Both Paul Romer and Bernard Lonergan provided purely relational explanations of how the economic process can and should expand. Please have at hand for this comparison:
Romer, Paul, (1990) Endogenous Technological Change, Journal of Political Economy, Vol. 98, No. 5, Part 2, The Problem of Development: A Conference of the Institute for the Study of Free Enterprise Systems, October., 1990 pp. S71-S102 (Also available through JSTOR) [Romer, 1990]
Lonergan, Bernard (1999), Macroeconomic Dynamics: An Essay in Circulation Analysis, ed. Frederick G. Lawrence, Patrick H. Byrne, and Charles Hefling, Jr., vol 15 of Collected Works of Bernard Lonergan, (Toronto: University of Toronto Press) [CWL 15]
In this first section, we proceed in the style of a movie trailer, highlighting important clips to give a sense of the contents and to pique interest. This will be a preview, not a continuous narrative. Let us proceed.
Both Paul Romer and Bernard Lonergan made significant contributions to humanity. Each achieved, consistent with his own purpose and scope, brilliant formulations of the economic process. Romer’s analysis regards endogenous, constant, exponential, growth, which is averaged and smoothed-out and over the very long run. Lonergan’s more comprehensive analysis regards the conditions of equilibrium throughout all the phases of the many differently-timed, nonsmooth expansions, which comprise the very long run.
Lonergan’s new paradigm in macroeconomics offers fertile ground for
- graduate students in macroeconomics, theoretical mechanics, or mathematics to coauthor influential theories and theses
- system dynamicists at MIT and elsewhere to construct new and better economic models
- economists at the Department of Commerce’s Bureau of Economic Analysis and at the Federal Reserve Board to analyze the current operations of the economy by a better method
- authors of Macroeconomics textbooks to come to grips with and to communicate a new paradigm explaining, rather than merely postulating the disequilibria colloquially called booms, slumps, inflation, deflation, etc.
- consultants to explain the economic process to their clients in a new way
Romer gave us a clear formulation of how intelligence can be applied to the store of humanity’s knowledge so as to continue, in the very long run, the inventing of new and better products and processes. His contribution should not be underestimated. His precepts regarding the funding of research and development are taken seriously in government circles around the world. (Click here, and here)
Romer’s “proof of the endogeneity of growth” in the very long run is a brilliant, logically consistent, mathematically virtuosic quod erat demonstrandum. He deals in the very long run; thus his equations are not isomorphic with, and explanatory of, the functionings of the always current, purely dynamic, economic process. He forthrightly admits that he bypasses “transient,” or “transitional,” dynamics. On the other hand, Lonergan’s explanatory theory is a general and universal theory of economic equilibria and disequilibria currently applicable at all times. It specifies the normative equilibrium among interdependent flows, both currently and throughout static and expansionary phases; and it explains rather than merely postulates the situations colloquially called booms and slumps, bubbles and busts, prosperity and depression, inflation, and deflation, etc.
Lonergan’s theory is a science, independent of human psychology. His theory is a normative theory yielding plain precepts for free people.
Our aim is to prescind from human psychology (so) 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]
We might go back and forth between criticism and high praise of Romer. Was his “proof” merely a mathematically-virtuosic collocation of convenient, but questionable, assumptions, arranged to achieve a formulation of Endogenous Technological Change with “constant, exponential growth;” or was it a brilliant demonstration of how profit-motivated human genius does in fact endogenously effect expansion of the economic process in the long run? In the end, this writer always winds up with high praise for Romer’s genius and with gratitude for his enlightening contribution to humanity. His proof furnishes us a vivid image of endogenous change and possible constant exponential growth in the very long run.
Lonergan sought to explain rather than describe; and he sought complete explanation. Lonergan’s purely relational framework of constituent functional velocities is more comprehensive, at a more adequate level of abstraction, and a more useful explanation to the stewards of the economic process. He analyzes both the intrinsically wavelike structure of expansionary dynamics and the circulations of money correlated to that process. He goes beyond Romer’s bypassing of transitional sectoral temporality and intercircuit adjustments of saving to identify an ideal pure cycle of transitions to higher levels of productivity and output. He explains the conditions of equilibria and disequilibria applicable in all phases among private enterprise, the government and foreign trade.
Lonergan’s explanatory theory is isomorphic with the functionings of the always current, purely dynamic, economic process. His precise analytical distinctions and basic terms contain virtually the superstructure of many relationships, which faithfully represent the dynamics of the process, and thus explain the process.
Lonergan’s essay is more useful to, and must be used by, the Bureau of Economic Analysis and the Federal Reserve Board for their analysis, reporting and guiding of the economic process. In particular, they may discover and present a new formulation of economic performance called Gross Domestic Functional Flows to supersede the nonexplanatory Gross Domestic Product.
Using the technique of implicit definition and making precise analytical distinctions, Lonergan discovered a theory, independent of human psychology, which revealed the macroequilibria that have to be maintained for an economy to function properly,both currently and over a long period of time. The technique of implicit definition of functionings must be employed to define purely relational, explanatory conjugates and pure relations of scientific and explanatory significance. Lonergan’s analysis is purely functional and purely relational. His science formulates the immanent intelligibility of interdependent functionings, not the psychology and interactions of households and firms. It is not a compilation of accountants’ unities, such as wages, salaries, packaging costs, interest. Lonergan did not consider accountants’ unities to be explanatory terms.
… 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]
The basic notions of Functional Macroeconomic Dynamics are interdependent, mutually defining, velocitous functionings that are distinct from wages, salaries, indirect costs, legal fees, etc. [paraphrasing CWL 3, 165/188-89]
“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 discovered a new field- theory of macroeconomic dynamics. He discovered the immanent intelligibility, i.e. the formal cause, of the process.
Paraphrasing [CWL 21, 6-7]: Lonergan moved macroeconomics back to premises more remote than Walrasian statics, microeconomic price theory, neoclassical macroeconomics and Keynesian macroeconomics; he developed explanatory formulae quite unlike others’, and though he did not impugn them, neither was he very interested in them; casually and incidentally combinations of prices and quantities turn up as particular coincidental cases in an enlarged and radically different field. … Lonergan discovered a new field–theory of macroeconomic dynamics to make aggregate, mutually-defining, velocitous functionings the basic interdependent variables; and as Newton transformed the formulation and interpretation of Kepler’s laws, so Lonergan transforms the neoclassical and Keynesian laws of how the economy actually functions. … He achieved a scientific generalization of the old political economy and of modern economics that yields the new political economy which we need. … Plainly the way to settle disputes about the immanent intelligibility of the economic process is through a more general, explanatory, and sublating dynamics of implicitly-defined economic functionings.
If a Nobel Memorial Prize in Economics Sciences could be awarded posthumously, Lonergan would merit a Nobel Memorial Prize.
In a process of flows, equilibrium is an equilibrium among flows. Lonergan’s equilibrium is a dynamic equilibrium among velocitous, functional flows, a concomitance among the circularly conditioned functional flows within circuits and a balance of functional flows between circuits.
Schumpeter acknowledged that dynamic analysis called for a new light on equilibrium. Such new light arises when, over and above, the (Walrasian microeconomic) equilibria of supply and demand with respect to goods and services, there are recognized further equilibria that have to be maintained…..Moreover, such macroequilibria are more fundamental than the microequilibria assembled by Walras. The (further macroeconomic equilibria) are the conditions of a properly functioning economy [CWL 15, 92]
First, we’ll show, Lonergan’s double-circuited, credit-centered Diagram of Rates of Flow representing and explaining the always current, purely dynamic process; second, we’ll run quickly through Lonergan’s diagrams of how the always current process plays out in intrinsically cyclical expansions over the longer term; third, to compare and contrast Romer’s and Lonergan’s formal similarities, we’ll rotate Lonergan’s double-circuited schematic 45 degrees counterclockwise, add a third level-circuit, and demonstrate how Romer’s three hierarchical sectors-circuits, explanatory conjugates, and formulae fit neatly into that three-leveled Lonerganian form.
There is no royal road to Romer or to Lonergan, any more than there has been to Newton, Clerk-Maxwell, Einstein, et al. One must grapple with and grasp the immanent intelligibility of a system of productive and monetary flowings within and between hierarchical and sequential levels or circuits. One must transition to a new perspective of isolated circuits and interacting circuits. One must grasp the meanings of
- any circuit of flows in itself
- any circuit of flows in its relations to other circuits
- the harmonious or conflicting process of interaction among all three circuits
- the cumulative, historical process of development of the system [paraphrasing CWL 3, 741 in another context]
Wrestling with Romer’s equations has its rewards. Rather than being a slave to one’s ignorance and psychopolitical tendencies, one becomes an objective and critical analyst, evaluating correspondences, interrelations, logic, and isomorphisms between equations and patterns of phenomena. One becomes a more accomplished person. One becomes a rational traveler in the psychopolitical and economic wilderness.
Romer’s very-long-run production function, with all its assumptions, is a sort of appropriation to the long run of what are essentially always current, intrinsic requirements for equilibrium of a dynamic, wavelike, transitional, system. It is intended and formulated to be a finish-line function demonstrating a “balanced-growth” equilibrium. Lonergan, on the other hand, first develops a general and universal normative theory of the always-current, purely dynamic, productive process with its immanent requirements for continuity and equilibrium; then he develops a theory of how the monetary order meshes with the productive order, and then a theory of the transitional dynamics mandating antigalitarian and egalitarian, shifts of income in successive phases.
Romer gets thrown off track in the explanation of the economic process by focusing on firms and households rather than on explanatory functionings. We might characterize his theory as talent-distribution-ism or inter-firm-ism rather than inter-function-ism. He uses a Cobb-Douglas production formulation of the interactions of human talent with a stock of knowledge and with producer durables. While most of his assumptions are appropriate and beneficial for simplification and pedagogy in his demonstration, in his search for a very-long-run equilibrium he is forced by his talent-distribution-ism and inter-firm-ism, and by his focus exclusively on the very long run, to make extreme assumptions regarding temporality, savings vs. consumption, capital replacement, wage structures, varying η capital composition, x-bar capital efficiencies and levels, and productive coefficients.
Lonergan made precise analytic distinctions at an adequate level of abstraction to identify basic macroeconomic terms and interdependent functional flows which, by their functional relations to one another, explain the intermediate process. Romer, on the other hand, was able to work his way through the thicket of microeconomic interactions of income-receiving households deciding how to allocate their human capital and labor, and profit-seeking owners deciding whether to do research, produce durables, or produce consumables.
We have high praise for Romer’s genius and contribution to humanity. For greater generality, and universality Romer might have focused exclusively on the concept of a precisely defined functioning rather than forcing himself into inter-sector-al wage and salary levels. The function of discovery is not confined to an R&D department. The discovery function exists for street vendors as well as research biochemists; and discovery occurs in the morning shower as well as in the laboratory. Discovery is an economic function having quantital-temporal correspondences with other functions in the always current, purely dynamic, economic process.
“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 ?