“To help the poor, study economics”: income inequality, justice, and economic theory
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 this Part 3, I will introduce one little-known theory, that of Bernard Lonergan, who proposes a real science of economics, which, he argues, must incorporate a moral perspective if it is to be at maximum efficiency.
“Bernard J.F. Lonergan is considered by many intellectuals to be the finest philosophic thinker of the 20th century.” — Time Magazine, April 20, 1970.
“To help the poor, study economics” is the saying I keep quoting attributed to Lonergan. Best known for works such as Method in Theology, Insight, and Doctrinal Pluralism, it may come as a surprise that Lonergan himself considered his work in economics to be his most important life’s work. In fact, toward the end of his life he taught economics at Boston College.
As a young Jesuit assigned in 1930 to working in Montreal among the new poor created by the Depression (some of whom he knew personally), Lonergan began to study economics, convinced that a general lack of understanding of the laws of economics had precipitated the crisis.[2] Furthermore, without a real science of economics, recessions, depressions, and crashes will continue to occur over and over. His economic work continued over 50 years, ending only shortly before his death in 1984.[3]
As part of an effort to publish the collected works of Lonergan, several of his students gathered and edited his unpublished manuscripts into two works, For a New Political Economy[4] (FNPE) and Macroeconomic Dynamics: An Essay in Circulation Analysis[5] (MD). FNPE opens sounding a bit like Piketty:
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.
This viewpoint often alienates those people who believe that humans can shape their economy any way they wish. However, his insistence that the same economic laws require the maintenance of a standard of living for all actors in a given economy also annoys people who agree with Milton Friedman that the only business of every business is solely to maximize profits (see Part 2).
Let the reader understand: Lonergan intends a “radical generalization” (his words) that attempts to include all types of economic activity since the beginning of our species. We will be, as he says, “dealing with the familiar in unfamiliar ways.”[11]
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.”
There is the well-known structure of a productive process, whether it is Stone Age flint flensing tools or multi-core computer microprocessors. Producers create their goods from these and sell them to retailers, who in turn sell them to customers, and the goods in question leave the productive cycle, at a rate of “so much, every so often”. But there is a less-obvious, second cycle at work as well, which is the productive one itself. At each stage in the process, materials and equipment must be procured from other producers, which do not exit the process but rather are what enables the process to proceed.
Furthermore, this second cycle has its own “so much, every so often” rate, and there is an intimate connection of rates between the two. Lonergan is worth quoting at length here:
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.
The first cycle Lonergan calls the “base” economy (selling you cars) and the second and third ones the “surplus” economy. (making cars and their compenents)[14] The cross-relations between the two, specifically the rates of flow of monies across them, are the heart of his circulation analysis. Although other economists like Joseph Schumpeter, James Galbraith and Michal Kalecki put forth parts of his theory, none brought it forward to the extent that Lonergan has.[15]
He did foresee the elements of the finance-based capitalism that is responsible for a great deal of the damage that this perverse form of capitalism is creating, even referring at one point to “Moneybags”[16] Part 4 will present a basic introduction to Lonergan’s theory, with a translation for the even more desperate situation we are in now than when he began his explorations.
Go to Part 4.
[1] Bloomberg Wealth has just reported the growth of the fortunes of the wealthiest people even during the COVID epidemic which has devastated thousands of businesses and destroyed millions of jobs.
[2] See Michael Shute, Lonergan’s Discovery of the Science of Economics (Toronto: University of Toronto Press, 2010) pp. 3–13. And more generally, flip McShane, Economics for Everyone: Das Jus Kapital (3rd ed.), Axial Publishing, 2017.
[3] Lonergan’s independent way of proceeding was typical of the man. He never intended to found a school of “lonerganians,” though that has sprung up. William Mathews attempts to bracket Lonergan’s economics in a larger analysis of his entire opus. See Lonergan’s Quest: A Study of Desire in the Authoring of Insight (Toronto: University of Toronto Press, 2005.)
[4] Edited by Philip McShane. (Toronto, Canada: University of Toronto Press, 1998). Volume 21 of 25 devoted to his entire opus.
[5] Edited by Frederick Lawrence, Patrick Byrne, and Charles Hefling. (Toronto: University of Toronto Press, 1998). Volume 15 of 25. Despite their difficulty, these need to be understood as basic textbooks only.
[6] FNPE, pp. 3, 5. Lonergan refers to the 1936 edition of Keynes’ masterwork, The General Theory of Employment, Interest and Money (London: Macmillan). Throughout this essay, I have not replaced Lonergan’s use of “man” and “men” to stand for humanity. He was after all born in 1904.
[7] See MD, 7–11.
[8] Thus a genuine science of economics is one that bridges both physical and social sciences, for it must rest both on sense data (micro- and macro-economic performances) as well as social constructs such as money.
[9] MD, 12.
[10] FNPE, 42.
[11] FNPE, 8.
[12] Aristotle, The Politics, VII.16.
[13] FPNE, 14.
[14] Though he began with different terminology, his use of “base” and “surplus” is found in the later writings.
[15] See Philip McShane, Piketty’s Plight and the Global Future (Vancouver: Axial Publishing, 2014), especially pp. 66–69.
[16] FNPE, 88.
