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Primary Functional Relativities in the Diagram of Rates of Flow

As represented below in the Diagram of Rates of Flow, in Functional Macroeconomic Dynamics the “basic terms are defined by their functional relations.”  The basic terms are precise analytical terms upon which a superstructure of explanatory relations can be constructed. Thus, the terms are of scientific and explanatory significance. (Continue reading)

Diagram of Rates of Flow 2

Diagram of Rates of Flow

The Two Components of Concrete Relations

One cannot help but think that Bernard Lonergan had functional macroeconomic dynamics clearly in mind as he treated the intelligibility of world process in CWL 3, Insight: …, which is very much an implementation of the act of understanding of mathematicians and natural scientists.  In his understanding of mathematics, the natural sciences, and the science of macroeconomics in particular, he grasped that the explanation of the dynamic concrete process is expressed by a mathematical conjunction of component abstract primary relativities with component concrete secondary determinations from the non-systematic manifold.  And these secondary determinations, such as particular prices and quantities, are to be interpreted in the light of the significant, abstract, explanatory variables rather than in the obscurity of the IS-LM, and AD-AS models. (Continue reading)

The Significance of Burley’s And Csapo’s Characteristic Equation And Its Root Solution

Our references in this section are [Burley, 1992-2] and [Burley and Csapo, 1992-1].

Burley, Peter and Csapo, Laszlo, (1992) Money Information in Lonergan-von Neumann Systems, Economic Systems Research, Vol 4, No. 2, 1992 [Burley and Csapo, 1992-1]

Burley, Peter (1992) Evolutionary von Neumann Models, Journal of Evolutionary Economics 2 , 269-80 [Burley, 1992-2]

We consider a game-theoretic, von Neumann model of the transitional process from an initial stationary state to a more abundant stationary state, with matrix A of inputs and matrix B of outputs containing explanatory functional variables.  (continue reading)

Gennaioli and Shleifer’s Recent Book: “A Crisis of Beliefs”

Andrei Shleifer is a professor of economics at Harvard University.  Nicola Gennaioli is a professor in the Department of Finance at Bocconi University, Milan.

A Crisis of Beliefs is well worth reading as either a treatise on psychology or as an application of a model of psychology to people’s mistaken thinking and acting in certain economic circumstances.

But Gennaioli and Shleifer must ask, How would the human participants act if, instead of being a bundle of desires, fears, cognitive biases, and ignorance regarding the abstract primary relativities of the economic process, they understood the laws of the process and the precepts for adaptation yielded by the laws? That is to ask, Is there a set of laws independent of human psychology and above intellectual ignorance to which human participants would enlightenedly adapt if they understood them? And, if so, is not the primary responsibility of professors of macroeconomics to educate and enlighten participants as to the laws they are violating so as, thus, to curb automatically their irrational psychological tendencies? Continue reading

The Simple Move to Two Explanatory Circuits; New Foundations of a Scientific Dynamics; NIPA’s GDP Replaced by FMD’s GDFF

Lonergan’s two-circuit diagram (below) represents a theoretical breakthrough.  It replaces the single-circuit diagram common to the textbooks of macroeconomics.

Lonergan started with a dominant one-flow economic analysis –  think in terms of the household-firm diagram  –  and separated it into two flows “to form a more basic concept and develop a more general theory.” 21 …The distinction was never built scientifically (by other economists) into a systematics of dynamic economics [McShane, 2017, viii; ftnt 22]

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Precise Analytical Distinctions and Concepts

To reach a theory of macroeconomic dynamics we need, in the first place, a scientific and dynamic heuristic guiding us to a scientific explanation of the current, purely dynamic, concrete, economic process.

(Ragnar) Frisch’s failure to develop a significant theory typifies the failure of economists who search for a dynamic heuristic.  As well as a fundamental disorientation of approach there is also a tendency to shift to an inadequate level of abstraction with a premature introduction of boundary conditions in a determinate set of differential and difference equations. [McShane, 1980, 114]

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Pointers and Principles; An Invitation to Minds

This set of excerpts has been assembled so as to inform and inspire.  In its own way it informs the reader of the minds of Lonergan and key commentators.  And it will, we hope, inspire the serious macroeconomist to reach up to those minds.

The section has not been arranged in a rigorous manner.  On the contrary, it is a sort of random walk.  But we hope the benefit of one’s reading it attentively will be great.

Schumpeter acknowledged that dynamic analysis called for a new light on equilibrium.  Such new light arises when, over and above, the equilibria  of supply and demand with respect to goods and services, there are recognized further equilibria that have to be maintained…..Moreover, such macroequilibria are more fundamental than the microequilibria assembled by Walras.  The former are the conditions of a properly functioning economy [CWL 15, 92] (continue reading)


An Adequate Level of Abstraction; Deeper Explanatory Unity

We frequently make the claim that Functional Macroeconomic Dynamics sublates all other macroeconomic theories by reaching an adequate level of abstraction, or a deeper unity, or a more profound point of view, or a purely relational, fully explanatory, scientific macroeconomics.  This deeper intelligibility fully explains the economic process and eliminates at a stroke much of what is contained in the current popular 700-page textbooks.

Ragnar Frisch was a Norwegian economist and the co-recipient of the first Nobel Memorial Prize in Economic Sciences in 1969.

Frisch’s failure to develop a significant theory typifies the failure of economists who search for a dynamic heuristic.  As well as a fundamental disorientation of approach there is also a tendency to shift to an inadequate level of abstractionwith a premature introduction of boundary conditions in a determinate set of differential and difference equations. [McShane, 1980, 114]  continue reading

Practical Precepts for Free People – Consumers, Entrepreneurs, Bankers, Investors

On ensuing pages we list precepts mandated by a non-political, scientific Functional Macroeconomic Dynamics. The precepts are practical precepts for free people.  Prior to that list we cite several passages used as the basis for the precepts.

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

Meanings of “Functional”

One of Lonergan’s great contributions to humanity was his division of scholarship into eight functional specialties: research, interpretation, history, dialectic, foundations, doctrines, systematics, and communications.  Persons familiar with Lonergan’s works might read the title of this website and immediately, but mistakenly, think that this website is an application of the eight functional specialties to macroeconomics.  It is not.  Herein, in order to explain the economic process, we are seeking to understand and systematize interconnected functional economic activities which are implicitly defined by the functional relations in which they stand with one another. Continue reading