.3. Modern Monetary Quackery (MMQ)

We have commented elsewhere on so-called Modern Monetary Theory: See herein So-Called Modern Monetary Theory Does Not Qualify As Scientific MacroeconomicsFMD’s take on Greg Mankiw’s Take on Modern Monetary Theory, Alberto Bisin Re Modern Monetary Theory, and Modern Monetary Theory is Backward.

The economic process, like a motor car, has laws of its own which drivers-participants must respect in order to operate the “vehicle” properly and avoid driving it into a ditch or depression.

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)

Modern Monetary Theory is not a theory or an explanation or a systematics of the economic process.  It is sentiment without intelligence.  It lacks a set of explanatory principles and laws yielding norms according to which human activities may be assigned a function and by which they may be guided or “harnessed.”  In the following excerpt please ponder the following notions:

  • “discipline of logic and scientific reflection”
  • “generalization”
  • “functions”
  • “assigned a function”
  • “harnessed”
  • “harnessed within the exchange system”
  • “fictitious fetters”

A rigidly egalitarian system belongs to a perfectly egalitarian world; (but) a world in which men are, in fact, unequal must find a different system.  What system?  If the idealism is sentiment without intelligence, it is as likely as not to mate with the underground cynicism of the revolutionaries to foist upon us a dictatorship of the proletariat in which the proletariat does not dictate, a dictatorship of the Herrenvolk in which the Volk obeys the Fuhrer.  But if that idealism can be brought too learn the discipline of logic and of scientific reflection, then it will impose a generalization of the exchange economy.  To determine the nature of such a generalization is the aim of this inquiry; but at once this is at least evident.  The vast forces of human benevolence can no longer be left to tumble down the Niagara of fine sentiments and noble dreams.  They have to be assigned a function and harnessed within the exchange system, for in no other way can that system shake off its fictitious fetters to move consistently towards its maximum. [CWL 21, 36]

and it is only within the limits that we make of the present what we wish.  Our starting point is already determinate: we have to face things as they are; we may never lose sight of them or attempt to reckon without them.  But not only is there ever a broad and unalterable datum of things as they are; there are also the limitations which this datum imposes on things as we are going to make them.  … Moreover there has to be an internal coherence between these values, and to violate this coherence is to rout economic organization.  Just as the movements of the controls of an airplane must be coordinated and all coordinations are not possible at all instants, so also the economic machine has its controls, which can be moved only in concert and only in a limited number of ways at any given time.  ¶ Such is the general theorem of continuity.  In the abstract and in a general way, it affirms that the economic process can proceed only within the limits of equilibrium of the various phases.  To step outside them is to bring about a general breakdown. (CWL 21 73-5)

In this subsection, Modern Monetary Theory Quackery (MMQ), we shall, first, list negative observations regarding MMQ, with these observations often  being supported by selected excerpts; and second, quote and comment on short excerpts from Stephanie Kelton’s book, The Deficit Myth.

  • Terminology:
    • analysis: an examination of a complex, its elements and their relations
    • explain: to give the reason for or cause of
    • science: knowledge or a system of knowledge covering general truths or the operation of general laws especially as obtained and tested through scientific method.  Science is knowing things in their causes.
    • theory: 1) the analysis of a set of facts in their relation to one another; 5) a … scientifically acceptable general principle or body of principles offered to explain phenomena
    • systematic: presented or formulated as a coherent body of ideas or principles
    • equilibrium: the balance of monetary flows between interacting, non-predatory circuits
    • concomitance: the belonging and going together of explanatory functional flows
    • solidarity: conceptual and actual unity and concomitance of flows based upon interdependence and mutual conditioning
    • credit: that which bridges the gap in time between payments made and payments received
    • organic: having systematic coordination of parts (i.e. an organic whole)
    • organicism: (Webster 2.) any of various theories  that attribute to society or the universe as a whole an existence or characteristics analogous to those of  a biological organism
  • Proponents of MMQ don’t know what constitutes science, effective theory, and complete explanation. Their assertions are neither objective nor scientific; their assertions are a) dominated by projections of their psychopolitics, and b) based upon a non-economic, non-scientific, ultimately useless distinction between the technical issuance of money and the economic use of money.  The proponents are fundamentally-disoriented, descriptive sociologists who naively believe themselves to be scientific economists. They understand neither the formal intelligibility of the economic process nor the scientific “physiology” of the body economic.

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]

Again, for emphasis; the objective economic process has explanatory principles and laws to which participants must adapt:

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

In economics, explanatory functionings are defined by the relations in which they stand with one another.

… in physics objects are defined through the laws by which they are connected to one another; in chemistry elements are defined through the various series of relations that are found in the periodic table; in physiology organs are defined by the functions they have with regard to the whole body, and so on. (CWL 12, 717)

It is clear that, for Lonergan, real internal relations are known by the sciences, which know created things ‘through their causes,’ that is, through their formal intelligibility.  Prescientific knowledge of things does not know their real internal relations  But that does not mean that it knows things without their relations.  It does mean, though, that the connections or relations are not scientifically established. (C!L 12, 717, ftnt 5)

  • MMQ is NOT an explanatory theory of things in their relations to one another. Its trial-and-error prescription, “Let’s borrow and spend as much as we want and see what happens,” does not constitute a purely-objective set of invariant explanatory relations. It does not a) make precise, basic, analytic distinctions, b) identify elementary functional interdependencies, and c) deduce and formulate a reliably grounded superstructure of equations constituting complete explanation. It does not explain by a set of formal relations how the objective, dynamic, economic process works.  Science seeks explanation.

Again: Already 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.  … despite their intimate connection, it remains that 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. (CWL 3, 291/316)

real analysis (is) identifying money with what money buys. … 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, Editors’ Introduction, xxviii  quoting Lonergan]

And once again, a third time,

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

  • Terminology:
    • explain: to give the reason for or cause of
    • theory: 1) the analysis of a set of facts in their relation to one another; 5) a … scientifically acceptable general principle or body of principles offered to explain phenomena
    • systematic: presented or formulated as a coherent body of ideas or principles

The intrusion of systematic exigence into the realm of common sense is beautifully illustrated by Plato’s early dialogues. … The systematic exigence not merely raises questions that common sense cannot answer but also demands a context for its answers, a context that common sense cannot supply or comprehend.  This context is theory, and the objects to which it refers are in the realm of theory.  To these objects one can ascend from common sense starting-points, but they are properly known, not by this ascent, but by their internal relations, their congruences and differences, the functions they fulfil in their interactions…. There are then a realm of common sense and a realm of theory.  We use different languages to speak of them.  The difference in the languages involves social differences: specialists can speak to their wives about many things but not about their specialties.  Finally, what gives rise to these quite different standpoints, methods of coming to know, languages, communities, is the systematic exigence. (CWL 14, 82-3/  )

    • science: knowledge or a system of knowledge covering general truths or the operation of general laws especially as obtained and tested through scientific method.  Science is knowing things in their causes.  Since the proponents of MMQ have no theory explaining the formal intelligibility (formal cause) of the process and by explaining yielding norms, they have no clear and sound framework by which to criticize, and any attempt at  criticism is haphazard. Per MMQ, recessions simply “happen”;  they are merely postulated without being explained.

In contrast, Functional Macroeconomic Dynamic explains:

… 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 (of these aberrational monetary transfers) is on the 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.  But the initial increased transfers to demand [that is, excess transfers along (D’-s’I’)  and (D”-s”I”) ] are not simply to be supposed.  For that would be postulating without explaining the boom or slump. [CWL 15, 64]

There is, then, an intelligibility immanent in the immediate data of sense; it resides in the relations of things, not to our senses, but to one another; it consists not in an absolute necessity, but in a realized possibility.  ¶Ought there not to be introduced a technical term to denote this type of intelligibility?  … The intelligibility that is neither final nor material nor instrumental nor efficient causality is, of course, formal causality…what we have called the intelligibility immanent in sensible data and residing in the relations of things to one another, might be named more briefly formal causality, or rather, perhaps, a species of formal causality.[CWL  3, 78/101-102]

So the first movement toward acquiring science begins from an ordinary prescientific description of things and ends in the knowledge of their causes.  This first movement has been called: (1) analysis, because it starts from what is apprehended in a confused sort of way and moves to well-defined causes or reasons, (2) the way of resolution, because it resolves things into their causes, (3) the way of discovery, because previously unknown causes are discovered, (4) the way of certitude, because the ordinary prescientific knowledge of things is most obvious to us, and so the arguments we find most certain begin from such knowledge and to on to demonstrate matters that are more remote and more obscure to us, and (5) the temporal way, because causes are not usually discovered instantaneously, any more than they are discovered by just anyone or without a certain amount of good luck. ¶ The other movement starts from the causes that have been discovered and ends by understanding things in their causes.  This movement is called: (1) synthesis, because fundamental reasons are employed both to define things and to deduce their properties, (2) the way of composition, because causes are employed to produce things or constitute them, (3) the way of teaching or of learning, because it begins with concepts that are fundamental and especially simple, so that by adding a step at a time it may proceed in an orderly way to the understanding of an entire science, (4) the way of probability, partly because it often attains no more than probability, but also because people frequently have no clear discernment of just where or when they have reached certitude, and (5) the way of logical simultaneity, because, once the principles have been clearly laid down, all the rest takes comparatively little time; it can be accomplished in a few short deductions and applications.  ¶ For examples of the two ways, compare the history of a science like physics or chemistry with the textbooks from which these sciences are taught.  History reveals that these sciences worked out their various demonstrations starting from the most obvious sensible data.  But when one goes to a textbook, one finds at the beginning of the book in chemistry, only the periodic table of elements from which three hundred thousand compounds are derived, or, in physics, Newton’s laws, Riemannian geometry, or those remarkable quantum operators.  The reason for this difference is, of course, that inquiring, investigating, and demonstrating begin with what is obvious, while teaching begins from those concepts that can be understood without understanding other elements. [CWL 12, 61-63]

    • heuristic: of or relating to exploratory problem-solving by self-educating and by ultimately discovering for oneself
    • methodology: 1: a body of methods, rules, and postulates employed by a discipline; 2: the analysis of the principles or procedures of inquiry in a particular field
    • coherence: in scientific macroeconomics, coherence is constituted by the “hanging together” of a set of equations such that there is no internal contradiction or incompleteness; rather there is complete explanation, not fraught with internal contradiction or incompleteness
  • MMQ does not have a scientific heuristic to guide its search for explanation of a dynamic process.  It cannot specify the type of answer which would explain a process of interconnected and interdependent velocities and accelerations.  It does not understand –  and appreciate so as to employ – Hilbert’s technique of implicit definition of terms by their relations to one another.  It does not grasp the essentials of an effective theory.  It does not seek, much less reach, the immanent intelligibility which constitutes a theory providing complete explanation.  It does not grasp that the province of scientific economics is complete explanation by terms related among themselves in a single equation or set of coherent equations.  As Bisin said:
On Saturay, 12/19/ 2020, John Cochrane‘s blog“Bisin on MMT Rhetoric” cited Alberto Bisin’s review of Stephanie Kelton’s Book “The Deficit Myth. “  Alberto Bisin contends, as do we, that So-Called Modern Monetary Theory, as espoused by Kelton and others,  does not qualify as a theory.  Cochrane quotes Bisin:

The book should be seen as a rhetorical exercise. Indeed, it is the core of MMT that appears as merely a rhetorical exercise. As such it is interesting, but not a theory in any meaningful sense I can make of the word. The T in MMT is more like a collection of interrelated statements floating in fluid arguments. Never is its logical structure expressed in a direct, clear way, from head to toe.

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.  If one grasps the necessary and sufficient conditions for the perfect roundness of this imagined plane curve, then one grasps not only the circle but also the point, the line, the circumference, the radii, the plane, and equality.  All the concepts tumble out together, because all are needed to express adequately a single insight.  All are coherent, for coherence basically means that all hang together from a single insight.  [CWL 3, 12/36]

And moving from the image of the planar curve to the image of a double-circuited, credit-centered, dynamic process: (Click here)

We, in our active intellectual consciousness, are guided by general light and seek specific determination by our conscious acts.

Accordingly, in this active intellectual consciousness we can distinguish a general fundamental light and further determinations of that same light.  The fundamental and utterly general light is our created participation in uncreated light, the source in us that gives rise to all our wonder, all our inquiry, all our reflection.  Again, we attribute to this (utterly general) light those most general principles that contain no determination drawn from experience; for example, the principles of identity, non-contradiction, and sufficient reason, or the precept that good must be done and evil must be avoided.  Still, what is consciously and intellectually operative in us not only consists in this general light, but is further determined by our own conscious acts.  Sensible data determine us after the manner of matter; acts of understanding determine us after the manner of form; grasping evidence, judging, and deliberating further determine us after the manner of second act as intellectually, rationally, and morally consciously active and functioning. (CWL 12, 139)

  • And MMQ lacks a proper methodology

(See CWL 10, Topics in Education, 136-40)

No doubt Keynes was an economist first and a methodologist second … 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]

Further re “heuristic” and “methodology”, consult Chapter III in Insight (CWL 3), entitled “The Canons of Empirical Method.”  The subsections of that Chapter III are

  1. The Canon of Selection
  2. The Canon of Operations
  3. The Canon of Relevance
  4. The Canon of Parsimony
  5. The Canon of Complete Explanation
  6. The Canon of Statistical Residues
  • MMQ fails to understand that a) the economic process is understood and expressed abstractly as a current process, and b) the current economic process is a purely dynamic process.  So, – as in the formula of a simple oscillating frictionless pendulum, a simple elliptical orbit, a javelin’s simple parabolic trajectory, or a simplified hydrodynamic circulation of an incompressible, non-viscous, irrotational fluid – the explanation of the process must be a set of general, always-presently-applicable relations expressing the intelligibility immanent in, and always-applicable to, every instance of the process.  And, since the economic process is a dynamic process of a-so-much-or-a-so-many circulations every so often, the explanation will involve differentials or difference-differentials of velocity and acceleration.  The economic process – with qualified partial formal similarity to a hydrodynamic circulation, or circulations within the animal body – is a unified, organic, whole, process of circulations.

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]

Thus the productive process is a purely dynamic entity.  We began by saying how broadly the term was to be taken.  But it is also necessary to insist how narrowly.  It is not wealth, but wealth in process. … It is none of its own effects, if by effects are understood what has been completed.  It is neither the existence nor the use of durable consumer goods, of clothing, houses, furnishings, domestic utensils, personal belongings, or indeed any item of private or public property that can be listed as a consumer good and has passed beyond the process to become an element of the community’s standard of living.  On the other hand, with regard to producer goods a distinction has to be drawn: they are in the process as a means of production; they are in the process in the sense that labor is in the process or that management is in the process, namely, their use forms part of the process; but once they are completed they are no longer under process, any more than labor or management is under process and being produced. … factories and machinery, railways and power units, warehouses and offices are in the productive process only while being produced; once they are produced, they themselves have passed beyond the process to enter the category of static wealth, even though their use remains a factor of production.CWL 15, 21-22

Taking into account past and (expected) future values does not constitute the creative key transition to dynamics.  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]

On this (methodological model; i.e. implicit definition by the relations of terms among themselves) circulation analysis raises a large superstructure of terms and theorems upon  a summary classification and a few brief analyses of typical phenomena.  Classes of payments quickly become rates of payment standing in the mutual conditioning of a circulation; to this mutual and, so to speak, internal conditioning there is added the external conditioning that arises out of transfers of money from one circulation to another; in turn this twofold conditioning in the monetary order is correlated with the conditioning constituted by productive rhythms of goods and services………There results a closely knit frame of reference that can envisage any total movement of an economy as a function of variations in rates of payment, and that can define the conditions of desirable movements as well as deduce the causes of breakdowns… (CWL 15, 18)

An initial and provisional theorem of continuity was enounced in a preceding chapter (§24).  Now it may be indicated in its full generality. ¶ The analysis has revealed that the economic system is a pattern of aggregate dynamic relationships arranged in different kinds of velocity and accelerator rhythms. In the real order there are the primary and secondary rhythms, with the former accelerated by the latter.  In the monetary order there are the rhythms of excess release from the redistributional area to the primary and secondary rhythms; and again, the latter accelerate the former. ¶ Now the general theorem of continuity is that this complex machine has a nature that must be respected.  Absolutely, there is no necessarily right value for the monetary accelerators DT’, DT”, DC’, DC”; again, absolutely, there is no necessarily right values for the six multipliers C’, C”, T’, T”, G’, G”.  But what is true is this: as soon as a few of these are determined, the rest become determined within narrower limits, for all form part of an organic whole; to violate this organic interconnection is simply to smash the organism, to create the paradoxical situation of starvation in the midst of plenty, of workers eager for work and capable of finding none, of investors looking for opportunities to invest and being given no outlet, and of everyone’s inability to do what he wishes to do being the cause of everyone’s inability to remedy the situation.  Such is disorganization.  Continuity, on the other hand, is the maintenance of organization, the stability of the sets and patterns of dynamic relationships that constitute economic well-being in a society. ¶ While the provisional theorem of continuity (§24) did regard the static phase, it is important to observe that the general theorem regards any phase.  There is a general historical movement of ideas, opportunities, and decisions integrating into that major rhythm in which transformations are followed by exploitations only to bring forth new and deeper transformations.  Within this broad historical scheme of things, the role of any age, and still more of any country, is but a small thing: the past was settled by our forebears, and the future will be in the hands of posterity; only the present is ours, and it is only within the limits that we make of the present what we wish.  Our starting point is already determinate: we have to face things as they are; we may never lose sight of them or attempt to reckon without them.  But not only is there ever a broad and unalterable datum of things as they are; there are also the limitations which this datum imposes on things as we are going to make them.  ¶ The theorem of continuity is the abstract and formal aspect of such limitations in the economic order.  At the moment the exchange process is static or expanding or contracting.  We may like it so or we may wish it different.  But in any case there is some determinate range of values of the multipliers and of the monetary accelerators – of C’, C”, T’, T”, G’, G”, of DC’, DC”, DT’, DT” – that corresponds with such a decision.  Moreover there has to be an internal coherence between these values, and to violate this coherence is to rout economic organization.  Just as the movements of the controls of an airplane must be coordinated and all coordinations are not possible at all instants, so also the economic machine has its controls, which can be moved only in concert and only in a limited number of ways at any given time.  ¶ Such is the general theorem of continuity.  In the abstract and in a general way, it affirms that the economic process can proceed only within the limits of equilibrium of the various phases.  To step outside them is to bring about a general breakdown. (CWL 21 73-5)

  • MMQ does not understand that current and past retained earnings of units of enterprise in the operative circuits can be currently mobilized for useful purposes.

In fact, savings are much more important than is suggested by the equations of savings and investment.  “The function of savings is to underpin the (continuation of the) whole redistributional area of the economy.  Savings are sums of money that as yet have not been spent.  They are built up by (intermediaries such as) savings banks, insurance companies, pension funds.  They are mobilized by the agencies that float new issues of stocks and bonds, that grant credit to firms, that extend credit to consumers. [CWL 15, 70]

  • MMQ’s analysis is not rigorously functional.  The explanatory terms should be functions which are defined by the functional relations in which they stand with one another.

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 CWL 3, 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, 26, ftnt 26]

Lonergan’s intention was ‘to formulate the laws of an economic mechanism more remote and, in a sense, more fundamental than the pricing system…laws which men themselves administrate in the personal conduct of their lives. In 1978 he began to refer to Nicholas Kaldor in support of his judgment that the significance traditionally accorded to price theory by conventional economics since Adam Smith’s Wealth of Nations (1776) amounted to a virtual derailment of economic theory……….Lonergan’s interest in Kaldor’s sweeping statement was to emphasize that prices and their changes are not explanatory but accountants’ entities………Lonergan insists that the mechanism of the pricing system does not furnish economists with distinctions among significant variables of aggregate surplus (or producer-goods) and basic (or consumer-goods) supply and demand with their determinate yet flexible velocities and accelerations, any more than Galileo Galilei’s discrete measurements of distances and times at the Tower of Pisa of themselves provided the law of the acceleration of falling bodies…….the lack of ultimacy that Lonergan ascribes to prices and price theory can scarcely be overemphasized. (CWL 15, Editors’ Introduction xlv-xlvi)

Back, then, to the parallel with physics.  The introduction of a new distinction places a huge burden on the physics community to shuffle previous data, to take a new and precise view on present and future data.  Is this one of the reasons why the present distinction is unwelcome in economics? …  I am inclined to think that the main difficulty is the subtle absence of the scientific spirit in contemporary economics. … There is nothing wrong with mathematical subtlety or rigor: the rigor mortis belongs to the absence of significant variables coupled regularly with the absence of empirical and pragmatic perspective; a case in point is the sophistications of rational expectations theory.  … The real difficulty is in the scientific perspective that can come to grips with precise functional distinctions. [McShane 2002-2, 21-22]

Importantly, the reader should study also CWL 3, 225-42 re General Bias.

  • MMQ fails to make precise, analytic distinctions among interdependent explanatory functions which would constitute the sound analytic foundation upon which to deduce and construct an explanatory systematics. It does not use the technique of implicit definition to discover fundamental, abstract, explanatory terms – such as point-to-point and point-to-line correspondences; and revenue-cost-identities (which limit so-called profits) which are defined by the functional relations in which they stand with one another; i.e. foundational relations of terms between and among themselves in a complete explanatory superstructure.

(Lonergan) approaches the focus armed with precise analytic distinctions upon which a superstructure of laws, coherent with one another and comprising a complete theory, may be constructed. Paraphrasing [CWL 3, 80/103]: 

Questions cannot be put in any order whatsoever.  Some questions simply cannot be answered until others have been resolved.  And sometimes the answers to one question immediately provide the answers to others. [CWL 12, 23]  …

the questions are put in such an order that, once the first is solved, the solutions to the others follow with almost no difficulty.  Therefore, because the later solutions are connected to the first as conclusions are connected to some principle, all solutions after the first seem to be the proper province of knowledge. [CWL 12, 25]  …

if solving the first problem virtually solves all the others, the concepts and terms in which the first problem and the first solution are defined and expressed cannot be significantly changed if they are to serve to define and express the later problems and solutions.  Clearly, then, it is not the arbitrary malice of professors but the interconnected questions and solutions themselves that demand both systematically formed concepts and a technical terminology that corresponds not to any concepts whatsoever but to systematic concepts. [CWL 12, 25]

  • Because it lacks fundamental analytic terms distinguishing point-to-point and point-to-line functional correspondences, MMQ is blind to the existence of two, or more, distinct circuits of circulations doing business with one another.

The entire tradition slipped past Lonergan’s simple move.  I describe the move as paralleling Newton’s move. Newton started within an old culture of two flows: an earthly flow and, to recall ancient searchings, a quintessential flow.  Newton went from two to one.  Lonergan started with a dominant one-flow economic analysis  and separated it into two flows “to form a more basic concept and develop a more general theory.” 21  [McShane 2017, viii]; also see {CWL 21, 11}

  • Thus, MMQ is lost at the start.  MMQ cannot build a superstructure constituting a complete explanatory theory. MMQ fails to reach basic terms which virtually contain an entire explanatory superstructure and theory.  These “basic terms” would be functional velocities and their changes in a set of point-to-point, point-to-line, point-to-surface, and higher functional correspondences to integral products being sold so as to exit the always-current process and no longer be under process.
  • MMQ is dangerous.  Modern Monetary Quackery is a disaster waiting to happen. In its unchecked extreme of printing money unconstrained by a relation of constant proportion to the concomitant real flow of goods, and services, it would sooner or frog-in-the-frying-pan eventually bring about major inflation, menace the financial system, and, ultimately, bring about a) the deformation of the financial system, and in the worst case b) social upheaval. The longer unconstrained printing of money and irresponsible borrowing last, the greater the intractability of inflation and inequity.
  • Again, MMQ fails to discover and analytically distinguish circuits of accelerator and accelerated monetary functionings.  Thus, it misses the critical explanatory import of their vital, crossover interactions as normatively balanced with respect to timing and magnitude of product flows and of the money flows taken in payment.

As the table makes clear, a variation in G’ is much more significant that a variation in G”.  … Inversely, when G” is 90% and G’ is really 10% but estimated to be 20% by over-zealous depreciation charges and by depressed wages, then a normative proportion of 9 is given a monetary distribution corresponding to a proportion of 4.5.  The result is an overproduction or an insufficient purchasing power or a maldistribution (or whatever it is , it, for superficial economists fancy the thing cannot exist) that generously slices off about half of existing economic activity.  We say ‘about half’ for the proportion 4.5 is a relative term: secondary activity may increase, and then the proportion is four-and-a-half times something greater than what it was nine times greater; on the other hand, as eventually will be the case, secondary activity may decrease, and then the proportion becomes 4.5 times something smaller than before [CWL 21 55 (for full explanation of “about half”)]

  • Due to its lack of an adequate heuristic structure and empirical method,  MMQ fails to be scientific and to reach an explanatory system or theory. And thus, despite its fine sentiments, noble dreams, and wondrous political fantasies, we cross out the word “theory” and replace it with “quackery” or “myth.”  Again,

Already 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.  … despite their intimate connection, it remains that 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. (CWL 3, 291/316)

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.  If one grasps the necessary and sufficient conditions for the perfect roundness of this imagined plane curve, then one grasps not only the circle but also the point, the line, the circumference, the radii, the plane, and equality.  All the concepts tumble out together, because all are needed to express adequately a single insight.  All are coherent, for coherence basically means that all hang together from a single insight.  [CWL 3, 12/36]

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)

… 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 bring 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. [CWL 10, 241-42]

  • MMQ does not grasp the idea of a field theory, wherein “the form of any element is known through its relations to all other elements. … Field theory is a matter of the immanent intelligibility of the object.” (CWL 10, 154)

as to the notion of cause, Newton conceived of his forces as efficient causes, and the modern mechanics drops the notion of force; it gets along perfectly well without it.  It thinks in terms of a field theory, the set of relationships between n objects.  The field theory is a set of intelligible relations linking what is implicitly defined by the relations themselves; it is a set of relational forms.  The form of any element is known through its relations to all other elements. … Field theory is a matter of the immanent intelligibility of the object. (CWL 10, 154)

Paraphrasing (CWL 10, 154)  … as to the notion of cause, macroeconomists mistakenly conceive of subjective preferences of psychological, efficient-causal humans — e.g. intertemporal expectations and preferences — as elements of formal cause or immanent intelligibility, and also, confusing the internal with the external, they conceive of certain changes in prices and quantities as random external efficient-cause shocks.  In contrast, explanatory Functional Macroeconomic Dynamics prescinds from human psychology; it drops the notion of subjective preferences; it gets along perfectly well without it.  It discovers precise analytic objective distinctions, correspondences and other relations – such as point-to-point and point-to-line correspondences and expenditures-to-costs relations (P’Q’ = p’a’Q’ +p”a”Q”) – and, thus, discovers variables of scientific explanatory significance. As in Special Relativity, FMD operates at a deeper, more abstract level and achieves a more profound and more general insight.  It thinks in terms of a field theory, the set of relationships between n interdependent, implicitly-defined functional activities.  The field theory of Functional Macroeconomic Dynamics is a set of intelligible relations linking functionings which are implicitly defined by the relations themselves; it is a set of relational forms.  The form of any functioning is known through its relations to all other functionings.  ….  The field theory of macroeconomic dynamics is a matter of the invariant, immanent intelligibility of the objective, dynamic, functional process.

Our aim is to prescind from human psychology that, in the first place, we may define the objective situationwith 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]

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 CWL 3, 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, 26, ftnt 26]

  • As a consequence of its lack of a) scientific heuristic, b) implicit definition, c) empirical method, and d) orientation to field-theory, MMQ has no theory explaining –as opposed to merely emptily postulating – inflation, deflation, and stagflation.  It has no systematics to explain which flows are “intrinsically inflationary” in the longer run.

… 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 (of these aberrational monetary transfers) is on the 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.  But the initial increased transfers to demand [that is, excess transfers along (D’-s’I’)  and (D”-s”I”) ] are not simply to be supposed.  For that would be postulating without explaining the boom or slump. [CWL 15, 64]

Its suggested process of trial-and-error – “Let’s-see-whether-or-not-inflation-happens,” – does not constitute a formal, systematic, unified theory of intrinsic interdependencies and interconnections.  It cannot do better than treat phenomena as merely incidental or happenstantial.  Since MMQ does not explain what combinations of flows of money and products are intrinsically inflationary, it can only say, “Let’s just spend as much as we want without constraint and let’s just see what happens.”  MMQ is lost in the dark.  It is not a tightly-knit, enlighteningexplanatory theory of a unified organic system; rather it is a description of happenstantial actions and it puts forth a frivolous prescription of correction prompted by some combination of psychopolitical inclination and mistaken common sense rather than a management policy based upon the exigent norms of a sound, normative, explanatory theory.  It prescribes intrinsically harmful actions, which will make problems more intractable; and it proposes ineffective corrective measures after its swindle by inflation and its causing unavoidable default have done their damage.  After wringing its hands over the plight of some sociological groups, MMQ makes sacrificial lambs of those holding cash,  “Let’s overload the electric circuits and see if a devastating fire results. If it does, we’ll try our best to then put it out,” or “Let’s send a water hammer through the pipes.”

the (3) exchange value is the ratio or proportion in which are exchanged the different categories of objects for which men strive because they are useful and scarce… It is now necessary to state the necessary and sufficient condition of constancy or variation in the exchange value of the dummy.  To this end we compare two flows of the circulation: the real flow of property, goods, and services, and the dummy flow being given and taken in exchange for the real flow….Accordingly, the necessary and sufficient condition of constant value in the dummy lies in its concomitant variation with the real flow….More briefly, if there is concomitance between the two flows, then the proportion in which dummies and goods exchange remains the same.  (there is proper constancy of pricing)  If there is lack of concomitance, then this proportion changes.  (there is a deviation from the constancy of pricing)  But exchange value is a proportion.  Therefore, the concomitance of the two flows is the condition of constant exchange value. (CWL 21, 38-39)

The “Summary of the Argument”: The present inquiry is concerned with relations between the productive process and the monetary circulation.  It will be shown … 5) that either or both a favorable balance of trade and domestic deficit spending create another type of systematic profits, 6) that while they last they mitigate the necessity of complete adjustment of the propensity to consume to the accelerations of the process, 7) that they cannot last indefinitely, 8) that the longer they last, the greater the intractability of ultimate problems.  (CWL 15, 5-6, )

  • MMQ fails to have an enlightening insight into the Diagram of Rates of Flow, which represents explanation of a whole organic system of interdependent rates of flow.  MMQ’s proponents fail to have the enlightening insight which would pass into the intellectual texture of their minds (See CWL 3, 3-13/27-37)

“The key discovery is the interdependence of the whole,” with its constituent principles and laws of concomitance, continuity, equilibrium, and organic solidarity.  The key discovery is the immanent intelligibility, i.e. formal cause of the process.

All science begins from particular correlations, but the key discovery is the interdependence of the whole. … While it is true that a tableau or diagram cannot establish the uniqueness of a system or rigorously ground its universal relevance, it remains that the diagram (of the interconnections of a few precise aggregates) has compensating features that Quesnay’s system of simultaneous equations may imply but does not manifest. … There is the tremendous simplification (a diagram) effects. … The aims and limitations of macroeconomics make the use of a diagram particularly helpful, …  For its basic terms are defined by their functional relations.  The maintaining of a standard of living is attributed to a basic process (distinct process 1), an ongoing sequence of instances of so much every so often.  The maintenance and acceleration (distinct process 2) of this basic process is brought about by a sequence of surplus stages, in which each lower stage is maintained and accelerated by the next higher.  Finally, transactions that do no more than transfer titles to ownership (distinct process 3) are concentrated in a redistributive function, whence may be derived changes in the stock of money dictated by the acceleration (positive or negative) in the basic and surplus stages of the process. … So there is to be discerned a threefold process in which a basic stage is maintained and accelerated by a series of surplus stages, while the needed additions to or subtractions from the stock of money in these processes is derived from the redistributive area. … it will be possible to distinguish stable and unstable combinations and sequences of rates in the three main areas and so gain some insight into the long-standing recurrence of crises in the modern expanding economy. [CWL 15, 53 and 177]

  • Though 2% inflation may be acceptable, it remains that there is a theoretical ideal of constant value and constant purchasing power of the dummy.

… the dummy must be constant in exchange value, so that equal quantities continue to exchange, in the general case, for equal quantities of goods and services.  The alternative to constant value in the dummy is the alternative of inflation and deflation.  Of these famous twins, inflation swindles those with cash to enrich those with property or debts, while deflation swindles those with property or debts to enrich those with cash; in addition to the swindle each of these twins has his own way of torturing the dynamic flows; deflation gives producers a steady stream of losses; inflation yields a steady stream of gains to give production a drug-like stimulus. [CWL 21, 37-38]

  • MMQ’s proponents fail to understand the purpose of credit.  They have an “impoverished notion of credit.” (McShane) They do not understand the granting of credit as the injection of new dummy money to accommodate the magnitudes and frequencies of the orderly expansion of the productive process.

the function of monetary circulating capital is to bridge the gap between payments made and payments received;  as goods and services are in process, the unit of enterprise makes payments to earlier units in the production series and to its own factors; only when goods and services are sold are payments received.  Now this gap increases with increments in turnover magnitude; …  (CWL 15, 62)

A condition of circuit acceleration was seen in section 15 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)

  • MMQ does not display a knowledge of the principles and laws of hydrodynamic circuits and electric circuits analogous to the principles and laws of the objective economic process: a) concomitance, b) continuity, c) equilibrium, d) implicit definition, e) point-to-point and point-to-line correspondences, f) revenue-cost identity (P’Q’ = p’a’Q’ + p”a”Q”), and g) expansion in phases.  These principles and laws involve principles and laws  characteristic of a unified, whole, systematic, organic process, all of which one can understand in a single sweeping insight.

Moreover, once initial difficulties are overcome and basic insights are reached, the investigation approaches a supreme moment when all data suddenly fall into a single perspective, …. [CWL 3, 47/71]

(insight) adds to the merely given an explanatory unification or organization. [CWL 3, x/5]

    • a) concomitance of functional flows; i.e. the “going together” of certain monetary flows with one another and normatively correlated product and monetary flows with one another often supported by credit to overcome brief lags,
    • b) what constitutes continuity, (Attend to the excerpt above: “The initial and provisional theorem of continuity … “) ( “It will be wise .. to illustrate these points concretely… by studying one differential equation in the theory of fluids, namely, that commonly designated as the equation of continuity.” [Lindsay and Margenau, 1957, 30]
    • c) what constitutes dynamic equilibrium,

G = c”O” – I’O’ = 0 is the condition of equilibrium. (CWL 15, 53-55)

    • d) what constitutes solidarity or “solidness” within the entire system.

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. That is the essence of dynamic disequilibrium. [CWL 15, 175]

  • MMQ is not explicit about either the functions of reserves or the possibility of their mobilization.  Reserves may be directed to the Redistributive Function for future contingencies.  They include contributions for a) personal retirement or social security, b) claims against insurance companies, c) charitable contributions and estate planning, and d) preservation of profitable operations and endowments.  They  are owned by some person or entity, and they are named and classified by the owner to identify future purpose.  They are channeled into the Redistributive Function along s’O’, s”O”, and s’I’, and s”I”.  within the Redistributive function they can be consolidated and mobilized by individuals and investment bankers for current purchases of stocks, bonds, real estate, initial private or public offerings. In one instance they may be mobilized along s’ or s” to finance new investments for widening or deepening the economy’s stock of human or physical capital in the operative surplus circuit. In another instance, they may sit unmobilized to merely inflate the price of secondary, previously-issued stocks and bonds.  Since MMQ lacks a nuanced theory and framework by which to understand the process of nuanced phases of expansion and the function of basic income and pure surplus income in the stages of the expansion, it considers all retained earnings – whether on an individual or corporate balance sheet – as Taxes-Payable to the Government.
  • MMQ’s proponents have not read CWL 15 or CWL 3.  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.“ [CWL 15,  26-27  ftnt 27]
    • e) the analytic distinction between point-to-point and point-to-line correspondences forming two or more circuits of monetary circulations, analytically distinguished but solidary with one another. (CWL 15, 23-28)
    • f) the revenue-cost identity, (P’Q’ = p’a’Q’ + p”a”Q”), from which can be deduced the Basic Price-Spread Ratio explaining the changes and the crises occurring within a long-term expansion.

There is a sense in which one may speak of the fraction of basic outlay that moves to basic income as the “costs” of basic production.  It is true that that sense is not at all an accountant’s sense of costs; … But however remote from the accountant’s meaning of the term “costs,” it remains that there is an aggregate and functional sense in which the fraction… is an index of costs.  For the greater the fraction that basic income is of total income, the less the remainder which constitutes the aggregate possibility of profit.  But what limits profit may be termed costs.  Hence we propose ….to speak of (c’O’  = p’a’Q’) and (c”O” = p”a”Q”) as costs of production, having warned the reader that the costs in question are aggregate and functional costs…. [CWL 15, 156-57]

A heuristic analysis of dJ/dt over the phases of the an economic expansion reveals cyclic fluctuations on the basic price spread which are reminiscent of cycles noted by Kitchin, Crum, and Juglar. (McShane, Philip, Lonergan’s Challenge to the University and the Economy, Pp.127-128)

    • g) expansion in phases based upon a comparison of dQ’/Q’ and dQ”/Q” detailed in the following table:

Insert Table of CWL 15, p. 114

  • Note for emphasis: the reader should appreciate the analogy of the insight into the image of the planar circle in which “all concepts tumble out together” and the understanding of the organic economic process represented by the Diagram of Rates of Flow in which, also, all concepts tumble out together.

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.  If one grasps the necessary and sufficient conditions for the perfect roundness of this imagined plane curve, then one grasps not only the circle but also the point, the line, the circumference, the radii, the plane, and equality.  All the concepts tumble out together, because all are needed to express adequately a single insight.  All are coherent, for coherence basically means that all hang together from a single insight.  [CWL 3, 12/36]

Moreover, once initial difficulties are overcome and basic insights are reached, the investigation approaches a supreme moment when all data suddenly fall into a single perspective, …. [CWL 3, 47/71]

(Insight) adds to the merely given an explanatory unification or organization. [CWL 3, x/5]

  • Unlike MMQ, Macroeconomic Field theory explains an organic, whole, always-current process by the internal relations of explanatory terms among themselves. The theory of the process is isomorphic with the actual, always current – not a “Let’s wait and see in retrospect what relations are happenstantially” – process, which is an organic whole circulatory system. MMQ has not an inkling – much less an idea or theory – of the organic process as an organic whole which is to be explained by an internally-coherent field theory.

We repeat: An initial and provisional theorem of continuity was enounced in a preceding chapter (§24).  Now it may be indicated in its full generality. ¶ The analysis has revealed that the economic system is a pattern of aggregate dynamic relationships arranged in different kinds of velocity and accelerator rhythms. In the real order there are the primary and secondary rhythms, with the former accelerated by the latter.  In the monetary order there are the rhythms of excess release from the redistributional area to the primary and secondary rhythms; and again, the latter accelerate the former. ¶ Now the general theorem of continuity is that this complex machine has a nature that must be respected.  Absolutely, there is no necessarily right value for the monetary accelerators DT’, DT”, DC’, DC”; again, absolutely, there is no necessarily right values for the six multipliers C’, C”, T’, T”, G’, G”.  But what is true is this: as soon as a few of these are determined, the rest become determined within narrower limits, for all form part of an organic whole; to violate this organic interconnection is simply to smash the organism, to create the paradoxical situation of starvation in the midst of plenty, of workers eager for work and capable of finding none, of investors looking for opportunities to invest and being given no outlet, and of everyone’s inability to do what he wishes to do being the cause of everyone’s inability to remedy the situation.  Such is disorganization.  Continuity, on the other hand, is the maintenance of organization, the stability of the sets and patterns of dynamic relationships that constitute economic well-being in a society. ¶ While the provisional theorem of continuity (§24) did regard the static phase, it is important to observe that the general theorem regards any phase.  There is a general historical movement of ideas, opportunities, and decisions integrating into that major rhythm in which transformations are followed by exploitations only to bring forth new and deeper transformations.  Within this broad historical scheme of things, the role of any age, and still more of any country, is but a small thing: the past was settled by our forebears, and the future will be in the hands of posterity; only the present is ours, and it is only within the limits that we make of the present what we wish.  Our starting pint is already determinate: we have to face things as they are; we may never lose sight of them or attempt to reckon without them.  But not only is there ever a broad and unalterable datum of things as they are; there are also the limitations which this datum imposes on things as we are going to make them.  ¶ The theorem of continuity is the abstract and formal aspect of such limitations in the economic order.  At the moment the exchange process is static or expanding or contracting.  We may like it so or we may wish it different.  But in any case there is some determinate range of values of the multipliers and of the monetary accelerators – of C’, C”, T’, T”, G’, G”, of DC’, DC”, DT’, DT” – that corresponds with such a decision.  Moreover there has to be an internal coherence between these values, and to violate this coherence is to rout economic organization.  Just as the movements of the controls of an airplane must be coordinated and all coordinations are not possible at all instants, so also the economic machine has its controls, which can be moved only in concert and only in a limited number of ways at any given time.  ¶ Such is the general theorem of continuity.  In the abstract and in a general way, it affirms that the economic process can proceed only within the limits of equilibrium of the various phases.  To step outside them is to bring about a general breakdown. (CWL 21 73-5)

MMQ would wander ignorantly into harmful, perhaps ultimately disastrous policies.  MMQ does not understand the primacy of outlays in the circuits of payments.  MMQ reverses the direction of the arrows. Instead of the monetary Demand function, I’, warranting its purchasing power by arrowed virtue of productive outlays, c’O’ and c”O”, MMQ would have monetary Demand backwardly borrow its money interval after interval through the D’ of (D’-s’I’) so as to accumulate inflation and a debt which would prove to be eventually intractable as to default by inflation, diminution of purchasing power, debasing of the currency.

… 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 (of these aberrational monetary transfers) is on the 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.  But the initial increased transfers to demand [that is, excess transfers along (D’-s’I’)  and (D”-s”I”) ] are not simply to be supposed.  For that would be postulating without explaining the boom or slump. [CWL 15, 64]

  • MMQ mistakenly conceives of the unity called We-The-People as four individual, exogenous parties, conceptually distinct from and independent of one another. We-The-People act as One in the four capacities or powers of “government” — by agency of 1) Executive, including the U.S. Treasury, 2) Legislative, ignorantly assigning responsibilities to the Federal Reserve Bank, 3) Monetary, the Federal Reserve Bank, and 4) Judicial authorities. MMQ regards the U.S. Treasury and, its quasi-subsidiary, the Federal Reserve Bank, as “quasi-third parties” able to borrow, issue, and pluck at will the fiat sovereign currency which, of course, just grows without limit on trees!!!!
  • MMQ’s proponents’ do not understand that the psychological biases of egoism, tribalism,  and common sense do not constitute the explanatory elements of the normative science of the objective economic process.  MMQ’s utopian postulate of all individuals – uneducated as to an explanatory macroeconomics – toasting marshmallows and singing “kumbayah” around a nationally-connected campfire is naive.  (See, re Individual Bias, Group Bias, General Bias, and Cosmopolis, CWL 3, 218-242/244-267)

Lonergan thought of his work in economics as a contribution to a vast educational program ‘to train and equip the masses for economic independence’; to release the spontaneity and the creativeness that reside … in free men. … He considered valid macroeconomic dynamic analysis an instrument that democracy must have, for it is the broad generalization, the significant correlation, that effectively organizes free men without breaking down their freedom.’  Thus, Lonergan called for an understanding of economics in which the economy is properly subordinated in a properly organized polity. [CWL 15, Editors’ Introduction xxxviii- xxxix]

The idea of engineering human welfare is repugnant to Lonergan, for ‘managing people is not treating them as persons. To treat them as persons one must know and one must invite them to know.’ Making the survival of democracy possible by ‘effectively augmenting the enlightenment of … enlightened self-interest’ cannot be identified merely with the Enlightenment’s project of steering public opinion from unenlightened to enlightened self-interest. Instead, Lonergan envisaged a vast and long-term educational effort. He insisted that rational control of the economy ‘can be democratic only in the measure in which economic science succeeds in uttering not counsel to rulers but precepts to mankind, not specific remedies and plans to increase the power of bureaucracies, but universal laws which men themselves administrate in the personal conduct of their lives.’ [CWL 15, Editors’ Introduction, lxxi]

  • MMQ has no theory of the amount and velocity of money based upon the magnitudes and frequencies of productive turnovers.

Now every unit of enterprise involves a turnover magnitude and a turnover frequency.  The statement would be merely a truism if it meant no more than that the rates of payment received and made by the unit of enterprise involved quantities and velocities of money.  But the statement is not a truism, for it involves a correlation between the quantities and velocities of rates of payment and the quantities and velocities of goods and services. (CWL 15, 57)

The existence of this correlation may be seen readily enough. … the quantity alternative in the rates of payment is conjoined with the quantity alternative in the rate of production, and the frequency alternative in the rate of payment is conjoined with the frequency alternative in the rate of production.  The two cases of quantity-velocity are not only parallel but also correlated. [CWL 15, 57]

  • MMQ is itself a myth.

In deference to the commonly pejorative meaning attached to the name, myth, we have identified mythic consciousness with the counterpositions, with the inability or refusal to go beyond description to explanation, and with the lack of effective criteria for passing judgments on anticipations and acts of understanding.  But this is only part of the picture. (CWL 3, 544/  )

It will be a basic position,

    • if the real is the concrete universe of being and not a subdivision of the ‘already out there now’;
    • if the subject becomes known when it affirms itself intelligently and reasonably and so is not known yet in any prior ‘existential’ state; and
    • if objectivity is conceived as a consequence of intelligent inquiry and critical reflection, and not as a property of vital anticipation, extroversion and satisfaction

… On the other hand, it will be a basic counter-position, if it contradicts one or more of the basic positions. …  all counter-positions invite reversal.  for any lack of coherence prompts the intelligent and reasonable inquirer to introduce coherence.  But counter-positions, though coherent with one another, though the insertion of their symbolic equivalents into an electric computer would not lead to break-down, none the less are incoherent with the activities of grasping them intelligently and affirming them reasonably.  For these activities contain the basic positions; and the basic positions are incoherent with any counter-position. … The only coherent way to maintain a counterposition is that of the animal; for animals not only do not speak but also do not make excuses for their silence. [CWL 3, 388/413]

Again, MMQ says, with “an air of profundity, a glow of self-importance, a power to command respectful attention,” (CWL 3, 542/566), though not scientifically,  “Let’s spend all we feel like spending and see what happens,” rather than seeking an objective theory and frame of reference which would recognize drunken spending as “intrinsically inflationary” rather than as a remote happenstantial possibility

… 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 (of these aberrational monetary transfers) is on the 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.  But the initial increased transfers to demand [that is, excess transfers along (D’-s’I’)  and (D”-s”I”) ] are not simply to be supposed.  For that would be postulating without explaining the boom or slump. [CWL 15, 64]

  • MMQ ignorantly and willfully asserts that money is created by government spending based on political wish rather than by prudent financing of economically-justified productive activities. MMQ would have new money “sneak into” the process through the D’ and D” of (D’-s’I’) and (D”-s”I”), with entrepreneurs receiving back more (or less) than they paid out in outlay.
  • MMQ’s proponents blasely declare – and think that their declaration makes it true (in politics, say it three times and it’s true) – that the government may print and spend whatever amount totalitarian political leaders declare necessary for social purposes (usually their social purpose boils down to a desire for fifteen-minutes, or years, of their own power and political glory) regardless of whether the expenditures for opiuint-to-ooint or point-to-line activities are theoretically and objectively justified or not.  Just keep the pedal to the metal until intractable inflation has effected an economic swindle on honest savers. Then go through the motions of pretending to correct what has become intractable with ineffective tools.
  • According to MMQ’s borrow-and-spend-first proposition, which poses as objective science, the accounting category of Retained Earnings for Contingencies or Investment must be reclassified as Taxes Payable to Unharnessed Totalitarian Profligacy
  • MMQ detaches relative reward from the relative contributions of genius, assumption of risk, spunk, effort, and social and charitable contribution.

From the viewpoint of intelligence, the satisfactions allotted to individuals are to be measured by the ingenuity and diligence of each in contributing to the satisfactions of all; from the same high viewpoint the desires of each are to be regarded quite coolly as the motive power that keeps the social system functioning. [CWL 3, “The Tension of Community” 214-16/239-42]

Within any given country the (shifting network of exchanges) may expand as resourceful individuals at their own risk add to the routes of trade, to the goods produced, or to the services rendered.”  (CWL 15, 12)

A rigidly egalitarian system belongs to a perfectly egalitarian world; (but) a world in which men are, in fact, unequal must find a different system.  What system?  If the idealism is sentiment without intelligence, it is as likely as not to mate with the underground cynicism of the revolutionaries to foist upon us a dictatorship of the proletariat in which the proletariat does not dictate, a dictatorship of the Herrenvolk in which the Volk obeys the Fuhrer.  But if that idealism can be brought too learn the discipline of logic and of scientific reflection, then it will impose a generalization of the exchange economy.  To determine the nature of such a generalization is the aim of this inquiry; but at once this is at least evident.  The vast forces of human benevolence can no longer be left to tumble down the Niagara of fine sentiments and noble dreams.  They have to be assigned a function and harnessed within the exchange system, for in no other way can that system shake off its fictitious fetters to move consistently towards its maximum. [CWL 21, 36]

  • On Saturay, 12/19/ 2020, John Cochrane‘s blog“Bisin on MMT Rhetoric” cited Alberto Bisin’s review of Stephanie Kelton’s Book “The Deficit Myth. “  Alberto Bisin contends, as do we, that So-Called Modern Monetary Theory, as espoused by Kelton and others,  does not qualify as a theory.  Cochrane quotes Bisin:

The book should be seen as a rhetorical exercise. Indeed, it is the core of MMT that appears as merely a rhetorical exercise. As such it is interesting, but not a theory in any meaningful sense I can make of the word. The T in MMT is more like a collection of interrelated statements floating in fluid arguments. Never is its logical structure expressed in a direct, clear way, from head to toe.

  • In any profligate spending by MMT, there would occur some increased employment, however, fixed-wage union workers and other fixed-fee workers would be vulnerable, at least for the duration of agreements, to the intrinsically inflationary profligate spending .  Savers holding cash would be permanently vulnerable.  They are MMT’s sacrificial lambs.  Ssshhh, don’t say anything!
  • MMQ needs a Bill of Responsibilities related to the phase of expansion for both the Smiths and the Joneses rather than a Bill of Rights for only the Smiths and a Bill of Responsibilities for only the Joneses.
  •  Also, see herein Practical Precepts for Free People – Consumers, Entrepreneurs, Bankers,   investors.
  • The whole debunking of Modern Monetary Theory is contained in (CWL 15, Section 15) Circuit Acceleration where Lonergan considers circuit acceleration scientifically, treating a) the interrelations of productive units of enterprise, b) variation of quantities of money in the operative circuits, c) how and how much new money should be added to which of the operative circuits through which channels per the principles and rules of money’s correlation with the magnitudes and frequencies in a production acceleration. The Appendix to that Section 15 provides a simple model of monetary requirements in a productive circuit acceleration.

 

 

In review:

Theory has been defined as a body of principles and laws offered to explain phenomena.  In contrast to MMQ, Functional Macroeconomic Dynamics consists of a) basic, analytic distinctions, b) primary abstract terms defined by their explanatory relations with one another, c) a coherent set of equations expressing the explanatory abstract relations, and d) secondary concrete determinants from the non-systematic manifold constituting the boundary conditions to which the abstract primary relations are applied.  However, MMQ is a mix of fine sentiments and unscientific relations promoting the implementation willy-nilly of righteous sentiments but failing to explain how the economic process should actually work and within which any fine sentiments must be assigned a function and harnessed.  Many of MMQ’s arguments are half-truths selectively and rhetorically highlighting the benefit to Smith and cagily ignoring the harm to Jones.  Proponents advocate practically unconstrained spending for the Smiths but pay short shrift to the intrinsically inflationary character swindling the Joneses.  When it does not suit their sentiments, MMQ does not treat objectively the detriment to some alongside the benefits to others.  MMQ is politics not science; it constitutes neither a theory, nor a systematics, nor an explanation.  It is a political wish list lacking critical basic analytic economic distinctions and foundations, explanatory conjugates, and a field theory of abstract functional relations.

We have commented elsewhere on Modern Monetary Theory: See herein So-Called Modern Monetary Theory Does Not Qualify As Scientific MacroeconomicsFMD’s take on Greg Mankiw’s Take on Modern Monetary Theory, and Modern Monetary Theory is Backward.

.3.1. Stephanie Kelton’s “The Deficit Myth”

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