The Intrinsic Cyclicality of the Productive Process; “Reversion To Zero”

The economy is composed of the production of two conceptually distinct, mutually-definitive types of goods.  Depending on the context they may be named

  • basic goods or surplus goods,
  • consumer goods or producer goods,
  • accelerated goods or accelerator goods,
  • point-to-point goods or point-to-line goods.

An expansion of the surplus production function causes a later acceleration of the basic production function.  First one surge, then later the other surge.  Note the symbols for time (t) and (t-a) in the following formula, “the lagged technical accelerator.”

kn[f’n(t-a)-Bn] = f”n-1(t) – An-1        CWL 15, p. 37

Total outlays [f’n(t-a)-Bn]in a capital stage (n), minus the outlays (Bn) for mere maintenance of the next lower stage, equal expansionary outlays [f’n(t-a)] for later realization of the potential for greater bounty in the system.

Expansionary outlays at time (t-a) have their effect at a later time (t); thus there is a lag of duration (a).

The effect is a long-term acceleration [f”n-1(t) – An-1] on the next lower level (n-1), where An-1represents a short-term acceleration resulting from taking up slack in the existing system rather than putting new capital into use.

The magnitude of the effect is given by the coefficient (kn)

Lonergan uses the term wavelike, suggesting surge following surge.  We can stick with his term, but we hope the reader does not imagine something like a sine wave.

Further, there is no adamantine need for a decline (as between 90 and 270 degrees in the sine wave) in the economic process, though mismanagement may indeed cause an overinvestment boom followed by a systematically necessary slump. Rather the pure cycle is a series of surges and taperings without any systematic necessity of a decline or slump. (See Post: Walter Scheidel re Cataclysm as the Only Cure)

First, then, there is a wave-like structure that places the accelerated production of producer goods in advance of the consequent acceleration of the production of consumer goods. [CWL 15, 14]

cycles are inherent in the very nature of a long-term acceleration of the productive process.  [CWL 15, 36-37]

In the crisis of the 1930’s Hayek attached great importance to the “newly created equipment designed to produce other capital goods”.  More modern industry, with its robot factories, involves very complex multi-stage versions of this kind of production.  We will clearly need a good general model of production systems of this dynamic kind to discuss the impact of modern innovations. [P. Burley, Lonergan as a Neo-Schumpeterian p. 252]