Category Archives: A New Paradigm

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)

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]

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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)

 

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

A Closely Knit Frame of Reference; the Channels Account for Booms and Slumps, for Inflation and Deflation,

The interconnected channels of the Diagram of Rates of Flow provide a closely knit frame of reference.  The channels account for booms and slumps, inflation and deflation.

The method of circulation analysis resembles more the method of arithmetic than the method of botany.  It involves a minimum of description and classification, a maximum of interconnections and functional relations.  Perforce, some description and classification are necessary; but they are highly selective, and they contain the apparent arbitrariness inherent in all analysis.  For analytic thinking uses classes based on similarity only as a springboard to reach terms defined by the correlations in which they stand.  To take the arithmetic illustration, only a few of the integral numbers in the indefinite number series are classes derived from descriptive similarity; by definition, the whole series is a progression in which each successive term is a function of its predecessor.  It is this procedure that gives arithmetic its endless possibilities of accurate deduction; and, as has been well argued, it is an essentially analogous procedure that underlies all effective theory. [CWL 21, 111] Continue reading

Table of Contents of Editors’ Introduction in CWL 15

To indicate the editors’ helpfulness in placing Functional Macroeconomic Dynamics in its historical and theoretical contexts, we list below the headings of the EditorsIntroduction to Lonergan’s Macroeconomic Dynamics: An Essay in Circulation Analysis (CWL 15).  It is ironic that philosophers and theologians, with acknowledged help from polymath Philip McShane and economist Peter Burley, seem to have come to understand the key intelligibilities of macroeconomic dynamics better than professors of macroeconomics themselves. We encourage  all in the community of economists – graduate students, professors, investment analysts, corporate and government economists – to read the Introduction.

Editors’ Introduction, Frederick G. Lawrence ; xxv

  1. Lonergan’s Entry into Economics, 1930-1944 / xxvi
  2. Democratic Economics: An alternative to Liberalism and Socialism / xxxii
    1. Liberalism and Socialism as Economistic Ideologies / xxxv
    2. Free Enterprise as an Educational Project
  3. Lonergan’s Reentry into Economics, 1978-1983 / xxxix
  4. Lonergan’s Interlocutors in Economics / xliii
    1. Lonergan and Marx / xlvi
    2. Lonergan and Marshall / xlvii
    3. Lonergan and Keynes / xlviii
    4. Lonergan, Kalecki, and Others / li
    5. Lonergan and Schumpeter / li
  5. Macroeconomic Dynamic Analysis as a New Paradigm of Economic Theory / liv
  6. The Systematic Significance of the Fundamental distinction between Basic and Surplus Production and Exchange: A Normative Theory of the Pure Cycle
    1. Profit / lxiii
    2. Interest / lxvii
    3. Lonergan’s Critique of ‘Supply-Side’ and ‘Demand-Side’ Economics / lxvii
  7. Lonergan’s Critique of Secularist Ideologies: The Need for a Theological Viewpoint / lxix

Lonergan was a polymath.  He was expert at systematizing fields in which others could not discover an order. As the Editors’ Introduction states, his work in macroeconomics is of systematic significance.

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. … No doubt Keynes was an economist first and a methodologist second … Lonergan, for his part, is perhaps a methodologist first and an economist second, but he was able to push his economic reflections further than Keynes because he had a firmer grasp of the essentials of an effective theory.  … Lonergan’s critique (shows that) … the emphasis shifts … to searching heuristically for the maximum extent of (functional) interconnections and interdependence; and that the variables (of the mechanism) discovered in this way might not resemble very much the objects (or the aggregates) (such as coincidental prices) which, in the first instance, (the non-methodologist) was thinking about.   [Gibbons 1987]

… A science emerges when thinking in a given field moves to the level of system. Prior to Euclid there were many geometrical theorems that had been established.  The most notable example is Pythagoras’ theorem on the hypotenuse of the right-angled triangle, which occurs at the end of  Book 1 of Euclid’s elements.  Euclid’s achievement was to bring together all these scattered theorems by setting up a unitary basis that would handle all of them and a great number of others as well. … similarly, mechanics became a system with Newton.  Prior to Newton, Galileo’s law of the free fall and Kepler’s three laws of planetary motion were known.  But these were isolated laws.  Galileo’s prescription was that the system was to be a geometry; so there was something functioning as a systemBut the system really emerged with Newton.  This is what gave Newton his tremendous influence upon the enlightenment. He laid down a set of basic, definitions, and axioms, and proceeded to demonstrate and conclude from general principles and laws that had been established empirically by his predecessors.  Mechanics became a science in the full sense at that point where it became an organized system. … again, a great deal of chemistry was known prior to Mendeleev.  But his discovery of the periodic table selected a set of basic chemical elements and selected them in such a way that further additions could be made to the basic elements.  Since that time chemistry has been one single organized subject with a basic set of elements accounting for incredibly vast numbers of compounds.  In other words, there is a point in the history of any science when it comes of age, when it has a determinate systematic structure to which corresponds a determinate field. [CWL10, 241-42]

Readers may find it helpful to peruse the image below, What Lonergan Brought to Functional Macroeconomic Dynamics.

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

“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 boom and corrective slump. Continue reading

A Merely Theoretical Possibility and Simple-Minded Moralists

(In the basic expansion) … There is the same automatic mechanism as before.  Prices fall.  This has the double effect of increasing the purchasing power of income and bringing about an egalitarian shift in the distribution of monetary income. The increase in purchasing power is obvious.  On the other hand, the egalitarian shift in the distribution of income is, in the main, a merely theoretical possibility.  The fall of prices, unless quantities increase proportionately and with equal rapidity, brings about a great reduction in total rates of payment.  Receipts fall, outlay falls, income falls. [CWL 15, 138-39] Continue reading

Modern Monetary Theory Is Backward; It Creates “Illegal” Superposed Circuits

Preliminary note: In this section we are addressing the proper understanding and management of the economic process in normal, non-pandemic times.  We affirm that the recent pandemic called for extraordinary measures.

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Unwittingly, first out of ignorance, more recently as necessitated by a pandemic, and most recently out of continuing ignorance, some nations, including the U.S., have wandered into the ultimate menace to the financial system, the spending without constraint blessed and recommended by unscientific. so-called Modern Monetary Theory. (Click here and here) The systematic result of MMT’s unconstrained printing of money, unjustified by corresponding, concomitant production of goods and services, is rampant inflation in prices for a) goods and services and/or b) financial assets.  (Continue reading)