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.
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 Similarly in taxes (T), we have to distinguish between T’ withdrawn from basic demand and T” withdrawn from surplus demand.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)
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 →
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) 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)
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 function. Five 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 ofBernard 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 interdependentcirculatory flows of goods and services and their functionally-congruent payments. It is to be understood and verified as a coherent set of flowsimplicitly-defined by their functional relations to one another. Continue reading →
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.
Functional Macroeconomic Dynamics seeks not merely to “view” and describe the economic process; rather it seeks to understand and explain the process in order to provide norms of adaptation and systematic guidance to managers of the process. (Continue reading)
U.K. officials need to spend $38.60 plus shipping for Bernard Lonergan’s “Macroeconomic Dynamics: An Essay In Circulation Analysis.” To satisfy their obligation to the U.K. public, they must read, understand, and thus gain enlightenment from Macroeconomic Field Theory as to how the dynamic system of production, finance, and exchange actually works. What are its norms and what practicalprecepts does the explanation of the dynamic organic process yield to free people?
Also. they need to call a colloquium in which several economists lecture and present scholarly technical papers on Macroeconomic Field Theory to help all government officials understand their nation’s present problems, past mistakes, and future solutions.
U.S. officials at the Fed. the Treasury, and Congress should seek the same enlightenment; and bankers, money managers, and financial talk-show hosts should do the same. (Click here and here)
The macroeconomics textbooks feature three key macrostatic models, all three of which are sublated by the purely relational field theory called Functional Macroeconomic Dynamics. The textbooks’ three featured graphs are two momentary intersections of supply and demand curves plus the Phillips Curve correlation of unemployment and interest rates:
the intersection of the supply and demand curves at a certain price of goods and services (the macrostatic AD-AS model),
the intersection of the supply and demand curves at a certain interest-rate, rental-price of money (the macrostatic IS-LM model), plus,
the now-debunked Phillips Curve correlation of unemployment and interest rates.
The key elements grounding the discovery and formulation of the immanent, field-theoretic intelligibility of the organic, unified, whole economic system include: (Continue reading)
Lonergan demonstrates that Marx’s economics is insufficiently abstract and is contaminated by descriptive sociological and political categories; he finds Marx’s summons to class conflict perilous to humanity because it promotes and enforces a drift away from liberty to a totalitarianism culminating in the dreadful conditions of a no-escape “frontier, clear and firm indoctrination, controlled media of information, a vigilant secret police, and the terrifying threat of labor camps,” – all in the name of a mythicalmacroeconomics. (Continue reading)