Greg Mankiw’s First-Year Seminar: The Economic Isms And Schools Need A General Explanatory Macroeconomic Theory Providing A Reliable Analytic Framework

Part I – Introductory

Part II – List of questions relevant to the contents of Greg Mankiw’s First-Year Seminar

Part III – Repeating of the questions plus excerpts relevant to each specific issue

Part I – Introductory

Greg Mankiw’s Blog, dated 9/11/2023, and titled “This Year’s First-Year Seminar” (Click here) referred to his article in the New York Times, dated 9/10/2017, and titled “Getting Along by Getting Together.” Please read Greg’s article. (Click here)

The 2017 article summarized the readings of that year’s similar seminar and Greg’s stated purpose in teaching the course. He is to be commended for his effort to get people of different economic “persuasions” to get along with one another.

I teach at Harvard University, where every few years I offer a seminar to a dozen freshmen. The course has the anodyne title “The Economist’s View of the World,” but its purpose is subversive. The goal is to help my students understand and even appreciate the perspectives of those with whom they vehemently disagree. The lesson is one we could all benefit from. (Greg’s NYT article)

After three brief excerpts, we shall put forward a few simple questions relevant to this year’s assigned readings and discussions.

As Newton, according to the tale, forgot the distinction between planets swinging through the sky and apples falling in autumnal orchards, as he reached beyond Kepler’s and Galilei’s laws to the profounder unity of the theory of motion, so too we must … reach behind the psychology of property and the laws of exchange to form a more basic concept and develop a more general theory. [CWL 21, 11]

Einstein’s position … follows quite plausibly from the premise that empirical science seeks not the relations of things to our senses but their relations to one another. For, as has been remarked, observations give way to measurements; measurements relate things to one another rather than to our senses; and it is only the more remote relations of measurements to one another that lead to empirical correlations, functions, laws. [CWL 3, 41/65]

Lonergan agreed with Schumpeter on the importance of a systematic or analytic framework in order to explain, rather than merely record or describe, the aggregate phenomena of macroeconomics; he agreed with Schumpeter that to be able to explain the booms, slumps, and crashes of the trade or business cycles the economist’s analysis had to be as dynamic as the subject matter under investigation; and he agreed that the economist had to know what are the significant variables in the light of which price changes are to be interpreted. According to Lonergan, standard economic theory had successfully achieved none of these desiderata. [CWL 15, Editors’ Introduction liii]

Part II – List of questions relevant to the contents of the First-Year Seminar

.1. Would it be helpful to first-year students to have a purely theoretical explanation of the objective, dynamic economic process with the aid of which they could critique and debunk the opinions of the authors? The scientific theory constituting the framework would, as purely scientific, prescind from human psychology. (Click here)

.2. Thus, would it be helpful if the discussants distinguished between description and explanation? Might objective explanation replace back-and-forth psychopolitical rant, grounded in emotions and feelings, by scientific explanation based upon the insight and reason of intellect?

.3. More specifically, would it be helpful for the readers to understand the dynamic process in terms of interconnected flows of correlated products and payments – that is as a dynamics of rates (or velocities) of so much every so often?

.4. Would it be helpful if the seminar’s discussants’ prior study of physics distinguished between efficient-cause mechanics and modern field-theoretic mechanics and the distinction’s applicability to modern macroeconomics?

.5. Would it be helpful if the seminar’s discussants conceived of the process scientifically as the always current, purely dynamic process? Also, would it be helpful if the readers sought a sound basis for “the formation of concepts, the choice of postulates, and the seriation of deductions” dictated … by the more immediate and germane considerations of the monetary circulation itself. So, they would make a fundamental distinction between precise analytic point-to-point vs. point-to-indeterminate-line activities? Since the process is always the current process, the students would always insist that the theory be a universal theory of the present configuration of flows of the process

.6. Would it be helpful if the readers were conscious of the intelligibility immanent in scattered conditions, probability distributions, and the resultant indeterminacy?

.7. Would it be helpful if students were skeptical about the practical applicability of price theory?

.8. Would it have been helpful if the readers had been introduced to the general features of explanatory macroeconomics in the 12^th grade – before an indoctrination in establishment Walrasian macrostatics of momentary intersections?

.9. Would it be helpful for the bright first-year students to understand and appreciate the important principle of concomitance; i.e. the natural “going together in theory” and “belonging together” of certain flows of a) Outlays, Income, and Expenditure, and of b) basic Incomes with the adjustment of the process to the requirements of the phase of a pure cycle’s ratio of basic income to total income? Also, would it be helpful to the bright first-year students to understand the concomitance and solidarity of Outlays and Employment, so as to think of the consumer as the dependent recipient of Outlays for Incomes rather than as arbitrarily resilient? We are reminded that a) the principles of concomitance, abstract correlation, and b) the technique of implicit definition underlie Lonergan’s whole unified explanation of what is the unitary, field-theoretic process.

.10. Would it be helpful for the bright first-year students to postulate the normative macroeconomic interest rate as approximately equal to the anticipated macroeconomic growth rate in a system in financial equilibrium?

.11. Would it be helpful if readers understood that inflation is a swindle?

.12. Would it be helpful to inform the students that, in the misfortune of magnitudes and frequencies of actual product flows being non-correlated divergent from the magnitudes and frequencies of the normative flows of the equilibrated process, there is a systematic exigence for a correction; and there is a corrective adjustment that is prior to and more effective than the manipulation of interest rates?

.13. Would it be helpful if the moderator were to advise the psychologically left-leaning students to read on this website a) “Bernard Lonergan: Marx and Liberty; Relevant to Issues of Today,” b) “A Gathering of Entries re Marxism,” c) “The Labor Theory of Value Debunked,” and d) “Debunking Marx’s Exploitation?”

.14. Would it be helpful if the participants gleaned from their readings and discussions an understanding of Piketty’s plight?

.15. Would it be helpful for the readers to do at least a cursory reading of the Editors’ Introduction to Macroeconomic Dynamics: An Essay in Circulation Analysis, especially the section’s treating Functional Macroeconomic Dynamics as an alternative to both socialism and liberalism?

.16. Would it be helpful if the first-year budding economists exercised some introspection and gave some thought to the biases operative in efficient-causal human participants?

.17. Again, would it be helpful to distinguish between Walrasian, efficient-causal macrostatics and purely relational macroeconomic field theory?

.18. Would it be helpful if the readers could define, compare, and contrast equity, equality, and the value of contribution?

.19. Would it be helpful if the readers could understand the present wage-price spiral in terms of the adjustment required by an erroneous superposed circuit of flows?

Part III – Repeating of the questions plus excerpts relevant to each question’s specific issues

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 (so) 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]

By “framework” we do not mean a static rectangle; rather the framework would be a double-circuited model of interconnected channels containing the dynamically interdependent flows of products and payments which constitute the dynamic economic process. The model would represent a unified and generally explanatory macroeconomic theory, applicable in every instance in all political systems.

Lonergan held the diagram to have both explanatory and heuristic significance. First, then, the later versions of the Essay in Circulation Analysis text draw ever-greater attention to the fact that Lonergan was seeking the explanatory intelligibility underlying the ever-fluctuating rhythms of economic functioning. To that end he worked out a set of terms and relations that ‘implicitly defined’ that intelligible pattern. When all was said and done the relations, and the terms they implicitly defined, were markedly different from either the terms of ordinary business parlance or the terms of neoclassical and Keynesian economic theory. … So, for example, the existence and manner of dynamic mutual interdependence of the two circuits of payment, basic and surplus, is not adequately expressed either by descriptive terms (since this pattern does not directly relate to the senses of anyone operating in a common-sense way in a concretely functioning economy) nor by the series of (simultaneous) equations that do not explicitly manifest the interchanging of ‘flows.’ [CWL 15, 179]

In brief Lonergan is looking for an explanation in which the terms are defined by the relations in which they stand, that is, by a process of implicit definition. This technique (implicit definition) has been used to great effect by David Hilbert in his Foundations of Geometry in which, for example, the meaning of a point and a straight line is fixed by the relation that two, and only two points, determine a line. “The significance of implicit definition is its complete generality. The omission of nominal definition is the omission of a restriction to objects which, in the first instance, one happens to be thinking about. The exclusive use of explanatory or postulational elements concentrates attention upon the set of relationships in which the whole scientific significance is contained.” [Michael Gibbons, Economic Theorizing in Lonergan and Keynes 313]

Lonergan’s critique (shows that) by using the technique of implicit definition, the emphasis shifts from trying to define the relevant variables to searching heuristically for the maximum extent of interconnections and interdependence; and that the variables discovered in this way might not resemble very much the objects (or the aggregates) which, in the first instance, one was thinking about. [Gibbons, 1987]

All such payments form a class by themselves. They stand in a network that is congruent with the technical network of the productive process. …above all, their connection with production is immediate: they … are, so to speak, the immanent manifestation of the productive process as a process of value. [CWL 21, 114]

As scientific and explanatory, this analysis elevates discussion of the economic process from the impulses of one’s feelings and psyche to the application of one’s intellect, from subjective disposition to objective relations, from politics to explanatory science, and from rant to reason.

A distinction has been drawn between description and explanation. Description deals with things as related to us. Explanation deals with the same things as related among themselves. The two are not totally independent, for they deal with the same things and, as we have seen, description supplies, as it were, the tweezers by which we hold things while explanations are being discovered or verified, applied or revised. … [CWL 3, 291/316]

In Lonergan’s circulation analysis, the basic terms are rates – rates of productive activities and rates of payments. The objective of the analysis is to discover the underlying intelligible and dynamic (accelerative) network of functional, mutually conditioning, and interdependent relationships of these rates to one another. [CWL 15 26-27 ftnt 27]

Lonergan searched for a new understanding of the immanent intelligibility of the expansion of the economic process of production, exchange and finance. Modern mechanics drops the notion of external, efficient-causal force; modern macroeconomics drops the notion of shocks as external and unexplained; and it drops descriptive categories – such as wealth, interest rates, accounting profit, etc. – and conceives point-to-point activities, point-to-line activities, etc. as fundamental bases of an explanatory macroeconomic theory. Its theory, is concerned with functional activities implicitly defined by the functional relation in which they stand with one another. Its pure theory is an explanatory science – applicable in any instance – of activities implicitly defined by their functional relations.

“Functional” is for Lonergan a technical term pertaining to the realm of explanation, analysis, theory; … Lonergan (identified) the contemporary notion of a “function” as one of the most basic kinds of explanatory, implicit definition – one that specifies “things in their relations to one another” … [CWL 15, 26-27 ftnt 27]

… again, as to the notion of cause, Newton conceived of his forces as efficient causes, and the modern mechanics drops the notion of force; it gets along perfectly well without it. It thinks in terms of a field theory, the set of relationships between n objects. The field theory is a set of intelligible relations linking what is implicitly defined by the relations themselves; it is a set of relational forms. The form of any element is known through its relations to all other elements. What is a mass? A mass is anything that satisfies the fundamental equations that regard masses. Consequently, when you add a new fundamental equation about mass, as Einstein did when he equated mass with energy, you get a new idea of mass. Field theory is a matter of the immanent intelligibility of the object. (CWL 10, 154) (Click here for Field Theory in Physics and Macroeconomics) (Also click here to see The IS-LM, AD-AS Models and the Philips Curve Correlation)

… , goods and services are in a point-to-point correspondence with elements in the standard of living when they are some determinate, though not immutable or unvarying, algebraic function of the first degree with respect to elements in the standard of living. Finally, just as the aggregate of rates constituting the emergent standard of living is an aggregate of instances of ‘so much every so often,’ so also is the aggregate of rates of production in the basic stage of the process; and again, as the emergent standard of living, so also the basic stage of the process is an aggregate of rates that are qualitatively and quantitatively variable with respect to successive intervals of time. (CWL 15, 29)

Point-to-point correspondence – the elements in the standard of living are algebraic functions of the first degree. … There exists, then, a point-to-point correspondence between bushels of wheat and loaves of bread. (point –to-point functions involve no exponential powers of the variables other than 1; … that is, in the expression y = bx + c, where b represents the number of loaves of bread which can be obtained from one bushel of wheat, and c represents any fixed loss or gain which is independent of the number of bushels.) (CWL 15, 23 and footnote 25)

Point-to-line correspondence – elements in the productive process correspond not to single elements in the standard of living but to indeterminate series of the latter. (CWL 15, 24)

… (our fundamental scientific) terms (velocities) are defined by their functional relations. In the threefold process, the maintaining (distinct process 1)of a standard of living is attributed to a basic process, 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 (distinct process 3) in the stock of money dictated by the acceleration (positive or negative) in the basic and surplus stages of the process. [CWL 15, 53-54]

The community of economists, politicians, and journalists lack an understanding of the economic process as strictly the current, dynamic process, an aggregate of current rates of current activities. This failure regarding “currency” and “rates,” plus the failure to be scientifically analytic at an adequate level of abstraction, prevents them from identifying the precise functional difference between capital goods and consumer goods; they mistakenly confuse functional capital, which remains in the process as a factor of production, and durable goods, which exit the process upon sale.

.6. Would it be helpful if the readers were conscious of the intelligibility immanent in scattered conditions, probability distributions, and the resultant indeterminacy?

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. [CWL 15, Editors’ Introduction, ftnt 32, xxxvii]

analysis may attain its goal without being able to predict, … [CWL 15, 11]

… The analysis that insists on the indeterminacy (of the point-to-indeterminate-line is the analysis that insists on the present fact: estimates and expectations are proofs of the present indeterminacy and attempts to get round it; and, to come to the main point, an analysis based on such estimates and expectations can never arrive at a criticism of them; it would move in a vicious circle. It is to avoid that circle that we have divided the (primary productive) process in terms of determinate point-to-point, point-to- indeterminate-line and point-to- indeterminate-surface and higher correspondences. [CWL 15, 28]

To resume the argument, deduction and prediction in the general case are impossible. They are impossible for man’s limited understanding, because limited understanding could master the manifold of concrete patterns of diverging series of scattering conditions, only if that manifold could be systematized; and it cannot be systematized. CWL 3, 651

Objective process is not the realization of some blueprint but the cumulation of a conditioned series of things and schemes of recurrence in accord with successive schedules of probabilities. CWL 3, 445/

The economic issue arises in an ecology in which abstract relationships are complemented by concrete probabilities. CWL 15, 89

… even when the laws involved in the process are thoroughly understood, even when current and accurate reports from usually significant centres of information are available, still such slight differences in matters of fact can result in such large differences in the subsequent course of events that deductions have to be restricted to the short run and predictions have to be content with indicating probabilities. So perhaps it is that astronomers can publish exact times of the eclipses of past and future centuries (using “classical laws”) but meteorologists need a constant supply of fresh and accurate information to tell us about tomorrow’s weather. [CWL 3, 51/ ]

Further,

Objective process is not the realization of some blueprint but the cumulation of a conditioned series of things and schemes of recurrence in accord with successive schedules of probabilities. CWL 3, 445/

The economic issue arises in an ecology in which abstract relationships are complemented by concrete probabilities. CWL 15, 89

one is led to think of schemes of recurrence, whose several carriers severally follow their own classical laws, whose assembly follows the probability of their emergence, and whose continued functioning follows the probability of their survival. Such in a nutshell is the evolutionary view that in Insight I sketched out under the name of emergent probability and, earlier in this essay, I have applied to economics. CWL 15, 92-93

analysis may attain its goal without being able to predict, … [CWL 15, 11]

physicists surmount their peculiar difficulty (of having to use reference frames) by expressing their principles and laws in mathematical equations that remain invariant under transformations of frames of reference. [CWL 3, 40/ ]

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 human freedom; 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, ftnt 32, xxxvii]

one is led to think of schemes of recurrence, whose several carriers severally follow their own classical laws, whose assembly follows the probability of their emergence, and whose continued functioning follows the probability of their survival. Such in a nutshell is the evolutionary view that in Insight I sketched out under the name of emergent probability and, earlier in this essay, I have applied to economics. CWL 15, 92-93

The economic issue arises in an ecology in which abstract relationships are complemented by concrete probabilities. (CWL 15, 89)

.7. Would it be helpful if students were skeptical about the practical applicability of price theory?

the lack of ultimacy that Lonergan ascribes to prices and price theory can scarcely be overemphasized. (CWL 15, Editors’ Introduction, xlvi-xlvi)

More fully:

Lonergan insists that the mechanism of the pricing system does not furnish economists with distinctions among significant variables of aggregate surplus (or producer-goods) and basic (or consumer-goods) supply and demand with their determinate yet flexible velocities and accelerations, any more than Galileo Galilei’s discrete measurements of distances and times at the Tower of Pisa of themselves provided the law of the acceleration of falling bodies…….the lack of ultimacy that Lonergan ascribes to prices and price theory can scarcely be overemphasized. (CWL 15, Editors’ Introduction, xlvi-xlvi)

.8. Would it have been helpful if the readers had been introduced to the general features of explanatory macroeconomics in the 12^th grade – before an indoctrination in the establishment’s Walrasian macrostatics of momentary intersections?

But YES YES I agree that the 17 year olds can get it in a couple of hours: I taught a class in the key points in a school in Australia that way. (Private communication with P. McShane)

M. Leon Walras developed the conception of the markets as exchange equilibria. Concentrate all markets into a single hall. Place entrepreneurs behind a central counter. Let all agents of supply offer their services, and the same individuals, as purchasers, state their demands. Then the function of the entrepreneur is to find the equilibrium between these demands and potential supply. … The conception is exact, but it is not complete. It follows from the idea of exchange, but it does not take into account the phases of the productive rhythms. … Now each phase in an exchange economy will have its exchange equilibrium, but the equilibria of he different phases differ radically from one another. … By this cyclic variation within the exchange equilibria there is effected the ‘curvature of the exchange equations.’ … In the capitalist phase, the secondary rhythms are widening and deepening themselves. … Hence in the capitalist phase the surplus ratio S is increasing. Surplus activity, surplus expenditure, and net surplus income are becoming greater and greater. To make a large profit is, in the general case, not a matter of brilliant enterprise. It is inevitable. …In the materialist phase, the secondary rhythms are widening and deepening the primary rhythms. … S is some proper fraction, but it is decreasing. No matter how intelligent and efficient traders may be, S cannot but be decreasing; for with surplus expenditure decreasing, net surplus income cannot but follow suit. … In the static phase, S is zero. The industrial structure is not becoming bigger. In the aggregate, there is no surplus income. When the whole motive force of economic activity is based on the anticipation of profits, this variation in net surplus income will be projected resonantly throughout the whole economic field. The increasing surplus ratio S of the capitalist phase heralds the bright dawn of a boom. The decreasing surplus ratio of the materialist phase overclouds the heavens and foretells a hurricane. The zero surplus ratio of the static phase is the most incomprehensible of mysteries, for what can be done when there is no net surplus income? (CWL 21, 51)

Concomitance is, I would claim, the key word in Lonergan’s economic thinking. (Philip McShane, Fusion 1, p. 4, ftnt 10]

The concomitance of outlay and expenditure follows from the interaction of supply and demand. The concomitance of income with outlay and expenditure is identical with the adjustment of the rate of saving to the requirements of the productive process. (CWL 15, 144) See (CWL 15, 108-9, and 156-60)

.10. Would it be helpful for the bright first-year students to postulate the normative macroeconomic interest rate as approximately equal to the anticipated macroeconomic growth rate in a system in financial equilibrium?

(Quote Burley)

(Quote Kemeny’s Axiom)

.11. Would it be helpful if readers understood that inflation is a swindle?

It is now necessary to state the necessary and sufficient condition of constancy or variation in the exchange value of the dummy. To this end we compare two flows of the circulation: the real flow of property, goods, and services, and the dummy flow being given and taken in exchange for the real flow….Accordingly, the necessary and sufficient condition of constant value in the dummy lies in its concomitant variation with the real flow. (CWL 21, 38-39)

… the dummy must be constant in exchange value, so that equal quantities continue to exchange, in the general case, for equal quantities of goods and services. The alternative to constant value in the dummy is the alternative of inflation and deflation. Of these famous twins, inflation swindles those with cash to enrich those with property or debts, while deflation swindles those with property or debts to enrich those with cash; in addition to the swindle each of these twins has his own way of torturing the dynamic flows; deflation gives producers a steady stream of losses; inflation yields a steady stream of gains to give production a drug-like stimulus. [CWL 21, 37-38]

DP’ and DP” simply indicate what might be described metaphorically as the inertia of the quantity process of goods and services in its response to acceleration initiated in the circulatory process of payments. Rapid increases or decreases in the (monetary) circulatory process have not a proportionate effect in the (production) quantity process but are in part absorbed by positive or negative price increments. Thus booms are notoriously inflationary and slumps deflationary. Hence DP’ and DP” are best taken as indices of divergence between circulatory and quantity phases. (CWL 21, 134)

.12. Would it be helpful to inform the students that, in the misfortune of magnitudes and frequencies of actual product flows being non-correlated divergent from the magnitudes and frequencies of the normative flows of the equilibrated process, there is a systematic exigence for a correction, and there is a corrective adjustment that is prior to and more effective than the manipulation of interest rates?

The purpose of this section is to inquire into the manner in which the rate of saving W is adjusted to the phases of the pure cycle of the productive process. Traditional theory looked to (manipulating) interest rates to provide suitable adjustment. In the main we shall be concerned with factors that are prior to changing interest rates and more effective. ¶The simplest manner of attaining a fairly adequate concept of basic income is to divide the economic community into an extremely large number of groups of practically equal income. … In any group i let there be at any given time n_i members; let each member receive an aggregate (basic and surplus) income y_i per interval, so that the whole group receives n_iy_i; finally, let us say that the group directs the fraction w_i of its total income to the basic demand function, so that basic income per interval is given by the equation

I’ = Σw_in_iy_i

… and so one obtains for the increment per interval of basic income the simpler equation

δI’ = Σ (w_iδn_i + n_iδw_i)y_i ^{Ftnt 189}

where n_i includes the adjustment due to migration. We shall consider in turn variations in basic income in virtue of δn_i and variations in virtue of δw_i .… Hence, in migrations from low to less-low income groups, most of the increment of individual total income becomes an increment of basic income; but in migrations from high to still higher income groups, most of the increment of individual total income becomes an increment of surplus income. Evidently, then, suitable migrations are a means of providing adjustments in the community’s rate of saving. To increase the rate of saving, increase the income of the rich; while they may be too distant from the current operations of the economic process to judge, at least they can put their money into the bank or bonds or stocks, and perhaps others there will see how it can best be used. To decrease the rate of saving, increase the income of the poor. … The foregoing is the fundamental mode of adjusting the rate of saving to the phases of the productive cycle. …(and) this fundamental mode of adjustment is complemented by a further mechanism of automatic correction. (price changes) (CWL 15, 133-134)

The traditional doctrine of thrift and enterprise looked to the supply of and demand for money to adjust interest rates and the adjusted rates to adjust the rate of saving to the requirements of the productive process. But it can be argued that a) this view was not sufficiently nuanced in its estimate of the requirements of the productive process, b) that it missed the magnitude of the problem, and c) that it tended to lump together quite different requirements. … [CWL 15, 140, ftnt. 197]

The difficulty with (traditional) theory is that a.) it lumps together a number of quite different things and b.) it overlooks the order of magnitude of the fundamental problem… [CWL 15, 141-144]

However, the following conclusions seem justified. When the rate of saving is insufficient, increasing interest rates effect an adjustment. This adjustment is not an adjustment of the rate of saving to the productive process but of the productive process to the rate of saving; for small increments in interest rates tend to eliminate all long-term elements in the expansion; and such small increments necessarily precede the preposterously large increments needed to effect the required negative values of dw_i. Finally, the adjustment is delayed, and it does not deserve the name of adjustment. It is delayed because the influence of increasing interest rates on short-term enterprise is small. It does not deserve the name ‘adjustment’ because its effect is not to keep the rate of saving and the productive process in harmony as the expansion continues but simply to end the expansion by eliminating its long-term elements. (CWL 15, 143-44)

.13. Would it be helpful if the moderator were to advise the psychologically left-leaning students to read on this website a) “Bernard Lonergan: Marx and Liberty; Relevant to Issues of Today,” b) “A Gathering of Entries re Marxism,” c) “The Labor Theory of Value Debunked,” and d) “Debunking Marx’s Exploitation?”

The helplessness of tolerance to provide coherent solutions to social problems called forth the totalitarian who takes the narrow and complacent practicality of common sense and elevates it to the role of a complete and exclusive viewpoint. On the totalitarian view, every type of intellectual dependence whether personal, cultural, scientific, philosophic, or religious, has no better basis than non-conscious myth. The time has come for the non-conscious myth that will secure man’s total subordination to the requirements of reality. Reality (for the totalitarian) is the economic development, the military equipment, and the political dominance of the all-inclusive State. Its ends justify all means. Its means include not merely every technique of indoctrination and propaganda, .. but also the terrorism of a political police, of prisons and torture, of concentration camps, of transported and extirpated minorities, and of total war. [CWL 3, 231-32/256-57]

Click on URLs below. Titles are easily detected in the URL.

https://functionalmacroeconomics.com/table-of-contents/lonergan-marx-and-liberty/

https://functionalmacroeconomics.com/2023/05/01/a-gathering-of-entries-re-marxism/

https://functionalmacroeconomics.com/2021/04/27/the-labor-theory-of-value-debunked/

https://functionalmacroeconomics.com/2021/12/26/debunking-marxs-exploitation-the-iron-law-of-consumer-expenditures-cwl-15-footnote-34-cwl-21-ftnt-14-editors-intro-and-87/

https://functionalmacroeconomics.com/2021/01/10/amust-read-fred-lawrence-money-institutions-and-the-human-good-a-perspective-on-social-and-economic-values/

https://functionalmacroeconomics.com/an-outline-of-general-values-and-moneys-values/

.14. Would it be helpful if the participants gleaned from their readings and discussions an understanding of Piketty’s plight?

We are at the heart of Piketty’s plight: he has no clue of the needed grip on the grounds of the inequality in history. So, what else can he offer but a centralist solution, taxation, to history’s drunken careening. (McShane, Philip, Picketty’s Plight, 53)

Today, for instance, I heard Paul Krugman speak of Piketty … as giving rise to a “unified field theory.” A video recording is available on You Tube at https://www.youtube.com/watch?v=heOVJM2JZxI Wow! LOL: as I listened, I could not but think of what I had written below, on the next page here: “their efforts do not escape the category of statistically-infested journalism.” [McShane, 2014, 65 ftnt 99]

Editors’ Introduction, Frederick G. Lawrence ; xxv-lxxii

Lonergan’s Entry into Economics, 1930-1944 / xxvi
Democratic Economics: An Alternative to Liberalism and Socialism / xxxii
1. Liberalism and Socialism as Economistic Ideologies / xxxv
2. Free Enterprise as an Educational Project
Lonergan’s Reentry into Economics, 1978-1983 / xxxix
Lonergan’s Interlocutors in Economics / xliii
1. 1. Lonergan and Marx / xlvi
  2. Lonergan and Marshall / xlvii
  3. Lonergan and Keynes / xlviii
  4. Lonergan, Kalecki, and Others / li
  5. Lonergan and Schumpeter / li
Macroeconomic Dynamic Analysis as a New Paradigm of Economic Theory / liv
The Systematic Significance of the Fundamental distinction between Basic and Surplus Production and Exchange
1. 1. Profit / lxiii
  2. Interest / lxvii
  3. Lonergan’s Critique of ‘Supply-Side’ and ‘Demand-Side’ Economics / lxvii
Lonergan’s Critique of Secularist Ideologies: The Need for a Theological Viewpoint / lxix

The old political economists were champions of democracy; and if the content of their thought has been found inadequate, its democratic form is as valid today as ever. That form consisted in the discovery of an economic mechanism and in the deduction of rules to guide men in the use of the economic machine, a rule of laissez faire for governments and a rule of thrift and enterprise for individuals … it is still insufficiently grasped that new and more satisfactory rules have to be devised. Without them human liberty will perish. For either men learn rules to guide them individually in the use of the economic machine, or else they surrender their liberty to be ruled along with the machine and a central planning Board …the one issue is the locus of control. Is it to be absolutist from above downwards? Is it to be democratic only in the measure in which economic science succeeds in uttering not counsel to rulers but precepts to mankind, not specific remedies and plans to increase the power of bureaucracies, but universal laws which men themselves administrate in the personal conduct of their lives. [CWL 15, Editors’ Introduction, lxxi]

.16. Would it be helpful if the first-year budding economists exercised some introspection and gave some thought to the biases operative in efficient-causal human participants?

Individual bias (p. 218 ff./)
Group bias (p. 222 ff./) (Tribal bias?)
General bias (p. 225ff./),

and could exercise some psychoanalysis to analyze whether authors are doing explanatory science or merely expressing a psychopolitics grounded in their wounded sensibilities – or, in the case of present-day commentators, saying for a paycheck or for a political party, what they do not believe in their mind and feel in heart?

The excellence of the exchange solution becomes even more evident when contrasted with the defects of a bureaucratic solution. The bureaucrat … (gives the people) what he thinks is good for them, and he gives it in the measure he finds possible or convenient; nor can he do otherwise, for the brains of a bureaucrat are not equal to the task of thinking of everything; only the brains of all men together can even approximate to that. … when a limited liability company has served its day, it goes to bankruptcy court; but when bureaucrats take over power, they intend to stay. … when the pressure of terrorism is needed to oil the wheels of enterprise, then the immediate effect is either an explosion or else servile degeneracy. … the exchange solution is a dynamic equilibrium resting on the equilibria of markets. … every product of the exchange economy must mate through exchange with some other product, and the ratio in which the two mate is the exchange value. The generality of this equilibrium makes it indifferent to endless complexity and endless change; for it stands on a level above all particular products and all particular modes of production. While these multiply and vary indefinitely, the general equilibrium of the exchange process continues to answer with precision the complex question, Who, among millions of persons, does what, among millions of tasks, in return for which, among millions of rewards? Nor is the dynamic solution unaccompanied by a continuous stimulus to better efforts and more delicate ingenuity. For the uniformity of prices means that the least efficient of those actually producing will at least subsist, while every step above the minimum efficiency yields a proportionately greater return. CWL 21, 34-35)

.17. Again, would it be helpful to distinguish between Walrasian, efficient-causal macrostatics and Purely relational macroeconomic field theory?

M. Leon Walras developed the conception of the markets as exchange equilibria. Concentrate all markets into a single hall. Place entrepreneurs behind a central counter. Let all agents of supply offer their services, and the same individuals, as purchasers, state their demands. Then the function of the entrepreneur is to find the equilibrium between these demands and potential supply. … The conception is exact, but it is not complete. It follows from the idea of exchange, but it does not take into account the phases of the productive rhythms. … Now each phase in an exchange economy will have its exchange equilibrium, but the equilibria of he different phases differ radically from one another. … By this cyclic variation within the exchange equilibria there is effected the ‘curvature of the exchange equations.’ … In the capitalist phase, the secondary rhythms are widening and deepening themselves. … Hence in the capitalist phase the surplus ratio S is increasing. Surplus activity, surplus expenditure, and net surplus income are becoming greater and greater. To make a large profit is, in the general case, not a matter of brilliant enterprise. It is inevitable. …In the materialist phase, the secondary rhythms are widening and deepening the primary rhythms. … S is some proper fraction, but it is decreasing. No matter how intelligent and efficient traders may be, S cannot but be decreasing; for with surplus expenditure decreasing, net surplus income cannot but follow suit. … In the static phase. S is zero. The industrial structure is not becoming bigger. In the aggregate, there is no surplus income. When the whole motive force of economic activity is based on the anticipation of profits, this variation in net surplus income will be projected resonantly throughout the whole economic field. The increasing surplus ratio S of the capitalist phase heralds the bright dawn of a boom. The decreasing surplus ratio of the materialist phase overclouds the heavens and foretells a hurricane. The zero surplus ratio of the static phase is the most incomprehensible of mysteries, for what can be done when there is no net surplus income? (CWL 21, 51)

.18. Would it be helpful if the readers could define, compare and contrast equity, equality, and the value of contribution?

A rigidly egalitarian system belongs to a perfectly egalitarian world; (but) a world in which men are, in fact, unequal must find a different system. What system? If the idealism is sentiment without intelligence, it is as likely as not to mate with the underground cynicism of the revolutionaries to foist upon us a dictatorship of the proletariat in which the proletariat does not dictate, a dictatorship of the Herrenvolk in which the Volk obeys the Fuhrer. But if that idealism can be brought too learn the discipline of logic and of scientific reflection, then it will impose a generalization of the exchange economy. To determine the nature of such a generalization is the aim of this inquiry; but at once this is at least evident. The vast forces of human benevolence can no longer be left to tumble down the Niagara of fine sentiments and noble dreams. They have to be assigned a function and harnessed within the exchange system, for in no other way can that system shake off its fictitious fetters to move consistently towards its maximum. [CWL 21, 36]

From the viewpoint of intelligence, the satisfactions allotted to individuals are to be measured by the ingenuity and diligence of each in contributing to the satisfactions of all; from the same high viewpoint the desires of each are to be regarded quite coolly as the motive power that keeps the social system functioning. [CWL 3, “The Tension of Community” 214-16/239-42]

The idea of engineering human welfare is repugnant to Lonergan, for ‘managing people is not treating them as persons. To treat them as persons one must know and one must invite them to know.’ Making the survival of democracy possible by ‘effectively augmenting the enlightenment of … enlightened self-interest’ cannot be identified merely with the Enlightenment’s project of steering public opinion from unenlightened to enlightened self-interest. Instead, Lonergan envisaged a vast and long-term educational effort. He insisted that rational control of the economy ‘can be democratic only in the measure in which economic science succeeds in uttering not counsel to rulers but precepts to mankind, not specific remedies and plans to increase the power of bureaucracies, but universal laws which men themselves administrate in the personal conduct of their lives.’ [CWL 15, Editors’ Introduction, lxxi]

.19. Would it be helpful if the readers could understand the present wage-price spiral in terms of the adjustment required by an erroneous superposed circuit of flows?

There are sets of phenomena, notably the favorable and unfavorable balances of foreign trade, deficit government spending, and the payment of public debts by taxation, that are analogous to the phenomena of the trade cycle (of boom and slump) – (as contrasted) with the pure cycle of expansion in which there is no neeed for contraction and layoffs. It is proposed to deal with them under the general title of ‘superposed circuits.’ (CWL 15, 162-63) (Click here) (Also see CWL 15, pp. 162-77)

Lonergan identifies a pure cycle of expansion and contrasts it with the deviant trade cycle of boom and slump. (Click here)

With reference to the double-circuited, credit-centered pattern of Outlays, Incomes, and Expenditures in the Diagram of Rates of Flow repeated below: We quote:

A condition of circuit acceleration was seen in Section 15 to include the keeping in step of basic outlay, basic income, and basic expenditure, and on the other hand, the keeping in step of surplus outlay, surplus income, and surplus expenditure. Any of these rates may begin to vary independently of the others, and adjustment of the others may lag. But any systematic divergence brings automatic correctives to work. (CWL 15, 144)