# Explanatory Macroeconomic Dynamics; Relevant In Any Instance

There are five figures below from CWL 15:  The single figure on the left represents the interrelations of interdependent Monetary Flows; and the figure contains the important condition of dynamic equilibrium: G = c”O” -i’O’ = 0.  The four figures stacked on the right demonstrate aspects of the productive phases constituting a Pure Cycle of Expansion. The bidirectional arrows uniting the two sides signify that the dynamic equilibrium among interdependent flows specified on the left is to be achieved consistently throughout the long-run expansion represented on the right.  This condition of dynamic equilibrium is that the crossover flows between the two interacting circuits must continuously balance even as they continuously vary in magnitude in the succession of phases constituting the expansionary process.  Just as the general laws of simple parabolic or pendular motion are explanatory and applicable to any particular instance of initial angle and velocity, so a) the primary relativities of productive and monetary flows, and b) the primary differentials of long-term expansion explain the economic process, and are normatively relevant in every particular instance.  All five diagrams are unitary.  Each and every velocitous and accelerative flow of products and money has proximate or remote explanatory aspects embedded in all five diagrams.

.               Diagram of Rates of Flow                                                          Four Aspects of Economic Expansion

Primary Relativities:                                              Primary Differentials of Expansion

• Productive relations:                                       dI’Σ(widni+ nidwi+dnidwi)yi       [CWL 15, 134]
• qi = ∑∑qijk   (CWL 15, 30)                                          df = vdw + wdv       [CWL 15, 148-49]
• kn[f’n(t-a)-Bn] = f”n-1(t) – An-1 (CWL 15, 37)              P’Q’ = p’a’Q’ + p”a”Q’      [CWL 15, 156-58]
• Monetary circulations                                     P’/p’ = a’ + a”(p”Q”)/(p’Q’)   [CWL 15, 156-58] , or
• R’ = E’     (CWL 15, 54)                                           J = a’ + a”R       [CWL 15, 156-58]
• R” = E”      (CWL 15, 54)                                        d(P’/p’) = dJ = da’ + a”dR + Rda”       [CWL 15, 158]
• I’ = O’ +M’      (CWL 15, 54)
• I” = O” +M”     (CWL 15, 54)
• G = c”O” –i’O’   (CWL 15, 54)
• G = c”O” –i’O’ = 0 (CWL 16, 50) the condition of dynamic equilibrium
• M’ = (S’ – s’O’) + (D’ – s’I’) + G   (CWL 15, 54)
• M” = (S” – s”O”) + (D” – s”I”) – G   (CWL 15, 54)
• (S’-s’O’) = ΔT’ + (O’ – R’) + ΔR’   (CWL 16, 67)
• (S”- s”O”) = ΔT” + (O” – R”) + ΔR”   (CWL 16, 67)

The bi-directional arrows unite the Diagram of Rates of Monetary Flows to the “stack of four” and make all five images unitary.  Reading the two columns from left to right, the keeping pace of circulating flows within each circuit and the balancing of flows moving between circuits are normative.  The Diagram reveals, announces, and demands that the equilibrium conditions of concomitance and crossover balance be understood and satisfied by the operators controlling the expansion. Reading the two columns from right to left, the phases of the surplus and then the basic expansion are synchronized such that, thus, they represent that the participants understand, acknowledge, and willingly effect concomitance, continuous equilibrium, and full realization of potential in the pure cycle of expansion.

In the always-current, purely dynamic, objective economic process, there are two sets of general, purely-relative, and always-relevant primary relativities.  The first set applies to the Diagram on the left; the second set to the stack on the right.  The first set of primary functional relations regards a) the double summation of velocitous quanta of production in outlays, b) the pattern of lagged acceleration in the productive process to which the corresponding monetary flows are joined, and c) the explanatory interdependencies among monetary flows represented by the channels and nodes in the Diagram of Rates of Flow.

• Productive relations
• qi = ΣΣqijk   (CWL 15, 30)
• kn[f’n(t-a)-Bn] = f”n-1(t) – An-1 The lagged technical production accelerator (See CWL 15, 37)
• Monetary circulations in the two circuits
• R’ = E’     (CWL 15, 54)
• R” = E”      (CWL 15, 54)
• I’ = O’ +M’      (CWL 15, 54)
• I” = O” +M”     (CWL 15, 54)
• G = c”O” –i’O’   (CWL 15, 54)
• G = c”O” –i’O’ = 0   (CWL 16, 50)
• M’ = (S’ – s’O’) + (D’ – s’I’) + G   (CWL 15, 54)
• M” = (S” – s”O”) + (D” – s”I”) – G   (CWL 15, 54)
• (S’-s’O’) = ΔT’ + (O’ – R’) + ΔR’   (CWL 16, 67)
• (S”- s”O”) = ΔT” + (O” – R”) + ΔR”   (CWL 16, 67)

So, for example, assuming that the crossovers balance so as to satisfy the condition of dynamic equilibrium, G = c”O” –i’O’ = 0,  then, by the principle of concomitance and the role of credit to bridge time gaps, we have for the basic circuit (denoted by single superscripts):

• R’ = E’ = I’ = O’ +M’   (CWL 15, 54)
• R’ = E’ = I’ = O’ +[S’ – s’O’] + [D’ – s’I’]   (CWL 15, 54)
• R’ = E’ = I’ = O’ + [ΔT’ + (O’ – R’) + ΔR’] + [D’ – s’I’]   (CWL 15, 54, and 66-67)

Because real analysis is analysis of what money buys, Functional Macroeconomic Dynamics involves analysis of the productive order. The primary analytic consideration of FMD is the structure of the dynamic productive process.  So, the second equation of the first set is the lagged technical accelerator, kn[f’n(t-a)-Bn] = f”n-1(t) – An-1  (CWL 15, 37), which specifies general and abstract

• point-to-point and point-to-line distinctions and relations of interdependence
• lagged acceleration
• present velocities
• present accelerations
• future accelerations
• intrinsic cyclicality

Having begun the analysis making precise analytical distinctions between point-to-point and point-to-line productive activities and having explicated the dynamic relations among the velocities constituting the productive process (CWL 15,19-36),  the classes of corresponding payments can then be mapped out from – because they are dummily joined-at-the-hip and correlated to – the rhythmic and intrinsically-cyclical primary productive process. These classes of payments identify the rhythmic monetary circulations correlated to the rhythmic flows of  classes of products and services which dummy money buys within and from the productive process of making and selling.

A particular theory of a science may be conceived based upon the fundamental notion of equilibrium.  One of the primary monetary relations in Functional Macroeconomic Dynamics is the condition of dynamic equilibrium.  This equilibrium consists of the crossover flows, c”O” and i’O’, which represent the monetary flows being balanced between the two circuits. The requirement of balance is simply and generally to the effect that neither circuit must drain the other so as to inflate itself.  Neither must impede, deplete, or debilitate the other.  Neither must cause contraction in the other.  Contraction is never intrinsically necessary.  The continuity of both is required. Analytical elements in the ever varying crossover balance with its ever varying requirements for saving vs. consuming are the depreciation of capital in use, the required restoration of capital, the aggregate propensity to purchase a standard of living rather than save and invest, and the existence of opportunities for investment.  The dynamic equilibrium which avoids contraction and misery is all about the dynamic balance between the two circuits. Both circuits must find the way to effect an equilibrium for continuity throughout a cycle of expansion.

G = c”O” – i’O’ = 0     the condition of dynamic equilibrium   (CWL 16, 50).

It is a common saying that savings equals investment.  On the present showing it would be more accurate to say that the crossovers should balance, that a sustained lack of balance portends ruin, … The advantage of such greater accuracy is that it does not suggest an immediate correlation between savings and investment.  Provided the crossovers balance, surplus income equals surplus supply. [CWL 15, 70]

That is to say, investment (surplus supply) is made possible by surplus income (whether saved or borrowed); and that equality of savings and investment is grounded in the conceptually prior and more fundamental concept of the dynamic balance of the crossovers.

In a stationary economy, one without innovation or development, the crossovers balance when allowances are made for seasonal and minor fluctuations.  In that state, the crossovers are, of course constant.  But in a surge the crossovers vary, and the problem of macrodynamic equilibrium is that the crossovers must remain dynamically balanced.  If they do not remain so, then one circuit is being drained in a way that might seem to benefit the other. [McShane, 1995, 78-79] and [McShane, 2017, 69]

The crossover velocities are interesting for both their absolute magnitudes at any point in time and their continuing variations in magnitude over the expansionary cycle.  The absolute magnitudes of reciprocal circuit dealings, c”O” and i’O’, are determined primarily by the basic circuit’s purchase (i’O’) of repair and maintenance of capital equipment and the purchase (c”O”) of a standard of living by workers in surplus production.  As much money as flows out of either circuit must be balanced by just as much money flowing in.  The basic circuit must maintain its ever-depreciating capacity for continuity of operations. The surplus circuit must supply replacement capacity and compensate its workers for their purchase of a standard of living  The strata of workers according to income level in both circuits would tend to demonstrate similar aggregate propensities for basic demand; and if c”O” is deficient or excessive, then those differences must be cured by a greater c’O’ or savings in the basic circuit.  Neither circuit can be allowed to drain non-normatively the other so as to inflate itself.

Need the moral be repeated?  There exist two circuits, each with its own final market.  The equilibrium of the economic process is conditioned by the balance of the two circuits: each must be allowed the possibility of continuity, of basic outlay yielding an equal basic income and surplus outlay yielding an equal surplus income, of basic and surplus income yielding equal basic and surplus expenditure, and of these grounding equivalent basic and surplus outlay.  But what cannot be tolerated, much less sustained, is for one circuit to be drained by the other. [CWL 15, 175]

Note that, though the terms and relations of the first set of primary monetary relativities are symbolized in algebraic equations, the upper-case symbols represent rates of velocitous flows, i.e. velocities of so much or so many every so often, d/dt and Δ/Δt.  Thus, the double-circuited, credit centered diagram is entitled Diagram of Rates of Flow.  Very important!  The immanent intelligibility of the process is the interrelations among rates of interdependent functional flows, not by static balances.  The basic terms are rates.

“Functional” is a technical term pertaining to the realm of explanation, analysis, theory; it does not mean “who does what” in some commonsense realm of activity … Lonergan (identified) 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”…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 indeed dynamic (accelerative) network of functional, mutually conditioning, and interdependent relationships of these rates to one another. [CWL 15,  26-27  ftnt 27]

A second set of primary relativities specifies intelligibilities immanent in an expansion represented in our “stack of four.”  That set specifies the differentials explaining how the pure cycle of expansion works out over time, as provided in CWL 15, sections 26-28 which treat the cycles of

• basic income,
• pure surplus income,

Those sections 26-28 explain both the normative equilibria and the violative disequilibria in the phases of the expansionary process as per a) the Table of Possibilities on CWL 15, 114, b) Figure 24-7, CWL 15, 125 and c) the equations of section 23, “Measuring Change in the Productive Process” (CWL 15, 107-113).

The second set of primary relativities: differentials of the expansionary cycle:

• dI’Σ(widni+ nidwi+dnidwi)yi       [CWL 15, 134]
• df = vdw + wdv       [CWL 15, 148-49]
• P’Q’ = p’a’Q’ + p”a”Q’      [CWL 15, 156-58]
• P’/p’ = a’ + a”(p”Q”)/(p’Q’)      [CWL 15, 156-58] , or
• J = a’ + a”R       [CWL 15, 156-58]
• d(P’/p’) = dJ = da’ + a”dR + Rda”       [CWL 15, 158]

The pattern of any pure cycle of expansion would have an exigence for a normative balance of crossovers (G = c”O” –i’O’ = 0) between circuits.  As much as goes out must come in.  An implicit requirement to effect this normative balance is the continuing adjustment of saving vs. consuming, as formulated in dI’.  And, as exemplified by  Burley’s and Csapo’s Characteristic Equations, a pure cycle would be characterized by a general interest rate of return equaling the general growth rate, which rises and falls per df and as depicted in Figure 27-1.  And, finally, d(P’/p’) demonstrates how the basic price spread expands and contracts in response to changing acceleration ratios and changing ratios of surplus to basic activity in a cycle of expansion.

Traditional theory looked to shifting interest rates to provide suitable adjustment.  In the main we shall be concerned with factors that are prior to changing interest rates and more effective. … …  Evidently, then, suitable migrations are a means of providing adjustments in the community’s rate of saving.  To increase the rate of saving, increase the income of the rich; while they may be too distant from the current operations of the economic process to judge, at least they can put their money into the bank or bonds or stocks, and perhaps others there will see how it can best be used.  To decrease the rate of saving, increase the income of the poor. … The foregoing is the fundamental mode of adjusting the rate of saving to the phases of the productive cycle. [CWL 15, 133-134]

### .I. REAL ANALYSIS AND THE CURRENT PROCESS

real analysis (is) identifying money with what money buys. … And that is the source of the problem in real analysis.  If you want to treat money that doesn’t make a difference, you can have a beautiful liberal monetary theory.  But it doesn’t say the way the thing works. [CWL 21, Editor’s Introduction, xxviii]

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]

No doubt Keynes was an economist first and a methodologist second but he was none the less very articulate about his theorizing……..Lonergan, for his part, is perhaps a methodologist first and an economist second, but, as we shall see, he was able to push his economic reflections further than Keynes because he had a firmer grasp of the essentials of an effective theory. [Gibbons, 1987]

The productive process is, then, the (current) aggregate of activities proceeding from the potentialities of nature and terminating in a standard of living.  Always it is the current process, and so it is distinguished both from the natural resources, which it presupposes, and from the durable effects of past production. [CWL 15, 20]

The term ‘productive process’ is to be used broadly.  It denotes not merely ‘making things’, … but also services of all kinds. … In brief, it is the totality of activities bridging the gap between the potentialities of nature, whether physical, chemical, vegetable, animal or human nature, and, on the other hand, the actuality of a standard of living. Such activities vary with the conditions of physical geography and the cultural, political, and technical development of the population.  They range from the simple and fixed routines of primitive hunters and fishers to the highly complex and mobile routines of modern Western civilization.  Yet in every case there is one effect: the potentialities of nature become a standard of living.  And in every case this effect is attained in the same way: it is attained not once and for all but only by a continuous succession of activities, by a rhythmic repetition of constant or mobile routines, by a process. (CWL 15, 19-20)

Paraphrasing (CWL 3, 12/36): … If one grasps in a single insight the necessary and sufficient conditions for the continuity, equilibrium, and normative functioning of the interdependent flows of goods and services, as represented by the double-circuited, credit -centered Diagram of Rates of Flow, then one grasps point-to-point relations, point-to-line relations, interdependent functional-flow velocities, basic incomes, ordinary surplus incomes, pure surplus incomes, the normativity of concomitance within circuits, the normative role of credit, etc.  All the explanatory concepts tumble out together, because all are needed to express adequately the single sweeping insight grasping all in a single view.  The terms fix the relations, the relations fix the terms, and the insight fixes both All concepts and equations are coherent, for coherence basically means that all hang together from a single insight.  (CWL 3, 12/36)

### THE NOTION OF CONCOMITANCE AND A NEW LIGHT ON DYNAMIC EQUILIBRIUM

• Per interval, surplus demand [function], I”, pays E” for current surplus products, and receives dividends i”O” from surplus production [i.e. surplus supply function] and i’O’ from basic production [i.e. basic supply function].
• Per interval, basic demand [function, I’, pays E’ for current basic products and for its services receives c”O” from surplus supply [function] and c’O’ from basic supply [function].
• Vertical arrows represent transactions between the redistributional area and surplus and basic supply [functions]; horizontal arrows the dealings of demand [functions] with the redistributional area. [CWL 15, 55] [11]

The main analytic apparatus is now complete.  The two acceleration systems have been defined: a circulatory system consisting of two connected circuits that are accelerated by an external redistribution function; a quantity system of two parts in which one part is the long-term accelerator of the other.  In each of these acceleration systems … an inner logic or ground in the nature of things indicates the normative or pure cycle of the quantity process.  Finally, indices of price increments serve as markers of the divergence between the two systems. [CWL 21, 134]

(Again:) It is a common saying that savings equals investment.  On the present showing it would be more accurate to say that the crossovers should balance, that a sustained lack of balance portends ruin, … The advantage of such greater accuracy is that it does not suggest an immediate correlation between savings and investment.  Provided the crossovers balance, surplus income equals surplus supply. [CWL 15, 70]

In a stationary economy, one without innovation or development, the crossovers balance when allowances are made for seasonal and minor fluctuations.  In that state, the crossovers are, of course constantBut in a surge the crossovers vary, and the problem of macrodynamic equilibrium is that the crossovers must remain dynamically balanced.  If they do not remain so, then one circuit is being drained in a way that might seem to benefit the other. [McShane, 1995, 69] and [McShane, 2017, ?]

Traditional theory looked to shifting interest rates to provide suitable adjustment.  In the main we shall be concerned with factors that are prior to changing interest rates and more effective. … …  Evidently, then, suitable migrations are a means of providing adjustments in the community’s rate of saving.  To increase the rate of saving, increase the income of the rich; while they may be too distant from the current operations of the economic process to judge, at least they can put their money into the bank or bonds or stocks, and perhaps others there will see how it can best be used.  To decrease the rate of saving, increase the income of the poor. … The foregoing is the fundamental mode of adjusting the rate of saving to the phases of the productive cycle. [CWL 15, 133-134]

The Diagram of Rates of Flow depicts abstract  primary dynamic relations which are general and universally relevant in any instance – even in a change of secondary basis resulting from sudden shocks or gradual long-term economic developments such as earthquakes, hurricanes, zephyrs, pandemics, or innovation and risky investment.

The purpose of this section is to inquire into the manner in which the rate of saving W is adjusted to the phases of the pure cycle of the productive process.  Traditional theory looked to shifting interest rates to provide suitable adjustment.  In the main we shall be concerned with factors that are prior to changing interest rates and more effective.  [CWL 15, 133]

… , without further clarification 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 (classic microeconomics), there are recognized further equilibria (crossovers balancing, concomitance of outlays with income and income with outlays and expenditure) that have to be maintained if an economy chooses to remain in a stationary state, (or) to embark on a long-term expansion (and) to distribute its benefits to the vast majority of its members (in a basic expansion), and so to return to a more affluent stationary state until such further time as further expansion beckons.

Those familiar with elementary statics and dynamics will appreciate the shift in thinking involved in passing from (static) equilibrium analysis … to an analysis where attention is focused on second-order differential equations, on d2θ/dt2, d2x/dt2, d2y/dt2, on the primary relativities of a range of related forces, central, friction, whatever.  Particular secondary boundary conditions, past and future pricings and quantities, are relatively insignificant for the analysis of the primary relativity immanent in, and applicable to, every instance of the process.  What is significant is the Leibnitz-Newtonian shift of context. [McShane, 1980, 127]

My other extravagance (in preparing the Index to CWL 21) is to bring into focus, by entries under ‘Concomitance,’ the total challenge of the new political economy.  Are we to respect the heart-pulses of the productive machine, or are we to continue the ‘absurdity’ (see Index) of counterpulsing, locally and globally?  (Can we say with Wordsworth) “And now I see with eye serene, the very pulse of the machine” (CWL 21, 326)

The concomitance of outlay and expenditure follows from the interaction of supply and demand.  The concomitance of income with outlay and expenditure is identical with the adjustment of the rate of saving to the requirements of the productive process. (CWL 15, 144)

Humans are not outside the pricing system; their choices and decisions “are themselves the variables in the system.”

On classical analysis, economic mechanism is the pricing system.  It coordinates spontaneously a vast and ever shifting manifold of otherwise independent choices of demand and decisions of supply.  But man does not stand outside this machine; he is part of it; his choices and decisions are themselves the variables in the system.  It follows that there is no possibility of setting down methodically, on the one hand, the exigencies of the machine and, on the other, the consequent performance of man. [CWL 21, 109]

But humans are outside, so to speak, the macroeconomic process.

Nicola Gennaioli and Andrei Shleifer’s A Crisis of Beliefs, Investor Psychology and Financial Fragility, [Gennaioli and Shleifer 2018]  posits economics as a science of human psychology, a science of the psychology of participants, a science of detection of irrationality.  But the psychological human participants are, as it were, outside the process.  They are the efficient causes in the implementation of the process, not the formal cause or immanent intelligibility of the process.  To be sure, human actions cause the pretio-quantital flows to be what they happen to be.  But human actions effecting the booms, slumps and associated human misery do not constitute the normative, immanent intelligibility to which humans must adapt.  Compare the driver of the automobile driving the auto into a ditch with the participants in the economic process driving the process off course.

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]

A study of the mechanics of motor-cars yields premises for a criticism of drivers, precisely because the motor-cars, as distinct from the drivers, have laws of their own which drivers must respect.  But if the mechanics of motors included, in a single piece, the anthropology of drivers, criticism could be no more than haphazard. [CWL 21, 109]

It is not a matter primarily of psychology, sociology, or anthropology.  The science of macroeconomics is, first of all, a matter of understanding the laws of the mechanism.  But if the mechanism of macroeconomics included, in a single piece, the psychology, sociology, and anthropology of drivers, criticism could be no more than haphazard.

### THE PURE CYCLE, SYSTEMATIC DIVERGENCE, AUTOMATIC CORRECTIVES

Lonergan’s theoretical model of the pure cycle captures the purely relational, immanent intelligibility of the objective process.  It is the theoretical model implicit in the scientific theory of the process.  As abstract and ideal it is an invariant; it is a general governing form.  It represents the central tendency in a manifold of possible cycles (depending upon the real technical variables).  The economic process has an exigence for a pure cycle; and the model of the abstract pure cycle serves to explain and set norms for the economic process.

(Again,) The main analytic apparatus is now complete.  The two acceleration systems have been defined: a circulatory system consisting of two connected circuits that are accelerated by an external redistribution function; a quantity system of two parts in which one part is the long-term accelerator of the other.  In each of these acceleration systems … an inner logic or ground in the nature of things indicates the normative or pure cycle of the quantity process.  Finally, indices of price increments serve as markers of the divergence between the two systems. [CWL 21, 134]

The trade cycle is a succession of expansions and contractions: … The contention of the present analysis is that there is a pure cycle at the root of the trade cycle. … Of itself, it would not involve any contraction. … It can further be shown that the lack of such adaptation transforms the pure cycle into a trade cycle: the free economies of the present day are overadapted to the surplus expansion, which they exaggerate into booms, but underadapted to the basic expansion, which they convert into slumps. (CWL 15, 115)

In a proportionate expansion phase both accelerations are equal and positive.  In a surplus expansion phase the acceleration of capital goods exceeds that of consumer goods.  In a basic expansion phase the acceleration of consumer goods exceeds that of capital goods.  In a stationary economy or static phase, both accelerations equal zero. [?]

once long-term acceleration is underway, rates of production increase increasingly; their graphs are concave upward; but the curvature moves from being flatter to being rounder as the acceleration is generalized from one section (of the capital sector) to another throughout the productive process.  During this period of generalization, rates of production are not merely increasing in geometrical progression but moving from less to more rapid geometrical progressions. … This situation, however, is bound to be temporary; its existence is the lag between the generalized long-term acceleration of the surplus stage and that of the basic stage.  When that is overcome, dQ’/Q’ moves again to a peak and remains there; and by the same token, dQ”/Q” will begin to decline. [CWL 15, 126]

The foregoing is an outline of perfect adaptation to the pure cycle of the expanding productive process.  However, the actual course of events is governed by the actual lack of adaptation to the pure cycle.  This lack of adaptation is multiple, and so we treat successively and as distinct though conjoined phenomena the long, drawn-out depression and the short, violent crisis. [CWL 15, 152]

This distinction between a high and a low potential for long-term acceleration according as h is great or small, is to be complemented with a parallel distinction between a high and a low potential for short-term acceleration.  The two types of acceleration differ, it will be recalled, inasmuch as the short-term acceleration is through the more intense and more efficient use of existing capital equipment, while the long-term acceleration is through the introduction of additional and/or more efficient equipment; thus the short term acceleration is a consequent of a previous long-term acceleration and consists in exploiting it to the full; inversely, one may say that the long-term acceleration changes the basis on which short-term accelerations operate. CWL 15, 116

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.  The framework would thus stand to the ordinary apprehension of the booms and slumps of the trade cycle in much the same way that the explanatory grasp of acceleration as the second derivative of a continuous function of distance and time stands to the ordinary, commonsense grasp of what it is to be going faster.  (CWL 15,  Editors’ Introduction lv)

Lonergan’s aggregate, functional, and dynamic analysis of the pure cycle of the productive process of the economic good of order, like his idea of the good of order overall … may be thought of as a model, “an intelligible, interlocking set of terms and relations that it may be well to have about when it comes to describing reality or to forming hypotheses,” that he thought of as more than a model … , since it also would have the hypothetical normativity of any explanatory correlations empirically verifiable in data.  As explanatorily normative in this sense, it would manifest a trans-social and transcultural invariance, since it specifies the fundamental macroequilibria that “are the conditions of a properly functioning economy”. They are the equilibria that have to be maintained if an economy chooses to remain in a stationary state, to embark on a long-term expansion, to distribute its benefits to the vast majority of its members, and so to return to a more affluent stationary state until such time as further expansion beckons.”….(the) analysis is relevant to any economy in any society or culture that has undergone a takeoff. [CWL 15 117 ftnt ]

A condition of circuit acceleration was seen … to include the keeping in step of basic outlay, basic income, and basic expenditure, and on the other hand, the keeping in step of surplus outlay, surplus income, and surplus expenditure.  Any of these rates may begin to vary independently of the others, and adjustment of the others may lag.  But any systematic divergence brings automatic correctives to work.  The concomitance of outlay and expenditure follows from the interaction of supply and demand.  The concomitance of income with outlay and expenditure is identical with the adjustment of the rate of saving to the requirements of the productive process. (CWL 15, 144)

### .III. FIGURE 27-1

(Again,) In a proportionate expansion phase both accelerations are equal and positive.  In a surplus expansion phase the acceleration of capital goods exceeds that of consumer goods.  In a basic expansion phase the acceleration of consumer goods exceeds that of capital goods.  In a stationary economy or static phase, both accelerations equal zero. [?]

(Again,) once long-term acceleration is underway, rates of production increase increasingly; their graphs are concave upward; but the curvature moves from being flatter to being rounder as the acceleration is generalized from one section (of the capital sector) to another throughout the productive process.  During this period of generalization, rates of production are not merely increasing in geometrical progression but moving from less to more rapid geometrical progressions. … This situation, however, is bound to be temporary; its existence is the lag between the generalized long-term acceleration of the surplus stage and that of the basic stage.  When that is overcome, dQ’/Q’ moves again to a peak and remains there; and by the same token, dQ”/Q” will begin to decline. [CWL 15, 126]

(Again,) The foregoing is an outline of perfect adaptation to the pure cycle of the expanding productive process.  However, the actual course of events is governed by the actual lack of adaptation to the pure cycle.  This lack of adaptation is multiple, and so we treat successively and as distinct though conjoined phenomena the long, drawn-out depression and the short, violent crisis. [CWL 15, 152]

(Again,) Traditional theory looked to shifting interest rates to provide suitable adjustment.  In the main we shall be concerned with factors that are prior to changing interest rates and more effective. … …  Evidently, then, suitable migrations are a means of providing adjustments in the community’s rate of saving.  To increase the rate of saving, increase the income of the rich; while they may be too distant from the current operations of the economic process to judge, at least they can put their money into the bank or bonds or stocks, and perhaps others there will see how it can best be used.  To decrease the rate of saving, increase the income of the poor. … The foregoing is the fundamental mode of adjusting the rate of saving to the phases of the productive cycle. [CWL 15, 133-134]

With G at zero, positive or negative transfers to basic demand (D’ – s’I’) and consequent similar transfers to surplus demand (D” – s”I”) belong to the theory of booms and slumps.  They involve changes in (aggregate basic or aggregate surplus) demand, with entrepreneurs receiving back more (or less) than they paid out in outlay (which includes profits of all kinds).  The immediate effect is on price levels at the final markets, and to these changes (in price), enterprise as a whole responds to release an upward (or downward) movement of the whole economy.  [CWL 15, 64]

The significance of the table (CWL 15, 114) is that it makes possible a distinction between different types of cycle.  The trade cycle is a succession of expansions and contractions: it certainly is a movement up and down the table, and it may or may not also involve movements across the table.  The contention of the present analysis is that there is a pure cycle at the root of the trade cycle.  By a pure cycle is meant a movement across the table with no implication of a movement up or down the table.  Thus the succession of phases, repeated as often as you please, would give a pure cycle. Of itself, it would not involve any contraction. … It can further be shown that the lack of such adaptation transforms the pure cycle into a trade cycle: the free economies of the present day are overadapted to the surplus expansion, which they exaggerate into booms, but underadapted to the basic expansion, which they convert into slumps. (CWL 15, 115)

the aggregate primary price spread is a function of two purely objective factors, of the rate of secondary costs p”Dq”, and the rate of primary production, DQ’.  The greater p”Dq” and the lower DQ’, then the greater the price spread; …Obviously there is no necessary correspondence between this law and either the classical view that profits are due to intelligence, enterprise, and risk, or the Marxian view that profits are due to reckless exploitation of labor. … the primary price spread will increase no matter how benevolent and stupid the entrepreneurs may be: indeed it will increase even in Bolshevist Russia, where to avoid constant inflation the state must take the surplus which it denounces capitalists for taking.  On the other hand, given a decrease in secondary costs with no corresponding decrease in primary sales, the primary price spread is bound to contract, no matter how wicked and clever and enterprising the entrepreneurs may be; it contracts even in the lands of most rugged individualism. CWL 21, 78

Finally, we show larger images of “the stack of four” for the reader’s convenience in printing, trimming, aligning, pasting, and study of the immanent intelligibility of the objective economic process.