The economic process always is “the current process” constituted by current interdependent velocitous flows of so-much or so-many every so often.
The productive process is, then, the (current) aggregate of activities proceeding from the potentialities of nature and terminating in a standard of living. Always it is the current process, and so it is distinguished both from the natural resources, which it presupposes, and from the durable effects of past production. [CWL 15, 20]
The goal of scientific analysis is explanation of the objective economic process, i.e. to discover the abstract immanent intelligibility which explains any particular configuration of flows of products and money in any instance. Such immanent intelligibility would be always relevant and universally valid..
Like the oscillation of a simplified pendulum, the elliptical orbit of a planet, the parabolic motion of a projectile, the systematics of the economic process can be understood by a set of coherent equations, whose abstract, purely-relational formalism is universally valid and thus applicable in any particular instance. The explanation would consist of a combination of primary abstract relations applicable to any secondary determinations of price and quantity from a non-systematic manifold.
Therefore, the contingent prices and quantities of the macrostatic IS-LM and AD-AS models cannot be the given absolute basis of explanation of a macrodynamic process; they are not the primary given from which all explanation emanates. They are merely secondary determinations from the non-systematic manifold. Contingent prices can be understood only in the light of the primary, abstract, implicitly-defined, interdependent, explanatory variables, whose relations among themselves, as interdependent velocitous flows, constitute a Macroeconomic Field Theory.
… conjugate forms are defined implicitly by their explanatory and empirically verified relations to one another. … , such relations are general laws; they hold in any number of instances; they admit application to the concrete only through the addition of further determinations (such as the coefficients of price and quantity JMC), and such further determinations pertain to a non-systematic manifold. There is then, a primary relativity that is contained in the general law; it is inseparable from its base in the conjugate form which implicitly it defines; and to reach the concrete relation that holds at a given place and time, it is not enough to think about the general law; one has to add further determinations that are contingent from the very fact that they have to be obtained from a non-systematic manifold. CWL 3, 492/ (In addition, read in the entirety CWL 3, 491-6/)
Applying to Functional Macroeconomic Dynamics:
conjugate forms such as basic-income velocity, ordinary surplus-income velocity, and pure-surplus-income velocity are defined implicitly by their explanatory and empirically verified relations to one another. … , such relations are general laws; they hold in any number of instances; they admit application to the concrete only through the addition of further determinations such as the magnitudes of the velocities of explanatory flows; and such further determinations pertain to a non-systematic manifold. There is then, a primary relativity that is contained in the general law relating explanatory conjugates; it is inseparable from its base in the conjugate form which implicitly it defines; and to reach the concrete relation that holds at a given place and time, it is not enough to think about the general law; one has to add further determinations that are contingent from the very fact that they have to be obtained from a non-systematic manifold. CWL 3, 492/ (In addition, read in the entirety (CWL 3, 491-6/)
The immanent intelligibility of Functional Macroeconomic Dynamics is purely relational. It is a field theory. This immanent intelligibility is the “formal cause.” It is not the efficient cause of psychological human agents.
Ought there not to be introduced a technical term to denote this type of intelligibility? … The intelligibility that is neither final nor material nor instrumental nor efficient causality is, of course, formal causality…What we have called the intelligibility immanent in sensible data and residing in the relations of things to one another might be named more briefly formal causality … [CWL 3, 78/101-102]
The economic process is characterized by solidarity of all elements among themselves in any and every instance. In addition to the conjugate forms of flows of incomes and expenditures, “solidary” is concerned with aspects such as:
- precise analytic distinctions between current point-to-point and current point-to-line activities from which can be deduced a superstructure forming a completely explanatory theory
- explanatory conjugates implicitly defined by the interrelations in which they stand in interdependence with one another
- circulations solidary with one another
- concomitance of actual productive and monetary elements of supply and demand within a circuit
- equilibrium of crossover payments between circuits
- credit to bridge the gap in time between payments made now and payments to be received in the future, and thus to ensure entire nowness of what is always the current process
- an ideal pure cycle of expansion for which the system has systematic exigence
The immanent intelligibility of the objective economic process can be represented by a diagram and, then, grasped in a unified whole.
Moreover, once initial difficulties are overcome and basic insights are reached, the investigation approaches a supreme moment when all data suddenly fall into a single perspective, … . (CWL 3, 47/71)
This immanent intelligibility must be understood, formulated, and taught; and its principles, laws, and norms must be honored by implementation. Because academe, the Fed, the Bureau of Economic Analysis, and Wall Street have not yet included Functional Macroeconomic Dynamics in their analyses, the public and the good of order desperately need the influential contributions of academics and control theorists.
An explanatory dynamical theory of the organic economic process yields norms and precepts for adaptation by participants. But norms can be violated so as to require systematic correction. Thus the dynamic system of interdependent velocities must be monitored; and information feedback and proper adjustments must be applied. A proper control theory for the dynamic process must be grasped and then applied as continuously as practically possible.
In general, control theory deals with systems, resembling in some respects, biological organisms which consist or aggregates of feedback circuits to maintain homeostasis. The fluid-dynamics process, as always the current process, must, by current measurement, analysis, feedback, and control, be kept “continuous”.
An initial and provisional theorem of continuity was enounced in a preceding chapter (§24). Now it may be indicated in its full generality. ¶ The analysis has revealed that the economic system is a pattern of aggregate dynamic relationships arranged in different kinds of velocity and accelerator rhythms. In the real order there are the primary and secondary rhythms, with the former accelerated by the latter. In the monetary order there are the rhythms of excess release from the redistributional area to the primary and secondary rhythms; and again, the latter accelerate the former. ¶ Now the general theorem of continuity is that this complex machine has a nature that must be respected, … all (elements) form part of an organic whole; to violate this organic interconnection is simply to smash the organism, to create the paradoxical situation of starvation in the midst of plenty, of workers eager for work and capable of finding none, of investors looking for opportunities to invest and being given no outlet, and of everyone’s inability to do what he wishes to do being the cause of everyone’s inability to remedy the situation. Such is disorganization. Continuity, on the other hand, is the maintenance of organization, the stability of the sets and patterns of dynamic relationships that constitute economic well-being in a society. ¶ While the provisional theorem of continuity (§24) did regard the static phase, it is important to observe that the general theorem regards any phase. There is a general historical movement of ideas, opportunities, and decisions integrating into that major rhythm in which transformations are followed by exploitations only to bring forth new and deeper transformations. Within this broad historical scheme of things, the role of any age, and still more of any country, is but a small thing: the past was settled by our forebears, and the future will be in the hands of posterity; only the present is ours, and it is only within the limits that we make of the present what we wish. Our starting point is already determinate: we have to face things as they are; we may never lose sight of them or attempt to reckon without them. But not only is there ever a broad and unalterable datum of things as they are; there are also the limitations which this datum imposes on things as we are going to make them. ¶ The theorem of continuity is the abstract and formal aspect of such limitations in the economic order. At the moment the exchange process is static or expanding or contracting. We may like it so or we may wish it different. But in any case there is some determinate range of values of the multipliers and of the monetary accelerators – of C’, C”, T’, T”, G’, G”, of DC’, DC”, DT’, DT” – that corresponds with such a decision. Moreover there has to be an internal coherence between these values, and to violate this coherence is to rout economic organization. Just as the movements of the controls of an airplane must be coordinated and all coordinations are not possible at all instants, so also the economic machine has its controls, which can be moved only in concert and only in a limited number of ways at any given time. ¶ Such is the general theorem of continuity. In the abstract and in a general way, it affirms that the economic process can proceed only within the limits of equilibrium of the various phases. To step outside them is to bring about a general breakdown. (CWL 21 73-5)
The fluid-dynamics process, as always the current process, must, by current measurement, analysis, feedback, and control, be kept “continuous”.
An initial and provisional theorem of continuity was enounced in a preceding chapter (§24). Now it may be indicated in its full generality. ¶ The analysis has revealed that the economic system is a pattern of aggregate dynamic relationships arranged in different kinds of velocity and accelerator rhythms. In the real order there are the primary and secondary rhythms, with the former accelerated by the latter. In the monetary order there are the rhythms of excess release from the redistributional area to the primary and secondary rhythms; and again, the latter accelerate the former. ¶ Now the general theorem of continuity is that this complex machine has a nature that must be respected, … all (elements) form part of an organic whole; to violate this organic interconnection is simply to smash the organism, to create the paradoxical situation of starvation in the midst of plenty, of workers eager for work and capable of finding none, of investors looking for opportunities to invest and being given no outlet, and of everyone’s inability to do what he wishes to do being the cause of everyone’s inability to remedy the situation. Such is disorganization. Continuity, on the other hand, is the maintenance of organization, the stability of the sets and patterns of dynamic relationships that constitute economic well-being in a society. ¶ While the provisional theorem of continuity (§24) did regard the static phase, it is important to observe that the general theorem regards any phase. There is a general historical movement of ideas, opportunities, and decisions integrating into that major rhythm in which transformations are followed by exploitations only to bring forth new and deeper transformations. Within this broad historical scheme of things, the role of any age, and still more of any country, is but a small thing: the past was settled by our forebears, and the future will be in the hands of posterity; only the present is ours, and it is only within the limits that we make of the present what we wish. Our starting point is already determinate: we have to face things as they are; we may never lose sight of them or attempt to reckon without them. But not only is there ever a broad and unalterable datum of things as they are; there are also the limitations which this datum imposes on things as we are going to make them. ¶ The theorem of continuity is the abstract and formal aspect of such limitations in the economic order. At the moment the exchange process is static or expanding or contracting. We may like it so or we may wish it different. But in any case there is some determinate range of values of the multipliers and of the monetary accelerators – of C’, C”, T’, T”, G’, G”, of DC’, DC”, DT’, DT” – that corresponds with such a decision. Moreover there has to be an internal coherence between these values, and to violate this coherence is to rout economic organization. Just as the movements of the controls of an airplane must be coordinated and all coordinations are not possible at all instants, so also the economic machine has its controls, which can be moved only in concert and only in a limited number of ways at any given time. ¶ Such is the general theorem of continuity. In the abstract and in a general way, it affirms that the economic process can proceed only within the limits of equilibrium of the various phases. To step outside them is to bring about a general breakdown. (CWL 21 73-5)
On can notice a fascinating resemblance between Lonergan’s study of an organism as detailed in CWL 3 and his study of the organic economic process.
Study of an organism begins with the thing-for-us, from the organism as exhibited to our senses. A first step is a descriptive differentiation of different parts and, since most of the parts are inside, this descriptive preliminary necessitates dissection or anatomy. A second step consists in the accumulation of insights that relate the described parts to organic events, occurrences, operations. By these insights, the parts become known as organs, and the further knowledge, constituted by the insights, is a grasp of the intelligibilities that
- 1.) are immanent in the several parts
- 2.) refer each part to what it can do and, under determinable conditions will do, and
- 3.) relate the capacity-for-performance of each part to the capacities-for- performance of the other parts.
So physiology follows anatomy. A third step is to effect the transition from the thing-for-us to the thing-itself, from the insights that grasp described parts as organs to insights that grasp conjugate forms systematizing otherwise coincidental manifolds of chemical and physical processes. By this transition, one links physiology with biochemistry and biophysics. To this end, there have to be invented appropriate symbolic images of the relevant chemical and physical processes; in these images there have to be grasped by insight the laws of the higher system that account for the regularities beyond the range of physical and chemical explanation; from these laws there has to be constructed the flexible circle of schemes of recurrence in which the organism functions; finally, this flexible circle of schemes must be coincident with the related set of capacities-for-performance that previously was grasped in sensible presented organs. ¶ The foregoing three steps of anatomy, physiology, and their transposition to the thing itself reveal one aspect of the organism as higher system in an underlying manifold of cells, chemical processes, and physical changes. Let us name that aspect the higher system as integrator. [CWL 3, 464/489]
First the intelligibility of the organic system must be properly understood. Only then can the control theorist, like the medical doctor, determine what feedback and control mechanisms must be designed and applied to control the sickness. To my knowledge, work in control theory in economics has been based upon the typical textbook IS-LM and AD-AS models and on the Phillips Curve correlation, which is bogus. Thus, in the light of all we’ve said about textbook, establishment economics and its models and correlation, control theory has been of practically no use. Control theorists have been of little help to the Fed, the Bureau of Economic Analysis, and Congress thus far. The theorists must base their designs for control on the systematics of Macroeconomic Field Theory.
System dynamicists have worked with a typical textbook single-circuit system and have missed Lonergan’s simple move to two, or more, interacting circuits. (Click here and here and here) (Note to System Dynamicists)
The productive process is, then, the (current) aggregate of activities proceeding from the potentialities of nature and terminating in a standard of living. Always it is the current process, and so it is distinguished both from the natural resources, which it presupposes, and from the durable effects of past production. [CWL 15, 20]
The economic process always is the current process, and, as a process of velocities, it is a purely dynamic process; its explanation constitutes a field theory. The interdependent pretio-quantital terms may change in magnitude, but the relations among these magnitudes do not change. And, since the economic process is a dynamic process of a-so-much or a-so-many every so often, the explanation must involve differentials or difference-differentials of velocity and acceleration. The process always is a unified, organic, whole, process of current circulations, obviously different from, nevertheless suggesting a crude similarity to a fluid-dynamic circulation or circulations within the human body.
Thus the productive process is a purely dynamic entity. We began by saying how broadly the term was to be taken. But it is also necessary to insist how narrowly. It is not wealth, but wealth in process. … It is none of its own effects, if by effects are understood what has been completed. It is neither the existence nor the use of durable consumer goods, of clothing, houses, furnishings, domestic utensils, personal belongings, or indeed any item of private or public property that can be listed as a consumer good and has passed beyond the process to become an element of the community’s standard of living. On the other hand, with regard to producer goods a distinction has to be drawn: they are in the process as a means of production; they are in the process in the sense that labor is in the process or that management is in the process, namely, their use forms part of the process; but once they are completed they are no longer under process, any more than labor or management is under process and being produced. … factories and machinery, railways and power units, warehouses and offices are in the productive process only while being produced; once they are produced, they themselves have passed beyond the process to enter the category of static wealth, even though their use remains a factor of production.(CWL 15, 21-22)
The perspective is that of a system of interdependent circulations of functionally interrelated elements. There are interdependencies among the elements; and these interdependencies constitute conditionings. The circulations are pretio-quantital circulations of goods and services valued in so many units of dummy money. The economic process is intrinsically a process of value; i.e. a process of flows of goods and services exchanged at a value.
Explanatory terms are implicitly defined by the functional relations in which they stand with one another. They mutually define and condition one another.
Let us say, then, that for every basic insight there is a circle of terms and relations, such that the terms fix the relations, the relations fix the terms, and the insight fixes both. If one grasps the necessary and sufficient conditions for the perfect roundness of this imagined plane curve, then one grasps not only the circle but also the point, the line, the circumference, the radii, the plane, and equality. All the concepts tumble out together, because all are needed to express adequately a single insight. All are coherent, for coherence basically means that all hang together from a single insight. [CWL 3, 12/36]
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.” [Gibbons, 1987, 313]
On this (methodological) model (i.e. employing the technique of implicit definition) circulation analysis raises a large superstructure of terms and theorems upon a summary classification and a few brief analyses of typical phenomena. Classes of payments quickly become rates of payment standing in the mutual conditioning of a circulation; to this mutual and, so to speak, internal conditioning there is added the external 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 by productive rhythms of goods and services………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… (CWL 15, 18)
The correlations that explain the objective economic process are patterns of laws which must be honored.
Our immediate task is to work out the correlations that exist between the velocity and accelerator rhythms of production and the corresponding rhythms of income and expenditure. The set of such correlations constitutes the mechanical structure, a pattern of laws that stand to economic activity as the laws of mechanics to buildings and machines. [CWL 21, 43]
… the heuristic assumptions of science anticipate the determination of natures that always act in the same fashion under similar circumstances, and as well the determinations of ideal norms of probability from which events diverge only in a non-systematic manner. Though the scientist is aware that he will reach these determinations only through a series of approximations, still he also knows that even approximate determinations must have the logical properties of abstract truth. Terms, then, must be defined unambiguously, and they must always be employed exactly in that unambiguous meaning. (CWL 3, 175-76 /199)
(Types of functional) 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]
The whole structure is relational: one cannot conceive the terms without the relations nor the relations without the terms. Both terms and relations constitute a basic framework to be filled out, first, by the advance of the sciences and, secondly, by full information on concrete situations. [CWL 3, 492/516]
Further:
Balance must be constantly maintained between intercircuit (crossover) monetary flows. One circuit cannot be allowed to rob the other of its monetary demand. The condition of equilibrium is that
G = c”O” – i’O’ = 0 (CWL 15, 49-50)
In brief, crossover balance has to be maintained, and any sustained imbalance will result, in the first instance, in ineffective basic or surplus demand. Further sustained imbalance in either one will lead to its breakdown and, as the two are solidary, to the breakdown of the other as well. (CWL 15, 129)
Since the process is a dynamic process, it is imperative that the macroeconomist appreciate and implement a shift of context to Leibnitz-Newtonian differentials.
Those familiar with elementary statics and dynamics (in physical mechanics) will appreciate the shift in thinking involved in passing from (static) equilibrium analysis (of for example a suspended weight or a steel bridge)… to an analysis where attention is focused on second-order differential equations, on d2θ/dt2, d2x/dt2, d2y/dt2, on the primary relativities of a range of related forces, central, friction, whatever. Particular secondary boundary conditions, past and future pricings and quantities, are relatively insignificant for the analysis (of the primary relativity immanent in, and applicable to, every instance of the process). What is significant is the Leibnitz-Newtonian shift of context. [McShane, 1980, 127]
The economic analysis, like social analysis, must not elevate evil to the status of fact, and thereby, create a situation which is intractable. Academics must understand the process; and the private and government sectors must honor its objective laws. (See Commonsense Economics vs. Scientific Economics)
Now just as sustained attentiveness, insight, reasonableness, and responsibility create a situation ever more in consonance with intelligent advance and ever more responsive to it, so too every bias away from human authenticity brings about a situation ever more inhuman and intractable. It is up to man to be intelligent, act intelligently, and make his situation intelligible. On the other hand, insensitivity, oversights, the blindness of passion, the flimsy excuse, the plausible fallacy, the distortion of compromise, the waywardness of indulgence, all create a human world made in their own image and likeness. … Such is the dialectic of decline. Spontaneously it keeps making things ever worse. … For it gives evil the status of fact. That is the way things are, the way that things are done, the only way that one can live, indeed the way that all successful and respectable people live. (CWL 15, 94)
In the science of economics, as in any science, one must reach unambiguous basic terms upon which can be built a superstructure constituting a completely explanatory theory.
… (Lonergan) approaches the focus armed with precise analytic distinctions upon which a superstructure of laws, coherent with one another and comprising a complete theory, may be constructed. Paraphrasing [CWL 3, 80/103]:
Again,
… the heuristic assumptions of science anticipate the determination of natures that always act in the same fashion under similar circumstances, and as well the determinations of ideal norms of probability from which events diverge only in a non-systematic manner. Though the scientist is aware that he will reach these determinations only through a series of approximations, still he also knows that even approximate determinations must have the logical properties of abstract truth. Terms, then, must be defined unambiguously, and they must always be employed exactly in that unambiguous meaning. (CWL 3, 175-76 /199) (Click here)
The good of order (Click here) (Also in CWL 12, see pp. 491-97):
Thus it is that in the history of human societies there are halcyon periods of easy peace and tranquility that alternate with times of crisis and trouble. In the periods of relaxed tension, the good of order has come to terms with the intersubjective groups. It commands their esteem by its palpable benefits; it has explained its intricate demands in some approximate yet sufficient fashion; it has adapted to its own requirements the play of imagination, the resonance of sentiment, the strength of habit, the ease of familiarity, the impetus of enthusiasm, the power of agreement and consent. Then a man’s interest is in happy coincidence with his work; his country is also his homeland; its ways are the obviously right ways; its glory and peril are his own. (CWL 3, 216/241)
The Necessity of Adaptation for Survival
Unless the participants understand, formulate, communicate, and honor the norms and precepts yielded by the systematics (the immanent intelligibility) of the objective economic process, the process and social order are threatened with breakdown and extinction.
Our aim is to prescind from human psychology that, in the first place, we may define the objective situationwith 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]
Again,
In brief, crossover balance has to be maintained, and any sustained imbalance will result, in the first instance, in ineffective basic or surplus demand. Further sustained imbalance in either one will lead to its breakdown and, as the two are solidary, to the breakdown of the other as well. (CWL 15, 129)
Lonergan’s “Summary of the Argument” (especially items 8 – 11):
The present inquiry is concerned with relations between the productive process and the monetary circulation. It will be shown 1) that the acceleration of the process postulates modifications in the circulation, 2) that there exist ‘systematic,’ as opposed to, windfall profits, 3) that systematic profits increase in the earlier stages of long-term accelerations but revert to zero in later stages – a phenomenon underlying the variations in marginal efficiency of capital of Keynesian General Theory, 4) that the increase and decrease of systematic profits necessitate corresponding changes in subordinate rates of spending – a correlation underlying the significance of the Keynesian propensity to consume, 5) that either or both a favorable balance of trade and domestic deficit spending create another type of systematic profits, 6) that while they last they mitigate the necessity of complete adjustment of the propensity to consume to the accelerations of the process, 7) that they cannot last indefinitely, 8) that the longer they last, the greater the intractability of ultimate problems. From the premises and conclusions of this analysis it will the be argued 9) that prices can not be regarded (by the stewards of the economy) as ultimate norms guiding strategic economic decisions, 10) that the function of prices is merely to provide a mechanism for overcoming the divergence of strategically indifferent decisions or preferences, and 11) that, since not all decisions and preferences possess this indifference, the exchange economy is confronted with the dilemma either of eliminating itself by suppressing the freedom of exchange or of certain classes of exchanges, or else of effectively augmenting the enlightenment of the enlightened self-interest that guides exchanges. [CWL 15, 5-6]