burley 1992-2, 276]

This has two roots for the growth factor α and the interest factor β:

  • α1 (=β1) ) = 1,
  • α2 (=β2)= 1 +[ (lkN – lNk)/l’Nk)]- dN)

[Burley 1992-2, 277]

Lonergan’s point is that there is no automatic mechanism creating monetary boundary conditions for a shift into this final distribution and price system.  Attempts to persist in accumulation (of capital) stage (pure surplus) incomes would rather eventually be frustrated by the labour supply boundary condition…producers could only lay off workers to avoid a growing hoard of the new tool…Lonergan suggests we consider more cooperative solutions based on a collective understanding of his more sophisticated national income accounting which illustrates the full employment need to (increase basic incomes rather than) accumulation incomes which have lost their dynamic profit motivation. (i.e. now they are only sloshing back and forth for exchanges between stocks and bonds in the secondary markets doing nothing useful.) [Burley 1992-2, 278]

[Burley, 1993] Burley, Peter (1993) Lonergan as a Neo-Schumpeterian”, (Lanham, Md., University Press of America, ed. William J. Danaher)

Lonergan’s Essay in Circulation Analysis … is certainly a new approach, but it includes insights gleaned from a wide reading of celebrated economists.  One can see the influence of Adam Smith (spears and nets as primitive capital), Marx (the surplus problem), Kalecki (difference differential equations and capitalists get what they spend), Hayek (capital goods used to make other capital goods), Keynes (psychological waves), and Schumpeter (innovation waves and their economic implications). [Burley, 1993, 249]

Schumpeter, pessimistically, envisaged a growing state control over a free-market capitalism whose very success in innovating created the social conditions for the removal of the freedom of action it depended on. ¶ Lonergan, more hopefully, sought to develop an analysis which could facilitate more democratic ways of achieving macrodynamic efficiency in innovation cycles.  He proposed a new paradigm which could speak to a free people, so that they could know what should happen before, during, and after an optimal investment boom and so be able to co-operate in their own economic development.  This whole argument is best read in his own words but, it is interesting to note, it does have a good turnpike theory interpretation. [Burley, 1993, 254]

[Burley, 1994] Burley, Peter. 
”Economic Development as an Escape from Full Employment Entropy Ceilings.” Economics and Thermodynamics: New Perspectives on Economic Analysis , ed. Peter Burley and John Foster (Boston-Dordrecht-London: Kluwer, 1994) 39-45.

I would like to go on to discuss an innovation … using mainly the “entropy” (production) side of the von Neumann thermodynamic potential idea to interpret some macrodynamic problems associated with Schumpeterian technological development.  This has disequilibrium side effects which he referred to as “Creative Destruction”.  The “energy” (price) side can be seen to have corresponding valuation indeterminacies. [Burley, 1994, 39]

cN = [k1k2N]/[l1k2N +l2Nd1 + l3’d1d2l(k’3-d’3-1)]

has to become the new saddle point.  This would finally reconcile surplus driven capital accumulation with the social drive towards raising consumption levels in a developing economy of Robinson (1969).  It would also make the intensive variables on the dual side of our model finally converge on the neoclassical pricing model. [Burley, 1994, 45]

 [Burley, 2002-1] Burley, Peter (2002),A 3-Level Lonergan-von Neumann Model”, Australian Lonergan Workshop 2, ed. Matthew C. Ogilvie and William J. Danaher, Sydney: Novum Organum Press 68-74

This paper considers a two-tool Lonergan generalization of the lagged technical accelerator production function model.  … We will consider first a a given von Neumann technology and the appropriate distribution to consumption c to ensure a stationary state, corresponding to a fixed availability of composite “land and labour”, L. cf. Morishima.  [Burley, 2002-1, 68]

K2 now refers to the new stationary stock level, and X2 can be fitted to our initial conditions for investment in the new technology, where the K2 level immediately switches from making the old K1 to making the new K1N.  ¶ For simplicity we could focus on the more Pigovian (and Marshallian), net National Product, interpretation of output and associated money, rather than the Ricardian, total stocks, interpretation.  C.f. Morishima10.  Then we would be concerned with: the stream of goods and services produced in the period, and so include newly produced means of production.  (Schumpeter11)

This is consistent with the Hicks12 definition of income as

Consumption plus capital accumulation.

Hence we can find the money Net National Product given by

NNP = NNI = Cy1 + ΔK1 Ny2 + ΔK2y3  [Burley, 2002-1, 68]

We have here an improvement on the single level capital good model of Burley13, which could be used to go on to improve its discussion of endogenous money as the complement of innovation.  Also, there is no need to write off the entire capital stock of the economy every time there is an innovation in any part of it. [Burley, 2002-1, 73]

[Burley, 2002-2] Burley, Peter (2002), Lonergan and Interest Rates”, Australian Lonergan Workshop 2, ed. Matthew C. Ogilvie and William J. Danaher, Sydney: Novum Organum 61-67

There was a strong and persistent teaching in the Judaeo-Christian tradition, extending from the Old Testament to the Medieval Church, that any taking of interest was usurious, being the begetting of something for nothing, and therefore illegitimate. … The Section on Circuit Acceleration of Lonergan, however, cites as an obviously progressive development that laws against usury (were) attacked in the ensuing commercial and industrial revolutions!  How are we to understand this contradiction?  The present paper is concerned to answer this question in terms of a von Neumann model representation of the Lonergan production model.  For reasons given by eichner, whom Lonergan often cited approvingly, we consider the von Neumann representation more parsimonious than the more conventional neoclassical model.  ¶In an earlier paper, we showed how the model of von Neumann can be adapted to represent Lonergan-Schumpeterian growth between two stationary states.  Here we shall consider the dual side of this model to analyze prices and interest rates.  This entails studying the transpose of our earlier model based on the production function of Lonergan.  We will thus be concerned to distinguish the rates of interest implicit in Lonergan’s production model under different conditions. [Burley, 2002-2, 61]

We thus have a model for the fluctuations in the interest rate over pure cycles in an intermittently innovation economy, which has mastered the distribution of surpluses to consumption when it has temporarily run out of ideas for innovative investment.  In the upswings there is a general opportunity cost of lending corresponding to the interest one could have got lending to any innovator … an example of what the later scholastic doctors would have called lucrum cessans and in our circumstances of a general expansion would have considered a justification for interest. [Burley, 2002-2, 66]

Related blogs: Click The Significance of Burley’s and Csapo’s Characteristic Equation and Its Root Solution and Why Study Peter Burley’s Models? and Burley’s Essays (in Notes on Money).