Purpose and Scope

Lonergan’s purpose was to discover the immanent intelligibility of the velocitous process of production and exchange.  His goal was to discover general and universal laws of the process – prior to and independent of human psychology – which yield a normative theory for adaptation. Lonergan’s fundamental analytic distinctions identifying different explanatory functionings having different rhythms and temporalities and an always current exigence for continuity and equilibrium; his distinctions are prior to, and more realistic than Romer’s ambiguous description of “sectors” and his casually declared balance of supply and demand.

our inquiry differs radically from traditional economics, in which the ultimate premises are not production and exchange but rather exchange and self-interest, or later, exchange and a vaguely defined psychological situation.  Our aim is to prescind from human psychology (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]

Our immediate task is to work out the correlations that exist between the velocity and accelerator rhythms of production and the corresponding rhythms of income and expenditure.  The set of such correlations constitutes the mechanical structure, a pattern of laws that stand to economic activity as the laws of mechanics to buildings and machines. [CWL 21, 43 ]

Lonergan took cues from the history of physics, especially cues regarding dynamical systems.  He moved macroeconomic dynamics back to premises more remote and developed methods of his own quite unlike those of other economists.

Generalization comes with Newton, who attacked the general theory of motion, laid down its pure theory, identified Kepler’s and Galileo’s laws by inventing the calculus, and so found himself in a position to account for any corporeal motion known.  … … The non-Euclideans moved geometry back to premises more remote than Euclid’s axioms, they developed methods of their own quite unlike Euclid’s, … … as Newton transformed the formulation and interpretation of Kepler’s laws, so Einstein transforms the Newtonian laws of motion. … It is, , a scientific generalization of the old political economy and of modern economics that will yield the new political economy which we need. … Plainly the way out is through a more general field. [CWL 21, 6-7]

A generalization will … move to a higher synthesis that eliminates at a stroke both the problem of wages and the complementary problem of trade unions; it will attack at once both the neglect of economic education and the blare of advertisements leading the economically uneducated by the nose; it will give new hope and vigor to local life, and it will undermine the opportunity for peculation (embezzlement) corrupting central governments and party politics; … CWL 21, 36-37]

[1]… Lonergan was seeking the explanatory intelligibility underlying the ever-fluctuating rhythms of economic functioning. … When all was said and done the relations, and the terms they implicitly defined, were markedly different from either the terms of ordinary business parlance or the terms of neoclassical and Keynesian economic theory.  … Hence, just as a mathematical equation may be said to be the most adequate expression of purely intelligible relations among explanatory terms in certain instances – for example, Einstein’s gravitational field tensor quations – something closely akin to Lonergan’s (equations and) diagram seems necessary for the realm of dynamic economic functioning. [CWL 15, 179]

it is only to give an account of enormous facts overlooked by political economy and by specialized economics that this generalization is undertaken; and it is only by a new study of facts, more fully grasped because more broadly seen, that our general conclusions can be made a source of practical applications. [CWL 21, 10]

 Romer, on the other hand, sought to thematize and systematize the intelligibility of human applications of past and present insight, skill, and agency in effecting the process of economic growth in the very long run.  Romer brilliantly systematized that of which others had only a vague sense, or intuited commonsensically, but could not articulate.  Romer, with convenient assumptions and virtuosic mathematics, systematized.

He gathered, tested, and modified assumptions, postulates and arguments so as to prove the particular conjecture-postulate-theorem that the historical expansion of economically useful knowledge is endogenous to the economic process. He worked towards a quod erat demonstrandum regarding the endogeneity of advance in the economic process. His QED is generally acknowledged to be brilliant and of major significance.  He succeeds in demonstrating that endogenous economic incentives drive endogenous technological change.  His equations are carefully interlocked and coherent.  The world has been convinced and inspired by his proof. (click here and here and here)

The economic process is a process of value, at every instant adapted to payments.

The productive process (is) a process of value. … production is not a merely technical affair;… intrinsically it is an economic affair, … production is for sale, production in view of and at every instant adapted to payments.[CWL 21, 114]

operative payments have been defined as standing in a network congruent with the network of the productive process; it follows that we have to deal with quantities of money congruent with the values emerging in the productive process (turnover dollar magnitudes), and with the velocities (turnover frequencies) of money congruent with the velocities of the productive process. [CWL 21, 135]

But Romer’s scope was limited.  He was trying to demonstrate an important feature of the very long run, not to discover a general, universal, and always currently applicable theory of equilibria and disequilibria.  He was interested in an explanatory field theory, in particular, the structure of the interdependence of invention in research and development with its implementation in types of goods and services.  Though Lonergan spoke in analytical terms of, point-to-point, point-to-line, point-to-surface, etc., Romer chose as explanatory constituents of his three levels of activity the velocitous applications of: a) skills embodied in an individual and, thus, rivalrous (symbolized as labor L), b) the insightful intelligence of humans, such as performing addition, (symbolized as H) that is embodied in an individual and, thus, rivalrous, c) the directed application of insightful human intelligence (HA) devoted to new discoveries (e.g. invention of a design or set of instructions or an encrypted computer code) d) the particular application of insightful human intelligence (HY) devoted to production of producer durables and final output and e) the velocitous expansion of the total stock of economically useful knowledge itself (algebra, trigonometry, calculus, geometry, probability, engineering fundamentals, theory of materials, patents in force or expired, etc.).  The products of these velocitous applications by compensated humans may be represented generally as “designs,” “machines,” and “shoes.”

Romer focused on efficiently-causal firms rather than formal causal functional relationships; however, unlike in Walrasian microeconomics, his firms are identified by their functional characteristics, and thus, their activities may be viewed herein as functionings having explanatory value.  Also, while he deals in motivations, which are psychological, we may focus exclusively on the functional results of these motivations and not get tangled in a thicket of “vaguely defined psychological situations.”

He places final determination of quantities in the hands of the producers of durables; they determine quantities-to-be-sold, based on a calculus of their profit maximization indicated to be possible by a) a demand curve ultimately derivable from his Cobb-Douglas form, and b) a somewhat mysterious effective demand effected by owners receiving all outlays and expending to purchase all they produce.

The economic process of supplying and demanding is, in fact, a process effected by efficiently-causal free people.  But their free actions cannot be engineered communismically (sic) into an artificial, effective, suppy-demand equilibrium.  Rather it is the responsibility of a free people to understand what balance of activities constitutes the realizing of equilibrium in the process which they are driving. They need to drive it responsibly as well as they can according to its laws, not to steer it into a ditch.

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]

Lonergan discovered a normative theory which serves as a basis for criticism of enterprise and government.

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

Other economists seeking to explain the economic process had struggled with distinctions among functionings, but could not reach an explanatory theory.

Lonergan is alone in using this difference in economic activities to specify the significant variables in his dynamic analysis…..no one else considers the functional distinctions between different kinds of productive rhythms prior to, and more fundamental than, wealth, value, supply and demand, price levels and patterns, capital and labor, interest and profits, wages, and so forth….only Lonergan analyzes booms and slumps in terms of how their (explanatory) velocities, accelerations, and decelerations are or are not equilibrated in relation to the events, movements, and changes in two distinct monetary circuits of production and exchange as considered both in themselves (with circulatory, sequential dependence) and in relation to each other by means of crossover payments.[CWL 15, Editors’ Introduction lxii]

Lonergan pointed out that this differentiation of economic activities into the production of consumer goods in the standard of living and the production of producer goods that transform the possibilities for future consumer-goods production is discussed by traditional economists such as S. M. Longfield (1802-1884), John Rae (1796-1872), Nassau Senior (1790-1864), Eugen von Bohm-Bawerk (1851-1914), and in the heavily disputed “Ricardo effect.” But Lonergan credits Piero Sraffa (1898-1983) as having clarified it most thoroughly in his famous essay, Production of Commodities by Means of Commodities (1960).  Yet even Sraffa does not use his sophisticated explanation of the “Ricardo effect” and the “roundabout” or “concertina”-like phenomena associated with it in the way Lonergan does. [CWL 15, Editors’ Introduction lxii]

Romer’s supply-demand equilibrium is not realistic. Recipients of income will save as they will, not as Romer’s form and assertion dictate.  And their decisions regarding what to buy will retrospectively determine in which circuit they are buying.

…  there are two reasons for the complexity of the summation of outlays.  The one already given was that (the outlays of) turnover frequencies varied from firm to firm.  But the full reason is the fact that the distinction between basic and surplus outlays, O’ and O”, is extrinsic: it is made not by the authors of outlay (in any particular circuit) but by its recipients for whom it is income (to be spent in any circuit they please). [CWL 15, 69]

Credit is due to both Romer and Lonergan; they both stood strong in their insistence that explanatory science is constituted by equations a) whose terms define the relations and whose relations define the terms, and b) whose patterns of relations are isomorphic with the patterns of the data of the process.

Now as the statistical approach differs from the descriptive, the analytic differs from both.  Out of endless classificatory possibilities it selects not the one sanctioned by ordinary speech nor again the one sanctioned by facility of measurement but the one that most rapidly yields terms which can be defined by the functional interrelations in which they stand. [CWL 21, 112]

production occurs by means of and in view of payments: expenditures that become receipts, and outlays that become income.  Money intended for expenditure performs a demand function; and money intended for outlay performs a supply function.  Thus, outlay and expenditure, income and receipts, all function as operative in monetary circulation, because they are each functionally congruent with distinct productive processes. [CWL 15, Editors’ Introduction lix]

Romer’s analysis, like Lonergan’s, is purely relational.

And by definition pure conjugates (of explanatory equations) mean no more than necessarily is implicit in the meaning of such verified equations. [CWl 3, 80/102-03]

On the other hand, the pure conjugate has its verification, not in the contents of experience nor in their actual or potential correlatives, but only in the combinations of such contents and correlatives, … etc., etc., etc,. of experiences [CWl 3, 80/102-03]

As the analysis reveals, there are only three basic alternatives. Either one’s terms are experiential conjugates or else they are pure conjugates based on combining contents alone or finally they are a special case of pure conjugates based on combining acts alone. … V Lenzen in his Nature of Physical Theory  emphasizes the genetic process that begins from experiential contents of …etc.to move through a process of redefinition towards terms implicitly defined by empirically established principles and laws. Finally Lindsay and Margenau in their Foundations of Physics, … may be said to exhibit a preference for terms implicitly defined by equations. [CWl 3, 81-2/105]

The whole structure is relational: one cannot conceive the terms without the relations nor the relations without the terms.  Both terms and relations constitute a basic framework to be filled out, first by the advance of the sciences and, secondly, by full information on concrete situations. [CWL 3, 492/516]

Purposefully and in a full scope Lonergan sought the immanent intelligibility, the explanatory formal cause rather than the external efficient cause. Taking a cue from modern mechanics, he sought a macroeconomic field theory.

again, 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 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.  What is a mass?  A mass is anything that satisfies the fundamental equations that regard masses. Consequently, when you add a new fundamental equation about mass, as Einstein did when he equated mass with energy, you get a new idea of mass.  Field theory is a matter of the immanent intelligibility of the object. [CWL 10, 154]

In Lonergan’s scientific macroeconomics, each element – basic and surplus; point-to-point, point-to-line, etc. – is known through its relations to all other elements.  Lonergan’s macroeconomics is purely functional, purely relational, general and universal, normative, and always currently applicable.


[1]The next two excerpts have been cut, rearranged, and pasted out of the excerpt given previously, but repeated here again – unsplit – in this footnote for the reader’s convenience.

Lonergan held the diagram to have both explanatory and heuristic significance.  First, then, the later versions of the Essay in Circulation Analysis text draw ever-greater attention to the fact that Lonergan was seeking the explanatory intelligibility underlying the ever-fluctuating rhythms of economic functioning.  To that end he worked out a set of terms and relations that ‘implicitly defined’ that intelligible pattern.  When all was said and done the relations, and the terms they implicitly defined, were markedly different from either the terms of ordinary business parlance or the terms of neoclassical and Keynesian economic theory.  Moreover, not only did Lonergan’s terms differ, but he also indicated that these aforementioned terms were permeated, as were the terms of Newton’s theory of gravitation, with descriptive, nonexplanatory residues.  Hence, just as a mathematical equation may be said to be the most adequate expression of purely intelligible relations among explanatory terms in certain instances – for example, Einstein’s gravitational field tensor equations – something closely akin to Lonergan’s diagram seems necessary for the realm of dynamic economic functioning.  So, for example, the existence and manner of dynamic mutual interdependence of the two circuits of payment, basic and surplus, is not adequately expressed either by descriptive terms (since this pattern does not directly relate to the senses of anyone operating in a common-sense way in a concretely functioning economy) nor by the series of (simultaneous) equations that do not explicitly manifest the interchanging of ‘flows.’ [CWL 15, 179]

We set out to indicate the existence of an objective mechanical structure of economic activity, of something independent of human psychology, of something to which human psychology must adapt itself … . [CWL 21, 56]

Our immediate task is to work out the correlations that exist between the velocity and accelerator rhythms of production and the corresponding rhythms of income and expenditure.  The set of such correlations constitutes the mechanical structure, a pattern of laws that stand to economic activity as the laws of mechanics to buildings and machines. [CWL 21, 43 ]