Category Archives: Monetary Circulation

Explanatory Macroeconomic Dynamics; Relevant In Any Instance

There are five figures below from CWL 15:  The single figure on the left represents the interrelations of interdependent Monetary Flows; and the figure contains the important condition of dynamic equilibrium: G = c”O” -i’O’ = 0.  The four figures stacked on the right demonstrate aspects of the productive phases constituting a Pure Cycle of Expansion. The bidirectional arrows uniting the two sides signify that the dynamic equilibrium among interdependent flows specified on the left is to be achieved consistently throughout the long-run expansion represented on the right.  This condition of dynamic equilibrium is that the crossover flows between the two interacting circuits must continuously balance even as they continuously vary in magnitude in the succession of phases constituting the expansionary process.  Just as the general laws of simple parabolic or pendular motion are explanatory and applicable to any particular instance of initial angle and velocity, so a) the primary relativities of productive and monetary flows, and b) the primary differentials of long-term expansion explain the economic process, and are normatively relevant in every particular instance.  All five diagrams are unitary.  Each and every velocitous and accelerative flow of products and money has proximate or remote explanatory aspects embedded in all five diagrams. (Continue reading)

FMD’s Take on Greg Mankiw’s Take on Modern Monetary Theory


  • .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

Continue reading.

DSGE vs. FMD; Sbordone, Tambalotti, Rao, and Walsh

DSGE is – to many economists – the standard model and method of macroeconomic analysis.  See our treatment of the textbooks’ IS-LM, AD-AS models and the Phillips Curve correlation.

The acronym stands for Dynamic (in Newtonian mechanics an external force causes a change to constant velocity, i.e. an acceleration, which may be negative or positive), Stochastic (random, not according to system, probabilistic, unexplained) General (pertaining to the entire economic process), Equilibrium (essentially Walrasian static equilibrium).

Leon Walras developed the conception of the markets as exchange equilibria. Concentrate all markets into a single hall. Place entrepreneurs behind a central counter.  Let all agents of supply offer their services, and the same individuals, as purchasers, state their demands.  Then the function of the entrepreneur is to find the equilibrium between these demands and potential supply. … The conception is exact, but it is not complete.  It follows from the idea of exchange, but it does not take into account the phases of the productive rhythms. … [CWL 21, 51-52] (Continue reading)

The Process is Always the Current, Purely Dynamic Process, etc. (See full title specification below.)

The process is always the current, purely dynamic process.  The analysis is purely functional, purely relational and explanatory analysis.  The theory is general and universally applicable  to concrete determinations in any Instance; The theory is a normative theory having a condition of equilibrium.

Our subheadings in this treatment are as follows:

  • Always the Current Process:
  • A Purely Dynamic Process Requiring a Dynamic Heuristic:
  • A Purely Functional Analysis:
  • A Purely Relational, Explanatory Analysis:
  • A Theory, General and Universally Applicable to Concrete Determinations in Any Instance:
  • A Normative Theory Having a Condition of Equilibrium:

Always the Current Process: Continue reading

Lonergan’s functional, analytic distinctions are prior to and more fundamental than changes in prices, interest rates, and employment

Lonergan is alone in using this difference in economic activities to specify the significant variables in his dynamic analysis… no one else considers the functional distinctions between different kinds of (production flows) prior to, and more fundamental than, … price levels and patterns, … interest and profits, and so forth….only Lonergan analyzes booms and slumps in terms of how their (explanatory) velocities, accelerations, and decelerations are or are not equilibrated in relation to the events, movements, and changes in two distinct monetary circuits of production and exchange as considered both in themselves (with circulatory, sequential dependence) and in relation to each other by means of crossover payments. [CWL 15, Editors’ Introduction, lxii]

The Intrinsic Cyclicality of the Productive Process

The economy is composed of the production of two conceptually distinct, mutually-definitive types of goods.  Depending on the context they may be named

  • basic goods or surplus goods,
  • consumer goods or producer goods,
  • accelerated goods or accelerator goods,
  • point-to-point goods or point-to-line goods.

An expansion of the surplus production function causes a later acceleration of the basic production function.  First one surge, then later the other surge.  Note the symbols for time (t) and (t-a) in the following formula, “the lagged technical accelerator.” (continue reading)

kn[f’n(t-a)-Bn] = f”n-1(t) – An-1        CWL 15, p. 37