Seminar on “Critical Thinking in Economics”

Presenters John Siegfried and David Colander, and discussants Daron Acemoglu, Melissa S. Kearney, John A List, N. Gregory Mankiw,  Deirdre McCloskey, and Betsey Stevenson recently collaborated in a virtual ASSA meeting entitled “What Does Critical Thinking Mean in Economics, the Big and Little of It?” Handouts from the meeting can be found in an Announcement in a blog of Saturday, January 2, 2021 on N. Gregory Mankiw’s website.

Preliminarily, note the subtitle in Lonergan’s seminal work, Insight: A Study of Human Understanding.  In the present context we might reword the subtitle A Study of Critical Thinking.  A very smart person – learned in  advanced mathematics and theoretical physics – called Lonergan’s book “The Most Significant Book of the Twentieth Century.”

I did not attend the virtual meeting and cannot comment on the discussion, but I can make observations based solely on the PowerPoint handouts.  Some observations may contradict assertions in the slides; others are general but may be applied specifically to the idea of “critical thinking in economics.”  The meeting’s title might lead one to expect a seminar on critical thinking in general, followed by an application to economics specifically.  Instead the presentation was a) a mix of scattered, unorganized philosophical and scientific terms, and b) a recitation of aspects of Walrasian microstatic supply and demand, purportedly representing up-to-date critical thinking.  Walras’ conception is “exact, but it is not complete.”  Macrostatics is not adequate to explain a dynamic process.  There is needed a critical, explanatory macrodynamics.

Leon Walras developed the conception of the markets as exchange equilibria. Concentrate all markets into a single hall. Place entrepreneurs behind a central counter.  Let all agents of supply offer their services, and the same individuals, as purchasers, state their demands.  Then the function of the entrepreneur is to find the equilibrium between these demands and potential supply. … The conception is exact, but it is not complete.  It follows from the idea of exchange, but it does not take into account the phases of the productive rhythms. … [CWL 21, 51-52]

… 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. … 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]

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. [CWL 15, Editors’ Introduction xlv]

Macroeconomists claim that their subject is an empirical science, for empirical means verified by measurements and by the patterns in the data of measurements..  We would agree that economists and econometricians measure and correlate data, but we add that a pure science of dynamics is in the form of explanation of velocitous and accelerative terms implicitly-defined by the relations in which they stand with, and thus mutually define, one another.  The economic process always is the current,  purely-dynamic process, and further, the economists’ essentially macrostatic heuristic and method are not adequate to explain the dynamics of the process by classical laws and complementary statistical laws indicating mathematical uncertainty and risk.  Such a failure of critical thinking is regrettable in a society in need of explanation for guidance and governance.

The title and its slides hinted at a cognitional theory and a gnoseology.  But the scattering of words such as reasonable, rational, logical, skeptical, deduction, induction, evidence, premises, conclusions, how and why, statistical, consistency, methods of science, empirical, regularities and laws, normative judgments, methodology of philosophy, depends on, decision, correlation, regression, causation, probability, risk, heuristic, analytic, empirical is nothing more than a scattering unless these terms are intelligently unified in a cognitional theory.

Also, on page 25 of the handouts it is stated that recommendations regarding policy should not be based on scientific analysis.  Whoever said that does not appreciate that there is in fact a pure science of macroeconomics which yields norms to which participants must adapt.  Read on!

Graduate students and professors of an empirical, verifiable pure science of macroeconomics, who seek to be critical thinkers, must take time out of their busy schedules to read Chapter III in Insight, entitled “The Canons of Empirical Method.”

Critical thinking in general and in economics; The Canons of Empirical Method

An examination of insight not only reveals the heuristic structures involved in empirical inquiry but also the rules or canons that govern the fruitful unfolding of the anticipations of intelligence (CWL 3, 70)

A pure science of macroeconomics must distinguish itself from applied science.  The psychology of the human desire for utility maximization, profit maximization, and time preference is an element of efficient causality, which is a category of applied science rather than pure science.

Pure science aims immediately at reaching the immanent intelligibility of data and leaves to applied science the categories of final, material, instrumental, and efficient causality. … the empirical investigator may add to the data of experience only the laws verified in the data; … he must content himself with the laws and systems of laws … characterized generally by their verifiability. … ultimately science must account for all data, and the account must be scientific. (CWL 3, 70)

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]

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 if economic activity is not to become a matter of standing in a tub and trying to lift it. [CWL 21, 56]

This complete explanation yields a normative theory and a set of laws, the normative theory and laws which men themselves administrate in the personal conduct of their lives.  Also, the normative theory explains both dynamic equilibrium and dynamic disequilibria. It defines the objective situation with which man has to deal, and it defines the psychological attitude that has to be adopted if man is to deal successfully with economic problems. 

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

A systematic explanation, then, requires a normative theoretical framework.  The basic terms and relations of such a framework would specify the distinctions and correlations that articulate the causes, which are not necessarily visible, of events that are apparent to all.  The framework would thus stand to the ordinary apprehension of the booms and slumps of the trade cycle in much the same way that the explanatory grasp of acceleration as the second derivative of a continuous function of distance and time stands to the ordinary, commonsense grasp of what it is to be going faster.  [CWL 15,  Editors’ Introduction lv ]

(The Diagram’s) basic terms are (implicitly) defined by their functional relations.  The maintaining of a standard of living (distinct process 1) is attributed to a basic process, 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. A first task thereafter will be to correlate the need for more or less money in the productive process with the magnitudes and frequencies of their turnovers.  On that basis 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, 53-4 and 177]

“The goal of empirical method is commonly stated to be the complete explanation of all phenomena or data.  ¶In a sense, perseverance in the pursuit of this goal is assured by the canon of selection especially when it is implemented by the canon of operations.  Any particular investigator may overlook or ignore certain data.  But his oversight or disregard will normally be corrected by other investigators substantiating their hypotheses and refuting those of their predecessors by appealing to hitherto neglected facts.” (CWL 3, 84)

 Critical thinking in science is explanation in the form of the relations of terms among themselves.

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]

Explanation requires thinking at an adequate level of abstraction. While the a) corporate accountants’ price-quantity unities such as materials, labor, overhead, and interest expenses, and b) anthropological or psychological factors such as the psychology of property, individuals’ varying perception of “utility,” notions of ambition and success, feelings of failure and resentment, and some social relations of some vaguely-defined psycho-political situation may have business, political, or sociological import, these unities – as subjective, and as related-to-us – cannot serve as objective explanatory functional terms.   They are not abstract explanatory terms at an adequate level of generality.  They are not terms implicitly defining one another by the functional relations in which they stand.  They cannot serve as systematically-interrelated and explanatory functional flows in an overall functioning process.  They cannot be coherently related to one another in a system of coherent explanatory equations which constitute a theory which explains the general dynamics of the objective economic system.

Again, , note the subtitle in Insight: A Study of Human Understanding.  In the present context we might reword the subtitle as A Study of Critical Thinking.  A very smart person – learned in  advanced mathematics and theoretical physics – called the book “The Most Significant Book of the Twentieth Century.”

  • The first three chapters of Insight, “A Study of Critical Thinking,” are

.I. Elements (of Insight)

.II. Heuristic Structures of Empirical Method

.III. The Canons of Empirical Method

Again, graduate students and professors of an empirical, verifiable pure science of macroeconomics, who seek to be critical thinkers, must take time out of their busy schedules to read Chapter III in Insight, entitled “The Canons of Empirical Method.”  The subsections 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
  • There are too many significant passages in that chapter for us to print here.Besides, they are best read in their full context in the book.  We will point to some now, but it is up to the reader – again, if he/she claims to be a serious scientist – to read the entire chapter him/her self.
    • As pure conjugates … … … experiences of heat, etc. 84-5/108
    • All data are to be explained … … … implicitly defined by empirically established laws. 85/108
    • None the less … … … three are spatial and the fourth temporal. 85/108-9
    • … the canon of selection has its positive aspect … … … observation and experiment. 72/95
    • If the sensible … … … architects of theories and systems. 72/95
    • To be alive … … … we are conscious. 73/98
    • … the impartial and accurate observer … … … a guiding orientation. 74/97
    • For analysis is a mental construction … … … they not interfere. 75/98
    • Sixthly, the canon of operations … … … Van der Waals’ formula. 75/98-9
    • A mere congeries of laws … … … to reach a system. 76/99
    • Now it would be a mistake … … … data of sense. 76-7/100
    • Secondly, it observes … … … a species of formal causality. 77-8/100-102
    • Pure (or explanatory) conjugates … … … such verified equations. 80/103
    • Further, as this analysis reveals, … … … terms implicitly defined by equations. 81-2/104-5
    • Events stand to conjugates … … … has been explained. 82/106
    • Now formulations that concern … … … those actual frequencies. 83/106-7
    • Sixthly, there is a canon of statistical residues … … for statistical inquiry. 86/109
    • So far from being a mere impoverishment of the data of sense, abstraction in all its essential moments is enriching. … … … its concrete realization. 88-9/112
    • But, strangely enough, world process … … … appeal to statistical laws. 91-2/115
    • The foregoing account … … … significantly new data 100/124
    • For the canon of statistical residues … … … in cognitional terms. 100/124

Further:

  • Explanatory criticism requires a normative theory against or by which the critic may note and criticize deviations, divergences, imbalances, discontinuities, disequilibria, vis a vis the explanatory classical laws, upon which functional patterns converge, and statistical laws indicating ideal frequencies from which actual frequencies deviate in the non-systematical manifold of secondary determinations of quantities and prices.
  • The analyst must discover precisely-analytical terms –- such as point-to-point and point-to-line correspondences –- upon which he/she can build a superstructure of relations constituting a complete explanation and framework for criticism.
  • The concrete economic process of pretio-quantital exchange in the non-systematic manifold of exchanges consists of velocitous production-and-exchange of goods and services for Money is a fellow-traveler – a correlative and a concomitant – with the primary process of velocitous production and sale.  The abstract structure of velocitous production and sale is the primary analyzand.  And money plays the role of a dummy invented by humans to enable and grease the divided exchanges in a large, aggregated, complex, production-and-exchange process.
  • Real analysis and mistaken monetary theory:

real analysis (is) identifying money with what money buys. … And that is the source of the problem in real analysis.  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, Editor’s Introduction, xxviii]

  • … money is an instrument invented by humans to fulfill a definite task; it is not the ultimate master of the situation. One has to place first human society which is served by the economic process, and second the economic process which is to be served by money.  Accordingly money has to conform to the objective exigenciesof the economic process, and not vice versa. (CWL 21, 101)

  • (Science) can be of inestimable value, if, and only if,  it can learn to distinguish between progress and decline, between the liberty that generates progress and the bias that generates decline.  In other words, … science cannot be merely empirical; it has to be critical; to reach a critical standpoint, it has to be normative. (CWL 3 236)

  • This complete explanation – called Functional Macroeconomic Dynamics or Macroeconomic Field Theory — yields a normative theory of a pure cycle of expansion constituted by a series of phases and a set of purely-relational, field-theoretic laws; a normative theory and laws which men themselves administrate in the personal conduct of their lives.  Also, the normative theory explains and gives the conditions of both dynamic equilibrium and dynamic disequilibria. It defines the objective situationwith which man has to deal, and it defines the psychological attitude that has to be adopted if man is to deal successfully with economic problems.

  • 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 are concentrated in a redistributive function, whence may be derived changes in the stock of money (distinct process 3) 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, 53-54]

  • A systematic explanation, then, requires a normative theoretical framework. The basic terms and relations of such a framework would specify the distinctions and correlations that articulate the causes, which are not necessarily visible, of events that are apparent to all.  The framework would thus stand to the ordinary apprehension of the booms and slumps of the trade cycle in much the same way that the explanatory grasp of acceleration as the second derivative of a continuous function of distance and time stands to the ordinary, commonsense grasp of what it is to be going faster.  [CWL 15,  Editors’ Introduction lv ]

  • 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]

  • One knows by insight rather than by symbols

No less than scientific language, symbolic language intends a truth yet can be wrong.  Just as there are truths known scientifically, so also are there truths communicated symbolically; and just as there are scientific opinions that have long been totally abandoned, so also are there myths … things have only one way of being, but humans do not have only one way of knowing.  One who knows scientifically knows universally; but this universality does not belong to things (as if universals subsisted) but to the scientific way of knowing.  One who apprehends and speaks symbolically is using a way of knowing that is full of vivid imagery and feeling, but nevertheless by reflecting one can distinguish between what are to be attributed to the things themselves and what are to be ascribed to this way of knowing. (CWL 11, 381)

  • The goal of critical thinking in economics is scientific understanding, rational judgment, empirical verification and effective implementation through instruction and policy.
  • The understanding would constitute grasp of the principles and laws of a field of phenomena. This set of principles and laws would constitute an empirical hypothesis to be verified by a new science of measurable, functional, field-theoretic flows.
  • 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]
  • If the economic process is a dynamic process of so much or so many every so often, the critical thinker must adopt a scientific, dynamic heuristic and a method to reach answers of a certain type. The understanding would be in terms of the interrelations and interchanges of functional velocities among themselves.
  • “Functional” is for Lonergan a technical term pertaining to the realm of explanation, analysis, theory; … Lonergan (identified) the contemporary notion of a “function” as one of the most basic kinds of explanatory, implicit definition – one that specifies “things in their relations to one another” … [CWL 15  26-27  ftnt 27]
  • In Lonergan’s circulation analysis, the basic terms are rates – rates of productive activities and rates of payments.The objective of the analysis is to discover the underlying intelligible and dynamic (accelerative) network of functional, mutually conditioning, and interdependent relationships of these rates to one another.  [CWL 15 26-27  ftnt 27]
  • Taking into account past and (expected) future values does not constitute the creative key transition to dynamics. Those familiar with elementary statics and dynamics (in physical mechanics) will appreciate the shift in thinkinginvolved in passing from equilibrium analysis (of for example a suspended weight or a steel bridge)…to an analysis where attention is focused on second-order differential equations, on d2θ/dt2, d2x/dt2, d2y/dt2, on a range of related forces, central, friction, whatever.  Particular boundary conditions, “past and future values” are relatively insignificant for the analysis.  What is significant is the Leibnitz-Newtonian shift of context. [McShane, 1980, 127]
  • 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]
  • In the formulation of a dynamic process, velocities would be implicitly defined by one another; the relations would define the terms and the terms would define the relations.
  • The objective principles and laws, which explain the objective process would be independent of the subjective psychology of the participants and would be cast in a formalism isomorphic with the intelligibilities immanent in the data of the dynamic flows of the process.
  • The explanation in scientific economics would yield an invariant, normative theory; i.e. a set of general, invariant, normative relations universally applicable. Though the magnitudes of the variables would change, the relations among the variables would be invariant.  (Consider the invariant set of relations in Clerk-Maxwell’s Electromagnetics and in Einstein’s Special Relativity.
  • In textbook macroeconomics, the momentary static intersection of supply and demand curves at certain levels of output and price-of-goods or of output and price-of borrowed-money does not constitute a dynamics of the dynamic process. Indeed, though the textbook macroeconomics has the trappings of graphs, intersecting and shifting curves, such seems to be more descriptive than explanatory: goods and services are produced and sold at a price.  Tell me something I do not know!
  • In textbook macroeconomics, the observation that unemployment often is low when business is brisk, does not constitute a dynamics of the process.
  • Again, the title and its slides hinted at a cognitional theory and a gnoseology. But the scattering of words such as reasonable, rational, logical, skeptical, deduction, induction, evidence, premises, conclusions, how and why, statistical, consistency, methods of science, empirical, regularities and laws, normative judgments, methodology of philosophy, depends on, decision, correlation, regression, causation, probability, risk, heuristic, analytic, empirical is nothing more than a scattering unless these terms are intelligently unified in a cognitional theory.
  • The Bureau of Economic analysis must develop an new explanatory arrangement of Gross Domestic Functional Flows which demonstrates, in particular, the amount of credit being put into present operations.