“A Discussion About My Favorite Textbooks”

On Greg Mankiw’s website one will find a blog-video, dated Tuesday, January 19th, entitled “A Discussion About My Favorite Textbooks”.  The participants included Greg Mankiw, Peter Bofinger, Rudiger Bachmann, and Anna Reisch; and questions were called in by Vinit Rishi, Sascha Buetzer, Janina Urban, and Thomas Kopp.

Our only comment is that in doing pure science all macroeconomists must distinguish and keep separate pure science, applied science, psychology, sociology, anthropology, and political philosophy.  Usually what they think is their pure science is actually an impure admixture of two or more fields of phenomena.  If one intends a pure science, consisting of the explanatory relations of objective macroeconomic phenomena, one should not contaminate the field with illegitimate importations of sociology, class conflict, psychology, personal psychopolitical inclinations, etc. Otherwise there will inevitably be differences of opinion, whose sources may be traced to deficient heuristics, careless methods, mixed fields of phenomena, and differences of psychopolitical sentiment. These differences will make agreement impossible, and the macroeconomists will argue superficially and endlessly about their shallow and incoherent pseudo-science.

Indeed, economics seems little different from other areas of knowledge in its tendency to form closed schools of thought (I.e. Keynesian, Monetarist, Marxist, etc.)  This fragmentation into schools places political and other social values at the source of theoretical differences. [Michael Gibbons, 1987, Economic Theorizing in Lonergan and Keynes]

In brief 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, 1987, Economic Theorizing in Lonergan and Keynes 313]

Textbooks are heroic, though failed, efforts to present to students a pure science, a set of abstract relations of explanatory conjugates among themselves, so that the students can understand how the economic process works, and, then, apply the knowledge to make the world a better place.  While we disagree with the textbooks about description vs. explanation, statics vs. dynamics, the conceptual priority of the systematics of the dynamic productive process and the status of money as a dummy, the inadvisability of manipulating interest rates, etc., textbooks do at least make an attempt at doing science.  

Newton and Leibniz did not invent the calculus and Clerk-Maxwell and Planck did not develop pure sciences such as electromagnetics or quantum mechanics by admixing psychology into the field under analysis.  They struggled to discover by insight an immanent intelligibility.  And one cannot learn economics so as to explain it to others and apply it in daily life by merely describing and discussing a contaminated mix.  One has to lean over a desk, settle into the intellectual pattern of experience (CWL 3, 181-91), think at an adequate level of abstraction, put pencil to paper, draw diagrams, and struggle to discover implicitly-defined, purely-relational, purely-explanatory conjugates, then present them in the precise language of mathematics.  How do functional elements relate to one another, implicitly define one another, and explain the objective process?  How does one explain in a precise mathematical formalism, isomorphic with the patterns in the data, how the world really works?

The economist intent on grasping a pure science of the process of production, exchange and finance would benefit from reading the following:

And to place pure science in the overall scheme of human living, one should also read

Lawrence, Fred, “Money, Institutions, and the Human Good”, pp. 175-97; in Liddy, Richard M. ed. The Lonergan Review, Vol. II No. 1 – Spring 2010, Copyright 2009, The Bernard Lonergan Institute, Seton Hall University, South Orange, New Jersey [Liddy, 2010]

Pure science aims immediately at reaching the immanent intelligibility of data and leaves to applied science the categories of final, material, instrumental, and efficient causality. … the empirical investigator may add to the data of experience only the laws verified in the data; … he must content himself with the laws and systems of laws … characterized generally by their verifiability. … ultimately science must account for all data, and the account must be scientific. (CWL 3, 70)

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]

We set out to indicate the existence of an objective mechanical structure of economic activity, of something independent of human psychology, of something to which human psychology must adapt itself if economic activity is not to become a matter of standing in a tub and trying to lift it. [CWL 21, 56]

Taking into account past and (expected) future values 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 for example 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]

A complete explanation yields a normative theory constituted by a coherent set of laws, the normative theory and laws which men themselves adapt to and administrate in the personal conduct of their lives.  As both normative and completely explanatory, it yields premises for criticism.  Also, a normative theory explains both dynamic equilibrium and dynamic disequilibria.  It defines completely the objective situation with which man has to deal, and it defines the psychological attitude that has to be adopted if man is to deal successfully with economic problems.

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 ]

The maintaining of a standard of living is attributed to a basic process (distinct process 1), an ongoing sequence of instances of so much every so often.  The maintenance and acceleration (distinct process 2) of this basic process is brought about by a sequence of surplus stages, in which each lower stage is maintained and accelerated by the next higher.  Finally, transactions that do no more than transfer titles to ownership are concentrated in a redistributive function, whence may be derived changes in the stock of money (distinct process 3) dictated by the acceleration (positive or negative) in the basic and surplus stages of the process. … So there is to be discerned a threefold process in which a basic stage is maintained and accelerated by a series of surplus stages, while the needed additions to or subtractions from the stock of money in these processes is derived from the redistributive area. … it will be possible to distinguish stable and unstable combinations and sequences of rates in the three main areas and so gain some insight into the long-standing recurrence of crises in the modern expanding economy. [CWL 15, 53-54]

“The goal of empirical method is commonly stated to be the complete explanation of all phenomena or data.  ¶In a sense, perseverance in the pursuit of this goal is assured by the canon of selection especially when it is implemented by the canon of operations.  Any particular investigator may overlook or ignore certain data.  But his oversight or disregard will normally be corrected by other investigators substantiating their hypotheses and refuting those of their predecessors by appealing to hitherto neglected facts.” (CWL 3, 84)

 Lonergan did not think Marx achieved an explanatory grasp of the intelligibility of the economic sphere as such.  Marx’s labor theory of value invoked an admixture of political, sociological, and especially proprietorial dimensions.  Moreover, Lonergan had no respect for the way an illegitimate importation of sociological categories into the properly economic sphere lends support to the simpliste Marxist-socialist penchant for setting entrepreneurs and workers against each other.  Marxist advocacy of group bias and the use of propaganda and violence short-circuit democratic solidarity.  To Lonergan’s way of thinking, a moral vision that substitutes propaganda and force for its lack of intellectual acuity is a self-contradiction much more radical than the ‘contradictions’ that supposedly drive dialectical materialism.  [CWL 15 Editors’ Introduction, xlvi-xlvii]

(Marx’s) notion of surplus value has sociological and proprietorial dimensions – that is, the difference between the full value bestowed on a commodity by the laborers and what is returned to laborers in the form of wages – rather than the sheerly functional dimensions that constitute its intrinsic meaning for Lonergan. [CWL 15 Editors’ Introduction, lxi ftnt 104]

The scientific economist must guard against Socialism being merely a halfway house on the road to communistic totalitarianism with its enforced suppression of liberty.

As healing can have no truck with hatred, so too it can have no truck with materialism.  For the healer is essentially a reformer; first and foremost he counts on what is best in man.  But 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]

The helplessness of tolerance to provide coherent solutions to social problems called forth the totalitarian who takes the narrow and complacent practicality of common sense and elevates it to the role of a complete and exclusive viewpoint.  On the totalitarian view, every type of intellectual dependence whether personal, cultural, scientific, philosophic, or religious, has no better basis than non-conscious myth.  The time has come for the non-conscious myth that will secure man’s total subordination to the requirements  of reality. Reality is the economic development, the military equipment, and the political dominance of the all-inclusive State.  Its ends justify all means.  Its means include not merely every technique of indoctrination and propaganda, .. but also the terrorism of a political police, of prisons and torture, of concentration camps, of transported and extirpated minorities, and of total war. [CWL 3, 231-32/256-57]

The formulation of the explanation will be isomorphic with the patterns in the data of the measurements of the constituent, interrelated functional velocities and accelerations.  It will express combinations of combinations and correlations of correlations. Insight into macoeconomics’ functional interrelations finds its adequate expression in an abstract formulation.  The terms and relations can be set in a mathematical form which is isomorphic with and faithfully represents the interrelations explanatory of the concrete economic process.

Again, to take perhaps a simpler and more familiar example, if someone is doing physics and you open his book, what do you find?  You find just mathematical equations.  He is solving problems, and what is it?  It is more mathematics.  Why do you say he is doing physics?  He seems to be doing mathematics all the time.  It is because there are regions of mathematics that are isomorphic with physical reality.  There is the same relational structure between a given mathematical theory or system as there is between events that can be observed.   This is another case, a big case, of isomorphism: on the one hand, mathematical expressions, and on the other hand, physical events.  There is the same relational structure.  But in the mathematical case, the relational structure links symbolic expressions, or mathematical concepts, with one another, while in the physical case what are related are concrete physical events, wave lengths that you observe through a machine and so on.  ¶ So there is an isomorphism of geometry, algebra, physics; the same relational structure can be found in all three.  Consequently, one’ symbolism can be given a geometrical interpretation, or an algebraic interpretation, or a physical interpretation. [CWL 18, 32-33]

In the following we have paraphrased the excerpt above, and we have substituted “macroeconomics” and “economics” for “physics” and “macroeconomic” and “economic” for “physical.”  We thereby gain a good idea of Lonergan’s dynamic heuristic.

… if someone is doing pure macroeconomics and you open his book, what do you find?  You find just mathematical equations.  He is solving problems, and what is it?  It is more mathematics.  Why do you say he is doing macroeconomics?  He seems to be doing mathematics all the time.  It is because there are regions of mathematics that are isomorphic with macrodynamic reality.  There is the same relational structure between a given mathematical theory or system as there is between macroeconomic functionings that can be observed.   This is another case, a big case, of isomorphism: on the one hand, mathematical expressions, and on the other hand, macroeconomic functionings.  There is the same relational structure.  But in the mathematical case, the relational structure links symbolic expressions, or mathematical concepts, with one another, while in the economics case what are related are concrete macroeconomic dynamic functionings.  ¶ So there is an isomorphism [Paraphrase of CWL 18, 32-33]

… just as a mathematical equation may be said to be the most adequate expression of purely intelligible relations among explanatory terms in certain instances – for example, Einstein’s gravitational field tensor equations – something closely akin to Lonergan’s diagram (and the equations it represents) seems necessary for the realm of dynamic economic functioning.  So, for example, the existence and manner of dynamic mutual interdependence of the two circuits of payment, basic and surplus, is not adequately expressed either by descriptive terms (since this pattern does not directly relate to the senses of anyone operating in a common-sense way in a concretely functioning economy) nor by the series of (simultaneous) equations that do not explicitly manifest the interchanging of ‘flows.’ [CWL 15, 179]

…  The mathematical meaning of an expression resides in the distinction between constants and variables and in the sign or collocations that dictate operations of combining, multiplying, summing, differentiating, integrating, and so forth.  It follows that, as long as the symbolic pattern of a mathematical expression is unchanged, it’s mathematical meaning is unchanged.  Further, it follows that if a symbolic pattern is unchanged by any substitutions of a determinate group, then the mathematical meaning of the pattern is independent of the meaning of the substitutions. [CWL 3, 18-19/43]