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photo Pierre Whalon; Haiti, March 2010

“To help the poor, study economics”: income inequality, justice, and economic theory

Part 3

In Part 1, I described the current staggering growth of income inequality,[1] and how the forces creating it are also endangering the climate of our island home. Part 2 discussed the failures of economic theories to guide leaders and the rest of us in making not only overall policies but even decisions each of us needs to make financially.

In the introduction to his General Theory, Mr. Keynes considers the objection that only the more intelligent type of expert is able to understand the highly abstract theorems of modern economics. His answer is not altogether satisfactory. He says that if practical men such as politicians and bankers and industrialists do not succeed in grasping the issues, then inevitably they will be eliminated. Undoubtedly they will, but so shall we, for they are our leaders. […] What is needed is a new political economy that is free from the mistakes of the old, a democratic economics that can issue practical imperatives to plain men.[6]

In calling for a “political economy,” Lonergan joined the early theorists like Adam Smith and David Ricardo, who argued for a democratic control for economic structures. Lonergan’s intent is clearly scientific, however: start with the data, ask all relevant questions, and answer them by verification. [7] The difference between a strictly physical science and economics is that the former grows out of sense data, while the latter also adds human meanings.[8]

The facts of the macroeconomy are already well known. What is lacking is a clear and precise understanding of the mechanism behind such obvious facts as expansion and contraction of the economy, employment and unemployment, inflation and deflation, and many other that are just common knowledge.[9]

Unlike those classical political economists, who thought that economies could be shaped to meet the needs of humans, Lonergan proposes to analyze the reality of an economy, which obeys “a pattern of laws that stand to economic activity as the laws of mechanics to buildings and machines.”[10] It is to that reality that human beings must learn to live, in order to meet their essential needs.

Introduction to Circulation analysis

The word “economy” is a compound of the Greek oikos and nomos: “home” and “rule”, literally, or “household management.” Thinkers since Aristotle have placed the primary locus of economic activity in the home, where a family is being or has been formed.[12] We humans bend nature, mold ourselves, and collaborate using our highly developed language in order to provide food, shelter, clothing. The result is “a series of events, a flow of impulses, a compound rhythm, composed of many minor rhythms of varying magnitude and frequency.”

Thus a ton of iron may be employed at any of three levels. Employed at the lowest level, one ton of iron yields one ton of automobile parts or farm implements. Employed at the second level, one ton of iron yields one ton of machinery for making one ton of automobile parts or farm implements or what you please. Employed at the third level, one ton of iron yields one ton of machinery for making the machinery with which automobiles or other implements are made.

Each level accelerates the succeeding level.[13] A concrete example is Elon Musk’s Tesla, Inc., that builds electric cars. They then built with different materials and techniques a first “Gigafactory” to make the batteries these automobiles run on. Now Tesla is building other Gigafactories with yet different materials and techniques.

Written by

Bishop in charge, Convocation of Episcopal Churches in Europe, 2001–2019. French-American. Musician, composer, author, happily married.

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