Why Macroeconomists Don’t Flock to Functional Macroeconomic Dynamics

This section is arranged into a few lists followed by excerpts relevant to the claims in the lists. The lists are of reasons why Functional Macroeconomic Dynamics has not yet received from economists the interest which it merits and which the broader public deserves.

Economists don’t have the methodological and conceptual toolkit needed for appreciation of FMD’s scientific and historical significance.

  • They don’t know what they don’t know.
    • They’re not methodologists and don’t know what constitutes good theory.
    • They never read CWL 3 pages 3-172 and 490-97 and, thus, they never studied the canons of empirical method, especially the Canon of Parsimony and the Canon of Complete Explanation; they have no idea of the deficiencies of their method.
  • Thus, they lack a purely scientific and explanatory heuristic.
    • They do not adequately distinguish description vs. explanation.
    • They do not know the type of answer they’re seeking, i.e. their known unknown.
    • They do not put questions in the right order to discover basic terms of scientific significance.
    • They are mired in muddy premises and disorienting assumptions.
    • They are unable to employ a scientific heuristic and method adequate for analysis of a current, purely dynamic process.
    • They don’t understand what constitutes the normative system’s requirement for concomitance, continuity, and equilibrium of flows.
  • They lack a background in theoretical physics. They don’t understand the principles and abstract laws of hydrodynamics, electric circuits, or field theory.  Nor do they understand adequately the idea of continuity and the conditions of equilibrium in macroeconomic dynamics.  They are unaware of the analogies applicable on the basis of isomorphism or similarity to Functional Macroeconomic Dynamics.
  • Notably, they do not properly apply the technique of implicit definition wherein the terms define the relations, the relations define the terms, the terms are thus of scientific significance, and the entire derived superstructure is of scientific and explanatory significance.
  • They don’t understand that the concrete relations of world process, including the economic process, have an abstract primary component and a secondary concrete determination in a non-systematic manifold.
  • They operate at an inadequate level of abstraction.
  • They don’t force themselves to think of an answer in terms of continuous second-order differential equations.
  • They fail to understand the objective economic process as wholly unitary. They fail to see all the concepts of the primary functional relativities as related among themselves in a single act of understanding constituting complete explanation.
  • They are mired in commonsense accounting which they mistake as somehow explanatory.
  • Thus, they miss the idea of explanatory functional relations and can’t detect the scientific significance of a purely functional analysis in which interdependent functions are defined by their relations among themselves.
  • They mistake Walrasian macrostatic analytics as complete, but though exact, it is not complete.
  • They mistake prices as ultimate norms rather than as secondary determinations or boundary values in a non-systematic manifold.
  • They place prices and the change of prices at center stage in their IS-LM, AD-AS, and Phillips Curve college drama.
  • They often mistakenly interpret price changes which are only monetary and absolute as real and relative.
  • They misinterpret the significance of pure surplus income, the monetary equivalent of the new fixed investment of an expansion, functionally related to the rate of new fixed investment
  • They don’t understand the nature of interest rates as merely an internal relationship representing a price of money, which price is ever shifting in an ever shifting manifold.
  • They omit to distinguish the process of an economy’s self-healing from the process of manipulative government intervention and, thus, fail to measure the differential effect of both.
  • They can’t grasp the usefulness of FMD’s scientific explanation to society’s achievement of  the good of order.

 They don’t see any golden opportunity for personal wealth or prestige.

  • A natural psychological bias favoring glory and fame clouds their purpose and obviates a dedicated, coldly-objective search for explanation employing a strictly scientific, dynamic heuristic.
  • Because the world doesn’t know any better and it asks them for, and gives them great rewards for, ever more neo-Keynesianism and neoclassicalism.
  • The world will forever crave more neo-Keynesianism and neoclassicalism.
  • Time is money, and they mistakenly judge that time spent on FMD would be a waste of time and money.Thus they are inclined to ignore and dismiss FMD.
  • FMD’s aggregates of millions of transactions in terms of a few significant explanatory variables is perceived as offering less potential for fame by means of subtle and impressive mathematics in an article in a scholarly journal.

In their naivete, they arbitrarily and prematurely rule Functional Macroeconomic Dynamics out of court in the trial pitting economic isms against one another

  • They fail to scrutinize the Editor’s Introduction of CWL 15. (Fred Lawrence).
  • They naively and mistakenly assume FMD is some wacky opinion rather than pure science providing a more profound point of view and a deeper understanding at a more adequate level of abstraction.
  • Ignoring the historical contributions of clergy scientists and mathematicians (click here and here), they rule CWL 15 out of court as most likely based on a social encyclical rather than as an independent-minded, scientific, explanatory grasp of the dynamics of the economic process.
  • Not familiar with Lonergan’s other work, especially CWL 3, and the learning he brought to the subject of macroeconomics, they do not pause to consider the breadth and depth of the understanding of math, physics, and scientific method he must have brought to macroeconomics.
  • They naively react negatively to the editorial arrangement of the CWL 15 book rather than attend positively to the validity of its arguments and ideas.
  • How dare someone from outside the profession even presume to write something radically different from what all the textbooks contain!

 Fear and dread (applies only to some)

  • They fear of repudiation by sublation of all they have previously espoused.
  • It would be psychologically more satisfying and politically more effective to lob an ad hominem (an old debating trick) at Lonergan than to wrestle with, and attempt to disprove, FMD

Anyway, too busy with work and family

  • They’re just too darn busy
  • Care of their family takes priority
  • There is not even enough time to take care of the responsibilities of work
  • “The inertia coefficient of the human mind is normally rather high.” CWL 21, 8

Relevant Excerpts:

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. … No doubt Keynes was an economist first and a methodologist second … Lonergan, for his part, is perhaps a methodologist first and an economist second, but he was able to push his economic reflections further than Keynes because he had a firmer grasp of the essentials of an effective theory.  … Lonergan’s critique (shows that) … the emphasis shifts … to searching heuristically for the maximum extent of (functional) interconnections and interdependence; and that the variables (of the mechanism) discovered in this way might not resemble very much the objects (or the aggregates) (such as coincidental prices) which, in the first instance, (the non-methodologist) was thinking about.   [Gibbons 1987]

Paraphrasing[CWL 10, 154]   … again, as to the notion of cause, macroeconomists mistakenly conceive of subjective preferences, interest rates, price levels, inflation, or unemployment, as formal causes.  Functional Macroeconomic Dynamics does not consider these notions as primary; it gets along perfectly well without them.  It thinks in terms of a field theory, the set of relationships between interdependent, implicitly defined functional activities.  The field theory of Functional Macroeconomic Dynamics is a set of intelligible functional relations linking functionings which are implicitly defined by the relations themselves; it is a set of relational forms.  The form of any functioning is known through its relations to all other elements.  ….  Field theory is a matter of the immanent intelligibility of the object.

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]

At the root of the depression lies a misinterpretation of the significance of pure surplus income. In fact it is the monetary equivalent of the new fixed investment of an expansion…..our culture can not be accused of mistaken ideas on pure surplus income as it has been defined…; for on that precise topic it has no ideas whatever… Thus pure surplus income may be identified best by calling it net aggregate savings and viewing them as functionally related to the rate of new fixed investment [CWL 15, 152-53]

Questions must be put in the right order to get fundamental terms of scientific significance.

Questions cannot be put in any order whatsoever. Some questions simply cannot be answered until others have been resolved.  And sometimes the answers to one question immediately provide the answers to others. [CWL 12, 23]

… the questions are put in such an order that, once the first is solved, the solutions to the others follow with almost no difficulty.  Therefore, because the later solutions are connected to the first as conclusions are connected to some principle, all solutions after the first seem to be the proper province of knowledge. [CWL 12, 25]

… if solving the first problem virtually solves all the others, the concepts and terms in which the first problem and the first solution are defined and expressed cannot be significantly changed if they are to serve to define and express the later problems and solutions. Clearly, then, it is not the arbitrary malice of professors but the interconnected questions and solutions themselves that demand both systematically formed concepts and a technical terminology that corresponds not to any concepts whatsoever but to systematic concepts. [CWL 12, 25]

The macroeconomist, seeking to be scientific, does not know what he does not know.

(The canon of parsimony) forbids the empirical scientist to affirm what, as an empirical scientist, he does not know.  It is difficult inasmuch as knowing exactly what one does not know has been reputed, since the days of Socrates, a rare achievement.. (CWL 3, 78-79/102)

Neo-Kenyesianism and neoclassicalism lack scientific affirmation.

Because, then, verification is essential to his method, the canon of parsimony in its most elementary form excludes from scientific affirmation all statements that are unverified and, still more so, all that are unverifiable. (CWL 3, 79/102)

Today, for instance, I heard Paul Krugman speak of Picketty … 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]

It’s not greed; it’s ignorance.

In equity (the basic expansion following the surplus expansion) should be directed to raising the standard of living of the whole society.  It does not. And the reason why it does not is not the reason on which simple-minded moralists insist.  They blame greed.  But the prime cause is ignorance.  The dynamics of surplus and basic expansion, surplus and basic incomes are not understood, not formulated, not taught….. [CWL 15, 82]

When intelligence is a blank, the first law of nature takes over: self-preservation.  It is not primarily greed but frantic efforts at self-preservation that turn the recession into a depression, and the depression into a crash. [CWL 15, 82]

Lonergan argued that  previous depressions could be understood in terms of a tendency by producer-banker combinations with price fixing powers to hang onto the KNaccumulation profit cum interest rather than raise wages, even after the economy was tooled up to the requirements of the new stationary state.   [Burley and Csapo, 1992-1, 139]

Pure (or explanatory) conjugates, … ,are correlatives defined implicitly by empirically established correlations, functions, laws, theories, systems. (CWL 3, 80/103)

The creative key transition to dynamics focuses attention on second-order differential equations.

Taking into account past and (expected) future values does not constitute the creative key transition to dynamicsThose familiar with elementary statics and dynamics will appreciate the shift in thinking involved in passing from equilibrium analysis…to an analysis where attention is focused on second-order differential equationson d2θ/dt2, d2x/dt2, d2y/dt2, on a range of related forces, central, friction, whatever….. What is significant is the Leibnitz-Newtonian shift of context. [McShane 1980, 127]

Interest is an inner relation representing the opportunity cost to the lender, not an external lever.

The most famous instance of such distraction is John Hicks’ simplistic focus on interest  –  in the financial sense  –  in 1937 which turned Keynes’ effort of 1936 into a simpler business of jollying along with IS/LM curves.  (On debates around the IS/LM muddlings, see my Pastkeynes Pastmodern Economics, 65-69) [McShane 2016, 33]

There was a strong and persistent teaching in the Judeo-Christian tradition, extending from the Old Testament to the Medieval Church, that any taking of interest was usurious, being the getting of something for nothing and therefore illegitimate.  The Section on Circuit Acceleration of Lonergan, however, cites as an obviously progressive development that laws against usury (were) attacked in the ensuing commercial and industrial revolutions!  How are we to understand this contradiction?  The present paper is concerned to answer this question in terms of a von Neumann model representation of the Lonergan production model.  For reasons given by Eichner, whom Lonergan often cited approvingly, we consider the von Neumann representation more parsimonious than the more conventional neoclassical model. [Burley, 2002-2, 61]

We thus have a model for the fluctuations in the interest rate over pure cycles in an intermittently innovation economy, which has mastered the distribution of surpluses to consumption when it has temporarily run out of ideas for innovative investment.  In the upswings there is a general opportunity cost of lending corresponding to the interest one could have got lending to any innovator … an example of what the later scholastic doctors would have called lucrum cessans and in our circumstances of a general expansion would have considered a justification for interest. [Burley, 2002-2, 66]

re Max Planck on obscurantist professors: … the obscurantist, the obtuse, and the merely routine mind may be expected always to be with us.  But however exasperating such minds may be in the short run, in the long run they are negligible; they can block but they cannot initiate; they can manipulate pressures but they cannot lead; and if they denounce you as a fool in your life-time, their sons will mistake you for a genius when you are dead.  Forthey are indifferent to truth and falsity; they are concerned only with the familiar, which they strive to maintain, and with the unfamiliar, which they strive to oppose … people that cannot be persuaded by the suddenness of intelligence and reason, are easily convinced by the slow but inevitable gradualness of time.  So it is in the sciences.  For scientific method does not succeed in teaching old dogs new tricks.  As Max Planck testified, a new scientific position gains general acceptance, not by making opponents change their minds, but by holding its own until old age has retired them from their professorial chairs. [CWL 3, 525-26/549]; and [ M. Planck, Scientific Autobiography and Other Papers; E.T. by F. Gaynor; New York 1949, p. 33 f]

Lister’s discovery, one of the most important advances in medical history, was lightly dismissed. … Although the men listened politely, very few of them believed what Lister was telling them, and almost none of them seriously considered putting his theory into practice..   Lister knew, however, that the difference between his method and the old method was nothing less than the difference between life and death. … Although the results were dramatic – the death rate among Lister’s surgical patients immediately plummeted – antisepsis had provoked reaction of deep skepticism, even fury. … By 1876, Lister’s steady and astonishing success had silenced nearly all of his detractors at home and in Europe.  The United States, however, remained inexplicably resistant.  The dangers Lister described … could not be seen by the naked eye, and many of the doctors in the audience still did not believe they existed. … If the scientific evidence he presented was not enough, he would appeal to something more powerful than logic: vanity.  Candice Millard: Destiny of the Republic (Doubleday, New York, 2011) pp. 14-16

I recall managing to persuade the chair of a non-English speaking economics department of the global error of the department’s ways.  “But what can I do?” was his honest answer.  The department continues to shovel shite at silenced students. (McShane 2017, vii)  … At the moment I am thinking of the helplessness of students, e.g. suffering silently through talk of marginal analysis and IS-LM curves. On the muddles of IS-lM analysis see Philip McShane, Pastkeynes Past Modern Economics:  A Fresh Pragmatism (Halifax: Axial Press, 2002) 67-69.  (McShane 2017, vii, ftnt 19)

Re the basic price-spread ratio and the interpretation of prices in the light of significant variables: P’/p’ = a’ + a”(p”Q”)/p’Q’;     J = a’ + a”R;     dJ = da’ + a”dR + Rda”

This boom suffers no restrictions from a limited potential for short-term acceleration since both stages are now expanding in long-term style.  Both acceleration factors can mount to maxima and remain at the summits with da’ and da” both zero.  Further variations of the price spread thus depend exclusively upon dR, and this becomes negative as the surplus expansion gives place to a basic expansion.  When the prices begin to fall to effect the continual reduction of the price spreadthere follows sooner or later the final crash.  Speculative embarrassment makes both da’ and da” negative, to augment the rate of contraction of the price spread and intensify the embarrassment. Assets are frozen and then liquidated in a great drop of prices.  Worse, there is no recovery; for the remainder of the cycle should be a basic expansion which our ill-adapted economies transform into a depression. [CWL 15, 161]

Previously I have suggested a lack of adaptation in the free economies to the requirements of the pure cycle.  What that lack is can now be stated.  It is an inability to distinguish between the significance of a relative and an absolute rise or fall of monetary prices.  A relative (i.e. “real”) rise or fall is, indeed, a signal for a relatively increased or reduced production (of one product relative to another) … Inversely, the rising prices of the surplus expansion are not real and relative but only monetary and absolute rising prices; to allow them to stimulate production is to convert the surplus expansion (of the ideal pure cycle) into a (trade cycle of) boom (which must be followed out of systematic necessity by a correlative and devastating slump).  This I believe is the fundamental lack of adaptation to the productive cycle that our economies have to overcome. [CWL15, 139-140]

The interested reader must read carefully CWL 15’s Editors’ Preface and Introduction, which places Lonergan’s theory in its historical context, and by its comparisons inspires the interested person to advance to an understanding of Functional Macroeconomic Dynamics.  The contents of that Introduction are listed below.  Note in particular the title of Section 5 of the Introduction: Macroeconomic Dynamic Analysis as a New Paradigm of Economic Theory.

Editor’s Preface, Charles C. Hefling, Jr. / xi

Editor’s Introduction, Frederick G. Lawrence / xxv

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

Also, please check the following sections:

New Foundations in 10 Minutes

Pointers and Principles, An Invitation to Minds

Why Analyze the Production Process First

Primary Relativities in the Diagram of Rates of Flow

Images

What Lonergan Brought:

 

Diagram of Rates of Flow 2

Diagram of Rates of Flow