The Formal Cause (Immanent Intelligibility) of the Dynamic Process

The current, purely dynamic process has an immanent intelligibility which reveals norms or laws regarding credit and interest.  Inasmuch as expansion is involved and any expansion requires credit, there is charged interest which circulates like other initial outlays such as wages, fees, rents, etc. Inasmuch as there is a time gap between initial outlays and final sales, the credit principal can make its way into demand before the increase in supply has been achieved.  This passage of credit money for expansion through the demand function constitutes macrodynamic interest which should be captured normatively by producer units of enterprise.

The technique of implicit definition yields precise analytic distinctions between the three processes for the three types of product: basic products, repair-and-maintenance products, and expansionary capital; and in the monetary order between three correlative functional monetary circulations: basic monetary circulations, repair-and-maintenance monetary circulations, and pure-surplus-income monetary circulations.  Analysis of a) the time-consming sequence from initial outlays for application of factors of production cumulating through the vending flows of completed products, b) simultaneously vertical stacks of factors accumulating as products, when all units of enterprise in the rectilinear sequence are producing simultaneously, and c) the circular sequential flows of monetary dummies yields fundamental laws of monetary circulation.  And, upon this fundamental intelligibility of the flows of products and correlated payments a superstructure of laws and relationships can be built to constitute a complete theory.  This theory is a comprehensive and unified set of laws thus expressing the immanent intelligibility of the whole dynamic process.

In the case of expansions, the set of laws will contain implicitly a law of macrodynamic interest[1] because the new circulating principal is initially over and above the money issued previously and now circulating for purchase of previously completed products at their previous costs.

Lonergan addressed the distinction of the immanent intelligibility or formal cause vs. the efficient cause in Insight:

Ought there not to be introduced a technical term to denote this type of intelligibility?  … the intelligibility that is neither final nor material nor instrumental nor efficient causality is, of course, formal causality…what we have called the intelligibility immanent in sensible data and residing in the relations of things to one another, might be named more briefly formal causality… [CWL 3, 78/101-102]

The formal cause of the process is not to be found in the psychology or anthropology of the efficient causers, i.e. the participant lenders, investors, entrepreneurs, and consumers.

There is “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]

Because there has not been acknowledged a theory on which all can agree, there has been, tragically, the gradual formation of economic schools; and the sources of their theoretical differences are a) their failure to achieve a scientific, dynamic heuristic guiding them to all an adequate level of abstraction, and b) the invasion and occupation by psycho-political and other psyche-based prejudices in their non-objective analyses of the current, purely dynamic economic process.

Lonergan grasped how the great orientations of twentieth-century politics – liberal capitalism, communist socialism, and all nationalisms – are all integrally related to concrete economic issues.  None of these political orientations actually based its policies on a correct understanding of the dynamic schemes that require human cooperation. … He realized that failure to understand correctly what is needed if the economic process is to perform well is gravely threatening to democratic liberty.  This is why he undertook his serious study of economics. [CWL 15, Editors’Introduction, xxx]

The often-repeated – because it is often relevant – analogy of the automobile driver applies:

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]

… the double-circuited and credit-centered economy is as naturally demanding as any motor engine. [CWL 21, xxvii]

We set out in this chapter 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]

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, 1987]

Note in the four short excerpts above that

  1. criticism of the economic performance of the participants in the economy requires knowledge of laws being violated
  2. human participants must respect and adapt to the objective laws of the mechanics of the process

While it is true that difficulties of measurement coupled with human maladaptation, due to the ignorance of theory, suspect willingness, exponential motivation for unlimited wealth, and raw instinct for survival, altogether render the process fraught with ignorance and indeterminacy, nevertheless, the process has general, objective laws of its own, providing norms for which the system has an undeniable exigence.  The laws regard a circulation with a normative central tendency, an exigence for equilibrium, and constraining limits.

Now the viewpoint of the present discussion is neither that of the bookkeeper nor that of the equilibrium analyst. Equations (39) to (42)[2]are regarded not as a set of facts recorded by bookkeepers, nor as an ideal which entrepreneurs strive yet fail to attain, but as a first approximation to the law of circulation in the basic circuit.  The first approximation to the law of projectiles is the parabola: one might, if one chose, consider the projectiles as aiming at or tending towards the ideal of the parabola yet ever being frustrated by wind resistance; one might elaborately describe the trajectory of the projectile as an indefinite series of parabolas, each one in succession the goal of its tendency only to be deserted because adverse circumstance set it on another track.  In such a description of trajectories there is to be found at least a superficial resemblance with the statement that an economy is tending towards equilibrium at every instant, though towards a different equilibrium at every successive instant.  But whatever the resemblance, and however deep and significant the difference, we here propose to take a circuit (in equilibrium as a first approximation to the law of the circuit) and examine first the implications of this law and then the second approximations that are relevant to our inquiry.  [CWL 21, 142-43]

[1]  as distinguished from microeconomic “charged interest”

[2]CWL 21, 142-43