Subsumption and Sublation of Keynes, Kalecki, Solow and Others

          

To subsume: to include or place within something larger or more comprehensive; encompass as a subordinate or component element.

Sublation consists of an argument which is more general and/or more precise.  The superseded arguments are demonstrated to be isolated and/or imprecise and/or saying the same thing in many more terms. Sublation drives the less apt arguments into the shadows.

Lonergan’s precise dynamics of interdependent, functional, flows of production and correlated payments, plus the implicit norms of equilibrium sublate both Keynes’ problems and Kalecki’s dictum into a higher level of explanation.  Lonergan’s Functional Macroeconomic Dynamics sublates them so that they are no longer mysterious.  The terms and relations of functional analysis take over and dominate the discussion.

Lonergan generalizes to a higher level, as Newton did vis a vis Galileo and Kepler and Einstein did vis a vis Newton.  And his generalization is independent of human psychology rather than premised and predicated on the human psychology of utility and preference.

A generalization will postulate a transformation not only of the old guard and its abuses but also of the reformers and their reforms; it will move to a higher synthesis that eliminates at a stroke both the problem of wages and the complementary problem of trade unions; it will attack at once both the neglect of economic education and the blare of advertisements leading the economically uneducated by the nose; it will give new hope and vigor to local life, and it will undermine the opportunity for peculation[1]corrupting central governments and party politics; it will require the brain trust but it will make the practical economist as familiar a professional figure as the doctor, the lawyer, or the engineer; it will find a new basis both for finance and for foreign trade.  The task will be vast, so vast that only the creative imagination of all individuals in all democracies will be able to construct at once the full conception and the full realization of the new order. [CWL 21, 36-37]

We are not going to discuss wealth or value, supply and demand, price levels and price patterns, capital and labor, interest and profits, production, distribution, and consumption. Because we are not, it certainly will be objected that our discussion has nothing to do with economic science, for economics is precisely the study of wealth and value, supply and demand, and so on.  The answer is as follows.  The discussion moves on a more general plane to terminate in a more general conclusion. Because the general includes the particular, a generalized economics cannot but include the particular economics. [CWL 21, 8]

I make the outrageous claim that the basis of serious criticism and construction is lacking in the ruling economic community.  Peter Drucker wrote in the eighties, “By now we know, as Schumpeter knew fifty years ago, that every one of the Keynesian answers is the wrong answer.”8  But this we  does not seem to include the vast majority of either economics professors or economic advisors.  [McShane 2017, 84]

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]

It is the viewpoint of the present inquiry that, besides the pricing system, there exists another economic mechanism, that relative to this system man is not an internal factor but an external agent, and that the present economic problems are peculiarly baffling because man as external agent as not the systematic guidance e needs to operate successfully the machine he controls. [CWL 21, 109]

By considering functional distinctions as prior to and more fundamental then the microequilibria assembled by Walras, Lonergan discovered further equilibria, preserving but superseding the familiar laws of supply and demand.  Lonergan provides a dynamics of the current purely dynamic process, not a statics or comparative statics

Schumpeter acknowledged that dynamic analysis called for a new light on equilibrium.  Such new light arises when, over and above, the equilibria  of supply and demand with respect to goods and services, there are recognized further equilibria that have to be maintained…..Moreover, such macroequilibria are more fundamental than the microequilibria assembled by Walras.  The former are the conditions of a properly functioning economy [CWL 15, 92]

Longfield, Rae, Nassau Senior, von Bohm-Bawerk, Sraffa……..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 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 and in relation to each other by means of crossover payments. [CWL 15, Editors’ Introduction lxii]

Lonergan’s Functional Macroeconomic Dynamics is not only prior to and more fundamental than the microequilibria assembled by Walras, it reveals norms for human adaptation.

A systematic explanation, then, requires a normative theoretical framework.  The basic terms and relations of such a framework would specify the distinctions and correlations that articulate the causes, which are not necessarily visible, of events that are apparent to all.  The framework would thus stand to the ordinary apprehension of the booms and slumps of the trade cycle in much the same way that the explanatory grasp of acceleration as the second derivative of a continuous function of distance and time stands to the ordinary, commonsense grasp of what it is to be going faster.  [CWL 15, Editors’ Introduction lv]

In the advance of science the higher viewpoint provides a better explanation and sublates the lower viewpoint.  Such was the case with Newton’s dynamics after Galileo, Brahe, and Kepler; Einstein’s special and general theories after Newton and others; and Lonergan’s precise functional macrodynamics after the statics, comparative statics, and imprecise and inadequately systematized dynamics of Walras, Schumpeter, Keynes, Kalecki and Robinson.

First in Lonergan’s analysis is not the human psyche but rather the objective cyclic structure of the production of a) expansionary capital goods, b) repair-and-maintenance capital goods, and c) consumer goods. Next is the analysis of the circulation of money correlative to the cyclically structured process of production and sale of these capital goods and consumer goods.  He identifies and defines distinct functional interdependencies in the productive process and correlated interdependencies in the monetary process.  Lonergan clearly systematizes the cyclic phenomena of basic income flow and investment income flow.  And, within surplus income, he clearly distinguishes ordinary surplus income flow and purely-expansionary income flow.

Functional Macroeconomic Dynamics is prior to, more fundamental than, and independent of human psychology.  It is a system of laws basded on a set of explanatory terms and relations that “would have to expose similarities that reside in the relations of things to one another or what is “first-in-itself”: namely both the dynamic elements (distinct, implicitly-defined, productive and monetary functionings)and the differentials (velocities and accelerations) of the economic mechanism which reveal the significance of aggregate changes in prices that by themselves are in need of interpretation.

the set of terms and relations capable of explaining the phenomena of the business or trade cycle would not be the same as any given pricing system that automatically coordinates a vast coincidental manifold of decisions of demand and decisions of supply,  Such a system comes to sight as bookkeeper’s entities that form the basis of the preliminary descriptive classifications that need to be explained: they are the similarities “first-for-us.”  The relevant set of explanatory terms and relations would have to expose similarities that reside in the relations of things to one another or what is “first-in-itself”: namely both the dynamic elements (distinct, implicitly-defined, productive and monetary functionings)and the differentials (velocities and accelerations) of the economic mechanism which reveal the significance of aggregate changes in prices that by themselves are in need of interpretation……prices as a concern for the bookkeepers or accountants are known- first-to-us by description and commonsense classification; and that (Lonergan’s) own functional analysis of production and circulation reveals an explanatory system known-first-in-itself (continue to lvii “significance”) [CWL 15, Editors’ Introduction lvi]

the flow of income in a functional analysis, however, requires somewhat more attention:  it is the corner of the analysis which holds the key to the sublation (and subsumption of) both of Keynes’ problems of consumption, savings and investments, and of Kalecki’s dictum that the workers spend what they get and the capitalists get what they spend. … the crossover ratios are envisaged as adjusting what may be called the rate of savings to the demands of the productive process. [McShane 1980, 120-121]

Functional Macroeconomic Dynamics reveals “a mechanism distinct though not separable from the price mechanism (of microeconomics) which spontaneously coordinates a vast and ever shifting manifold of otherwise independent choices from demand and of decisions from supply.

What the (macroeconomic) analysis reveals is a mechanism distinct though not separable from the price mechanism (of microeconomics) which spontaneously coordinates a vast and ever shifting manifold of otherwise independent choices from demand and of decisions from supply. It (the macroeconomic mechanism) 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]

Functional Macroeconomic dynamics explains “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.   ‘

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]

It is the viewpoint of the present inquiry that, besides the pricing system, there exists another economic mechanism, that relative to this system man is not an internal factor but an external agent, and that the present economic problems are peculiarly baffling because man as external agent has not the systematic guidance he needs to operate successfully the machine he controls. [CWL 21, 109]

Keynes dealt mainly in macrostatics, supply and demand on the national level; his main problem was recession constituted by an inadequate level of demand, and he advocated government spending to counter the inadequate level of demand.   Keynes’ macrostatics is superseded by an functional macrodynamics wherein enlightened individuals adjust savings to effect an adequate demand.  Government spending and deficits are unnecessary.

Kalecki dealt in macrodynamics; his dictum that “the workers spend what they get and the capitalists get what they spend” is a less than precise systematics of what Lonergan clearly specifies as “the cycle of pure surplus income” and “the cycle of basic income.”  Kalecki’s insight is elevated into a precise systematics of cyclic phases of functional velocities of production, exchange and finance.

McShane’s correct assertion  –  “the flow of income is the corner of the analysis which holds the key”  –  is that Lonergan’s uncovering of varying crossover ratios in an intrinsically cyclical process of production and exchange explains the cycles of basic income and exclusively expansionary income; it contains the precepts regarding the variations required in saving vs. consuming; and it provides the precise systematics which “sublates” both Keynes’ problem and Kalecki’s dictum.

Keynes acknowledged the marginal propensity to consume. The lowest-paid people have a marginal propensity to spend, say, all or 100% of additional income on basic needs; the highest-paid to spend, say, none or 0% of additional income.  Consequently, to correct an inadequate demand for the fruits of a capital expansion, the prescription is simple: let the lower-paid people earn more;  and to control excessive and inflationary basic demand and take advantage of the potential provided by innovation, let the higher-paid people earn the incomes needed for that investment.  Precepts vary according to the situation.  Rigid precepts such as “save and invest” are sublated by a single precept of save or invest the amount required by the situation.

Any rejection by the economics profession of Lonergan’s systematics would have to be based on some sublating insight into the explanatory functional interdependencies within the dynamic process of production and exchange.  The sublating insights would have to be independent of human psychology and provide complete explanation of all phenomena and data.[2]

Rejection by the economics profession would require a solid and complete theory and empirical verification rather than an amateur dismissal out of hand based on an appeal to the authority of title or reputation.

Thus, an analysis of the interrelations among dynamic product flows and income flows is the key to enlightened management of the overall dynamic process.  Keynes’ and Kalecki’s insights re marginal propensities and income flows are subsumed into a higher explanation.  When demand is inadequate and good machines are unnecessarily rusting, channel money into the hands of those who will spend it; and when innovations make investment for more current product for more future leisure the order of the day, channel more money into the hands of those who will invest it. “the flow of income in a functional analysis … is the corner of the analysis which holds the key.”

Zeno’s proof that Achilles can never catch the tortoise and that, ultimately, motion is impossible was sublated by the proper handling of velocity as v = dx/dt and position as xthare= x0hare+ vharet.  And Keynes’ problem and Kalecki’s dictum are sublated by Lonergan’s precise perspective on prices and quantities and precise treatment of velocities and accelerations in the economic process, e.g.

dJ = a’ + a’R

and

df = vdw + wdv

 

 

[1]embezzlement

[2]See topic titled Lonergan’s Aim and Goal, plus excerpts re the canons of empirical science

[3]CWL 15, 158

[4]CWL 15, 148-49