Functional Macroeconomic Dynamics seeks not merely to “view” and describe the economic process; rather it seeks to understand and explain the process in order to provide norms of adaptation and systematic guidance to managers of the process. (Continue reading)
“Functional” is for Lonergan a technical term pertaining to the realm of explanation, analysis, theory; it does not mean “who does what” in some (descriptive) commonsense realm of activity. ¶ Lonergan illustrates his basic meaning of ‘explanation’ by referring to D. Hilbert’s method of implicit definition: ‘Let us say, then, that for every basic insight there is a circle of terms and relations, such that the terms fix the relations, the relations fix the terms, and the insight fixes both.’ … ‘Thus the meaning of both point and straight line is fixed by the relation that two and only two points determine a straight line. ‘In terms of the foregoing analysis, one may say that implicit definition consists in explanatory definition without nominal definition.’ (See CWL 3 Insight 12/ 36-37) Lonergan went on to identify the contemporary notion of a “function” as one of the most basic kinds of explanatory, implicit definition – one that specifies “things in their relations to one another” (CWL 3, 37-38/61-62)…In Lonergan’s circulation analysis, the basic terms are rates – rates of productive activities and rates of payments. The objective of the analysis is to discover the underlying intelligible and dynamic network of functional, mutually conditioning, and interdependent relationships of these rates to one another. [CWL 15, 26-27 ftnt 27] Continue reading
Human adaptation is necessary for SURVIVAL of an economy:
(CWL 21, 42-43) our inquiry differs radically from traditional economics, in which the ultimate premises are not production and exchange but rather exchange and self-interest, or later, exchange and a vaguely defined psychological situation. Our aim is to prescind from human psychology that, in the first place, we may define the objective situation with which man has to deal, and, in the second place, define the psychological attitude that has to be adopted if man is to deal successfully with economic problems. Thus something of a Copernican revolution is attempted: instead of taking man as he is or as he may be thought to be and from that deducing what economic phenomena are going to be, we take the exchange process in its greatest generality and attempt to deduce the human adaptations necessary for SURVIVAL. (CWL 21,42- 43) Continue reading
The Wall Street Journal of Thursday, 8/25/2022 featured John H. Cochrane’s commentary entitled “Nobody Knows How Interest Rates Affect Inflation.” We would say, “In order to understand how interest payments from Smith to Jones should circulate in order to achieve price stability, continuity, equilibrium and realization of the economy’s potential, one must have a unified theory explaining the whole, organic, dynamic, pretio-quantital,economic process. Then, within that theory one can know How Interest Rates Might Affect Inflation.” (Click here, and here) We would also assert that manipulation by the Fed of the rental price of money – the interest cost – can be counterproductive. (Continue reading)
The Wall Street Journal of 7/25/2022 featured an article by Senator Elizabeth Warren: “Jerome Powell’s Fed Pursues a Painful and Ineffective Inflation Cure.” Because she lacks an objective, normative, abstract, explanatory theory and, thus, fails to understand the functional interdependencies constituting the organic economic process, particular arguments in her article are a) sometimes contaminated by psychopolitical wishful opinions, b) often ignorantly one-sided because she is unaware that some policies have double edges, c) sometimes contradictory of her other arguments, and d) in at least one case, supercilious.
E. Warren suffers from the same plight as Thomas Picketty. To satisfy her responsibility to the public, she needs to achieve a scientific understanding of the organic economic process; she needs to get a “grip.”
We are at the heart of Picketty’s plight: he has no clue of the needed grip on the grounds of the inequality in history. So, what else can he offer but a centralist solution, taxation, to history’s drunken careening. (McShane, Philip, Picketty’s Plight, 53)
In equity (the basic expansion following the surplus expansion) should be directed to raising the standard of living of the whole society. It does not. And the reason why it does not is not the reason on which simple-minded moralists insist. They blame greed. But the prime cause is ignorance. The dynamics of surplus and basic expansion, surplus and basic incomes are not understood, not formulated, not taught….. [CWL 15, 82]
Abstraction is enriching. The relation of things to our senses must be transcended by abstraction; abstraction yields explanatory concepts implicitly defined by their functional relations to one another.
The commonsense accounting relations constituting historical Gross Domestic Product must be supplemented by the abstract explanatory formulation of Current Gross Domestic Functional Flows. All participants must have the scientific guidance of a normative theory in order to properly adapt their personal conduct to the principles and laws of the objective process. (Continue reading)
In his blog entitled “Picketty in Brief,” dated Sunday, July 24, 2022, N. Gregory Mankiw asks what might be Thomas Picketty’s present thinking about inequality. Has it changed? If so, how and why? Also see on this website “Picketty’s Plight.” in which we quote Philip McShane’s claim that, unless one has a normative explanatory theory yielding precepts as to how enlightened participants in the economic process should adapt and conduct themselves, one can only helplessly and hopelessly suggest harmful bureaucratic centralist solutions – such as disequilibrating taxation and intrinsically–inflationary deficit spending. Continue reading
Lonergan’s basic terms are velocities. There is a shift to dynamics. P. McShane called the creative shift from Walrasian macrostatics to macroeconomic dynamics the Leibnitz-Newtonian shift.
Please see under Key Notions the subtopic with the lengthy title: The Leibnitz-Newtonian Shift of Context and Scientific Economics; Basic Terms, Explanatory Conjugates, An adequate Level of Abstraction, No Premature Introduction of Boundary Conditions.
Taking into account past and (expected) future values does not constitute the creative key transition to dynamics. Those familiar with elementary statics and dynamics (in physical mechanics) will appreciate the shift in thinking involved in passing from equilibrium analysis (of a suspended weight or a steel bridge)…to an analysis where attention is focused on second-order differential equations, on d2θ/dt2, d2x/dt2, d2y/dt2, on a range of related forces, central, friction, whatever. Particular boundary conditions, “past and future values” are relatively insignificant for the analysis. What is significant is the Leibnitz-Newtonian shift of context. [McShane, 1980, 127]
Note that the vertical axis of the Figure 24-7 below represents the accelerations: dQ’/Q’ and dQ”/Q”. Q’ and Q” represent velocities. The title underneath the Figure 24-7 fails to apply the proper superscript to surplus activity. Also, k-1 might be, for example 1.05-1 or .05 or 5% or a geometric increase period after period, while (1/r – 1)Q1 might be !/.95 – 1)100 or (1.05263-1)100 or (.05263)100 or 5.263 which would be a constant magnitude period after period and, therefore, a declining percent period after period. Thus the title indicating the Rate of Change of a percentage change.
Lonergan’s basic terms are velocities and their changes. There is a shift to dynamics. P. McShane called the creative shift from Walrasian macrostatics to macroeconomic dynamics the Leibnitz-Newtonian shift. Again,
In Lonergan’s circulation analysis, the basic terms are rates – rates of productive activities and rates of payments. The objective of the analysis is to discover the underlying intelligible and dynamic (accelerative) network of functional, mutually conditioning, and interdependent relationships of these rates to one another. [CWL 15 26-27 ftnt 27]
- .1. Concomitance and Correlation in Macroeconomic Field theory
- .2. Five Notes re Abstraction; Abstraction is Enriching
- .3. Resume Focus on Concomitance and Correlation in Macroeconomic Field Theory
.1. Concomitance and Correlation in Macroeconomic Field theory
Concomitance is, I would claim, the key word in Lonergan’s economic thinking. [Philip McShane, [Fusion 1, page 4 ftnt 10]
All science begins from particular correlations, but the key discovery is the interdependence of the whole.…its basic terms are defined by their functional relations. [CWL 15, 53, 54, and 177]