Romer specifies a Research and Development circuit constituted by purposive human insights into the pool of non-rivalrous, non-excludable knowledge, A. These insights become the compensated factors of production of the “design” produced. The general category “design” could include, for example, the law of cosines, the Newton-Leibnitz-Euler calculus, a principle of mechanical, electrical, or chemical engineering, software, a mechanical drawing, or copiable, skirtable, stealable patents which are not privately embodied in a single individual, not fully protected by patent or trademark, and cannot be excluded from use by anyone and everyone. The design produced by human insight is a product having economic value.
The acts of understanding called insights are not to be unclassified or misclassified: they are factoral elements in Romer’s three-circuit systematics, especially in the top-tier research-and-development function dedicated every day to discovery and innovation.
Lonergan had much to say about insight. He wrote a book about it. His seminal masterwork is entitled Insight, A Study of Human Understanding, (CWL 3, 1957 and 1997). He spoke generally of insights as “a dime a dozen,” endogenous and constitutive in our conscious living, and vital source of proportional human advancement.
The principle illustration of the notion of development is, of course, human intelligence. An otherwise coincidental manifold of data or images is integrated by insights; the effort to formulate systematically what is grasped by insight or, alternatively the effort to act upon it gives rise to further questions, directs attention to further data, leads to the emergence of further insights, and so the cycle of development begins another turn. … Insights accumulate into viewpoints, and lower viewpoints yield to higher viewpoints. If images are the sole basis of the movement, there develops logic; If images serially related to facts form the basis, the development is mathematical; if data in their bearing on human living determine the circle, there develops common sense; if data in their relations to one another are one’s concern, there develops empirical science; finally, if one attends to the circle of development of the circle itself and to the structure of what can be known of proportionate being, the development is philosophic. [CWL 3, 458/483]
The higher system of the organism or of the psyche develops in an underlying material manifold of physical, chemical, cytological events that are subject to their own proper laws. The higher system of intelligence develops not in a material manifold but in the psychic representation of material manifolds. Hence, the higher system of intellectual development is primarily the higher integration, not of the man in whom the development occurs, but of the universe that he inspects.. [CWL 3, 469/494]
… collaboration exists. Our senses are limited to an extremely narrow strip of space-time and, unless we are ready to rely on the senses of others, we must leave blank all other places and times or, as is more likely, fill them with our conjectures and then explain our conjectures with myths. Again, the personal contribution of any individual to the advance of human understanding is very large. We may be astonished by men of genius; but the way for their discoveries was prepared by others in a long succession; and if they took enormous strides, commonly it was because the logic of their circumstances left them no opportunity to take shorter ones. But without collaboration each successive generation, instead of beginning where its predecessor left off, would have to begin at the very beginning and so could never advance beyond the most rudimentary of primitive levels. [CWL 3, 704/ 726]
Lonergan did not thematize insight as the key constituent of a separate research-and-development sector, rendered by us as Romer’s highest sector in a concrete three-tiered process. For pedagogical reasons, Lonergan subsumed a series of “surplus circuits” into a single surplus circuit; nevertheless, he took pains to affirm that there could be several distinct circuits in the hierarchical productive process. (See CWL 15, 23-29, 42-43)
The machine tools making the machines used in making ships making passenger miles are in a point to volume correspondence with passenger miles. [CWL 15, 24]
Romer, on the other hand, thematized the functioning of insight, H, explicitly as the one and only human constituent of research-and-development and as a principal constituent of the economic process. For Romer, insight constitutes the “manufacture”, so to speak, of the pool of knowledge, A, whose extent and depth enables humanity to invent and effect advanced, economic schemes of recurrence.
Lonergan’s Insight, A Study of Human Understanding [CWL 3], was foundational in many ways to his Functional Macroeconomic Dynamics. (One sometimes wonders if, in turn, his thinking about scientific macroeconomics underlay and stimulated some of what he said in CWL 3. We can only speculate.) He studied the experience, insights, and judgments of mathematicians, physicists, chemists, and people of common sense; and he applied group theory and the technique of implicit definition used by mathematicians and scientists to discover terms and relations which explain the inner relations between experience, insight, and judgment and the conditions of their implementation in human living. He invited, encouraged, and guided the world to an insight into their own insights and an insight into their affirmative judgments.
Alike in his study of macroeconomic dynamics, he explicitly recognizes the role of insight in the primitive R&D of hunters inventing spears, fishers inventing nets, and farmers inventing ploughs; and the vast and complicated expansion of such innovation and implementation results in the advancement and management of our complex, modern, exchange economy.
And, as a scientist seeking to explain a dynamic process, Lonergan applied insight to discover a dynamic field theory of macroeconomic dynamics. He directed his own insightful mind to discover the immanent intelligibility of a process, the always current, purely dynamic, concrete, economic process of production and exchange. He adopted a scientific and dynamic heuristic to reach a new paradigm of macroeconomics.
… , the movement of Lonergan’s (macroeconomic) analysis might be described as a paradigmatic descent from a concrete heuristic of the productive process determined by the end of that process. [McShane 1980, 125-126]
It is insight, guided by a scientific and dynamic heuristic, which identifies “function” as an explanatory technical term in a purely relational theory, wherein the terms are defined by the functional relations in which they stand with one another.
“Functional” is for Lonergan a technical term pertaining to the realm of explanation, analysis, theory; it does not mean “who does what” in come 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’ (CWL 3, 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 (accelerative) network of functional, mutually conditioning, and interdependent relationships of these rates to one another. [CWL 15, 26-27 ftnt 27]
The whole structure is relational: one cannot conceive the terms without the relations nor the relations without the terms. Both terms and relations constitute a basic framework to be filled out, first by the advance of the sciences and, secondly, by full information on concrete situations. [CWL 3, 492/516] (In addition, read in the entirety [CWL 3, 490-96/514-520]
Paraphrasing [CWL 3, 492/516]: The whole dynamical macroeconomic structure is conceived as relational: one cannot conceive the interdependent functional velocities without the relations defining them nor the relations without the interdependent functional velocities. Both terms and relations constitute a basic theoretical, explanatory framework to be filled out, with concrete measurements.
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 did not consider the accountant’s unities in corporate income statements and in GDP to be explanatory terms. He rejected them. Though he retained some of the utterances, he endowed them with a new scientific, explanatory significance.
… an ‘accountant’s unity’ … is a category used in (conventional) accounting: For Lonergan, (conventional) accounting generally denotes an enterprise within common sense which uses descriptive, as contrasted with explanatory, terms (on these terms see Insight 37-38/61-62, 178-79/201-3, 247-48/272-73). Insofar as that is true, the accountant’s unity is not an adequate index for the normative, explanatory analysis of the productive process. [CWL 15, page 26, ftnt. 26]
Paraphrasing [CWL 3, 165/188-89]: The basic notions of Functional Macroeconomic Dynamics are interdependent, mutually defining, velocitous functionings that are distinct from wages, salaries, indirect costs, legal fees, etc.
The basic terms of macroeconomics, or of any explanatory science for that matter, must be precise, purely relational, and of scientific significance:
Paraphrasing [CWL 3, 80/103]: Point-to-point vs. point-to-line (i.e. basic vs. surplus) are precise analytical distinctions upon which a superstructure of laws, coherent with one another and comprising a complete theory, may be constructed.
Insight supplies the explanatory terms implicitly defined by their relations in an equation. The relationships fix the meanings of the terms.
Thus, masses might be defined as the correlatives implicit in Newton’s law of inverse squares. (F = gm1m2/d2) Then there would be a pattern of relationships constituted by the verified equation; the pattern of relationships would fix the meaning of the pair of coefficients, m1, m2; and the meaning so determined would be the meaning of the name, mass. In like manner, heat might be defined implicitly by the first law of thermodynamics and the electric and magnetic field intensities, E and H, might be regarded as vector quantities defined by Maxwell’s equations of the electromagnetic field. [CWl 3, 80/102-03]
Thus, point-to-point and point-to-line (basic and surplus) might be implicitly defined as the precise analytical correlatives implicit in Schumpeter’s descriptive connecting of capital expansion to booms and slumps. And macroeconomic investments and macroeconomic costs might be implicitly defined as the correlatives implicit in Lonergan’s observation that what limits so-called “profit” is macroeconomic costs. Then there would be a pattern of relationships constituted by the verified classical equation; the pattern of relationships would fix the meaning of basic vs. surplus, as well as macroeconomic costs vs. pure surplus income.
In the Introduction of Insight: A Study of Human Understanding Lonergan encourages all, which would include macroeconomics scientists:
Thoroughly understand what it is to understand, and not only will you understand the broad lines of all there is to be understood but also you will possess a fixed base, an invariant pattern, opening up all further developments of understanding. [CWL 3, xxviii/22]
So, we encourage all macroeconomists to understand the act of understanding, and to reach up to the mind of Lonergan and to import his compelling genius to the economic disputes of today.