Author Archives: Functional Macroeconomic Dynamics

New Foundations in 30 Minutes

New foundations for a new science of macroeconomics are grounded in

  • a scientific, dynamic heuristic
  • the technique of implicit definition
  • precise, purely relational, analytic distinctions between abstract fundamental terms and relations from which a superstructure of complete explanation may be deduced
  • the relativistic, field-theoretic functional interrelations among interdependent, mutually-defining, explanatory functional flows

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The Road Up is The Road Down; The Mechanism of Rising and Falling  Prices

This post was originally entered on May 30, 2022.  We repeat it now because it is remains relevant.

“The road up and the road down is one and the same. (Heraclitus)
ὁδὸς ἄνω κάτω μία καὶ ὡυτή

Archaeologists and scholars have not found the context of this isolated fragment of Heraclitus.  What “road” was he referring to, and was he was speaking literally or figuratively? I simply like the statement as an introduction to the ups and downs of distinct price-quantity flows, whether in a pure cycle of expansion or in a distorted cycle of inflationary boom and corrective slump. Continue reading

Pointers to the Philosophic, Mathematical, and Scientific Bases of Lonergan’s Functional Macroeconomic Dynamics

Being is the objective of the unrestricted desire to know.  Being is intrinsically intelligible and one. Apart from being there is nothing.

Intelligibility is the very essence of unity.  Intelligibility is intrinsic to being and, at the same time, it is the essence of unity.  Formal intelligibility is form; it is the unity of unification or of correlation.  Correlation is abstract; it constitutes the implicit definition of explanatory terms by their functional relations among themselves.

“Functional” is for Lonergan a technical term pertaining to the realm of explanation, analysis, theory;  … 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” … [CWL 15, 26-27  ftnt 27]

The economic process is an aspect of being.  The immanent intelligibility of the dynamic economic process is the essence of the process’s unity.  (Continue reading)

Just Thinkin’

Einstein said in connection with Special Relativity Theory, Everything is relative. Lonergan said, The analysis is purely relational. In, normative Monetary Field Theory all flows of products and payments are connected in a purely-relational, unitary system.

How many socioeconomic problems are primarily cultural problems, with leaders throwing more and more money in vain at what are basically problems of culture and its ethos? A president or prime minister or chancellor must not confuse cultural problems with economic problems.  A vast educational effort is called for.

If Faye Vincent’s essays in the Wall Street Journal were gathered into book form, I’d pay money for the book.

A Must-Read: Fred Lawrence, “Money, Institutions, And The Human Good”: An Ordered Perspective Distinguishing Social and Monetary Values.

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. (CWL 15, Editors’ Introduction xxxiv) Continue reading

The Executive And Legislative Branches’ Recent Inflationary Flooding Of The Operative Circuits And The Secondary Markets Can Be Easily Understood As The Effecting Of Two Superposed Circuits.

Lonergan used the idea of a superposed circuit to explain a) imbalances in foreign trade, and b) deficits and surpluses of government operations.  The same intelligibility of the superposed circuit can be used explain the immediate and ultimate inflationary effects of the Fed’s recent fooding of money into the two operative circuits and the Redistributive Function.

Note in the second image below – Diagram of Government Spending and Taxes – that there is no productive activity symbolized by payments of  Z’ and Z” in the channels of monetary flows from O’ to I’ and from O” to I”.  New money simply flows from the Redistributive Function to basic monetary demand I’ and surplus monetary demand I”, then back ultimately -to the Redistributive-Function location of financial assets..  The Fed simply creates the money by debiting Government- and Government-Backed Assets and crediting Money in Circulation.  A more accurate name for the credit account might be  Free Money Unjustified by Associated Production.  The flows are intrinsically inflationary.

Important: Please consult CWL 15, Sections 29-31, pp. 162-176.

Also, see on this website the subsection titled “Superposed Circuits” in the Post entitled Understanding All in a Unified Whole.

As there are two circuits, we must distinguish in government spending (Z) in any interval between Z’ paid into basic demand and Z” paid into surplus demand.  Similarly in taxes (T), we have to distinguish between T’ withdrawn from basic demand and T” withdrawn from surplus demand. (CWL15, 174)

Tiers of Income; Migrations; and Adjustments to the Phase of the Pure Cycle

On Bloomberg Surveillance this morning (11/16/2022), Dr. Lindsey Piegza (Stifel Institutional, Chicago) spoke with superior understanding of the implications of the present state of the tiers of income flows in the economic process. Interviewer Lisa Abramowicz (Bloomberg) asked good questions.

L. Piegza said that there is evidence that people in the lower income brackets, who usually spend all their income on point-to-point (basic) items, are exhausting their previous cash cushion of extra money for basic goods and services; so now they appear to be cutting back on purchases of both brand-name and luxury items? The real economy is showing signs of contraction, with implications for recession and unemployment. Continue reading

Lonergan’s Entry into Economics (1930-1944) and Reentry into Economics (1978-1983); Democratic Economics vs. Liberalism and Socialism

The reader will note that most of what’s quoted below comes from a single section, “Lonergan’s Entry into Economics, 1930-1944”, of CWL 15’s “Editors’ Introduction,” authored by Frederick G. Lawrence.  Previously, in several of our own sections we have recommended that Editors’ Introduction as beneficial for putting Lonergan’s Essay in its historical, political, and purely theoretical contexts.  It is a must-read.  We have printed the Introduction’s Table of Contents in several places:  Click here, here, here, and here.  The Table is again printed at the end of this entry.

Lonergan’s Entry into Economics, 1930-1944

We quote: Continue reading

Alan Blinder re A. W. “Bill” Phillips’ MONIAC; Phillips’ Tubes vs. Lonergan’s Channels

(Lonergan’s) channels of circulation replace the overall dominance claimed for general equilibrium theory, but they reveal the conditions under which partial equilibria can exist. … More positively, the channels account for booms and slumps, for inflation and deflation, for changed rates of profit, for the attraction found in a favorable balance of trade, the relief given by deficit spending, and the variant provided by multinational corporations and their opposition to the welfare state. (CWL15, 17) 

In a Bloomberg News piece, authored by Rich Miller and dated October 11, 2022, Miller quotes Alan Blinder’s remarks about A.W. “Bill” Phiilps, the originator of the Phillips Curve:

This guy was as inter-disciplinary as you can be. He was a practical engineer as a young man, with a wrench in his hand, and then later in his life an academic who took those ideas to economics and in particular to Keynesian economics. He had a very mechanical view of the macro economy. He built this machine where water flowed through clear plastic tubes, like income and expenditure in the economy. People spend money that becomes income to other people, and they spend money that becomes income to other people, and so on. The machine is now at the Reserve Bank of New Zealand. (Blinder re Phillips)

He also had a colorful history. He won a Member of the Order of the British Empire award for bravery handling a machine gun during World War II. He was captured by the Japanese and became a prisoner of war, during which time, among other things, he learned Chinese from his fellow prisoners. (Blinder re Phillips)

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Circulations: Blood, Electricity, Water, Money

The method of circulation analysis … involves a minimum of description and classification, a maximum of interconnections and functional relations.  … Analytic thinking uses classes based on similarity only as a springboard to reach terms defined by the correlations in which they stand.  [CWL 21, 111]

… the introduction of the notion of the monetary function… takes a further step towards defining a circulation of money……..not a rotational movement……. rather a circular series of relationships of dependence of some flows of payments on other flows.  Money moves only at the instant of payment or transfer.  Most of the time it is quiescent. … it may also be dynamically quiescent, and then it is held in reserve for some definite purpose. … Money held in reserve for a defined purpose will be said to be in a monetary functionFive such functions are distinguished: basic demand, basic supply, surplus demand, surplus supply, and a fifth redistributive function. (CWL 15,  48)…….

Volume 15 of Collected Works of Bernard Lonergan is entitled Macroeconomic Dynamics: An Essay in Circulation Analysis. Lonergan analyzes and explains the economic process as a circulatory process; that is, as a dynamic organic process of interdependent circulatory flows of goods and services and their functionally-congruent payments.  It is to be understood and verified as a coherent set of flows implicitly-defined by their functional relations to one another. Continue reading

Absorbing Several Trillion Dollars; Wishful Thinking vs. Scientific Economics

Our framework is the Macroeconomic Field Theory represented by the two operative circuits connected by “crossovers” shown in the Diagram of Rates of Flow. (See above right and CWL 15, 55)  Important theoretical components of the analysis are a) the abstract explanatory formulation based on the concomitance of basic Expenditures with the basic Outlays, and b) the correlation and normative concomitant variation of the magnitudes and frequencies of flows of products with the magnitudes and frequencies of payments.

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

Jump to the beginning of this entry and Continue reading