We wish to explain the economic process rather than merely report its statistics. So, we have revised the Gross Domestic Product of 2016 – $18,624.5 billion; i.e. $18.6245 trillion – into Gross Domestic Functional Flows (GDFF).
GDFF = P’Q’ + Π”Κ”= p’a’Q’ + p”a”Q”R & M + M’[1]+π”α”Κ”Expansionary+ π”α”Κ”Function to Self +M”
$18, 624.5 = $15,737.6 + $2,886.9 = $13,519.1 + $2042.7 + $175.8 +$2222.6 + $378.8 + $285.5
Let us proceed through the details and rationale of the revision, its sources and its application.
Our analysis and explanation of the current, purely dynamic economic process is in terms of interdependent, mutually conditioning flows of classes of products and correlated classes of payments. Flows are instances of so much every so often; i.e. flows are velocities. So, our explanation is in terms of interdependent, mutually conditioning velocities of classes of products and correlated classes of payments.
The economic process of production for exchange is a three-fold process.
The maintaining of a standard of living is attributed to a basic process (distinct process 1), an ongoing sequence of instances of so much every so often. The maintenance and acceleration (distinct process 2) of this basic process is brought about by a sequence of surplus stages, in which each lower stage is maintained and accelerated by the next higher. Finally, transactions that do no more than transfer titles to ownership are concentrated in a redistributive function, whence may be derived changes in the stock of money (distinct process 3) dictated by the acceleration (positive or negative) in the basic and surplus stages of the process. … So there is to be discerned a threefold process in which a basic stage is maintained and accelerated by a series of surplus stages, while the needed additions to or subtractions from the stock of money in these processes is derived from the redistributive area. … it will be possible to distinguish stable and unstable combinations and sequences of rates in the three main areas and so gain some insight into the long-standing recurrence of crises in the modern expanding economy. [CWL 15, 53-54]
In the three-fold process there are conditioning and conditioned circulations of money.
On such a methodological model (i.e. implicit, explanatory definition replacing nominal definition and accountant’s categories)… 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 (and sequential) rhythms of goods and services;[2]and from the foregoing dynamic configuration of conditions during 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]
Analysis has discovered a new explanatory theory called Functional Macroeconomic Dynamics. Now, nothing is as practical as a good theory. So, now we need a more sophisticated method of accounting for aggregate, interrelated, functional flows so as to explain the economic process for the practical purpose of guidance in achieving the potential of the present state of technology and culture.
the analysis itself will provide rather convincing indicators, and as expertise develops the new tricks of a new trade, there well may be discovered methods of attaining a sufficient accuracy for practical purposes. [CWL 15, 72]
The Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce presents three descriptive arrangements of the Gross Domestic Product. We will be proposing an explanatory fourth – Gross Domestic Functional Flows– and encouraging the development of “new tricks of a new trade” and the discovery of “methods of attaining a sufficient accuracy for practical purposes.” The analysis has been strictly functional. The structure is purely relational. It relates functions defined by the functional relations in which they stand. The theory yields norms as a basis of practical precepts for a fuller adaptation to the norms by free people.
It is true that the distinction between basic and surplus is functional (rather than profit and loss categorial), and that a number of activities may at one time be surplus and at another basic. So (the conventional accounts of) labor, services, power, transportation, materials can be known as contributions to the basic or surplus function only through further determinations and even special inquiries……….still the analysis itself will provide rather convincing indicators, and as expertise develops the new tricks of a new trade, there well may be discovered methods of attaining a sufficient accuracy for practical purposes. [CWL 15, 72]
‘Query: How does one distinguish surplus from basic firms?
‘The distinction is not legal … but functional and to be understood by distinguishing the markets at which the firms’ products are sold. ..
‘While this distinction is empirical (resting on matters of fact) it is not empiricist (resting on easily ascertained matters of fact and preferably to be found in tables already drawn up and published).’ [CWL 15, 144-45, ftnt 201]
The BEA’s three arrangements in its National Income and Products Accounts tables are in BEA’s Data Tables: https://www.bea.gov/scb/pdf/2017/05%20May/0517_selected_nipa_tables.pdf .
- As the sum of goods and services sold to final users. (Tables 1.1.5, and 1.5.5 Gross Domestic Product, Current $)
- As the sum of income payments and other costs incurred in the production of goods and services. (Table 1.10, Gross Domestic Income by Type of Income; Table 1.12 National Income by Type of Income; Table 1.13, National Income by Sector …; current $)
- As the sum of “value added” by all industries in the economy (Table 1.3.5, Gross Value Added by Sector; GDP by Industry>Industry Data>Value Added by Industry; Current $)
The BEA’s arrangements are largely aggregations of conventional corporate and government accountings using financial and management categories. These BEA arrangements of categorial unities are not functional and explanatory.
An ‘accountant’s unity’: that is a category used in (conventional) accounting. For Lonergan, (conventional) accounting generally denotes an enterprise within common sense which uses descriptive, as contrasted with explanatory terms (on these terms see CWL 3, 37-38/61-62, 178-79/201-3, 247-48/272-73). Insofar as that is true, the accountant’s unity is not an adequate index for the normative, explanatory analysis of the productive process. [CWL 15, 26, ftnt 26]
Again,
Our analysis is functional; the distinction between basic and surplus is functional (rather than profit and loss categorial), and a number of activities may at one time be surplus and at another basic. It is true that the distinction between basic and surplus is functional (rather than profit and loss categorial), and that a number of activities may at one time be surplus and at another basic. So (the conventional accounts of) labor, services, power, transportation, materials can be known as contributions to the basic or surplus function only through further determinations and even special inquiries. [CWL 15, 72]
Further, much accounting is on an accrual basis rather than a cash basis, so for example, sales may be booked before their payments are actually made. The credit involved in payments terms must be ferreted out.
Nevertheless, though not in explanatory form, the BEA’s arrangements of statistical information do provide much useful information on flows of money; and these flows may stand as informative estimates of functional flows for our presentation of our explanatory dynamics. But again, the NIPAs do not explain the dynamic economic process explicitly in terms of velocitous functionings; so we will have to re-form the NIPAs.
We propose a fourth arrangement called Gross Domestic Functional Flows, An Explanation of the Current, Purely Dynamic Economic Process.
[1]M’ is herein the net of D’-s’I’; M” is primarily the net of D”-s”I”.
[2]… In figure 14-1 the reader will notice five circles representing the monetary functions. … I would add that the aims and limitations of macroeconomics (that is, the macroeconomic circulations presented here) make the use of a diagram particularly helpful, … For its basic terms are defined by their functional relations. The maintaining of a standard of living is attributed to a basic process(distinct process 1), an ongoing sequence of instances of so much every so often. The maintenance and acceleration (positive or negative) (distinct process 2) of this basic process is brought about by a sequence of surplus stages, in which each lower stage is maintained and accelerated by the next higher. Finally, transactions that do no more than transfer titles to ownership are concentrated in a redistributive function, whence may be derived changes (distinct process 3) in the stock of money dictated by the acceleration (positive or negative) in the basic and surplus stages of the process. … So there is to be discerned a threefold process in which a basic stage is maintained and accelerated by a series of surplus stages, while the needed additions to or subtractions from the stock of money in these processes is derived from the redistributive area. … it will be possible to distinguish stable and unstable combinations and sequences of rates in the three main areas and so gain some insight into the long-standing recurrence of crises in the modern expanding economy. CWL 15, 53-54