Category Archives: Bureau of Economic Analysis

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.

Concomitance and Credit;  A New Paradigm for the Federal Reserve Bank; Functional Macroeconomic Dynamics Drives Establishment Economics into the Shadows

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:

  1. the intersection of the supply and demand curves at a certain price of goods and services (the macrostatic AD-AS model),  
  2. the intersection of the supply and demand curves at a certain interest-rate, rental-price of money (the macrostatic IS-LM model),  plus,
  3. 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)

The Ineptitudes in Central Bank Operations

This entry should be read in conjunction with the reading of The Road Up is the Road Down; The Mechanism of Rising or Falling Prices.  Also, in “the Road UP …”, note well the phrase “a merely theoretical possibility.”

Recently the Executive and Legislative Branches, through the agencies of the Treasurer and the Federal Reserve Board, have flooded the economic system with free money.  Much of the resulting surfeit of new money is detached from any productive contribution.  This free, intrinsically inflation-constituting money has had to sit or go somewhere and constitute an effect in circulations of the basic circuit, the surplus circuit, and the secondary market for stocks, bonds, housing, etc.  Thus, in order to understand the present inflationary situation, an explanatory “Essay in Circulation Analysis” is a present need.

Please keep in mind that Lonergan, in his purely theoretical essay, does not treat specifically the actual recent flooding of the money supply, and the associated ultra-low interest rates, in the two operative circuits and in the Redistributive Function.  But one can easily glean from his treatments the inflationary implications of this actual flooding and the manner of its correction.  Herein, as opportunity allows we graft onto his orthodox treatment comments regarding recent quantitative flooding.  We trust the reader to discern what are graftings and what are the underlying matters under discussion at that point. (Continue reading)

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

Continue reading

An Einsteinian Relativistic Context: Space and Time Become Space-Time; Price and Quantity become Price-Quantity; An Abstract Set of Invariant Explanatory Relations

Contents

  • .I. Relations and Relativity in General
  • .II. Einstein’s Special Relativity and General Relativity
  • .III Lonergan’s Double-Circuited, Pretio-Quantital Relativity Theory
  • .IV. The Basic Price Spread; The Co-ordinated Relativity of Three Major Pretio-Quantital Flows and the Co-operative Relations Within Each Major Flow
  • .V. The Macroeconomic Field Theory Equations
  • .VI. Concerning Verification
  • .VII. Miscellaneous Selections
  • .VIII. Conclusion

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Why And How The Basic Expansion Fails To Be Implemented

In the ideal pure cycle, the long-term expansion proceeds from a static phase through a proportionate-expansion phase , then through a surplus-expansion phase, then through a basic-expansion phase, and finally into a higher static phase of greater abundance.

At (the beginning of a basic expansion) an economic system is confronted with an intrinsic test. Its success will be established if it can complete the major basic expansion and – without mishap, without inflation, without unemployment, without a break in confidence –  make its way serenely into the haven of the stationary state.  I mean of course, not the stationary state of mere backwardness, not the stationary state of stagnation when a disastrous crash follows on an earlier apparent triumph, but the stationary state that preserves all the gains of the preceding major expansions.  It is (then) content to produce their gains at a constant rate.  Its duration may be short or long, for in each case it must wait until such time as further new developments are grasped by human intelligence and eventually become practically conceived possibilities. [CWL 15, 80] (Continue reading)

The Correlation of the Need for Money With the Magnitudes and Frequencies of Turnovers

A first task thereafter will be to correlate the need for more or less money in the productive process with the magnitudes and frequencies of their turnovers.  On that basis 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, 53-4 and 177] Continue reading

Explanation By Gross Domestic Functional Flows To Supplement Description By Gross Domestic Product

A distinction has been drawn between description and explanation.  Description deals with things as related to us.  Explanation deals with the same things as related among themselves.  The two are not totally independent, for they deal with the same things and, as we have seen, description supplies, as it were, the tweezers by which we hold things while explanations are being discovered or verified, applied or revised. … [CWL 3, 291/316]

The analysis of the overall dynamic functioning, which we call in nominal terms the economic process, must seek the explanation of the process.   It must seek the objective immanent intelligibility among the interdependent, dynamic “functionings” which altogether constitute the process.  The functionings are rates of so much or so many every so often, and, thus, they are velocities.  And the scientific analysis must be in terms of abstract, implicitly-defined, explanatory conjugates rather than in terms of the descriptive accountants’ unities of merely legal or proprietary entities called “firms.” (Continue reading)