Sublation of Schools of Macroeconomics

 

 

 

 

 

This website treats Sublation both here and in the section entitled Subsumption and Sublation of Keynes, Kalecki, Solow and Others.

We will simply list certain key elements of Functional Macroeconomic Dynamics and certain faulty ideas of some popular “schools of macroeconomics.”  The reader and his professor can determine to which among the several schools or “isms” the faulty ideas belong.

  • Functional Macroeconomic Dynamics analyzes, first, the system of laws – independent of human psychology – explaining the primal process of production and exchange. FMD does not attribute ultimate primacy  to the psychology of self-interest or to a vaguely defined psychological situation of utility and preference.
  • The economy is understood as the current, purely dynamic, objective process of production and exchange rather than as a purely profit and loss process.
  • The process, as a process, is a process of flows of products and money in a system of interconnections and interdependencies.

Lonergan’s critique (shows that) by using the technique of implicit definition, the emphasis shifts … to searching heuristically for the maximum extent of interconnections and interdependence; and that the variables discovered in this way might not resemble very much the objects (or the aggregates) which, in the first instance, one was thinking about.   [Michael Gibbons, Economic Theorizing in Lonergan and Keynes]

  • Scientific explanation replaces statistics-laden reporting
  • Deeper generalization replaces horizontal refinement
  • By adequate generalization, an inadequate level of abstraction is replaced by a higher level of abstraction
  • The analysis of the concrete, dynamic, production process is the analysis of the immanent intelligibility of interdependent, mutually conditioning and mutually defining functional flows; and these functional flows of so much or so many every so often are treated mathematically as velocities.
  • The functional flows mutually define one another by the functional relations in which they stand with one another.
  • The interrelations of interdependent functional flows comprise the primary relativities of Functional Macroeconomic Dynamics.
  • Thus, there is a complete conceptual split with conventional macroeconomics which attributes primacy to prices and quantities in and of themselves. “the lack of ultimacy that Lonergan ascribes to prices and price theory can scarcely be overemphasized.”

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. For a first approximation of what Lonergan means here, let us draw an analogy to empirical scientific inquiry. The physicists antecedent job of measuring and plotting measurements on graphs in physical science might be compared to tracing movements of prices as the exchange economy ebbs and flows. What Lonergan has called ‘grasping in the scattered points the possibility of a smooth curve,’ or determining an indeterminate function in physics, would then be comparable to working out an economic theory that specifies the channels through which money circulates. 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 xlvi-xlvi]

  • A descriptive, static and non-explanatory heuristic is replaced by a scientific and dynamic heuristic. Science is explanation in the form of terms defined by their relations to one another.

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 thinking involved in passing from equilibrium analysis (of 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]

  • Nominal definitions and descriptive definitions are replaced by implicit definitions
  • The analysis is strictly functional and purely relational. Terms are implicitly defined by their relations to one another.
  • The dynamic structure of the productive process is scientifically explained as a system of interdependent flows.
  • Prices and quantities are explained within the perspective or framework of dynamic flows. Prices and quantities are boundary conditions, i.e. secondary determinations in a coincidental manifold, not primary relativities constituting a general, governing, explanatory form.
  • The texbook’s single-circuit diagram is replaced by the double-circuit diagram with a pair of crossovers between the two operative circuits of flows. At the center is a function of a) financing for the operative circuits, b) holding reserves, and c) exchange of titles.

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. For a first approximation of what Lonergan means here, let us draw an analogy to empirical scientific inquiry. The physicists antecedent job of measuring and plotting measurements on graphs in physical science might be compared to tracing movements of prices as the exchange economy ebbs and flows. What Lonergan has called ‘grasping in the scattered points the possibility of a smooth curve,’ or determining an indeterminate function in physics, would then be comparable to working out an economic theory that specifies the channels through which money circulates. 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 xlvi-xlvi]

On such a methodological model (i.e. explanatory definition and implicit definition superseding nominal definition)… classes of payments quickly become rates of payment standing in the mutual conditioning of a circulation; to this mutual and, so to speak, internal (monetary) conditioning there is added the external (monetary) 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 (in the hierarchical productive order) by productive (and sequential) rhythms of goods and services;[1]and from the foregoing dynamic configuration of conditions during a limited interval of time, there is deduced a catalogue of possible types of change in the configuration over a series of intervals. 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.  Through such a frame of reference one can see and express the mechanism to which classical precepts are only partially adapted; and through it again one can infer the fuller adaptation that has to be attained. [CWL 21, 111]

Lonergan (emphasized) that prices and their changes are not explanatory but accountants’ entities. (He) insists that the mechanism of the pricing system does not furnish economists with distinctions among the significant variables, any more than Galileo Galilei’s discrete measurements of distances and times at the Tower of Pisa of themselves provided the law if the acceleration of falling bodies.  In short,  the lack of ultimacy that Lonergan ascribes to prices and price theory can scarcely be overemphasized.  [CWL 15, Editors’ Introduction xlvi]

  • Prices are not taken as a given and first in the analysis, rather they are understood as requiring explanation and explained indeed at the end of the analysis by their relations within expansionary functional flows

Frish’s failure to develop a significant theory typifies the failure of economists who search for a dynamic heuristic.  As well as a fundamental disorientation of approach there is also a tendency to shift to an inadequate level of abstraction with a premature introduction of boundary conditionsin a determinate set of differential and difference equations. [McShane, 1980, 114]

One might be reminded here of a parallel in hydrodynamics: if what is at issue is a general specification of the dynamics of free water waves, a premature introduction of general boundary conditions or worse, specific channel conditions, botches the analytic possibilities….the Robinson-Eatwell analysis is hampered … by their building the economic priora quoad nosof profits, wages, prices, etc., into explanation, when in fact the priora quoad nos[2]are last in analysis: they require explanation. McShane, Philip (1980) Lonergan’s Challenge to the University and the Economy, (Washington, D.C.: University Press of America) P. 124[3]

  • Static supply-demand equilibrium is sublated by dynamic equilibrium; the equilibrated keeping pace of elements of circular flows and the equilibrated balancing of the crossover flows between circuits provides continuity and dynamic equilibrium.
  • IS/LM and AS-AD are invalidated
  • Stagflation, heretofore a head-scratcher mystery which invalidates the Fisher Curve, is explained
  • The categories of accounting (financial and managerial) are replaced by explanatory functional flows; i.e. basic terms of systematic, dynamic significance replace accounting unities of explanatory insignificance
  • Adjustment of the money supply as an artifice to manipulate the interest rate is invalidated
  • Artificial interest-rate changes are understood as double-edged and counter-productive
  • Adjustments of the money supply to support the normative expansion with respect to magnitude and phase are validated.
  • Any government or consumer deficit, systematically providing more rentiers in a systematic oppositional relation to debtors, is understood and explained as a superposed monetary circuit lacking a key operative function of production.
  • Foreign-trade surpluses or deficits, systematically providing pure surplus income or an export of financing, are treated as superposed circuits
  • Sociological categories are avoided and replaced by analytical strata of earned incomes.  Political and social values are not the basis of pure economic theory.

Indeed, economics seems little different from other areas of knowledge in its tendency to form closed schools of thought (I.e. Keynesian, Monetarist, Marxist, etc.) This fragmentation into schools places political and other social values at the source of theoretical differences. [Michael Gibbons, Economic Theorizing in Lonergan and Keynes]

  • The classification of durable goods as capital goods is replaced by their classification as consumer goods which, upon completion, exit the current, purely dynamic, economic process
  • Savings equaling investment is replaced by the combination of credit and savings as flows of the monetary correlate of expansionary investment
  • Inflation is not taken as a given sudden microeconomic shift, rather it is explained as currently disproportionate flows of goods and services on one hand and money on the other hand
  • The Turnover Magnitude and Frequency Theory of Money replaces the Velocity Theory of Money, PQ = MV
  • Analysis of the current process as primary replaces 20-20 hindsight of the statistics of the past
  • The price system remains operative, but it is understood as subordinate to the mechanism of Functional Macroeconomic Dynamics.
  • In order to avoid disorientating misinterpretations and mistaken signals, critical distinctions are made between the meaning of real and relative vs. monetary and absolute price changes.

Finally, let us simply append some key excerpts relative to the basis of the sublation.

Galileo inaugurated modern science by insisting that the nature of weight was not enough; from sensible similarity, which resides in the relations of things to our senses, one must proceed to relations that hold directly between things themselves. [CWL 3, 38/62]

The movement in (Adam) Smith can be identified as a heretical enthusiasm for the priora quoad nos of price, leading to a reliance for salvation through price analysis which fathered Walras. [McShane, 1980, 109]

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.  For a first approximation of what Lonergan means here, let us draw an analogy to empirical scientific inquiry.  The physicists antecedent job of measuring and plotting measurements on graphs in physical science might be compared to tracing movements of prices as the exchange economy ebbs and flows.  What Lonergan has called ‘grasping in the scattered points the possibility of a smooth curve,’ or determining an indeterminate function in physics, would then be comparable to working out an economic theory that specifies the channels through which money circulates. 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 xlvi-xlvi]

“The difficulty with a new start is to pinpoint the critical area where economics went astray … I would put it in the middle of the fourth chapter of Volume I of the Wealth of Nations … In (that) chapter, after discussing the need for money in a social economy, Smith suddenly gets fascinated by the distinction between money price, real price, and exchange value and from then on, hey presto, his interest gets bogged down in the question of how values and prices for products and factors are determined.  One can trace a more or less continuous development of price theory from the subsequent chapters of Smith through Ricardo, Walras, Marshall, right up to Debreu and the most sophisticated present-day Americans.” [Nicholas Kaldor, “The Irrelevance of Equilibrium Economics, ”Economic Journal 82 (1972): 1240-41]

Lonergan did not think Marx achieved an explanatory grasp of the intelligibility of the economic sphere as such.  Marx’s labor theory of value invoked an admixture of political, sociological, and especially proprietorial dimensions.  Moreover, Lonergan had no respect for the way an illegitimate importation of sociological categories into the properly economic sphere lends support to the simpliste Marxist-socialist penchant for setting entrepreneurs and workers against each other.  Marxist advocacy of group bias and the use of propaganda and violence short-circuit democratic solidarity.  To Lonergan’s way of thinking, a moral vision that substitutes propaganda and force for its lack of intellectual acuity is a self-contradiction much more radical than the ‘contradictions’ that supposedly drive dialectical materialism.  [CWL 15 Editors’ Introduction, xlvi-xlvii]

the subject matter of macroeconomics is the fundamental value of a properly functioning economy….analysis addresses the strictly economic process of production and its divisions; the process of payments and its divisions; the various forms of interdependence of these flows; finally, the conditions under which they function or malfunction and their respective consequences……..either men learn rules to guide them or they surrender their liberty to be ruled along with the machine by a central planning board. [CWL 15, Editors’ Introduction, lxviii]

Indeed, economics seems little different from other areas of knowledge in its tendency to form closed schools of thought (I.e. Keynesian, Monetarist, Marxist, etc.)  This fragmentation into schools places political and other social values at the source of theoretical differences.  [Michael Gibbons, Economic Theorizing in Lonergan and Keynes]

The excellence of the exchange solution becomes even more evident when contrasted with the defects of a bureaucratic solution.  The bureaucrat … (gives the people) what he thinks is good for them, and he gives it in the measure he finds possible or convenient; nor can he do otherwise, for the brains of a bureaucrat are not equal to the task of thinking of everything; only the brains of all men together can even approximate to that. … when a limited liability company has served its day, it goes to bankruptcy court; but when bureaucrats take over power, they intend to stay. … when the pressure of terrorism (by the goons of the bureaucrats) is needed to oil the wheels of enterprise, then the immediate effect is either an explosion or else servile degeneracy. [CWL 21, 34-35]

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 (of neoclassical and Keynesian economic theory ) 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]

Lonergan’s critique (shows that) by using the technique of implicit definition, the emphasis shifts from trying to define the relevant variables to searching heuristically for the maximum extent of interconnections and interdependence; and that the variables discovered in this way might not resemble very much the objects (or the aggregates) which, in the first instance, one was thinking about.   [Michael Gibbons, Economic Theorizing in Lonergan and Keynes]

Frish’s failure to develop a significant theory typifies the failure of economists who search for a dynamic heuristic.  As well as a fundamental disorientation of approach there is also a tendency to shift to an inadequate level of abstraction with a premature introduction of boundary conditions in a determinate set of differential and difference equations. [McShane, 1980, 114]

One might be reminded here of a parallel in hydrodynamics: if what is at issue is a general specification of the dynamics of free water waves, a premature introduction of general boundary conditions or worse, specific channel conditions, botches the analytic possibilities….the Robinson-Eatwell analysis is hampered … by their building the economic priora quoad nosof profits, wages, prices, etc., into explanation, when in fact the priora quoad nos[4] are last in analysis: they require explanation. McShane, Philip (1980) Lonergan’s Challenge to the University and the Economy, (Washington, D.C.: University Press of America) P. 124[5]

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 thinking involved in passing from equilibrium analysis (of 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]

On such a methodological model (i.e. explanatory definition and implicit definition superseding nominal definition)… classes of payments quickly become rates of payment standing in the mutual conditioning of a circulation; to this mutual and, so to speak, internal (monetary) conditioning there is added the external (monetary) 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 (in the hierarchical productive order) by productive (and sequential) rhythms of goods and services;[6]and from the foregoing dynamic configuration of conditions during a limited interval of time, there is deduced a catalogue of possible types of change in the configuration over a series of intervals. 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.  Through such a frame of reference one can see and express the mechanism to which classical precepts are only partially adapted; and through it again one can infer the fuller adaptation that has to be attained. [CWL 21, 111]

Lonergan (emphasized) that prices and their changes are not explanatory but accountants’ entities. (He) insists that the mechanism of the pricing system does not furnish economists with distinctions among the significant variables, any more than Galileo Galilei’s discrete measurements of distances and times at the Tower of Pisa of themselves provided the law if the acceleration of falling bodies.  In short,  the lack of ultimacy that Lonergan ascribes to prices and price theory can scarcely be overemphasized.  [CWL 15, Editors’ Introduction xlvi]

Chemistry  was bogged down, for centuries, by the obviousness of fire burning, and the obvious conclusion that there was such a reality as phlogiston.  Lavoisier offered a discomforting shift from the obviously observed.  I am inviting you to a like shift, from the obviousness of the edge of economic process –  buying and selling, profit and gross product  –  to the functional heart of the process.  [McShane 2017, 23]

 

 

 

[1]… In figure 14-1 the reader will notice five circles representing the monetary functions. … I would add that the aims and limitations of macroeconomics (that is, the macroeconomic circulations presented here) 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 (positive or negative) (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 (distinct process 3) 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, 53-54]

[2]The priora quoad nos– first for us – are the things which we notice first because they are related to our sensitive selves, e.g. hot and cold, fast, slow.  The priora quoad se– first among themselves – are the things or terms which are related to each other, e.g. pressure, volume, temperature, space, time, mass, etc.

 

[3]More fully, the quote is: One might be reminded here of a parallel in hydrodynamics: if what is at issue is a general specification of the dynamics of free water waves, a premature introduction of general boundary conditions or worse, specific channel conditions, botches the analytic possibilities….the Robinson-Eatwell analysis is hampered, not only by an absence of paradigmatic heuristic thinking in a field whose principles involve ends, but also by their building the economic priora quoad nos of profits, wages, prices, etc., into explanation, when in fact the priora quoad nos are last in analysis: they require explanation. [McShane, Philip (1980) Lonergan’s Challenge to the University and the Economy, (Washington, D.C.: University Press of America) P. 124[3]]

 

[4]The priora quoad nos – first for us – are the things which we notice first because they are related to our sensitive selves, e.g. hot and cold, fast, slow.  The priora quoad se – first among themselves – are the things or terms which are related to each other, e.g. pressure, volume, temperature, space, time, mass, etc.

 

[5]More fully, the quote is: One might be reminded here of a parallel in hydrodynamics: if what is at issue is a general specification of the dynamics of free water waves, a premature introduction of general boundary conditions or worse, specific channel conditions, botches the analytic possibilities….the Robinson-Eatwell analysis is hampered, not only by an absence of paradigmatic heuristic thinking in a field whose principles involve ends, but also by their building the economic priora quoad nos of profits, wages, prices, etc., into explanation, when in fact the priora quoad nos are last in analysis: they require explanation. [McShane, Philip (1980) Lonergan’s Challenge to the University and the Economy, (Washington, D.C.: University Press of America) P. 124[5]]

 

[6]… In figure 14-1 the reader will notice five circles representing the monetary functions. … I would add that the aims and limitations of macroeconomics (that is, the macroeconomic circulations presented here) 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 (positive or negative) (distinct process 2) of this basic process is brought about by a sequence of surplus stages, in which each lower stageis 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 (distinct process 3) 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, 53-54]