Category Archives: National Income and Product Accounts (NIPA)

Facing Facts: The Ideal Of Constant Value Of The Currency vs. The Fact Of Inflation

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    • Ideally, (dummy) money would be constant in exchange value.
    • Scarcity is the normal cause of inflation
    • The maladaptive cause of inflation is maladjustment of incomes as required by the current phase of the pure cycle of expansion
    • The quantity of money infused by the Central Bank must be properly calibrated to serve the normative requirements of the actual magnitudes and frequencies of turnovers in the productive process

      • Economists must carefully consider tiers of basic incomes and propensities to consume:

      I’ = Σwiniyi   (35) [CWL 15, 134]  and

      dI’ = Σ(widni + nidwi)yi (36) [CWL 15, 134]. 

      • Also, Economists must carefully consider expansion in phases and the interpretation of its effect on the Basic Price-Spread Ratio. (CWL 15, 156-62):

    • P/p = a’ + a”p”Q”/p’Q’   (CWL 15, 156-62) (45)

      i.e.,   J = a’ + a”R   (CWL 15, 156-62) (45)

      so,  dJ = da + a”dR + Rda”   (CWL 15, 156-62) (47)

Note: The treatments of price changes in CWL 15 are mainly in 1) pp.75-80, 2) 128-44, and 3) 156-62.

Sequence of Contents

  • Ideal and practical aspects of the economic process 
  • Ideally, money would be constant in exchange value 
  • The condition of constancy in exchange value 
  • Characteristics of dummy money in an exchange economy 
  • Promise and trust between two parties
  • The dynamic structure of the productive process and classes of monetary flows 
  • But prices do change.  The changes have causes and intelligibilities and the changes must be interpreted.
  • Concomitance and intensity among flows
  • Real analysis and the everyday use of money 
  • Price tendencies (prescinding from excess or deficient money supply) 
    • The first kind of cause of inflation – ordinary scarcity
    • The second kind of cause of inflation – disproportion between monetary and real consumer income
  • Misconceptions of professional economists as to interest rates and responsibilities
  • Adjusting the rate of saving to the phase of the expansion
  • Further re interpretation of price changes 
  • The basic price-spread ratio

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Bloomberg Wall Street Week: “Economics Has No Good Theory of Inflation.”

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This is a companion-piece to Facing Facts: The Ideal Of Constant Value Of The Currency vs. The Fact Of Inflation.  Please read both.

This past weekend, 11/4-5/2023, Cecilia Rouse, future President of The Brookings Institution, appeared on Bloomberg Wall Street Week with moderator, David Westin.  Under the pressure of scant time, they briefly, but inadequately, discussed the notion of a “theory of inflation.” It was opined that

“The reality is that in economics there’s not a fabulous theory and one theory of inflation.”

“…economics doesn’t have one solid and established theory of inflation.”

Also, commenting on the same topic, David mentioned that the Phillips Curve “correlation”, which is a staple of of the Fed’s thinking and decision-making, and which has been supposed by many economists to be a valid correlation of fluctuating wage rates and their resulting pressure on inflation with unemployment, has not been proven valid and reliable.  That is to say that its two main variables are not directly correlated and inextricably linked; that the supposed reliability is bogus; that no matter how often it is considered and bandied about internally among supposedly-expert economists and externally to the truth-seeking public, the Phillips Curve theory is simplistic, insufficiently nuanced, and has been debunked.

Lonergan’s Macroeconomic Field Theory is a comprehensive general theory. It has many aspects and relations, all of which can be grasped at once in a unified whole.  Also, this unified whole virtually and implicitly contains a set of terms and relations constituting a unitary theory of inflation.  So, obviously we disagree with the two opinions quoted verbatim above, but left hanging on Bloomberg Wall Street Week.

It is the viewpoint of the present inquiry that, besides the pricing system, there exists another economic mechanism, that relative to this (other) 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]

In the mid-70’s, economists were mystified by stagflation, the combination of stagnant production and rising prices. According to the Phillips Curve, the correlation of inflation with unemployment, stagflation should not happen. … the U.S. economy was experiencing the phenomenon of ‘stagflation’ – a clearly discernible overturning of the conventional economic wisdom about the tradeoff between inflation and unemployment so neatly expressed in the Phillips curve. So-called ‘Keynesian fine tuning onto the neoclassical track’ was not working; and forms of socialist planning only promised to deepen rather than resolve the anomalies of welfare economics. … (Lonergan) believed he had an explanation for what, in a statement from the essay we are editing, he described as a “situation – sometimes thought mysterious – in which consumer prices continuously inflate, new enterprise is evaded, unemployment becomes chronic, and despite inflation the value of stocks declines.” [CWL 15, Editors Introduction, xli]

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New Foundations in 30 Minutes

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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

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

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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)

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

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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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Debunking Marx’s “Exploitation”; The “Iron Law” of Consumer Expenditures; (CWL 15, footnote 34; CWL 21, ftnt. 14 [Editor’s Intro] and 87)

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In explaining the normative pure cycle of economic expansion for which the process has a systematic exigence, Lonergan redefined “costs” and “profits”,

There is a sense in which one may speak of the fraction of basic outlay that moves to basic income as the “costs” of basic production.  It is true that that sense is not at all an accountant’s sense of costs; … But however remote from the accountant’s meaning of the term “costs,” it remains that there is an aggregate and functional sense in which the fraction… is an index of costs.  For the greater the fraction that basic income is of total income, the less the remainder which constitutes the aggregate possibility of profit.  But what limits profit may be termed costs. Hence we propose ….to speak of (c’O’  = p’a’Q’) and (c”O” = p”a”Q”) as costs of production, having warned the reader that the costs in question are aggregate and functional costs…. [CWL 15, 156-57] Continue reading →

Commonsense Economics vs. Scientific Economics

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A sound theory is a good thing to keep around.  Clerk-Maxwell’s electromagnetic theory and Kirchoff’s laws of electric circuits are good systematics to consult when one is designing a system to deliver electricity.  Similarly, when one is seeking to understand, affirm, and manage the economic process, a reliable, scientific macroeconomics, which both explains how the process actually works and yields norms for adaptation by human participants, is a good thing to have around.

Common sense is different from science.  Common sense describes; science explains.  Common sense relates things to us; science relates things to one another.  And scientific Macroeconomic Field Theory, also called Functional Macroeconomic Dynamics, is different from the mere commonsense compilation of descriptive accounting aggregates called Gross Domestic Product. Continue reading →

Field Theory in Physics and Macroeconomics

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We hope to inspire serious graduate students of economics a) to seek and achieve an understanding of “Macroeconomic Field Theory,” b) to verify empirically Lonergan’s field relations,  and c) to use the explanatory field relations as the basis of influential scholarly papers.

We trace developments

  • in physics from Newtonian mechanics to modern field theory, and
  • in economics from Walrasian supply-demand economics to purely relational, Modern Macroeconomic Field Theory.

Key ideas include a) abstraction and implicit definition as the basis and ground of invariance in both physics and macroeconomics, b) the concept of a purely relational field, c) immanent intelligibility and formal causality, and d) the canons of parsimony and of complete explanation. We highlight some key ideas: (continue reading)

Seminar on “Critical Thinking in Economics”

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Presenters John Siegfried and David Colander, and discussants Daron Acemoglu, Melissa S. Kearney, John A List, N. Gregory Mankiw,  Deirdre McCloskey, and Betsey Stevenson recently collaborated in a virtual ASSA meeting entitled “What Does Critical Thinking Mean in Economics, the Big and Little of It?” Handouts from the meeting can be found in an Announcement in a blog of Saturday, January 2, 2021 on N. Gregory Mankiw’s website.

Preliminarily, note the subtitle in Lonergan’s seminal work, Insight: A Study of Human Understanding.  In the present context we might reword the subtitle A Study of Critical Thinking.  A very smart person – learned in  advanced mathematics and theoretical physics – called Lonergan’s book “The Most Significant Book of the Twentieth Century.”       (Continue reading)

Functions Are Not Seen, But Must Be Understood

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Functions are not seen, but must be understood. (Catherine Blanche King, private communication)

A systematic explanation, then, requires a normative theoretical framework.  The basic terms and relations of such a framework would specify the distinctions and correlations that articulate the causes, which are not necessarily visible, of events that are apparent to all.  (CWL 15,  Editors’ Introduction, lv) (Continue reading)