Lonergan is alone in advancing through the field of macroeconomics to the level of system. His analysis is a strictly functional, purely relational, new paradigm of macroeconomics.
… a science emerges when thinking in a given field moves to the level of system. Prior to Euclid there were many geometrical theorems that had been established. The most notable example is Pythagoras’ theorem on the hypotenuse of the right-angled triangle, which occurs at the end of book 1 of Euclid’s Elements. Euclid’s achievement was to being together all these scattered theorems by setting up a unitary basis that would handle all of them and a great number of others as well. … Similarly, mechanics became a system with Newton. Prior to Newton, Galileo’s law of the free fall and Kepler’s three laws of planetary motion were known. But these were isolated laws. Galileo’s prescription was that the system was to be a geometry’; so there was something functioning as a system. But the system really emerged with Newton. This is what gave Newton his tremendous influence upon the enlightenment. He laid down a set of basic, definitions, and axioms, and proceeded to demonstrate and conclude from general principles and laws that had been established empirically by his predecessors. Mechanics became a science in the full sense at that point where it became an organized system. … Again, a great deal of chemistry was known prior to Mendeleev. But his discovery of the periodic table selected a set of basic chemical elements and selected them in such a way that further additions could be made to the basic elements. Since that time chemistry has been one single organized subject with a basic set of elements accounting for incredibly vast numbers of compounds. In other words, there is a point in the history of any science when it comes of age, when it has a determinate systematic structure to which corresponds a determinate field. [Method, 241-42]
A mere congeries of laws will not suffice. For if one is to operate upon the concrete, one must be able to employ at once several laws. To employ several laws at once, one must know the relations of each law to all the others. But to know many laws, not as a mere congeries of distinct empirical generalizations, but in the network of interrelations of each to all the others, is to reach a system. [CWL 3, 76/99]
Lonergan is alone in using this difference in economic activities to specify the significant variables in his dynamic analysis… no one else considers the functional distinctions between different kinds of productive rhythms prior to, and more fundamental than, … price levels and patterns, … interest and profits, and so forth….only Lonergan analyzes booms and slumps in terms of how their (explanatory) velocities, accelerations, and decelerations are or are not equilibrated in relation to the events, movements, and changes in two distinct monetary circuits of production and exchange as considered both in themselves (with circulatory, sequential dependence) and in relation to each other by means of crossover payments. [CWL 15, Editors’ Introduction, lxii]
Lonergan pointed out that this differentiation of economic activities into the production of consumer goods in the standard of living and the production of producer goods that transform the possibilities for future consumer-goods production is discussed by traditional economists such as S. M. Longfield (1802-1884), John Rae (1796-1872), Nassau Senior (1790-1864), Eugen von Bohm-Bawerk (1851-1914), and in the heavily disputed “Ricardo effect.” But Lonergan credits Piero Sraffa (1898-1983) as having clarified it most thoroughly in his famous essay, Production of Commodities by Means of Commodities(1960). Yet even Sraffa does not use his sophisticated explanation of the “Ricardo effect” and the “roundabout” or “concertina”-like phenomena associated with it in the way Lonergan does. [CWL 15, Editors’ Introduction lxii]
Explanatory functional categories must replace accounting categories.
An ‘accountant’s unity’ … generally denotes an enterprise within common sense which uses descriptive, as contrasted with explanatory terms. 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]
“Functional” is for Lonergan a technical term pertaining to the realm of explanation, analysis, theory; Lonergan illustrates his basic meaning of ‘explanation’ by referring to D. Hilbert’s method of implicit definition: … In Lonergan’s circulation analysis, the basic (dynamical) terms are rates (implicitly defined by their functional relations to one another) – rates of mutually conditioning, and interdependent productive activities and rates of mutually conditioning, and interdependent payments. The objective of analysis is to discover the … functional (inter)relationships (which implicitly define these rates and explain the dynamics of these rates to one another). [CWL 15, 26-27 ftnt 27]
Lonergan sought to generalize and to completely explain rather than to merely describe. He sought a new paradigm, a new standard model, something of a Copernican revolution in macroeconomics.
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. … description and explanation envisage things in fundamentally different manners. The relations of things among themselves are, in general, a different field from the relations of things to us. … The scientist selects the relations of things to us that lead more directly to knowledge of the relations of things among themselves. Ordinary description is free from this ulterior preoccupation. [CWL 3, 291-92/316-17]
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]
Lonergan is looking for an explanation in which the terms are defined by the relations in which they stand, that is, by a process of implicit definition. This technique (implicit definition) has been used to great effect by David Hilbert in his Foundations of Geometryin which, for example, the meaning of a point and a straight line is fixed by the relation that two, and only two points, determine a line. “The significance of implicit definition is its complete generality. The omission of nominal definition is the omission of a restriction to objects which, in the first instance, one happens to be thinking about. The exclusive use of explanatory or postulational elements concentrates attention upon the set of relationships in which the whole scientific significance is contained.” Michael Gibbons, Economic Theorizing in Lonergan and Keynes p313
Lonergan carefully distinguished between the abstract, completely general, universally relevant primary relativities which govern a system and the secondary determinations to which the primary relativities can be applied. Only by such an application can the abstract, completely general, universally relevant principles and laws be employed to reach particular concrete conclusions.
General laws contain a primary relativity and are applied to the concrete only through the addition of further determinations, and such further determinations pertain to a non-systematic manifold. … it is not enough to think about the general law; one has to add further determinations that are contingent from the very fact that they have to be obtained from a non-systematic manifold. [CWL 3, 491-92/516]
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, [CWL 3, 492/516] (In addition, read in the entirety CWL 3, 491-6/514-20)
Lonergan agreed with Schumpeter on the importance of systematic or analytic framework in order to explain, rather than merely record or describe, the aggregate phenomena of macroeconomics; … and he agreed that the economist had to know what are the significant variables in the light of which price changes are to be interpreted. According to Lonergan, standard economic theory had successfully achieved none of these desiderata. [CWL 15, Editors’ Introduction liii]
Frish’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]
One might be reminded here of a parallel in hydrodynamics: if what is at issue is a general specification of the dynamics of free water waves, a premature introduction of general boundary conditions or worse, specific channel conditions, botches the analytic possibilities….the Robinson-Eatwell analysis is hampered, not only by an absence of paradigmatic heuristic thinking in a field whose principles involve ends, but also by their building the economic priora quoad nos of profits, wages, prices, etc., into explanation, when in fact the priora quoad nos are last in analysis: they require explanation. [McShane 1980, 124]
“Functional” is for Lonergan a technical term pertaining to the realm of explanation, analysis, theory; ¶Lonergan illustrates his basic meaning of ‘explanation’ by referring to D. Hilbert’s method of implicit definition: … In Lonergan’s circulation analysis, the basic terms are rates – rates of productive activities and rates of payments. The objective of 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 26-26 ftnt 27