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

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 Similarly in taxes (T), we have to distinguish between T’ withdrawn from basic demand and T” withdrawn from surplus demand.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)

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)

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)

The Wall Street Journal of Thursday, 8/25/2022 featured John H. Cochrane’s commentary entitled “Nobody Knows How Interest Rates Affect Inflation.” We would say, “In order to understand how interest payments from Smith to Jones should circulate in order to achieve price stability, continuity, equilibrium and realization of the economy’s potential, one must have a unified theory explaining the whole, organic, dynamic, pretio-quantital,economic process. Then,within that theory one can know How Interest Rates Might Affect Inflation.” (Click here, and here) We would also assert that manipulation by the Fed of the rental price of money – the interest cost – can be counterproductive. (Continue reading)

… 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 →

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 →

To indicate the editors’ helpfulness in placing Functional Macroeconomic Dynamics in its historical and theoretical contexts, we list below the headings of theEditors‘ Introduction 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

Lonergan’s Entry into Economics, 1930-1944 / xxvi

Democratic Economics: An alternative to Liberalism and Socialism / xxxii

Liberalism and Socialism as Economistic Ideologies / xxxv

Free Enterprise as an Educational Project

Lonergan’s Reentry into Economics, 1978-1983 / xxxix

Lonergan’s Interlocutors in Economics / xliii

Lonergan and Marx / xlvi

Lonergan and Marshall / xlvii

Lonergan and Keynes / xlviii

Lonergan, Kalecki, and Others / li

Lonergan and Schumpeter / li

Macroeconomic Dynamic Analysis as a New Paradigm of Economic Theory / liv

The Systematic Significance of the Fundamental distinction between Basic and Surplus Production and Exchange: A Normative Theory of the Pure Cycle

Profit / lxiii

Interest / lxvii

Lonergan’s Critique of ‘Supply-Side’ and ‘Demand-Side’ Economics / lxvii

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 system. But 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.