Author Archives: Functional Macroeconomic Dynamics

Two economic mechanisms. Two components of concrete relations. Two simultaneous roles for human participants

Part I. Two economic mechanisms. Two components of concrete relations. Two simultaneous roles for human participants

It is the viewpoint of the present inquiry that, besides the pricing system, there exists another economic mechanism, that relative to this system man is not an internal factor but an external agent, and that the present economic problems are peculiarly baffling because man as external agent has not the systematic guidance he needs to operate successfully the machine he controls. [CWL 21, 109]

What the analysis reveals is a mechanism distinct though not separable from the price mechanism which spontaneously coordinates a vast and ever shifting manifold of otherwise independent choices from demand and of decisions from supply. It is distinct from the price mechanism, for it determines the channels within which the price mechanism works.  It is not separable from the price mechanism, for a channel is irrelevant when nothing flows through it. [CWL15, 17] [Continue reading).

Schumpeter, Cantillon, Quesnay, Leontieff; The Single Paragraph for Consideration Today [#66]

[12/9/19] Schumpeter, Canton, Quesnay, Leontieff: … it will be well at once to draw attention to J.A. Schumpeter’s insistence on the merits of the diagram as a tool. (Schumpeter, History 240-43, on the Cantillon-Quesnay tableau.) … First, there is the tremendous simplification it effects. From millions of exchanges one advances to precise aggregates, relatively few in number, and hence easy to follow up and handle. … Next come the possibilities of advancing to numerical theory.  In this respect, despite profound differences in their respective achievements, the contemporary work of Leontieff may be viewed as a revival of Francois Quesnay’s tableau economique. Most important is the fact that this procedure was the first to make explicit the concept of economic equilibrium.  All science begins from particular correlations, but the key discovery is the interdependence of the whole.… While it is true that a tableau or diagram cannot establish the uniqueness of a system or rigorously ground its universal relevance, it remains that the diagram (of the interconnections of a few precise aggregates) has compensating features that Quesnay’s system of simultaneous equations may imply but does not manifest. … There is the tremendous simplification (a diagram) effects the aims and limitations of macroeconomics make the use of a diagram particularly helpful, …  For its basic terms are defined by their functional relations.  The maintaining of a standard of living (distinct process 1) is attributed to a basic process, 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 (distinct process 3) are concentrated in a redistributive function, whence may be derived changes in the stock of money 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 and 177] [#66]

Diagram of Rates of Flow 2

Diagram of Rates of Flow

(Click here for previous “Single Paragraphs” or “Brief Items”)

A Superior and Far Less Expensive Macroeconomics Textbook

A very expensive macroeconomics textbook having 700-1000 pages would contain a lot of interesting history, a lot of fuzzy psychology, unscientific analysis, and uncertain conclusions.  A reader would not gain a clear theory and complete explanation of the dynamics of the real economic process.  However, is there not a superior 228-page, far less expensive  textbook right in our hands?  How about this?  Reword the subtitle of CWL 15 from An Essay in Circulation Analysis to A Textbook of Circulation Analysis, and let the professor instruct the serious student to read the book three times, then report back to discuss the following:

  • the canons of empirical method
  • a scientific, dynamic  heuristic
  • the technique of implicit definition; explanatory terms defined by the functional relations in which they stand with one another
  • velocitous functional unities of scientific and explanatory significance replacing the BEA’s descriptive, commonsense, accountants’ unities
  • the structure of the lagged, rectilinear productive process
  • money as a dummy invented by man
  • the perspective of a hierarchical series of monetary circuits
  • how a monetary circulation meets the rectilinear production-and-vending process
  • the primary relativities and concomitance in the Diagram of Rates of Flow
  • dynamic equilibrium replacing static Walrasian general equilibrium
  • the velocity of money in terms of magnitudes and frequencies
  • prices are not a given and not requiring explanation; rather prices are in need of explanation
  • interpretation of prices, quantities, interest rates in the light of significant explanatory variables
  • the pure cycle and its constituent phases in the expansion of the objective economic process
  • the abstract primary relativities and concrete secondary determinations in the expansion of the economic process
  • the statistical residue and why prediction is impossible in the general case; predicting weather vs. predicting planetary motion
  • the significance of investment’s monetary correlate
  • the ineptitude of manipulating interest rates
  • the explanation of government and foreign-trade imbalances by the dynamics of superposed circuits
  • the distinction between efficient cause and formal cause
  • distinguishing between self-healing and the effect of interventions
  • the intelligibility and explanatory power of the basic price-spread ratio
  • Figures 14-1, 24-7, and 27-1 in CWL 15

The student would learn much that is radically different, explanatory, and very useful; and he/she would gain a perspective or framework by which to evaluate and criticize the flawed premises and tenets of conventional textbooks and traditional theories.

 

Primary Functional Relativities in the Diagram of Rates of Flow

As represented below in the Diagram of Rates of Flow, in Functional Macroeconomic Dynamics the “basic terms are defined by their functional relations.”  The basic terms are precise analytical terms upon which a superstructure of explanatory relations can be constructed. Thus, the terms are of scientific and explanatory significance. (Continue reading)

Diagram of Rates of Flow 2

Diagram of Rates of Flow

A Note on Disagreeing with Einstein and the Determinists, on Avoiding a Vicious Circle, and on the Need for Precise Analytical Distinctions

Economic process – like other world processes – has an immanent intelligibility consisting of primary relativities which can be applied to the coincidental secondary determinations which occur throughout time in a non-systematic manifold. Economic process is constituted  by schemes of recurrence under the dominance of abstract principles and laws; nevertheless, the actual concrete workings of the economic schemes of recurrence are shot through and throughout time with indeterminancy.  So, it is a fact that prediction is impossible in the general case, since the concrete patterns of events occurring throughout time are a non-systematic aggregate. Thus, the point-to-line and higher correspondences are based upon the indeterminacy of the relation between current surplus products and the ultimate later basic products that eventually exit the dynamic process and enter into the standard of living.

An event in an economic scheme of recurrence has a diverging series of conditions. Continue reading

Fundamental Disorientations at the Federal Reserve Bank and the National Bureau of Economic Research

We have arranged this Topic into four parts:

  • Part I: The Disorientations of Macroeconomists
  • Part II: Principles and Precepts of Analysis
  • Part III: A New Textbook, Lonergan’s Macroeconomic Dynamics: A Textbook in Circulation Analysis
  • Part IV Comments on The Federal Reserve’s Current Framework For Monetary Policy: A Review and Assessment, by Janice C. Eberly, James H. Stock, and Jonathan H Wright.

Part I: The Disorientations of Macroeconomists

One cannot help but admire and be grateful to the Federal Reserve Bank for its Flow of Funds matrices and the National Bureau of Economic Research for its GDP tables.  Great information, well done!  However, the Fed, the NBER, and the proponents of the DSGE methodology suffer from fundamental disorientations. The NBER’s descriptive, commonsense, national-income accounting must integrate the Fed’s data on credit and to be recast to provide an explanatory systematization of interdependent flows of products and money.  Devotees must reorient themselves.  (Continue reading)

The Two Components of Concrete Relations

One cannot help but think that Bernard Lonergan had functional macroeconomic dynamics clearly in mind as he treated the intelligibility of world process in CWL 3, Insight: …, which is very much an implementation of the act of understanding of mathematicians and natural scientists.  In his understanding of mathematics, the natural sciences, and the science of macroeconomics in particular, he grasped that the explanation of the dynamic concrete process is expressed by a mathematical conjunction of component abstract primary relativities with component concrete secondary determinations from the non-systematic manifold.  And these secondary determinations, such as particular prices and quantities, are to be interpreted in the light of the significant, abstract, explanatory variables rather than in the obscurity of the IS-LM, and AD-AS models. (Continue reading)