Insert re Pure surplus income over and above
The specification of pure surplus income is vI”, where v is the fraction of total surplus income devoted to the production and installment of expansionary capital.
The specification of the pure surplus income ratio is vI”, where v is the fraction of total surplus income devoted to the production and installment of expansionary capital.
vI”/(I’ + I”) (Se CWL 15, 144-50)
The differential equation giving the general rule of change of the pure surplus-income ratio is:
δf = vδw + wδv + δwδv (CWL 15, 148-49)[1]
This differential equation is general, and it generally explains the interrelations among activities in the pure surplus-income ratio. The calculation of f in a particular case would be particular and would involve current velocities of I’, I”, and the fraction v in the phases of a particular expansion.
Price and quantity indices in the basic, ordinary, and pure surplus circulations will enter the analysis as point values or incidental boundary values in a particular first-order solution of the second-order general, explanatory differential equation. And it is within these particular flow solutions that one may identify and quantify the particular current macrodynamic flow of returning principal, i.e. pure surplus income flow, i.e. return to entrepreneurs as a group.
And note: the solution f = vw gives the current rates of interdependent flows. It is not a retrospective evaluation of past investments nor an anticipation of future investments. Relative to a norm based upon technical relations, these actual flows may be conformal or aberrant, i.e. equilibrated, or excessive or deficient. The economic process has laws to which human psychology must adapt. But the economic process does not possess the rigidity of planetary motion. Humans are its efficient cause, though not its formal cause. Norms can be violated. The process is rife with ignorance
Functional Macroeconomic Dynamics identifies a central tendency and norms. It explains how the process’ internal functional flows interrelate. It is an understanding of the relations of the process. It includes both classical laws and statistical frequencies; it grasps ideal frequencies and the possible non-systematic divergence from ideal frequencies in the non-systematic manifold of possible events. But, as probabilistic and involving diverging series of conditions leading up to events, it does not seek to predict precisely the course of the economy as one would, enjoying the rigidities of physics, predict planetary motion. Rather it expresses the relations (laws) of explanatory conjugates revealed by the abstract correlations of the measured data of the integral process. The process seeks to continually adjust its activities and flows of consuming and investing to any current divergence from the abstract laws for which the process has an exigence. The legitimate end of science is to verify understanding of the relations of things to one another, not to predict the intrinsically probabilistic and unpredictable, (See Prediction is Impossible in the General Case; Diverging Series of Conditions: Click here; also see Prediction and Control; the ideal pure cycle and Probabilistic Indeterminacy. Click here)
Therefore,
For Lonergan, prediction and control are not legitimate ends of science because they are not the same as verified understanding, which is the true aim of science. Moreover, prediction and control in the area of the so-called applied human sciences conflict with the very nature of the subject matter of human science: on the one hand, prediction and control depend upon and imply the policy of elimination of B; on the other, human freedom is something that may just spring up even in situations in which people have managed practically to eliminate it. [CWL 15, Editors’ Introduction, xxxvii]