Author Archives: Functional Macroeconomic Dynamics

Abstraction in Macroeconomics; Classical and Statistical Laws

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)

More re Picketty’s Plight and Centralist Modern Monetary Theory

In his blog entitled “Picketty in Brief,” dated Sunday, July 24, 2022, N. Gregory Mankiw asks what might be Thomas Picketty’s present thinking about inequality. Has it changed?  If so, how and why?  Also see on this website “Picketty’s Plight.”  in which we quote Philip McShane’s claim that, unless one has a normative explanatory theory yielding precepts as to how enlightened participants in the economic process should adapt and conduct themselves, one can only helplessly and hopelessly suggest harmful bureaucratic centralist solutions – such as disequilibrating taxation and intrinsicallyinflationary deficit spending. Continue reading

The Leibnitz-Newtonian Shift of Context and Scientific Economics

Lonergan’s basic terms are velocities.  There is a shift to dynamics.  P. McShane called the creative shift from Walrasian macrostatics to macroeconomic dynamics the Leibnitz-Newtonian shift.

Please see under Key Notions the subtopic with the lengthy title: The Leibnitz-Newtonian Shift of Context and Scientific Economics; Basic Terms, Explanatory Conjugates, An adequate Level of Abstraction, No Premature Introduction of Boundary Conditions.

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 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]

Note that the vertical axis of the Figure 24-7 below represents the accelerations: dQ’/Q’ and dQ”/Q”.  Q’ and Q” represent velocities.  The title underneath the Figure 24-7 fails to apply the proper superscript to surplus activity. Also, k-1 might be, for example 1.05-1 or .05 or 5% or a geometric increase period after period, while (1/r – 1)Qmight be !/.95 – 1)100 or (1.05263-1)100 or (.05263)100 or 5.263 which would be a constant magnitude period after period and, therefore, a declining percent period after period.  Thus the title indicating the Rate of Change of a percentage change.

Lonergan’s basic terms are velocities and their changes.  There is a shift to dynamics.  P. McShane called the creative shift from Walrasian macrostatics to macroeconomic dynamics the Leibnitz-Newtonian shift. Again,

In Lonergan’s circulation analysis, the basic terms are rates – rates of productive activities and rates of payments.  The objective of the analysis is to discover the underlying intelligible and dynamic (accelerative) network of functional, mutually conditioning, and interdependent relationships of these rates to one another.  [CWL 15  26-27  ftnt 27]

(click here)

The Principle of Concomitance: The Foundation of Continuity, Equilibrium, and Explanatory Theory

Contents

  • .1. Concomitance and Correlation in Macroeconomic Field theory
  • .2. Five Notes re Abstraction; Abstraction is Enriching
  • .3. Resume Focus on Concomitance and Correlation in Macroeconomic Field Theory

.1. Concomitance and Correlation in Macroeconomic Field theory

Concomitance is, I would claim, the key word in Lonergan’s economic thinking. [Philip McShane, [Fusion 1, page 4 ftnt 10]

 All science begins from particular correlations, but the key discovery is the interdependence of the whole.…its basic terms are defined by their functional relations[CWL 15, 53, 54, and 177]

(Continue reading)

 

Picketty’s Plight

We are at the heart of Picketty’s plight: he has no clue of the needed grip on the grounds of the inequality in history.  So, what else can he offer but a centralist solution, taxation, to history’s drunken careening? (McShane, Philip, Picketty’s Plight, 53)

Simple-minded moralists and sentimentalists without intelligence do not provide the required normative theory which explains the process and supplies precepts for adaptation. “…man as external agent has not the systematic guidance he needs to operate successfully the machine he controls.” [CWL 21, 109]  

Academics have not discovered, understood, formulated and taught the dynamics of surplus and basic expansion.

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Tom  Keene Is Correct To Call For Analysis By Deciles; Lisa Abramowicz has Good Reason to Wonder About the Real Strength of Consumers’ Balance Sheets

Colleagues Tom Keene and Lisa Abramowicz (Bloomberg Surveillance) are non-plused.  Tom is correct in calling for a “partition by deciles” of the population’s Incomes in order to understand properly the ability of particular segments of the population to deal with inflation.  Lisa properly wonders why credit card debt is rising if the “consumer’s balance sheet”, according to some analysts, is “in good shape,” i.e. shows an historically-large cash balance. Continue reading

A Flood of Money into the Operative Circuits plus a Speculative Boom in the Stock and Bond Markets

The flooding of the operative circuits and the Redistributive Function with free money for Demand will, absent basic and surplus expansion of production, cause product prices to rise.  This flooding of the economic process with non-productive money may be accompanied by a speculative boom in the stock market to further swell Demand and make the situation even worse.

It is to be recalled that the account given of the cycle of the basic price-spread ratio supposes (D’ – s’I’) to be zero throughout.  A speculative boom in the stock market which encourages basic spending may be represented by a positive (D’ – s’I’); there is an excess release of money from the Redistributive Function to the basic demand function.  Alternatively, it may be represented by an upward revision of the fractions wi of total current income going to basic demand, while the fact that the surplus final market suffers no contraction then results from the excess of the rate of new fixed investment over the rate of pure surplus income, so that D” is positive.  In either case, a movement of this type with its basis in redistributional optimism will offset any tendency towards a contraction of the price spread and will reinforce any tendency of the price spread to expand.  On the other hand, the subsequent stock market break intensifies the crisis of the circuits, removing the props that had hitherto swollen expansive tendencies, and leaving the system with a greater height from which to fall. (CWL 15 162 )

Alienation And Ideology: A Civilization In Decline Digs Its Own Grave

As we said at the beginning of our entry “Centesimus Annus; The Hundredth Anniversity of Rerum Novarum”,

“This website focuses on the technical aspects of Lonergan’s macroeconomic dynamics. However, we have also pointed out that the science of economics must accept its rightful place within the broader culture consisting of technology, economics, and politics.  And this culture itself stands within a hierarchy of values. Further, we have emphasized the need to achieve The Good of Order.  (Also, Click here; and see CWL 12, 496-7)” Continue reading

Alan S. Blinder re Transitory But Not Permanent

… the prime cause (whether it be of inequity or inflation) is ignorance.  The dynamics … are not understood, not formulated, not taught….. [CWL 15, 82]

man as external agent has not the systematic guidance he needs to operate successfully the machine he controls. [CWL 21, 109]

Academia’s failure threatens economic liberty.

Lonergan realized that failure to understand correctly what is needed if the economic process is to perform well is gravely threatening to democratic liberty.  That is why he undertook his serious study of economics. [CWL 15 Editors’ Introduction, xxx] Continue reading