Lonergan’s Entry into Economics (1930-1944) and Reentry into Economics (1978-1983); Democratic Economics vs. Liberalism and Socialism

The reader will note that most of what’s quoted below comes from a single section, “Lonergan’s Entry into Economics, 1930-1944”, of CWL 15’s “Editors’ Introduction,” authored by Frederick G. Lawrence.  Previously, in several of our own sections we have recommended that Editors’ Introduction as beneficial for putting Lonergan’s Essay in its historical, political, and purely theoretical contexts.  It is a must-read.  We have printed the Introduction’s Table of Contents in several places:  Click here, here, here, and here.  The Table is again printed at the end of this entry.

Lonergan’s Entry into Economics, 1930-1944

We quote:

Lonergan clarified an all important insight.  As a general command, the moral precept of a ‘just’ or ‘family’ wage so stressed by the social encyclicals – in traditional Catholic teaching, more a precept of charity than of justice – was extrinsic to the economic reality of the concrete situation of businessmen and wage earners.  This gap between well intentioned moral demands and economic exigencies prompted Lonergan to inquire how economic moral precepts could be based on or grounded in the economy itself. (CWL 15, xxviii)

When Lonergan returned to Canada from England in 1930 the Great Depression, in which ‘the rich were poor and the poor were out of work,’15 was in full swing.  What were the economic forces underlying the Depression?  Even as the dominant neoclassical paradigm in economics was being discredited by the economic events of the Depression, the need to pay special attention to the concrete intelligibility of specifically economic events was brought home vividly to Lonergan by propaganda for Clifford H. Douglas’s famous Social Credit movement.  Lonergan was impressed by Major Douglas’s focus on the permanent gap between the earnings of (fully employed) workers and the cost of a minimally adequate standard of living, since wage rates were low and prices high.  He was not satisfied with Douglas’s A + B formula and the deceptive simplicity of his inflationary policy implications, which Lonergan thought lacked a foundation in an accurate analysis of actual economic occurrences.16 Why Douglas’s solution was inflationary in character posed a unique challenge for Lonergan.  It helped him to formulate the question that inspired his analysis. (CWL 15, xxviii – xxix)

… … In a short review written in 1942, Lonergan spoke of a ‘materialistic, anti-traditional tendency’ in modern culture.

Its obvious representative is in the field of economics: eighteenth century capitalism, nineteenth century communism and twentieth century Nazism.  Such is the great materialist trinity: communism is a collectivist reaction against capitalist individualism; Nazism is a nationalist reaction against the international character of finance and world revolution.  Despite their differences and oppositions, all three agree in their dedication of man, soul and body, to the goods of this world.  None of them acknowledges and submits to a higher end or a higher law for man.  Their consequences are not a matter of abstract deduction.  The experiment has been performed and still is being performed on the quivering body of humanity.  The results are not pleasant. 17 (CWL 15,xxix – xxx)

 Lonergan grasped how the great orientations of twentieth-century politics – liberal capitalism, communist socialism, and all nationalisms – are all integrally related to concrete economic issues.  None of these political orientations actually based its policies on a correct understanding of the dynamic schemes that require human cooperation. … He realized that failure to understand correctly what is neded if the economic process is to perform well is gravely threatening to democratic liberty. That is why he undertook his serious study of economics. (CWL 15, xxx)

… a key to grasping the intent of this Essay is Lonergan’s recognition that political and economic goods of order are distinct yet not separate.  If the distinction is not maintained both in theory and in practical policy-making, catastrophic confusion results: ‘the materialist trinity’ of liberal capitalism, communist socialism, and nationalism or fascism, each of which illustrates what happens when the proper limits of politics and economics are not respected.  Politics then becomes less a mediator of practical intelligence than an arbiter of sheer power; at the same time, economics becomes politicized, not in the sense of a practically intelligent subordination to higher political ends, but in the sense of unintelligent, unreasonable, and irresponsible manipulations of the economic good of order that run counter to the intelligibility proper to economic processes. (CWL 15, Editors’ Introduction, xxxii)

Lonergan focused upon the challenge presented by the contemporary crisis of freedom and democracy by grasping the central structures constituting the concrete intelligibility of the economic good of order in modern capitalist exchange economies. This had to be done in order to let economics be economics and politics be politics as people cooperate freely and morally to achieve the common good in the modern world.Lonergan’s end was ultimately political; but for the sake of the political goods of freedom and democracy, he dedicated himself to understanding the limits of the economic sphere in its proper autonomy. (CWL 15, Editors’ Introduction, xxxii)

Lonergan always liked to insist that the old-time political economists were champions of democracy … he was opposed to relegating the course of the economy to any bureaucracy, whether it be capitalist or socialist in name. … It is plain then that Lonergan’s idea of democracy and of democratic economics is integrally bound up with his notion of human freedom grounded in knowledge.  He dramatically contrasts bureaucratic economics and free-enterprise economics. (CWL 15, Editors’ Introduction, xxxii – xxxiii)

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 other wise, 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)

Very definitely I should say that the issue of free enterprise is proximately scientific but ultimately existential. …  One has to mean what is revealed as possible by a functional analysis in macroeconomics.  But the issue is ultimately existential, for one has to choose between praxis and technique. … The issue between planning and free enterprise is existential in two manners.  It arises inasmuch as it is doubtful whether or not the people are totally corrupt.  They can’t help themselves.  In the manner that they are not, you have some hope.  But it also existential inasmuch as one’s decision on the issue tells something about the kind of person one is.  Our age is an age of technique; our behaviorists, positivists, newsmen, politicians know and think a great deal of technique and very little of praxis, and one can catch the virus.  But deciding one way or the other is existential. (CWL 15, Editors’ Introduction xxxiv)

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)

Lonergan’s Reentry into Economics, 1978-1983

We ask the reader to please read in the entirety in CWL 15, Editors’ Introduction pages xxxix – lxxii

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]

But Lonergan is alone.  “… no one else considers the functional distinctions between different kinds of productive rhythms prior to, and more fundamental than, wealth, value, supply and demand, price levels and patterns, capital and labor, interest and profits, wages, and so forth … .

Lonergan pointed out that this (functional) differentiation of economic activities … is discussed by traditional economists such as S. M. Longfield (1802-1884), John Rae (1796-1872), Nassau Senior (1790-1864), Eugen von Bohm-Bawerk (1851-1914), and in the heavily disputed “Ricardo effect.” But Lonergan credits Piero Sraffa (1898-1983) as having clarified it most thoroughly in his famous essay, “Production of Commodities by Means of Commodities” (1960).  Yet even Sraffa does not use his sophisticated explanation of the “Ricardo effect” and the “roundabout” or “concertina”-like phenomena associated with it in the way Lonergan does. Lonergan is alone in using this difference in economic activities to specify the significant variables in his dynamic analysis… no one else considers the functional distinctions between different kinds of productive rhythms prior to, and more fundamental than, wealth, value, supply and demand, price levels and patterns, capital and labor, interest and profits, wages, and so forth….only Lonergan analyzes booms and slumps in terms of how their (explanatory) velocities, accelerations, and decelerations are or are not equilibrated in relation to the events, movements, and changes in two distinct monetary circuits of production and exchange as considered both in themselves (with circulatory, sequential dependence) and in relation to each other by means of crossover payments. [CWL 15, Editors’ Introduction, lxii]

Click here  re Piero Sraffa.

Finally, we again refer the reader to the entire  Editors’ Introduction in Lonergan’s Macroeconomic Dynamics; … (CWL 15) – in particular pages xxv-lxxii.  Here are the contents of that Introduction:

Editors’ 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


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