Interdependence and Conditioning Among Functional Velocities

Our main topic is Functions, Velocities and the Achievement of Scientific Economics.

The immanent intelligibility of the current, purely dynamic economic process is a set of relations among flows; and these flows are implicitly defined by the functional relations in which they stand.  The entire structure is purely relational.

Here is the Diagram of Rates of Flow from page 55 of  CWL 15.  The diagram prescinds from trade and government deficits and surpluses.

Diagram of Rates of Flow 2

Diagram of Rates of Flow

 

 

 

 

 

 

 

 

Alternative designations of this flow, depending on one’s momentary interest and point of view, are

  • The Diagram of Two Operative circuits Connected by Operative Crossovers
  • The Diagram of Monetary Transfers
  • The Diagram of Monetary Channels
  • The Diagram of Functional Monetary Dependencies
  • The Diagram of Operative Functional Flows
  • The Diagram of the Monetary Correlates of the Productive Process
  • The Diagram of Implicitly Defining, Mutually Conditioning, Velocitous Functionings
  • The Diagram Sublating, Supervening, and Replacing the Single-Circuit Diagram of Macroeconomics Textbooks
  • (Colloquially because of its shape) Lonergan’s Baseball Diamond

The functional monetary flows are conditioned by their “circular” and “crossover” dependencies.  The science of macroeconomics is the science specifying the relations of conditioned, functional monetary flows.  These relations “explain” the dynamic economy. They tell how it really works.

By nature, a healthy overall economic functioning is triply conditioned.  There is a twofold monetary conditioning and a conditioning constituted by the rhythm of the realization of the productive possibilities.

On such a methodological model (i.e. implicit definition according to functional relation)…Classes of payments quickly become rates of payment standing in the mutual conditioningof a circulation; to this mutual and, so to speak, internal conditioning there is added the external conditioningthat 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 rhythms of goods and services; and from the foregoing dynamic configuration of conditionsduring 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]

In each circuit[1]there is a circular flow of outlays becoming incomes becoming expenditures becoming receipts with each conditioned by its predecessor.  And between circuits there are crossover flows and the conditioning by flow out = flow in.

The conditioning, constituted (in the hierarchical productive order) by productive rhythms of goods and services, is formulated generally in the lagged, technical accelerator. Note the symbols for velocity, acceleration, production level, and time lag.

  kn[f’n(t-a)-Bn] = f”n-1(t) – An-1

Acceleration in the capital circuit results in acceleration at a later time in the basic circuit. Acceleration now generating acceleration later is called a rhythm.  And, because the process is an exchange process and intrinsically a process of value, these sequential accelerations in the productive order are correlated with accelerations in the payments constituting the monetary order.  Velocities and accelerations are flows of products and money, and since money is a dummy to purchase goods and services, the flows of money are correlated with the flows of goods and services.  The flows are congruent.

The productive rhythms of goods and services is the subject of extensive treatment in CWL 15, chapters x – x.  In these chapters Lonergan explains the normative, ideal course of production with a model of an ideal pure cycle.  His explanation yields ideal norms, but because norms can be misunderstood and dishonored, his explanation comprehends both normative functionings and distorted functionings.

There results a closely knit frame of reference that can envisage any total movement of an economy as a function of variations in rates of payment, and that can define the conditions of desirable movements as well as deduce the causes of breakdowns… [CWL 21, 111]

Thus, desirable movements and undesirable breakdowns are both scientifically explained by the set of relations among conditioned flows. The flows are internally and externally conditioned.  There are norms, but the norms can be violated.

Just as Hooke’s Law of the coiled spring covers stretching or compressing from the equilibrium point; just as the theory of elasticity covers all variations, so the laws providing the immanent intelligibility of the economic process is “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”

 

 

[1]See in Key Notions the treatment of Circuits (URL)