As in any science, in the science of macroeconomic dynamics there is a search for explanation; for a primary relativity to be applied to secondary determinations for a formula; a higher unity; or a more profound point of view.
Science is the explanation of phenomena in the form of relations among abstract terms, wherein the relations define the terms and the terms define the relations. Many sets of phenomena, or fields, may be the object of a scientific inquiry guided by a scientific heuristic anticipating answers and equations possessing certain characteristics. Conversely, any set of laws that are coherent and unified and provide complete explanation will constitute a science.
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]
Lonergan employed a scientific heuristic in his functional macroeconomic dynamics:
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]
Lonergan’s functional macroeconomic dynamics is not a system constructed on the premise of self-interest or of subjective utility, whatever utility may be. He attempts a Copernican revolution. He prescinds from human psychology as an ultimate premise and seeks an objective structure to which human psychology must adapt.
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 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]
Lonergan shared Alfred Marshall’s willingness in his Principles of Economicsto make economics utterly independent of ethics and politics, insofar as this meant establishing the intellectual autonomy of economic science. [CWL 15, Editors Introduction xlii]
When I first battled with his 1944 typescript in the 1970’s I recall expressing my wonder….that “Lonergan had gone, in economics, from Tycho Brahe to Laplace.” [Philip McShane, www.philipmcshane.com, Fusion 9 page 1]
Key – but not the only – sources of theoretical differences in economics are psycho-political and psycho-social orientations and alliances. That is, economists contaminate their science with their political alliances, psychological predispositions, and psycho-social needs, and they and fail to do pure economic science. The human psyche is not the basis of objective economic science; rather it is that which must be adapted to the laws of the process.
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]
Galileo Galilei[1]inaugurated modern science by taking measurements of falling bodies and stating the results mathematically as the law of falling bodies.
Tycho Brahe[2]gathered data on the orbits of the planets in the solar system. Johannes Kepler[3]analyzed Brahe’s data and discovered Kepler’s Three Laws of Planetary Motion. Using basic terms of space, time and mass, Isaac Newton[4]constructed a mechanics from three laws of motion plus the inverse squares law defining masses. His system sublated that of Galileo and Kepler. He reached a greater generality and a deeper unity and a more profound point of view. His Newtonian mechanics explained Kepler’s laws (though it employed the descriptive element, force, as an efficient cause); it was scientific in that it was constituted by technical terms related to one another. It qualified as explanation. It was a superseding, sublating generalization It unified isolated insights and points of view.
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. Aristotle, Ptolemy, Copernicus, Galilei, and Kepler had all been busy with particular classes of moving bodies. Newton dealt in the same way with all. He did so by turning to a field of greater generality, the laws of motion, and by finding a deeper unity in the apparent disparateness of Kepler’s ellipse and Galilei’s time squared. … Similarly the non-Euclidean geometers and Einstein went beyond Euclid and Newton. … The non-Euclideans moved geometry back to premises more remote than Euclid’s axioms, they developed methods of their own quite unlike Euclid’s, and though they did not impugn Euclid’s theorems, neither were they very interested in them; casually and incidentally they turn them up as particular cases in an enlarged and radically different field. … Einstein went beyond Newton by employing the new geometries to make time an independent variable; and as Newton transformed the formulation and interpretation of Kepler’s laws, so Einstein transforms the Newtonian laws of motion. … It is, we believe, 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]
Pierre-Simon Laplace[5]applied Newton’s mechanics to explain the motions of the entire system of sun, planets and asteroids. Other persons, recalled in footnotes below, are notable in the advance of the explanation of physical phenomena in the form of a unified and general explanation.
Later, Lagrange[6]explained mechanical phenomena, without resorting to force, in terms of generalized coordinates, generalized velocities, with time as a parameter. Hamilton[7]began with the concept of energy and explained mechanical phenomena in terms of generalized coordinates, generalized momentum, and time [9]. Field theory now explains mechanical phenomena without resorting to the efficient cause called force.
Einstein[10]advanced explanatory science even further; he redefined space and time by his special theory of relativity; and, in his general theories, he explained gravity as the curvature of space associated with the distribution of mass, thus providing new and more generalized conceptions of space, time and mass.
Our claim here is that functional macroeconomics – like field theory and relativity in physics – is a scientific explanation of the objective economic process using relations that hold directly between things themselves; it does not resort to an efficient cause such as muscular force or to a vague subjective psychological utility or time preference or risk aversion; rather it is independent of human psychology; it is in terms of purely relational abstract functionings implicitly defined by the functional relations in which they stand with one another.[11] That is, it is of relations that hold directly between the functions themselves.
Further, the functions it relates are not insignificant parts of the whole. It does not attempt to explain the process by a relation of, say, wages to quantities of olive oil. Functional macroeconomics is a complete and unified system. A set of definitions plus the differential relations among interdependent flows over time explains the entire process completely and in a unified fashion.
A mere congeries of laws will not suffice. For if one is to operate upon the concrete, one must be able to employ at once several laws. To employ several laws at once, one must know the relations of each law to all the others. But to know many laws, not as a mere congeries of distinct empirical generalizations, but in the network of interrelations of each to all the others, is to reach a system. [CWL 3, 76]
Again, “we take the exchange process in its greatest generality and attempt to deduce the human adaptations necessary for survival.”[CWL 21,42- 43]:
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 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 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]
Economists had previously, but unsuccessfully, wrestled with functional distinctions between the production of consumer goods and the production of capital goods, but Lonergan stands alone in analyzing these distinctions and formulating the dynamics of the objective economic process.
“Functional” is a technical term pertaining to the realm of explanation, analysis, theory; it does not mean “who does what” in some commonsense realm of activity………”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…….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”…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 indeed dynamic (accelerative) network of functional, mutually conditioning, and interdependent relationships of these rates to one another. [CWL 15 26-27 ftnt 27]
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.”[12]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]
“… 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 … “
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 …[13]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]
Aristotle and Einstein agree regarding insight into image.
…forms are grasped by mind in images. [Aristotle CWL 3, 677/699-700]
It seems that the human mind has first to construct forms independently before we can find them in things. Kepler’s marvelous achievement is a particularly fine example of the truth that knowledge cannot spring from experience alone but only from the comparison of the inventions of the intellect with observed fact. [Einstein,Essays, p. 27]
Lonergan adopts a dynamic heuristic and, as an Aristotelian and Einsteinian aid to himself and others, constructs a diagram.
it will be well at once to draw attention to J.A. Schumpeter’s insistence on the merits of the diagram as a tool. (Schumpeter,History240-43, on the Cantillon-Quesnay tableau.) … First, there is the tremendous simplification it effects. From millions of exchanges one advances to precise aggregates, relatively few in number, and hence easy to follow up and handle. … Francois Quesnay’s tableau economique. … was the first to make explicit the concept of economic equilibrium. All science begins from particular correlations, but the key discovery is the interdependence of the whole. … the diagram (of the interconnections of a few precise aggregates) has compensating features that Quesnay’s system of simultaneous equations may imply but does not manifest. [CWL 15, 53 and 177]
“if we want a comprehensive grasp of everything in a unified whole, we shall have to construct a diagram in which are symbolically represented all the various elements of the question along with all the connections between them.” [McShane, 2016,44]
Lonergan represents functionally distinct, but interdependent, flows in a network of interdependencies and of dependency-satisfying monetary transfers. The Diagram of Rates of Flow shows the interconnections of functional velocitous monetary flows. It shows “the network of interrelations of each to all the others.” [CWL 3, 76/99]
A mere congeries of laws will not suffice. For if one is to operate upon the concrete, one must be able to employ at once several laws. To employ several laws at once, one must know the relations of each law to all the others. But to know many laws, not as a mere congeries of distinct empirical generalizations, but in the network of interrelations of each to all the others, is to reach a system. [CWL 3 76/99]
Insight into the diagram’s pattern of interdependent flows reveals the explanatory conjugates and the formal intelligibility of the dynamic process. Thus, scientific explanation in the form of abstract conjugates implicitly defined by their dynamic interrelations is achieved by this insight into this diagram. And the process may be represented mathematically in forms of terms in relations which are isomorphic with the pattern of the objective process. Some, but not all of, These relations are given in CWL 15 on pp. 48-54, just prior to the diagram on p. 55. They are not permeated by subjective notions of muscular effort, utility, time preferences, risk aversion, or psycho-political leanings.
Lonergan held the diagram to have both explanatory and heuristic significance. First, then, the later versions of the Essay in Circulation Analysistext 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 (neoclassical and Keynesian) 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]
It is necessary “to construct a diagram in which are symbolically represented all the various elements of the question along with all the connections between them.” [CWL 7, 151]
The aim of discursive reason is to understand and it arrives at understanding not only by grasping how each conclusion follows from premises, but also by comprehending in a unified whole all the conclusions intelligibly contained in those very premises. Now this comprehension of everything in a unified whole can be either formal or virtual. It is virtual when one is habitually able to answer readily and without difficulty, or at least ‘without tears,’ a whole series of questions right up to the last ‘why?’ Formal comprehension, however, cannot take place without a turning to phantasm; but in larger and more complex questions it is impossible to have a suitable phantasm unless the imagination is aided by some sort of diagram. Thus, if we want to have a comprehensive grasp of everything in a unified whole, we shall have to construct a diagram in which are symbolically represented all the various elements of the question along with all the connections between them. [McShane, Philip, Picketty’s Plight,11 (quoting CWL 7, 151)]
The scientific approach thus reveals a heretofore unrecognized macroeconomic mechanism. This mechanism has always been operative yet not noticed, much less understood and respected. This macroeconomic mechanism preserves but is more fundamental than and supersedes the pricing mechanism. The pricing mechanism heretofore dominating all microeconomic and macroeconomic textbooks no longer reigns supreme. As a mechanism, the macroeconomic mechanism has general laws of its operations, and these intelligibilities supply the normative requirement for an equilibrium and the continuity of the proper functioning of the objective process.
What the analysis reveals is a mechanism distinct though not separable from the price mechanism which spontaneously coordinates a vast and ever shifting manifold of otherwise independent choices from demand and of decisions from supply. It is distinct from the price mechanism, for it determines the channels within which the price mechanism works. It is not separable from the price mechanism, for a channel is irrelevant when nothing flows through it. [CWL15, 17]
McShane comments that Lonergan’s macroeconomics reaches the level of a purely relational mathematical formulation devoid of descriptive elements, just as modern field theory and Einstein’s special and general theories reach the level of a purely relational mathematical formulation devoid of Newton’s descriptive element of efficient cause. As Editor, Mcshane organized CWL 21 into three parts: Part One is Lonergan’s 1942 essay; Part Two contains fragments of Lonergan’s struggle to understand more deeply and to formulate more adequately; Part Three is the more advanced essay of 1944, which McShane states is in an “Einsteinian context.”
Part Two (of CWL 21): Fragments… belongs almost entirely in what I call the Einsteinian context of Part Three, in contrast to the Newtonian achievement of Part One, (but Part Two) is still somewhat transitional in system and expression. So, for example, to take the central character in the drama, pure surplus income is there named systematic profits. [CWL 21, 325]
Lonergan’s analysis employs a dynamic heuristic in the sense of his choosing a method, as an heuristic aid or guide, which will yield an explanatory dynamics, i.e. a unified explanation in the form of technical terms related to one another; the terms will represent the interdependent constituent velocitous flows constituting the dynamic process. His expertise in scientific method provides him clues to a method which will yield a scientific macroeconomic dynamics. His observation that the system is a process of flows requires that the explanatory form will not be a form of a momentary static equilibrium but rather a form generally governing, relating and explaining interactions and changes with respect to time. The equilibrium will be a balance of velocitous flows. The economic process is always the current, dynamic process constituted by interdependent, mutually-conditioning velocities and accelerations.
Lonergan’s analysis is concrete but heuristic. It focuses on functional relations intrinsic to the productive process to reach eventually a general theory of dynamic equilibria and disequilibria. [McShane 1980, 117]
Functional macroeconomics resembles in some respects the field theory of modern explanatory mechanics, thermodynamics, fluid dynamics, and electromagnetics. Of interest in this regard are two excerpts touching upon modern 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 nobjects. 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
So, modern macroeconomic 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.” And a diagram of this field theory will show “the network of interrelations of each to all the others.” CWL 3, 76/
Modern macroeconomic science is not an addition – a widening if you will – of what was known before; it is the perfecting of the very notion of (economic) science itself. To quote:
The point I wish to make is that modern science is not simply an addition to what was known before. It is the perfecting of the very notion of science itself, of knowing things by their causes, by analysis and synthesis. What are the causes? The field of intelligible relations that implicitly define the objects. The objects with which a science deals are whatever is defined by its field of intelligible relations, whatever falls into that field. The causes are formal causes; it is only applied science that is concerned with agents and ends. CWL 10, 155
The “causes” in macroeconomic dynamics are “the field of intelligible relations that implicitly define the objects” or “terms.” Similarly, the “objects” with which macroeconomic dynamics deals are whatever economic functionings are implicitly defined by their relations constituting the formal cause. The objects that are implicitly defined by macroeconomic dynamics’ field of intelligible relations are the following interdependent, mutually conditioning and mutually defining functionings:
- velocitous basic production and sale
- velocitous ordinary surplus production and sale
- velocitous pure surplus production and sale
- velocitous basic outlays and incomes
- velocitous ordinary surplus outlays and incomes
- velocitous pure surplus outlays and incomes
- supplying of additional money adequate to the additional transactions of the system
And as velocitous functionings, we treat them mathematically and, thus, ideally as d/dt or Δ/Δt.
In our search for theory, we are not initially concerned with external agency (efficient cause) or purpose (final cause or goal).
“ … it is only applied science that is concerned with agents and ends.” That is, explanatory science is concerned with formal causes, not agents and ends.
Let us unabashedly repeat for emphasis: the “cause” in which we are interested is the set of relations that define the terms; which terms are defined by the relations.[14]
So, does Lonergan advance our understanding of the economic system to a level on an intellectual par with field theory or Einstein’s gravitational-field tensor equations? Does he advance macroeconomics from accounting and reporting of statistical data to purely explanatory science? In what respect is macroeconomic dynamics “purely explanatory”? How does it “explain” the functioning of the economy without resorting to “the terms of neoclassical and Keynesian economic theory?” Does it explain to us how the system really works? And, is its status that of unverified hypothesis or of theory to be verified in the time series of the economic data?
The scientist doing pure science begins with a choice of method, then progresses to the gathering of data, then to the representation of the data in tables and diagrams, then to the analysis of data and diagrams, then to insight into the relations in the data and diagrams yielding abstract terms implicitly related to one another in a formula, then to formulations, then to hypothesis, then to deductions about possible behavior with different constraints and boundary values, then to testing for verification, and thereby to the achievement of theory.
If the scientist obtains his hypothesis in the double movement from above downwards (from possibly applicable mathematical forms such as differential equations) and from below upwards (from data to curve fitting) – the scissors action – he reaches a formula. That formula is of itself a hypothesis. But he does not just announce, ‘I have a hypothesis.’ He makes all possible deductions from that hypothesis, either from it alone or from it in combination with other things. From the deductions he proceeds to a process of checking. Does what follows from the hypothesis occur de facto? The fuller that deduction is and the greater the number of checks he makes, the greater the likelihood that he will turn up some facts that his hypothesis does not satisfy. He then moves to a new insight and a new hypothesis. CWL 10, 142
For convenience of reference, we reproduce here the bare-bones formulae of the previous subsection, which culminate – unified – in the expression of neGross Domestic Flows as a unity of three distinct differential flows, each of which can be viewed in its particular perspective and all of which can be combined in the total differential of the overall process, GDPGross Domestic Flows, to explain how the dynamic economic process actually works. Note: The differentials are employed with respect to a definite time period; therefore they refer to either rates or velocities or to changes in rates or accelerations. So, though the algebraic expressions are mathematically algebraic, they are really disguised difference or differential expressions.
ki= the rate of application of a factor of production[15]
kn[f’n(t-a)-Bn] = f”n-1(t) – An-1[18]
ΔM’ = (S’ – s’O’) = ΔT’ + ΔR’ + (O’ – R’)[19]
The condition of dynamic equilibrium
P’Q’ = p’a’Q’ + p”a”Q”[21] [22]
J = a’ + a”R
dJ = da’ + a”(dR) + R(da”)[23]
Π”Κ”Expansionary Pure Surplus = π”a”Κ”Expansionary Pure Surplus[24]
df = v(dw) + w(dv)
GDFF = P’Q’ + Π”Κ”= p’a’Q’ + p”a”Q”R&M+ π”a”Κ”Expansionary Pure Surplus +π”α”Κ”R&M
This nest of interrelated formulae constitutes the theoretical foundation or foundational propositions of functional macroeconomics. This theoretical foundation for macroeconomic dynamics provides a basis similar in its completeness to, say, Newton’s laws of motion plus his inverse squares law for mechanics; Clerk-Maxwell’s laws of electric and magnetic intensity in electromagnetism; Hamilton’s canonical equations for mechanics based on the principle of energy; or the first law of thermodynamics in thermodynamics.
The theoretical foundation of macroeconomics reveals an ideal pure cycle for which the process has an exigence and to which it tends. Upon this foundational set of terms and formulae a superstructure of equations may subsequently be built This ideal pure cycle is a normative framework for economic functioning depending upon the economy’s “conditions of physical geography and the cultural, political, and technical development of the population.”[27] It reveals norms for stable combinations of functionings in the objective economic process. And it is the basis of general equations explaining any and all possible departures from the norm, so that the normative functioning, though it is the functioning for which the process has a systematic exigence, is merely one particular case. But it is such that departures (booms and slumps) create a systematically necessary restorative force.
The choice of a dynamic heuristic, the development of a suggestive and representative image, insight into the image employing the technique of implicit definition, and the discovered laws and differentials confers scientific significance. The foundational equations have systematic significancein that they virtually contain relations which may be deduced in a superstructure constituting a more nuanced explanation.
On such a methodological model (i.e. implicit definition and mapping of production with payments)…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 rhythms of goods and services………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…[Michel Gibbons Economic Theorizing in Lonergan and Keynes]
the key feature… is not social (class struggle), legal, or proprietarial. Even more significantly, it is not derived from prices, values, interest, profit, or wages…….It is the functional aspect of the differentiation of productive rhythms that is of systematic importance….What makes all the difference is how the purpose or function of each set of productive activities differs from that of the other. [CWL 15, Editors’ Introduction lxi ]
The productive process must be conceived, concretely and heuristically, as an aggregate of activities proceeding from the potentialities of nature and terminating in a standard of living. … producer goods complement the potentialities of nature …The emergent standard of living is an aggregate of rates at which goods and services pass from the productive process into the standard of living. That emergence is from what may conveniently be called the basic stage of the productive process, besides which there are the series of stages which we may title “the surplus stage” characterized by the fact that their products do not enter the standard of living. One may note immediately that the division is not a matter of social relations or of property or of the properties of things: it is a functional analysis. The distractions introduced at the beginning of the Robinson-Eatwell analysis are avoided. The aim of the analysis is to reveal the possibilities of the productive process as a dynamic system One moves forward to that revelation in so far as one appreciates the different ways in which basic and surplus stages may relate. [McShane 1980, 119-120]
So, as we have done in the section Rearranging the NIPA’s; Explaining the Economy, the interested economist will select and gather relevant data, confirm that the data confirm Lonergan’s formulations, and affirm that Lonergan does in fact achieve complete explanation of the always-current, dynamic process of production, exchange, and finance.
[1]Galileo Galiliei: 2/15/1564 – 1/8/1642
[2]Tycho Brahe: 12/14/1546 – 10/24/1601
[3]Johannes Kepler: 12/27/1571 – 11/15/1630
[4]Isaac Newton: 12/25/1642 – 3/20/1776
[5], Laplace: 3/23/1749 – 3/5/1827
[6]Joseph-Louis Lagrange: 1/25/1736 – 4/10/1813
[7]William Rowan Hamilton: 8/4/1805 – 9/2/1865
[8]Just as the q’s need not have the dimensions of length, the conjugate p’s may not have the dimensions of mass times velocity. L&M 144
[10]Albert Einstein: 3/14/1879 – 4/18/1955
[11]While human agents can change the course of the economic process, functional macroeconomics is a set of objective laws applying prior to and apart from and despite human agency and yielding implicit norms to which humans should adapt, and b.) explaining deviations in purely mathematical form
[12]Explain the Ricardo Effect
[13]The author has removed the words “relation to” here. The original is: 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]
[14]just as the relation between two points and a line define two points and a line
[19]CWL 15, 67“Transfers to or from supply, (S’ – s’O’), tend to equal the sum of the increments of aggregate turnover magnitudes in final payments (ΔR’)and transitional payments (ΔT’). Of these, two, the increment in transitional payments will be the larger, since for each sale at the final market there commonly is a sale at a number of transitional markets.” CWL 15, 67
The history of the development of money points to a preponderant role of increasing turnover magnitude in circuit accelerations
[22]Basic and surplus cost indices p’ and p” respectively are defined implicitlyby equations. They are not defined by their relation to us as we get and spend every day. Their macroeconomic functional definitions cannot be found in Webster. One must consult the equations. Their definitions are arrived at as follows:[22]
c’O’ = p’a’Q’
c”O” = p”a”Q”
p’ = c’O’/a’Q’
p” = c”O”/a”Q”
[23]For a reminder that we are dealing in dynamics or evolution over time, we may insert the time denominator
(x) dJ= da’ + a”dR + Rda”
dt dt dt dt
However, the same period denominator is common to all terms and, for interpretation of the Rule of Change of the Basic Price Spread Ratio, a period denominator is unnecessary.
(x) dJ = da’ + a”dR + Rda”