Scientific macroeconomics, if it is to be genuinely scientific, must not be contaminated by human psychology. Gustav Kirchhoff’s laws of the electric circuit do not incorporate the psychology of the human who operates the levers or switches. So, Lonergan, the scientist, strove to discover the purely relational, purely functional laws of the circuits of the objective economic process. Unfortunately, many proponents of Modern Monetary Theory exhibit sentiments and inclinations favoring a totalitarian bureaucracy for the management of fiscal and monetary affairs. Their purported science contains some valid assertions, but is not a coherent set of objective laws to which participants must adapt, regardless of sentiment; rather MMT is an admixture of several ideological and psychopolitical sentiments transformed into a contaminated set of mandates for the management of fiscal and monetary affairs. The tenets of MMT fail to constitute a fully explanatory theory of macroeconomic dynamics. (to continue reading, click here)
The heart of the normative theoretical framework that can actually explain business and trade cycles is what (Lonergan) calls the ‘Pure Cycle’ (§10, §24, 114). This cycle generalizes into clearly articulated relationships the ideal phases characteristic of major economic transformations as they depart from a stationary phase and move through phases first of surplus expansion and then of basic expansion, only to return to a new stationary phase. … (CWL 15, Editors’ Introduction, lxiii) (Continue reading)
We wish to gain a perspective on circulations. To that end we propose a unique, double-circuited, quasi-hydrodynamical system.
.I. Summary of the Analysis: Heuristic, Observations, and Discoveries
.II. Summary of the Argument (verbatim from CWL 15, 5-6)
.III. Supplement to the Summaries
Harvard Magazine’s podcast, “Ask a Harvard Professor,” recently featured an interview of professors Doug Elmendorf and Karen Dynan – two good people – under the title Doug Elmendorf and Karen Dynan: How Much Can the Federal Budget and the Deficit Continue to Grow? (Click here for video and print versions of the interview)
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)
- .I. Introductory
- .II. The “legal” basis of our criticism; the “laws” of the process
- .III. Key objections to Modern Monetary Theory
- .IV. Observations re “A Skeptic’s Guide to Modern Monetary Theory”
- .V. Why and how the Basic Expansion fails to be implemented
- .VI. Addendum #1: Primary relativities of the economic process
- .VII. Addendum #2: Excerpts re the drift to totalitarianism
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.
Economists don’t have the methodological and conceptual toolkit needed for appreciation of FMD’s scientific and historical significance.
- They don’t know what they don’t know.
- They’re not methodologists and don’t know what constitutes good theory.
- They never read CWL 3, pages 3-172 and 490-97 and, thus, they never studied the canons of empirical method, especially the Canon of Parsimony and the Canon of Complete Explanation; they have no idea of the deficiencies of their method.
- Thus, they lack a purely scientific and explanatory heuristic.
- They do not adequately distinguish description vs. explanation.
- They do not know the type of answer they’re seeking, i.e. their known unknown.
- They do not put questions in the right order to discover basic terms of scientific significance.
- They are mired in muddy premises and disorienting assumptions.
- They are unable to employ a scientific, dynamic heuristic adequate for analysis of a current, purely dynamic process.
- They don’t understand what constitutes the normative system’s requirement for concomitance, continuity, and equilibrium of flows.
- They lack a background in theoretical physics. They don’t understand the principles and abstract laws of hydrodynamics, electric circuits, or field theory. Nor do they understand adequately the idea of continuity and the conditions of equilibrium in macroeconomic dynamics. They are unaware of analogies from physics applicable on the basis of isomorphism to the phenomena of Functional Macroeconomic Dynamics. (Continue reading.)
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).