.I. Introduction: Contrasting Diagrams and What They Represent
We contrast an assumption and description with an explanation and interpretation. We contrast the Dynamic Stochastic General Equilibrium (DSGE) assumptionand description of pricing as exogenously given and acceptable as a lead item in analysis of economic problems with Functional Macroeconomic Dynamics’ (FMD’s) explanation and interpretation of pricing in the light of the significant functional pretio-quantital flows, which explain the dynamic economic process. (Continue reading)
The “formal cause” of the economic process is its immanent intelligibility. The formal cause consists in the primary relativities or general laws of the process, which hold in any number of instances. In the formal cause we apprehend many things as one; we grasp all in a unified view. The formal cause contains the normative theory but explains both equilibria and disequilibria. Particular boundary conditions, such as past and future prices and quantities are relatively insignificant for the analysis; these boundary conditions are further determinations that are contingent from the very fact that they have to be obtained from a non-systematic manifold. (CWL 3, 491-6/) Continue reading →
Lonergan, like Euclid, Newton, and Mendeleyev, moved through his field of inquiry to the level of system.
(Given the failure to implement the basic expansion,) the systematic requirement of a rate of losses will result in a series of contractions and liquidations. … [CWL 15, 155]
… 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. [CWL 14, Method, 1971, 241-42]
Let our ending be also our beginning. The final paragraph of this Post is as follows: We hope that Mr. Dalio will study Bernard Lonergan’s Macroeconomic Dynamics: An Essay in Circulation Analysis (CWL 15) to advance his present considerable understanding even further, so that, as a person of influence, Mr. Dalio will present a more advanced, more adequate understanding of the economic process to the nation and the world.
On 9/11/18 Ray Dalio, Co-Chairman and Founder of Bridgewater Associates, appeared on TV and reviewed some highlights of his new book, A Template for Understanding Big Debt Crises. The book is presently available as a free PDF (with some strings attached). An alternative, no-strings-attached, introduction to Mr. Dalio’s thinking is available on the Bridgewater website’s home page under the title The Economy, How the Economic Machine Works.
Mr. Dalio’s comments were cogent; they were somewhat aligned with much of what Lonergan has provided in his scientific systematics of the economic process. Both would agree that the repetition of crises is not inevitable; crises are caused by repeated mismanagement. But what Dalio loosely describes Lonergan precisely explains. Continue reading →