Category Archives: Pure Surplus Income

A Philip McShane Sampler Relevant to Functional Macroeconomic Dynamics

Philip McShane had a strong background in mathematics and theoretical physics; thus he was able to understand the scientific significance of Bernard Lonergan’s macroeconomic field theory in an Einsteinian context. (See Philip McShane in Categories in the right sidebar)

First we display, in brief, key excerpts, many of which contain analogies from physics and chemistry, relevant to the science of Functional Macroeconomic Dynamics; then we show the same excerpts more fully within lengthier quotes. Continue reading

The Road Up is The Road Down; The Mechanism of Rising and Falling  Prices

This post was originally entered on May 30, 2022.  We repeat it now because it remains relevant.

“The road up and the road down is one and the same. (Heraclitus)
ὁδὸς ἄνω κάτω μία καὶ ὡυτή

Archaeologists and scholars have not found the context of this isolated fragment of Heraclitus.  What “road” was he referring to, and was he was speaking literally or figuratively? I simply like the statement as an introduction to the ups and downs of distinct price-quantity flows, whether in a pure cycle of expansion or in a distorted cycle of inflationary boom and corrective slump. Continue reading

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

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)

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

In explaining the normative pure cycle of economic expansion for which the process has a systematic exigence, Lonergan redefinedcosts” 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

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

 

We have recited some aspects of the dynamic economic process:

    • (Dummy) money “must be constant in exchange value.”
    • Prices alone do not explain the economic process. Prices must be interpreted in the light of those significant variables which actually explain the economic process.
    • The economic process of production and exchange always is the current, purely-dynamic process
    • The economic process is an organic whole
    • The process has an exigence for a normative pure cycle of expansion.
    • Equilibrium requires the keeping of pace and balance among interdependent flows of products and money
    • Scarcity is the normal cause of inflation
    • Maladjustment of incomes is the maladaptive cause of inflation
    • Just as the surplus phase of the expansion is anti-egalitarian in tendency, postulating an increasing rate of saving, … so the basic phase of the expansion is egalitarian in tendency; it postulates a continuously decreasing rate of saving [CWL 15, 139]
    • The central adjustment to the respective phases of the process may be formulated as adjustment of I”/(I’ + I”), the ratio of surplus income to total income
    • Interpreters of prices must distinguish between real and relative price increases monetary and absolute changes in prices We have recited some aspects of the dynamic economic process: (Continue reading)

Stagflation Demystified

The general form of so-called stagflation is more money chasing fewer goods in the basic circuit and a dearth of investment in the surplus circuit to keep pace with the strong basic demand. (Click here)

Lonergan gave one theoretical example of stagflation – without calling it that – wherein the principle of concomitance and the condition of equilibrium between the operative circuits of the process is violated: Continue reading

Bootcamp To Educate the House, Senate, Federal Reserve, and Bureau of Economic Analysis, Especially Janet Yellen and Jerome Powell

One Week Bootcamp

Restricted to persons with solid backgrounds in mathematics and the natural sciences

Topics

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Principles of Macroeconomics

N. Gregory Mankiw’s two textbooks – Principles of Microeconomics (Fourth Edition, 2007) and Brief Principles of Macroeconomics (Fifth Edition, 2009) – have their first chapter entitled “Ten Principles of Economics.” The first four of the ten principles deal with the concept of efficient cause consisting in the subjective psychology of human participants as they make microeconomic decisions about their personal economic well-being. In contrast, Lonergan’s Macroeconomic Dynamics: An Essay in Circulation Analysis (1999) first treats the objective macroeconomic situation to whose laws the psychological participants must adapt in the conduct of their lives.  Lonergan seeks the immanent macroeconomic intelligibility of the objective system of production and exchange.  Both Mankiw and Lonergan deal intelligently in the micro and macro realms. Lonergan seeks to treat “first things first.” Continue reading

Explaining “Present Fact”: An Ever-Varying Process; A Never-Varying Systematics

The economic process is always the current, purely-dynamic, concrete functioning. The analysis of the dynamic process is always relevant to the present fact. The immanent intelligibility of such a dynamic, ever-varying process may itself be an invariant; i.e. though the differentials may change in magnitude, the relation of the differential velocities and accelerations among themselves is invariant.  So it is in the case of dynamic pendular motion, elliptic motion, the variables of electromagnetic phenomena, and in the dynamic economic process.  The general laws of the process are applicable in any instance.  These primary, abstract, general, field-theoretic laws may be applied to whatever may be the secondary determinations from the concrete non-systematic manifold.  Thus we can get the particular law explaining the particular concrete process under investigation.

The overall economic functioning has an objective immanent intelligibility.  This intelligibility is an invariant – a set of differential equations which implicitly define the explanatory, conjugate, differentials of the dynamic process. The explanatory terms are abstract functions defined by their functional relations to one another. In the implicit equations, the terms define the relations and the relations define the terms, and insight fixes both. And the equations cohere with one another to constitute a fully-explanatory field theory.

The point-to-line and higher correspondences are based upon the indeterminacy of the relation between certain (surplus) products and the (later ultimate basic) products that (exit the process and eventually) enter into the standard of living. … the indeterminacy is very much a present fact.  One has to await the future to have exact information.   And while estimates in the present may be esteemed accurate, the future has no intention of being ruled by them: owners do not junk equipment simply because it has outlasted the most reliable estimates; nor are bankrupts kept in business because their expectations, though mistaken, are proved to have been perfectly reasonable.  The analysis that insists on the indeterminacy is the analysis that insists on the present fact: estimates and expectations are proofs of the present indeterminacy and attempts to get round it; and, to come to the main point, an analysis based on such estimates and expectations can never arrive at a criticism of them; it would move in a vicious circle.  It is to avoid that circle that we have divided the process in terms of indeterminate point-to-line and point-to-surface and higher correspondences. [CWL 15, 27-28]

in the long run, and especially in the very long run, such a correlation exists.  It is that surplus production is the accelerator of basic production.  In other words the correspondence between the two is not a point-to-point but a point-to-line correspondence; … Now such a correspondence, if it is to be expressed not in terms of expectations of the future but in terms of present fact, is a correspondence of accelerator to accelerated. … If the system is to move into a long-term expansion, this movement has to begin with a surplus quantity acceleration: surplus production has not merely to maintain or renew existing capital equipment but has to reach a level at which it turns out new units of production and maintains or renews a greater number of existing units; this gives the quantity surplus expansion. [CWL 21, 132]

(there is to be discerned a threefold process in which a basic stage is maintained and accelerated by a series of surplus stages, while the needed additions to or subtractions from the stock of money in these processes is derived from the redistributive area) … The maintaining of a standard of living is attributed to a basic process (distinct process 1), an ongoing sequence of instances of so much every so often.  The maintenance and acceleration (distinct process 2) of this basic process is brought about by a sequence of surplus stages, in which each lower stage is maintained and accelerated by the next higher.  Finally, transactions that do no more than transfer titles to ownership are concentrated in a redistributive function, whence may be derived changes in the stock of money (distinct process 3) dictated by the acceleration (positive or negative) in the basic and surplus stages of the process. … So there is to be discerned a threefold process in which a basic stage is maintained and accelerated by a series of surplus stages, while the needed additions to or subtractions from the stock of money in these processes is derived from the redistributive area. … it will be possible to distinguish stable and unstable combinations and sequences of rates in the three main areas and so gain some insight into the long-standing recurrence of crises in the modern expanding economy. [CWL 15, 53-54]