Category Archives: Science and Explanation

Modern Monetary Theory Again

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This past weekend’s Wall Street Journal featured a commentary entitled “Bidenomics, Also Known as MMT: The crazy economic theory that spending has no consequences”, co-authored by Arthur Laffer and Stephen Moore.

We have previously commented on Modern Monetary Theory and dubbed it Modern Monetary Quackery.  We agree with the authors’ conclusions on the particular matter of MMT, however, it would be good to inform the readers, not only of the technical issues involved in and stemming from MMT’s unconstrained spending, but also of the issue of unfairness.To that end we direct the reader to our other treatments and offer further comments.

Previous treatments:

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Three Paragraphs Foundational to Lonergan’s Discovery of Macroeconomic Field Theory

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The fundamental point to be grasped here is a point that has been made.  The absolute resides not on the level of sensible presentations but in the field of abstract propositions and invariant expressions. (CWL 3, 166/189-90)

Science does not advance by deducing new conclusions from old premises.  Deduction is an operation that occurs only in the field of concepts and propositions.  But the advance of science, as we have seen, is a circuit, from data to inquiry, from inquiry to insight, from insight to the formulation of premises and the deduction of their implications, from such formulation to material operations, which yield fresh data and, in the limit,  generate the new set of insights named a higher viewpoint.  A basic revision, then, is a leap.  At a stroke, it is a grasp of the insufficiency both of the old laws and of the old standards. At a stroke, it generates both the new laws and the new standards.  Finally, by the same verification, it establishes that both the new laws and the new standards satisfy the data. (CWL 3, 166/190)

What holds for standards, also holds for their use.  It is necessary to define as accurately as possible the precise type of magnitude that is to be measured.  It is necessary to define the precise procedure that leads from the measurable magnitude and the standard unit to the determination of the number named a measurement.  At each stage in the development of a science, these definitions will be formed in the light of acquired or presumed knowledge.  But at every subsequent stage, there is the possibility of further acquisitions and of new presumptions and so of the revision of the definitions.  Such a revision involves, not the deduction of new conclusions from old premises, but a leap to fresh premises.  Such is the generic notion of measurement. Clearly, it contains within itself the possibility of successive differentiations that result from revisions that occur in the abstract field of definitions, principles, and laws.  We have now to turn our attention to the revision involved in the notions of spatial and temporal measurements by the Special Theory of Relativity. (CWL 3, 166-67/190-91)

The Lack of Ultimacy in Price Theory: Prices are Last in the Analysis and Purely Relative

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Contents

.1. Preliminaries and preview

.2. Functional Macroeconomic Dynamics is a normative theory

.3. Microeconomics vs. Macroeconomics

.4. The normative systematics of prices is last in the analysis – We are doing neither introductory microeconomics nor aggregate microeconomics

4.a Preliminaries

4.b CWL 3, Chapter II: Excerpts and Paraphrases Relevant to Empirical Science and Macroeconomics

4.c Reference to other treatments

4.d Prices are treated in several contexts in CWL 15

4.e PRICES ARE FORMALLY TREATED LAST IN THE ANALYSIS

4.f The INTELLIGIBILITY OF PRICES as real and relative.

4.g “Absorbing several trillion Dollars of Free Money”

4.h Miscellanea

4.i The Concrete Intelligibility of Space, Time, Quantity, and Price

4.j The Abstract Intelligibility of Space and Time

.5. Monetary stability -correlation and concomitance of magnitudes and frequencies with magnitudes and frequencies

.6. Lonergan’s three assumptions in treatment of pure expansion

.7. Inflation due to scarcity or to mistaken anticipations – instances of inflation

.8. Divergences of particular flows and the requirement of systematic correction

.9. Miscellanea

.10. CWL 15, Section 28 spreadsheet

.11. Appendix: Indexes of textbooks re prices

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CWL 3, Chapter II: Excerpts and Paraphrases Relevant to Empirical Science and to the Science of Functional Macroeconomic Dynamics

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CWL 3, Chapter II:  “Heuristic Structure of Empirical Method”

Introductory

This entry focuses on a) the general form of explanatory classical science, and b) on scientific explanation vs. non-explanatory common sense. It is constituted largely by excerpts and paraphrases relevant to empirical science, and therefore, also to what constitutes the empirical science of macroeconomics. Though we are herein confined to excerpts and commentary, we recommend strongly that the serious self-educating student read CWL 3, Chapter II, in its entirety.

[CWL 3] Lonergan, Bernard J. F. (1957 ) Insight, A Study of Human Understanding, Longmans, Green and Co. Ltd., London; and (1997) Toronto: University of Toronto Press [CWL 3, 1957 edition/1997 edition] 

First, here are eight introductory pointers:

.1) Empirical inquiry has been conceived as a process from description to explanation.  We begin from things as related to our senses.  We end with things as related to one another.  Initial classifications are based upon sensible similarities.  But as correlations, laws, theories, systems are developed, initial classifications undergo a revision. Sensible similarity has ceased to be significant, and definitions consist of technical terms that have been invented as a consequence of scientific advance…. The basic notions of physics are a mass that is distinct from weight, a temperature that differs from the intensity of the feeling of heat, and the electromagnetic vector fields.¶ Now the principal technique in effecting the trqnsition from description to explanation is measurement. We move away from colours as seen, sounds as heard, from heat and pressure as felt. In their place, we determine the numbers named measurements. In virtue of this substitution, we are able to turn from the relations of sensible terms, which are correlative to our senses, to the relations of numbers, which are correlative to one another.  Such is the fundamental significance and function of measurement. (CWL 3, 164-5)

.2) Our direct understanding abstracts from the empirical residue. (CWL 3, 516/540)

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Abstraction in Macroeconomics; Classical and Statistical Laws

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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)

The Necessity of a Diagram

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Lonergan brought knowledge from several other fields, which knowledge was applied and foundational to his work on Functional Macroeconomic Dynamics.  During the writing of these pages, two different ideas frequently occurred to the author: 1) it was important to communicate the key background that Lonergan brought to Functional Macroeconomic Dynamics from mathematics and the sciences, and 2) perhaps specialists in pure and applied mathematics and physics, rather than heretofore economists, might be better candidates for understanding and appreciating Lonergan’s work.  If the readers themselves had backgrounds adequate to appreciate the full context of the foundation of Functional  Macroeconomic Dynamics, they would be more intrigued and interested.  How could the person who authored Insight not be innovative, perhaps revolutionary, when he sought to discover a scientific macroeconomics?  So, below are some background things about a) insight into diagrams and images, b) the importance of images to Einstein and other physicists, and c) the theoretical breakthrough represented by the particular diagram entitled Diagram of Rates of Flow. Continue reading

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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Thanks to Catherine Blanche King for a Clarifying Paragraph

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Thanks to Catherine Blanche King for recommending the following paragraph re description vs explanation.

Seventhly. however, the questions that are answered by a pattern of internal relations are only questions that ask for explanatory system.  But besides things-themselves and prior to them in our knowing, there are things-for-us, things as described.  Moreover, the existents and occurrences, in which explanatory systems are verified, diverge non-systematically from the ideal frequencies that ideally would be deduced from the explanatory systems.  Again, the activity of verifying involves the use of description as an intermediary between the system defined by internal relations, and, on the other hand, the presentations of sense that are the fulfilling conditions.  Finally, it would be a mistake to suppose that explanation is the one true knowledge; not only does its verification rest on description but also the relations of thing to us are just as much objects of knowledge as are the relations of things among themselves. (CWL 3, 345)

We have often pointed out Lonergan’s intention to explain scientifically the dynamic economic process.  The above paragraph clearly points out the existence and importance of description in human knowing. A frequent quote:

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]

A Must-Read: Editors’ Introduction to CWL 15, Sections 5 and 6

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Serious readers – especially graduate students in economics – must do themselves a huge favor.  They owe it to themselves to read carefully two sections of Frederick G. Lawrence’s Editors’ Introduction of CWL 15,

[CWL 15] Lonergan, Bernard (1999), Macroeconomic Dynamics: An Essay in Circulation Analysis, ed. Frederick G. Lawrence, Patrick H. Byrne, and Charles Hefling, Jr., vol 15 of Collected Works of Bernard Lonergan, (Toronto: University of Toronto Press) [CWL 15]

Section 5: Macroeconomic Dynamic Analysis as a New Paradigm of Economic Theory

Section 6: The Systematic Significance of the Fundamental Distinction Between Basic and Surplus Production and Exchange: A Normative Theory of the Pure Cycle

6.1 Profit

6.2 Interest

6.3 Lonergan’s Critique of ‘Supply-Side’ and Demand-Side’ Economics

Eventual mastery by serious readers of these sections plus the main text will help them secure influential professorships, research grants, board seats and other important advisory positions.  They will have the satisfaction of influencing beneficially those with whom they interact professionally and casually.

Two other key works:

[CWL 21] Lonergan, Bernard (1998), For a New Political Economy, ed. Philip McShane, vol 21 of Collected Works of Bernard Lonergan, (Toronto: University of Toronto Press) [CWL 21]

[CWL 3] Lonergan, Bernard J. F. (1957 ) Insight, A Study of Human Understanding, Longmans, Green and Co. Ltd., London; and (1997) Toronto: University of Toronto Press [CWL 3, 1957/1997]