Lonergan's Discovery of the Science of Economics 9781442698987

Table of contents :
Contents
Abbreviations
Preface
Introduction: Lonergan’s Interest in Economics
1. The Initial Viewpoint
2. Economics in the Context of Catholic Action: The Quest for a Practical Theory of History
3. Real Analysis and the Analytic Concept of History
4. Interlude: Grace, History, and the World Order of Emergent Probability
5. The Breakthrough to Economic Science: The Production Process
6. The Breakthrough to Economic Science: The Structure of Exchange
7. Developments after For a New Political Economy
8. Further Contexts
Bibliography
Index

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Lonergan’s Discovery of the Science of Economics

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MICHAEL SHUTE

Lonergan’s Discovery of the Science of Economics

UNIVERSITY O F T O R O N T O P R E SS Toronto Buffalo London

©

University of Toronto Press Incorporated 2010 Toronto Buffalo London www.utppublishing.com Printed in Canada isbn 978-1-4426-4091-7

Printed on acid-free paper Lonergan Studies

Library and Archives Canada Cataloguing in Publication Shute, Michael, 1951– Lonergan’s discovery of the science of economics / Michael Shute. (Lonergan studies ; 21) Includes bibliographical references. isbn 978-1-4426-4091-7 1. Lonergan, Bernard J.F. (Bernard Joseph Francis), 1904–1984. 2. Macroeconomics. 3. History – Philosophy. i. Title. ii . Series: Lonergan studies ; 21 hb172.s534 2009

339

c2009-906290-9

This book has been published with the help of a grant from the Canadian Federation for the Humanities and Social Sciences, through the Aid to Scholarly Publications Programme, using funds provided by the Social Sciences and Humanities Research Council of Canada. University of Toronto Press acknowledges the financial assistance to its publishing program of the Canada Council for the Arts and the Ontario Arts Council.

University of Toronto Press acknowledges the financial support for its publishing activities of the Government of Canada through the Book Publishing Industry Development Program (BPIDP).

Contents

Abbreviations / ix Preface / xiii Introduction: Lonergan’s Interest in Economics / 3 1 Lonergan’s Interest in Economics / 3 2 Context of the Present Work / 14 3 Hypothesis on the Sequence of Development in the Texts / 19 1

The Initial Viewpoint / 23 1 Methodology / 26 2 Lonergan’s Introduction to the Scientific Revolution / 40 3 History and the Crisis in the West / 43 4 Catholic Ethics and Economics / 50 5 Lonergan’s Early Research in Economics / 58 6 Initial Viewpoint / 63

2

Economics in the Context of Catholic Action: The Quest for a Practical Theory of History / 67 1 A Theory of Catholic Action, 1933–1936 / 68 2 Towards the Integration of All Things / 86 3 Reach and Attainment in Lonergan’s Quest for a Practical Theory of History / 89

3

Real Analysis and the Analytic Concept of History / 91 1 The Advance to the Analytic Concept / 92 2 Dialectic and the Differentials of History / 103

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Contents

3 The Developing Viewpoint / 107 4

Interlude: Grace, History, and the World Order of Emergent Probability / 111 1 Dissertation on Operative Grace in Thomas Aquinas / 112 2 ‘Finality, Love, Marriage’ and the World Order of Emergent Probability / 117 3 The Developing Viewpoint / 123

5

The Breakthrough to Economic Science: The Production Process / 126 1 ‘For a New Political Economy’ / 131 2 The Economic and Cultural Problem / 133 3 The Method of Analysis / 138 4 The Universal Rhythms of Production / 142 5 Two Distinct Circuits / 147 6 Phases of the Production Process / 150

6

The Breakthrough to Economic Science: The Structure of Exchange / 154 1 The Function of Money and Finance / 155 2 Introduction to Monetary Circulation / 158 3 Fundamental Economic Variables (The Diagram) / 158 4 Economic Expansion and the Phases of the Pure Cycle / 167 5 The Financial Problem / 171 6 The Trade or Business Cycle / 174 7 The Possibility of Economic Recovery / 178 8 The Emerging Viewpoint / 182

7

Developments after For a New Political Economy / 184 1 The Transition to ‘An Essay in Circulation Analysis’ / 186 2 ‘An Essay on Circulation Analysis’ / 197 3 Shelving of the Economics / 213 4 The Scientific Revolution in Economics / 217

8

Further Contexts / 222 1 A Sketch of Developments after 1944 / 224 2 Functional Specialization / 233 3 The Challenge of Lonergan’s Economics / 243 Bibliography / 249 Index / 283

Abbreviations

Collected Works of Bernard Lonergan (Toronto: University of Toronto Press). General Editors: Frederick E. Crowe and Robert M. Doran. CWL1 CWL2 CWL3 CWL4 CWL5

CWL6 CWL7 CWL10

CWL12

CWL15

Grace and Freedom: Operative Grace in the Thought of St Thomas Aquinas. Ed. Crowe and Doran, 2000. Verbum: Word and Idea in Aquinas. Ed. Crowe and Doran, 1997. Insight: A Study of Human Understanding. Ed. Crowe and Doran, 1992. Collection. Ed. Crowe and Doran, 1988. Understanding and Being. Ed. Elizabeth A. Morelli and Mark D. Morelli, augmented by Crowe, Morelli, Morelli, Doran, and Thomas V. Daly, 1990. Philosophical and Theological Papers 1958–1964. Ed. Robert C. Croken, Crowe, and Doran, 1996. The Ontological and Psychological Constitution of Christ. Ed. Michael G. Shields, Crowe, and Doran, 2002. Topics in Education. Ed. Doran and Crowe, revising and augmenting the text prepared by James Quinn and John Quinn, 1993. The Triune God: Systematics. Translated from De Deo Trino: Pars systematica (1964) by Shields. Ed. Doran and H. Daniel Monsour, 2007. Macroeconomic Dynamics: An Essay in Circulation Analysis. Ed. Frederick G. Lawrence, Patrick H. Byrne, and Charles Hefling, Jr, 1999.

viii

Abbreviations

CWL17 CWL18 CWL20 CWL21

Philosophical and Theological Papers 1965–1980. Ed. Robert C. Croken and Doran, 2004. Phenomenology and Logic: The Boston College Lectures on Mathematical Logic and Existentialism. Ed. Philip J. McShane, 2001. Shorter Papers. Ed. Croken, Doran, and Monsour, 2007. For a New Political Economy. Ed. McShane, 1998. Other Works of Lonergan

2Coll

3Coll CM

EFS Method OACH PA

A Second Collection. Ed. William F.J. Ryan and Bernard J. Tyrell. London: Darton, Longman and Todd, 1974. Latest reprint: Toronto: U of Toronto P, 1996. A Third Collection. Ed. Frederick E. Crowe. Mahwah, NJ: Paulist Press, 1985 Caring about Meaning: Patterns in the Life of Bernard Lonergan. Ed. Pierrot Lambert, Charlotte Tansey, and Cathleen Going. Thomas More Institute Papers no. 82. Montreal: Thomas More Institute, 1982. ‘Essay in Fundamental Sociology.’ In Michael Shute, ed., Lonergan’s Early Economic Research (2010). Method in Theology. London: Darton, Longman, and Todd, 1972. Latest reprint, Toronto: U of Toronto P, 1990. ‘Outline of an Analytic Concept of History.’ LRI Archive File 713. Pantôn Anakephalaiôsis (The Restoration of All Things).’ Edited with an introduction by Frederick E. Crowe. Method: Journal of Lonergan Studies 9:2 (1991) 139–72. Works by Other Authors

LEER LQ

NE OLNDH ST

Michael Shute, ed. Lonergan’s Early Economic Research. Toronto: University of Toronto Press, 2010. William A. Mathews. Lonergan’s Quest: A Study of Desire in the Authoring of Insight. Toronto: University of Toronto Press, 2005. Aristotle, Nicomachean Ethics Michael Shute. The Origins of Lonergan’s Notion of the Dialectic of History. Lanham, MD: University Press of America, 1993. Thomas Aquinas, Summa Theologica Journals and Series

JMDA

Journal of Macrodynamic Analysis

Abbreviations

LW MJLS

Lonergan Workshop Method: The Journal of Lonergan Studies Archives

LRI

Lonergan Research Institute

ix

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Preface

In 1930 Bernard Lonergan, then twenty-six years old, returned from studying in England to Canada, which was in the full grip of the Great Depression. Most economists at that time held that booms and slumps were an inevitable outcome of capitalist economic growth. They were, however, perplexed by the severity and global scope of the downturn. Marxists argued these events were a sign of the inevitable collapse of capitalism and they anticipated the coming class conflict. The more moderate capitalist faithful debated the relative merits of government intervention through public works programs, interest rate adjustments, and tax strategies to ameliorate its worst effects. By contrast, Lonergan did not accept either form of determinism. He rejected the notion that capitalism was inherently contradictory and he suspected economic development might occur without incurring an inevitable cycle of booms and slumps. He realized that no one understood the cyclical nature of the economy and therefore the crisis would eventually repeat itself in one form or another. Lonergan’s interest in economics was awakened through the influence of Lewis Watt in England. It was, however, his experience of the tragic effects of the Depression in his native Canada that moved him to tackle economic theory. Lonergan approached the problem with two key questions in mind. First, like the classical political economists of the nineteenth century, he wondered how wealth was created. Because of their interest in the connection between productive processes and the circulation of money, he turned to the work of the Physiocrats. Second, he wondered how the wealth created might be justly distributed. Though he disagreed with the Catholic just-wage approach, he was convinced that if we understood how to create

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wealth, and maintain and improve a standard of living, we could figure out how to justly distribute it. Lonergan’s answers to these questions led to the discovery of foundations for a new science of economics, much like Mendeleyev’s periodic table is the foundation for modern chemistry. In 1942 in his lengthy essay ‘For a New Political Economy,’ Lonergan advanced what he believed to be the fundamental elements of a scientific understanding of economic rhythms that posited the possibility of economic development without inevitable recessions. Two years later, in ‘An Essay in Circulation Analysis,’ he refined his discovery, formulating it as a purely macroeconomic theory. He showed this work to a number of economists and was met with incomprehension. He decided to set aside the work and began a study of cognitional theory, which thirteen years later became Insight and brought him his measure of fame as a philosopher. In 1995 Lonergan’s economic writings finally reached the light of day when the University of Toronto Press published them. It has now been over sixty years since Lonergan developed his macrodynamic economics. I have no doubt it is one of the great overlooked intellectual discoveries of the twentieth century. His two fundamental discoveries – the differentiation of two distinct economic circuits and the specification of the pure cycle – could ultimately transform the study of economics and in time have a massive impact on economic well-being. In teaching a social-justice course for the last eighteen years, I have found that issues most frequently boil down to questions about money: the lack of it or its unfair distribution. As the author Fay Weldon wryly observed: ‘People are as good as their incomes will allow.’ Understanding the phases of the pure cycle and adjusting human decision-making to its demands would eventually better the standard of living across the board. It would ameliorate the grossly uneven distribution of wealth that now comes with economic development. We might look forward to a day when economy and environment were not at odds, where economies do not threaten cultures and leisure, but actively support them. And while even a perfect economic theory does not solve the problem of personal and corporate greed, at least it makes it impossible to appeal to economic theory to justify it. My intention is writing this book is to tell the story of Lonergan’s key economic discoveries by specifying the stages in the development of his theory. The key breakthrough occurred in 1942 as spelled out in ‘For a New Political Economy.’ For this reason I have focused more attention on that essay than on the later and more technically refined ‘An Essay in Circulation Analysis.’ I hope this approach provides an easier entrance into his core insights. Lonergan’s early efforts in methodology and on the dialectic of history were integral to his discoveries in economics. They provid-

Preface

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ed him with an understanding of science and history that led to a unique and fruitful approach to economic theory. Hence it is important that my discussion casts a wider net to include discussions of Lonergan’s earliest work in history and method. Though macrodynamic economics is one of his major achievements, its study is still largely neglected among Lonergan scholars. I hope this volume serves to generate more interest in ‘the economics’ among the Lonergan community. While I wrote this volume with Lonergan scholars in mind, it should hold interest for those studying social-justice issues, economic development, globalization, and the history of twentieth-century intellectual development. I now turn to the cheerful task of expressing gratitude to the many who have helped me. The early stages of research were supported by a General Research Grant from the Social Sciences and Humanities Research Council of Canada, a Vice-President’s Research Grant from Memorial University of Newfoundland, and a Lonergan Fellowship at Boston College. In Toronto, Fred Crowe, Bob Doran, and Michael Shields of the Lonergan Research Institute were gracious with their time and resources. While in Boston I benefited from participation in the weekly Lonergan seminar. Some of the ideas that lead to this present work were first presented at the Lonergan Workshop. In particular, I would thank Kerry Cronin, John Boyd Turner, Joe Flanagan, Fred and Sue Lawrence, Charles Hefling, and Pat Byrne of Boston College for their help and stimulating conversation. William Mathews at the Milltown Institute in Dublin has answered many of my questions through the years about the details of Lonergan life and more. While in Nova Scotia I benefited from discussions with the participants of the West Dublin Lonergan Conference. Bruce Anderson, Patrick Brown, Tom McCallion, Philip McShane, and William Zanardi read various versions of the manuscript and their comments and suggestions were invaluable. Gerard Whelan, Seamus O’Neill, and Ian Brodie helped with research. I would like to thank Ron Schoeffel at the University of Toronto Press for his encouragement throughout the writing process and John St James for his editorial work. At Memorial University, Mary Walsh assisted with details too numerous to list. Finally, I owe the greatest debt to Joyce West, who sacrificed much to support me in this project.

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Lonergan’s Discovery of the Science of Economics

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Introduction Lonergan’s Interest in Economics

1

Lonergan’s Interest in Economics

From 1978 to 1983 Bernard Lonergan taught a graduate theology course at Boston College called ‘Macroeconomics and the Dialectic of History.’ His choice of subject was surprising given that nothing he had taught or published in his nearly forty years as a professor of systematic theology indicated any special interest or competence in macroeconomics. Lonergan’s reputation and influence up to this point rested on his work in philosophy and theology, notably Insight and Method in Theology. However, Lonergan was interested in economics before he was interested in theology.1 A halfcentury earlier, when he was still a student and during his first four years as a working academic, Lonergan had quietly, yet persistently, worked on both the philosophy of history and economics. He produced a noteworthy group of essays, all of which remained unpublished during his lifetime.2 Teaching 1 See CM 30–1. 2 The essays on the philosophy of history were the subject of my previous book, OLNDH. Gerald Whelan in his thesis ‘The Development of Lonergan’s Notion of the Dialectic of History: A Study of Lonergan’s Writings: 1938– 1953’ (ThD thesis, Regis College, 1996) shows how these early writings influenced his later work. The essay ‘Natural Right and Historical Mindedness,’ in 3Coll 169–83, is the most mature expression of Lonergan’s thought on the dialectic of history. With respect to Lonergan’s account of the role of the dialectic of history in metaphysics, see CWL5, chapter 9. The essays in economics are in CWL21. The two key essays are ‘For a New Political Economy’ (hereafter FNPE), likely completed in 1942, and ‘An Essay in Circulation Analysis’ (hereafter ECA), likely completed in 1944. Transcripts by Nicolas Graham from tapes of the economics lectures beginning with the spring

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this course at Boston College was, then, a return to concerns that occupied his attention even before he began studies at the Gregorian University in Rome in the fall of 1933. Economics was Lonergan’s main concern for the Boston College course, the dialectic of history providing the macro-context with which to link economics to the theological concerns of his students. Lonergan scholars and students were familiar with his notion of the dialectic of history; the tripartite structure ‘progress, decline and redemption,’ ‘the shorter and longer cycles of decline,’ the four ‘biases,’ and ‘stages of meaning.’ All were wellknown features of his thought.3 These elements of the dialectic of history appeared in Insight and Method in Theology and occasionally in lectures and articles such as the 1960 essay ‘The Philosophy of History,’ the 1976 essay ‘Healing and Creating in History,’ and most directly in ‘Natural Right and Historical-Mindedness,’ published just prior to the beginning of the Boston Lectures.’4 However, beyond a small circle of colleagues his work in economics was unknown.5 In his writings there were but a few references to the economy or economic theory; the most well known instance occurring in chapter 7 of Insight.6 However, these passages gave little indication of the

3 4

5

6

session of 1979 were made by Patrick Brown, and are available at the Lonergan Research Institute, Toronto (hereafter LRI). There is no known tape of the 1978 course. On the relationship of between the dialectic of history and economics in Lonergan’s thought, see Michael Shute, ‘Economic Analysis within Redemptive Praxis,’ LW 14 (1998) 243–64. Patrick Brown also argues for the systematic significance of the analytic concept of history for Lonergan’s macroeconomics in ‘System and History in Lonergan’s Early Historical and Economic Manuscripts,’ JMDA 1 (2001) 32–76. Patrick Brown in ‘Implementation in Lonergan’s Early Historical Manuscripts,’ JMDA 3 (2003) argues for emergence of the core elements of Lonergan’s notion of historical stages in the 1930s. See also OLNDH, passim. In Insight passim, but especially chapter 7 (CWL3 232–69 [207–44]) and chapter 20 (CWL3 709–51 [1687–1730]). The key pages in Method are 52–55. ‘The Philosophy of History,’ CWL 6 54–79; ‘The Transition from a Classicist World-View to Historical-Mindedness,’ 2Coll 1–9; ‘Healing and Creating in History,’ 3Coll 100–107 and ‘Natural Right and Historical-Mindedness,’ 3Coll 169–83. In the early 1940s, when he was developing his economic theory while teaching theology at the College of the Immaculate Conception in Montreal, a number of his colleagues knew of his keen interest in economics. See Whelan, ‘The Development of Lonergan’s Notion of the Dialectic of History’ 77–78. In the late sixties Lonergan send copies of his economics essays to Philip McShane and Eric Kierns. See CWL21 319. CWL3 234–61 [209–36] especially 234–36 [209–11]. The context is a discussion of common sense insight.

Introduction: Lonergan’s Interest in Economics

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full significance of his breakthrough to economic science. When Lonergan assigned ECA, which he had written in the early 1940s, as a text for the Boston course, it was for most people the first indication of the work he had done.7 Why did Lonergan, a young Jesuit looking ahead to a promising career in philosophy or theology, spend so much effort as a young man working on economics? The answer to that question lies in a pivotal decision Lonergan made as a student, likely in 1930. From 1926 to 1929 Lonergan studied at Heythrop College in England. His declared interest was in ‘methodology,’ then treated as a subdivision of logic.8 Newman’s Grammar of Assent influenced him profoundly and inspired him to investigate cognitional process as a key to working out epistemological and metaphysical questions.9 While at Heythrop, Lonergan wrote a number of essays for a student journal.10 These essays show a keen interest in the foundations of logic and anticipated Lonergan’s life long preoccupation with methodology and cognitional theory. However, two events occurred which providentially complicated and enriched his quest. The first was an ethics course he took from Lewis Watt in 1929. Watts had an interest in economics; something reflected in his choice

7 From 1978 to 1983 he continually revised this text for use in the classroom with an eye to its eventual publication. Both the original essay and the revised version were eventually published in the Collected Works. The original essay appears in CWL21 and a version amalgamating the revisions appears as CWL15. 8 Lonergan writes: ‘I was very much attracted by one of the degrees in the [University of] London syllabus: Methodology. I felt there was absolutely no method to the philosophy I had been taught; it wasn’t going anywhere. I was interested in method’ (CM 10). 9 Lonergan writes: ‘My fundamental mentor and guide has been John Henry Newman’s Grammar of Assent. I read that in my third year of philosophy (at least the analytic parts) about five times and found solutions for my problems. I was not at all satisfied with the philosophy that was being taught, and found Newman’s presentation to be something that fitted in with the way I knew things’ (CWL17 388). An Essay in Aid of a Grammar of Assent was first published in 1870 and currently is available in an edition edited by I.T. Ker (Oxford: Clarendon Press, 1985). 10 These contributions are known as the Blandyke Papers. The papers were originally handwritten and are now at held at the LRI. They have been included in CWL20 3–49. Lonergan contributed six items while at Heythrop. These are ‘The Form of Mathematical Inference,’ ‘The Syllogism,’ ‘True Judgment and Science,’ ‘Infinite Multitude,’ and ‘Letter on Creation from Eternity.’ His interest in questions of logic and methodology is clear. ‘The Syllogism’ was substantially revised and published as ‘The Form of Inference,’ Thought 18 (1943) 277–92.

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of course materials.11 Watt was an advocate of the just wage ethic and lectured on both the capitalist free market system and the Marxist alternative, providing a Catholic moral perspective on both. While he held the just wage view that economic decisions should follow the moral law, somewhat uncharacteristically for just wage theorists, he also stressed the importance of understanding economic facts. The second event was the stock market crash in October of the same year, which marked the start of the devastating and decade-long worldwide Great Depression. If Watt’s course had peaked Lonergan’s interest in economics, events in Canada on his return added a practical and moral urgency to press forward on its serious study. When Lonergan returned from England in 1930 Canada was already well in the grip of the depression. The Canadian economy relied heavily on exports and the general collapse of world trade made its effects on that nation unusually harsh. Many businesses were wiped out. At its height in 1933 the unemployment rate neared 30 per cent and national production was at less than 60 per cent of 1929 levels.12 Those who were lucky enough to be employed often worked fewer hours. Bread lines were common. Some areas of the country were hit particularly hard. The already economically depressed eastern provinces suffered greatly. Earlier, in the 1920s Catholic priests at St Francis Xavier University started the Antigonish Movement as a response to the endemic rural poverty in Nova Scotia.13 The Depression greatly aggravated the situation. However, the four western provinces, where the economy was largely based on wheat exports, were hit hardest. Two-thirds of the workforce was eventually on government relief. As the depression deepened, social credit and socialist ideas flourished. Social credit ideas were especially popular in the western provinces of Alberta and British Columbia and in Lonergan’s home province of Quebec. In Saskatchewan Tommy Douglas helped form the Farmers Labour Party in 1932. The FLP eventually transformed itself into the Cooperative

11 Notes taken of Watt’s ethics course by a fellow student of Lonergan are available at LRI. 12 ‘The Great Depression,’ in The Canadian Encyclopedia, online edition, at http://www.thecanadianencyclopedia.com (accessed 23 July 2009). 13 The Antigonish Movement evolved from the work of Moses Coady and James Tompkin in response to the poverty afflicting farmers, fishers, miners, and other disadvantaged groups in Eastern Canada. They emphasized adult education and economic cooperatives. Coady outlined their program in Masters of Their Own Destiny (New York: Harper 1967 [1940]). Lonergan wrote a positive review of the book that appeared in the Montreal Beacon 50 (2 May 1941). The review is reprinted in LEER, chapter 8 and in CWL20 143– 46. On the Antigonish Movement see Jim Lotz, ‘The Antigonish Movement: A Critical Analysis,’ Studies in Adult Education 5 (1973) 97–112.

Introduction: Lonergan’s Interest in Economics

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Commonwealth Federation Party (CCF), Canada’s first nation-wide socialist party.14 Lonergan himself recounts the events this way: ‘I studied philosophy in England, the professor I had was Fr. Lewis Watt in 1929 who brought out a book, Capitalism and Morality … [A]t the time no economist would admit that any moral law had anything to do with economics. But there followed the big depression and the idea of morality began seeping in, but not much … I got back to Canada and the depression was on and the rich were poor and the poor were out of work and there were a lot of economic theories floating about and I became interested in figuring out what was wrong with them.’15 Among economists there was at that time a period of creativity in economic theory that George Shackle described as ‘the years of high theory.’ Beginning in the mid-1920s, the group was characterized by their dissatisfaction with the so-called great theory, which had postulated a ‘theory of general, perfectly competitive, full employment stationary (or better timeless) equilibrium.’16 Most famous among these dissenting theorists was John Maynard Keynes who published his famous General Theory in 1936.17 However, the extent and length of the slump highlighted the inability of contemporary economic theories to explain what happened or to effectively direct a recovery. Various, often contradictory, advice emerged.18 At the time, most economists regarded the cycle of booms and slumps as inevitable in a capitalist growth economy. The scope of this slump was unprecedented. The methodology of the prevailing Marshall-Wicksell line of economic theory, the ‘great theory,’ was thoroughly static and unable to handle the question. As Joseph Schumpeter observed: ‘Since technological change is

14 In 1961 the CCF became the New Democratic Party. 15 From the transcription of an interview with Lonergan by Luis Morfin, SJ, held on 11 July 1981. LRI Archive File 991. 16 George Shackle, The Years of High Theory (Cambridge: Cambridge University Press, 1967) 4–5. 17 John Maynard Keynes, The General Theory of Employment, Interest, and Money (London: Macmillan, 1936). Other notable efforts in this creative surge cited by Shackle include works by Piero Sraffa, Roy Harrod, Joan Robinson, Edward Chamberlin, Gunnar Myrdal, Erik Lindahl, and Wassily Leontief. Shackle favours those efforts aligned with the so-called Keynesian revolution. To his list we must add the substantial work by Austrian economists, especially Friedrich Hayek and Joseph Schumpeter. 18 See John A. Garraty’s classic study The Great Depression (New York: Doubleday, 1987), especially chapters 1 and 2, for an account of the policy quagmire that emerged. For a Keynesian-influenced account of events, see John Kenneth Galbraith, The Great Crash 1929 (Cambridge: Riverside, 1961 [1954]).

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the essence of the capitalist process and the source of most of its problems, this assumption excludes the salient features of capitalist reality.’19 Schumpeter thought the significant developments in twentieth-century economics were mainly technical refinements, which left the fundamental problems in nineteenth-century classical economic theory unsolved, chief among them the problem of accounting for the dynamic nature of economic process. He considered ‘economics to be a very unsatisfactory science.’20 Like Schumpeter, Lonergan would soon grasp that the challenge was to develop a through-going dynamic macroeconomics. What economics lacked was a sound theoretical basis for analysis. Without this, any economic policy would be slipshod. Lonergan’s interest in ‘high theory’ then was very much aligned with the creative spirit of his contemporaries in economics. What would eventually distinguish his effort was the realization of the need for a through-going shift from a static to a dynamic methodological approach in economic theory. Related trends in Catholic thought provided a context for Lonergan. In the West, Liberal faith in the ideology of automatic progress, which had prevailed for well over a century, wavered under the weight of economic and political events and, particularly in Europe, the experiment in democracy was in grave danger. The First World War was a defining moment, pitting the European nation-states against each other. With the beginnings of the Great Depression and the rise of totalitarian ideologies the choice seemed to be either the uncertainty and injustice of free market capitalism or some form of totalitarian order. Communism and Fascism arose as responses to the crisis in liberal democracy. Each readily traded human liberty for planned efficiency and collective solidarity. Fascism’s solidarity was the nation-state under the dictator: Communism’s was the international organization of the working classes under the rule of the dictatorship of the proletariat. Emerging in Catholic circles was a strategy for meeting the political and economic situation in a manner consistent with Catholic doctrine. It involved the search for ‘a third way’ that was an alternative to both laissez-faire capitalism and state-controlled communism, a way that affirmed both social solidarity and the freedom of human conscience. We can trace the origins of the Church’s heightened interest in the social question to Leo XIII; his encyclical Rerum Novarum (1891) addressed the social dislocations of the industrial revolution and the increasing dominance of secular philosophies 19 Joseph Schumpeter, A History of Economic Analysis (New York: Oxford University Press, 1955 [1954]) 1144. Schumpeter’s comment is applied in this case to Keynes whom Schumpeter understands as a development of Marshall’s static approach. 20 Ibid. 1146.

Introduction: Lonergan’s Interest in Economics

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of history. The Vatican encouraged lay social action groups under the umbrella of Catholic Action. There arose a variety of social movements such the Catholic Workers21 and the International Federation of Catholic Alumnae in the United States,22 the Antigonish Movement in Canada, and, later, the worker-priests of France.23 In very timely fashion in 1931, for the fortieth anniversary of Rerum Novarum, the encyclical Quadragesimo Anno appeared. Critical of liberal capitalism and decisively opposed to an atheistic Marxist alternative, Quadragesimo Anno sketched out a Catholic social theory for the ‘reconstruction’ of society. Ostwald von Nell-Breuning, a Jesuit disciple of the German Jesuit economist Heinrich Pesch, was the chief architect of the encyclical.24 Pesch had developed an approach to economics built on a foundation of Aristotelean-Thomistic philosophy.25 While he recognized the need for an independent science of economics, unlike most contemporary economists, he did not radically separate moral concerns from economic theory. Following both Aristotle and Aquinas, Pesch located the economy within a hierarchy of ends. The end or goal of the economy was the standard of living of the community, which provided the material means to support higher social and cultural ends. Pesch developed an approach called solidarism as ‘the third way’ between free market capitalism and communism. Guided by the subsidiary principle, which held that higher levels 21 The Catholic Worker Movement was founded in 1933 in the United States by Dorothy Day and Peter Maurin in response to the plight of the poor. See Robert Coles, Dorothy Day: A Radical Devotion (Reading, MA: Addison-Wesley, 1984). 22 On the IFCA, see Eileen Brosnan, ‘The Movies Shoulda Been Snow White but They Drifted: The International Federation of Catholic Alumnae Responds to the Movie Menace: 1922–1935,’ MA thesis in Religious Studies, Memorial University of Newfoundland, 2003. 23 In 1944 the first worker-priest missions were set up in Paris, France. They survived ten years. 24 Ostwald von Nell-Breuning, Reorganization of Social Economy (Milwaukee: Bruce, 1936) addresses the context of Quadragesimo Anno. Heinrich Pesch’s most influential work is the five-volume Lehrbuch der Nationalökonomie, which has recently been translated into English by Rupert J. Ederer as Teaching Guide to Economics (Lewiston, NY: Mellen Press, 2002). For a one-volume introduction to his thought see Heinrich Pesch, SJ, Ethics and National Economy, trans. Rupert Ederer (Norfolk, VA: IHS Press, 2004). 25 Among twentieth-century political economists Karl Polyani revives elements of Aristotle’s economics. See, for example, ‘Aristotle Discovers the Economy’ in Primitive, Archaic, and Modern Economies (Boston: Beacon Press, 1971 [1968]) 78–115. The work of E.F. Schumacher, well known for Small Is Beautiful: A Study of Economics as if People Mattered (London: Abacaus, 1974), has roots in Aquinas’s philosophy. This influence is explicit in Good Work (New York: Harper & Row, 1979).

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of authority should act only when lower levels cannot deal with a problem, he encouraged a level of economic organization positioned between government bureaucracy and the individual firm that could mediate the complex relationship between community needs and economic imperatives. Most importantly for Lonergan, Quadragesimo Anno, more than any prior encyclical, addressed the economic question. It acknowledged that moral imperatives on economic questions required knowledge of ‘technical’ matters. This event confirmed for Lonergan the appropriateness of his decision to devote time to economic theory as a moral response to social crisis. By 1934 Lonergan identified his own effort as providing a Catholic response to ‘the crisis in the West.’26 The notion captured thematically the mood in Catholic circles.27 There was increased interest in developing a Catholic social theory to provide guidance for practical action. Among prominent Catholic intellectuals, Christopher Dawson was the outstanding instance of this trend, and his work had a timely influence on Lonergan. Dawson was a historian of stellar reputation whose interest extended to the philosophy of history. Like his English contemporary Arnold Toynbee, Dawson thought Western culture was at a crucial juncture. In his view – one shared by many contemporaries – technological advance in the West, with all its material benefits, was not matched by a moral or spiritual development capable of responsibly integrating these developments.28 Dawson 26 Lonergan writes: ‘Any reflection on modern history and its consequent “Crisis in the West” reveals unmistakably the necessity of a Summa Sociologica.’ In Pantôn Anakephalaiôsis (The Restoration of All Things), ed., with intro., by Frederick E. Crowe, MJLS 9:2 (1991) 156. He adopted the phrase from Peter Wust, ‘Crisis in the West,’ in Essays in Order 2, ed. Christopher Dawson (London: Sheed & Ward, 1931). The volume includes one essay each by Wust, Jacques Maritain, and Christopher Dawson. For the historical background of these essays see Joseph Komonchak, ‘Lonergan’s Early Essays on the Redemption of History,’ LW10 158–77, especially 161. In his mature writings, Lonergan handles this in terms of the longer cycle of decline. See CWL3 250–67 [225–42]. The longer cycle of decline is the cumulative abandonment of a transcendent, spiritually unified vision of human life for a set of increasingly restricted horizons. Principles of rational thought replace the original religious unity. When this fails to solve the problem of social order, a utilitarian strategy of balancing of powers and competing self-interests takes over. 27 For example, the appendix of the English edition of Valère Fallon, SJ, Principles of Social Economy (New York: Benziger Brothers, 1933) includes ‘A Statement of the Present Crisis’ by the Bishops of the Administrative Committee of the National Catholic Welfare Conference. Lonergan read Fallon’s book in the 1930s. 28 Other prominent intellectuals interested in the philosophy of history include Pritrim Sorokin and Karl Jaspers. Among Catholics, there was José Ortega y Gasset, Jacques Maritain, and Peter Wust.

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wrote: ‘Today all the ideals that inspired the nineteenth century are shattered and discredited … We have lost our faith in humanity, and that faith was the central dogma and inspiration of the whole modern development.’29 Dawson believed that a metaphysic of history was necessary if the West was to meet the challenge. It would provide a unified context for the analysis and diagnosis of historical events for the sake of the direction of future policy and action. Sometime around 1930 Lonergan read Dawson’s The Age of the Gods. As Lonergan put it, Dawson introduced him to ‘the anthropological turn’ and sparked his lifelong pursuit of a practical theory of history, an effort that eventually led to the discovery of functional specialization.30 Lonergan’s decision to study economics (and the philosophy of history) was his response to the perceived social crisis. His decision settled how he could use his talents as a Jesuit intellectual and priest in aid of an intelligent Catholic response to the crisis. This decision reveals a practical intention that informed Lonergan’s entire intellectual quest.31 While his calling was to theory, he recognized the importance of sound theory for the effective control and guidance of praxis. His decision was to withdraw from practicality for the sake of practicality.32 His approach in this respect is a response to Marx’s famous eleventh thesis on Feuerbach, where Marx writes: ‘The philosophers have only interpreted the world, in various ways; the point, however, is to change it.’33 The two foci of Marx’s praxis philosophy were a 29 Christopher Dawson, ‘General Introduction,’ in Essays in Order (London, 1930) xiv. 30 He writes: ‘In the summer of 1930 I was assigned to teach at Loyola College, Montreal, and despite the variety of my duties was able to do some reading. Christopher Dawson’s The Age of the Gods introduced me to the anthropological notion of culture and so began the correction of my hitherto normative or classicist notion’ (‘Insight Revisited,’ 2Coll 264). Later, reflecting on his life’s work in 1980 Lonergan remarked: ‘All my work has been introducing history into theology.’ See Frederick E. Crowe, ‘All my work has been introducing history into Catholic theology’ (Lonergan, 28 March 1980),’ LW10 (1994) 49–81. Reprinted in Frederick E. Crowe, Developing the Lonergan Legacy: Historical, Theoretical, and Existential Themes, ed. Michael Vertin (Toronto: University of Toronto Press, 2004) 78–110. 31 See Frederick E. Crowe, ‘Bernard Lonergan as Pastoral Theologian,’ in Appropriating the Lonergan Idea, ed. Michael Vertin (Washington: Catholic University of America Press, 1989) 127–44. 32 See CWL3 263–67 [238–42]. 33 Karl Marx, ‘Theses on Feuerbach,’ in The Marx-Engels Reader, ed. Robert C. Tucker (New York: W.W. Norton & Co., 1972) 109. In his own late essays, Lonergan would pinpoint the development of praxis philosophy as a key component of the shift to the third stage of meaning. See, for example, ‘Theology and Praxis,’ 3Coll 184–201.

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dialectic materialist theory of history and an economic theory most famously found in Das Capital. Lonergan’s dialectical concept of history and macroeconomic dynamics were alternatives to Marx’s dialectical materialism and economics. In a letter written in 1935 Lonergan informed his superior that he had a metaphysic of history ‘that will throw Hegel and Marx, despite the enormity of their influence on this very account, into the shade.’34 Later, he would remark that what was needed to meet the economic crisis of the modern world was a Catholic Marx.35 While Marx’s method was to turn Hegel’s dialectic method ‘upside down’ to serve a materialist philosophy, Lonergan would develop a generalized empirical method that updated Aquinas’s critical realism to incorporate the developments of empirical science, introspective psychology, and the methods of historical scholarship. His interpretive work on Aquinas was original and brilliant.36 His innovations in methodology and cognitional theory were certainly massively important in working out his notion of the dialectic of history and macroeconomics dynamics. However, from 1930 to 1944 philosophy of history and economics were Lonergan’s core interest. The motivating concern was the existential crisis of the age profoundly manifest in the economic and cultural disorder of the day. Like Plato and Marx before him, Lonergan sought an effective intellectual response to social troubles.37 Between 1934 and 1938 he produced a group of essays on the philosophy of history. These include ‘Essay on Fundamental Sociology,’ Pantôn Anakephalaiôsis (Restoration of All Things),’ and ‘The Analytic Concept of History.’38 In the early 1940s Lonergan wrote two lengthy economic essays, FNPE and ECA. He published none of these essays and in 1944 he set aside his work on economics altogether. Lonergan regarded his work on the dialectic of history as important, so much so that in 1938, as he was preparing to work on his doctoral dissertation, he asked the permission of his superior 34 Letter to Father Keane (1935), LRI Archives. 35 ‘Marx spent his life in the British Museum writing illegible books and he is the great power in the twentieth century. If Catholics had spent some of their time in the British Museum … we might have a good answer to Marx’ (CM 163). See also CWL17 366–69. 36 This includes his book-length studies of Aquinas, Grace and Freedom: Operative Grace in the Thought of St Thomas Aquinas (CWL1) and Verbum: Word and Idea in Aquinas (CWL2). 37 On Plato’s philosophy as a response to the decline of the polis see Eric Voegelin, Plato and Aristotle, vol. 3 of Order and History (Baton Rouge: University of Louisiana Press, 1957). 38 Bernard Lonergan, ‘Essay in Fundamental Sociology,’ LEER, chapter 1 (hereafter EFS); ‘Pantôn Anakephalaiôsis (The Restoration of All Things),’ MJLS 9:2 (1991) 139–72 (hereafter PA); and ‘The Analytic Concept of History,’ MJLS 11:1 (1993) 1–36 (hereafter ACH).

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to maintain his private study of the philosophy of history.39 That he read Toynbee’s lengthy A Study of History after completing his dissertation confirms his continuing interest.40 As we have already noted, his notion of the dialectic of history found its way into his philosophy and theology and was a factor in the design of Insight. When the early essays in history became available after his death, the significance of his interest in philosophy of history became more apparent. Since Lonergan’s philosophy of history was a transposition of a traditional Catholic anthropology, it could be incorporated with relative ease into his other work. His economics writings were another matter. Other than the occasional reference to the economy, economics did not find its way into his writing in philosophy and theology. No doubt what he learned about scientific method in the fourteen years working on economic theory had an important influence on the development of generalized empirical method. It most surely informed his reflection on the subject in Insight. However, economists were the natural audience for his essays, and the future prospects for the reception of his theory depended upon a receptive audience among professional economists. Yet, his macrodynamic theory was a significant departure from prevailing approaches. Catholic interest in the economy was wrapped up in the moral concerns of the just wage, an approach that Lonergan rejected. With the relationship between production and monetary circulation at the heart of his theory, he had more in common with Cantillon and Quesnay than with classical economists such as Adam Smith, David Ricardo, and J.S. Mill.41 Its dynamic methodology, and much of its terminology, would have been quite foreign to mainstream economists in the neo-classical equilibrium tradition of Marshal and Wicksell. There were similarities between Lonergan and Schumpeter, but Schumpeter’s 39 Lonergan writes: ‘As philosophy of history is as yet not recognized as the essential branch of philosophy that it is, I hardly expect to have it assigned me as my subject during the biennium. I wish to ask your approval for maintaining my interest in it, profiting by such opportunities as may crop up, and in general devoting to it such time as I prudently judged can be spared.’ From a letter to his superior, Fr Keane, written from Milltown Park, Dublin, 10 August 1938, and quoted by Frederick E. Crowe in ‘Notes on Lonergan’s Dissertation,’ MJLS 3:2 (Fall 1986) 9–46. 40 ‘When I was teaching at L’Immaculée Conception I read the first six volumes of Toynbee’s A Study of History in the long winter evenings.’ CM 88. Lonergan took extensive notes. LRI Archive File 713. 41 With respect to its emphasis on both production and cycles, Lonergan’s economics also has more in common with Marxist economists than with neoclassical economists. For a concise introduction to Marxist economics, see Ernest Mandel, An Introduction to Marxist Economic Theory (New York: Merit Publishers, 1969).

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great work, Business Cycles, appeared in untimely fashion in 1939 and was sadly overshadowed by the success of Keynes’s General Theory.42 These factors help explain why Lonergan remained silent for more than thirty years about his work in economics despite its obvious importance to him. In 1944 Lonergan approached a number of economists in Montreal, Boston, and St Louis with ECA and ‘got no encouragement from anyone.’43 Recognizing the low probabilities at that time for a positive reception of the theory, he abandoned the project and set his essays aside.44 He then turned to the work in cognitional theory and systematic theology for which he is best known.45 William Mathews writes that abandoning economics ‘must have been an extremely painful crossroads in his life. It was the giving up of a most serious quest, largely because of the incomprehension of the economists of the time.’46 In retrospect, his decision was likely wise. He could have pushed forward against tough odds, but at what cost? Perhaps the discovery of functional specialization, his crowning achievement, happened because his abandonment of economics opened up a space for the studies of methodology, systematic theology, and cognitional theory that underpinned its discovery. In any case, it was only after he set down his discovery functional specialization that he pondered the prospect of teaching economics and revising ECA. 2

Context of the Present Work

It is now over seventy-five years since the beginning of the Great Depression and over sixty years since Lonergan first came up with his novel theory of economics. In 1998 his theory was finally made public with publication of the volume For A New Political Economy as part of the Collected Works of Bernard Lonergan. The theory has mainly been of interest to a small group of Lonergan scholars and has not made much, if any, headway among economists. In the meantime the fundamental problems in economic theory identified by Lonergan remain. As presently practised, macroeconomic 42 Joseph A. Schumpeter, Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process (Cambridge, MA: Harvard University Press, 1939). 43 CM 182. 44 March 25 is the date Lonergan may have abandoned the project. See Shute, ‘Macroeconomic Analysis within Redemptive Praxis’ 245. 45 After he stopped work on economics, Lonergan began a study Aquinas’s notion of ‘verbum.’ These were published in a series of articles in Theological Studies in 1946–49 and later published as Verbum: Word and Idea in Thomas Aquinas (CWL2). 46 William Mathews, ‘Lonergan’s Economics,’ MJLS 3:1 (March 1985) 14.

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theory remains fundamentally static in approach, and Schumpeter’s observations about the inability of static method to account for a dynamic system are just as valid today. In this respect the development of economics as a full-fledged science is at a stage similar to chemistry before Mendeleyev’s discovery of the periodic table. Economics lacks the fundamental set of explanatory terms and relations that would make it a genuine or full-fledged science. Thus, while the refinement of the techniques of economic practice has been ongoing, economics still waits for its scientific revolution. Without this revolution, the hit-and-miss efforts of various and frequently conflicting economic theories have, as Lonergan noted in 1959, ‘done not a little to make human life unlivable.’47 It is a central claim of this present work that Lonergan discovered the fundamental set of significant variables for economic science in 1942. It is my belief that if economists were to recognize what Lonergan discovered, the so far delayed scientific revolution in economics would be under way. Such a revolution would certainly have a significant positive influence on the welfare of humankind. I intend this present work as a small contribution towards the hoped for scientific revolution in economics. However, I temper my enthusiasm for this project in light of Lonergan’s own caution about the potential for the reception of his economic theory. Lonergan himself was not optimistic, at least in the short term, about a favourable reception for his economics. He spoke of a century or two intervening before his theory becomes commonplace. After a half-century is there reason for optimism? I believe so. It is true that Lonergan’s economic writings have hardly made a dent among contemporary economists. However, dissatisfaction and concern about the effects of global capitalism have only increased in the last half-century and we are again in a period of crisis. As I revise this chapter in the fall of 2008 we are in the midst of a global economic meltdown. Dissatisfaction with current economic theory is widespread and the need for a genuine science of economics is more readily acknowledged within the field itself. Perhaps, the time is ripe for another effort to disseminate Lonergan’s discovery. With all this in mind I turn now to the strategy and design of the present work. We begin with the technical difficulty of Lonergan’s original essays. Richard Liddy confesses in Transforming Light: Intellectual Conversion in the Early Lonergan that he ‘is still trying “to reach up to” Lonergan’s analysis of macroeconomics.’48 I find myself in the same position. I have been reading in the field of economics for quite some time and, like Liddy, I am a theologian by education. I first read ECA in 1982 and found it mostly 47 CWL10 232. 48 Richard Liddy, Transforming Light: Intellectual Conversion in the Early Lonergan (Collegeville, MN: Liturgical Press, 1993) 158.

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incomprehensible. In the fall of 1993 I began a serious study of the work. There was at that time no accessible introduction or commentary on the essay. In many respects, as Philip McShane remarked, there is a need for a 500-page introductory textbook. Lonergan acknowledged as much when, during the time he taught the macroeconomics course, he expressed the need for a primer in macroeconomics.49 Bruce Anderson’s criticism of past efforts to communicate ‘the economics’ is relevant here. In a recent review of McShane’s Pastkeynes Pastmodern Economics he writes: ‘Previous efforts (not only McShane’s) to help people read Lonergan’s five-square diagram, whether in print or on websites, have had minimal success. Such explanations are overly complex and impenetrable for beginners. Beginners are immediately thrown smack-dab into the middle of an economy experiencing a surplus expansion: banks are adding money to the circuits, governments are spending money, production is taking off, wages are growing, everything is surging. This is too much for a beginner to take in at one time. The problem, as I see it, is that such presentations have been shaped by, and are overly dependent on, Lonergan’s dense presentations and ordering of the same topics. Focusing a beginner’s attention on an entire economy is like throwing a non-swimmer off a wharf and hoping he will learn how to swim. Wouldn’t it be better to let a beginner slowly wade in one business at a time?’50 Certainly there is a need to develop appropriate textbooks, both as a basis for more advanced study and to develop a level of general competence for communicating the insights of macroeconomic dynamics to other fields and to non-economists. Next, there is the question of how to communicate Lonergan’s discoveries to the various potential audiences. I would strategically divide the potential audience into two groups: non-academics and academics. As for the non-academic audience, the main need is for introductions. These can be tailored to meet the specific experience, needs, and questions of the intended audience. I can envisage, for example, writing an introduction to macroeconomic dynamics for community development officers in Newfoundland where I teach. I could use local issues such as regional disparity, the impact of petroleum development on price levels, rural decline, and so forth, to illustrate the theory. This connects the economic analysis to the practical and ethical concerns of the audience. While the concerns of scientists and academics overlap with the practically minded – even professors have to be practical – the academic world has its own unique function in the making of the world. That function involves

49 CWL15 xxiii. 50 Bruce Anderson, ‘From Leeches to Economic Science,’ JMDA 3 (2003) 310.

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a withdrawal from practicality into the world of theory. The withdrawal is an extended ‘reflective pause,’ whose purpose is to expand our research base, enrich our understanding, sharpen our critical judgment, and challenge our basic assumptions about the worlds in which we live. The withdrawal is not merely for its own sake. It has an existential and social significance. What we learn changes us; what we know can alter for the better the future world we are in the process of making. Ultimately, the withdrawal facilitates our collective global reflection about future action. Lonergan’s own work was theoretical: the point of his study of economics was to discover the significant variables of economic science so that we can understand how an economy actually works. Such an understanding helps correct past economic mistakes and do a better job of it in the future. However, now the academy is in a state of increasing confusion. One the one hand, specialization is increasing exponentially. As fields narrow, there emerges the problem of communication between the fields. The days of a ‘renaissance man’ are gone.51 Scientists must now be collaborators who work in teams. In the arts, too, the need for collaboration, if not embraced wholeheartedly, is, nonetheless, acknowledged. No one can keep up with the literature even in his or her own field. On the other hand, with increased specialization comes the need for communication among specialists. If the academy is not to be an ‘ivory tower’ sheltering eclectic interests (or worse, merely tools of particular economic and political interests), then there needs to be a method for coordinating the various activities within a science or discipline. Only then can results be coordinated to help meet the practical needs of the community. Yet we lack a commonly accepted understanding of how to bring together all types of study. This adds a complexity to any analysis of the academic situation, which one must address.52 I would begin by loosely dividing the current potential academic audience into economists, all other academics, and Lonergan scholars. Economists were Lonergan’s intended audience. We have already noted the failure to open a line of communication with this group. If I am correct that we are dealing with more than a paradigm shift within an established science, then the best hope for a positive reception among economists might be found among the diverse and marginalized groups already critical of the 51 On the problem of the fragmentation in contemporary subject and field specialization see, for example, David Bohm, Wholeness and the Implicate Order (London: Routledge, 1980), especially chapter 1. Bohm hits the problem on the nose, but his brilliant effort to handle it would benefit greatly from Lonergan’s critical realist epistemology and from functional specialization. 52 Functional specialization is Lonergan’s solution to the problem and provides a context for beginning to sort through this complex issue. To keep things simple, I have avoided that full context here. I take it up in chapter 8.

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current paradigm. This is the strategy behind the recent efforts of Bruce Anderson and Philip McShane, most prominently in their shared work, Beyond Establishment Economics, which addresses the community of economists directly.53 Their approach is to frankly acknowledge the gap between mainstream economics and macroeconomic dynamics and let the evidence guide readers. The assumption is that a fruitful dialogue must squarely face the reality of dialectic differences.54 Turning to other academics, I can be brief. The problem here is much like the problem of communicating to any non-specialist, and the need is for introductions tailored to the concerns of specific audiences.55 Finally, there is the world of Lonergan scholarship. This is in many respects a non-category. Yet, it is a group that I anticipate will make up the majority of my readers. Explaining why it is a non-category will go some distance to making clearer the nature of the complexity of academic discourse and suggest the nature of the needed solution. As happens in the humanities, scholars often become specialists in works of particular writers or times. There are Shakespeare scholars, Enlightenment scholars, Hegel scholars, and scholars of Victorian literature. They write theses, establish journals, and attend conferences devoted to understanding their special area of research. And so there are Lonergan scholars. I am one of them. This book is part of a series of works on Lonergan. 53 Bruce Anderson and Philip McShane, Beyond Establishment Economics (Halifax, NS: Axial Press, 2002); Philip McShane, Economics for Everybody (Halifax: Axial Press, 1999). 54 Lonergan writes in ‘Natural Right and Historical Mindedness’: ‘… beyond dialectic there is dialogue. Dialectic describes concrete process, in which intelligence and obtuseness, reasonableness and silliness, responsibility and sin, love and hatred commingle and conflict. But the very people that investigate the dialectic of history also are part of that dialectic and even in their investigating represent its contradictories. To their work too the dialectic is to be applied. ‘But it can be more helpful, especially when oppositions are less radical, for the investigators to move beyond dialectic to dialogue, to transpose issues from a conflict of statements to an encounter of persons. For every person is an embodiment of natural right. Every person can reveal to any other his natural propensity to seek understanding, to judge reasonably, to evaluate fairly, to be open to friendship. While the dialectic of history coldly relates our conflicts, dialogue adds the principle that prompts us to cure them, the natural right that is the innermost core of our being’ (3Coll 182). 55 On the complex issue of functional communications see Philip McShane, ‘Systematics, Communications, Actual Contexts,’ LW 6, 143–74. McShane argues for a sharp division between communication among the eight kinds of functional specialists and communication from specialist to non-specialists. Communication of results to other academics most frequently is not functional specialist communication but, like the journal Scientific American, is a species of popular presentation of theory. This is what I have in mind here.

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However, Lonergan’s achievement is most profoundly a transformation of methodology. The significance of both generalized empirical method and functional specialization is that it transforms academic labour. Implementation of its methods could change the academic set-up as profoundly as the scientific revolution transformed Aristotelian science. Yet, we do not speak of Galilean method but of scientific method. Likewise, we should not really be speaking of Lonergan’s method. It is my optimistic view that ‘Lonergan studies’ is an interim category that will eventually be sublated into functional categories as implementation of functional specialization transforms the academic landscape.56 This does not mean that people should stop studying Lonergan anymore that it would mean we should stop studying Kant, or Archimedes, or Aristotle. However, the designation of the field will be differentiated along functional lines not field or subject specialties.57 Lonergan studies is a subject specialization, and as such it will eventually be relocated in terms of the eight functional specializations. The audience I have in mind for this work is primarily students of Lonergan’s work. Given my own background, this is what I am best able to do to meet the needs of communicating the significance of Lonergan’s economics. First, as I indicated above, there is clearly a need for a primer in economics as well as for others kinds of introductory texts. This is not, however, what I intend here. Efforts have already been made in that direction.58 To some degree this frees me up from the necessity of writing another introductory text. Second, my own research over the past fifteen years has been into Lonergan’s primary texts from 1926 to 1944, in particular as they shed light on his intellectual development. It seems to me that an expansion of that work to include the economic manuscripts could be a good way to interest Lonergan scholars in his economics. 3

Hypothesis on the Sequence of Development in the Text

The present work, then, is an expansion of my previous work on Lonergan’s early writings on history. That work was an effort in the research and inter56 See Michael Shute, ‘Editor’s Introduction: Functional Interpretation,’ JMDA 4 (2004) 5–14. The entire issue is devoted to the theme of functional interpretation. 57 See chapter 8 below for an illustration of how the division of functional specialization might operate in economics. 58 See, for example, Anderson and McShane, Beyond Establishment Economics; McShane, Economics for Everybody and Pastkeynes Pastmodern Economics: A Fresh Pragmatism (Halifax, NS: Axial Press, 2002); and Eileen De Neeve, Decoding the Economy: Understanding Change with Bernard Lonergan (Sherbrooke, QC: Valois Inc., 2008).

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pretation of primary texts. By contrast, in the present context, the research component will appear in a separate volume, Lonergan’s Early Economic Research. I make available there a substantial selection of previously unpublished material. Here, however, I offer an interpretation of the development of Lonergan’s economics for the same period. Unlike my previous study, there are the special challenges, discussed above, that enter into deliberation about how to communicate results. As we have seen, Lonergan wrote for professional economists. Not only are the problems he tackled of a theoretical or technical nature, but also an understanding of the solutions he arrives at requires a significant, even radical, shift in approach. For those accustomed to common sense speech the shift is into a world of theory, and the danger is a fall into common sense eclecticism: ‘But it will also happen that theory fuses more with common nonsense than with common sense, to make the nonsense pretentious and, because it is common, dangerous and even disastrous.’59 For those educated in the prevailing tradition of economic pedagogy, the challenge is to enter humbly into a radically different theoretical framework. This requires a prior willingness to change positions if the evidence supports the shift. While I am wary of over-complicating the presentation, by telling the story of how the theory developed in the context of Lonergan’s intellectual quest, I hope to help scholars come to appreciate the significant part that economics (and the philosophy of history) played in his development. For the most part I have restricted myself to an account of the stages in the discovery of Lonergan’s macroeconomic dynamics. In his account of functional specialization, Lonergan distinguishes three exegetical tasks within the specialty Interpretation: ‘(1) understanding the text; (2) judging how correct one’s understanding of the text is; and (3) stating what one judges to be the correct understanding of the text.’60 It is the job of interpreters to recover significant developments and to present the findings to historians. This is what I have tried to do. For the most part I leave it to historians to connect these meanings to various historical developments, including in this case the history of economics I turn now to the interpretive hypothesis that informs the present work. I came upon a clue for how to handle the sequence of developments from the approach Lonergan took in his dissertation. In that work, Lonergan stresses the significance of the ‘form of development’ for the problem of interpretation. He writes: ‘The “form” of development automatically provides a scientific viewpoint for the rest of the investigation’ 61 Typically, intellec59 Method 98. 60 Method 155. 61 CWL1 163.

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tual development begins from an initial relatively undifferentiated stage and by way of a series of insights concludes with a successful development. Between the initial phase and the conclusion we can identify a series of differentiations of the initial viewpoint. We are not looking simply for a series of insights but for those that precipitate significant shifts in the ongoing viewpoint. In our case, we are looking for those key shifts in Lonergan’s advance towards the discovery and confinement of foundations for the science of economics. In his dissertation Lonergan marked off an initial viewpoint and a final viewpoint and specified the intervening phases.62 I have adopted the same procedure in this work. My search was for the significant shifts in Lonergan’s viewpoint in the period under study. I marked the initial viewpoint at the point prior to the start of formal studies in Rome in the fall of 1933. By then Lonergan had an understanding of the main elements of the Catholic approach to economics, but had yet begun to work out the distinct methodological approach that would characterize his theory. The completion of ECA in 1944 marks the final viewpoint. Between the initial and the final viewpoint, I have identified three further stages in the development of the theory. I mark off these stages based on shifts in the inquiry and based on the achievement of notable differentiations and integrations. Including the initial and final viewpoint, there are five stages. In these five stages, emphasis shifts between philosophy of history and economics. Early in his inquiry Lonergan raised methodological questions that required answers in order for him to advance understanding of economics. In his dissertation Lonergan saw an equivalent shifting between philosophical and theological concerns in the development of the theology of grace, citing the value of advances in the understanding of free will for sorting out the theological problem of grace and liberty.63 There are comparable instances in the case of Lonergan’s own development. Initially, in line with the main thrust of Quadragesimo Anno, Lonergan set economics within the overarching context of a theology of Catholic Action. The specification of the analytic concept of history, however, provided the precise methodological basis for a shift in economics to a fully dynamic context.64 The advance in this case was not in economics per se but in methodology. The five phases in the development of the economics between 1930 and 1944 are as follows: (1) The initial viewpoint, (2) economics as a compo62 See CWL1 162–90. 63 See CWL1 167. 64 The notion of liberty has a central place in both Lonergan’s theology and his political economy. How he understands and uses the notion should prove helpful in locating his work vis-à-vis other types of political theory and political economy.

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nent of a metaphysic of Catholic Action, (3) economics and the analytic concept of history, (4) political economy and the breakthrough to economic science, and (5) the achievement of macroeconomic dynamics. In each case, I have identified operators that lead to a greater differentiation and integrators that enable correspondence between new insights and previous achievement. The stages identified provide an organizing principle for the book. When we consider Lonergan’s development after 1944 we can add the emergence of generalized empirical method and functional specialization as general methodological developments relevant to understanding and implementing macroeconomic dynamics. While informed by an underlying hypothesis, I have interspersed biographical elements when appropriate. In chapter 1 I examine the origins of Lonergan’s initial viewpoint. This involves an account of his years at Heythrop College, London, and Montreal prior to his move to Rome in 1933. The next two phases in his development are largely developments in method that occurred while Lonergan was a student in Rome. In chapter 2 I trace the first shift in his view that occurs within the context of his essays on Catholic Action written in Rome in 1934 and 1935. There follows a further development of his work, with the emergence of his analytic concept of history in 1937 and 1938. This is the subject of chapter 3. Chapter 4 investigates Lonergan’s refinements in his view of liberty, history, and world order developed in his dissertation on gratia operans and in ‘Finality, Love, Marriage.’ In FNPE Lonergan sets down his fundamental breakthrough. In chapters 5 and 6 I present the core of the discovery. In chapter 7 I consider its development after FNPE. This chapter includes the transition to a more differentiated purely macroeconomic treatment in essay fragments written after FNPE and before ECA, as well as the advance to a pure macrodynamic analysis in ECA. In chapter 8 I look forward from this achievement to relate macroeconomic dynamics to developments after 1994. These include, most notably, generalized empirical method and functional specialization.

1 The Initial Viewpoint

Mind judges rather than syllogizes.1

The aim of this book is to trace the stages in the development of Lonergan’s solution to a fundamental problem in economic theory. The problem was manifest in the standard model in economic theory in 1930, the so-called great theory.2 That model assumed a self-regulating, inherently self-optimizing stable and coherent economic system existing in a timeless equilibrium. The conception was logically coherent but, as the Great Depression showed, divorced from the reality of actual economies. Real economies were not a static optimum; their courses were often unpredictable and the occurrence of depressions was a less than optimum outcome. The challenge was to develop an adequate theoretical basis for understanding the dynamic reality of economic process. The solution, as Lonergan eventually realized, required the specification of the core variables for the science of economics, core in the sense that they could handle the dynamic actuality of economic life. Just as the periodic table is relevant to all problems in chemistry, these variables would be applicable to all economic questions. Lonergan’s solution, then, would be a significant departure from the standard method, ‘a radical new beginning.’3 Specifically, it involved a shift in methodology, one that replaced the standard static conceptual analysis with dynamic ‘real analysis.’

1 ‘True Judgment and Science,’ CWL20 38. 2 See Shackle, The Years of High Theory, chapter 1. 3 CWL21 8.

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His earliest progress towards the solution did not occur in economic theory per se but more generally in the zone of methodology. Lonergan’s interest in the foundations of logic and cognitional theory, his encounter with the empirical methods of modern science, and his introduction to the issue of human historicity had a vital impact on this development and, ultimately, on his solution to the problem in economic theory. This chapter examines Lonergan’s initial viewpoint in economics. Subsequent chapters focus on the distinctive stages in the development of his economic theory. It is how Lonergan connects, reworks, and develops the seemingly disparate elements of his initial view that makes the story of his discovery of economic science so fascinating. I have taken his move to Rome to study at the Gregorian University in the fall of 1933 as the decisive point for beginning the exposition. By setting my account of the initial viewpoint at this point I can establish what the context was at the beginning of the ten-year creative period that produced both his dialectic theory of history and his macrodynamic economic theory. This involves gathering together the various influences and examining the tensions among them that constituted his fundamental challenge. Lonergan’s formative education was Catholic and classicist and this influence was decisive in shaping his initial viewpoint on economics and, indeed, his entire intellectual life. What survived in mid-twentieth-century Catholicism was the living relic of the integrated vision of human life achieved by medieval Christendom. That integration was at its core religious, expressing itself in the rhythms of everyday life, the economic, political, and legal structure, in various artistic and cultural expressions and in intellectual life. At its apex in the twelfth and thirteen centuries it provided, according to William Barrett, ‘a solid psychological matrix surrounding the individual’s life from birth to death.’4 The strengths of this classical culture were unity and stability. This allowed Roman Catholicism to weather the various forces that transformed Western civilization from a unity informed by Christian faith to a fragmented entity held together by the balance of powers and the secular self-interest that characterized the West between the First and Second World Wars.5 The negative aspect of this stability, however, was a ‘built-in incapacity to grasp the need for change and to effect the necessary adaptations.’6 This incapacity was manifest in resistance to genu-

4 William Barrett, Irrational Man: A Study of Existential Philosophy (Garden City, NY: Doubleday Anchor Books, 1962) 27. 5 See John S. Dunne, ‘Realpolitik in the Decline of the West,’ Review of Politics 21 (1959) 131–50. 6 Bernard Lonergan, ‘The Response of a Jesuit,’ 2Coll 182.

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ine secular developments and resistance to modern thought and modern institutions. There were, nonetheless, encouraging advances in many areas of Catholic intellectual life. The revival of Thomism initiated by Pope Leo XIII led to a flowering of historical scholarship, especially on Aquinas. Lonergan would later take full advantage of this development in his own studies of Aquinas.7 Ironically, by the second half of the century, this flowering had produced its own crisis of pluralism. A further development, also originating with Leo XIII, was the emergence of a Catholic social theory in response to the industrial revolution, the rise of the nation-state, and the emergence of secular philosophies of history. This was a shift in Catholic policy towards a more proactive approach to social change, one that was to some degree critical of status quo economic and political policy. The call to Catholic Action, which emerged out of this development, encouraged lay movements with practical agendas to deal with economic disparities. It was to be one of the portals through which Lonergan began his own shift out of a classicist viewpoint. There were for Lonergan a number of significant issues that challenged the classicist world view of his formative education. First, Lonergan disagreed with the conceptualist Thomist philosophy that formed the core of the Catholic curriculum. Reading Newman’s Grammar of Assent led him to seek an alternative approach to philosophy enriched by the exploration of human interiority. Second, Lonergan’s classes in physics, mathematics, and methodology introduced him to modern empirical science. Third, Lonergan’s discovery of Christopher Dawson’s work introduced him to the problem of human historicity, which posed a major challenge to the static foundations of classicist thought. It was Dawson’s work that was a major influence in his decision to develop his own philosophy of history. Finally, the contemporary economic and political situation moved Lonergan to seek out an appropriate and effective Catholic response to the crisis in the West, which in turn led him to economic theory and philosophy of history. Lonergan’s creative struggles with these developments in the context of the Catholicism of his formative years provides the context for specifying his initial viewpoint. We will explore each of these elements. The chapter begins with a discussion of Lonergan’s initial explorations in methodology at Heythrop College and contrasts the influences of John Henry Newman and J.S. Mill on Lonergan, both of which are clearly present in Lonergan’s earliest writings on the foundations of logic in the Blandyke Papers. In section 2 I turn briefly to Lonergan’s introduction to the scientific revolution at Heythrop, a development closely related to his explorations in meth-

7 Ibid. 184.

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odology. In section 3 I take up Lonergan’s introduction to the problem of historical-mindedness through Christopher Dawson. Dawson was also a significant early influence in Lonergan’s understanding of the modern crisis in culture. In section 4 I consider the influence of Catholic economics on Lonergan. After briefly considering his intrinsic interest in the subject, I examine the influence of Lewis Watt at Heythrop and the general context of the Catholic approach to the economic problem. Section 5 examines Lonergan own early research in economics before his move to Rome. Finally, I bring these elements together to specify Lonergan’s initial viewpoint in economics. 1

Methodology

In 1926 Lonergan moved to London, England, to take up studies in philosophy at Heythrop College and, in his final year, courses to attain an external BA degree from the University of London.8 The course of studies at Heythrop did not tax him much. Fred Crowe writes: ‘His professors [at Heythrop] were honest and able, but the philosophy was second rate.’9 Lonergan himself recalls: ‘The professors were competent and extremely honest in their presentation of the wares.’10 The philosophy taught was conceptualist and Suarezian, an approach Lonergan would decisively reject. ‘I was very much attracted by one of the degrees in the London syllabus: Methodology. I felt there was absolutely no method to the philosophy I had been taught; it wasn’t going anywhere.’11 In a letter to his superior Lonergan expressed the desire to take methodology; the reply was ‘no, do classics.’12 Crowe reports that ‘later on Lonergan was grateful, judging the method he created better than what London would have given him.’13 Following the example of John Stuart Mill, methodology at Heythrop was taught as the division of logic that pertained to scientific method. Lonergan may have suspected that the scope of methodology was broader. He wrote 8 On Lonergan’s time at Heythrop College, London, see Liddy’s Transforming Light; Frederick Crowe’s Lonergan (Collegeville, MN: Liturgical Press, 1992) and ‘Lonergan’s Vocation as a Christian Thinker,’ in Developing the Lonergan Legacy; and William Mathews, ‘On Lonergan and John Stuart Mill,’ Milltown Studies 35 (1995) 39–50; ‘Lonergan’s Quest,’ Milltown Studies 17 (Spring 1986) 3–34; and Lonergan’s Quest: A Study of Desire in the Authoring of Insight (Toronto: University of Toronto Press, 2005), 32–48 [hereafter LQ]. 9 Crowe, Lonergan 13. 10 2Coll 263. 11 CM 10. 12 Quoted from Crowe, Lonergan 13–14. 13 Ibid. 14.

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to his friend Henry Smeaton: ‘The theory of knowledge is what is going to interest me now.’14 From the beginning, then, Lonergan considered the theory of knowledge and method together. Frederick Crowe writes: ‘He was under a kind of compulsion as well: he had to get to the bottom of things.’15 Methodology, it seems, was a good avenue for working out this ‘compulsion.’ Like Socrates, Lonergan had his ‘daemon,’ one he later specified in Insight as the pure desire to know. Lonergan’s interest in ‘methodology’ was an obvious manifestation of his uneasiness with the Suarezian Thomism dominant at Heythrop.16 In his later writings, Lonergan frequently stated his own critical realist position by contrasting it with this conceptualist counter-position. The conceptualist was Lonergan’s ‘straw man.’17 Both J.S. Mill and Newman played roles in Lonergan’s struggle to counter the prevailing conceptualism, though their roles were quite different. Lonergan’s relationship to Mill was adversarial; Newman, by contrast, was an ally. Although he would eventually be opposed to the empiricism of Locke, Hume, and J.S. Mill, Lonergan was, nonetheless, attracted by the empirical bent of the English philosophical tradition.18 Mill’s influence dominated the teaching of logic at Heythrop.19 His significance in the history of English logic comes from his effort to integrate empirical scientific

14 Ibid. 15 Frederick Crowe, ‘Bernard Lonergan as Pastoral Theologian,’ in Appropriating the Lonergan Idea 149. 16 Suarez is best known for denying the real distinction between essence and existence. Lonergan’s confirmation of this distinction occurred while a student in the 1930s at the Gregorian. He writes: ‘Bernard Leeming’s course on the Incarnate Word … convinced me that there could be no hypostatic union without a real distinction between essence and existence’ (‘Insight Revisited,’ in 2Coll 265). See also Liddy, Transforming Light 9–11. 17 See, for example, CWL3 717–18 [695–96]. 18 On the contemporary intellectual influences of English philosophy on Lonergan, see Mark D. Morelli, ‘The Realist Response to Idealism in England and Lonergan’s Critical Realism,’ MJLS 21:1 (Spring 2003) 1–23. 19 For Mill’s influence on Lonergan, see Mathews, ‘On Lonergan and John Stuart Mill,’ 40–41 but passim. Mathews notes that in preparation for his examinations in Logic and Epistemology Lonergan read the following group of authors: C. Frick, Logica (1983, 6th ed. 1924), H.W.B. Joseph, An Introduction to Logic (1906), G.H. Joyce, Principles of Logic (1908), and P. Coffey, The Science of Logic (1912). Lonergan studied Joseph’s An Introduction to Logic very closely. See ‘Insight Revisited,’ 2Coll 263. While the structure of Joseph’s book shows the influence of Mill, Aristotle influenced Joseph’s approach to the operations of the mind. His influence on Lonergan is worth further study, especially for its role in the development of Lonergan’s philosophy of logic.

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methods with traditional logic. William Mathews notes: ‘Although some of the details of Mill’s reflections on scientific method are now dated, what is enduring is the enormous methodological agenda of the work and the context it establishes for the meaning of the word, method.’20 Mill’s System of Logic was motivated by ‘the aim of removing the obstacles which false philosophies placed in the path of social progress.’21 Ernest Nagel sums up the central thesis of the book: ‘[S]ound action is possible only on the basis of sound theory, and sound theory (whether in the natural or in the social sciences) is a product of a sound logic. Mill was perfectly convinced all reasoning is resolvable into a series of syllogisms and that in every syllogism the conclusion is “actually contained and implied in the premises.”’22 For Mill, ‘all the conflicts between fundamental beliefs have their ultimate origin in differences in logical theory.’23 As an empiricist, he held that all knowledge derives from experience. He sought to ground his principles of logic in the psychological assumptions of sensationalist psychology, specifically, Hartley’s psychology of association. Mill intended to demonstrate that the laws of thought themselves had to be products of the laws of association. He was deeply suspicious of ‘informal’ procedures such as induction and generalization from experience. In his view it is a mode of generalization that confuses empirical laws with causal laws. All inferences are from particulars to particulars and generalizations are but collections of particulars. Particulars as such cannot be deduced (inferred) from general propositions. For example, in Mill’s view, the elliptical movement of planets is merely a descriptive hypothesis.24 Certainly, Lonergan himself would endorse Mill’s goal of grounding sound action in sound theory. However, he would decisively disagree on the priority of logic in the control of knowledge. In later life, when Lonergan remarked about the shortcomings of methodology instruction at Heythrop, he may well have been thinking of the distance between his own position and that of Mill. Nevertheless, the struggle to discover the root of the deficiencies in Mill’s position contributed greatly to his own advance. Mill did not provide answers, but he did introduce Lonergan to a systematic approach to methodology, raising questions and introducing notions that would help Lonergan to articulate his own methodology. It is worth noting that J.S. Mill is the main influence on Lionel Robbins’s An Essay on the

20 Ibid. 41. 21 Ernest Nagel, ‘Introduction,’ in J.S. Mill, Philosophy of Scientific Method (New York: Hafner Publishing Co., Inc, 1950) xv. 22 Ibid. xxvi. 23 Ibid. xxvii. 24 Ibid. 175–80.

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Nature and Significance of Economic Science. Robbins’s book was perhaps the most influential book on method in economics in the 1930s, and Lonergan made extensive notes on it in the early 1940s.25 Mill was also an influential economist. His work Principles of Political Economy was ‘all through the second half of the nineteenth century … the undisputed bible of economists.’26 Mark Blaug writes: ‘It was primarily in Mill’s formulation that the ideas of the writers in the first half of the 19th century reached the founders of the “new economics” of the second half.’27 He was an important influence on the Austrian economists whom Lonergan later studied with great interest.28 The notion of ‘analysis’ Lonergan arrived at in the late 1930s, which had a direct bearing on his macroeconomic analysis, benefited from this dialectic engagement with Mill.29 Both Lonergan and Mill sought ‘pure forms’ which would provide the framework or structure to apply to the concrete instance. The difference between them lies in how they understood the ‘pure forms’ that were the basis of the structure. Mill built his structure from the canons of logic; Lonergan built his structure on ‘the operations of the mind.’ Mathews argues that the notion of ‘scientific canons,’ the distinction between ‘body’ and ‘thing,’ and the term conjugate form also have their origins in Lonergan’s response to Mill.30 Lonergan transformed these notions in the context of generalized empirical method. A less obvious influence, but no less significant, was Mill’s interest in developing both a logic and an economic theory that could direct social and political reform. While not an explicit theme for Lonergan in his Heythrop years, finding an adequate solution to the problem of how to implement metaphysics was a life-long concern, driving his search for functional specialization. In economics, Lonergan was explicitly

25 An Essay on the Nature and Significance of Economic Science (Macmillan, 1932). For Lonergan’s complete notes on Robbins, see LEER chapter 3. 26 Mark Blaug, Economic Theory in Retrospect, 4th ed. (Cambridge: Cambridge University Press, 1985) 179. There is no evidence as yet that Lonergan read Mill’s economic writings. 27 Ibid. 179–81. 28 On Mill’s influence on the Austrians, see Blaug, Economic Theory in Retrospect 179–224. The archives hold Lonergan’s notes on Hayek and Schumpeter. See LEER chapters 5–7. 29 On the distinction between real analysis and logical analysis, see ACH 7–8. 30 To fill out the complexity of origins here, Mathews in ‘On Lonergan and John Stuart Mill’ notes that the notion of ‘thing’ has origins in Aristotle’s notion of substance and that Lonergan’s use of conjugate forms has affinities with the American philosopher Dewey (46–47). The distinction between central and conjugate forms can be traced to Aristotle’s distinction of substance and accident. See CWL3 462.

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interested in developing precepts for the running of an economy derived from economics analysis. He tells us: ‘How can you get economic moral principles that are based on the economy itself? That was my question.’31 A sketch of the key differences between Lonergan and Mill will help spell out elements of Lonergan’s early development in methodology. Like Mill, Lonergan granted that knowledge was empirical. Like Mill, he would later establish foundations for logic in an account of the operations of the mind.32 However, Lonergan’s appreciation of the mind’s operation was much richer. Mill’s empiricism began and ended with the empirical, meaning sense data. While Mill sought to establish the empirical origin for reasoning, reasoning itself was but a series of syllogisms.33 For Lonergan, the empirical meant (as it did for Aristotle) that knowledge begins in the senses. However, Lonergan included both the data of sense and the data of consciousness in his notion of the empirical: the meaning of ‘empirical’ includes the self-examination of acts of sense and thought (understanding and judging) that constitute the spontaneous operations of informal reasoning. While Mill’s use of David Hartley implicitly acknowledged the relevance of the data of consciousness, it was a limited acknowledgment. According to Hartley, we can analyse (reduce) complex mental process into chains of association. Hartley pictured mental events and neural events as parallel operations in which the neural events caused mental events. New ideas occur by virtue of association with past associations, which bond together because of hedonistic associations. In this theory, he reduces intelligence, reason, and belief to non-intelligent, non-rational, mechanical, or neural processes. Hartley’s theory of association was an important influence in the development of utilitarianism, and the utilitarian theory of value under the guise of maximizing utility remains a central feature of the standard model in economics.34 B.F. Skinner’s behaviourism is a later development of it.35

31 CM 31. In FNPE Lonergan writes: ‘What is needed is a new political economy that is free from the mistakes of the old, a democratic economics that can issues practical imperatives to plain men’ (CWL21 5). 32 CWL18, especially chapter 4. 33 This is the view of Ernest Nagel in his introduction to Mill’s System of Logic, xxxi–xliii. 34 See, for example, Amartya Sen’s discussion of utility and value theory in On Ethics and Economics (Oxford: Blackwell, 1988), passim. For an incisive discussion of the problems with utilitarian value theory, see Joan Robinson, Economic Philosophy (Chicago: Adline Publishers, 1962), chapter 1. 35 For a critique of B.F. Skinner, see Larry Cooley, ‘B.F. Skinner’s Radical Behaviorist Theory of the Cognitive Dimension of Consciousness: A Lonerganian Critique,’ MJLS 6:2 (1988) 107–37.

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Lonergan would reject Mill’s empiricist reduction of mental operations to neural process. Even at this early stage, Lonergan stood neither with the empiricists nor with the idealists. He considered himself a nominalist, though he did not remain so for long. He writes: ‘My nominalism had been an opposition, not to intelligence or understanding, but to the central role ascribed to universal concepts.’36 Significant in Lonergan’s eventually shift away from nominalism after he left Heythrop would be his reading of J.A. Stewart’s book on Plato: ‘From Stewart I learned that Plato was a methodologist, that scientific or philosophic process towards discovery was one of question and answer.’37 However, it was Newman who helped him thread the needle between the empiricism of Mill and the Thomist brand of conceptual idealism. Newman was the antidote to Mill’s empiricism. Newman’s study of the informal operation of the mind in the Grammar provided Lonergan with an approach that could handle the deficiencies of Mill’s logic. Lonergan thought of himself as an orthodox ‘man of faith.’ So, it may have been questions about the nature of belief that led him to Newman. Nevertheless, he prized intelligence and was seriously interested in developments in the empirical sciences. He was content with neither a nominal assent to Catholic doctrine nor a simple-minded Enlightenment rejection of belief. He wished to affirm both reason and faith and to understand the basis for affirming both. In this, he was in agreement with the Vatican I doctrine that reason was not opposed to faith. In Newman’s Grammar of Assent Lonergan found an intelligent defence of belief that addressed Enlightenment rationalism as well as the deficiencies in the Thomism of the Catholic schools.38 In the article ‘Insight Revisited,’ reflecting on Newman’s abiding personal significance for him, Lonergan writes: ‘Newman’s remark that ten thousand difficulties do not make a doubt has served me in good stead. It encouraged me to look difficulties squarely in the eye, while not letting them interfere with my vocation or my faith.’39 It was the non-scholastic Newman, especially the Newman of the Grammar, rather than Aquinas, that was the seminal influence here.

36 ‘Insight Revisited,’ 2Coll 264. 37 Ibid. John Alexander Stewart, Plato’s Doctrine of Ideas (1909; New York: Russell & Russell, 1964). For a thorough account of this development, see Mark D. Morelli, At the Threshold of the Halfway House: A Study of Bernard Lonergan’s Encounter with John Alexander Stewart (Chestnut Hill, MA: Lonergan Institute at Boston College, 2007). 38 J.H. Newman, An Essay in Aid of a Grammar of Assent (Oxford: Clarendon Press, 1985). 39 2Coll 263.

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Newman’s brilliance was in his appeal to the concrete experience of thinking. He rejected the view that formal logic was the best expression of human knowledge. Lonergan writes: ‘Newman’s contention is that we should be satisfied with the simple judgment because we cannot analyze all our grounds for making the judgment. If formal expression does not do justice to our real grounds, then formal expression is not the natural criterion of our real grounds.’40 On this account, it is possible to be certain in matters of belief even if we cannot arrange the resulting judgment readily into syllogistic form. The human mind recognizes ‘the convergence of probabilities’ that makes it silly to doubt one’s grounded beliefs. Newman held that belief is an essential component to human knowledge because it makes human collaboration possible. It makes more sense to trust the belief process than to doubt everything. Lonergan writes: ‘Instead of pronouncing all our assents untrustworthy from a nervous fear of error, we take ourselves as we find ourselves, wrong perhaps on a few opinions but for the most part right. By the digestion of these views and by the assimilation of new ones which come to us as the mind develops and experience increases, error is automatically purged away.’41 This position contrasts sharply with Descartes’s project of methodic doubt, so influential in Enlightenment notions of reason. On Newman’s view, Descartes’s method misunderstands the crucial role of belief in human knowledge. Without belief, each of us has to discover everything for ourselves. Yet in real life, belief is necessary for daily business. Thus, Lonergan would affirm Newman’s defence of belief as a reasonable procedure.42 Through Newman’s influence, Lonergan begins an exploration of cognitional process that eventually becomes the key to his methodology. Lonergan takes from Newman the distinction between notional and real apprehension and assent, with the implicit recognition of the distinction between understanding (apprehension) and judgment (assent), on the one hand, and the nominal and the real, on the other hand. In the twenty years to follow, Lonergan would transform Newman’s descriptive account of mental process into the explanatory account of cognitional process that informs his Verbum studies and Insight. Perhaps prepared by his reading of Newman’s Grammar or knowledge of Aristotle’s De Anima, Lonergan realized the pivotal role that insight into phantasm has in human cognition, a discovery first made by Aristotle.43

40 ‘True Judgment and Science,’ CWL20 37. 41 Ibid. 42 For Lonergan’s mature account of belief, see CWL3 725–40 [703–18] and Method, 41–47. 43 Lonergan quotes from De Anima III, 7 on the title page of Insight.

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Lonergan would later remark about the De Anima: ‘There is a Swiss who claims that eighty percent of the “works of Aristotle” are not by Aristotle. I know who the great man was – the fellow who wrote the seventh and eight books of the Metaphysics, and the third book of the De Anima.’44 It is unclear, however, when Lonergan first realized the significance of ‘insight into phantasm’ and, in any case, his exposition of insight in the Blandyke Papers lacks the precision and detail we find later in Verbum and Insight. Nonetheless, a significant ‘creative breakthrough’ occurs at this time.45 The evidence of the breakthrough first appears in ‘The Form of Mathematical Inference,’ ‘published’ in January 1928.46 Mention in the essay is made of ‘Aristotle’s account of cognitional faculties and functions.’ 47 We know he had by this time read Aristotle’s De Anima in Greek, but Frederick Crowe reports that he was critical of Aristotle at the time.48 This suggests he had yet to realize the significance of Aristotle’s account in book III of ‘insight into phantasm.’ Lonergan goes on to mention Thomas Aquinas, though he was not a significant influence at this time.49

44 CM 21. 45 See Frederick E. Crowe, ‘Insight: Genesis and Ongoing Context,’ LW 8 (1990) 61–83. The essay is reprinted in Developing the Lonergan Legacy 32–52. Page references to follow are to the LW 8 edition. 46 ‘The Form of Mathematical Inference,’ CWL20 3–12. Published meant copying the essay by hand into a notebook left in the College reading room. See CWL20 3. 47 ‘The Form of Mathematical Inference,’ CWL20 4–5. Lonergan refers to the logic texts of Joseph, Coffey, and Joyce. See note 19 above. There is also a reference to Newman. 48 Crowe, Lonergan 32 n. 30 and 34 n. 49. 49 In ‘The Form of Mathematical Inference’ he writes: ‘Thomas … followed some of the Moors in adding vis cogitativa to Aristotle’s account of cognitional faculty and functions’ (CWL20 4). Frederick Crowe writes: ‘Lonergan attributes his insight into phantasm to the Thomist vis cogitativa. This is quite simply an error, and could hardly have happened had he read Thomas on the question; but in fact, as his reference indicates, he was using secondary sources’ (‘Insight: Genesis and Ongoing Context,’ in Developing the Lonergan Legacy 39). Reference to Thomas on vis cogitativa enter into the argument of Verbum. See the index in CWL2. A proper understanding of the function of vis cogitativa (the ‘estimative sense’ in animals), by which human beings know particulars, and the function ‘insight,’ resolves the medieval problem of universals. Aquinas’s metaphysics is squarely at odds with the metaphysics of Duns Scotus, which greatly influenced much of the scholastic interpretation of Aquinas. Lonergan writes in CWL2: ‘But the man of experience merely knows the universale in particulari and that knowledge is not intellectual knowledge but exists in a sensitive potency variously named the ratio particularis, cogitativa, intellectus passivus’ (43). ‘Knowing universals

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Lonergan’s Discovery of the Science of Economics A

E

E B

C

D

Figure 1

In the essay itself, Lonergan appends three diagrams to illustrate the need for images in order to understand. It is the second diagram, taken from the 16th proposition of Euclid’s first book, that Lonergan returns to in subsequent writings and lectures as an illustration of ‘insight.’50 The proposition states: ‘In any triangle, if one of the sides is produced, then the exterior angle is greater than either of the interior and opposite angles.’51 If we take the triangle to be ABC (see figure 1), produce the side BC to D. ACD becomes the exterior angle, which Euclid wants to prove, is greater than BAC. In Euclid’s proof he bisects the side AC at E, joins BE so that EF is equal to it, and joins FC. With this construction of BF, the proof follows easily, ‘since AE equals EC, and BE equals EF, therefore the two sides AE and EB equal the two sides CE and EF respectively, and the angle AEB equals the angle FEC, for they are vertical angles. Therefore, the base AB equals the base FC, the triangle ABE equals the triangle CFE, and the remaining angles equal the remaining angles respectively, namely those opposite the equal sides. Therefore, the angle BAE equals the angle ECF.’52 The proof, however, depends upon a casual insight that F (must) always lie between C and D. Euclid does not prove this; it is ‘evident’ in the diagram. It was insight into Euclid’s use of such casual insights in his proofs that eventually led to the modern development of non-Euclidean

in particulars, knowing what is common to the instances in the instances, is not abstraction at all; it is an operation attributed by Aquinas to the sensitive potency which he names the cogitativa’ (53). Nonetheless, ‘the comparisons of the cogitativa prepare one for an act of insight, seeing in the data what itself cannot be a datum’ (56), for ‘it would seem that this influence of agent intellect on phantasm is mediated by the sensitive potency named the cogitativa’ (93 n. 165). 50 For example, CWL10 110–13; CWL5 24–26; and CWL18 95 and 301. 51 Euclid, Elements Book 1, Proposition 16. 52 Ibid., Proposition 17.

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geometry. The ‘obviousness’ that EF must lay between AC is a feature of two-dimensional plane geometry.53 The point for Lonergan is that you see what must be so in the image, ‘but you don’t imagine the must; you understand it.’54 Crowe writes: ‘Now the astonishing thing about this essay, his first publication appearing when he just turned twenty-four, is the firm appropriation it shows already of the act of insight.’55 Lonergan already had a sophisticated perspective on rigour, definition, and casual insights that would help him to notice their occurrence or absence in standard economics. On this point, there is a further question regarding Lonergan’s reading of Thomas Heath, whom he quotes in ‘A Note on Geometrical Possibility.’56 If Lonergan’s work on Heath belongs to this early period, as I suspect it does, then his clarity on the distinction between descriptive and essential definition would have carried over to his work on economics.57 The oversights involved in merely describing the straight-line parallels are neatly analogous to the oversights involved in present descriptions of the productive process. A course in geometry taught by Charles O’Hara that Lonergan took in his last year was certainly significant in enriching his appreciation of the role of phantasm and the importance of the diagram. In his teaching, O’Hara emphasized the impor-

53 Relevant in this regard is the following diagram and note appended to Lonergan’s presentation of this same example from CWL18 12 n. 12. A D,F

E B

54 55 56

57

C

It might help the reader to consider the problem when the triangle ABC is on a basketball. The diagram has BC as equal to a quarter of a great circle, so F lands on D. With BC longer, F gets out from between CA and CD (12). CWL5 25. Crowe, ‘Insight: Genesis and Ongoing Context’ 33. Lonergan, ‘Note on Geometrical Possibility,’ CWL4 92–107. The reference is to Sir Thomas Heath, The Thirteen Books of Euclid’s Elements, vol. 1, trans. from the text of Heiberg with intro. and commentary (Cambridge: Cambridge University Press, 1926). On this, see CWL18 93–101.

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tance of the diagram in working out problems in geometry. In interviews later in his life Lonergan recalled O’Hara’s method of ‘flagging the diagram.’58 O’Hara’s specialty was projective geometry. Projective geometry comes from a tradition independent of Euclidian geometry. It deals with two types of mathematical entities, points and lines. The image of ‘point to point’ and ‘point to line’ relationships will prove significant. In both FNPE and ECA the relationship between elements of production and the standard of living is explained as a ‘point to point’ relationship in the basic circuit and ‘point to line’ or higher correspondence (point to surface, etc.) in the surplus circuit.59 O’Hara’s projective geometry was surely the influence here.60 The Blandyke Papers provide us with our best evidence of Lonergan’s development in methodology at this time.61 In ‘The Form of Mathematical Inference,’ Lonergan distinguishes two kinds of inference: the formal, which is conceptual, and the informal, which is sensible. He gives as an example the form of the hypothetical inference: If A > B, B > C, Then A > C. He argues that the relations in the inference are actually concrete, not conceptual. By concrete, he means, ‘it relates these terms (in pairs), not by the logical copula “is,” which would express a subject-attribute identity, but by a copula which expresses a directly and intuitively apprehended relation of magnitude between the terms of each pair – by the copula “is greater than.”’62 58 About O’Hara Lonergan tells us: ‘He was quite a pedagogue; he had methods. One of his methods was: flag the diagram. Draw a diagram; mark all the values you know on it. You should be able then to see an equation or two equations – whatever you need – and get the solution. Don’t learn the trigonometric formula by heart; just flag the diagram and read off the formula.’ See CM 2. 59 CWL21 14–16, 235–37; CWL15 23–28. 60 In CM we find the following: N.G. (Nicolas Graham) Someone has remarked that your breakdown of the productive process in terms of point-to-point, point-to-line, comes out of physics. B.L. (Lonergan) It comes out of geometry. (183) 61 Our analysis of these three papers will be brief. For a more detailed exposition, see Liddy, Transforming Light 20–34. 62 ‘The Form of Mathematical Inference’ (CWL20 6).

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B A C

Figure 2

An implication in the argument is resoluto ad phantasm, that is, the grasping is by virtue of a generic image that represents satisfactorily the relationships held between the indeterminate A, B, C as depicted in figure 2. Images are similarly necessary in algebra and in axiomatic proofs. In the case of algebra, symbols are essential ‘because they make ideas suitable objective-matter for the operation of vis cogitativa.’63 Mathematical ideas depend on the occurrence of images and are, therefore, a species of concrete thought. Lonergan acknowledges the positive role of abstraction. The point is that abstraction requires the use of phantasm. He uses Newman’s distinction between notional and real apprehension, and argues that there is no real abstraction, and hence no real apprehension, without the use of the phantasmal image.64 Formal inference is merely notional. It checks the consistency of the argument, that is, it states the implications of a premise, but does not add anything to what we already know. Lonergan restates the claim in his next paper ‘The Syllogism.’ He argues that ‘the meaning of the inference is found in the perceptual scheme,’ 65 and finds there is an affinity between the concrete inference and the universal proposition. That affinity is found not in the formal inference, but in the hypothetical inference, ‘If A, then B.’ In ‘The Syllogism’ Lonergan details how different ‘forms’ of the syllogism can all be ‘reduced to’ one form, the hypothetical inference. He achieves the ‘reduction,’ not by eliminating forms as invalid, but by demonstrating that all types of syllogism can be expressed in the hypothetical form. The proof for the argument is the criterion of the mind itself, which, as he puts it in ‘True Judgment and Science,’ is ‘far higher, wider, more certain, subtle, than logical inference.’66 This

63 Ibid. 135. On the vis cogitativa, CWL20 10. See note 49 above. 64 The later distinction is between ‘enriching’ abstraction and ‘impoverishing’ abstraction. See CWL3 111–12. 65 CWL20 18. 66 ‘True Judgment and Science,’ CWL20 41.

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is the conclusion he comes to in ‘The Form of Inference.’67 All are relevant background to Lonergan’s discussion of understanding and definition in the first Verbum article.68 In ‘True Judgment and Science’ he shows most fully his debt to Newman. This paper is a study of Newman’s illative sense. Crowe argues that this article is ‘the forerunner of Lonergan’s second Verbum article (1947) and of his independent position in 1953 on judgment.’69 Certainly there is a line from Newman’s illative sense to Lonergan’s notion of reflective understanding. Lonergan makes the connection himself on a number of occasions.70 In the article he brings Newman’s Grammar to bear on the false claim that certainty is restricted to scientific conclusions. He builds further on Newman’s argument that the formal syllogistic inference is not the form of thought.71 This restates the arguments of the prior two papers, and adds a stress on the act of judgment. He writes: ‘The mind judges rather than syllogizes.’72 In these three essays we find in seed form the elements of three cognitional levels of Insight. Besides the empirical, Lonergan has adopted Newman’s distinction between apprehension (intelligence) and assent

67 ‘The Form of Inference,’ Thought 18 (1943) 277–92; CWL4 3–16. Lonergan concludes the article as follows: ‘For the same reason we have not aimed at explaining inference but rather at finding the highest common factor of inferences no matter how they are explained. Indeed, it is precisely in our attitude towards the explanation of inference that we differ from the approach of the more traditional manuals on logic; the latter presupposes an explanation of conceptualization and of inference; we on the contrary have aimed at taking a first step in working out an empirical theory of human understanding and knowledge’ (16). 68 CWL2 12–60. This chapter originally appeared in Theological Studies 7 (1946) 349–92. 69 Crowe, ‘Insight: Genesis and Ongoing Context,’ in Developing the Lonergan Legacy 36. 70 CWL2 60; ‘Insight Revisited,’ 2Coll 263, 173; CWL5 109, 351; and CM 14. 71 Both Lonergan and Newman opposed a defective conceptualism whose origins Lonergan placed with Dun Scotus. See CWL3 391–97 [367–73]. Lonergan did, however, acknowledge the positional significance of Descartes’s cogito. See CWL3 413–14. As well, embedded in the Thomism of the schools was the vestige of Thomas’s authentic critical realism as, for example, in the persistence of metaphysical terms such as potency, form, and act. By 1935, in his letter to Fr Keane, Lonergan claims that the real Thomas was not the Thomas as taught in the schools. In Verbum he bring out fully the implicit cognitional understanding controlling Thomas’s philosophy and theology. 72 See note 1 above.

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(reasoning).73 It is unclear to what extent, if any, Lonergan explicitly recognized the three distinct cognitional levels of experience, understanding, and judgment that is his position in Insight. He was, however, clear on the difference between the spontaneous acts of consciousness, sensing, imagining, understanding, formal propositional expression, reasoning, and judgment. Thus, rejecting Mill’s position that logic was the foundation of reason was a fundamental stepping-stone for Lonergan. As we have seen, this rejection was provoked by the suspicion, confirmed and supported by his reading of Newman’s Grammar of Assent, that there was more to thinking than playing with concepts. He cites positively Newman’s commentary that ‘to abandon the abstract definition for the object defined, the portrait for its living original, is one of the essential principles of the method.’74 I suspect one of the reasons for Lonergan’s attraction to Newman’s writing was because he already had doubts about conceptualism. Here we have the very beginnings of Lonergan’s personal shift out of the logical ideals of what he later called the second stage of meaning and a move in the direction of the more fully empirical methodological control he would envisage for the third stage of meaning.75 Lonergan’s discovery of the function of the image in thinking, and the realization that the general is apprehended in the particular, established a link between the empirical and the intelligible which Descartes located in the pineal gland and Mill tried to find through a correlation between syllogistic chains and the putative psychological laws of association. Lonergan’s meaning of ‘empirical’ has origins in Aristotle and Newman: acts of sense are a necessary but not sufficient condition for knowing. Knowing also requires acts of understanding and reasoning. The act Aristotle identifies as ‘insight into phantasm’ links sensing and thinking. All this leads Lonergan to an entirely different understanding of ‘induction’ and ‘generalization.’ While he does not address either of these issues explicitly in the Blandyke Papers, the implication of his position is easily drawn. For Mill neither ‘induction’ nor ‘generalization’ are valid steps in reasoning. For Lonergan however ‘induction’ and ‘generalization’ are valid procedures arising from the spontaneous or natural operation of the mind.76 All this bears

73 On Newman’s distinction between apprehension and assent, see Charles C. Hefling, Jr, ‘Newman on Apprehension, Notional and Real,’ MJLS 14:1 (Spring 1996) 55–84. 74 ‘True Judgment and Science,’ CWL20 41. 75 On second and third stages of meaning, see Method 93–96. On the philosophical grounds for the sublation of logic by method, see CWL18, chapter 4. More generally on the shift from logic to method, see 3Coll 137–40. 76 Mark Blaug in The Methodology of Economics or How Economists Explain

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on Lonergan’s understanding of the method in the sciences at this time. There is a strong suspicion of and resistance to the reduction of knowledge to a positivist notion of scientific method. He sought an understanding of scientific method that acknowledges the universal validity of belief for human knowing; belief is a normal cognitive feature of both religion and empirical science. From J.S. Mill he learned the value of the analytic method, an approach that sought out the fundamental variables for understanding a subject. Yet he knew the resulting analysis must observe the canons of empirical method if it was to be scientific in the modern meaning of the term.77 2

Lonergan’s Introduction to the Scientific Revolution

While Lonergan’s initial exploration of cognitional process and foundational logic in the Blandyke Papers would have important consequences for his understanding of empirical method, his economic writings were in the direct mode of discourse. Many of the key features of his model Lonergan adapted from the physics of mechanics and fluid dynamics. In both FNPE and ECA Lonergan regularly invokes the analogy of the economy as a mechanical process.78 His breakthrough to a fully dynamic notion of economic process benefits from insights from the physics of fluid dynamics. The use of terms such as ‘rates of flow,’ ‘acceleration,’ ‘lags,’ and ‘vectors’ reflect this fact. Lonergan’s interest in mathematics obviously helped him. As

(Cambridge: Cambridge University Press, 1989) writes: ‘The history of philosophy is simply littered with unsuccessful attempts to solve “the problem of induction”’ (15). In Insight Lonergan’s position on induction is clear and unequivocal: ‘In fact, the problem of induction arises because the particular case may not be properly understood; and it is solved seeking that correct understanding’ (CWL3 326 [301]). The problem is not the operation of generalization but mistaken generalizations, the origins of which are incomplete or incorrect insights. If the insight into the particular is mistaken, then the generalization will be likewise mistaken. The solution is to acknowledge the mistake and trace back to its original source in the mistaken or incomplete insight. In other words, it is a self-correcting process. See also CWL3 312–14 [287–89]. 77 Tom McCallion illustrates just how mathematically precise Lonergan’s empirical canon is as applied to economics in ‘The Basic Price Spread Ratio,’ JMDA 2 (2002) 61–80. For a debate on this issue, see Eileen DeNeeve, ‘The Aggregate Basic Price Spread: A Response to McCallion,’ JMDA 4 (2004) 180–86 and Tom McCallion, ‘A Reply to DeNeeve,’ JMDA 4 (2004) 187–97. On Lonergan’s account of the canons of empirical method, see CWL3, chapter 3. 78 See the Index to CWL21 under ‘Mechanical structure of the process.’

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mentioned above, Lonergan drew from projective geometry for his notion of the correspondence between lower and higher circuits. His determination of two and only two circuits benefits from his understanding of the derivative in calculus.79 Clearly, Lonergan’s early interest in mathematics and physics, which he followed up in courses at Heythrop College, was a de facto introduction to modern science and had a vital part to play in the development of his economic theory. It was a frequent refrain of Lonergan’s that the scientific revolution and the breakthrough to historical-mindedness were the key modern developments in the history of ideas. Their emergence brought into question the logic-centred world of classical science and scholarship. Being solidly classicist, the Catholic philosophy and theology taught to Lonergan in the 1920s in many respects missed both ‘revolutions.’80 He would later understand his own work as an effort in bringing Catholicism ‘up to the level of the times,’ a phrase borrowed from Ortega y Gasset. The empirical sciences and historical scholarship were real challenges to the Catholic order in the

79 Lonergan realized that there are incidentally more than two circuits operating in any advanced economy. The flow of the surplus circuit at a point to line correspondence in the stationary phase occupies 5% of the total flow of the basic and surplus circuits. A further circuit accelerating the initial surplus circuit (point to line) with a point to surface correspondence with the basic circuit would occupy 5% of 5% of the total flow and so on with even higher-level correspondences. The increment of change would therefore be incidental in terms of the total flow and can be safely ignored in assembling the basic model. This insight led Lonergan to the two-circuit division. In mathematics, differentials usually refer to small changes in any variable. So, as Silvus Thompson puts it on page 1 of Calculus Made Easy, 2nd ed. (New York: Macmillan, 1914), ‘dx’ means ‘a little bit of x.’ Lonergan read this text in the early 1930s. Thompson’s effort was directed towards understanding the fundamental theorems of calculus as opposed to simply presenting the technique. For a recent exploration of the intelligibility of the derivative, see Terrance J. Quinn, ‘The Calculus Campaign,’ JMDA 2 (2002) 8–36. 80 There was, nonetheless, following Leo XIII’s call for a retrieval of Thomas Aquinas, the emergence in the 20th century of a significant body of historical studies of Aquinas’s work and in medieval thought generally. As well, Catholic theologians struggled with the problem of historicism. Newman in particular was interested in the issue of the development of doctrine. See John Henry Newman, An Essay on the Development of Christian Doctrine (Harmondsworth, Baltimore: Penguin Books, 1974 [reprint of the 1845 edition]). For a historical overview of this issue, see T.M. Schoof, A Survey of Catholic Theology: 1800–1970 (New York: Paulist Press, 1970) and Gerald McCool, ‘Twentieth Century Scholasticism,’ in Celebrating the Medieval Heritage, ed. David Tracy, in the supplement to Journal of Religion 58 (1978) 198–221.

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nineteenth and twentieth centuries. The empirical method of the modern sciences exemplified by the emergence of modern physics and chemistry replaced Aristotelian science, and Darwin’s evolutionary theory challenged biblical positivism and introduced dynamic elements into the biological sciences. On his own account, Lonergan’s entrance into the world of modern science was through the influence of H.W.B Joseph’s Introduction to Logic and C.W. O’Hara’s teaching at Heythrop.81 In the Blandyke Papers Lonergan extended empirical method to the task of exploring the operations of the human mind. His exploration of human cognition reveals human thought and action to be fundamentally creative and dynamic in nature. His criticism of science there is not of science per se but of any notion of science that abandons the empirical origins of knowledge for criteria based on formal logic, a criticism that can be laid equally against the Aristotelian science that informs classical Catholicism, Mill’s efforts in methodology, and the Enlightenment philosophy of science and positivist reactions to it. Thus, Lonergan’s criticism of J.S. Mill focuses not on Mill’s effort to bring the empirical into logic, but on his claim that logic is the epistemic ideal for empirical science. Later, Lonergan makes a similar case against the idealist Hegel.82 For Lonergan, the central issue is method, and method is ultimately derived from an understanding of the method of mind, or cognitional process. All this will eventually bear on Lonergan’s understanding of what science does. Scientific method is but a particular application and differentiation of the method of the mind itself. The goal of scientific understanding is explanation and the goal of scientific reason is verification of 81 See ‘Insight Revisited,’ 2Coll 276. In the CM interviews there is the following exchange: P.L. (Pierre Lambert) What caused your awareness of the Scientific revolution? B.L. (Lonergan) Much of that would be due to O’Hara you see. He wasn’t talking much about quantum mechanics but he certainly was talking about relativity and had books on it. P.L. So, when you read Butterfield later you were prepared? B.L. Yes. I knew scientific method from Joseph. (3–4) 82 Lonergan writes: ‘Hegelian dialectic is conceptual, closed, necessitarian, and immanental. It deals with determinate, conceptual contents; its successive triadic sets of concepts are complete; the relations of opposition and sublation between concepts are pronounced necessary; and the whole dialectic is contained within the field defined by the concepts and the necessary relations of opposition and sublation. In contrast, our position is intellectualist, open, factual, and normative’ CWL3 446 [421]. The same criticism extends to Marx, who relied on Hegel’s dialectic.

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the hypothesis, or explanation, in the data. Thus, for him, the primary goal of science is not prediction. In Lonergan’s mature view he differentiates classical, statistical, genetic, and dialectic methods in the human sciences. Classical and genetic methods provide the fundamental significant variables, while statistical and dialectic methods account for divergences from the norm established by classical and genetic methods. Thus, statistical and dialectic methods depend upon the set of terms and relations established by classical and genetic methods. Consequently, as he understood it, prediction was secondary to explanation in the sciences. These developments are, however, still ahead of him in 1930. With respect to his approach to economics Lonergan learns from both Newman and Mill. From Newman, Lonergan learns to be empirical about the operations of the mind. Newman’s efforts to account for how the mind works provided the initial clue for Lonergan’s mature account of scientific method. And while he will depart from Mill’s empiricism, Lonergan learned from Mill to take an analytic approach to economics, that is, to first establish what an economy is. By adopting an analytic approach Lonergan is on his way to specifying the significant variables for economic science. However, in order to advance towards a fully dynamic notion of economic science, Lonergan will also have to incorporate the historical nature of human activity. 3

History and the Crisis in the West

For Newman the process of human understanding was implicitly dynamic. No doubt reading the Grammar of Assent prepared Lonergan for thinking in terms of dynamic process. Reading Dawson expanded his horizons to consider the social and historical dynamic and marked the self-conscious beginnings of Lonergan’s move from the static analysis of his classicist formation controlled by the ideals of logic, what Lonergan later named the second stage of meaning, towards the dynamics of the third stage of meaning controlled by the methodical ideals of generalized empirical method. His approach to economic theory involved a comparable displacement of the static analysis of the standard model by his own original dynamic analysis.83 83 Both general equilibrium and partial equilibrium theories rely on static methodologies. Mark Blaug writes in Economic Theory in Retrospect: ‘Mainstream economists treat dynamic analysis as a form of disequilibrium that takes into account temporal leads and lags in economic relationships’ (211–12). On the history of the effort to develop dynamic analysis in economics, see W.W. Rostow, Theorists of Economic Growth from David Hume to the Present (New York: Oxford University Press, 1990). Lonergan was particularly interested in economists such as Hayek, Schumpeter, Knight, and Roos who struggled with aspects of dynamic analysis. See LEER chapters 4–7.

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The crucial component in this shift was Lonergan’s recognition of the fundamentally dynamic and historical nature of economic process. There is nothing to indicate that Lonergan recognized the importance of historical-mindedness as an axial issue while he was at Heythrop. However, the influence of O’Hara and Newman prepared the ground for the ‘anthropological turn’ that began with his encounter with Dawson in the summer of 1930.84 O’Hara, his geometry professor, was strong on the history of mathematics, and his book Projective Geometry begins with a historical outline of the development of the field.85 John Henry Newman brought the notions of development and historicity into the discussion of Church doctrine. Dawson was interested in the origins of Western civilization, an interest that grew out of his concern with the contemporary crisis. While the crisis in the West was manifest in political unrest and economic disorder, Dawson regarded it as primarily a cultural crisis. Christianity was both a source of cultural stability and a force for cultural change. ‘A complex culture is always a field of tension between opposing religious forces which are continually striving against one another.’86 Forces for cultural change inevitably undermine the existing synthesis of religion and culture and tend towards the secularization of culture. In this way, the emergence of the scientific revolution and the religious disputes brought on by the Protestant reformation challenged the spiritual core of Western civilization.87 There was a forward-looking aspect to Dawson’s approach to history. The study of history provided clues for meeting challenges. Thus, like his contemporary Arnold Toynbee, Dawson was interested in the philosophy of history.88 Dawson’s efforts to develop what Lonergan later calls the ‘upper blade’ of historical analysis had a powerful influence on Lonergan.

84 ‘Insight Revisited’ 2Coll 263–64. Dawson’s historical study of the emergence of European civilization, The Age of the Gods, was the key text. The first reference by Lonergan to Dawson is in 1934 in EFS. See LEER, chapter 1. 85 C.W. O’Hara, SJ, and D.R. Ward, SJ, A Introduction to Projective Geometry (London: Oxford University Press, 1937) 1–11. 86 Christopher Dawson, Religion and Culture (New York: Meridian Books, 1959 [1948]) 202. 87 Lonergan agreed that the crisis is cultural. On his analysis, classical culture was breaking down and modern empirical culture was taking its place. For Lonergan the scientific revolution was a positive force moving the culture forward, but insofar as it was secularist, it threatened to strip the cultural of its core. See especially ‘Dimensions of Meaning,’ CWL4, especially 244–45. 88 For Dawson’s criticism of Toynbee, see ‘Arnold Toynbee and the Study of History,’ in The Dynamics of World History, ed. J.J. Mulloy (London: Sheed & Ward, 1957) 381–94.

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Dawson looked to sociology for his meta-categories.89 The French sociologist Frederic Le Play was the most important formative influence in the development of Dawson’s categories. Le Play had broken away from philosophically inspired theories of culture to pursue an empirical study of social units. Organic or biological analogies influenced his thought. His three social categories were race, geography, and work, derived from species, environment, and organic function, respectively. He was especially interested in the family as the primary social unit. According to Dawson, Le Play was the man who more than any other brought social science in touch with the concrete bases of human life.90 Dawson adapted Le Play’s categories and added a fourth, human psychology or thought, to round out his own categories for historical analysis. While Le Play was not a determinist, his categories placed a heavy stress on the biological or organic conditions of human living. Dawson’s inclusion of human psychology and thought processes advanced his work beyond Le Play, opening up the possibility of categories for dynamic analysis in the study of history. Dawson complemented his meta-historical work with his excellence as a practising historian. In the fine essay ‘Continuity and Development in Dawson’s Thought,’ John J. Mulloy neatly captures this aspect of Dawson’s work. ‘Dawson’s interest in the wider perspectives of world history is balanced by a regard for the smaller and more local factors which entered into movements of historical change – the structure of the primary social unit, the relation of the regional group to its environment, the effect of the region upon a people’s view of life, and the constituent contributions of several different regional peoples to the wider cultural unities called civilizations.’91 Lonergan certainly appreciated the thoroughly concrete sensibility of Dawson’s work, a characteristic he would emulate. Of significance to Lonergan was Dawson’s firm grasp of the implicitly dynamic nature of human living. We can appreciate the extent of this by contrasting Dawson’s understanding of ‘primitive’ cultures with Toynbee’s.92 Toynbee sharply differentiated primitive cultures from civilizations.

89 Dawson addresses the issue in one of his very first essays, ‘On the Development of Sociology in Relation to the Theory of Progress,’ Sociological Review 12, April 1921, reprinted in The Dynamics of World History 43–52. 90 Lonergan’s appreciation of the family as the primary social unit agrees with Le Play and Dawson. See CWL3 237–41 [211–14]; Dawson, ‘Sociology and the Theory of Progress,’ in The Dynamics of World History 47. 91 The Dynamics of World History 419. 92 Lonergan read the first six volumes then available of the Study of History in the early forties. Notes he took on the volumes are part of the contents of LRI Archive File 713.

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Primitive culture was essentially static; civilizations developed. Dawson, however, grasped a dynamic core manifest even in the regularity of primitive cultures. ‘Thus, whereas for Toynbee primitive cultures as we know them at present are essentially static, and this is what distinguishes them from civilizations (or at least civilizations in the process of growth), for Dawson both primitive and advanced cultures can only be maintained by dynamic effort; when this fails, the culture itself goes out of existence.’93 Dawson’s appreciation of the dynamic nature of the patterns of social and cultural maintenance influenced Lonergan’s recognition of the inherently dynamic nature of an economy, even in a stationary phase,94 as well as his recognition of the function of maintenance in economic process.95 Lonergan’s introduction by Dawson to ‘thinking dynamically’ anticipates the development of the notion of emergent probability. Dawson grasped the significance of creative thought. Because of human creativity, cultures could adapt to diverse environments by intelligently shaping the material substratum that conditioned them. For Dawson that circuit of development involved a dynamic interplay of the material – genetics, environment, and function – and the spiritual – thought and creativity. Non-human factors, geography, environment, and the organic – as well as human technological advance – all contributed to the formation and shape of a culture.96 Significant to this circuit of development was the mainte-

93 Mulloy in ‘Continuity and Development in Dawson’s Thought,’ in The Dynamics of World History 451. Dawson writes: ‘To the outside observer the most striking feature of primitive culture is its extreme conservatism. Society follows the same path of custom and convention with the irrational persistence of animal life. ‘But in reality all living culture is intensely dynamic. It is dominated by the necessity of maintaining the common life, and it is possible to ward off the forces of evil and death and gain life and good fortune only by continuous effort of individual and social discipline’ (ibid. 252). 94 There is a analogous difference between Schumpeter and Lonergan worth noting here with respect to their understanding of economic dynamics, which neatly mirrors the difference between Dawson and Toynbee. For Lonergan even a stationary economy is fully dynamic. He conceives the fundamental economic variables in the context of schemes of recurrences in which ‘rates of flow’ (monetary circulation) are relevant even in a stationary or static economy. By contrast, Schumpeter’s fundamental context is Walras’s general equilibrium theory, which is static. He adds economic growth and development to this static framework. Consequently, his methodology is not fully dynamic. 95 On maintenance, see chapters 6 and 7 below. 96 Lonergan refers to Dawson’s notion of the vital unity of culture in his discussion of regional cultures in CWL10 251–53. Dawson’s appreciation of the

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nance of the vital organic unity of a culture. In Dawson’s view, practical or technological discoveries were a potential vehicle of progress. However, technological advances must respect the underlying organic unity of culture, expressed in regional cultures. If not, then technology would damage and possibly destroy the culture. The opposite of the organic unity of a regional culture is the slum.97 This problem can occur: internally, as a result of the dislocations within a particular culture as caused, for example, by an industrial revolution; through conquest as in the destruction of native cultures in the Americas; or through transference, as in the export of Western technologies and mass culture to the East.98 Based on his appreciation of the creative dynamics of human thought in its interplay with material culture, Dawson developed a theory of stages of development. In The Age of the Gods, he organizes the early evolution of human culture according to stages of technological advance. Around the same time he introduces a theory of the stages of religious development.99 Lonergan developed his own account of historical stages, which became an integral component of his philosophy of history and provided the basis for the account of ‘stages of meaning’ in Method in Theology.100 Finally, for Dawson, religion was the unifying centre of a culture. The Incarnation provided the Christian view of history with its unity. Dawson writes: ‘The history of the human race hinges on this unique divine event which gives spiritual unity to the whole historic process … The Christian conception of history is essentially unitary. It has a beginning, a centre, an

97

98 99 100

need for balance between new technological development and the need to maintain cultural continuity anticipates Lonergan’s account of the law of integration in his account of human development in Insight, chapter 15. See CWL3 496–97 [471–72]. Lonergan later writes: ‘We can think of the regional culture in terms of its negation, the slum. The slum is not properly simply a poorer quarter, but a place where there congregates the failures of our industrial society … The problem of the slum, of the breakdown of human dignity, human cohesion, and human standards is a consequence of the attempt that has been going on in recent centuries to remake man’ (CWL10 253). Lonergan takes up the issue of transference in ACH 27–28. See Dawson, ‘Stages in Mankind’s Religious Experience,’ in The Dynamics of World History 168–88. Originally published in Christianity and the New Age (1931). See also Progress and Religion (London: Sheed & Ward, 1929). Lonergan first proposed a theory of historical stages in ‘Essay in Fundamental Sociology.’ The version that appears in the ‘Analytic Concept in History’ is the one that informs his account of the stages of meaning in Method. On the argument for the early emergence of stages of meaning, see Patrick Brown, ‘Implementation in Lonergan’s Early Historical Manuscripts,’ JMDA 3 (2003) 231–49.

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end.’101 Dawson highlighted the eschatological dimension of Christianity. He grasped in Christianity a fundamentally progressive mind-set, which affirmed a faith in human progress even in the face of cultural decline.102 This was in marked contrast to the biological determinism of his influential contemporary Oswald Spengler, who viewed the cultural crisis of the West as a stage in the inevitable decline of the civilization.103 Dawson believed that Christianity had potential as a transforming agent in Western culture and attributed the tremendous creative energy that produced technological advance in Western culture to the influence of Christianity. However, he believed that bifurcated from its spiritual origins the advance would eventually be self-destructive. He writes: ‘I think an entirely technological culture would be an entirely barbarous culture. No one believes that civilization can carry on without some element of higher spiritual culture … The coming of the age of technology only makes the need for Christian culture (or some alternative religious or humanist culture) more imperative. Even if, per impossible, all the spiritual traditions of culture could be temporarily suppressed, it could only lead to a nihilist revolution which would destroy the technological order itself as I have pointed out many times in my writings. Orwell’s 1984 is a good picture of a pure technological order and the only fault I find with it is that he seems to believe it is a possibility.’104 While Dawson’s influence is most evident in Lonergan’s philosophy of history, as we might expect, it also had a significant influence on his economic theory. Dawson made Lonergan keenly aware of the significance of historical studies for understanding the economic system. Dawson’s work either alerted Lonergan to the core dynamic nature of culture or soundly confirmed his conviction in it.105 From Dawson, Lonergan gained an appreciation for the function of technological innovation in economic development. Dawson’s exploration in The Age of the Gods of the technological basis of pre-European culture would have been a major clue in Lonergan’s grasp of the central role of production in economic process.106 This leads to a

101 ‘The Christian View of History’ in The Dynamics of World History 236. 102 See, for example, Dawson’s treatment of Augustine in ‘St Augustine and the City of God’ in Dynamics of World History 288–318. 103 See Oswald Spengler, The Decline of the West (New York: Random House, 1980). 104 Letter of 29 January 1955, quoted in Mulloy, ‘Continuity and Development of Dawson’s Thought’ 443. 105 Major Douglas, the originator of social credit, also wrote about the dynamic features of the economic process. See C.H. Douglas and A.R. Orage, Credit, Power, and Democracy (London: Cecil Palmer, 1920), especially chapter 1. 106 What Lonergan adds to both Dawson’s and Douglas’s account is an explanatory precision adapted from calculus and the physics of fluid dynamics. In

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reassessment by Lonergan of the nature of the role money plays in an economy. In mainstream economics, monetary exchanges are at the centre of economic theory. By contrast, for Lonergan, monetary exchanges are secondary to production. Money must adapt to the rhythms of production, not the other way around. As production is primary, changes in the means of production, especially those derived from technological innovation, drive economic developments. For example, advances in machine tools at the time of the American Civil War were a significant factor in the economic surge in the United States in the second half of the nineteenth century, not the ups and downs of the stock market.107 Dawson linked technological development with cultural innovation. For him, in the ideal case technological innovation accelerating the rate of production of material goods increased the division of labour, and eventually allowed for more leisure time, initially for some social classes, but eventually for all. More leisure leads to cultural advances. A major but unfinished goal of Lonergan’s essay FNPE was to understand how economic rhythms provided a base for the advance of culture.108 For Lonergan an increased rate of leisure, not full employment, was a more desired outcome for economic development. This was also Dawson’s view. Dawson’s fine grasp of the cyclical alteration of the material and spiritual aspects of human living intimates the link Lonergan later makes between recurrence schemes, emergent probability, and a hierarchical world order. Dawson’s interest in stages of development was a factor in Lonergan’s understanding both of historical dynamics and of economic development.

the economics Lonergan’s account is in terms of the rate of flow or velocity of production and monetary exchange. He conceives the relationship between economic circuits in terms of rates of acceleration. Thus, the activity of the surplus circuit accelerates the velocity of the flow of the basic circuit. The theoretical variables of his macroeconomic dynamics are the ‘differentials’ for economic process, just as the theoretical variables of the analytic concept of history provided the differentials for historical process. Lonergan’s use of the term differential is loose when compared with its meaning in differential calculus. In his ‘philosophical’ sense of the word he refers to factors that are of overarching explanatory significance. In mathematics differentials refer to small changes in any variable. 107 See Nathan Rosenberg, ‘Technological Change in the Machine Tool Industry, 1840–1910,’ in Perspectives on Technology (Cambridge: Cambridge University Press, 1976). 108 The essay FNPE ends with a section on the mechanism of cultural expansion. It was Lonergan’s intention to discuss the economic component of cultural expansion. He does not return to this topic. Some insight into the direction of his thinking can be gathered from Insight (CWL3), especially chapter 7 and Topics in Education (CWL10), chapters 2–4, 10.

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Lonergan’s philosophy of history, like Dawson’s sociological categories for the study of history, contains a theory of the stages of history. Likewise, Lonergan’s economic theory includes stages of economic development. Some time after reading Dawson, Lonergan shifted attention to metahistory, most likely in the fall of 1933.109 His search for an adequate solution – a practical theory of history – would take thirty-two years. 4

Catholic Ethics and Economics

While Dawson’s influence was large in Lonergan’s development of a dynamic methodology, with respect to the economic problem itself, Lewis Watt, the author of Capitalism and Morality, was the first significant influence for Lonergan.110 Watt’s ethics course at Heythrop, which Lonergan took in 1929, covered a diverse range of topics including the expected Catholic concerns such as divorce, suicide, birth control, celibacy, and the relationship of church and state, etc. Watt, however, paid special attention to political and economic questions. He believed that the neglect of moral principles, especially as applied to the economy, was responsible for contemporary social troubles. His goal in writing Capitalism and Morality was to discover the moral principles governing social and economic organization, especially as they concern capitalism, which could guide a remedy of the problem. In Watt’s view, the economy was for advancing the general welfare, as directed by moral principles. Watt’s understanding of moral principle was in the Catholic natural-law tradition. Fundamental moral principles were self-evident: ‘They are that men should do those actions which reason shows to be in harmony with their nature, and should avoid those actions which reason shows to be opposed to it.’111 Watt stressed the importance of liberty by arguing that without it there could be no morality. He was understandably critical of laissez-faire capitalists using ‘the iron laws of economics’ as justification for moral failures. Such determinism, for example, was used to justified English non-interference in the Irish famine because to intervene would be a violation of the putative economic laws. Watt writes: ‘One of the great obstacles in the past in the application of morality to economic life has been the belief in

109 Lonergan took a class in Church History on which he was examined in March 1934. The last third of the course concerned political questions such as the relationship of the Church to revolution, liberalism, nationalism, socialism, and bolshevism. These concerns surface in EFS. Lonergan’s notes for this course are in LRI Archive File A334. 110 Lewis Watt, Capitalism and Morality (London: Cassell and Co., 1929). 111 Ibid. 3.

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unchanging laws outside the control of men and forcing them into actions and policies which they deplore but were unable to avoid.’112 Watt was well aware of the faults of the capitalist system: the resistance to the just demands for higher wages by workers, the reluctance to share with workers any control of the conditions of labour, financial abuses, and the excessive and luxurious expenditure of income by the wealthy. However, he does not call for the wholesale rejection of the market system, the abolition of private property, or the state control of industry. The problem for him was the divorce of ownership and effective social responsibility. To sum it up, the capitalist system should not operate independent of moral principles. Watt did not think communism corrected the flaws of the capitalist system. Marxism only offered a more thoroughgoing determinism. He writes: ‘If there were no such thing as the moral law … there would be a great deal to be said for the Marxist position, for to deny the existence of the moral law leads logically to the denial of free will, and thus to the assertion that man, in all his actions, is at the mercy of blind forces which may be in perpetual conflict with one another.’113 In his view Marx's determinism denied liberty, which was the sine qua non for recognizing and applying the moral law. Marxism resulted in an amoralism that made any course of action permissible and justified by recourse to the inevitable laws of historical materialism. As the seventy-year history of the Soviet Union subsequently demonstrated, Watt was proven correct. Watt opposed Marx’s materialism with a Christian realism that understood human beings as composed of both matter and spirit. He countered the selfishness of class antagonisms with friendship and Christian charity that cut to the very roots of class warfare. He opposed the commodity view of labour and Marx’s call for the abolition of private property.114 The commodity view of labour reduced the labourer to that which can be bought and sold. While acknowledging limits to the right of private property, Watt saw nothing wrong in the desire of each to benefit from the fruits of one’s own labour as long as that desire did not exclude one’s duties to help others and to contribute to the legitimate costs of running the state. Watt, then, was in sympathy with neither revolutionary Bolshevism nor liberal capitalist Realpolitik. Morality should govern the economy, not the reverse. Watt sought economic policies whose primary goal was the provision of a ‘decent standard of living,’ not profit or a classless society. Lonergan’s 112 Ibid. 9–10. 113 Ibid. 86. 114 Student notes taken from Watt’s course in 1928–29 (when Lonergan was enrolled) are available from the Lonergan Centre at the Milltown Institute of Philosophy and Theology, Dublin, Ireland.

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theory would specify the standard of living as the proper goal of economy, a view also held by Heinrich Pesch, an economist I will deal with shortly. Unlike many Catholic moralists, who often were content to make moral pronouncements on the economy without understanding its dynamics and concrete particulars, Watt understood that moral thinking must attend to the actual order of things. For instance, he writes: ‘Arguments from efficiency on the part of employers and increases in wage rates on the part of unions must heed the actual order of things. Neither can be applied stupidly, without respect to circumstances. The first may lead to actual inefficiency as workers revolt from unreasonable demands and the second to the loss of the job itself as employers find it better to close down than to accede to the demands of the union.115 Frederick Lawrence notes: ‘Lonergan deeply appreciated Watt’s concessions to facts.’116 Also, Watt’s independence from both the ‘right’ and ‘left’ remained a feature of Lonergan’s own mature view. Watt’s position, championing private property but critical of the vices of capitalism and utterly opposed to communism, was standard Catholic social thinking at this time. We find the same perspective in Valère Fallon’s textbook The Principles of Social Economy, which was likely one of the first economics texts Lonergan read in the early thirties.117 Typical, too, was the just wage argument.118 As Watt presented it, there are two fundamental conditions for determining a just wage. The first was the recognition of a hierarchy of skills in society. Skilled labour was of higher value than unskilled, and certain skills were proportionately of higher value than others. Justice demanded the right proportion of skill-power to wages.119 Furthermore, workers required the means to fulfil whatever duties were ‘imposed on them by the moral law.’120 Workers needed to be able to live decently, so

115 Capitalism and Morality 15. 116 CWL15 xxvii. 117 Fallon, The Principle of Social Economy, especially 143–209. On Lonergan and Fallon, see LQ 52–53. 118 See CM 31 and Fallon 282–88. The roots of just-wage ethics go back to Aristotle, who in his Economics conceived economic transactions as an ordered hierarchy of reciprocal relations. The Economics can be found in The Complete Works of Aristotle, vol. 2, ed. Jonathan Barnes (Princeton NJ: Princeton University Press, 1983). This idea was carried forward in the Catholic tradition. Just-wage ethics remains a mainstay of Catholic moral thinking on the economy. For one of many examples, see Christopher Lind, Something’s Wrong Somewhere: Globalization and the Moral Economy of the Farm Crisis (Halifax: Fernwood Press, 1995). 119 This idea can be traced back to Aristotle, NE 1133a19–33b29. 120 Capitalism and Morality 108.

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as to fulfil their own obligations to raise and educate their children and contribute to the well-being of the community. The notion of the ‘just’ or ‘family wage’ means that employers have a moral duty to provide, at the minimum, a wage that would meet the requisite standards for justice. The just-wage ideal differs from the idea that wages ought to be set by the law of supply and demand. It assumes that economic transactions are embedded in a matrix of reciprocal responsibilities that go beyond their pure exchange value. Problems arose for Catholic employers when just-wage demands conflicted with the normal business practice, which required employers to ‘make a profit.’121 In a market economy, if a business cannot turn a profit, it fails. Given the ups and down of the business cycle, there occurred times when many employers in capitalist economies had the choice of providing a just wage and risk going out of business, or staying in business and risk starving the worker. In 1930, as the reality of the Great Depression hit home, this dilemma was acutely present. It was one thing, then, to proclaim the moral high ground that employers ought to pay a just wage. It was another thing to show them how they might both fulfil their moral duty and stay in business. As Lonergan was to latter write in Insight: ‘An economy can falter, though resources and capital equipment abound, though skills cries for its opportunity and desire for skill’s product, though labor asks for work and industry is eager to employ it; then one can prime the pumps and make X occur; but because the schemes are not functioning properly, X fails to occur.’122 The reality of the Great Depression must have been on Lonergan’s mind when he wrote this passage. It expresses the fundamental puzzle that was at the heart of his decision to seek to understand how an economy ought to function. The most accomplished economist in the Catholic tradition was Heinrich Pesch (1854–1926), who was the main influence on Quadragesimo Anno. Pesch, with a first-rate knowledge of the history of economic theory, developed his economic views on a foundation of Aristotelian-Thomist philosophy.123 Pesch was opposed to economic liberalism, responding as many did to the social evils arising from the laissez-faire market economy. He proposed the notion of solidarism as a non-collectivist alternative to liberal individualism. Not only are private property and private enterprise 121 As we proceed, it will become clearer that what is commonly meant by ‘making a profit’ is ambiguous. 122 CWL3 235 [210]. 123 See Richard E. Mulcahy, The Economics of Heinrich Pesch (New York: Henry Holt and Co., 1952). The first volume of Pesch’s Lehrbuch der Nationalökonomie appeared in 1905.

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important components of an economy, but solidarism, which stressed the organic unity of society and proposed a reconstruction of the social order, was also crucial. The norm for economic life was to subordinate individual economies to the task of providing for the needs of all. Pesch disagreed with the common view that economic goals were neutral.124 He believed that communal goals could be accomplished without the sacrifice of liberty and he preferred self-regulation to policing by the state. Self-regulation did not mean the adoption of the planned economy. It was based on the principle of subsidiarity, which states that a higher-order organization, for instance the state, should not undertake what a lower-order organization can do just as well. Schumpeter praised Pesch’s scholarship, but found his main work, Lehrbuch der Nationalökonomie, normative and ‘not particularly proficient in analytic economics.’125 However we judge Pesch’s contribution to economic analysis, he shared with secular economists the conviction that economics was an autonomous discipline. Pesch followed Aquinas’s natural-law ethics and understood economy as the material base for culture. Frederick Lawrence notes: ‘Pesch may even have helped Lonergan to understand the relationship between economics and the properly political order.’126 Pesch understood the ends of national economies in the context of a hierarchy of values. Their proper end was the provision of a standard of living for their citizens and the material means for maintenance and development of culture. Lonergan was, however, critical of the simplistic Roman Catholic focus on the just-wage argument. He believed that any economic ethics must come out of an understanding of economic process; it is not imposed a priori by abstract moral principles. Later, he was encouraged by the reference to the need for technical competence in economics in Quadragesimo Anno.127 Lonergan meant by technical competence more than Watts’s concession to

124 This is, for example, the position in Lionel Robbins in An Essay on the Nature and Significance of Economic Science. 125 Schumpeter, History of Economic Analysi, 765. Lonergan’s great strength would be in economic analysis. 126 CWL15 xxxi. 127 ‘However, she [the Church] can in no wise renounce the duty God entrusted to her to interpose her authority, not of course in matters of technique for which she is neither suitably equipped nor endowed by office, but in all things that are connected with the moral law.’ Pius XI, ‘Quadragesimo Anno: Encyclical Letter on Reconstructing the Social Order,’ in Index to Sixteen Encyclicals of Pius XI, comp. Roseabelle Kelp (Washington: National Catholic Welfare Conference, [1933]) 421 [II, 41]. The reference seems muted, but there is a clear distinction made between moral matters and technical competence.

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the facts. Despite his criticism of just-wage ethics, Lonergan’s approach to economics would be influenced by the Roman Catholic social-justice tradition and by its understanding of the link between ethics and economics. What distinguished Lonergan’s approach was the sharp differentiation of the two fields: each is autonomous, with its own special methods. But what was crucial for Lonergan is that an ethics of economic life requires an understanding of economic processes. His interest in economic theory did, however, complement the Catholic Action theme of Quadragesimo Anno. Lonergan did not ignore further questions about how economy fits into the political and cultural order or how it is connected to moral questions. While acknowledging the autonomy of economics, he recognized that economic ends had their proper place within a hierarchy of ends.128 Purely economic analysis could not settle value questions. Frederick Lawrence argues: ‘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.’129 Beyond the sphere of politics, Lonergan recognized the importance of economic and political liberty as a condition for the advance of culture. Thus, he appreciated that economic doctrine was linked to secularist political ideologies that themselves were manifestations of a cultural crisis in the Western world. In 1930, having finished his undergraduate studies at Heythrop, Lonergan returned to Canada and to Loyola College, his high school alma mater, to embark on the regency stage in Jesuit formation. Regency occurs between philosophical and theological studies and normally is three years long, the last year of philosophy counting as the first year of regency. The ethics course with Lewis Watt at Heythrop had primed Lonergan’s interest in social and economic questions. It was, however, after his return to Canada that ‘the social question’ became a major focus of attention. The Catholic Action movement was a significant influence at this time. Catholic Action was a practical response to the challenge of liberal capitalism and Marxism that had emerged in the nineteenth century. Beginning with Rerum Novarum, a series of encyclicals signalled the shift towards a more activist social policy. The release of Quadragesimo Anno in 1931, with its theme of social restoration, dovetailed neatly with Lonergan’s own con-

128 In Method Lonergan develops a hierarchical scale of values. Economic values are social. They are conditioned by prior vital values and orientated by higher cultural, personal, and religious values. See Method 31–32. See also Robert M. Doran, Theology and the Dialectics of History (Toronto: University of Toronto Press, 1990), chapter 4 and ‘Suffering Servanthood and the Scale of Values,’ LW4 (Chico, CA: Scholars Press, 1983, 41–67). 129 CWL15 xxxii.

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cerns and provided a theological context for addressing them. Remarks made late in his life tell us that the Catholic Action theme remained an abiding one for him throughout his life.130 Although the papal call to Catholic Action was in some respects a rear-guard action, it also led to the emergence of grassroots efforts to meet the challenges of social and economic injustices. The disruption and hardships to families and communities caused by the dislocations of the industrial revolution and nationalist wars were serious problems. Social-activist elements of Catholicism broke out in organizations such as the Catholic Workers in the United States, the ‘worker-priests’ of France, and the ‘Antigonish Movement’ in Canada. These movements were concerned with the causes and effects of poverty, and with social and political inequality. They looked back to the activist tradition in Christianity embodied in the lives of figures such as St Francis and Jesus himself and, in many respects, were precursors to contemporary political and liberation theologies. Lonergan was not politically active at Loyola College, or later at the Gregorian University. However, I would characterize the main thrust of his creative efforts in 1930s as a contribution to Catholic Action. He understood what he was doing was a development of a Catholic social theory that ‘has existed since the Middle Ages,’ though ‘the degree to which Catholics were conscious of the importance of social philosophy has been small almost up to the present time.’131 Lonergan regarded this tradition as of tremendous significance for meeting the challenge of secular philosophies of history. His emerging interest in social questions and in economic theory had an important and beneficial influence on his overall development as a thinker. In the first place, it brought him face to face with the question of how to 130 Lonergan treats the theme in 1976 in ‘Questionnaire on Philosophy: Responses by Bernard Lonergan,’ ed. M. Morelli, MJLS 2:2 (1984) 1–35 republished in CWL17 352–83. 131 EFS; LEER 39–40. In ‘Insight Revisited’ Lonergan writes: ‘I did my tertianship in France at Amiens, but the moment memorable for the present account occurred after Easter when we were sent to Paris to the École sociale populaire at Vanves to listen for a week to four leaders a day of the mouvements spécialisés of Catholic Action then in full swing. The founder of the school and still its Rector, Père Desuquoix, had built the school in the teeth of great opposition … He was a man I felt I must consult, for I had little hope of explaining to superiors what I wished to do and of persuading them to allow me to do it. So I obtained an appointment, and when the time came, I asked him how one reconciled obedience and initiative in the Society. He looked me over and said: “Go ahead and do it. If superiors do not stop you, that is obedience. If they do stop you, stop and that is obedience.” The advice is hardly very exciting today but at the time it was for me a great relief’ 2Coll 265–66.

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bring history into Catholic theology. In the second place, his efforts to develop an alternative economic theory required the appropriation of the empirical context of the scientific revolution. It was not enough to develop abstract moral principles independent of the reality of economic analysis. In the third place, the question of Catholic Action raised the praxis question: how do we implement theories in history? After Marx, it was no longer possible to be naive about the link between theory and practice. The cumulative effect of these issues led Lonergan to realize the need for a transformation of the static framework of classical Catholic theology. If Catholic Action initiatives were to be successful, then Catholic theology itself needed renewal and the demand was for a fully dynamic context, one that incorporated the fact of human historicity, the methods of empirical science, and the issue of praxis. While a classicist Catholicism informed Lonergan’s initial viewpoint, his questions about history, method, economic theory, and Catholic Action began to shift him out of that context.132 The conjunction of these interests also had a beneficial influence on his work in economics. Like Catholic theology, economic theory operated in a static methodological framework. Lonergan grasped that, despite the differences between the methods of theology and economics, there were common methodological issues related to the shift from statics to dynamics. He was after a macrodynamic method whose foundational elements applied to both theology and economics.133 He worked out a macrodynamic methodology, in the context of a theology of Catholic Action, the key component of which was a philosophy of history. His investigations occurred in many areas: methodology, logic, epistemology, cognitional theory, metaphysics, theology, economics, and the philosophy of history. The full, unwieldy title of a paper Lonergan wrote in 1935 neatly captures his fundamental ambition: ‘Pantôn Anakephalaiôsis: A Theory of Human Solidarity, a Metaphysic for the Interpretation of St Paul, A Theology of Social Order, Catholic Action, and the Kingship of Christ in Incipient Outline.’ The phrase pantôn anakephalaiôsis, meaning ‘the restoration of all things,’ Lonergan takes from Ephesians 1:10. He did not resolve fully the issue of how to implement Catholic Action in the next fourteen years. However, with the development of his analytic concept of history in 1938, Lonergan takes his first major step in that direction and in the process discovers a general dynamic methodology that, with 132 See ‘Dimensions of Meaning,’ CWL4 240–45. 133 The relevant context in Insight is generalized empirical method that underlies all particular methods in all the sciences. In Method in Theology the relevant context is the relationship of general to special categories. General categories operate in all eight functional specialties. On general and special categories, see Method 285–93.

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further specification, can direct his search for a fully dynamic economic theory. 5

Lonergan’s Early Research in Economics

Economics was a major element in Lonergan’s theory of Catholic Action. Yet, while his decision to study economics came hard on the heels of his move to Canada in 1930, there is not a lot of material evidence regarding the first three years of Lonergan’s study in the field. As regency was a time between formal studies, there was leisure time for study and it is a safe assumption that Lonergan began his quest in economics then. As mentioned above, in 1930 the standard model in economic theory was under close scrutiny at this time by a new creative group of economic theorists who in various ways appreciated the uncertainty of economic process.134 In light of the events of the Depression, there was renewed interest in business-cycle theory and, related to this, the problem of accounting for dynamic features of economic life.135 When Lonergan returned to Canada in 1930, Social Credit was a popular alternative political movement, especially in rural Canada, in the province of Quebec, where he lived, and in western Canada.136 In Caring about Meaning Lonergan writes: ‘I was interested in Social Credit; I knew it would be inflationary if the banks dished out twenty-five dollars to everyone in the country every payday. Still, what was wrong with their argument? You had to understand the dynamic of events.’137 Social credit attempted to answer the question why capitalism produced poverty in the midst of prosperity. C.H. (Major) Douglas developed the theory during the First World War. Douglas conducted cost accounting studies while he was an assistant director for the Royal Aircraft Works in England. He discovered that the weekly sum-totals of wages and salaries were continuously less that the same weekly sum-total price of the goods produced. This led Douglas to the conclusion that there was a permanent shortage of purchasing power of consumers compared with the total cost of production. His solution was a system of dividends or credits paid out to consumers to make up the difference. In other words, the government should provide money to consumers

134 See Shackle, The Years of High Theory. 135 While it is likely Lonergan took notes of his research into social credit, none survive. Lonergan mentions Major Douglas in CWL21 80–81. 136 Social Credit formed provincial governments in the provinces of Alberta and British Columbia. Members of the Social Credit Party and the Créditistes were elected to the federal parliament. See Social Credit: The English Origins (Montreal: McGill-Queens University Press, 1972). 137 CM 31.

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to buy the extra goods produced by more efficient industrial methods. As Lonergan came to understand it, this policy allowed producers to ‘enjoy a profit to which they are not entitled.’138 Lonergan almost certainly knew of social credit when he was at Heythrop. Lewis Watt had a loose connection with social credit circles, having contributed an article to the journal The Just Price, with which Major Douglas was associated.139 There are only three surviving documents relevant to Lonergan’s research on economics before his move to Rome in the fall of 1933. All are from 1933. The first is a clipping of an article by John Collingwood Reade from the popular Canadian magazine Saturday Night.140 The second is a page of notes on an article by William Graham Sumner called ‘Bequests of the Nineteenth Century.’ The third consists of two pages of notes on Edward Coyne’s article ‘National Economic Councils.’ The article by John Collingwood Reade was a report on the World Economic Conference held in London in 1933. Reade’s subject was the need for economic progress to fit the ‘inexorable facts’ of the world economy. He argued that the policy of restricting production to solve the economic problem is a retrograde step and calls for a new method of financial distribution. Reade argues against the monopoly control of markets that keeps prices artificially high and against the restriction on credit based on notions of the intrinsic physical value of money. He writes: ‘Even the staunchest of the old guard will have to admit the failure of the combination of “sound money” and an “unregulated free competitive system” to distribute physical welfare … which is the only possible justification for any system, or even for toil.’141 The problem of tight money was something both Major Douglas and John Maynard Keynes had identified.142 It is unclear from the article what approach had influenced Reade’s criticism. However, the problem of how to

138 CWL21, 81.The social credit dividend is in essence a subsidy to producers. Lonergan’s solution to the problem of overproduction required the discovery of the pure cycle. Once the dynamics of the pure cycle are understood a reduction in the aggregate percentage of profit expected in the surplus phase of the cycle would be normal in the transition to the basic phase. The adjustment from the surplus to the basic phase is better handled either by increasing wages or decreasing prices. 139 See Social Credit: The English Origins 248. 140 LRI Archive File A337. 141 John Collingwood Reade, ‘What Is to Follow the Conference,’ Saturday Night (Toronto), 8 July 1933, 24. 142 In FNPE Lonergan argues against both the gold standard and tight money policies. See CWL21 102–104. Lonergan deals most fully with the negative effects of deficit government spending in his presentation of superposed circuits in ECA. See CWL21 317–18 [CWL15 173–76].

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adjust the trade cycle so that the fruits of prior expansions are beneficial to all was one topic that occupied Lonergan for the next ten years.143 Reade’s identification of this problem likely induced Lonergan to save the article. Lonergan would agree with both Keynes and Social Creditors concerning the negative effect of tight money policies for getting out of the Depression. However, he disagreed that the solution was some form of deficit financing, whether that be the dividends proposed by Social Credit or the kind of deficit government spending proposed by Keynesians.144 Lonergan would later confirm Reade’s suspicion that restricting production was the wrong response to falling prices. The Sumner article, ‘Bequests of the Nineteenth Century,’ published in the Yale Review in the summer of 1933, was a reprint of the original published in 1901.145 The article is critical of the modern state. Lonergan copied three passages, all dealing with the abuse of power by nation-states. The following excerpt gives an idea of the point of view of the article: ‘The modern industrial state transfers millions on a punctuation mark in an act of the legislature. To get the legislative machine into one’s control is worth ever so much more than it ever was before. To get the use and avoid the abuse of the state is harder than it ever was before. It is harder in the democratic republic than in any other form of state. There are thousands of men in public office or in the lobby who suppose that this is all as it should be. They suppose that to elect a legislature and then work bills through it which will be to someone’s profit is the regular order of things. That, they suppose, is what it is all for. There is not a civilized state with parliamentary institutions which has not had a financial scandal within ten years.’146 As we shall see, Lonergan did not look to government control or intervention as the locus of a solution to the economic problem. The Coyne article, ‘National Economic Councils,’ appeared in the June 1933 issue of Studies, an Irish Jesuit periodical. Like Sumner, Coyne is critical of the modern nation state. However, the focus of the article is on contemporary efforts to establish national economic councils in Europe. These were composed of representatives of business and professional or-

143 Lonergan contrasts the trade cycle with the a pure cycle. The pure cycle projected ‘the ideal line’ of an economy based on adaptation to the demands of economic phases. See Index, CWL21, under ‘cycle,’ and CWL15, under ‘pure cycle.’ 144 Lonergan viewed deficit spending as a mistaken financial policy. See CWL21 96–97, 317–18 and CWL15 173–76. 145 William Graham Sumner, ‘Bequests of the Nineteen Century,’ Yale Review, Summer 1936. 146 LRI Archive File A336, reprinted in LEER, chapter 11.

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ganizations who advised governments on economic policy. Their purpose was to ‘maintain a permanent liaison between the actual economic and business world and the various ministers who have to deal directly or indirectly with economic affairs.’147 Coyne regarded these councils to be in line with the subsidiary principle advocated by the encyclical Quadragesimo Anno. Lonergan cites the following excerpt, which Coyne quotes directly from the encyclical: ‘Let those in power, therefore, be convinced that the more faithfully this principle (of subsidiary or auxiliary social action) be followed and a graded hierarchical order exists between the various subsidiary organizations, the more excellent will both the authority and the efficiency of the social organization as a whole [be], and the happier and more prosperous the condition of the State.’148 In addition, ‘it is an injustice, a grave evil, and a disturbance of right order for a larger and higher organization to arrogate to itself functions which can be performed efficiently by smaller and lower bodies. This is a fundamental principle of social philosophy, unshaken and unchangeable, and it retains its full truth today.’149 We can connect Lonergan’s interest in national economic councils to his favourable view of cooperatives. In his notes on Coyne Lonergan writes: ‘The Régle cooperative, defined: the exploitation of an enterprise (by workers, management and users) not with a view of realizing individual profit or of distributing dividends, but solely in view of the community and with no other end than to procure for consumers the maximum of utility and economy.’150 These notes from Sumner and Coyne capture Lonergan’s tendencies towards an anti-centrist position. Taking a page from solidarism, he recognized that economic decisions should be made at the appropriate level of organization. Medium-sized and cooperative-style economic institutions promoted economic democracy, while economic centrism, whether from corporate monopolies or government bureaucracy, did not. Lonergan consistently maintained this view throughout his life. In a public talk entitled ‘The Trend to Economic Centralization,’ which Lonergan gave in Kingston, Ontario in 1945, he warns of the dangers of economic centralization and of the difficulty of reversing the trend: ‘The connection between modern intellectuals and the decline of liberty is not abstract and remote. If there is to be a solution of economics compatible with human liberty, it will have to be a solution formulated in terms of precepts to individuals and not in terms of plans for governments. But it is quite apparent that economic science is doing much more to provide plans and to 147 148 149 150

LEER, 14. LEER, 13–14. LEER, 14. LEER, 15.

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prepare experts for brain-trusts than to formulate precepts at once analogous, and complementary to the old precepts of thrift and enterprise.’151 We find this anti-centrist theme most strikingly in Lonergan’s comments on bureaucracy that appeared in both Insight and in Topics in Education.152 In Insight the principle of progress is liberty. ‘There is progress, because practical intelligence grasps ideas in data, guides activities by the ideas, and reaches fuller and more accurate ideas through the situations produced by the activity.’153 The more efficient economic system is one that promotes this. Bureaucrats in hierarchies, whether in the capitalist or the communist system, make poor economic decision makers. Lonergan writes: ‘Members of this hierarchy possess authority and power in inverse ratio to their familiarity with the concrete situations in which new ideas emerge; they never know whether or not the ideas will work; much less can they divine how it might be corrected or developed; and since the one thing they dread is making a mistake, they devote their energies to paper work and postpone decisions.’154 The point to note here is that Lonergan wanted an effective democracy, and he realized a revolution in economic thinking was a crucial condition for its emergence. There is nothing, however, in these few pages of notes from 1933 that points to the originality of his work in economics after 1940. They tell us that he was familiar with Roman Catholic social criticism and that notions of subsidiarity and solidarism influenced his thinking. That he would be critical of the power of the modern state is no great surprise. His interest in the institutional structures of democratic economies, in this case coopera-

151 We do not have a copy of Lonergan’s talk. However, a report of the talk appeared in the local newspaper as ‘Economic Centralization Trend World-Wide, Lecturer Says Here: Rev. Dr. Lonergan of Montreal Addresses Audience at Regiopolis College on Sunday Afternoon, [Kingston] WhigStandard, Monday, 9 April 1945, p. 2. LRI Archive File A129. The article is included in LEER, chapter 8. 152 See CWL3 259–60 [234–35] and CWL10 60–61. From the latter: ‘In spontaneous developments, the new ideas come from where they may to the man on the spot who is intelligent, sees the possibilities, and goes ahead at his own risk. But in the bureaucracy the intelligent man ceases to be the initiator. He does not have the power, the connections, the influence to put his ideas into practice. He becomes a consultant, an expert, called in by the bureaucracy. Activity is slowed down to the pace of routine paperwork. Style and form, that are inevitable when the man who has the idea is running things, yield to standardization and uniformity’ (60-61). To what extend did Lonergan’s experience with the bureaucracy of the Catholic Church inform his view here? 153 CWL3 259 [234]. 154 CWL3 259–60 [234–35].

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tives and national economic councils, shows that he was aware of the need for effective institutional solutions to the economic situation and that, like both Lewis Watt and Heinrich Pesch, he was keen to preserve economic liberty. Still, by the fall of 1933 Lonergan was poised to make a great leap forward. The disparate elements of education and personal interests, which constituted his initial viewpoint, would soon come together in a quest for a Catholic solution to the social problem. It was a vision that for Lonergan included a solution to the problem of economic theory. 6

Initial Viewpoint

In 1933 Lonergan was a twenty-eight-year-old Jesuit student. At this point, on the evidence of the Blandyke Papers, he showed promise, especially in logic. There is no obvious indication of the brilliance that would follow, though, in retrospect, these papers reveal the seeds of his mature account of cognitional process in Insight and the first creative steps in his philosophy of logic. At this early point in his development, the received Catholic tradition itself was the greatest influence. That received tradition was solidly classicist, both in its psychic orientation and in its intellectual grounding. The Catholicism in which he was educated had not changed since the Renaissance. Lonergan’s Catholicism was moderate, orthodox, but not quietist. Despite his criticisms of the classicist mind-set, Lonergan was always a deeply committed Catholic. In 1930 he considered himself orthodox and did so for his entire life. On occasions when his views were interpreted otherwise, he was forceful in defence of them. There were then certain enduring features of his approach to intellectual life. From a talk to a Jesuit audience in 1970, he has this to say about the role of a Jesuit: ‘A principle function of the Society of Jesus, in its original conception, was to meet crises. There is a crisis of the first magnitude today.’155 No doubt, the Ignatian ideals of contemplation in action, embodied in the Ignatian Exercises, had an early and deep influence on Lonergan. The dynamic orientation of the Exercises is towards discernment of commitment and action.156 What, then, of the influence on Lonergan’s effort in economics of his Jesuit tradition, and in particular of the Exercises of St Ignatius, which were an annual event in his 155 ‘The Response of a Jesuit,’ 2Coll 183. 156 A detailed listing from the Exercises would be superfluous. The entire Exercises are focused on the dynamics of the exercitant’s decision. That Lonergan was profoundly committed to and interested in St Ignatius’s Exercises in evidenced in Gordon Rixon, ‘Bernard Lonergan and Mysticism,’ Theological Studies 62 (2001) 479–97 especially 492–95.

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life?157 There is a two-part answer to this question to be found in one of the Exercises, in which Ignatius requires meditation on the first apparition of Jesus after his resurrection to his mother. Though this is not mentioned explicitly in Scripture, it must be considered as stated when Scripture says that he appeared to many others. For Scripture supposes that we have understanding, as it is written, ‘Are you also without understanding?’158 There is a parallel to Ignatius’s attitude in Lonergan’s reflection on the Assumption of Mary: Lonergan asks a deeper equivalent of Ignatius’s ‘Are you without understanding’ when he asks, ‘Can one invent some metaphysical law or some principle of divine justice that overrules the best of sons’ love for the best of mothers, that permits the Sacred Heart to be a living heart but forces the Immaculate Heart to be a dead heart?’159 This was a follower of Ignatius Loyola writing. Without question, Lonergan had a theoretical orientation. He also understood that ideas change the world, both for good and for ill. He would come to embrace the shift towards existential praxis embodied in the ‘turn to the subject.’ Lonergan did not intend to become an ‘ivory tower’ thinker. His decision was, however, in the context of a compelling drive to articulate a unified vision of life. That goal is neatly captured in the passage from Ephesians 1:10 which Lonergan uses for the title of his essay ‘Pantôn Anakephalaiôsis (The Restoration of All Things).’ As his accomplishments show us in spades, the breadth of Lonergan’s intellectual quest was large indeed. He rightly understood the axial scope of the crisis and he realized it could only be met by an integrated vision of life, one that understood the theoretical and the practical, and the relationship between them. Lonergan’s choice to study economics had in it equal parts personal interest, judgment of his own talent, the providence of the right influences, and a careful deliberation on the ‘sign of the times.’ Certainly, his bent and circumstances had those interesting and unusual wrinkles that pointed him in a less-travelled direction. He was not drawn to the conceptualist scholastic philosophy that was the bread and butter 157 He would have done the Exercises first in the novitiate, a full thirty-day version of it, which he would have attended in the second year, during which year the normal practice of doing an eight-day version would have been initiated. This practice was continued throughout life. It would be deviated from once: during the third year of probation, called tertianship, when the thirty-day experience would be repeated. 158 The Spiritual Exercises of St Ignatius, trans. Louis J. Puhl, SJ (New York: Random House, 2000) 107. The quote is from section 299. The section number corresponds to that of the Rothaan Latin version, which is most likely the one that Lonergan used throughout his life. 159 ‘The Assumption and Theology,’ CWL4 73.

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of Catholic formation. As we have seen, at Heythrop he was introduced to British philosophy and especially to Newman. Newman’s early influence led him to reject the myriad kinds of conceptualism and logicism found both in scholasticism and in secular philosophies and to explore the existential path of the mind itself. J.S. Mill introduced him to profound questions about methodology and taught him the value of an integrated analysis. And while he disagreed with Mill’s analysis, he shared his profound appreciation of empirical method of the modern sciences. In 1930 Lonergan decided to put his unusual talents and energies to the task of creatively meeting the challenges posed by the modern world to Catholicism. At the deepest level, this decision was born out of faith and compassion. He believed Catholicism offered the best hope for meeting the cultural crisis in the West. However, to do this meant bringing into the Catholic world-view genuine developments, especially in the empirical sciences and in historical scholarship. As we have seen, he was attracted to mathematics and the sciences. His keen interest in science and history produced in him a creative tension between, on the one hand, his allegiance to the Catholic faith and its intellectualist tradition, and, on the other hand, his appreciation of modern scientific and intellectual developments. The attitude it engendered in him was neatly captured in the closing remarks of the 1965 paper ‘Dimensions in Meaning.’ Addressing the crisis of Catholic theology, he writes: ‘Classical culture cannot be jettisoned without being replaced; and what replaces it cannot but run counter to classical expectations.’160 Lonergan chose to live creatively in that tension between the tradition that nurtured him and the secular developments of the modern, empirical culture in which he also lived. It was in this tension that he worked out his own understanding of what the crisis of modernity was and how it was to be tackled. It involved a thoroughgoing shift out of the static framework of classicism into the fully empirical and dynamic framework that anticipates a future third stage of meaning. The shift would first be personal, a development in Lonergan himself. Economics would become a major component of the shift. It was the signal instance of a confused science and it was the ‘science’ that caused obvious damage. The standard model in economic theory in 1933 was static and conceptualist. It was incapable of explaining the business cycle, the phenomenon responsible for the Great Depression. Catholic economics at this time was chiefly preoccupied with applying moral law to economic questions. Lonergan’s quest, however, was to understand ‘the dynamic of events.’ His initial exploration favoured Catholic sources such as Lewis

160 ‘Dimensions of Meaning,’ CWL4 245.

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Watt, Valère Fallon, Christopher Dawson, and Heinrich Pesch, writers who did not divorce morality and science. They located economics within the broader social cultural and ultimately moral contexts informed by Catholic social theory. They were more inclined to stress the role of labour and production in the economic process. However, Lonergan recognized that economists of all stripes had not yet specified the fundamental terms and relations for establishing the science of economics. All were still firmly stationed on the static bank of a dynamic river. He wished to establish the bedrock for the intelligent and democratic management of the river. It is only later that he will work out the relationship between his own analytic discoveries and mainstream statics. As we shall see, he accomplishes his mission alongside the development of a general macro-dynamic analysis based upon an appreciation of the fundamental dynamic character of human thinking and action. In 1933 he was poised to solve the problem of how to ground philosophically a fully dynamic methodology. Newman had introduced him to the method of self-appropriation. Mill provided him with a set of systematic questions about method. Dawson had introduced him to the ‘anthropological turn’ and alerted Lonergan to the importance of philosophy of history for shifting out of the classicist viewpoint. With respect to economic theory he knew there was a problem that required a significantly different approach. His first move was to be a bold one. Taking up the theme of ‘the restoration of all things,’ he took on the task of developing a theory of Catholic Action.

2 Economics in the Context of Catholic Action: The Quest for a Practical Theory of History

Any reflection on modern history and its consequent ‘Crisis in the West’ reveals unmistakably the necessity of a Summa Sociologica. A metaphysic of history is not only imperative for the church to meet the attack of the Marxian materialist conception of history and its realization in apostolic Bolshevism: it is imperative if man is to solve the modern political-economic entanglement.1

To discover the fundamental variables for a science of economics required a methodology that handles dynamic process. The challenge for Lonergan was considerable. In mainstream economics, issues of time and development were bracketed in the analysis or treated in terms of comparative statics in which the changes between two fixed points in time were contrasted. By the 1930s Joseph Schumpeter’s approach in his Theory of Economic Development was the most advanced; however, he derived its basic structure from the static analysis developed by Leon Walras. Lonergan’s goal was a fully dynamic method. Previously, and most famously, in the nineteenth century Hegel had developed a dialectic logic to incorporate the movement of history. It was this method that shaped Marx’s dialectical materialism. Lonergan described Hegel’s approach, which was committed to the ideals of classical logic, as ‘conceptualist, closed, necessitarian, and immanental.’2 As a result of his encounter with Newman and Mill, Lonergan grasped possibilities for a general solution to the problem through an analysis of cognitional process. As he later wrote in Insight : ‘Hegel endeavors to put everything into the concept; we regard concepts as byproducts of the de1 ‘Pantôn Anakephalaiôsis (The Restoration of All Things)’ (hereafter PA) 156. 2 CWL3 446 [421]. See also CWL3 396–98 [372–74].

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velopment of understanding, and place understanding itself in an intermediate role between experience and critical reflection. It follows that what Hegel is bound to regard as conceptual we can interpret quite differently, but our notion of being is the all-inclusive heuristic anticipation issuing from an unrestricted desire to know.’3 In Lonergan’s view, concepts, and logic itself, were byproducts of the process of the mind. The breakthrough that Lonergan eventually made was completely general in character. It applied to any human process, including economics. Like Hegel, Lonergan discovered the required dynamic method of analysis, which he initially named real analysis, by working out a philosophy of history. Certainly, Lonergan’s macrodynamic economics exploited dynamics elements from mathematics and physics, but his discovery of real analysis was the breakthrough that established the implicit dynamism of human processes and was an important step in the development of his economic theory. As we might recall, Lonergan was ultimately interested in understanding the link between economic theory and moral praxis. Grasping the macrodynamic of history provided the grounding for his account of economic production and ultimately provided an avenue for the solution to the problem of integrating theory and practice.4 In this chapter and the next I trace Lonergan’s efforts towards developing such a method. The breakthrough to real analysis occurred in two stages. Initially, in response to the political situation he encountered in Europe, he conceived economics and philosophy of history as part of a theory of Catholic Action. Later he would refine his strategy and work out a pure theory of historical development and decline. This chapter charts the first stage in this development, which occurred during his first two years in Rome. 1

A Theory of Catholic Action

In the fall of 1933, Lonergan’s superiors send him to the Gregorian University in Rome for theological studies with the expectation that he subsequently would do post-doctoral studies in philosophy. Owing to difficulties during his regency, Lonergan had feared that his intellectual aspirations would be blocked.5 The move to Rome must have been a great psychic liberation for him. Fred Crowe recounts that Lonergan’s student days in Rome were ‘a near legendary time so fertile with ideas, so charged with 3 CWL3 447 [422]. 4 In chapter 2 of FNPE Lonergan first establishes a notion of world process of which economic activity is a component and derives from these universal rhythms a set of economic rhythms. See CWL21 11–21. 5 On Lonergan’s regency, see Crowe, Lonergan 17–18.

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enthusiasm, so bright with possibility.’6 Importantly, for his developing interest in social questions, living in Rome was an enormous education in the social and historical processes then going on in Europe. The rise of National Socialism in Germany, Spain, and Italy and Stalin’s consolidation of the Bolshevik revolution in the Soviet Union had challenged the hold of democratic institutions in Europe. The Second World War was on the horizon. As Lonergan later remarked: ‘The deeds of Lenin and Mussolini, of Stalin and Hitler, have made socialism a matter of serious consideration. They are now wrecking Europe.’7 Just as the Depression turned Lonergan to questions of economic theory, so the political reality he experienced in Europe raised equally compelling questions about the future of democratic institutions and ultimately about the nature of human history. Certainly, during this period Lonergan made great strides in specifying the fundamental questions that would occupy him over the next forty years. He wrote a long essay on faith, of which there is only a fragment in existence.8 A few notes on logic have survived, indicating he kept his interest in the problems he had worked on in the Blandyke Papers.9 There are notes on Kant’s Foundations for a Metaphysics of Morals 10 and a related set of notes called ‘General Ethic [Metaphysic of Custom].’11 Lonergan also wrote a book review of W. Keeler’s The Problem of Error, From Plato to Kant: A Historical and Critical Study.12 In Lonergan’s 1934 ‘Essay in Fundamental Sociology’ we find a significant reference to Kant’s perfect question that presages Lonergan’s remarkable study of human understanding. It is clear that Lonergan was thinking seriously about the foundations of knowledge and of ethics well before he wrote Insight 13 and that the imperative to ‘make 6 Frederick E. Crowe, ‘A Note on Lonergan’s Dissertation and Its Introductory Pages,’ MJLS 3:2 (1985) 1. 7 From LRI Archive File 335. See LEER 70. 8 LRI Archive Files A87, A141, A151, and A344. 9 On the ‘Logic Fragments,’ see CWL4 256–57. 10 Archive file A12. 11 Archive file A13. The first two pages of these notes appear to be an outline for a possible volume on the foundation of ethics. 12 The review (in Latin) appeared in Gregorianum 16 (1935) 156–60. It appears in CWL20 131–40 in both Latin and English versions. 13 Lonergan’s account of the writing of Insight may leave the impression that he tacked on the chapter on ethics simply to satisfy possible objections that his basic position on knowing could not sustains an ethics. He writes: ‘With chapter thirteen the book could end. The first eight chapters explore human understanding. The next five reveal how correct understanding can be discerned and incorrect understanding rejected. However, I felt that if I went no further, my work would be regarded as just psychological theory incapable of grounding a metaphysics. A metaphysics could be possible

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economics moral’ was a significant factor in his decision to study economics. Apart from whatever demands his studies made on his time, in 1934 his attention was focused on developing a theory of Catholic Action. The relevant theological component was the mystical body and the central methodological component was philosophy of history.14 Certainly, Dawson had alerted Lonergan to the importance for Catholics of developing a philosophy of history to meet the challenge of prevailing secular theories of history informing national policies and international relations. Lonergan regarded both liberalism and Marxism as ultimately destructive to the goals of establishing a genuine economic and political democracy. Liberalism, as Lonergan understood it, allowed individual ‘reason’ to flourish, but in the process reduced social order to a balance of individual interests in which inevitably the powerful held the balance of power.15 Marxism solved the problem of order by establishing a totalitarian government and suppressing personal liberty. Lonergan’s goal was the integration of liberty and order. The challenge for Lonergan was to develop a metaphysic of history, or summa sociologica, that provided an integrated viewpoint or ‘general line’ for the democratic collaborative direction of the future, what he named at one point a practical theory of history.16 This required a precise understanding of the relationship between theory and practice. As we shall see, Lonergan would come to the conclusion that, given the fact of decline and its pernicious effects on social order, the ultimate context for dealing with this challenge was a supernatural theory of history. Thus, Lonergan first explored the issue of a practical theory of history under the rubric of a theory of Catholic Action. His two efforts at such a theory and yet an ethics impossible. An ethics could be possible and yet arguments for God’s existence impossible. In this fashion seven more chapters and an epilogue came to be written’ (2Coll 275). Lonergan’s lifelong preoccupation with the question of the implementation points to a enduring interest in ethics. His detailed notes on ethics in LRI Archive files A12 and A13 cited above indicate such an early interest. 14 The most significant manuscripts surviving from his studies at the Gregorian come from the ‘history file,’ LRI Archive File A713. This file supports the claim that the question of history was foremost on his mind during this period. In Insight Lonergan argues that we find the formal element of a theology of the mystical body in a philosophy of history. See CWL3 763–64 [742]. 15 Lonergan directs his critique of 1930s liberalism as a social philosophy at its secularist leanings and epistemological individualism. Lonergan, like Marx, was well aware of the social constitution of knowledge, a position he would have encountered in Newman’s account of belief in The Grammar of Assent. See OLNDH chapter 4, for a more detailed account of Lonergan’s position on liberalism as it appears in EFS. 16 CWL3 258 [233].

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were an ‘Essay in Fundamental Sociology,’ written in the spring of 1934, and ‘Pantôn Anakephalaiôsis (Restoration of all Things),’ written in 1935.17 In these essays Lonergan’s establishes a major theme of his life’s work, to discover and formulate a higher control for the direction of the future. Within about eight months of his arrival in Rome Lonergan had written the ‘Essay in Fundamental Sociology.’18 At 130 pages the essay was a lengthy treatment of the topic. All we have of this effort is a 30-page section called ‘Philosophy of History.’19 The unbridled tone of the ‘Essay in Fundamental Sociology’ provides a rare glimpse of a youthful and less diffident Lonegan. Referring to this essay in a letter to his superior he writes: ‘I can put together a Thomistic metaphysic of history that will throw Hegel and Marx, despite the enormity of their influence on this very account, into the shade. I have a draft of this already written.’20 As well, Lonergan was working out an intellectualist approach to knowledge that will provide the grounding for his theory of history. The title of the essay is evidence of Lonergan’s debt to Dawson.21 Though Lonergan mentions Dawson only once, his influence reverberates through the essay. Lonergan again acknowledges his debt to Dawson a year later in ‘Pantôn Anakephalaiôsis,’ where he writes: ‘Any reflection on modern history and its consequent “Crisis in the West” reveals unmistakably the necessity of a Summa Sociologica.’22 In the ‘Essay in Fundamental Sociology,’ the state is ‘the villain of the piece.’23 The ascendancy of secularist philosophies of history, particularly liberalism and Bolshevism, are a manifestation of ‘the crisis.’ ‘Liberalism,’ 17 Related to these essays are two sketches titled ‘Sketch for a Metaphysics of Human Solidarity’ and ‘Pantôn Anakephalaiôsis.’ On these see OLNDH, 114–18. ‘Sketch’ was published as an appendix to Pantôn Anakephalaiôsis (Restoration of All Things). 18 William Mathews argues convincingly that Lonergan wrote the essay in 1934 after his spring semester at the Gregorianum. See OLNDH 69 n. 21. 19 Because of the war, in 1940 Lonergan had to return to Canada from Italy in a hurry. While we do not know for sure what he brought to Canada with him, besides his dissertation, LRI Archive file 713 was the largest file in Lonergan’s possession from his student days in Rome at the time of his death. See OLNDH chapter 3 for a complete list of the contents of the file. On his return to Canada, see the editor’s preface CWL1 xix–xx. 20 Keane (1935). Despite the boldness of his claims, many of the elements of chapters 7 and 20 of Insight have their origins here. See OLNDH passim. 21 Dawson develops this theme in his essays ‘Sociology as a Science’ and ‘Sociology and the Theory of Progress.’ These essays are reprinted in The Dynamics of World History. The Lonergan neologism ‘summa sociologica’ alludes to Aquinas’s Summas and gives us a sense of the intended reach of the project. 22 PA 156. 23 EFS in LEER 29.

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he writes, has ‘the power for the destruction of civilization.’24 Why? It is not a theory of social order, but a denial of the need for a higher order, a reduction of the social order to competing self-interests. Bolshevism fairs no better. Lonergan judged it a materialist and determinist response to the problem of liberalism that not only fails to solve the problem but also actually accelerates the decline of Western civilization.25 As an alternative, Lonergan proposed a theory for Catholic Action based on a supernatural philosophy of history. By ‘supernatural’ he meant the redemptive element in history that addresses the problem of evil and is manifest in the Christian mysteries of faith, hope, and charity. Lonergan conceived his supernatural theory of history as the higher viewpoint that sublated the liberal thesis and the Marxist antithesis. While liberalism and Bolshevism were the contemporary concerns, the issue for Lonergan was axial, going back to Plato’s failed attempt in the Republic to provide a strategy for implementing his philosophical vision of social order.26 To stress the point Lonergan includes as a front piece to the essay the famous passage from the Republic on the philosopher-king: ‘Unless ... philosophers become kings and rulers take to the pursuit of philosophy seriously and adequately, and there is a conjunction of these two things, political power and philosophical intelligence … there can be no cessation of troubles ... for our states, nor I fancy for the human race either.’27 In Lonergan’s view, Plato grasped the need for a higher control of practical living and developed the notion of virtue as a critical tool of 24 Ibid. 25 In 1975 Lonergan’s refers with approval to what he calls Dawson’s ‘penetrating article’ on Marxism in ‘Karl Marx and the Dialectic of History.’ See ‘Healing and Creating in History,’ 3Coll 109. The context is Lonergan’s opposition to the materialism of B.F. Skinner and Marx. He writes: ‘As healing can have no truck with hatred, so too it can have no truck with materialism. For the healer is essentially a reformer: first and foremost he counts on what is best in man. But the materialist is condemned by his own principles to be no more than a manipulator. He will apply to human beings the stick-andcarrot treatment that Harvard behaviorist B.F. Skinner advocates under the name of reinforcement. He will maintain with Marx that cultural attitudes are the byproduct of material conditions, and so he will bestow upon those subjected to communist power the salutary conditions of a closed frontier, clear and firm indoctrination, controlled media of information, a vigilant secret police, and the terrifying treat of the labor camps ’ (CWL15 104). The Dawson article was originally published in the collection of essays Religion and the Modern State (London: Sheed and Ward, 1935). 26 Lonergan does not name the issue axial, but see ‘An Interview with Bernard Lonergan,’ 2Coll 209–10. See also Alessandra Drage, ‘Philip McShane’s Axial Period: An Interpretation,’ JMDA 4 (2004). 27 EFS [front piece] in LEER 16.

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evaluation. Lonergan writes: ‘The achievement of Platonism lay in its power of criticism. The search for a definition of virtue in the earlier dialogues establishes that virtue is an irreducible something, the emergence of a new light upon experience that cannot be brought back and expressed in terms of experience. This discovery of the idea, of intelligible forms, gave not only the dialectic but also the means of social criticism.’28 However, Plato’s practical proposals were weak and eventually he abandoned philosophy, ‘to play [in The Laws] in his very modern times the glorious role of the sage and law-giver of days so long gone by.’29 In Lonergan’s view, the basic difficulty for Plato was his replacement of symbols with concepts.30 Human beings do not live by concepts. Lonergan writes of ‘the impotence of philosophy to fulfill the function of higher control. Men want symbols and philosophy postulates concepts.’31 Philosophy does not make a home. For Lonergan, the conjunction of Greek philosophy and Christian faith made possible an integration of the affective and symbolic with philosophy. He writes: ‘Christianity was at once a symbol and a trans-philosophic higher control.’32 To meet the issue in its contemporary context meant exploiting the untapped potential of the medieval synthesis of Greek philosophy and Christian faith to address the problem of implementation that had stumped Plato. That synthesis was an achievement 28 29 30 31 32

Ibid. in LEER 25. Ibid. in LEER 26. Ibid. in LEER 28–29. EFS [111] in LEER 28. Ibid. This is a complex issue. Related points are made in Insight. ‘The antecedent willingness of charity has to mount from an affective to an effective determination to discover and to implement in all things the intelligibility of universal order that is God’s concept and choice’ (CWL3 747–48 [726–27]); ‘Mystery is a permanent need of man’s sensitivity and intersubjectivity … the mystery that is the solution as sensible must be not fiction but fact, not a story but history’ (CWL3 745 [724]); ‘The whole world of sense is to be, then, a token, a mystery, of God, for the desire of intelligence is for God, and the goodness of will is the love of God’ (CWL3 711 [688]); and, finally, ‘[T]he world of sense is, more than all else, a mystery that signifies God as we know him and symbolizes the further depths that lie beyond our own comprehension’ (CWL3 714 [692]). There is a soteriological dimension that has to be added to our detached analysis of the compounding of man’s progress and man’s decline. For other helpful sources for Lonergan on the reality of mystery and the function of the symbol, see De ratione convenientiae eiusque radice, de excellentia ordinis, de signis rationis systematice et universaliter ordinatis, denique de convenientia, et fine incarnationis. Supplementum schematicum. With Appendix: Aliqua solutione possibilis (St Francis Xavier College [Gesu] Rome [1953–54]) and ‘Reality, Myth, and Symbol,’ in Myth, Symbol and Reality, ed. Mark Olsen (Notre Dame: University of Notre Dame Press, 1980) 31–37.

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of Thomas Aquinas, who brilliantly sublated Aristotle’s metaphysics into Christian theology. However, as we explored in the previous chapter, Lonergan objected to the prevailing Thomist interpretation of Aristotle and Thomas. In a letter from 1935 he writes: ‘The current interpretation of St Thomas is a consistent misinterpretation. A metaphysic is just as symmetrical, just as allinclusive, just as consistent, whether it is interpreted rightly or wrongly. The difference lies in the possibility of convincing expression, of making applications, of solving disputed questions. I can do all three in a way that no Thomist would dream possible. I can prove out of St. Thomas himself that the current interpretation is absolutely wrong.’33 Lonergan’s aim was not to jettison the tradition. His strategy was to recover the genuine insights of Aristotle and Thomas and transpose them to issues of the day.34 There were, however, two difficulties with transposing Aquinas’s achievement to the contemporary context. First, Aquinas relied on the outstanding science of his day, which was Aristotelian. Lonergan recognized that the scientific revolution had displaced Aristotelian science.35 Aquinas’s theology needed to be brought up to date. While Lonergan often made this point in his later writings on Aquinas, it was not the main issue in ‘Essay in Fundamental Sociology.’36 As we shall see shortly, Lonergan did take advantage of an analogy from modern science in formulating his metaphysic of history. Second, Aquinas, like all his contemporaries, had not made the breakthrough to historical consciousness. That event is heralded in intellectual history with, perhaps, Giambattista Vico’s Scienza Nuova in 1725 and advanced by later developments in historical scholarship. Lonergan himself was slowly discovering that human historicity had to be a component of any contemporary ontology.37 Lonergan’s strategy was to fully transpose 33 Keane (1935). 34 Lonergan was convinced that a ‘completely genuine development of the thought of St. Thomas will command in all the universities of the modern world the same admiration and respect that St. Thomas himself commanded in the medieval University of Paris’ (CWL2 227). Optimistic? 35 Lonergan’s embrace of the scientific revolution did not mean the wholesale rejection of Aristotle’s philosophy. There is ample evidence throughout his writing that he retained key structural elements of Aquinas’s metaphysics. He makes the link explicit in ‘The Isomorphism of Thomist and Scientific Thought,’ CWL4 133–41. See also Patrick Byrne, Analysis and Science in Aristotle (Albany, NY: State University of New York, 1997). 36 See 2Coll passim and ‘Aquinas Today: Tradition and Innovation,’ 3Coll 33– 44. 37 Relevant here are ‘The Transition from a Classicist World View to Historical Mindedness,’ 2Coll 1–9 and ‘Natural Right and Historical Mindedness,’ 3Coll 169–73.

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Aquinas’s metaphysics into a dynamic context. To do this he needed to incorporate the reality of history and modern empirical science into Aquinas’s metaphysical categories. Lonergan discovered that the basis for the desired transformation was already present in the intellectualist epistemology that grounded Aquinas’s metaphysics. Lonergan does not attempt a full-scale recovery of Aquinas’s metaphysics until he writes the Verbum articles in the 1940s, the project he took up after he abandoned economics in 1944.38 However, Lonergan recognized in 1934 that Aquinas’s understanding of understanding was a key to the solution.39 In a letter to Father Keane, his superior, Lonergan writes: What the current Thomists call intellectual knowledge is really sense knowledge; of intellectual knowledge they have nothing to say; intellectual knowledge is, for example, ‘seeing the nexus’ between subject and predicate in a universal judgment: this seeing the nexus is an operation they never explain. From an initial Cartesian ‘cogito’ I can work a luminous and unmistakable meaning to intellectus agens et possibilis, abstractio, conversion to phantasm, intellect knowing only the universal, illumination of phantasm, etc. etc. The Thomists cannot even give a meaning to most of this. At the same time I can deduce the Thomist metaphysic: universal individuated by matter; real distinction of essence and existence; the whole theory of act and potency. Finally, I can solve problems and make new applications.40 There is an obvious link here to Lonergan’s studies of the cognitional foundations of logic in the Blandyke Papers. His study of methodology and his reading of Newman certainly prepared him for recognizing the importance of ‘insight into phantasm’ for Aquinas. The outstanding new application is a metaphysic of history. In the ‘Essay in Fundamental Sociology’ Lonergan transposed two key elements of Aquinas’s epistemology to the problem of human development: they were Aquinas’s accounts of (1) the progress of intellect and (2) the relationship of intellect to will. For the first of these, Question 85, article 3 of the first part of the Summa Theologica was a key point of reference. Question 38 Reprinted in CWL2. 39 Lonergans end Insight as follows: ‘I would say that it is only though a personal appropriation of one’s own rational self-consciousness that one can hope to reach the mind of Aquinas, and once that mind is reached, then it is difficult not to import his compelling genius to the problems of this later day’ CWL3 770 [748]. 40 Keane (1935).

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85 deals with the question, Whether our intellect understands corporeal and material things by abstraction from phantasms? Article 3 asks, Whether the more universal is first in our intellectual cognition? Lonergan uses a selection from this article as the front piece of ‘Pantôn Anakephalaiôsis,’ a sure sign of its significance for him. It goes as follows: ‘We have to consider that our intellect progresses from potency to act. But everything that progresses from potency to act arrives first at an incomplete act, one that is intermediate between potency and act, before arriving at perfect act … Now [for intellect] an incomplete act is imperfect science, through which things are known indistinctly and with a certain confusion.’41 For Aquinas human intellect is a potency that does not achieve its perfection in an instant. Unlike angelic intellect, human intellect perfects itself though a series of incomplete acts.42 Based on this Lonergan contrasts progress with ‘mere change.’ Because history is a flow of events in time-space, change is merely a feature of flow. Progress occurs through the intervention of human intelligence in the control of the flow; it is the continual (recurrent) meeting of challenges with intelligent solutions in time. However, the relationship of intellect to will is the crux of the matter. Will is the vehicle that moves immanently developing intellect into the real world. Appetitus rationalis sequens formam intellectus – will follows from the intellect – transforming mere behaviour into rational action.43 Lonergan argues, ‘the end of the individual as an individual is to accept the intellectual forms (effective assent to the true, consent to the good; by this means he attains the energeia [energy-power] of his personality.’44 In others words, we become what we are capable of being by continually consenting to the true and the good.45 For Lonergan freedom is neither the opportunity to choose anything we want, nor the lack of external constraint. While choice makes freedom possible, its realization is through the responsible exercise of intelligence. Aquinas’s account of how intellect develops and its relationship to will provides Lonergan with the answer to the question, How do immanent acts of individuals connect to the social world and to the flow of history itself?

41 PA 139. 42 In Verbum Lonergan advances beyond Aristotle and Aquinas to conceive of the advance of intellect not as a series of incomplete acts but as ‘act from act.’ See CWL2 113–16, especially 114–15. Also see CWL3 492–94 [467–69] on intellectual development. 43 See ST Ia-IIae, qq. 1–20, passim. For both Aquinas and Lonergan, the will normatively functions in cooperation with intellect. 44 EFS in LEER 76. 45 For background, ST Ia-Iae, qq. 6–18.

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It establishes the ground of human solidarity. In the first place, he argues that while there are many human beings, they all have the same nature; a nature being why a thing is the kind of thing it is. That there are many human beings is not an intelligible difference, it is a mere matter of fact.46 Nonetheless, while we cannot explain matter itself, it is a precondition for knowing. Human inquiry arises in response to the materials from the phantasmal flow of consciousness. In the second place, he argues that the fact of pre-motion establishes the link between the unity of human nature and the solidarity of human action.47 According to Aquinas, quidquid movetur ab alio movetur, everything that is moved is moved by another. No contingent existence is the cause of its own being. In order to account for change there must be an extrinsic mover. If each contingent being were its own cause, then there would be no change. Each being would already be what it is becoming. We cannot have it both ways. Therefore, everything that we do is pre-moved by another action. This line of argument establishes, for Lonergan, a principle of unity for human solidarity operating in history. The actions of past generations become preconditions for the next. Human history is ‘the flow of human acts proceeding from one nature in space-time and all united according to the principle of pre-motion.’48 The external flow is the effective solidarity of human beings. ‘No man can be better than he knows how and no man can be worse than his temptations and opportunities.’49 While all humans are preconditioned by the total flow of history, human intellect and will internally process the flow of external acts that make history. Because of the fact of human solidarity, progress is of the species, not the individual. In this respect, the individual is merely the instrument of the progress of the species. The fact of pre-motion establishes the solidarity of individuals with the community, and of both with the 46 ‘As far as empirical science goes, occurrence is just a matter of fact; and a methodologically restricted philosophy can repeat the argument about existence to show that occurrence too must be regarded as mere matter of fact as long as one remains within the realm of proportionate being’ (CWL3 677 [654]). 47 On Lonergan’s early use of ‘pre-motion’ in his theory of history, see OLNDH 78–85. For his later appropriation of Thomas’s notion of ‘pre-motion’ see CWL1 I-4 (66–93) and II-3 (252–74). 48 EFS in LEER 19. The principle of pre-motion also grounds Lonergan’s soteriological arguments about the solidarity of human beings in both the sin of Adam and the redemption of Christ. The same point grounds the emergence of notions of social sin and social solidarity in the social encyclicals. See Gregory Baum and Robert Ellsberg, eds, The Logic of Solidarity: Commentaries on Pope John Paul II’s Encyclical ‘On Social Concern’ (Maryknoll, NY: Orbis Books, 1989). 49 EFS in LEER 19.

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flow of history. Persons are agents of the process of history.50 The intervention of intelligence gives humankind an active legislative function in the making of history. Human beings are subject to the laws of nature, but also have within themselves a potentiality for lawmaking. The intervention of intelligence into the flow of history is a recurring circuit: Problems arise in the initial situation. New ideas eventually emerge in an effort to meet the problem.51 The ideas are acted on to change the initial situation. The flow is both material and formal. The material element is the flow of events. The formal (intelligent) elements are above the flow, not part of it. If we have knowledge of the differentials of the flow, we can grasp what constitutes genuine progress. Such knowledge gives us sets of laws that we can use to anticipate and direct the flow in the future. In other words, we have a foundation on which to develop a practical theory of history. While Aquinas’s account of intellect and will provided Lonergan with a framework for the desired transposition, modern physics provided him with the requisite analogy from science. He finds his analogue in the method of fluid dynamics. The choice is fitting. Establishing physical laws involves a special difficulty that is analogous to the problem of determining general or universal categories for history. As he later explains it in Insight: ‘Physical principles and laws are involved in a difficulty. For they regard motions of one kind or another; motions are changes in place and time ... Unless a special effort is made, changes in the choice of reference frame may result in change in the statement of the principle or law.’52 The solution to the problem of invariance in physics involves ‘the mathematical expression of physical principles and laws [that] undergo no change in form despite changes in spatio-temporal standpoint.’53 Likewise, in the philosophy of history, the quest is for invariant laws or forms relevant to any historical

50 We can see here the influence of Hegel’s notion of the progress of reason in history. However, Hegel’s dialectic is conceptual and necessitarian. In contrast, Lonergan’s notion is intellectualist and includes statistical law. See CWL3 446–48 [421–23]. 51 This pattern shows the influence of Dawson’s alternation of material and spiritual (see pages 45–50 above) and anticipates the notion of recurrent schemes in Insight. See CWL3 chapter 4. Lonergan’s economic circuits are also recurrent schemes. See, for example, CWL21 64–65. And ‘method is a normative pattern of recurrent and related operations yielding cumulative and progressive results’ (Method 4). 52 CWL3 64 [40]. 53 Ibid. Also relevant is the fuller discussion of invariance in chapter 5 of CWL3. The issue at this point is analogous difficulties in both physics and the philosophy of history that led Lonergan to take the approach he did take. Relevant in both instances is a shift from description to explanation.

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situation.54 Lonergan was aiming for a scientific understanding of history.55 Using the analogy from fluid mechanics, Lonergan conceives of history as a flow.56 He distinguishes an internal flow and external flow. The external, material flow is the flow of history, the complete aggregate of human acts in space-time. The internal flow is the flow of human conscious acts. The goal is the discovery of the ‘differentials of the flow,’ which would constitute a ‘pure theory of external human action.’57 By ‘differentials,’ he means those elements that go beyond the flow itself, its invariant laws. By ‘pure theory,’ he has in mind a feature of classical methods in the science of physics. He writes: ‘If we determine this end [of external action] and determine the laws by which it is attained and under which action to the end evolves, we arrive at what is called a philosophy of history.’58 Finally, classical method operates as a pair of scissors where the lower blade is the data and the upper blade is a heuristic structure for controlling the analysis of the data. What is to be known is expressed by some function that satisfies the differential equations reached from quite general considerations.59 Although his account in Insight is more precise, we can grasp that the basic notion grounds the earlier construction.60 In 1934 Lonergan had grasped the heuristic function of differential equations of the calculus and used them as an analogy for understanding historical dynamics.61 Thus, while 54 See CWL3 chapter 17, where the universal viewpoint and canons of interpretation are clearly analogous at the human level to the notions of invariance, and canons of empirical method from chapters 2 and 3 of the same volume. On invariance, see CWL3 64–67 [39–43]. On the canons of empirical method, see CWL3 93–124 [70–99]. On this connection, see Philip McShane, Process (Halifax: Mount St Vincent University, 1989) 144–45. 55 See also Lonergan’s discussion of interpretation as scientific in CWL3 587– 603 [564–80]. 56 It is no stretch to grasp the link to his economic theory that investigates rates of flow in a series of interconnected economic circuits. 57 EFS in LEER 17. Lonergan puts the word ‘pure’ to use in a number of ways throughout his work. In cognitional theory there is the ‘pure desire to know.’ See CWL3 passim. It is the intelligence unencumbered by the drag of the biases. In his discussion of the problem of interpretation in CWL3 he introduces the notion of ‘pure formulations’ (CWL3 602 [579]). In his economics, there is the ‘pure cycle’ and ‘pure surplus income.’ 58 EFS in LEER 17. 59 See CWL3 60–70 [35–46]. 60 CWL3 62–64 [38–39]. In this chapter the method employed is named the ‘the method of elementary abstraction,’ taken from Lindsay and Margenau’s Foundation of Physics. Lindsay and Margenau illustrate elementary abstraction ‘by examining the general features of a fluid in motion’ CWL3 63 [39]. 61 Lonergan links the differentials to the Aristotelian causes. ‘Human action is in its material cause a flow of change – sensible in consciousness, physical in the subconscious and the external world’ (EFS in LEER 17).The formal

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Aquinas provided the implicit cognitional theory for the shift from a static to a dynamic method, Newton’s discovery of the Calculus provided a fitting scientific analogy for dealing with movement over time.62 An analysis of development in its pure form, as he later specified it, provided Lonergan with a context for distinguishing the stages of history.63 While there is significant advance in his understanding of the stages of development over the next four years, the formative insights occur at this time. Lonergan’s core insight is the differentiation of the spontaneous and reflexive stages of development in history. The orientation of the spontaneous phase is practical. At the beginning human practicality is simply an extension of human biology, and intelligence is brought to bear on the tasks of basic survival. Soon humans learned to use their intelligence to improve their material conditions. ‘Primitive’ hunters stop hunting to make spears and ‘primitive’ fishers stop fishing to make nets.64 Doing so results in more efficient hunting and fishing. More ideas follow and eventually there is a succession of mechanical and technological advances that mark off stages of human material progress. Developments in technology transform the economy, the polity, and, ultimately, culture. In Lonergan’s account of this succession of transformations, we see the influence of his reading of Dawson’s Age of the Gods. The ideas presented in the ‘Essay on Fundamental Sociology’ are Lonergan’s first presentation of his own understanding of how technological and economic development impact culture. Because of its significance I quote at length from the original document: Let us distinguish the primitive culture of hunters, fruit gathers, fishers, megalith devotees, etc., together with the merely peasant culture cause of history is ‘the emergence of intellectual forms with respect to this flow of change’ (ibid.). The effective cause is the act of will consenting to the emerging intellectual forms. All three causes merge to become one human act. 62 Lonergan consulted Sivanus Thompson’s Calculus Made Easy, 2nd ed. (London: Macmillan, 1910) during Regency. 63 In Insight Lonergan writes: ‘Thirdly, there are the pure formulations. They proceed from the immanent sources of meaning to determine differentiations of the protean notion of being. Such differentiations may be either the contents of single judgments or the contexts constituted by more or less coherent aggregates of judgments. In either case they are pure formulations if they proceed from an interpreter that grasps the universal viewpoint and if they are addressed to an audience that similarly grasps the universal viewpoint’ (CWL3 602 [580]). Lonergan’s purely analytic approach no doubt reflects the influence of the analytic procedures developed by J.S. Mill in his System of Logic and applied to his economic theory. 64 CWL3 233–34 [207–208]. Lonergan’s account of practical common sense in Insight is a development of the ideas introduced in this essay.

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marked by painted pottery, from higher culture of the Mesopotamian Temple states and Egyptian Dynasties. The theory of these last two is that the discovery of the ox and largescale agriculture with its long-term investments necessitated a new idea of property – land was not merely inviolable as hunting-ground but not even to be walked on at will. This idea was made socially effective by the cult of the Mother Goddess who owned all the land and all its fruits, whose servants the agriculturists were, from whom each received the bounties of his labours. We must here notice first of all the effect of a new means of exploiting matter leads to a greater and more strictly enforced social solidarity. Second, that which differentiates the higher culture of the near East from the painted-pottery culture generally is this stricter bond. For it was in virtue of the socialistic theocracy that the Temple States, acquired their capital, supported an expansion of agriculture into its subsidiary arts and crafts, led to richer religious rites with their initial literature of song and their initial science of calendars, formed the basis of a wider expansion through commerce, ultimately to culminate in the stupendous temples such as that of Carchemish and in a cast of priests, lawgivers, the administrators of justice, the directors of it all.65 [emphasis added] There are a number of points to emphasize here. Lonergan, following Dawson, distinguishes primitive cultures from higher cultures and argues that stages of economic and cultural development are the result of significant technological innovations. Economic development is possible because of the discovery of more effective or more efficient ways of doing things. The material conditions for the rise of higher cultures of the Near East were made possible by a shift to more efficient means of production. The change in the means of production evokes major shifts in social organization largely through the emergence of a more sophisticated division of labour. Thus, as technological developments lead to changes in the economy, so economic developments lead to changes in political organization, in this instance the Temple State. A new social organization conditions the development of a higher culture, making possible the leisure that is a condition of its development.66 Finally, we note that link between effective 65 EFS in LEER 23. 66 On the relationship of practical common sense to culture, see CWL3 261–63 [236–38]. Earlier developments of the division of labour in general produced a leisure class such as the citizen of the Greek city-state, the lords of feudal Europe, and the British aristocracy. Modern capitalism promises (though does not fully deliver) a broader, more democratic base.

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social policy and religious symbols: ‘This idea was made socially effective by the cult of the Mother Goddess.’ In his economic theory, Lonergan will build on the pattern of developments expressed in this selection. Lonergan then differentiates practical and reflex developments. Practical developments are the precondition of reflex or theoretical development. The reflex phase emerges with the need for a viewpoint higher than the spontaneous phase with its practical orientation. The reflex stage is a natural development of the tendency of intelligence towards system.67 The reflex stage emerges out of the inability of common-sense intelligence, wedded to the immediate situation and the practical order, to ask and resolve questions about the ultimate order of things. In the Near East city-states of the ancient world, governance was by bureaucratic rule. On bureaucratic rule, Lonergan writes: ‘It is vigorous as long as it continues to expand, for then it has a social purpose to which all else is subordinate. But expansion inevitably yields to space; decreasing returns are as much a phenomenon of empire as of business. Next, once the expansion has ended, there is no social purpose beyond preserving what has been achieved.’68 The emergence of philosophy in Greece is a concrete instance of the emergence of the reflex phase in human history. Socrates and Plato recognized the social need of a higher viewpoint beyond the common sense of their day. The goal of theory is to include everything, including common sense, in a systematic viewpoint. In the reflex phase of history, the dialectic of thought, the order of development is the reverse of the spontaneous phase, the dialectic of fact. In the dialectic of fact, development is from the particular to the general, that is, people begin with practical inventions that over time are generalized. Inventions in technology and economy lead to a new, more complex division of labour. The new division of labour requires the development of a more sophisticated political organization that in turn leads to cultural development. It is in the realm of culture that the reflex circuit is born. The leisure available to Athenian citizens, made possible by prior developments in technology, economy, polity, and culture, provided the material conditions for developments in philosophy and science.69 While practical developments arise first out of material needs, in the reflex circuit, developments arises first out of theoretical inquiries from which practical applications later emerge. For example, the discovery of 67 Relevant here is Lonergan’s account of ‘higher viewpoints’ and ‘system’ in CWL3. See the index under ‘viewpoints, higher.’ 68 EFS in LEER 23. 69 For example, developments in literature prepared the ground for the emergence of philosophy. See Method 90–93. Lonergan refers to Bruno Snell, The Greek Discovery of the Mind (New York: Harper Torchbooks, 1960).

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the Calculus made possible a whole host of practical applications in a wide variety of fields. Calculus was integral to Newton’s mechanics. Out of Newton’s mechanics flowed applied physics with its many applications in engineering, building construction, industrial development, aerodynamics, and so forth. Lonergan initially builds his account of the stages of historical development by extending Aquinas’s account of the development of intellect.70 The result is a pure theory of historical development. Just as Galileo developed his law of falling bodies by considering an ideal state, abstracting from such particular conditions as friction and wind movement, on a first approximation, Lonergan ignores all blockages and resistance to development, whether in the practical circuit or in the theoretical circuit. Once he establishes the ideal or pure form of historical development, Lonergan then takes into account the effect of acts of human wills on the ideal line. While some decisions are in accord with intelligence, others are not. Unintelligent decisions distort the ideal line of progress. Lonergan designates such deviations from the ideal line of progress as decline. This brings us to Lonergan’s position of human freedom. Unlike Marx’s dialectic materialism, Lonergan’s account of historical progress is neither materialist nor determinist. Pre-motion does not deny free will. Rather, human beings are broadly predetermined to one of two alternatives, intelligent and rational or unintelligent and irrational. Choices are not the necessary result of predeterminate conditions. In an ideal situation, if choices are intelligent and rational, there is progress or development. If, in varying degrees, this process fails to meet the demands of intelligence and reasonableness, then problems are not met and the situation stagnates or worsens. Because history is the total aggregate of human acts in space-time, situations have, at any time, both intelligent and unintelligible components. Human wills are free to follow the exigencies of intelligence and reason, or to ignore them. If ignored, then freedom is relinquished and opportunities are missed. It is on this basis that Lonergan distinguishes progress from decline. Progress is due to the intelligent and effective direction of events; decline comes from the failure to meet problems intelligently and effectively. Of great significance is Lonergan’s recognition of the validity of statistical law. In the ‘Essay in Fundamental 70 In EFS Lonergan derives his framework for the theory of history from Aquinas’s account of the development of intellect. In later essays Lonergan employs an analogy derived from Newton’s three laws of motion. See below pages 113–14. In OLNDH I argue that for the importance of his use of the analogy of Newton’s method of approximation for the development of his philosophy of history. See OLNDH 42, 123–24,138–40, and 164–69.

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Sociology’ he remarks that the emergence and effective implementation of ideas ‘is strictly subordinated to a statistical law.’71 The integration of statistical methods into his account of history marks the beginning of a line of development that brings statistical methods into his account of generalized empirical method. It is an important element in the development of the theory of emergent probability, which brings together classical and statistical methods.72 As we shall see, emergent probability is significant for macroeconomic dynamics. Decline disrupts progress and so there is the need for reversal of its disorderly effects. However, it is not simply a question of choosing the intelligent and reasonable over the unintelligent and irrational. The consequences of decline are cumulative, restricting the range of freedom and hardening the position of the unreasonable. The use of reason cannot convince the unreasonable. In Lonergan’s view, there is a need for a higher, supernatural viewpoint that would meet the fact of decline. he identifies this higher viewpoint as the redemptive process, actualized in Christian character and manifested in acts of faith, hope, and charity. Faith meets the defects of intelligence, hope counters despair, and charity replaces hatred with love and augments justice with mercy and reconciliation. The long-term effect in history of the supernatural vector is towards a reversal of decline. It acts to shift probabilities in favour of the restoration of the line of progress. Christian hope, for example, counters the despair that cannot resist the downward movement of decline. In his view, the supernatural is an essential element in an adequate account of the dialectic of history and constitutes a third set of categories or differentials for understanding history.73 It is not, however, simply the effects of supernatural virtues operative in history that solves the problem. It is a supernatural theory of history that provides the way to soundly and effectively anticipate future action. However, as we shall see, Lonergan’s macroeconomics dynamics can stand independently of the supernatural component. Economic activity provides the material conditions of human life. Like any other science, economics is an independent zone of inquiry with its own special categories. Certainly, 71 EFS in LEER 19. On statistical method, see CWL3 76–89 [53–68]. 72 See CWL3 126–38 [103–15]. 73 Faith, hope, and charity are the supernatural conjugate forms in Insight. See CWL3 720–22 [689–70]. In his early writings, Lonergan identifies the supernatural component with the Christian redemptive process. Late in his career there is an expansion to include within the redemptive process the authentic expressions of all religions. See Method 108–109; ‘Prolegomena to the Study of the Emerging Religious Consciousness of Our Time,’ 3Coll 55–73 and ‘A Post-Hegelian Philosophy of Religion,’ 3Coll 202–23.

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Lonergan’s interest in economics emerged hand in hand with his interest in Catholic Action. However, he clearly differentiated economics per se from ethical and theological issues. The claim here is that the supernatural vector is relevant to economic praxis. Adequate economic analysis, to be practical and effective, must take into account the fact of the social surd, particularly with respect to economic decline, and economic policy, strategy, and communication must consider how to meet the elements of decline.74 The same thing would apply in any application of social theory because any human situation contains elements of progress and decline. For Lonergan the full, incarnate, meaning of economy is theological: economic activity is a part of the building up of the mystical body of Christ. I will take this on later in chapter 8 when I discuss the relationship of theology and social praxis. Because history has elements of progress, decline, and redemption, it is dialectic in form.75 In contrast to Marx’s materialist dialectic or Hegel’s conceptual dialectic, Lonergan’s dialectic derives from the structure of human choice.76 Progress follows as a consequence of reasoned decision-making. Decline follows from unreasonable choices and their consequences. Redemption follows from the acceptance of the supernatural solution to the problem of evil, which sublates the bipolar dialectic of progress and decline into a higher supernatural reality. The supernatural graces reverse the effects of decline, restoring the line of progress. In the earliest formulation of the dialectic structure Lonergan identifies three sets of dialectic: a dialectic of fact (practical intelligence), a dialectic of thought (theoretical intelligence), and an absolute dialectic (redemptive history). Each dialectic incorporates elements of progress, decline, and redemption. This structure constitutes the differentials of history. Lonergan organized the complete set in the ‘Essay in Fundamental Sociology’ as follows:

74 The full implication of this point needs to be placed in the context of functional specialization. For instance what is the relevance of the conversions – cognitive, moral, and religious – to economic policy, strategy, and executive reflection. I address this to some degree in the final chapter. 75 In Insight Lonergan writes: ‘But when this problem of evil is met by a supernatural solution, human perfection itself becomes a limit to be transcended, and then, the dialectic is transformed from a bipolar to a tripolar conjunction and opposition’ [italics added] CWL3 749 [728]. See also the discussion of multiple dialectics in ACH 26–28. 76 In ACH Lonergan writes: ‘Because, the unity of the dialectic is the unity of thought that goes into action, it follows that this thought produces the social situation with its problems. If the thought is good, the problems will be small and few’ (13).

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1. Absolute Dialectic (1) Mere fact (2) sin (3) Revealed fact 3. Dialectic of Thought (1) natural reason (2) Rationalism (3) Faith77 2. Dialectic of Fact

The dialectic of fact integrates the spontaneous advance of practical intelligence (mere fact) with the retrograde motion of sin or evil and the restorative movement of revealed religion. These fundamental categorical divisions rooted in the distinction between progress, decline, and redemption are relevant to all aspects of the spontaneous practical life of any organization of human activity. The dialectic of thought includes the advances of theory, which are a result of reason, the retrograde influence of rationalism and its descendants (liberalism and Bolshevism), and the restorative influence of faith, which Lonergan identifies with Catholic social theory, to counter rationalism. The dialectic of thought does not eliminate the dialectic of fact, but is a potential higher theoretical control of practical life. Thus, ideally, systems are organized on theoretical or scientific principles that ultimately may result in more efficient action. In actuality, the systems developed by theoretical advance might, because of the effect of decline, confound practical life. Lonergan uses the example of rationalism, which because of its deficient appreciation of the role of human understanding and its minimalist notion of reason, denigrated belief as myth and accelerated the decline in the West.78 The absolute dialectic is ‘revelation, prophecy, the development of dogma.’79 Absolute dialectic is, theologically, the advance of the mystical body of Christ in history.80 It is the higher viewpoint that meets the challenge of decline in both the spontaneous and reflexive stages. With the addition of the supernatural vector in history Lonergan identifies the higher synthesis of the liberal thesis and the Marxist antithesis. 2

Towards the Integration of All Things

Lonergan’s ideas on the supernatural component of history are developed 77 OLNDH 179. 78 The contemporary critiques of instrumental reason by the Frankfurt School thinkers have similarities with Lonergan’s view here. 79 EFS in LEER 33. 80 Lonergan develops his ideas on the place of the mystical body in history in PA. See also OLNDH 64. In Insight the philosophy of history provides the philosophical component of a theology of the mystical body. See CWL3 764 [742].

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more fully in ‘Pantôn Anakephalaiôsis (The Restoration of All Things),’ written in 1935, a year after the ‘Essay in Fundamental Sociology.’ Exploring the full ground and reach of human solidarity is a central issue in ‘Pantôn Anakephalaiôsis.’ In the ‘Essay in Fundamental Sociology’ Lonergan applied Aquinas’s metaphysics to the notion of solidarity. In ‘Pantôn Anakephalaiôsis,’ he develops the point further. As in the ‘Essay in Fundamental Sociology,’ the proper form for the study of human beings is not the individual, but the species. An individual is then taken to be an instrument for the development of the species. Emerging ideas, while they occur to individuals, once communicated enter into a shared social reality. Thus, one act of intellect can inform an indefinite number of acts of the will and, at any time, a single set of ideas effectively determines a flow of human operations.81 Based on this observation, he concludes that there is a dominant thought form in each historical era. A dominant form becomes the main channel for the transformation of society and culture. For example, the prevailing thought form of thirteen-century Europe was Christian and in the eighteenthcentury European enlightenment it was rationalism. There is also an important development in Lonergan’s understanding of intellect in the context of an exploration of the unity of human operations. He sets human solidarity within a hierarchical account of world order. This is the precursor of his account in the 1943 article ‘Finality, Love, Marriage’ and of his notion of emergent probability in chapter 4 of Insight.82 The basis of human operation is, extrinsically, the biological succession of birth, reproduction, and death that sustains human life. Intrinsically, there is the succession of human acts related to each other and to the conditioning sequence of physical and biological events. There is a succession of human thoughts arising out of the events conditioned both intrinsically and extrinsically to direct human operation and contribute to the ongoing flow of history. Finally, human operation itself is but an instrument of the Divine. Because God is the principal cause of all operations, human beings have obediental potency to the Divine order. While individuals are members of a species that is an instrument of Divine initiative, the fact of material individuation opens up a path for the development of personality.83 Lonergan writes: ‘Now a person is an individual

81 This would seem to be the origins of the claim for the priority of the dialectic of community over the dialectic of the dramatic subject. See CWL3 243 [218]. 82 ‘Finality, Love, Marriage,’ CWL4 17–52 and CWL3 144–51 [121–28]. 83 With respect to the relationship of personal development and self-appropriated philosophy, see CWL5 222–24. With respect to the relationship between personal development and the human good, see CWL10 79–106.

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with intellect and will. What is a personality? We argue as follows: the individuality results from matter, the principle of individuation; but matter is for the sake of some higher form; therefore personality is the individuating form that can be brought forth in a material individuality by intellect and will. But what intellect and will bring forth in the way of individuating form is a given – personal, as we say – orientation to life. Therefore, actual personality or character is the ultimate difference in the intellectual pattern of habit of will that results from the operation of intellect and will in a material individual.’84 Lonergan identifies three personality or character types according to their orientation to (1) the sensible, to (2) truth, goodness, and beauty, or to (3) the light and charity that comes from the Holy Spirit.85 He understands personal development and personal relations within the context of a Christian anthropology of creation, fall, and redemption.86 Christian character is of significance in restoring the line of progress in history. Human actions advance history. The context for linking this anthropology to the philosophy of history is, as we would now expect, the theology of the mystical body that is the final unifying context for human history. In this context, Lonergan ultimately links the dialectic of history to the Trinitarian missions.87 This personal context will have a bearing on Lonergan’s understanding of the relationship between personal choice and economic analysis. For Lonegan, then, economic decision-making goes well beyond the narrowly conceived utilitarian cost-benefit analysis of rational-choice theorists.88 In the essay fragment ‘Outline of Circulation Analysis’ Lonergan explains his viewpoint on economics by comparing cars and their drivers. He writes: ‘A study of the mechanics of motorcars yields premises for the criticisms of drivers, precisely because the motorcars, as distinct from the drivers, have laws of their own which drivers must respect. But if the mechanics of

84 PA 152. 85 These personality types match the hierarchy of nature, history, and grace in the essay ‘Finality, Love, Marriage.’ 86 In Insight Lonergan comments that personal relations can adequately be studied only in a larger theological context. See CWL3 754 [731]. 87 See De Deo Trino, qq. 25–31 for Lonergan’s account of the Trinitarian missions in CWL12 453–500. 88 A concise review of rational-choice theory in economics can be found in Amartya Sen, On Ethics and Economics (Oxford: Blackwell, 1987) 10–28. On rational-choice theory in political science, the classic study is Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press, 1968). For a criticism of rational-choice theory, see ‘The Hodics of Rational Expectations’ in McShane, PastKeynes PastModern Economics 155–62.

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motors included, in a single piece, the anthropology of drivers, criticism could be no more than haphazard.’89 The distinction is crucial in his criticism of the economics of his day that, with its focus on the pricing system, theory of choice, and future expectations, made human decision-making a significant variable of economics. Lonergan had a clearer view. Keynes, for example made ‘the propensity to consume’ a fundamental category in his General Theory. As we shall see, Lonergan relocated Keynes’s insight in the context of rhythms of the pure cycle.90 How then are we to understand Lonergan’s economics in light of his vision of a hierarchical world order in which ‘all things’ are ultimately brought up into the progress of the mystical body of Christ? Clearly, moral decision-making, which is a function of character, is an instrument in the progress of the mystical body. Do drivers not drive cars? Is not the economy at the behest of human choice? The key point is the distinction between intelligent and unintelligent choice.91 Good drivers respect the nature of car engines and so get the best performance out of their cars. They do not brake and accelerate at the same time. In the conception of world order as sketched in ‘Pantôn Anakephalaiôsis,’ economy is material for human transformation, just as human beings are material for Divine transformation. Economy transforms the potentialities of nature (including human nature) into a standard of living. An orientation merely to the satisfaction of wants does not exploit the potentialities of matter fully. Lonergan’s vision of the mystical body sets a much higher orientation for that standard of living. 3

Reach and Attainment in Lonergan’s Quest for a Practical Theory of History

The ‘Essay in Fundamental Sociology’ and ‘Pantôn Anakephalaiôsis’ were important stepping-stones in Lonergan’s development. The essays reveal the early emergence of his quest for a practical theory of history, a quest that 89 ‘Outline of Circulation Analysis,’ CWL21 109. 90 CWL21 231 [CWL15 5]. 91 Lonergan’s understanding of the cognitive basis for progress is greatly enriched by the time he writes Method in Theology. He differentiated the directive ‘be intelligent’ from ‘be reasonable’ and ‘be responsible.’ Intelligence is further differentiated with respect to what-questions and what-to-do questions and their resulting formulations. Reasonableness is subdivided with respect to questions for judgment of fact and questions for evaluation and the resultant judgments of fact and judgments of value. Thus, effective decision-making in the later Lonergan is being responsible and that means it is attentive, intelligent, reasonable, creatively planned, and responsibly evaluated.

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began with Catholic Action and eventually results in functional specialization. In this early work Lonergan has begun working out a general method of analysis that can handle dynamic process over time. The significant area of advance is philosophy of history. Already by 1934 Lonergan had developed a dialectic approach based on the tripartite division of history into elements of progress, decline, and redemption, and a theory of historical stages. While he will significantly refine this approach in the next few years, he has established the basic link between the process of mind as a development of human potentiality and the processes of history as progressive in its pure or ideal form. He has established the central importance of reason and liberty (freedom) for progress in history. He has identified the forces of decline and clearly differentiated decline from progress. He has identified the higher supernatural component of historical process, which is vital for the correction of the decline and the restoration of the line of progress in history. With respect to the development of his economic theory, the significant advance at this stage is therefore methodological. If he can establish a method of analysis relevant to all human process in history, then he can develop an analytic method relevant to economic process specifically. Nonetheless, we begin to notice some features of his later breakthrough to economics science. There is an emphasis on production and the recognition of flows and cyclical process as basic elements in economic analysis. Technological innovation emerges as the key operator in economic development. The notion of ‘surplus’ makes its entrance. The ability of economy to produce a surplus provides for material means for the advance of culture. At this stage Lonergan is working out economics in the context of a theory of Catholic Action, the formal component of which is a philosophy of history. Lonergan’s reach for an account of ‘the integration of all things’ was wildly ambitious. He soon developed a strategy for tackling the problem a piece at a time that led to his first original intellectual achievement, his notion of an analytic concept of history. To this we now turn.

3 Real Analysis and the Analytic Concept of History

Deductive thought proceeds in a straight line, for its progress is simply a matter of greater refinement and accuracy. There is an exception to this rule, for deductive thought does suffer revolutionary progress until it finds its fundamental terms and principles of maximum generality.1

In the fall of 1933, Lonergan set to work out a theology of Catholic Action. By the end of his theology degree in 1937 he had made significant progress towards specifying the sought-after differentials for a philosophy of history, a key component of the larger effort. Lonergan’s ambition for this project was an ‘integration of things’ capable of directing Catholic Action, that is, a practical philosophy of history. Lonergan intended to do what Plato had failed to do: to develop a theory that could direct practice. In his early ‘Catholic Action’ essays, while he made a good start, he had not solved the problem. The differentials established were completely general. The problem of effective implementation of the differentials in history was complex and required, as he eventually realized, an effective division of labour that could chart the movement from the general and systematic to the concrete and specific. In a real sense, Lonergan, the man who sets as his goal the ‘integration of all things,’ needs to come to terms with the passing of the classical ideal of the ‘Renaissance man’ and shift into a collaborative model of human action. In any case, the account of the organization of the differentials themselves and the specification of historical stages was incomplete. After completing his theology degree in the summer of 1937, Lonergan went on vacation. From the fall of 1937 to the spring of 1938 Lonergan lived 1 ACH 10.

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in Amiens, France, for tertianship, which is a final year of prayer and reflection in Jesuit formation. Tertianship was also a release from the demands of academic study. Tertianship included ten week-long conferences and the thirty-day retreat of the Ignatian exercises.2 Significant for Lonergan’s personal interests was a week spent at L’École Sociale Populaire, where he listened to leaders specializing in various Catholic Action movements. Lonergan took advantage of the tertianship period and developed and refined the philosophy of history he had begun during his theological studies in Rome. These refinements resulted in a significant advance in his theory and, with respect to economics, a significant advance in methodology, which he named real analysis. 1

The Advance to the Analytic Concept

The advance to the analytic concept of history and real analysis followed from Lonergan’s adoption of a ‘divide and conquer’ strategy. He put aside, for the time being, his ambition to work out a full theology of Catholic Action that would direct the ‘integration of all things’ and concentrated on the differentiation of the purely philosophic component of a theory of history.3 He strove for the maximum degree of generalization with the minimum amount of content. This approach allowed him to specify the fundamental terms and relations relevant to understanding dynamic process in history and to set aside the question of how to implement the theoretical solution in the concrete flow of history. However, because historical situations involve a compound of good and evil, they ultimately invited consideration of a theological component.4 In any case, there were the unresolved questions about how to integrate the various sciences in the theoretical realm, how to differentiate theory from practice, and how to integrate theory and practice in a single viewpoint. Later, in Insight, Lonergan went some distance 2 On Lonergan’s tertianship, see LQ 86–87. 3 Lonergan follows Aquinas’s differentiation of philosophy and theology in ST Ia, q. 1, a. 1. His philosophy of history includes all that can be determined by human reason and excludes revelation. Nonetheless, for Lonergan philosophy of history includes a supernatural component. See CWL3 chapters 19 and 20 for his in-depth justification of this position. 4 In the epilogue to Insight Lonergan writes: ‘The development of the empirical, human sciences has created a fundamentally new problem. For these sciences consider man in his concrete performance, and that performance is a manifestation not only of human nature but also of human sin, not only of nature and sin but also of the de facto need of divine grace, not only of a need for grace but also of its reception and of its acceptance or rejection. It follows that an empirical human science cannot analyze successfully the elements in its object without an appeal to theology’ (CWL3 765 [743]).

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towards the solution, though he acknowledged unresolved questions regarding the implementation of metaphysics.5 He finally resolved these sets of questions with the discovery of functional specialization in 1965. While economic theory would still need special categories proper to its subject, real analysis establishes the general philosophical ground for a fully dynamic methodology.6 As we shall see in chapter 7, Lonergan adopted a similar ‘divide and conquer’ strategy in 1943, when he isolated the macroeconomic elements from his political economy. During tertianship, or following its completion in the summer of 1938, Lonergan wrote four essays on history.7 Isolating the purely philosophical elements of his quest proved an effective strategy, and by 1938 he had identified the set of fundamental differentials for his philosophy of history. They remained a stable set in his future work. They are Lonergan’s first original achievement. We can identify his progress towards a purely philosophical analysis of history by comparing the contents of these essays. The earliest, called simply ‘The Theory of History,’ is incomplete. Lonergan ends the typescript as follows: ‘A more precise formulation of the significance of history would involve considerations of the content of history. This we would defer till we come to treat of Catholic Action which is the role of the supernatural dialectic in the natural problems of human life.’8 There is no evidence that he wrote the promised section. In the nine-page typescript that has survived, there is a one-page discussion of the theology of the mystical body. There is, however, no effort in this essay to apply his theory to the content of history. Next, Lonergan wrote ‘Outline of an Analytic Concept of History.’ In addition to a discussion of solidarity, there are four pages devoted to Catholic Action, the subject missing from the ‘Theory of History.’ However, the essay ends abruptly in the middle of discussing the progress of the Church. 5 See CWL3 421 [396] on the implementation of metaphysics. Related are Philip McShane, ‘Implementation: The Ongoing Crisis of Method,’ JMDA 3 (2003) 11–32; Frank Braio, ‘The “Far Larger” Work of Insight’s Epilogue,’ LW 16, 49–66, especially 61–63; and Michael Shute, ‘“Let Us Be Practical!” – The Beginnings of the Long Process to Functional Specialization in the Essay in Fundamental Sociology,’ in John Dadosky, ed., Meaning and History in Systematic Theology: Essays in Honor of Robert M. Doran, S.J. (Milwaukee: Marquette University Press, 2009). 6 Given its generality, Lonergan’s theory of history is relevant to the methodology of all the social sciences. On dialectic as ‘the general form of a critical attitude,’ see CWL3 268 [244]. 7 The four essays are ‘Theory of History,’ ‘Outline of an Analytic Concept of History’ (hereafter OACH), Analytic Concept of History, In Blurred Outline,’ and ‘The Analytic Concept of History’ – all from LRI Archive File A713. 8 ‘A Theory of History’ 9.

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Perhaps it is at this point that Lonergan realizes the full complexity of the issue. In any case, it is the last time he discusses the issue of Catholic Action. In the remaining two essays, ‘Analytic Concept of History, in Blurred Outline’ and ‘The Analytic Concept of History,’ Lonergan concerns himself strictly with an analytic philosophy of history. These essays from 1937 and 1938 benefit from advances in Lonergan’s understanding of cognitional process in 1935 and 1936, particularly in his expression of the distinction between understanding and judgment. Richard Liddy identifies two important influences that moved Lonergan towards the critical realist position of Verbum and Insight. First, exposure to Maréchal’s thought, by way of a fellow student, led Lonergan to the view that human thought was discursive not intuitive.9 Second, Bernard Leeming’s course on Christology, which Lonergan took in the fall of 1935 and the spring of 1936, moved him towards an intellectual conversion. Lonergan writes that the Christology course ‘convinced me that there could not be a hypostatic union without a real distinction between existence and essence. This, of course, was all the more acceptable, since Aquinas’ esse corresponded to Augustine’s veritas and both harmonized with Maréchal’s view of judgment.’10 Based on this, Lonergan explicitly differentiated acts of understanding from acts of reason. A comparison of the essays on the analytic concept of history with the ‘Essay in Fundamental Sociology’ shows the development clearly. In the ‘Essay in Fundamental Sociology,’ the acts of judgment and understanding are not clearly differentiated.11 Lonergan was certainly familiar with 9 Liddy, Transforming Light 114. Liddy cites the following passage from ‘Insight Revisited’: ‘I had become a Thomist through the influence of Maréchal mediated to me by Stephanos Steffanou and through Bernard Lemming’s lectures on unicum esse in Christo’ (2Coll 276). See also Michael Vertin, ‘Maréchal, Lonergan and the Phenomenology of Knowing,’ in Matthew Lamb, ed., Creativity and Method: Essays in Honor of Bernard Lonergan (Milwaukee: Marquette University Press, 1981). 10 Transforming Light 114. Liddy refers to CM 265. 11 EFS, passim. It would be worthwhile to ponder about when he ‘got’ the distinction first. Joseph’s An Introduction to Logic and Newman’s Grammar of Assent were the important influences on Lonergan’s view of cognition in the 1920s. An Introduction to Logic has only two references to verification. However, the notion of judgment was of great significance to Newman. It is clear from Lonergan’s essay ‘True Judgment and Science,’ from 1929, that he knew Newman on judgment. Overall, it is a tricky issue determining the development of Lonergan’s grasp of cognitional process that involves, among other things, sorting out the stages of differentiation in Lonergan’s expression. For instance, McShane related in a personal correspondence that he asked Lonergan in the summer of 1971 when he figured out judgment. Lonergan’s reply was ‘when I got that far in Insight!’

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Newman’s distinction between apprehension and judgment and had applied the distinction to the problems of logic he explored in the Blandyke Papers. Nonetheless, the specific differentiation of understanding and judgment does not emerge before the essays on the analytic concept of history.12 The following lengthy section from the ‘Outline of an Analytic Concept of History’ may then be Lonergan’s first attempt to explain this important distinction. The distinction between reason and understanding is apt to be perplexing. Let us illustrate from the Gorgias. Socrates demonstrates justice better than injustice; he appeals to reason; he insists that to sustain the contrary results necessarily in contradiction. But he cannot explain how it is so, how the slave who kills the tyrant and sets himself up in his place is no better but worse off for his injustice; he will invent a myth to satisfy understanding; but his real position is that ‘how it is so, I do not know, that nonetheless I have met no one who could maintain the contrary and avoid contradiction’ (509a) (I trust I am not reading my meaning into the text). Now reason attains truth. Philosophy and mathematics have indeed their period of groping, but this lasts only till the most general term of the science is reached. After that progress is not revolutionary but simply the achievement of greater accuracy and refinement. Aristotle was the first to discourse systematically on tò ón and he remains the master of those who do so. The modern period of mathematics might seem to be opposed to our view: but rather perhaps confirms it, for the modern mathematician has been busy generalizing his concept of number and with maximum generality attained revolutionary progress becomes impossible. On the other hand the immediate goal of the understanding is to understand, to know the intelligibility of things. Now per se intellectus est infallibilus, so whenever we understand, necessarily per se we understand rightly. Still the accidental is a regular occurrence. How is this? It is that our understanding is of the object as we apprehend it: let our apprehension be distorted or incomplete, then our understanding will indeed be true of what we apprehend yet not an attainment of the intelligibility of the object. Point out to a man who understands, but wrongly, the factor his view does not take into account; if you succeed in your effort he will say, I never thought of that, meaning that if the ‘that’ were not to be thought of, then his understanding would be right. Thus even in correcting its errors the understanding witnesses 12 This issue is treated in greater detail in OLNDH, 160–4.

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to its per se infallibility. We might note, then, that the significance of Newman’s real apprehension as a criterion of certitude is that with real apprehension false understanding is impossible: real apprehension is exhaustive; granted an understanding of such apprehension there is the impossibility of any other factor or point of view being brought forward to require or effect a change of ‘interpretation.’13 This passage confirms Lonergan’s identification of ‘understanding’ and ‘reasoning’ or ‘judging’ as distinct sets of activity with distinct goals within the cognitional process. The differentiation of understanding and reasoning grounds his characterization of the progress in history as dialectical. Lonergan writes: ‘The above outline of the nature of understanding leads immediately to the outline of its progress: this is by thesis, antithesis, higher synthesis, in the sense that the understanding first integrates in an apperceptive unity a certain measure of fact, which gives the thesis, then discovers incompatible fact, which gives the anti-thesis, and finally forms the higher unity, the higher synthesis, which if not on the level of philosophical ultimates, is itself open to antithesis and still higher thesis.’14 Finally, the distinction allows for a refinement of his account of the structure of history. Understanding proceeds inductively by way of a succession of ideas. It is the way of discovery in which new ideas emerge. Galileo’s discovery of the law of falling bodies would be an apt scientific example. In practical matters it is the exercise of common-sense intelligence in working out solutions to problems that arise in day-to-day life. Reason, however, proceeds deductively based on the principles of reason. Philosophy, once it consolidates itself into a unified system, can proceed deductively, as in the metaphysics of Aristotle or Aquinas. Lonergan then divides spontaneous and reflex history into two fields, the inductive field and the deductive field. Progress in inductive thought, following the dynamic of understanding, is creative. Practical intelligence and applied science are in the inductive field. Deductive thought, once basic principles are established, adds greater refinement and accuracy.15 Once their basic terms and relations are established, both philosophy and 13 OACH 8. 14 Ibid. 15 In ACH Lonergan writes: ‘Deductive thought proceeds in a straight line, for its progress is simply a matter of greater refinement and accuracy. There is an exception to this rule, for deductive thought does suffer revolutionary progress until it finds its fundamental terms and principles of maximum generality: there were philosophers before Aristotle, and, more interestingly, modern mathematics has been undergoing revolutions not because mathematics is not a deductive science but because mathematicians have been generalizing their concepts of number and space’ (10).

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mathematics are in the deductive field. Thus, with respect to the stages of history, Lonergan divided each stage into an inductive and a deductive movement. The inductive movement is characterized by creative advances, as in technological innovations and scientific advance, while deductive movement represents the application of established horizons. While the distinction between inductive and deductive procedures provides a significant refinement, what marks these essays from earlier efforts is their organizing principle. With the earlier accounts of 1934 and 1935, Lonergan based the primary division of terms and relations on the stages of historical development: these are the dialectic of fact, the dialectic of thought, and the absolute dialectic. Lonergan based the secondary division on the early equivalents of progress (mere fact and natural reason), decline (sin and rationalism), and renaissance (revealed fact and faith). In the analytic concept, Lonergan turns the configuration inside out. The new primary differentials are progress, decline, and renaissance.16 The new secondary differentials are the stages of history: (1) spontaneous thought and spontaneous history replacing the dialectic of fact; (2) reflexive thought and spontaneous history replacing the dialectic of thought; and (3) reflexive thought and reflexive history replacing the absolute dialectic. The first two are essentially refinements of the previous ones. However, the third stage of history (reflexive thought and reflexive history) constitutes a significant shift in viewpoint. Having differentiated philosophical and theological elements, Lonergan replaced the theologically charged absolute dialectic (the history of revelation) with a development in method. The specified development is the precursor to the third stage of meaning dealt with in Method in Theology. This third stage anticipates a higher control of history informed by generalized empirical method. Whereas, in the second stage, theory cannot effectively direct practice, in the third stage, sound theory (informed by a philosophy of history) does serve this role and theory and practice are integrated. In the analytic concept, Lonergan adds a tertiary division of each stage of history based on a differentiation of inductive and deductive fields of thought. Finally, with some significant advances in conception, he shifts the ‘history of revelation’ into the primary differential ‘renaissance.’17 16 In the ‘history file’ Lonergan regularly refers to the third differential as ‘renaissance.’ In Method in Theology he uses the term ‘redemption’ and in the later essay ‘Healing and Creating in History’ he refers to ‘recovery.’ I would not ascribe any great significance to these variations with respect to the theory itself. The change in terminology from renaissance to redemption may stem from teaching courses on redemption in the 1940s. The use of ‘recovery’ is, I think, an adjustment in consideration of the audience he is addressing. 17 For a schematic of the differentials as they develop in the documents from 1934 to 1938, see OLNDH 179–82.

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The organizing principle of this ‘inside-out’ reconfiguration of Lonergan’s theory of history is the method of approximation. It proved to be the key advance in the analytic concept of history. Lonergan acknowledges the significance of the method of approximation in the development of his philosophy of history. He writes: It was about 1937–38 that I became interested in a theoretical analysis of history. I worked out an analysis on the model of a threefold approximation. Newton’s planetary theory had a first approximation in the first law of motion: bodies move in a straight line with constant velocity unless some force intervenes. There was a second approximation when the addition of the law of gravity between the sun and the planets yielded an elliptical orbit for the planet. A third approximation was reached when the influence of the gravity of the planets on one another is taken into account to reveal the perturbed ellipses in which the planets actually move. The point to the model is, of course, that in an intellectual construction of reality it is not any of the earlier stages of the construction but only the final product that actually exists. Planets do not move in straight lines nor in properly elliptical orbits; but these conceptions are needed to arrive at the perturbed ellipses in which they actually so move.’18 In his philosophy of history, the primary divisions (progress, decline, and renaissance) each approximate the actual course of history. Such approximations are ideals types. They are generalizations that, while lacking particular content, provide a fundamental context for asking and answering questions about history. All three together provide us with the fundamental categories for the analysis of the actual course of history. Progress is the first approximation. Progress, in this sense, is a projection of ‘the course of history that would arise did man live according to his nature, did all men at all times in every thought, word, and deed obey the natural law.’19 Progress projects a history better than it actually was. It imagines the natural (unhindered) development of human capacities. It is as if human beings continually found creative and responsible solutions to problems and cooperated in their implementation. While the actual course of history does not proceed in such an ideal fashion, one can identify in human history those progressive elements that are in play which aim to meet challenges creatively. An example would be responsible ecologists collaborating

18 ‘Insight Revisited,’ 2Coll 271–72. 19 OACH 7.

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among themselves to meet the problem of environmental degradation and alerting the public to problems that are discovered. Individuals and communities then commit themselves to act on the highlighted problems. The second approximation adds decline, which is the intrusion into history of acts contrary to human nature. Free choice makes decline possible, for human beings can ignore their natural capacity for intelligence and reason. So, for example, many may ignore the good advice of the ecologists because it will cost money, is a hard sell politically, or is personally inconvenient. The consequences of such irresponsibility infect the path of history; incidentally in the first stage, but systematically in the second stage. In the first stage, decline is simply the result of individual and group decisions. However, in the second stage, decline infects whole systems of thought. Thus, Lonergan differentiates minor decline from major decline. Minor decline follows from class division. Its range is limited to particular societies and it is a feature of both first- and second-stage civilizations.20 Major decline is the systematization in history of the error promoted by defective theories that accelerate the pace of decline.21 Marxism and fascism are outstanding historical examples in the political realm, but as Lonergan wrote in Method in Theology, ‘a civilization in decline digs its grave with relentless consistency.’22 The third approximation is renaissance. It includes the shifts in mind and heart that work to reverse the seemingly inevitable course of decline and restore the line of progress. Lonergan distinguished two kinds of renaissance, accidental renaissance and essential renaissance. Accidental renaissance is not an intended effect. It is a consequence of the passage of time. So, for instance, resistance to new ideas ends when the defenders of the old ideas die. Likewise, each new birth offers possibilities of renewal. For example, the passage of time was a factor in allowing Europe to move out of the Dark Ages. Essential renaissance, however, is the shift in mind and heart that comes from the inhabitation of the supernatural virtues through grace. The transformative power of faith, hope, and charity on the commitments of individuals and communities acts to reverse the effects of decline and reinstate the positive movement of progress. Faith counters wrong-headed ideas, hope counters despair, hate is met by love, and in this way cooperation becomes the standard so that conflicts are met and resolved. The categories of progress, decline, and renaissance are metaphysically ultimate. Heuristically, they include all of human reality. Their relationship 20 Relevant here are Lonergan’s comments on types of cultural transference and on multiple dialectic in the essay ACH, 27–29. 21 In Insight the distinction appears as the shorter and longer cycles of decline. CWL3 251–57 [226–42]. 22 Method 55.

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is dialectical. Progress and decline are opposed principles. Renaissance is the higher principle that ultimately sublates the dialectic of progress and decline. History is the total aggregate of human acts in space-time. We arrive at historical reality through an integration of all three approximations. The integration of progress, decline, and renaissance is of course as complex as the reality of human history; nonetheless, these categories provide the fundamental set of categories for understanding that reality. In this context we can better understand why Lonergan claims the structure of choice is the same as the structure of history.23 The fundamental elements of history are organized according to the kinds of choice made: choices made in accord with reason (progress), choices made in opposition to reason (decline), and choices informed by grace (renaissance). This is most obvious with respect to acts chosen which are in accord with our nature or acts chosen which are against human nature. With respect to the supernatural order, Lonergan’s account of history affirms the Christian view that the supernatural order is real and enters into human history. Pure Reality is the aspect of the divine essence that is imitated or participated in; it is necessarily intelligible in itself, for it is an aspect of the absolutely intelligible.24 The choice for human beings, understood within a Christian context, is to either accept or refuse God’s grace. Acceptance of God’s grace is, in the language of Method in Theology, a conversion or transformation in orientation that shifts one to cooperate with the Divine initiative. It is faith that meets wrong-headed theory, hope that meets despair, and love that meets hate by going beyond the demands of justice.25 To give a contemporary example, the truth and reconciliation initiative in South Africa ameliorated the damage to social order at the end of apartheid. The use of the method of approximation promotes the critical function of the philosophy of history. Lonergan’s approach is not simply empirical. The differentiation of the categories of progress, decline, and renaissance makes it possible for researchers to sort out the progressive, regressive, and restorative elements in human history. This anticipates the task of dialectic 23 Lonergan writes: ‘Structure of dialectic is identical with the structure of individual free choice’ (‘Education, Definition of,’ Education, LRI Archive File A55 [1949]). 24 See OLNDH 117–18. 25 Lonergan later expands on his understanding of the theological significance of history in the thesis on the law of the Cross in De Verbo Incarnato, second edition (Rome: Gregorian University, 1961). The English translation of De Verbo Incarnato will appear as volume 8 of The Collected Works of Bernard Lonergan with the title The Incarnate Word. See also ‘The Redemption’ in Three Lectures, Thomas More Institute Papers no. 75 (Montreal: Thomas More Institute, 1975). Republished in CWL17.

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in functional specialization, which includes the recovery of the best from the past. As Lonergan writes later in Method in Theology: ‘It [dialectic] has to add to the history that grasps what is going forward a history that evaluates achievements, that discerns good and evil.’26 In the introduction, I argued that philosophy of history provided a method and macro-context for the development of Lonergan’s economics. The philosophy of history provides categories that are universally relevant to human living. The analytical categories are completely general and heuristic in nature but, because they were developed out of a completely general account of what history is, they will be augmented with those further laws, of both the classical and statistical type, applicable to the particular historical situation. In economic theory, Lonergan will concentrate almost exclusively on determining the first approximation in the analysis of real-life economies, that is, he derives analysis from an understanding of what an economy is, without the complexity of including the elements of decline and renaissance and without applying the analysis to particular economic events. Thus, the significant variables for his economic theory are ‘pure forms.’ As we shall see, his differentiation of basic and surplus circuits, operative and redistributive exchanges, and the specification of the crossover exchanges constitute fundamental variables relevant to all kinds of economy and all stages of economic development. He will develop ‘a pure cycle’ which envisages the ideal set of economic stages in any developing economy. Only then will he contrast the pure cycle with the trade cycle, a cycle that occurs when systematic elements of decline (major decline) enter into the pure cycle. For example, in Lonergan’s account, a pursuit of profit (pure surplus income) without respecting the phases of the cycle produces a trade cycle.27 This results in the cycle of hyper-growth and recession (and, in the extreme, depression) that characterizes a trade cycle. The trade cycle itself results from the convergence of elements of progress and decline. Finally, because it introduces a theological element, his economic essays are virtually silent on the question of economic recovery. Macroeconomic dynamics specifies what an economy is and based on this how it ought to work. Changing hearts and minds is an issue that goes beyond purely economic considerations. The method of approximation, however, provided Lonergan with an efficient tool for differentiating those purely economic elements relevant to an analysis of economy. Real economies are embedded in the physical, chemical, biological, social, political, cultural, and religious aspects of human life. Economic process transforms all the potentialities of nature into products 26 Method 246. Relevant here is Philip McShane, ‘Cantower XXXIX: Functional Dialectics.’ The Cantowers are available at http://www.philipmcshane.ca. 27 CWL21 297–301.

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and services for sale. The process, as all human process, is an integration of the elements of progress, decline, and recovery. Lonergan’s method for determining the fundamental categories of history is analytic: he does not derive them from an account of the course of history but from a priori understanding of what history is.28 He arrives at his meaning for ‘analytic’ by making four distinctions. First, he distinguishes ‘concepts of apprehension’ and ‘concepts of understanding.’ We can only deduce from concepts of apprehension what is implied by the definition of the terms. From ‘concepts of apprehension’ we can only deduce what is implied in the definition of the terms. This is what J.S. Mill achieves in his efforts to derive the properties of a circle from its definition in The Philosophy of Scientific Method.29 However, a ‘concept of understanding’ reveals why something is the kind of thing it is. Lonergan’s treatment of the definition of a circle in Insight is an example of this. An analytic concept is a concept of understanding. Second, he distinguishes ‘synthetic’ concepts from ‘analytic’ concepts. Synthetic concepts proceed from an aggregate that is concrete and particular. For an example Lonergan gives us Newman’s illative sense, which for Newman meant a faculty of reason (judgment) that results in certitude by drawing together several different strands of argument. Analytic concepts proceed from a plurality or aggregate that is abstract. Third, that aggregate may be either logical or real. An example of a logical aggregate is the terms of a definition of man as a ‘rational animal.’ It is a logical multiplicity of genus and difference. The analytic concept of history is, however, a ‘real analysis.’ The terms of analytic chemistry (the periodic table) and the method of approximation used in Newton’s theory of planetary motion are also instances of real analysis. Fourth, he distinguishes ‘static’ and ‘dynamic’ real analysis. The multiplicity of the classical metaphysician is static; its ideal of knowledge is logic. The multiplicity of the Newtonian astronomer, however, is both real and dynamic because the analysis pertains to a real multiplicity of acts in time. Newton’s astronomy is ‘a causally and chronologically interrelated view.’30 The analytic concept

28 His approach to economics is likewise analytic; it begins from an account of what an economy is, which generates a set of significant economic variables. See CWL21 8–10, 111–14. 29 John Stuart Mill, Philosophy of Scientific Method 105. For Lonergan’s treatment of the definition of a circle see CWL3 31–37 [7–13]. Tom McCallion pointed out to me that we cannot strictly deduce the properties of a circle from its definition. This would only be true if the definition offered is conceptual. A purely enumerative definition, by way of a list of all the object’s properties, would in fact, but trivially, allow the derivation of any individual property. 30 ACH 8.

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of history is based on an aggregate (the flow of history) that is both real and dynamic. It proceeds, as it were, from the ‘upper blade down’ (analytically) rather than the ‘lower blade up’ (synthetically). Historians proceed synthetically from particular data towards the unity of written history. The historian qua historian does not pronounce on the causes of history itself. ‘And only tentatively and with misgivings will he venture from the solid routine of determining facts to the realm of causes.’31 However, philosophers of history do not write particular histories. Their method is analogous to that of the scientist. Their data is the dynamics of history. ‘First of all, he [the philosopher of history] would know causes; so he sets pure science first before applied science, devoting his attention to what is essential and leaving the accidental to later developments of the pure theory.’32 The analytic act, like the synthetic, unifies the data, but it proceeds from abstract terms and relations to the categories of historical events, rather than synthetically from historical fact to theory. 2

Dialectic and the Differentials of History

Dialectic is the unifying concept in the analytic concept of history. Lonergan writes: ‘Real analysis presupposes a real unity: we cannot study the human will in the abstract, nor human wills in the aggregate, but we must find some underlying principle of unity before we can begin to analyze. Hence we speak of the dialectic.’33 Solidarity makes the dialectic possible: ‘[W]e make ourselves not out of ourselves but out of our environment.’34 His meaning of ‘environment’ here includes human products and meanings. However, what does Lonergan mean by dialectic? He writes: ‘By the dialectic we do not mean Plato’s orderly conversation, nor Hegel’s expansion of concepts, nor Marx’s fiction of an alternative to mechanical materialism. We do mean something like a series of experiments, a process of trial and error; yet not the formal experiment of the laboratory, for man is not so master of his fate; rather an inverted experiment, in which objective reality molds the mind of man into conformity with itself by imposing upon him the penalty of ignorance, error, sin, and at the same time offering the rewards of knowledge, truth, righteousness.35 In this

31 OACH 2. 32 Ibid. 33 ‘Analytic Concept of History, In Blurred Outline,’ LRI Archive File A713, 3. Relevant to the notion of unity here is Lonergan’s discussion of the notion of a thing as ‘a unity, identity, whole in the data’ in chapter 8 of CWL3 and his discussion of the unity of concrete being in chapter 16. 34 OACH 4. 35 ACH 11 [italics are Lonergan’s].

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understanding of dialectic, Lonergan had moved beyond the necessitarian dialectics of Hegel and Marx. In the mid-seventies, Lonergan characterizes Hegel and Marx as belonging to the second plateau of history, where developments have mainly to do with speaking: ‘[L]ogicians go behind sentences to propositions and behind persuasion to proofs; and philosophers exploit this second-level use of language to the point where they develop technical terms for speaking compendiously about anything that can be spoken about.’36 His own dialectic of history points to a third plateau where ‘attention shifts beyond developments in doing and in speaking to developments generally.’37 He derives his notion of the dialectic of history from an analysis of human deliberation as it interacts with the flow of history. The measure of success is the extent to which our decisions conform to reality. The dialectic of history is subject to statistical law, outcomes are not assured, and so advance is by trial and error. Dialectic provides the unity for his analytic concept of history because it holds together the material aggregate, intelligent unity, the unintelligent and the intelligent all within the solidarity of human history. In this context economics is a zone of activity in the dialectic of history. Economic development is an experiment, a process of trial and error, in which we cannot deduce the outcome in advance, and economic success comes in the measure that we conform to the reality of economic process. Lonergan distinguishes three rates of dialectic: normative, sluggish, and feverish. In a normative dialectic, things operate as they should. A sluggish dialectic occurs when there is an inadequate response to the evils in the system. A feverish rate occurs when there is excessive activity due to the intolerable pressure of objective evil, unbalanced optimism, or from the breakdown of society. Lonergan’s continued use of fluid mechanics as an analogy, with its ‘flows’ and ‘rates of flow,’ points ahead to his economic analysis. It is no stretch of the imagination to connect ‘sluggish’ and ‘feverish’ rates of dialectic with the variations in the flow of production and sale of good and services that occur when a lack of concomitance between the basic and surplus circuits distorts the flow of an economy.38 36 ‘Natural Right and Historical Mindedness,’ 3Coll 177. 37 Ibid. He continues: ‘Its central concern is with human understanding where developments originate, with the methods in natural science and in critical history which chart the course of discovery, and more fundamentally with the generalized empirical method that underpins both scientific and historical method to supply philosophy with a basic cognitional theory, an epistemology, and by way of corollary with a metaphysics of proportionate being.’ John Benton explores the grounds for the shift from a second-stage to a third-stage understanding of language in Shaping the Future of Langauge Studies (South Brookfield, NS: Axial Publishing, 2008). 38 The distinction between the basic and surplus circuits is introduced in the next chapter.

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Based on his method of approximation, the differentiation of understanding and reason, and the account of dialectic, Lonergan reorganizes the basic terms and relations of his theory of history in the accompanying chart. Primary differentials

Secondary differentials First historical stage – Spontaneous history (I) Deductive field (reason) (ii) Inductive field (understanding)

Progress

Second historical stage – Reflex thought/ Spontaneous history (I) Deductive field (reason) (ii) Inductive (understanding) Third historical stage – Reflex thought/ Reflex history (I) Deductive field (reason) (ii) Inductive field (understanding)

Decline

Minor decline Major decline Major decline + Minor decline

Renaissance

Accidental Essential39

The set of categories Lonergan arrives at are the significant variables or differentials for the understanding of history. The categories are heuristic and universal. As analytic concepts that have no specific contents, but they are derived from an analysis of concrete human reality taken to be historical. Underlying his categories is an analysis of the dynamic process of human thought and will as they interact in the communal context of human history. In the first stage, the deductive field includes popular religion and morality, and the inductive field includes agriculture, mechanical arts, eco-

39 Adapted from ACH 19.

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nomics, political structures, fine arts, humanism, and the discovery of philosophy and science. In the second stage, the deductive type of activity includes religion and morality developed on a philosophical basis. The inductive field includes applied science, international law, and enlightenment theories of history. In the third stage, deductive activity is the ‘general line’ of history determined philosophically. The ‘general line’ is a control of practice based on reflexive theory and practice, which he later will identify as generalized empirical method.40 Just as the second stage emerges out of the inability of common-sense thinking to account for the universal and systematic, the third stage emerges with the need to resolve the difficulties of understanding how theoretical thinking can properly direct ‘man’s making of man.’41 The third stage then is the emergence of a higher viewpoint made possible by the coming together of reflective theory and reflective practice. In the third stage theory and practice are a coordinated effort in ‘man’s making of man.’ As an inductive activity it is the ‘edification of world state,’ an idea which anticipates the notion of cosmopolis in Insight.42 The fuller context of third-stage control is functional specialization, which structures the division of labour for the work of cosmopolis.43 With the analytic concept of history, Lonergan arrives at a foundational starting point for a dynamic metaphysics.44 His approach does not abandon system to take account of historicity. Its idea is to make explicit the dynamic process that would ground any system or systematics. As we have seen, Lonergan found the basic features of this dynamic analysis of human action in Aquinas’s account of intellect and will. Lonergan’s recovery of Aquinas’s intellectualist account of intellect, understood as a movement from potency to act, was instrumental to his realization of the fundamentally dynamic nature of human intelligence. Aquinas’s account of free will provided the foundational context for a dialectic reading of human action. As I noted in the previous chapter, Lonergan’s reading of Dawson drew his attention to human historicity and provided an example of how he might apply the insights of Aquinas to the process of human history. In particular, Dawson’s appreciation of the organic unity of human living lies behind Lonergan’s notion of human solidarity, a key element for working out his understand40 Generalized empirical method ‘stands to the data of consciousness, as empirical method stands to the data of sense’ CWL3 268 [243]. 41 ACH 11. 42 OACH, 9. Lonergan will discuss some features of third-stage control in his discussion of cosmopolis in chapter 7 of Insight. See CWL3 263–67 [238–42]. 43 See Method, chapter 5 for a sketch of functional specialization. 44 Certainly Lonergan’s sketchy account in ‘The Analytic Concept of History’ is significantly enriched and developed in the 1940s. His mature account of metaphysics as dynamic occurs in chapter 15 of Insight.

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ing of the dialectic. And while he disagrees with Hegel’s idealist notion of dialectic, it is quite likely that Hegel provided an important point of reference in the development of Lonergan’s notion of the dialectic of history.45 His interest in scientific methodology and his firm grasp of the foundations and techniques of logic provided him with analogies and tools to make explicit what was implicit in Aquinas. By establishing a method (real analysis), a set of basic categories (the ideal types of the analytic concept of history), and a unifying notion (dialectic), Lonergan established foundational categories for the macrodynamic analysis he latter applies to economics. 3

The Developing Viewpoint

In 1930 Lonergan, deeply concerned about the Great Depression and crisis in the West, set out to develop both a theory of Catholic Action and a solution to the problem of economic theory. His aim was high, a theory which pointed towards the ‘integration of all things’ into the body of Christ in history. Economic life was part of ‘all things.’ However, economics was an especially problematic area that for Lonergan was a key zone of concern. Knowing how the economy worked was essential to creating a just social order and was, therefore, an integral part of any theological ethics. This linked his interest in economics to the social-reconstruction theme of Quadragesimo Anno. Lonergan soon discovered that solving the problem of economic theory involved a methodological problem of integrating human historicity into metaphysics. Economics is a human science whose context, as with all social sciences, includes the dynamics of history.46 How can a science be both systematic and historical?47 This problem led to a four-year 45 Lonergan would later write in Understanding and Being: ‘I think there is something very true in the Hegelian connection between the subjective spirit and its manifestation in objective spirit … [T]he notion, it seems to me, is both true and extremely significant insofar as one is concerned to understand history. Self-appropriation is conditioned not merely by the fact that one is empirically, intelligently, and rationally conscious; it is conditioned also by that fact as manifest’ [CWL5 219]. See Patrick Brown, ‘System and History in Lonergan’s Early Historical and Economic Manuscripts’ for a more detailed examination of Hegel’s influence on the early Lonergan. 46 A useful analogy from Lonergan’s later work might be helpful. The relationship between the analytic concept of history and economics is analogous to the relationship between general categories and special categories in functional specialties. ‘The use of the general categories occurs in any of the eight functional specializations.’ Method 292. 47 Thomas Kuhn brought the issue to prominence for the philosophy of science in The Structure of Scientific Revolutions (Chicago: University of Chicago Press, 1962).

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search for an adequate philosophy of history. Initially he included philosophy of history within the framework of the theory of Catholic Action. By 1937 he differentiated the philosophy of history proper from a theory of Catholic Action. By concentrating his efforts on the philosophical problem of history he developed the analytic concept of history. The analytic concept of history is a generalization that sublated previous secular philosophies of history into a higher viewpoint. It retains the democratic aspirations of the liberal philosophy of history. It includes criticism of liberal progress identified by Marx and other socialist theories, but not solved by Marxist notions of historical and economic determinism. Lonergan’s higher viewpoint is a notion of ‘ordered freedom’ that includes a supernatural element which takes account of the issue of evil, ignored by liberal theory and handled with disastrous consequences by Marxists and fascists. The fact of historicity is integrated into scientific method by recognizing the intrinsic dynamism of human understanding that is the form of human progress. Finally, the unifying function of dialectic provided the general form of a critical attitude. As Lonergan writes in Insight: ‘Dialectic provides no more than the general form of a critical attitude. Each department has to work out its own specialized criteria, but it will be able to do so by distinguishing between the purely intellectual element in its field and, on the other hand, the inertial effects and the interference of human sensibility and human nerves.’48 Besides providing general critical categories for economics as a social science, features of the analytic concept of history inform the method and construction of his economic theory. He adapts the method of real analysis to his macroeconomics.49 Just as he establishes an upper blade for historical analysis, so his approach to economics seeks out the upper blade or heuristic structure for economic analysis. Just as his theory of history provides the needed higher viewpoint to counter shortcomings in liberalism and Bolshevism, his economics will be the needed higher viewpoint that meets the shortcomings of both classical and neo-classical economics. Lonergan writes: ‘It is, we believe, a scientific generalization of the old political economy and of modern economics that will yield the new political economy which we need.’50 Though he still needs to develop special categories proper to economic science, developing general categories for history provides a general base from which to proceed. Finally, of special interest for his economic theory is the emergence of the key notions of acceleration, flows, circuits, and rates of flow in his account of history.51 48 49 50 51

CWL3 268 [244]. See CWL21 xvi–xvii. CWL21 7. This will be treated in some detail in the next two chapters.

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With the analytic concept of history, Lonergan reached an important milestone in his development. It provided a base from which future work would evolve in philosophy and in economics. With respect to philosophy, its categories are the backdrop to the organization of both Insight and Method in Theology. Lonergan remarked in an interview conducted in 1980: ‘I have a general theory of history implicit in Insight and Method.’52 In the preface to Insight he writes: But the very advance of knowledge brings a power over nature and over men too vast and terrifying to be entrusted to the good intentions of unconsciously biased minds. We have to learn to distinguish sharply between progress and decline, learn to encourage progress without putting a premium on decline, learn to remove the tumor of the flight from understanding without destroying the organs of intelligence. No problem is at once more delicate and more profound, more practical and perhaps more pressing.53 Important, too, is the methodological significance of this distinction for the book Insight. As Lonergan notes: ‘Unfortunately, as insight and oversight commonly are mated, so also are progress and decline.’54 The method of approximation allows Lonergan to differentiate the pure desire to know based on an account of its unfolding process and thereby to establish that there is a normative character to cognitional process. The approach in Insight is a development of the real analysis that he presents in ‘The Analytic Concept of History.’ However, there is more. The contents of chapter 7 on ‘Common Sense as Object,’ chapter 15 in ‘The Elements of Metaphysics,’ sections on willing in chapter 18 on ‘The Possibility of Ethics,’ and chapter 20, ‘On Special Transcendent Knowledge,’ in Insight are all direct developments of Lonergan’s work on history in the 1930s. When we turn to Method in Theology the lineage connecting it to the analytic concept of history is less obvious because it is already well established in Lonergan’s thinking. His account of progress, decline, and history occupies but a few pages of chapter 2, ‘The Human Good.’ However, there is a direct influence of his account of historical stages in the 1930s on the stages of meaning.55 But there is still an even deeper connection. If we recall, a key strategy for Lonergan in developing the analytic concept of history was to separate the issue of 52 ‘Question with Regard to Method: History and Economics,’ in Dialogues in Celebration 305. 53 CWL3 8 [xiv]. 54 Ibid. 55 Method 85–96.

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‘Catholic Action,’ which is a collective implementation of the metaphysical viewpoint, from the development of the philosophy of history. It is in Method in Theology that Lonergan will finally bring the two together in his account of functional specialization. We have been charting the stages in the development of Lonergan’s work in economics. In our specification of the initial viewpoint the problem of economic theory emerged. We can tease out elements of Lonergan’s view of economics from 1930 to 1938. He inherited and built on the work of Catholic economists, especially Lewis Watt and Heinrich Pesch. He shared with both writers a concern to make economics moral. He recognized early on that the proper goal of an economy was the standard of living and not the maximizing of profit. He knew that the production of goods and services was prior to monetary exchange. He was critical of the just-wage ethics because its principles, though well intentioned, were developed independent of economic theory. Dawson taught him to think in terms of the recurring cycles of human process as a fundamental dynamic. Dawson also led him to the realization that technological innovation was a key operator of economic development. Lonergan’s background in physics and mathematics provided him with analogies from projective geometry, differential calculus, and fluid dynamics that were especially helpful in working on the problem of dynamics in economics. Nonetheless, the main shifts in viewpoint for Lonergan so far were methodological. As I have argued, fundamental to the discovery of a legitimate science of economics was the development of a fully dynamic methodology. In a two-step development Lonergan discovered the method of real analysis for handling dynamic systems. In the first step he sought a full solution to the problem of the implementation of theory. This effort set history and economics in the context of a theology of Catholic Action. The problem proved complex, both in terms of specifying the differentials and in working out the question of implementation. In the second step, Lonergan set aside the problem in its full complexity and worked out its core philosophic element. It was the specification of the analytic concept of history that provided the methodological breakthrough he required for the development of his macrodynamic economics. In the fall of 1938 Lonergan began work on his doctoral dissertation, which temporarily stalled his drive towards scientific economics. Nonetheless, the dissertation allowed him to test drive the method he developed for the philosophy of history and ultimately to consolidate and refine his efforts to develop the Catholic vision he first set out in his essay ‘Pantôn Anakephalaiôsis (Restoration of All Things).’ The enrichment of the full context of human process would enable Lonergan to understand how economics and economic theory fit into world process.

4 Interlude: Grace, History, and the World Order of Emergent Probability

One has to think of the universe as a series of horizontal strata.1

Lonergan’s work in the philosophy of history and economics was set aside as he began working on his dissertation proposal in the fall of 1938. Lonergan had expected that he would write a doctoral thesis in philosophy. However, in September of that year his superiors moved him to theology in order to meet a need for theology professors in Lonergan’s Jesuit home province of Upper Canada. After Lonergan completed his thesis in 1940 he returned to Montreal to teach theology at the College of the Immaculate Conception. The unexpected shift to a theology dissertation and, following its completion, the opportunity to teach theology opened up a new line of development and refinement for Lonergan’s evolving notion of world order. The 1935 essay ‘Pantôn Anakephalaiôsis (The Restoration of All Things)’ had been Lonergan’s most explicitly theological effort up to that point. This student essay established the connection between Lonergan’s developing ideas on the philosophy of history with a theological conception of world order, worked out in terms of the theology of the mystical body. While the essay was a wonderful sketch of Lonergan’s youthful intellectual ambitions, the work on his dissertation and the preparation required for his early years teaching theology provided an opportunity for Lonergan to advance and refine his understanding of a series of complicated theological questions. His thesis topic, which dealt with the central theological problem of grace and free will, was ideal for differentiating the philosophical and theological components of his developing ideas on world order. During his 1 CWL 4 19.

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first three years at the College of the Immaculate Conception in Montreal Lonergan taught a range of subjects, including courses in the sacraments, on faith, on grace, on the beatific vision, and on Aquinas’s notion of act and a doctoral course on issues in speculative theology. Teaching these courses gave him detailed appreciation of a variety of theological theses. In 1943 Lonergan published ‘Finality, Love, Marriage,’ an article in which he takes up a disputed question on the proper end of the sacrament of marriage. In addressing the main question of the article, Lonergan presents his developing viewpoint on world order. In this chapter I will explore the theological developments in Lonergan’s thought from 1938 to 1943. As you shall see, these developments, which occur alongside his work in economics, helped Lonergan to locate and integrate his understanding of economic process within a more comprehensive theological viewpoint.2 1

Dissertation on Operative Grace in Thomas Aquinas

Despite the move from philosophy to theology, Lonergan negotiated a dissertation topic that allowed him to build on the methodological approach he had developed in the analytic concept of history. When Lonergan sought advice regarding who should direct his thesis, Fr. Charles Boyer’s name came up. Lonergan approached him, and various topics were discussed and set aside until Boyer proposed looking at an article on operative grace from the prima secunda of the Summa Theologica that had been puzzling him.3 He suggested that Lonergan ‘make a study of that article in itself, of its loca parallela, and of its historical sources.’4 The proposed topic might have seemed a respectable, if somewhat mundane, historical study. Lonergan, however, grasped the possibilities in it. He moved quickly and within a month had his topic approved. About sixteen months later, in May of 1940, he was on a ship back to North America with a completed dissertation in hand. It was a remarkable accomplishment, not simply because he did it quickly, but because it was a work of bold originality. Lonergan’s decision to make the dissertation a study in speculative development enabled him to examine 2 It is helpful to keep in mind that Lonergan’s breakthrough in economics happens while he was a working theologian. By way of illustration of Lonergan’s back-and-forth relationship between economics and theology at this time, in February of 1941 wrote ‘Savings Certificates and Catholic Action’ for the Montreal Beacon and a note entitled ‘The Mystical Body and the Sacraments’ appeared in The Canadian League, a vehicle of the Catholic Women’s League of Canada. See CWL20 77–82. 3 For details on the choice of the dissertation topic, see Crowe, Lonergan 38 n. 70. Also CWL1 editor’s introduction, xxvii–ix. 4 CWL1 xviii.

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methodological questions relevant to a particular historical study, in this case the emergence in Thomas Aquinas of a solution to a central and longstanding theological dispute. The introduction and first chapter of the dissertation lay out his theory of the form of speculative development.5 The application of his analytic method to the problem of the interpretation of historical data has much to do with the dissertation’s originality. This is evident in Lonergan’s proposal for dealing objectively with historical data. His strategy relies on the ‘scissors analogy’ he had developed for the analytic concept of history. In the introduction to the dissertation, he writes: It remains that history can follow a middle course, neither projecting into the past the categories of the present nor pretending that historical inquiry is conducted without a use of human intelligence. That middle course consists in constructing an a priori scheme that is capable of synthesizing any possible set of historical data irrespective of their place and time, just as the science of mathematics constructs a generic scheme capable of synthesizing any possible set of quantitative phenomena. In the present work this generic scheme is attained by an analysis of the idea of a development in speculative theology. The procedure provides a true middle course. On the one hand, it does not deny, as does positivism, the exigence of the human mind for some scheme or matrix within which data are assembled and given their initial correlation. On the other hand, it does not provide a scheme or matrix that prejudices the objectivity of the inquiry. The quantitative sciences are objective simply because they are given by mathematics an a priori scheme of such generality that there can be no tendency to do violence to the data for the sake of maintaining the scheme. But the same benefit is obtained for the history of speculative theology by the analysis of the idea of speculative development. For the analysis does yield a general scheme but it does so, not from a consideration of the particular historical facts, but solely from a consideration of the nature of human speculation on any given subject.6 Lonergan’s account of the form of speculative development becomes the heuristic framework or ‘upper blade’ for the historical study of the texts. He organizes historical data by differentiating theoretical or speculative mean5 CWL1 155–92. The account of interpretation in Insight, chapter 17 is a later development of this work. 6 CWL1 156–57. Lonergan affirms the isomorphism between Aquinas’s method and scientific method in ‘Isomorphism of Thomist and Scientific Thought,’ CWL 4 133–41.

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ing from common-sense meaning. The approach builds on the distinction between theoretical and practical intelligence that was a key element of his analytic concept of history. The use of ‘the scissors analogy’ with its ‘middle course’ is a careful and nuanced appreciation of the relationship between the a priori or analytic form of inquiry and the empirical reality of the data under investigation. The scissors analogy becomes a central image in Lonergan’s future discussions of method and was certainly implemented in his approach to economic theory.7 In his dissertation Lonergan establishes that Thomas’s notion of the supernatural was ‘a scientific concept’ and a major advance on the common-sense usage found in the Sentences of Peter Lombard and argues for the key role of the notion of the supernatural in Aquinas’s solution to the problem of grace and free will.8 The dissertation provided Lonergan with an opportunity to deepen his understanding of Thomas’s notions of ‘operation,’ ‘pre-motion,’ and ‘liberty,’ all of which were significant components of his prior work in the philosophy of history.9 The close study of Thomas Aquinas, in the original, convinced Lonergan of Aquinas’s genius and his relevance to contemporary problems. Lonergan would return to a serious study of Aquinas after he stopped work on economics in 1944. This work came out in a series of articles on the notion of verbum in Aquinas.10 Finally, the work of the dissertation enriched his prior analytic work with the detailed work of understanding the stages of development of a theological idea.11 It was, in this respect, a test of how well his analytic approach 7 See the index of Insight under Heuristic. 8 The solution makes possible a resolution to a puzzle about how one can affirm both the existence of God’s grace and the fact of free will. The key to the solution is recognition that the notion of the supernatural adds no new data. See the introduction to Grace and Freedom (CWL1 14–17). This is also a key point in method in economics. The establishment of the significant variables for macroeconomic dynamics adds no new data. However, it lifts data into a new framework, which significantly alters control of the data by investigators. A methodology that includes the distinction of basic and surplus circuits will give rise to significantly different numbers than a methodology that does not make the distinction. As well, the distinction of circuits produces greater explanatory significance. Finally, the distinction leads to new, previously unconsidered questions about the economy. 9 On operation and pre-motion, see CWL1 I-4 (66–93) and II-3 (252–74). On liberty, see CWL1 I-5 (94–118), II-2 (193–204), and II-4 (316–47). On operation, pre-motion, and free will as they relate to his earlier works ‘Essay on Fundamental Sociology’ and ‘Pantôn Anakephalaiôsis,’ see OLNDH, chapter 4. 10 Published as Verbum: Word and Idea in Aquinas (CWL2). 11 In ‘Insight Revisited’ Lonergan remarks: ‘In a practical way I had become familiar with historical work both in my doctoral dissertation on gratia operans and in my later study of verbum in Aquinas’ (276).

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worked when applied to a problem in history, in this case the history of an idea. When Lonergan returned to work on economics in 1940 he was able to exploit this development in his understanding of the methods of interpretation and historiography.12 As economics was a human science, advances made in understanding methods of interpretation and historiography were relevant to it. Lonergan’s approach to his economic essays has a marked similarity to his thesis work. In an essay fragment, likely written before ‘For a New Political Economy,’ he writes: Like a syllogism, our argument falls into three parts. In a process of reasoning such as A is B because C is D, one has to distinguish the conclusion, that A is B, the supposed fact that C is D, and the implication that if C is D, then A is B. The first section of this work presents a set of implications, or [?] major premises. They are not exclusively economic in character, but hold generally of sets of interconnected & accelerating rhythms or rates of flow. Accordingly, for both clarity & simplicity, they are worked out without reference to economic phenomena: somewhat after the fashion of the textbook in mechanics which deals with particles, which do not exist, and perfectly symmetrical or perfectly rigid bodies, which cannot be found in nature, so we set up a working model, a set of spheres that emit hypothetical patterns to one another in a fairly preposterous fashion.13 (italics added) Here, Lonergan begins from a set of analytic categories that provided the ‘upper blade’ for the proposed study. This working model – notice he is proposing a set of interconnected and accelerating rates of flow – is of heuristic value for the study of economic data. It is a safe assumption to regard the analytic concept of history as the set of macro-categories he has in mind in this passage. The two-year hiatus from studying economics proved fruitful in 12 On the relationship between the analytic concept of history and historiography in Lonergan’s development see the debate between Frederick Crowe and Patrick Brown in JMDA vols. 1 and 2. The relevant articles are Patrick Brown, ‘System and History in Lonergan’s Early Historical and Economic Analysis’; Frederick Crowe, ‘History That Is Written: A Note on Patrick Brown’s “System and History,”’ JMDA 2 (2002); and Patrick Brown, ‘Reply to Fred Crowe’s Note on “The History That Is Written,”’ JMDA 2 (2002). 13 LRI Archive File A335. Topical details make it highly probable that this fragment was written after the start of the Second World War. The style and the proposed content place this fragment as either an earlier draft of FNPE or an independent effort prior to it. It is reproduced in LEER, chapter 3.

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developing a more sophisticated understanding of the canons of interpretation and historiography. The dissertation was an important test case for introducing analytic methods to historical data. Finally, Lonergan’s work on the problem of grace and freedom provides a context for his full understanding of the redemptive element in history.14 While Lonergan’s economic essays do not concern themselves with theological elements, his full understanding of economic praxis will include the redemptive element of a Christian anthropology. Just as the thesis allowed Lonergan to test his analytic concept of history in the rich detail of Aquinas’s work, so underlying and supporting his analytic approach to economics is an ever-advancing appreciation for the rich details of economic history.15 Likewise, we find in his struggles with various problems in economics the same attention to detail.16 Both the dissertation and the Gratia Operans articles based on the dissertation that appeared in Theological Studies in 1942 have the marks of a younger Lonergan. Compared to Verbum they lack the explicit grasp of interior process that marks the mature Lonergan’s work. The question arises, then: to what extent did his work on economics from 1941 to 1944 contribute to this maturing in depth of Lonergan’s works? The concrete focus of his economics work, especially after completing FNPE may well have been the problem that pushed Lonergan towards a more precise, concrete appreciation of interiority and may explain in part why he decided to shift to a study of cognitional process in Aquinas after he stopped work in economics. It is interesting in light of his entire life’s work that what Lonergan began on the will in Grace and Freedom was never satisfactorily completed. When he gets to chapter 18 in Insight he is rushing to wind up the book, and he did not have the leisure to develop the account of deliberation and will found in the first eighteen questions of the Prima Secundae with the same thoroughness he 14 On praxis, see Lonergan, ‘Theology and Praxis,’ 3Coll; ‘Healing and Creating in History,’ 3Coll ; and ‘The Questionnaire on Philosophy: Responses,’ CWL17 352–83. Also relevant are the transcripts of his course ‘Macroeconomics and the Dialectic of History’ at Boston College from the spring term of 1979 to the spring term of 1983; transcripts of question periods at the Lonergan Workshops 1976–78; and interviews from the same period conducted by the Thomas More Institutes. I would stress, however, that praxis is an issue for Lonergan from about 1930 onwards. See Frederick Crowe, ‘Bernard Lonergan and the Theology of Liberation’ and ‘Lonergan as Pastoral Theologian’ in Appropriating the Lonergan Idea. 15 For an outstanding example of this detail, see Lonergan’s notes on Heinrich Pesch, LEER, chapter 3. 16 His work on turnover quantity and frequency, which reveals the inadequacy of the quantity theory of money, is a good place to examine Lonergan push towards empirical accuracy and his theoretical control of empirical data. See CWL21 passim, but especially 135–51, and LEER, chapter 6.

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devoted to Aquinas’s account of verbum and ratio. All this bears on the issue of economic praxis and may have been a factor in the pace of his discovery of functional specialization. Lonergan’s goal at the beginning had been the development of a theory of Catholic Action. The analytic concept of history provided him with a key element in the theory, a set of foundational categories applicable to the analysis of historical process. The issue of how these categories could direct both the historical analysis and future praxis remained unsolved. Functional specialization emerged only after Lonergan clearly differentiated deliberation as a fourth level of conscious intentionality that sublated the prior levels of experience, understanding, and judgment. Lonergan’s four-levelled differentiation of conscious intentionality provided the core structure for the eight-fold division of labour of functional specialization.17 2

‘Finality, Love, Marriage’ and the World Order of Emergent Probability

In May 1940 Lonergan arrived in Montreal to take a position at the College of the Immaculate Conception. In May 1941 a non-academic article by Lonergan on savings certificates appeared in the Montreal Beacon. The article is significant because it is the first published indication of his interest in economics and the first occurrence of his original notion of pure surplus income. He read Toynbee’s A Study of History. Toynbee’s notion of the ‘rhythms’ of civilizations’ advance and decline Lonergan adapted for his economics.18 As we can see, while Lonergan was revising his thesis and preparing for courses he worked away on economics. The philosophy of history theme turns up in ‘Finality, Love, Marriage,’ an important article published in May 1943. The topic arose out of a marriage course Lonergan taught in the 1941–42 academic year. Like his work 17 The distinct structure of deliberation arrives at a judgment of value and mirrors the prior cognitive structure that results in the judgment of fact. Thus, assuming some situation, the structure of deliberation includes questions of the type ‘What are we to do?’ which seeks insights into a possible course of action (ideas) and questions of the type ‘Should we do it?’ which through reflective insight seeks a judgment of value with respect to possible courses of action. 18 See the discussion of universal rhythms in CWL21 chapter 2. Later Lonergan would describe Toynbee’s categories as examples of ‘ideal types’ for the study of history. Lonergan mentions dominant majority and creative minority, internal and external proletariat. From Toynbee he also takes the themes of ‘challenge and response’ and ‘withdrawal and return,’ which turn up in Lonergan’s later work. See Method 228 and 3Coll 10.

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on economics, this essay tackles an important practical issue. This time the issue is internal to the Roman Catholic community and concerns the Church’s policy on sexuality and marriage.19 The essay brings together his work on grace and philosophy of history. Fred Crowe observes that, despite its concern with a practical issue in the theology of marriage, ‘this article is, in fact, a mini-Summa of theology: a theology of creation in its outline of nature, civilization, and grace; a theology of history in its analysis of human process; a theology of culture and religion in its study of life, the good life, and the eternal life; and finally in the context of this a theology of marriage.’20 The essay demonstrates Lonergan’s standard approach to practical issues: it goes to the heart of the issue by contextualizing it in the most general of contexts. ‘Finality, Love, Marriage’ contains early versions of the structure of the human good and elements of his theory of emergent probability.21 Lonergan composed ‘Finality, Love, Marriage’ at the same time as he was working out his unique solution to the economic problem. The essay gives us an excellent indication of the fuller context in which he would locate economic process. Inasmuch as macroeconomic dynamics is a differentiated zone of inquiry within the world order of emergent probability, ‘Finality, Love, Marriage’ sketches that integrated world order in which Lonergan situated economy and economic theory. It is not hard to discover the precursor of the article’s theme in Lonergan’s Pantôn Anakephalaiôsis essay. In ‘Pantôn Anakephalaiôsis’ Lonergan first located human history within an integrated conception of world order. While the theology of marriage may seem at first glance at a far remove from economics, the general approach, his discussion of finality, and the account of world process were structural components that conceptualized Lonergan’s political economy. As social institutions, both marriage and economy shared in the general macrodynamic context of all social processes. ‘Finality, Love, Marriage’ is a more advanced conception of world order. The hierarchical structure of his notion of world order first presented 19 Patrick Brown pointed out to me in conversation that ‘Finality, Love, Marriage’ and Lonergan’s economics are both directed at a significant and troublesome practical issues. Lonergan’s effort to open up discussion of marriage policy in Catholic circles did not produce the open debate for which he had hoped. 20 Frederick E. Crowe’s editor’s notes in CWL4 259. 21 We might consider ‘Finality, Love, Marriage’ Lonergan’s first account of the structure of the human good. Important in the development of this key structure are the Cincinnati Lectures on Education from 1957 (CWL10) and the supplement ‘De Bono et Malo’ to question 17 of De Verbo Incarnato, written in 1964. The supplement, translated by Charles Hefling, will be published in the Collected Works, volume 8.

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in ‘Pantôn Anakephalaiôsis’ is refined in ‘Finality, Love, Marriage’ to establish the full context for relating economic process to the both the underlying natural order and to the supernatural goal of all human process in history. In Lonergan’s full theological viewpoint, economic process transforms the potentialities of nature into goods for sale whose proper end is the standard of living.22 Lonergan links such human activity to a supernatural finality in which we can imagine economic process as contributing to the higher end of the development of the human spirit. Historically, economic process is part of ‘man’s making of man’; theologically, it is part of the integration of all things into the mystical body. Lonergan’s hierarchical schema has its origins in Thomas Aquinas’s account of world order. The challenge for Lonergan was to integrate the hierarchical structure of Aquinas’s notion of world order into a fully dynamic context. In ‘Finality, Love, Marriage’ elements of his notion of emergent probability, the defining and original contribution to his conception of world order, makes a significant appearance. These elements include the notion of schemes of recurrence, a conditioned series of schemes of recurrence, and emergent probability as a combination of classical and statistical methods of inquiry. These elements provided the explanatory basis for Lonergan’s account of dynamic process and contributed significantly to the intellectual leap that produced macroeconomic dynamics. Significantly, in ‘Finality, Love, Marriage,’ the statistical character of fecundity plays a significant role in Lonergan’s argument. As we have seen, Lonergan’s notion of the world order of emergent probability is hierarchical. As in ‘Finality, Love, Marriage,’ Lonergan distinguishes three distinct hierarchical levels: (1) nature, (2) history, and (3) grace.23 Nature in this instance refers to pre-human nature, manifest in human living in the repetitive operations or schemes of recurrence of bodily process necessary for survival operating in the context of a shared environment. History is the zone of distinctly human operation. These are the structures and process associated with the operation of human intelligence and free will. Grace is the zone where human beings cooperate with Divine operation. Lonergan writes: ‘One has to think of the universe as a series of horizontal strata.’24 The absolute term of the movement of 22 CWL21 11–12 and 232ff. [CWL15 119ff.]. 23 ‘Nature’ here corresponds to an integration of four hierarchically ordered genera: physical, chemical, biological, and zoological. See CWL3 chapters 4, 9, and 15 and Shute, ‘Emergent Probability and the Ecofeminist Critique of Hierarchy,’ in Lonergan and Feminism 150–54. 24 CWL 4 19. In all Lonergan identifies six strata: physical, chemical, biological, sensitive, psychological, intelligent, and religious. See Philip McShane, Wealth of Self and Wealth of Nations: Self-Axis of the Great Ascent (Hicksville, NY: Exposition Press, 1975).

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all process at all levels is God. Absolute finality points towards an eventual integration of all process and all things into the Divine reality. Each distinct stratum has a horizontal finality and a vertical finality. Horizontal finality is the proper end of any grade of being as determined by its ‘nature’ (what it is). It is the intelligibility of the stratum itself. Biological processes are, for the most part, repetitive. Their end is the emergence and continuance of life. Thus, the biological end of sexuality is the reproduction of the species. Vertical finality pertains to the relationship between ‘any lower level appetite and process to any higher level.’25 It explains how lower-order processes are integrated into higher-level processes and things. For example, oxygen has ends proper to its nature as a chemical compound. When oxygen is assimilated in breathing, its function is part of the higher-level process of human biology. Likewise, human sexuality has a vertical finality to personal development. Lonergan identifies four features or manifestations of vertical finality: instrumental, dispositive, material, and obediental. A set of actions at a lower level may be the instrument whereby a higher-order thing is brought into existence. For example, when the artist Da Vinci uses repeated brush strokes to produce the Mona Lisa, the bodily actions bring into existence an integral artistic meaning. The intended meaning of the artist organizes the many distinct bodily movements of the arm and hand. An aggregate or collection of lower acts in the same subject may be disposed to a higher level in the same subject. In this way, the many instances of sensitive experience in scientific research are disposed towards the emergence of a scientific theory. More obviously, an aggregate of lower-order materials can be brought together into a new form. An artist uses metal from the junkyard and turns it into a meaningful work of art. Finally, human beings have obediental potency to God, handled in Christianity in the theology of the mystical body.26 The theology of the mystical body would be a context for working out more fully the relationship of economics to Catholic theology.27 Out of this hierarchical context, Lonergan will identify in Insight a hierarchy of sciences, the emergence of higher viewpoints, and a hierarchy of ends within human social process itself. With respect to social process, he identifies three ends: particular goods, the good of order, and terminal

25 CWL 4 19. See also CWL3 chapters 8 and 15 and ‘Mission and Spirit’ (3Coll 23–34) for further discussion of vertical finality. 26 Relevant are Lonergan’s comments on obediental potency in Verbum 149 and 219 and the related section in Grace and Freedom. 27 In Insight Lonergan identifies the philosophy of history as the philosophical component of the theology of the mystical body. Relevant here is Robert Doran, ‘Implementation in Systematics: The Structure,’ JMDA 3 (2003) 264– 72.

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value. With respect to values, he further distinguishes a five-level hierarchy of vital values, social values, cultural values, personal value, and religious values.28 This hierarchical structure, with its horizontal and vertical finality, applies to human process or history.29 Lonergan specifies in general categories the kinds of relationships that exist between lower and higher levels. Higher-level process emerges out of the aggregate conditions of lower-order activities. At each level the process is characterized by a series of conditioned schemes of recurrence in which earlier schemes have conditioned the probability of the emergence of later schemes. For instance, an insight emerges from many distinct experiences. However, the higher-order process normatively sublates the lower-order process without upsetting its natural integrity. The aggregate of data makes possible the emergence of the insight. Thus, human intelligence operates as a conditioned series of schemes of recurrence in which the lower-order schemes of experience condition the possibility of the emergence of higher-order schemes of intelligence. These schemes in turn are material for the operation of grace. With respect to Lonergan’s discussion of the finality of marriage, he identifies, at the level of nature, those schemes of sexual fecundity that generate offspring, the schemes of personal relationship in marriage that result in friendship and the schemes of charity which elevate human effort towards the life of grace.30 Taken together, the set of schemes are a conditioned series of schemes of recurrence. Moreover, Lonergan acknowledges the significance of statistical inquiry in the specification of the actual schemes of recurrence. The occurrence of offspring is not a determinate result of human sexuality. While we understand sexuality according to its nature, that is, through classical methods of inquiry, the occurrence of offspring as a 28 Method 31–32. 29 See CWL3 chapter 15. 30 CWL 4 46. On the complexity of just the biological level of human sexuality Lonergan writes: ‘As far as human operation is concerned, it is primarily on the level of nature and its ultimate term is the repetitive emergence of adult offspring. But sex is more complex. Not only is it not a substance but it is not even an accidental potency as intellect or sense. Rather, it is a bias and orientation in a large number of potencies, a typical and complementary differentiation within the species, with a material basis in a difference in the number of chromosomes, with a regulator in the secretion of the endocrinal glands, with manifestations, not only in anatomical structure and physiological functions, but also in the totality of vital, psychic, sensitive, emotional characters and consequently, though not formally, in the higher nonorganic activities or reason and rational appetite’ (CWL4 42–43). There is a comparable complexity to the conditioning schemes that are the potentialities of nature to be transformed by technology and economy.

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result of sexual union is known by statistical methods.31 Although Lonergan develops a much fuller and more explicit account of world process in Insight and Method in Theology, features appear to have been worked out here in rudimentary form. There is an unmistakable line of development from the 1935 Pantôn Anakephalaiôsis article through ‘Finality, Love, Marriage’ to the worldview of emergent probability in Insight.32 The hierarchical structure of world order, as it emerges in ‘Finality, Love, Marriage,’ especially in its delineation of the relationships between the various levels, is important for understanding how Lonergan located economics in relation to politics, culture, and religion. While we will take up this question more fully in the final chapter, it would be helpful at this point to indicate the broad line of his idea. Lonergan distinguishes three different ends for ‘man’: (1) life, (2) ‘the good life’ and (3) ‘the eternal life.’ These correspond to three hierarchical levels of nature, history, and grace respectively. They also correspond to the three types of personality or character Lonergan developed in the ‘Pantôn Anakephalaiôsis’ essay: personality oriented to (1) the sensible, (2) truth, goodness, and beauty, and (3) the light and charity that comes from the Holy Spirit. By ‘man’ he is neither referring to an abstract essence nor any concrete individual but to ‘the concrete plurality all men of all time.’33 This is no more or no less than the ‘concrete universal’ of his philosophy of history.34 Corresponding to ‘life’ is nature, whose emergence and maintenance is repetitive. The good life is a historical development. It is ‘a unique process, not repeated for each individual, as is life, but a single thing shared by all individuals according to their position and role in the space-time solidarity of man.’35 Finally, ‘the end of the eternal life stands completely outside both the measurable time of repetitive life and the ordinal time of progressive good life.’36 To encompass all three ends, Lonergan considers human process ‘not in the distorting cross-section of any particular instance of time but from outside time.’37 Economics partakes in all three ends. Just as the artist transforms matter into meaning, economic process transforms the organic potentialities of nature to contribute to the standard of living, as a component of the good life. The good life is more than economic survival. It is part of the development of persons in human culture. Thus, economy is a bridge between organic potentialities and culture. It transforms nature but is itself an instrument of culture. It is a set 31 32 33 34 35 36 37

Ibid. 47 n. 73. CWL3 chapter 4. CWL 4 38. See CWL3 627 (604) and 666–68 [642–44]. CWL 4 38. Ibid. Ibid.

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of conditioning schemes that provide a material infrastructure for culture. It has a horizontal finality to its own ends, which is the standard of living. It has a vertical finality to the wider end of the good life. Lastly, economy has an absolute finality to God. It is part of ‘the integration of all things in Christ.’ In FNPE Lonergan does not examine absolute finality, though in his reference to Tennyson’s ‘flower in the crannied wall’ this perspective breaks through momentarily. He writes: ‘The general idea of value coincides with the idea of the good, of excellence. This excellence may pertain to an object in itself, rise in its isolation from all other things, and remain despite utter uselessness. Such is the absolute value of truth, of noble and heroic deeds, of the flower in the crannied wall.’38 His aim is to understand the laws relevant to the horizontal end of economy and its function as an instrument of culture. While we know Lonergan is a champion of democracy, he provides few clues in FNPE about how he understands the relation of economy to polity. He is clear that an economy has its own laws that must be respected by human decisions, and he acknowledges the negative influence of any political manipulation of the economic process that fails to respect these laws. In later works, Lonergan treats technology, economics, and polity as social values within the hierarchical scale of human values.39 While technology concerns practical ideas for meeting human needs and economics organizes the system for meeting these recurrent needs, politics is about the recurrent problem of establishing agreement about how to meet social challenges.40 For Lonergan, social order provides the material infrastructure for the development of culture. Social values have a vertical finality to culture. For example, economic or political development supports new cultural expression. Culture, in turn, orientates the technology, economy, and polity by providing these activities with their meaning and value.41 While he did not complete the task in the essay, Lonergan conceived of FNPE as a contribution to understanding the relationship of economy to the social order and to culture. 3

The Developing Viewpoint

In terms of the development of Lonergan’s economics, we began from an 38 CWL21, 31. The full poem is as follows: ‘Flower in the crannied wall, / I pluck you out of the crannies, / I hold you here, root and all, in my hand, / Little flower – but if I could understand / what you are, root and all, and all in all / I should know what God and man is.’ Alfred Lord Tennyson, Selected Poetry, ed. Norman Page (London: Routledge, 1995) 65. 39 Method 31–32. 40 CWL3 233–35 [207–209]. 41 On this, see Robert Doran, Theology and the Dialectic of History 500–26.

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initial viewpoint in which Lonergan, informed by the Catholic tradition in both economics and social theory, began his search for the significant variables that would ground a truly scientific economics. While Lonergan was critical of this tradition, initially there may not have been much to distinguish his approach from that of Heinrich Pesch or Lewis Watt other than his belief that the just-wage approach to economic ethics was wrongheaded. The key early developments were methodological, coming out of his efforts to develop, first, a theology of Catholic Action and, then, the analytic philosophy of history. The eventual result was real analysis, which provided a macrodynamic context for his study of economics. Christopher Dawson’s work had alerted Lonergan to the fundamentally dynamic nature of human society and to the importance of technological innovation for understanding economic development. Pesch’s work introduced Lonergan to the idea that the goal of an economy was the standard of living. Lonergan’s own work in the philosophy of history, inspired by Dawson, was crucial to his thinking dynamically in terms of rates, cycles, circuits, and flows. It was also instrumental in developing his notion of the world order of emergent probability While Lonergan was formed in the classical tradition, the writers he read and the questions he asked were the operators in his personal shift out of the classical mindset and towards a modern empirical mindset. Slowly method replaced logic as the guide to his thought. The movement was foundational and included all aspects of his inquiry, whether in logic, epistemology, metaphysics, theology, or economics. The core discovery was the spontaneous dynamism of the mind’s operation. The appropriation of these dynamics of the mind’s operation provided a basis for the integration of all aspects of his inquiry. He first attempts to work this out as a theology of Catholic Action through a meditation on the Pauline notion of pantôn anakephalaiôsis. He adds to this development the complexity of the empirical informed by a hierarchical notion of world order and by his appreciation of scientific method. The key zone of advance, however, was in his decision to concentrate on a purely philosophic theory of history. Lonergan’s thesis on gratia operans provided him with first-hand experience with historical work and added a concrete richness to his methodology. By the time he wrote ‘Finality, Love, Marriage,’ he had the elements of emergent probability within his sights. The world order of emergent probability supplied both a general context for locating economic process in the vertical finality of world process and a method for understanding the economic process itself. I have to this point been unavoidably circumspect on Lonergan’s work in economic theory itself. This is partly a reflection of the lack of direct evidence of his work in economics.42 But also, his differentiation of a general 42 See the ‘Introduction’ to LEER.

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macrodynamic methodology and his expanding notion of an integrated worldview were highly significant in preparing the breakthrough to the science of economics. General macrodynamic methodology and a nascent theory of emergent probability ground the possibility of a fully dynamic economic theory. Lonergan’s multi-levelled notion of world order differentiates economic process as a distinct and autonomous zone of inquiry without completely disconnecting economics from other zones of inquiry, most notably ethics. Yet there must have also been significant progress in economic theory itself during these years, for by 1942 Lonergan achieved the breakthrough to a scientific economics he was seeking. To this achievement we now turn.

5 The Breakthrough to Economic Science: The Production Process

The problem, I think is clear. We cannot rely on the old political economy; it was democratic but has been found wrong. We cannot rely on the new economics; it is accurate but it can solve real problems only by eliminating democracy. 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.1

Lonergan’s work in economics in the 1930s bears its fruit in the first four years of the next decade. He returned to Canada from Italy in 1940 to teach theology at Immaculate Conception College in Montreal. He prepared for the defence of his thesis, requiring the publication of five articles drawn from his thesis,2 and in the first three years wrote two significant articles, ‘The Form of Inference’ and ‘Finality, Love, Marriage.’3 His summer vacations at Regiopolis in Kingston, Ontario, provided the time for uninterrupted study, and Lonergan used that time for work on economics.4 1 CWL21 5. 2 These articles originally appeared in Theological Studies and were published in book form as Grace and Freedom: Operative Grace in the Thought of St Thomas Aquinas (London: Darton, Longman & Todd, and New York: Herder and Herder, 1971) and were included in CWL1. On the unusual circumstances of Lonergan’s defence, see the Editors’ Preface to CWL1. 3 ‘The Form of Inference’ first appeared in Thought 18 (1943) 277–92. ‘Finality, Love, Marriage’ first appeared in Theological Studies 4 (1943) 477–510. 4 Confirming this supposition is a cache of notes on economics written on Regiopolis stationary. These include notes on the writings of Joseph Schumpeter, Frederick Hayek, Erik Lindahl, Lionel Robbins, Frank Knight, C.F. Roos, and Heinrich Pesch, as well as jottings and draft pages from essays. A small selection of the fragments was published in CWL21 109–227. For a much larger selection see LEER.

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It is unclear how far Lonergan had advanced with his economic theory before his return to Canada in 1940. In his letter to Fr Keane in 1935 he claimed to have a notion of the inevitable laws of economics. While the claim may appear premature, clearly something had come together for him. It is quite possible that Lonergan had a reasonably well-formed notion of the fundamental features of his economic theory by this time. Reading Dawson’s account of the epochal shifts in the means of production in The Age of the Gods would have brought to Lonergan’s attention the importance of the technological transformation of production for understanding economic development. Thus, it is highly probable that his realization of the underlying importance of the production process for economic theory was an earlier discovery. Likewise, he may have come to the notions of both two distinct circuits of economic work and the pure cycle by considering the successions of transformations and exploitations of the production process that characterize economic history. Removed from the complexities of the exchange economy and finance, the distinction between the circuits of work that maintain current production and the effort to transform and exploit a new idea stands out more readily. On the benefits of this approach, Lonergan writes: ‘The use of the medium of exchange can act as a screen that hides from view the objective necessity of changing preferences and expectations in accordance with changes in the production phases. When Robinson [Crusoe] is clearing a field, he is incapable of the illusion that the activity enables him to have more to eat here and now.’5 It is evident that there is work directed at maintaining current consumption and work aimed at the future improvement of the rate of production. Furthermore, the cycle of economic transformation is the reality that the pure cycle explains. In any case, the pure cycle in economics has clear affinities with Lonergan’s notion of the ideal line of progress. The analytic concept of history provided the analytic method for working with dynamic process. What remained to be done was to bring these elements together so that relationships between production and exchange, between the two circuits, and among the three stages of the pure cycle might be precisely established and defended. It was this detailed work that occupied Lonergan from 1941 to 1944. In this respect, his efforts to diagram his ideas were important. As he reports in Caring about Meaning: ‘I did all sorts of diagrams before I got that one [the baseball diagram].’6 Coming up with the ‘baseball diagram,’ 5 CWL21 150. 6 CM 85. The baseball diagram – so named because of its resemblance to a baseball diamond – first appears in FNPE. See CWL21 64. William Mathews notes the following: ‘Gerald McGuigan remembered that Lonergan was using flow diagrams in 1940.’ LQ 494 n. 26. A second flow diagram appears in FNPE. See CWL21 65. Lonergan drops this diagram in ECA.

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which visually integrates the significant variables for his theory, had to be a crucial moment of discovery for Lonergan. We can chart his progress in the essays he wrote during this period. From 1941 to 1944 Lonergan wrote four economic essays, all of them in varying degrees incomplete. FNPE was written first.7 It is there that the baseball diagram makes its appearance and Lonergan established the fundamental elements of his economic theory. ‘An Outline of Circulation Analysis’ likely followed next. The first two sections of this paper survived. As the title indicates, there is a shift in context from political economy to macrodynamic analysis. ‘A Method of Independent Circulation Analysis,’ which follows, though significantly shorter than FNPE, is a substantial and concise effort that sketches the main features of Lonergan’s analysis. ECA is the last and most advanced expression of his theory.8 While incomplete, it was to be his last essay on economics. In the context of our account of the stages of development in Lonergan’s economics, we can divide these essays into two parts. In the first stage, represented primarily by FNPE, Lonergan conceives economics in the broader context of political economy. In this essay economic process is midwife to the higher life of culture, and Lonergan investigates the structured pro7 CWL21 1–106. There is evidence of a couple of earlier essay attempts, though all that remains are a few scattered pages. See LEER, chapter 2. 8 A probable order of composition of the titled essays after FNPE is ‘Essay towards a Pure Theory of Social Economics,’ ‘An Outline of Circulation Analysis,’ ‘A Method of Independent Circulation Analysis,’ and ‘An Essay in Circulation Analysis.’ There is only a one-page fragment of ‘Essay towards a Pure Theory of Social Economics.’ It seems likely that this page, written on the reverse side of notes for the defence of Lonergan’s thesis, was all that he wrote. He added the title in handwriting afterwards. The page, which he used to wrap a set of essays and fragments, may well represent a conscious shift in Lonergan’s approach towards, as McShane suggests, ‘a more precise focus on “pure economic analysis”’ (CWL21 205). The remaining essays reflect the shift to pure economic analysis. All that remains of ‘An Outline of Circulation Analysis’ are its introductory pages. A further incomplete essay, ‘A Method of Independent Circulation Analysis,’ survives. It is about one-quarter the length of ECA, and provides a very good, concise introduction to his theory. ECA was the final essay and is the most complete and advanced account of his theory. Other fragments appear to be either sections of other unnamed essays or earlier versions of ECA. On these, see the ‘Editor’s Introduction,’ in CWL21 xxi–ii. In CWL21, FNPE is 106 pages long, ‘Outline of Circulation Analysis’ is 4 pages, ‘A Method in Circulation Analysis’ is 39 pages, and ECA is 87 pages. In addition, there is evidence of other work. In CWL21 there are 44 additional pages dedicated to specific topics such as circulation trends and velocities, price, and a complete chapter on superposed circuits. For a textual analysis, see Philip McShane’s introduction, CWL21 xvii–xxiv.

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cess of production and exchange that would contribute to the higher ends of cultural recovery and advance. The focus on economics as the material foundation for cultural progress links this stage with the earlier work in the philosophy of history.9 In the second stage Lonergan shifts from the broader concern of political economy to focus on macroeconomics. In effect, he repeats the ‘divide and conquer’ strategy. You will recall that in developing the analytic concept of history Lonergan differentiated the purely theoretic elements of the philosophy of history and set aside the complexities of implementation involved in a systematic theology of Catholic Action. In 1942, realizing the complexity of this in FNPE, he cuts the effort short. The following three essays reflect a shift to a purely macroeconomic analysis, focusing on the precise specification of monetary circulation and its concomitance with the production process. Lonergan leaves aside further questions about how an economy relates to political, cultural, or moral questions. Lonergan’s breakthrough to economic science occurs in FNPE. In this essay the four core elements of his theory make their first appearance. First, there is the differentiation of production and exchange. Second, the production of goods and services is identified as the primary economic process and the exchange process is secondary. While exchange makes possible a vast expansion of economic activity, in Lonergan’s account the exchange economy must normatively adapt its exchanges to the primary rhythms of production. Third, we can divide all economic process, both production and monetary circulation, into two circuits of work. First, there is a basic circuit that produces and sells goods and services that enter into the standard of living to be consumed. Second, there is a surplus circuit that produces the goods and services that run the basic circuit. Finally, out of the differentiation of production and exchange, basis and surplus circuits, Lonergan posits a pure cycle that explains what the ideal course of economic transformations is. In the essays that follow there is an impressive push towards greater empirical precision, with respect to both Lonergan’s account of the production process and his account of monetary circulation. In addition, he develops a solution to the quantity theory of money, advances his understanding of the price in the context of economic cycles, and develops a theory of superposed circuits as a model for understanding the interaction between a series of economic structures. Gone are references to the broader interests of FNPE. Lonergan’s goal is a pure formulation of circulation analysis. In

9 Lonergan explored the connection between economics and culture more fully in his account of the human good. See CWL10, chapters 2–4 and Method, chapter 2.

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the editor’s introduction to For a New Political Economy, McShane suggests that Lonergan ‘wished to cut out anything that did not pertain clearly to the analysis itself. So there is discernable an exclusion of larger contexts not just the broad sweep of Part One [of FNPE], but even the methodological comments.’10 In the course of these essays Lonergan establishes a precise differentiation of the field of economic science. It is a major achievement. He was greatly helped in integrating economic process with world process by a conception of world order that understood the sciences as a hierarchy of species and genera. This conception provided a context for differentiating the contribution of each science while providing an integrated viewpoint in which he could understand the relationship among the various sciences.11 In FNPE, while Lonergan establishes the core variables for the science, the context is less precisely differentiated. Shifting to a pure macroeconomic analysis allowed greater empirical precision, which gave rise to a more exact specification of the field of economics.12 In ECA Lonergan had confined his earlier breakthrough within a strictly macroeconomic context. The present chapter begins by providing a series of contexts for under-

10 CWL21 xxiv. 11 See CWL3 463–67. Work in interdisciplinary fields, such as the sociology and anthropology of economics, could benefit from Lonergan’s differentiation of the genera and species of the sciences. 12 The most telling instance of the push towards greater empirical precision is Lonergan’s effort to find a general theory to deal with exchanges among several distinct economies, such as national economies, problems typically dealt with international economics. In FNPE Lonergan despairs of solving the problem. He writes: ‘Whether from mental fatigue or from objective impossibility, I do not see that a general study of the interactions of several mechanical structures is possible. The problems are far too complex. However, what is possible is the solution of particular issues’ (94). The development of the structure of the superposed circuits model is the brilliant solution to this seemingly impossible problem. See CWL21 196–202 and 308–10. Further examples are advances in understanding turnover frequency and in the specification of economic phases. Turnover frequency is briefly mentioned in FNPE (CWL21 87 and 91). It becomes of major interest in ‘A Method of Independent Circulation Analysis’ (CWL21 135–48) and in the fragments ‘Circulation Trends’ (159–61) and ‘Circuit Velocities’ (CWL21 163–74). Lonergan resolves the issue satisfactorily in ECA (CWL21 259–68). With respect to economic phases in FNPE, Lonergan considers four phases of the pure cycle, including a cultural phase. In ‘A Method of Independent Circulation Analysis’ he adds a chart of nine possible types of phases which includes aberrations of the normative cycle but which drops the cultural phase. (CWL21 122). A similar version appears in ‘Circulation Trends’ (CWL21 156). The final refinement appears in ECA (CWL21 274–81).

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standing Lonergan’s breakthrough to economic science as it occurs in FNPE. The first section sketches the structure of the essay itself. In section 2 I consider the economic and cultural problem that Lonergan set out to address in the essay. In section 3 I consider the method of analysis. Then, in sections 4 through 6, prescinding from consideration of exchange economies, I introduce the underlying production process and discuss both the two economic circuits and the pure cycle in its context. 1

‘For a New Political Economy’

FNPE has the essential elements of Lonergan’s breakthrough to economic science. The steps in his thinking are more explicit than in later essays, and for that reason it provides valuable insights into how he constructed the theory. While Lonergan refined his theory considerably over the next two years or so, the refinements are a development of the structure presented in this essay.13 Lonergan thought well enough of FNPE that, in the late 1940s, he sent his copy to Eric Kierans, a former student of his and later minister of finance in Prime Minister Trudeau’s cabinet. Frederick Crowe writes: ‘One day [Lonergan] handed Kierans the manuscript of FNPE with the remark, “I hear you are going to study economics. Well, here’s a start. This is old stuff; I’ve written something new; this is easier to start on.”’14 The essay has six chapters. In the first chapter, Lonergan explains the reasons for the work and the method he employs. There is no comparable introduction in ECA. The second chapter, ‘The Pure Process,’ introduces the production process and, with it, the crucial division of an economy into two distinct flows of goods and services. This chapter is the precursor to the section on the production process in ECA. In chapter 3 of FNPE, ‘The Transition to the Exchange Economy,’ he introduces, in a non-technical way, money and the exchange economy. In chapters 4 and 5, ‘Outline of the Mechanical Structure of the Exchange Economy’ and ‘Equilibria of the Mechanical Structure,’ Lonergan deals with the laws of monetary circulation. These two chapters anticipate the chapter ‘Monetary Flows’ in the 1944 essay. The first five chapters give us the fundamental breakthrough. A final, incomplete chapter, ‘Incidental Theorems,’ takes up applications and implications of structures elaborated in the prior two chapters. It covers similar ground to the last three chapters of ECA. Its purpose is to ‘give our abstractions something of a local habitation and a name by linking

13 For example, his model of superposed circuits in ECA builds on the twocircuit diagram of FNPE. Compare CWL21 61 with CWL21 202. 14 CWL21 320.

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them with the concrete problems of our time.’15 Tellingly, Lonergan adds: ‘It will drive home the point that the possible equilibria of the exchange process are limited, and that this limitation imposes on man an obligation of adaptation and conformity under threat and penalty of economic frustration.’16 As indicated, this chapter and the next will focus on the elements of Lonergan’s initial breakthrough in economics. I highlight Lonergan’s aims and method and the key points in the construction of the basic model. The full presentation of this material will take up the next two chapters. In this chapter I introduce the fundamental breakthrough in terms of the production process. In the following chapter, after money and exchange are introduced, I explore the structure of monetary circulation, its relationship to the pure cycle, its distortion in the trade cycle, and the possibility for economic recovery. A full treatment of this long essay would require much more than I have attempted here. Because of its technical complexity, I have passed over much of the mathematical detail of Lonergan’s argument. I have also left out most of the material from the chapter on ‘Incidental Theorems,’ which include issues such as the price-spread ratio and the cyclical variations of price.17 While important, these subjects are not vital to a presentation of the fundamental breakthrough. I take up a sketch of these issues in my account of ECA in chapter 7. However, there is a discussion of the trade cycle, which should enhance appreciation of the normative character of Lonergan’s analysis. With this caveat in mind, I hope that what follows communicates the fundamental significance of Lonergan’s achievement even to those who have hitherto avoided his economics because they thought the subject either too daunting or too dismal. Once grasped, I believe, Lonergan’s fundamental insights cannot but provide a beachhead for the task of ordering the complexities of contemporary production and exchange.

15 CWL21 17. The allusion is to Shakespeare’s Midsummer’s Night Dream, act 5, sc. 1: The poet’s eye, in fine frenzy rolling, Doth glance from heaven to earth, from earth to heaven; And, as imagination bodies forth The forms of things unknown, the poet’s pen Turns them to shapes, and gives to airy nothing A local habitation and a name. (Act 5, scene 1) 16 CWL21 17. 17 On the price-spread ratio, see McCallion, ‘The Aggregate Basic Price Spread’ and the discussion of the original article by Eileen DeNeeve and McCallion in JMDA 4 (2004).

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The Economic and Cultural Problem

For Lonergan, a basic problem was how to ‘make economics moral.’ Lewis Watts taught him that the capitalism practised in the nineteenth and twentieth centuries put Catholic moral teaching at odds with the aims of the capitalist economic system. If contemporary economic theory was correct, then economic growth, defined by profit maximization, succeeded at the expense of moral living. Moreover, economics only moved forward by alternating periods of uneven prosperity with periods of poverty characteristic of the trade cycle. Lonergan’s conviction, however, was that if we have a systematic understanding of economic process, then we can devise tools for the direction of an economy that are both just and efficient, and furthermore, we can implement strategies for avoiding the booms and busts of the trade cycle.18 In short, he sought the ‘differentials’ for the intelligent direction of economic decisions where the direction envisaged was democratic. Lonergan did not believe that progress could be imposed.19 Genuine development, moral or otherwise, requires free choice. Consequently, the possibility of a theory of democratic economics was a crucial condition for making economics moral. Democracy encourages personal freedom and individual initiative. What Lonergan admired in classical economists of the nineteenth century was the value they placed on the creative effort of the entrepreneur and their democratic impulse. They were primarily interested in understanding the source of wealth and establishing the indepen-

18 ‘In Method in Catholic Theology,’ MJLS 10:1 (Spring 1992) 3–23 [CWL7] Lonergan adds ‘understanding systematically’ to the set of transcendental precepts. This addition rightly stresses the need for theoretical understanding over and beyond practical understanding, and it is relevant for any effective control of economies. 19 In Insight Lonergan writes: ‘Cosmopolis is not a police force. Before such a force can be organized, equipped, and applied, there is need of a notable measure of agreement among a preponderant group of men. In other words, ideas have to come first and, at best, force is instrumental. In the practical order of the economy and polity, it is possible, often enough, to perform the juggling act of using some ideas to ground the use of force in favor of others, and then using the other ideas to ground the use of force in favor of the first. The trouble with this procedure is that there is always another juggler that believes himself expert enough to play the same game the other way by using the malcontents held down by the first use of force to upset the second set of ideas and, as well, using malcontents, held down by the second use of force, to upset the first set of ideas. Accordingly, if ideas are not to be merely a façade, if the reality is not to be merely a balance of power, then the use of force can be no more than residual and incidental’ CWL3 263 [238].

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dence of business from political manipulation, an aim neatly captured in the slogan laissez-faire. In the main, they did not look to government to dictate a plan for economic development. They were committed to the creative forces of individual and group initiative to build a ‘commercial, industrial, financial, juridical, and even political structure.’20 Lonergan identifies the secret of their success with their ability to communicate their doctrine in understandable slogans. They issued imperatives which virtually everyone could understand, such as ‘thrift and enterprise,’ ‘laissez-faire,’ and ‘enlightened self-interest.’ Unfortunately, classical economics was only partially correct. It worked well enough in what Lonergan called the capitalist phase, or surplus expansion, but did not adjust well to the material phase, or basic expansion, and was of no use in a stationary economy. The failure of classical economics was not in the goal but in an incomplete understanding of the economic process. The problem for Lonergan was to discover the general form of economic process and to derive precepts that could be communicated to everyday economic decision-makers. Classical economics championed an unfettered free-market system. It favoured those who have good fortune in ability or opportunity. While the market system rewards the hard working, ‘those who are willing to contribute for little or no return are brushed aside, to make the exchange system an exclusive club for businessmen.’21 Because human beings are unequal in talent and opportunity, there will always be those who demand more than they can supply. Production can meet demand, but the equilibrium of the market demands that needs go unsupplied.22 This is the case in both the short term and in the long term. Marx developed an alternative approach. He bristled at the systemic injustice that resulted from unbridled capitalism. As a corrective, Marx called for the supplying of ‘each according to their needs.’ Lonergan agreed with Marx that laissez-faire capitalism was anti-egalitarian.23 While the market was remarkable in its capacity for solv-

20 CWL21 4. Of course, the relationship is more complex historically. Advocates of laissez-faire used their influence in the British parliament to enact laws affecting the economy, for example, the Corn Laws. What was significant was the independence of new capitalists from the old political order, based on land ownership and the political privilege of inherited bloodlines. See Nathan Rosenberg and L.E. Birdzell, Jr, How the West Grew Rich (New York: Basic Books, 1986). 21 CWL21 35. 22 In LRI Archive file A332 there are a series of notes on market equilibrium. See LEER, chapter 4. 23 In Topics in Education Lonergan writes: ‘One of the fundamental inspirations of Karl Marx is perhaps his hatred and critique of the sins of the bourgeoisie in the nineteenth century. There is a terrific hatred in Marx, and it is a

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ing problems, nonetheless there was a place for economic control beyond the invisible hand of the market. In the best-case scenario, that control originates from decisions made in light of an understanding of economic process. Lonergan acknowledged that the unequal distribution of the rewards of profits was the expected result in a capitalist expansion. The problem with the capitalist mind-set was its mistaken attempts to sustain economic expansion indefinitely and the ‘profit’ that went with it.24 More troublesome for Lonergan was Marx’s revolutionary political program based on a conception of economic and historical determinism. Progress meant changes in the means of production, that is, technological innovation. Changes in the material means of production determine economic relations. All other elements of human life, whether political or cultural, were explainable in terms of an analysis of the means and relations of production. Marx as a materialist reduced both culture and politics to a technological and economic determinism.25 He conceived of history as a material dialectic of technological and economic factors heading inevitably towards stateless communism. The political means to this end was the class war. Thus, to solve the problem of the injustice of capitalism, Marx eliminates liberty in the name of political expediency. Communism replaces the

hatred of sin’ (CWL10 58). Lonergan then goes on to link Marx and Nietzsche: ‘Again, in Nietzsche there is a hatred and a critique of the sins of the masses, of what is all too human, of their resentment against human excellence of any kind, of their desire to bring everything down to their own level. It was against this that Nietzsche was reacting in affirming his transvaluation of values and his ‘Superman’ and so on. For Nietzsche, of course, the fundamental expression of resentment of the masses against human excellence was Christianity. Nietzsche lived fully the secularism of the modern time. For him, God was dead, in the sense that God no longer exerted any influence upon human social, political, and economic life. Nietzsche wanted to think things out in full coherence with that fact’ (ibid., emphasis added). In this respect, Lonergan, Marx, and Nietzsche are all engaged in an analysis and critique of group bias. I would like to thank Patrick Brown for bringing this connection to my attention. 24 As we shall see, Lonergan distinguishes two phases of economic expansion. In the first, the surplus stage, profits increase, but in the second, the basic expansion, profits decline. Moreover, there is a stationary phase in which profit, in the sense that Lonergan means the term, does not occur. I take this up in the next chapter when I introduce the exchange economy. 25 There is a tension in Marx’s work (including Das Capital) between the idealist Hegelian framework, which stressed consciousness, and Marx’s materialist starting point. In Lonergan’s view, Marx ends up with a materialist and determinist view of history. In Insight Lonergan writes: ‘Marx inverted Hegel and so conceived as dialectical a nonmechanical, materialist process’ (CWL3 242 [217]).

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creative initiative of individuals with a centrally controlled or planned economy. By contrast, in Lonergan’s analysis, Marxist egalitarian hopes are met by understanding the exigencies of real economic phases and acting intelligently and responsibly in light of them. There is a place for benevolence in economics. Lonergan writes: ‘The vast forces of human benevolence can no longer be left to tumble down the Niagara of fine sentiments and noble dreams. They have to be assigned a function and harnessed within the exchange system.’26 Benevolence, as an economic precept, finds its proper place in the basic expansion. The modern ‘science’ of economics that emerged with the so-called marginal revolution in the 1870s also attempted to correct the mistakes of classical political economists. Developed in an attempt to explain how price was determined, it introduced the idea of marginal utility into economics.27 In Lonergan’s judgment, however, this new ‘science of economics’ failed to provide the needed higher viewpoint that would correct the errors of the classical economists while preserving their democratic and creative spirit. What did emerge was a narrow focus on accuracy, particularly mathematical accuracy. It predicts economic behaviour rather than promoting an understanding of what an economy is. In this sense, contemporary mainstream economic theory is not genuinely empirical. If it were, it would, among other things, seriously struggle to understand the dynamic nature of economic life.28 By the mid-twentieth century economics had evolved into a realm of experts. ‘The result is that the only solution it can ever offer to economic problems is by supplying a brain trust to an incipient bureaucracy, by sup26 CWL21 36. 27 Key figures in the marginal revolution are the Austrians Jevons, Walras, and Menger. For an introduction see Blaug, Economic Theory in Retrospect, chapter 8. With respect to the effort to maximize utility or profit, as more goods are consumed the utility or rate of profit decreases, that is, its marginal utility decreases. Lonergan discusses the laws of increasing and diminishing terms in his discussion of widening and deepening or economic circuits in FNPE, but use of the idea is to contrast the widening and deepening in an economic expansion. See CWL21 21–23. On widening and deepening see below pages 145–46. 28 There has been much criticism over the last fifty years within the discipline itself for the lack of interest among macroeconomists in generating data for use by empirical researchers and for its systematic detachment from economic realities. For one of many examples, see J.E. King and Alex Millmow’s article on Joan Robinson’s effort at an alternative introductory textbook in ‘Death of a Revolutionary Textbook,’ History of Political Economy 35:1 (2003). For greater detail see M.S. Turner, Joan Robinson and the Americans (Armonk, NY: Sharpe, 1989).

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plying technicians for a totalitarian state.’29 Lonergan was typically measured in his criticism, but these words state his position quite plainly. The more economics attempts to become merely an exact, predictive science, the more incapable it is of speaking to the non-expert, which would soon include those in business and in government. It aspires to be scientific, not democratic. In both respects, it was a failure. Why? Because as a ‘science’ it fails to understand what an economy is, so ultimately it does not understand what is happening. Ptolemaic astronomy may predict the occurrence of certain classes of events. However, Ptolemaic astronomy did not understand the place of the earth in the planetary system. Similarly, lacking a genuine understanding of an economy, contemporary economics cannot provide the tools for promoting effective economic democracy. Lonergan realized that the survival or even the possibility of democracy depended upon a new political economy that avoided the errors of both the classical and neoclassical economists. He aimed to establish a non-reductionist, fully empirical science of economics based on an explanation of what an economy is, one ultimately geared to provide the material conditions necessary for the full exercise of human liberty.30 Both the Marxist policy of eliminating the exchange economy and the de facto brain trust for government and industry of mainstream economics operated at the expense of economic liberty. The question was this: What system could possibly provide for both liberty and social order?31 He writes: 29 CWL21 5. 30 For Lonergan, a fully empirical science includes both the data of sense and the data of consciousness, and this means we must consider the full existential subject. He writes: ‘The fact is that wherever there is a final cause, there is an efficient cause, and it is quite legitimate to seek in the efficient cause of the science, that is in the scientist, the reason why a science forms a unified whole’ (CWL10 160). 31 There is the question of where other forms of socialism fit into these two categories of the classical political economy. Insofar as socialism promotes government ownership of the means of production as the solution to economic problems, creative and efficient economic development is unlikely. Lonergan was generally critical of centrist control, whether its source was the multinational corporation or governmental bureaucracies. For him the multinational was a problem to be solved not a solution. See ‘Healing and Creating in History,’ 3 Coll. 100–107 [CWL15 97–106]. The role of government in economic policy is a complex question that Lonergan does not treat fully. He sharply differentiated the fields of economics and politics. Certainly, government income and expenditure involves both the basic and the surplus circuits. His comments on the relationship between the two concern the negative effects of government policy as it affects the redistributional zone, specifically deficit financing, the promotion of a favourable balance of trade and tax policy ignorant of the exigencies of the pure cycle.

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Unity without freedom is easy; set up a dictator and give him a secret police. Freedom without unity is easy; let every weed glory in the sunshine of stupid adulation. But unity and freedom together, that is the problem. It demands discipline of mind and will; keenness of apprehension that is not tied down to this or that provincial routine of familiar ideas or the jelly-fish amorphism of skepticism; a vitality of response to situations that can acknowledge when the old game is done for, that can sacrifice the perquisites of past achievement, that can begin anew without bitterness; that can contribute without anticipating dividends to self-love and self-aggrandizement.32 To have both freedom and order meant providing economic decisionmakers with precepts for action based on a new science of economics. In 1942, in the midst of global conflict between putative democracies and the totalitarian states, the issue was far from academic. 3

The Method of Analysis

Lonergan originally planned to conclude FNPE with ‘a comparison of medieval, classical, and totalitarian attitudes to the economic field.’33 In the end he did not write the promised comparison, though elements are scattered throughout the essay. He was reaching for a genetic-dialectic study of economic thought that proceeds along lines developed in his dissertation and in the analytic concept of history. The approach acknowledges the inherent historical character of the data under consideration. Therefore, as with his earlier studies, he is seeking generalized categories, relevant to all types of economy from the primitive barter systems to the contemporary global economy, that organize an investigation of particular systems. He writes: ‘In economic history, general conclusions depend much more on the validity

For Lonergan the political is a ‘specialization of common sense. Its task is to provide the catalyst that brings men of common sense together’ (CWL3 234 [209]). Whatever consensus emerges about the social and political goals of society, the policies that emerge must observe the exigencies of economic process. 32 CWL21 20–21. 33 CWL21 9, emphasis added. Lonergan’s notes on Pesch’s show the extent of his preparation in the history of economic theory. See LEER, chapter 3. An essay fragment, which likely pre-dates FNPE, reveals the connection between his works in history and his economic theory. He writes: ‘We now turn to the second part of our inquiry. Our primary concern here is the pure theory of economic history’ (‘Econ. Phil, § 5 Types of Economic Law,’ LRI Archive file A09); italics added. See LEER, chapter 2.

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of general principles of interpretation than on accuracy of factual detail.’34 In addition, ‘if we succeed in working out a generalization of economic science, we cannot fail to create simultaneously a new approach to economic history.’35 The approach or method is genetic insofar as it considers the stages of development in economics, both in the structure of economies themselves and in economic thought. It is dialectic insofar as it sorts out the genuine developments and identifies the source of failures. Lonergan identifies his approach as a ‘method of generalization’ and ‘a radically new perspective.’ He adapts the method of approximation to the study of economic process. He is interested in the discovery of the ‘ideal types’ and ‘significant correlations’ for the study of economics. He brackets the biases and redemptive elements that would be relevant in a complete analysis of a real economy. Thus, as in his formulation of the laws of classical physics, Lonergan extrapolates to the ideal state of an economy and its laws. The result is a higher viewpoint or generalization that can provide the tools for the analysis of any particular economy. Its involves ‘a minimum of description and classification, a maximum of interconnections and functional relations.’36 The envisaged higher viewpoint is not a release from the empirical; it is intelligent organization of its data. He writes: ‘If we succeed in working out a new generalization of economic science, we cannot fail to create a new approach to economic history. Such an approach itself is already a historical synthesis.’37 He compared this approach to Newton’s achievement in physics; the discovery of the laws of motion was not simply an incremental advance in physics but a complete shift in the ground, ‘the vast enlargement of the theoretical horizon.’38 Newton’s achievement does not invalidate the empirical work of Copernicus, Kepler, Brahe, and Galileo; it elevates and sublates them into a more general context. Likewise, Einstein’s advance sublates Newton’s laws into general relativity theory. Lonergan’s new political economy generalizes the best in classical economics and the neoclassical ‘science’ of economics that replaced it.39 Neoclassical economics corrected the mistakes of the classical economists ‘not by moving to a new level of generality and so effecting the correction without losing the democratic spirit of the old movement, but by staying on the same level of generality and by making up for lost ground by going into the

34 35 36 37 38 39

CWL21 9. CWL21 10. CWL21 111. CWL21 10 CWL21 6. It could be argued that Lonergan’s life’s work was an effort in generalization for the sake of effective practice.

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more particular fields of statistics, history, and the more refined analysis of psychological motivation and of the integration of decisions to exchange.’40 This short passage hits on many of the preoccupations of neo-classical macroeconomists. Of course, many neo-classical economists were champions of democracy.41 Yet, despite talk of democracy, we may fairly ask to what extent neo-classical economists help make it an actuality. Is democracy for the stakeholders or shareholders? What about the common good?42 What Lonergan sought from the beginning – the evidence is the tremendous outlay of effort in developing an economics, a philosophy of history, and functional specialization – was to solve the problem of how the theoretical viewpoint can be effectively implemented. Lonergan was, however, not interested in half-measures and was critical of the common-sense mistrust and ignorance of theoretical understanding. He understood that in the contemporary context the person of common sense needs a systematic grounding. Naivety about theory and its implications is no longer an acceptable defence.43 The more economics tries to be an exact science in the neo-classical model, the further removed it is from providing sound advice for everyday economic decision-makers. Lonergan writes: ‘It is the broad generalization, the significant correlation, that effectively organizes free men without breaking down their freedom.’44 The intent of Lonergan’s ‘new political economy’ was to provide the set of economic variables general enough to establish economics as an independent and fully empirical science that, at the same time, reversed the trend towards self-sufficient specializations. Notions such as ‘price system,’ ‘property,’ ‘labour,’ and ‘capital’ are descriptive terms. As such, they are incidental to its context. Their value is transitory in the development of economic science.45 Lonergan wanted explanations and so developed novel 40 CWL21 7. 41 See, for example, Frederick Hayek, Individualism and Economic Order (Chicago: University of Chicago Press, 1948). 42 On these questions in light of Lonergan’s economics, see Bruce Anderson, ‘Is There Anything Special or Unique about Business Ethics?’ (unpublished). 43 See Paulo Friere, Pedagogy of the Oppressed (New York: Continuum, 1986). 44 CWL21 7–8. 45 ‘Description deals with things as related to us. Explanation deals with the same things as related among themselves. The two are not totally independent, for they deal with the same things, and … [D]escription supplies, as it were, the tweezers by which we hold things while explanations are beings discovered or verified, applied or revised. But despite their intimate connection, it remains that description and explanation envisage things in fundamentally different manners’ (CWL3 316 [291]). In Grace and Freedom Lonergan cites the difference between the descriptive term ‘going faster’

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explanatory notions such as the pure cycle, basic and surplus circuits, and crossover flows, and transformed the conventional understandings of such notions as income and expenditure. This shift from descriptive to explanatory categories is the key moment in the emergence of a science. The move is analogous to the shift from a descriptive to an explanatory use of the term ‘supernatural,’ which Lonergan had documented in his dissertation.46 Lonergan sharply differentiates economic functions from the psychology of decision-makers. The economic mechanism has its own laws to which human psychology must adapt or face the consequences of not adapting to those laws. Lonergan writes: ‘On classical analysis economic mechanism is the pricing system. It coordinates spontaneously a vast and ever shifting manifold of otherwise independent choices of demand and decisions of supply. But man does not stand outside this machine; he is part of it; his choices and decisions are themselves the variables in the system. It follows that there is no possibility of setting down methodically, on the one hand, the exigencies of the machine and, on the other hand, the consequences of the performance of man.’47 For Lonergan the separation of the economic mechanism from a psychology of economic decision-making is of singular importance for determining what is properly economic. He writes: ‘Something of a Copernican revolution is attempted: instead of taking man as he is or as he may be thought to be and from there 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.’48 Just as the Copernican revolution, as an explanatory development, released astronomy from the mathematical complexities of Ptolemaic prediction, so Lonergan’s revolution ought to release economics from its own version of mathematical complexification with its misplaced emphasis on the psychology of supply and demand, market equilibrium, the ups and down of stock markets, and economic forecasting. and the explanatory term ‘acceleration.’ ‘Acceleration is going faster, but analyzed as d2s/dt2, generalized to include going slowly, enriched with all the implications of the second derivative of a function, and given a significant place in systematic thought on quantitative motion’ (CWL1 15). In macrodynamic economics ‘economic growth’ becomes ‘acceleration’ analysed as: k2 [f2c(t – a) – B2] = f1s(t) – A1 k3 [f3c(t – b) – B3] = f2s(t – a) – A2 k4 [f4c(t – c) – B4] = f3s(t – b) – A3 (CWL21, 244 [CWL15, 37]. 46 CWL1 15. 47 CWL21 109. 48 CWL21 42–43.

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4 The Universal Rhythms of Production For Lonergan, economy is a component of the dynamic structure of all human activity. This is, of course, the same starting point as in his theory of history. History is the product of human decision-making. Human decisionmaking is a structured routine that begins in experience and, by way of the exercise of creative intelligence, reasonable judgment, astute planning, and responsible deliberation, transforms the world. The transformation can be of the material infrastructure or the superstructure of meaning or both. Human activity occurs ‘rhythmically in a series of impulses, and the aggregate rhythm is a compound of many minor rhythms of varying magnitudes and frequencies.’49 Thus, ‘the world process, the physical, vegetal, animal, and human potentialities of universal nature, are ever stimulated, guided, aided by human effort to the goal of human survival and enjoyment, of human achievement, waste, and destruction.’50 In other words, it is a conditioned series of schemes of recurrence. It seems clear that Lonergan’s understanding of history as a rhythmic series of impulses with probabilities of emergence and survival anticipates the account of emergent probability in Insight.51 Out of the total flow of human activity, we can differentiate its economic rhythms. Economic activities are those routines that provide for the material fabric of human life. They are a condition of all higher social and culture activity. Painters need paint and studios; education needs books; courts needs courthouses; and religions needs churches, temples, mosques, and synagogues. Thus, underlying the superstructure of culture ‘there stands as foundation the purely economic field concerned with nourishment, shelter, clothing, services, and amusement.’52 Turning to the provision of the material fabric of human life, in primitive or tribal societies, the allotment of time and effort are ‘economic’ only in the most general fashion. Economy, then, is at first merely an extension

49 Ibid. 50 CWL21 11. 51 See CWL3 144–45 [121–22]. William Mathews notes, ‘Nowhere in his [Lonergan’s] early economic analysis do probability considerations enter. The analysis of this conjunction of “emergent” and “probability” will only occur in between 1951 and 1952’ (LQ 494). The absence of probability analysis is not entirely surprising, given that Lonergan’s analysis is a work of classical science. He avoids talk of statistics as well. Lonergan does, however, use the term ‘emergent standard of living’ in the 1944 edition of ECA. See CWL21 238. In the contemporaneous essay ‘Finality, Love, Marriage’ we find elements of his theory of emergent probability, including the notion of emergence. See CWL4 17–53, especially 40ff. 52 CWL21 12.

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of biological routines. There is a rudimentary division of labour. If trading exists with neighbouring tribes, it is by barter. This may seem far removed from the contemporary world where there is a complexly layered global exchange economy. Nevertheless, common to both a primitive economy and the contemporary global economy is a a pattern of production. Production is the routine transformation of the potentialities of nature into goods and services that meet vital human needs recurrently and provides the material base for the more leisurely rhythms of culture. In the process of making bread, the wheat is sowed, tended, and reaped by the farmer. The farmer sells the wheat to the mill, the mill refines the wheat to flour, and the baker buys the flour from the mill, turning it into bread for consumption. In keeping with his aim to discover the relevant general categories for economics, Lonergan begins by imagining a total flow of production of all economic activity since the beginning of time, which he designates with the symbol DA. The ‘D’ indicates a rate in a flow of activities or series of events: we can think of ‘D’ as a less precise equivalent of the mathematical symbol d/dt. The ‘A’ stands for ‘economic activity.’ The series of events is not an average but an aggregate flow, by which Lonergan means ‘the ‘emergence, the longer or shorter period of utility, and the disappearance, disintegration, or waste of an aggregate of meals, clothes, houses, farms, mines, roads, markets, ships, cities, factories, utilities, amusements, schools, courts, parliaments, hospitals, churches.’53 The flow occurs at some rate, that is, ‘so much every so often.’ As he is yet to consider money transactions, there is no mathematical quantity assigned to the rate. The symbol captures a qualitative notion of flow. For example, during a recession taxi-drivers notice that there are fewer customers, that is, there is an overall drop in DA. This captures qualitatively the dynamic character of the concrete economy.54 Not all production series have the same effect on the rate at which they transform materials into products for consumption. There is a hierarchy of levels of economic flow that is determined by the relationship of the flow to the production of the goods and services that go into providing goods

53 CWL21 13. 54 When the exchange economy is included, Lonergan will distinguish initial, transitional, and final payments to reflect in monetary circuits the series of production factors. Importantly, it is only final operative payments that count in determining the rate of flow of a monetary circuit. The sum of all of the previous transitional transactions appear in the price to the consumer, for, in the end, the consumer always pays. For an introduction to the complexities of the series of operative payments, see ‘Appendix A: Transitional Payments,’ in Anderson and McShane, Beyond Establishment Economics, 233–35.

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and services for use. For example, iron is used to make cars, car assembly lines, or machines for making car assembly lines. In each case the relationship between the production process and the production of cars is different. When iron is turned into cars, so much iron produces so many cars at a certain rate or velocity. At this level there is a one-to-one correspondence between iron and cars produced.55 However, in the production of car assembly lines, the assembly lines accelerate the rate of car production.56 The relationship between the assemble line and the output of cars is different that the relationship of iron to cars. One assembly line produces an indefinite number of cars.57 At still higher levels, as in the production of machines that produce cars assemble lines, the rate of acceleration of car production increased still further. The assembly-line machines produce an indefinite number of assembly lines, just as the assembly lines themselves produce an indefinite number of cars.58 Thus, the structure of the basic rhythm consists of a material structure composed of production factors, such as car manufacturing, and a dynamic structure consisting of higher levels of the production factors, such as assembly-line production and the production of machines that produce assembly lines, where each succeeding level accelerates the flow of the preceding level. Lonergan reduced all circuits of work to two: a basic circuit and a surplus circuit.59 This is a key discovery. The two circuits are differentiated by their 55 In ECA, Lonergan describes this as a point-to-point correspondence. CWL21 233 [CWL15 24]. 56 An important point to note is that once computers, for example, are sold they can contribute to the process at all levels. When used for home entertainment they are part of the standard of living. However, computers can be part of the production process, and this can occur at any level. 57 In ECA Lonergan describes this as a point-to-line correspondence. 58 IN ECA Lonergan describes this as a point-to-surface correspondence. Still higher correspondences are as possible. 59 With respect to determining the significant functional distinctions there is, in the main, no need to distinguish between different levels of acceleration. An analogy might help here. We may wish to understand the complex path of the Moon as it orbits around the Earth while the Earth itself is orbiting the Sun. The significant study in this case would consist in discussing the two-body problem, the movement of a single entity (which might later be thought of as an Earth-Moon composite located at their joint centre of mass) orbiting around a larger one (such as the Sun). In later, more advanced macroeconomic dynamics we may need to take into account the true complexity of the multi-level process with its hierarchy of surplus circuits. This analysis will be in terms of the same significant variables elucidated to discuss the two-body case. Similarly, on the analogy with the perturbation effects of the other planets on the Sun-Earth-Moon system, economics will eventually have to add to its first-order discussion of the internal effects of

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functional relationship to the increment of ultimate products produced in an economy. The basic circuit directs its efforts to the provision of goods for the emerging standard of living. The surplus circuit directs it work to the production of the means of production. Lonergan designates the basic flow as DAc and the surplus flow as DAc. As DA is the total flow of economic activity and there are two flows, then DA = DAc + DAc. Next, we can direct production to differing ends. In FNPE Lonergan distinguishes ordinary final products and overhead final products. Ordinary final products are ‘the flows of food, clothing, shelter, amusement, ornaments, conveniences, utilities, and the like,’ while overhead final products are those that contribute to the cultural superstructure. These are ‘the flow of books, schools, hospitals, courts, prisons, armaments, public buildings, non-commercial roads and bridges, churches, and the like.’60 The distinction is roughly that between goods for private consumption and public goods. Second, Lonergan distinguishes widening and deepening. Widening increases ‘the number or size of existing units of production,’ while deepening increases ‘the efficiency of existing units of production.’61 The increased efficiency of deepening combined with overhead production reduces the amount of labour required and increases leisure time, out of which can develop further deepening and also a fostering of cultural development, made possible by the release of individuals from the burden of economic necessity. Widening combined with ordinary production exploits the potentialities of new developments. An increased widening follows the law of diminishing returns, for it increases the size and number of existing enterprises. More energy and resources must be put towards maintenance, repair, and replacement. On the other hand, deepening, because it transforms economic structure, yields increasing returns. The new structure improves the efficiency of production so that more goods can be produced in less time. The introduction of the assembly line to the production of cars by Henry Ford is a good example.62 The assembly-line method dramatically accelerated the flow of new cars and lower prices, bringing the possibility of foreign trade the smaller but not insignificant effects of the rhythms and phases occurring in the economy’s trading partners. 60 CWL21 17. 61 CWL21 17–18. 62 Henry Ford of course did not invent the assembly-line method. This type of division of labour has been around since at least circa 215 BCE, when the first Chinese emperor commissioned the Terracotta Army, a collection of about 8000 life-sized clay soldiers and horses subsequently buried with the emperor. The figures had their separate body parts manufactured by different workshops; they were later assembled to completion.

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ownership to a much larger proportion of the population. Ford’s cars came off the line at three-minute intervals, much faster than previous methods – an eightfold increase in production. Prior to the introduction of Ford’s moving assembly line a car’s construction required 12.5 man-hours. Once the assembly line was in full operation, with fewer workers, it took just over 1.5 hours to complete the same task.63 At the level of civilizations, an agricultural economy is more efficient than an economy of primitive gatherers and hunters, and an industrial economy is more efficient than both.64 Moreover, with increased efficiency, there are better prospects for the leisure that makes possible cultural developments. The distinctions between ordinary and overhead final products and widening and deepening disappear as categories in later essays. Overhead final products pertain to the material infrastructure of culture, and Lonergan leaves aside the question of the relationship of economics to culture in the later essays to concentrate on the analysis of monetary circulation. However, widening and deepening make up the ebb and flow of the universal rhythms and are relevant to the distinction between surplus and basic expansion in a growth economy in ECA.65 Ideally, deepening is what occurs in the capitalist or surplus phase, and widening is what occurs in a materialist or basic phase. There are no new ideas without deepening, and the new ideas cannot be properly exploited without widening. However, the fact of widening and deepening, and the possibilities of both overhead and ordinary production, means that societies have significant choices to make about the ends of economic development. Deepening and overhead production support both economic efficiency and cultural development. Widening spreads the benefits of expansion to all and so favours size, increased production, and full employment. The economic process itself is indifferent to the ends of production. Production can be for bombs or books. Its rhythms function the same way

63 Joseph Wickham Roe, English and American Tool Builders (New Haven, CT: Yale University Press, 1916) 129–30. 64 There is a further question regarding the other kinds of gains and losses that occur with major shifts in the economic system. Increased complexity and a more specialized division of labour are expected. However, what about cultural advance and decline? As Toynbee notes, rapid technological advance in a narrow area is concurrent with the breakdown of civilizations. See A Study of History, abridgment of volumes 1–6 by D.C. Sommervell (Oxford: Oxford University Press, 1946) 304–307. Similarly, serious ecological degradation has accompanied contemporary technological advances based on fossil fuel energy. 65 The distinction is handled systematically in Lonergan’s equation for the cycles in the production process in the latter essay; see CWL21 244–45.

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in either case. A civilization can direct itself to ever more wars and ‘bread and circuses’ or release some of its members for the sake of the enrichment of cultural life. The higher ends to which a society directs its economy is a question of culture, and the achievement of a workable consensus as to these ends is a function of political and cultural debate. Lonergan clearly favoured the direction of energies towards deepening and cultural production. ‘For society to progress … it must fulfill one condition. It cannot be a titanothore, a beast with a three-ton body and a ten-once brain. It must not direct its main effort to the ordinary final product of the standard of living but to the overhead final product of cultural implements. It must not glory in its widening, in adding industry to industry, and feeding the soul of man with an abundant demand for labor. It must glory in its deepening, in the pure deepening that adds to aggregate leisure, to liberate many entirely and all increasingly to the field of cultural activities.’66 The kind of hope which emerged somewhat naively in the cultural expression of the 1960s in the West has in our day been badly shaken by the reality that some have to work longer and longer just to survive, while others are effectively, if not, actually, unemployed, which, of course, is not the same as being leisured. In any case, because an economy is the material substratum of a culture, knowledge of the objective reality of its economic rhythms of transformation plays a central part in creating the material conditions for cultural progress. Like Marx, Lonergan knew the importance of the economy for human emancipation. Unlike Marx, Lonergan did not reduce other aspects of human life to technological and economic relations. Economics was for the standard of living and a standard of living ultimately included both the material conditions for culture and the culture itself. 5

Two Distinct Circuits

The discovery of two circuits of work is not original to Lonergan. Economic historians will recognize that economic circuits are a feature of Quesnay’s tableau économique and Joseph Schumpeter’s theory of economic develop-

66 CWL21 20. In this regard we might cite as examples the high Middle Ages in Europe or China’s long period of culturally motivated isolation in the 1800s when it rejected new, and even some existing, technologies and organizational methods. The option for deepening over widening is relevant to the establishment of an environmentally responsible economy. Deepening improves the efficiency of production and exchange and reduces the percentage of the surplus circuit that would be devoted to maintenance, repair, and replacement. See CWL21 21–23.

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ment and the business cycle.67 Marx distinguished the worker’s exchange for consumption from the capitalist’s exchange for the accumulation of more money.68 Kalecki derives his adage ‘Workers spend what they get and capitalists get what they invest’ from Marx’s distinction. Lonergan knew Quesnay from reading Pesch and knew Marx from his course at Heythrop.69 67 See Schumpeter, A Theory of Economic Development (originally published in 1911). In Economic Doctrine and Method: An Historical Sketch (London: George Allen & Unwin Ltd, 1954). Schumpeter devotes a chapter to the physiocrats and their discovery of the circular flow of economic life. This was originally published as Epochen der Dogmen und Methoden geschichte in 1912. Schumpeter likely did not influence the viewpoint of FNPE. Lonergan likely read The Theory of Economic Development either during or just after he wrote FNPE. In his notes on that volume he compares Schumpeter’s approach to his own: ‘My real and my circulation phases involve no distinction between growth (mere increase in size) and development (new productive combinations). For Schumpeter these two are specifically distinct’ (CWL21 213 [LEER 139]. This suggests he already had the basis of his theory worked out. He read Business Cycles after FNPE and before or during the writing of ECA. It was a significant resource for the chapter on ‘The Cycle of the Aggregate Price Spread’ in ECA. See LEER, chapter 7, for Lonergan’s notes on The Theory of Economic Development and Business Cycles and more detailed comments concerning the dating of these sources. 68 Marx’s Grundrisse is likely the original source for the distinction. See Karl Marx, Grundrisse: Foundations of the Critique of Political Economy (New York: Penguin Books, 1995) 321–59. The basis for Lonergan’s distinction is differences in the levels of production flow. Marx’s circuits are exclusive to the monetary circulation and mix descriptive proprietary categories with economic ones, a fault that runs throughout his entire analysis. 69 Lonergan may have been introduced to Marx’s distinction from reading Michał Kalecki and Joan Robinson in the seventies. In ‘Questionnaire on Philosophy: Response’ Lonergan writes: ‘Marx had a sound and, it would seem, original intuition into the nature of capitalist profit; it is this intuition that gives Marxian thought its fascination and its power. It remains that Marx expressed his intuition confusedly and emotionally in terms of surplus value and exploitation. But its accurate expression is in macroeconomic terms, and it is on the basis of such accurate expression and in the context of Christian praxis that a solution is to be sought’ (CWL17 369– 70). Lonergan cites here Michał Kalecki, Selected Essay on the Dynamics of the Capitalist Economy 1933–1970 (Cambridge: Cambridge University Press, 1971) and Joan Robinson and John Eatwell, An Introduction to Modern Economics (Maidenhead, Berkshire: McGraw-Hill Book Co., 1973). A useful specific case is Robinson and Eatwell’s discussion of socialist accumulation in appendix 2 of their book. They claim that the basis for this is an adaptation by Feldman of Marx’s own position. They analyse interactions between two levels of production, labelled as corn and machines, and run, in good centralist tradition, by two separate state departments. The acceleration effect is made clear.

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However, the most likely influence on Lonergan’s idea of two circuits is Dawson. Lonergan’s discovery of the distinction arose from a consideration of what happens during an economic transformation: it is more likely that Lonergan links maintenance, repair, and replacement to the surplus circuit later. With this in mind, we can read the following passage from Insight with a fresh perspective: ‘At first, there appears little to differentiate man from the beasts, for in primitive fruit-gathering cultures, hunger is linked to eating by a simple sequence of bodily movements. But primitive hunters take time out from hunting to make spears, and primitive fishers take time out from fishing to make nets. Neither spears nor nets in themselves are objects of desire. Still, with notable ingenuity and effort they are fashioned because, for practical intelligence, desires are recurrent, labor is recurrent, and the comparatively brief time spent making spears or nets is amply compensated by the greater ease with which more game or fish is taken in an indefinite series of occasions.’70 Without mention of monetary circuits, this passage identifies two distinct kinds of production: basic production, which provides goods and services that enter directly into the standard of living, and surplus production, which provides the producer goods and services that maintain and improve the efficiency of the basic circuit. Whatever the precise origins of the discovery, neither Quesnay, Marx, Schumpeter, nor Dawson identified the precise functional differentiation Lonergan makes. Contemporary economists make a nominal distinction between producer and consumer goods, but they did not consider either category as dynamic flows or as distinct circuits. Most tellingly, the distinction did not enter into how transactions are counted. For example, the distinction does not enter into the calculation of GNP or GDP. The focus of mainstream economists is not the production process at all but the pricing mechanism. Marx was aware of the dynamic nature of economic process, but did not break free of Hegelian conceptualism. Schumpeter, too, understood the need for a dynamic base for economic theory and as well as the importance of creative developments in production, but he did not make the distinction between circuits. By contrast, for Lonergan the real-life production process is central and his understanding of it is functional and systematic. Lonergan’s own transformation of economic theory begins with the establishment of the objective reality of two fundamental circuits, their relationship to each other, and, in this essay, the relationship of the two circuits to the cultural superstructure. The significant terms and relations of his political economy fol-

70 CWL3 233 [207–208].

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low from this differentiation of economic circuits. In fact, the organization of FNPE bears this out. Once Lonergan concludes his discussion of his aims and method, in chapter 1, he turns immediately to a discussion of the two flows. Initially, his account of the flows is at the same level of generality as his account of the general dynamics of history. After he has completed this general account, he introduces money and the exchange economy. Only then does he begin to specify the significant variables. 6

Phases of the Production Process71

Having differentiated two circuits of work in the production process, a basic circuit and a surplus circuit, Lonergan takes up the possibility that we can distinguish distinct phases in the production process.72 Given the generality of his idea, Lonergan can do this without reference to the exchange economy. Each phase will be characterized by the shifting relationship between the primary and the secondary orientations of production. His goal is an ideal line of development for the collaborative circuit of work that begins with a creative development of the economic set-up that is built and subsequently exploited for the good of all. He distinguishes four phases of the process, which he names the pure cycle. Each phase represents a different proportion of the acceleration rates of the flows (i.e., rates of change in the rates of flow) in each of the two circuits. The phases are identified by the ratio between the acceleration of the flow of surplus economic activity and the acceleration of the flow in the basic circuit. Organization of the phases follows from the analysis of how new technologies transform production rhythms. Lonergan related the most general form of the pattern in ‘Essay in Fundamental Sociology.’ New ideas were a creative response to an original situation, which, if effectively developed and implemented, transformed the initial situation. From Christopher Dawson he adopted the notion that technological development was a key to understanding stages of cultural development. Finally, given Aquinas’s precept that the will follows intellect, Lonergan could project a pure or ideal cycle of progress. This translated into an economic ‘pure cycle’ derived from the effective transformation and exploitation of new, more efficient technologies. Consider a food-gathering economy. Survival depends on a routine of seeking out edible fruits and vegetables and eating them where they are 71 An earlier version of this section was presented at Seton Hall University in July 2009 in the paper ‘The Two Fundamental Notions of Economic Science and the Economic Crisis.’ 72 In a sense these are simply permutational consequences of the recognition of the time component of the process. See CWL21, 19.

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found. In order to survive, a good proportion of the day is spent on this activity. The tribe lives ‘hand to mouth.’ When they have exhausted the supply nearby, they move to where there is a more abundant supply of food. Once this is exhausted, they must move again. Shelter is therefore simple and temporary. All things being equal, the tribe meets material needs at the same rate year after year. What happens when a tribe member comes up with the idea of using a basket for gathering the fruit? Assuming tribe members grasp the long-term benefit of developing baskets, they have to set aside time and resources to design and make the baskets. At the same time, the food requirements of the tribe remain the same. While this is happening there is no increase in the supply of vegetables and berries. Eventually the baskets are put into use. Now the extra work put into the production of baskets slows down as they start distributing the new baskets to tribe members. With baskets in hand, tribe members spend considerably less time gathering food and can begin to think of the possibility of storage. This means that there is more time available for other activities not related to the gathering of food. The baskets make it possible to stay in one place longer and, once storage methods develop, can facilitate trade with nearby tribes. The basket idea will eventually lead to many other improvements in conditions and increased time for activities not related to the gathering of food. The net effect is a release from a hand-to-mouth existence and creation of more leisure for the development of tribal culture. They now have some free time for dancing, religious rituals, or other common projects. Some members of the tribe may devote themselves to basket decoration, coming up with new designs and other uses for the baskets. They may start to fantasize about the merits of staying in one place and so begin to figure out how to cultivate berries. We can continue by locating the phases of economic transformation. In FNPE Lonergan differentiates four stages: the static, the capitalist, the materialist, and the cultural.73 The four phases are pure types or first approximations. Each has its own laws. Assuming they function according to these laws, taken together the phases are purely progressive. There is no retrogression in the pure cycle: it either remains constant, as in the static phase, or production increases either by a widening or deepening of the economy. The capitalist, material, and cultural phases can occur simultaneously. Compound cases are studied by assembling a combination of the three sets of laws. 73 As we shall see, Lonergan later reduces the stages to three by eliminating the cultural stage. The capitalist stage becomes the surplus expansion; the material stage becomes the basic expansion; and the static stage becomes the stationary phase.

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We start with the static or stationary phase. Each year is much the same as the last. When the tribe embraces the basket idea, there is a period when there is extra activity or surplus activity directed towards the making of baskets for eventual use in food gathering. However, while the tribe is designing and making baskets, there are no additional berries being picked. The standard of living stays the same, though the total effort devoted to the production of baskets and picking berries together increases. In non-exchange production it is the extra time and effort in hopes of a better tomorrow that constitutes the investment. This surplus phase Lonergan names in this essay the capitalist phase. In terms of our symbols, DAc is constant, but DAs is increasing. When the baskets are made and distributed, DAs is constant – there will be some need for the maintenance, repair, and replacement of baskets – and DAc is increasing as more food is gathered in a shorter period. It is here that extra time and effort expended in the previous phase reaps benefits for the tribe as a whole. More berries can be picked and carried home in less time. The effort required in maintaining the same standard of living decreases. This is the materialist phase. Alternately, the tribe may use baskets for ornamental or religious purposes, which Lonergan names the cultural phase. Since the economic mechanics of the cultural phase are the same as for the materialist phase, Lonergan will drop it in future formulations of his theory.74 Eventually the tribe will exhaust its innovations based on the basket, and the tribe arrives at a new static phase. Production routines settle, but at the more efficient rate. Finally, Lonergan shows that it is possible to establish appropriate slogans to guide the different phases such as ‘thrift and enterprise’ in the capitalist phase or surplus expansion, ‘a chicken in every pot’ in the material or basic expansion phase, and ‘a steady hand at the tiller’ in the static or stationary phase. As should now be familiar, Lonergan develops his notion of the universal rhythm based upon an understanding of how new technologies and more efficient methods of production enter into a culture and transform it, first its material substratum and then its cultural life. More efficient production opens up the possibility of more leisure, though it could also be spent eating more or trading berries and baskets for fish and trinkets. It is this idea that informed Dawson’s stages of material development and Lonergan’s concept of the dialectic of fact in ‘An Essay in Fundamental Sociology.’ The 74 The distinction hinges on the use of economic goods. It inclusion in FNPE makes sense if we consider that Lonergan’s intent was to show the link between the material substratum and the cultural superstructure. ECA is pure macroeconomics. In the latter context, there is no essential difference between the material phase and the cultural phase. It is, of course, relevant to political and ethical questions.

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pattern uncovered is fundamental to both the dialectic of history and the new political economy. For this reason, I tend to the view that Lonergan came to a notion of two distinct economic circuits around the time he wrote ‘An Essay on Fundamental Sociology.’ It helps to explain his claim in 1935 that he had a notion of the objective laws of economics.75 However, assuming Lonergan had the notions of two economic circuits and a pure economics process by 1934 or 1935, he had much work ahead if he was to translate these ideas to account for a contemporary economy. The invention of money and the exchange economy vastly enlarges the scope of economic activity. While any productive activity provides the data for working out the phases of an economy, the exchange system adds the tremendous complexity of the relationship between the production process and the circulation of money. Lonergan’s account of the production process provides a basis for two key elements of a theory of macroeconomic dynamics: the division of the economy into two distinct circuits and the pure cycle. Furthermore, he establishes the primary role of the production process and its normative rhythms for understanding any form of economy. Production rhythms are the conditional schemes of recurrence for the emergence of the exchange economy, and the rhythms of production set conditions for understanding the circulation of money. Thus, the exchange economy must respect these underlying rhythms or pay the consequences. In the next chapter we turn to the structures that emerge with the invention of money and the exchange process.

75 Keane (1935).

6 The Breakthrough to Economic Science: The Structure of Exchange

Once the process has expanded beyond the barter stage, it is only by liquidating civilization that one can return to barter. In consequence, the dummy becomes a necessity, and its economic value is the general form of all economic values.1

So far, Lonergan has differentiated two distinct kinds of production, each constituting a distinct circuit: one circuit produces consumer goods that enter directly into the standard of living and another circuit produces the means of production that accelerates the flow of the basic circuit. By considering how these kinds of production work over time, Lonergan works out a pure cycle of production and its sequential phases in an economy. The pure cycle takes into account the extra effort and time involved in

1 CWL21 38. Lonergan, in one of his few flights of fantasy, imagines a possible future time when money might disappear. He writes: ‘Nor is it impossible that future developments in science should make small units self-sufficient on an ultramodern standard of living to eliminate commerce and industry, to transform agriculture into a superchemistry, to clear away finance and even money, to make economic solidarity a memory, and power over nature the only difference between high civilization and primitive gardening’ (CWL21 20). From this perspective we could regard exchange economies as characteristic of a necessary, albeit long, transitional period in the history of human economy. Also, Lonergan does not mean by ‘power over nature’ the unjust infliction of human will over the rest of nature. He means intelligent stewardship. With Plato, Lonergan would take the side of justice over might, and I believe he would understand this to include how we treat the environment. On this, see especially CWL3 259–61 [235–37] and the essay ‘The Dialectic of Authority,’ 3 Coll 5–12.

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the development and exploitation of new means of production that would improve the collective standard of living. The developments of the surplus expansion are subsequently exploited in a basic expansion and come to rest in a stationary phase in which economies stabilize and there is no significant growth.2 The cycle is repeatable. In the previous chapter I discussed this problem in terms of fruit gathering and basket making. Now the question is: What happens when money and the exchange economy are added to the process of production for the sake of the standard of living? 1

The Function of Money and Finance

In barter systems actual goods are traded. You might go to market with four goats and exchange them for one cow. The invention of money makes it possible for something to stand in for the value of the goods traded. You can now buy the cow without bringing the goats. Money, then, is a medium of exchange that makes the exchange system possible. Keeping in mind that the primary process in an economy is the production process and that any production process takes time, the function of money is to bridge the intervals between steps in the production process and the sale of its products. Before the cow and goats are milked, they must be sired, fed, housed, and tended. All this takes time, effort, and resources, which in an exchange economy are facilitated by money. Money makes possible a massive expansion of an economy. The purchase of our daily meals demonstrates this. My lunch today consists of a Spanish omelet, salad, toast, and fresh fruit includes local eggs and green onions, butter, bread, and salt from Nova Scotia, salsa assembled in Ontario, lettuce and cucumbers from California, tomatoes from Mexico, kiwi fruit from New Zealand, grapes from Mexico, pineapple from Thailand, bananas from Guatemala, and a cup of tea from Sri Lanka. If I desire it, I can have

2 In a stationary phase, increases in population would produce incremental growth corresponding to any rise in population. This is, however, incidental to the economic expansion in the pure cycle. Lonergan notes: ‘Though variations in population are connected intimately with economic phenomena, we prescind from them. There are two reasons for our procedure. First, economic structure and dynamism has a nature of its own no matter what the size of the population; our purpose is to study that general nature, for once it is known, the corrections to be introduced in view of increasing and decreasing population are easily made. Second, because this inquiry is concerned with general theory, it would only confuse issues to introduce incidental considerations of population movements; on the other hand, a satisfactory study of the general theory of population trends demands a separate work’ (CWL21 25).

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the same lunch tomorrow. Yet, without the exchange system this simple meal would be an impossible dream. Thus, the development and expansion of the exchange economy leads to a progressive shift away from dependency on nature and towards a dependency on social collaboration. No one person or family could regularly produce the simple meal in our example. Lonergan writes: ‘Once the process has expanded beyond the barter stage, it is only by liquidating civilization that one can return to barter. In consequence, the dummy [money] becomes a necessity, and its economic value is the general form of all economic values.’ Because money provides a bridge from the production process to the standard of living, the exchange economy must somehow adapt itself to the objective reality of the phases of production. There is the time delay from initial outlay to final sale. The farmer spends money on the goats before there is a return on the outlay when they are sold at market. For example, there is a flow of products and services from the farmer to the manufacturer, from the manufacturer to the wholesaler, from the wholesaler to the retailer, and from the retailer to the consumer. There is the initial outlay of the farmer in anticipation of the sale to the manufacturer. There are the transitional payments of the manufacturer to the farmer for the goods and to the transport company to move the goods. There is a related set of payments from the wholesaler to the manufacturer and from the retailer to the wholesaler. The manufacturer, wholesaler, retailer, and transport companies all have their own initial and transitional payments. There will also be taxes to pay along the way. The cost of this entire process is captured in the final sale. In addition to the basic circuit, there is the flow of goods in the surplus circuits that provides not consumer goods that enter the standard of living but the means of production. In this circuit there is also a series of initial, transitional, and final payments. In sum, the purchase of basic and surplus goods and services, research and development, investment in new means of production, and the maintenance, replacement and repair of the existing means of production all require money. Accordingly, there are markets available for concluding all these transactions. Despite shortcomings, Lonergan holds that markets provide the most efficient means of bringing together buyers and sellers. Markets leave everyone free to make their own decisions. This encourages inventiveness and initiative as producers and sellers stand to gain if they provide what people want. Because of their competitive nature, markets tend towards price uniformity. If sellers ask consistently more than the competition, their sales shrink. In addition, no one can stay in business long by consistently offering goods for less than the competition. A free market encourages each to do their best, as excellence in performance creates favourable preferences

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or results in efficient use of resources. And while producers risk failure, because their ultimate reward will be measured by the integration of individual decisions made by consumers, ‘it leaves the precise reward each receives to his individual choice.’3 Lonergan contrasts the excellence of the exchange system to the defects of the bureaucratic control of the economy. The bureaucrat is under no pressure to anticipate precisely what people will want and to give it to them the precise moment they want it; he gives them what he thinks good for them, and he gives it in the measure that he finds possible or convenient; nor can he do otherwise, for the brains of a bureaucracy are not equal to the task of thinking of everything; only the brains of all men together can even approximate to that. But further, even could the bureaucrat meet the issue, he could not do so continuously, for it is continuously changing; he has to work with plans, and every new demand as well as every new invention tends to upset the old plans and make a new beginning necessary; when a limited liability company has served its day, it goes to the bankruptcy court; but when bureaucrats take power, they tend to stay. Finally, even if the bureaucrat could meet both these problems, he could not give them a human solution.4 Beyond the merits of the exchange system for both economic efficiency and human liberty, an expanding economy requires instruments of finance to move money from ‘inoperative to dynamic positions in the exchange system.’5 Good ideas do not necessarily occur to those who have the money. Therefore, a way must be found to move the money to those with the good ideas. Lonergan writes: ‘There is the fact that the economic process runs through a series of transformations and exploitations; the real flow varies, and the dummy [money] flow has to vary concomitantly or else suffer inflation or deflation; moreover, the real flow attains volumes that greatly exceed previous maxima, and these peaks can be scaled only if the dummy has a notable elasticity.’6 Moreover, as we have already seen, in human his-

3 CWL21 34. 4 CWL21 34–35. This quote may be fruitfully linked to Lonergan’s comments on liberty and progress in Insight. See CWL3 259–60 [234]. 5 CWL21 41. In a stationary economy, however, there is little need for investment and therefore little need for finance. On the history of the various mechanisms of credit creation and their significance for the contemporary economy see Rosenberg and Birdzell, How the West Grew Rich, chapter 7. 6 CWL21 41.

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tory there has been a series of real transformations and exploitations of the production process. Thus, while financial instruments are useful for buying a home or car, saving for school, or planning for retirement, the fundamental problem is how to finance a long-term expansion. A capitalist or surplus expansion requires a continual acceleration of rates of investment to the surplus flow, DAs, to meet the needs of new production. A materialist or basic expansion requires that money be placed in the hands of basic consumers by increasing basic rates of flows of DAc. Finally, while Lonergan clearly champions the exchange economy, he acknowledged its significant limitations because it rewards those interested in making money and puts at a disadvantage everyone else. Moreover, we cannot assume, if you will, that all its players are on a level playing field, for not all have the same ability or opportunity to contribute to it. However, a rigid egalitarianism is impossible, and even if it were possible it would require the suppression of the very liberty that makes it possible in the first place. A different system is required that preserves the idealism that fosters community welfare and social justice. Lonergan’s account of monetary circulation aimed to provide these functions for understanding the exchange system that would then enable the forces of human benevolence to operate intelligently. To this we know turn. 2

Introduction to Monetary Circulation

What, then, is the structure of the exchange process? Lonergan’s insights about the structure of the production process are relevant to the exchange process. Just as there are two orientations to production, the exchange economy will have two distinct monetary circuits: a basic circuit that produces consumer goods that enters in the standard of living and a surplus circuit that produces various producer goods. The flow in the surplus circuit accelerates the flow in the basic circuit. And just as there is a pure cycle of production there will be concomitant phases in the exchange process. Because the structure of the exchange process emerges when money is introduced to an economy, we now have two processes to consider: a production process which produces goods and services and an exchange process which is the medium of exchange for good and services produced. How we understand their relationship is crucial. 3

Fundamental Economic Variables (The Diagram)

The ‘baseball diagram’ appears in both FNPE and ECA and was the key image for organizing all the significant variables for understanding monetary circulation and its relationship to production. The diagram was essential to

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the discovery because ‘formal comprehension … cannot take place without a construct of some sort’ and ‘in larger and more complex issues it is impossible to have a suitable phantasm unless the imagination is aided by some sort of diagram.’7 Furthermore, ‘if we want a comprehensive grasp of everything in a unified whole, we shall have to construct a diagram in which are symbolically represented all the various elements of the question along with all the connections between them.’8 Not only is a diagram indispensable for theorizing, it is, as any teacher knows, crucial for explaining a theory. In what follows I present the basic discovery using the baseball diagram. This will enable us to imaginatively connect the production process to the circulation of money. Once the basic diagram is presented, we can then present an account of the pure cycle in terms of the circulation of money. Let us begin with a simplified version of the original diagram (figure 3). For the moment, we need only concern ourselves with the visual image. I will introduce terms and relationships as we go. However, you will notice right away that we are dealing with a set of five basic terms (Ic, Is, Ec, Es, and R) and a set of relationships between the terms. These terms and relationships constitute the core elements of Lonergan’s theory. Much as we can understand Lonergan’s philosophy as an expansion on the thirteen elements of his cognitional theory, further complexities in his economic theory are developments of these basic terms and relationships.9 Ic 

Es 

R 

Ec 

Ic  Figure 310 7 CWL7 151. 8 Ibid. Italics are added. 9 For Lonergan’s diagram of the elements, with editorial comment from Philip McShane, see appendix A of CWL18 3–24. For a adaptation of this diagram, see Michael Shute and William Zanardi, Improving Moral DecisionMaking (Halifax: Axial Press, 2003) 74. 10 The similarity of the diagram to a baseball diamond is not an accident. While working in the Lonergan archives I came across a fragment on the

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Because it is simpler to present and easier to grasp, I begin with a stationary, closed economy.11 This avoids the complexities of both economic expansion and foreign trade.12 Keep in mind, however, that Lonergan’s theory is fully dynamic: a stationary economy is simply a phase in which there is no economic expansion. All the variables relevant to a growth economy are relevant to a stationary economy. Because of the generality of Lonergan’s model it can deal with economic units of all sizes, from Robinson Crusoe on his island to the global econo-

back page of notes made in preparation for the defence of his dissertation. In this fragment Lonergan works through an account of monetary flows using the baseball analogy. See CWL21 211–12. With respect to the history of the diamond, see Patrick Byrne’s appendix in CWL21. Byrne’s account does not include the original versions from FNPE. Nevertheless, the 1942 version of the diagram has all the elements of the basic discovery. See CWL21 64. Changes in all later diagrams are notional refinements of the mathematical expression of the relationships between the elements in the diagram. There is also an alternative version of the 1942 diagram (CWL21 65). In the alternative version Lonergan omits the redistributive function and constructs the diagram to visualize lags in the circuits. There is a development in how Lonergan deals with the problem of continuity (and lags) in the circuits in the period from FNPE to ECA. A consideration of turnover frequency refines his understanding of lags. For some relevant documents see LEER, chapter 6. For an analysis see Philip McShane, ‘Appendix: Trade Turnover & the Quantity Theory of Money,’ in Pastkeynes Pastmodern Economics (Halifax: Axial Press, 2002). 11 For Lonergan’s notes on equilibrium theory, see LEER, chapters 4 and 5. In mainstream theory, economic development is typically treated as a variation of comparative statics. Mark Blaug writes in Economic Theory in Retrospect: ‘Comparative statics, as we know it, is almost wholly the result of the efforts of three generations of economists to derive operational theorems about economic behavior within the general equilibrium framework. All of modern micro- and macroeconomics can be viewed as different ways of giving operational relevance to general equilibrium analysis: in Marshallian partial analysis, some variables are eliminated by treating them as data; in Keynesian income theory, some variables are eliminated by aggregating them with others; and in Leontief input-output analysis and activity analysis, the interrelationships between variables are simplified by linear equations. Every day it is becoming more apparent that Schumpeter was right: “Walras’ Elements was the prolegomenon or Magna Carta of modern economics”’ (585). Lonergan’s general dynamics offers an alternative direction to Walrasian comparative statics and relocates the seed of the economic Magna Carta exactly seventy years after Walras published his Elements. 12 For an introduction to the foreign trade issue from the perspective of macroeconomic dynamics, see Bruce Anderson, ‘Foreign Trade in the Light of Circulation Analysis,’ JMDA 1:1 (2001) 9–31.

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my. Let us consider a barbershop in a city neighbourhood.13 For the sake of simplicity, we confine transactions to the neighbourhood. The barbershop I have in mind is a three-chair operation. The owner works one chair and he hires on two additional barbers to work the remaining chairs. Again, to keep things simple, we will assume the owner inherited the shop. This saves us from considering the complexity of startup costs for a new business. The shop has a regular clientele and the owner and his employees each maintain their standard of living on the income the shop brings in. In other words, the business is ‘a going concern.’ Every ‘going concern,’ is a set of recurring patterns. Hair grows and needs cutting. People are willing to pay someone to cut it at some regular interval.14 Each haircut is income for the barbershop and expenditure for the clients. Income and the expenditure occur at some rate, that is, ‘so much every so often.’ Therefore, taking a year as our unit of time, we can calculate the annual rate of income for the owner. The rate of income for the business would obviously correspond to rate of expenditures by clients (I = E). The shop owner has ordinary expenses: shop maintenance costs, taxes, barbering supplies (aftershave, lotions, etc.) and salaries for himself and the other barbers.15 The barbers spend salaries on food, clothing, a mortgage, entertainment, car payments, school supplies for the children, and so forth. All these expenditures are income for other businesses in the neighborhood. These businesses operate in the same way: there are expenditures and income, and total expenditures must equal total income (E = I). We can diagram this flow as follows. Ic 

Ec  Figure 4

13 I am indebted in the presentation that follows to the approach of Bruce Anderson, ‘Basic Economic Variables,’ JMDA 1 (2001) and Philip McShane in Pastkeynes Pastmodern Economics, chapter 1. For the barbershop example I thank the owner of Papa’s Mustache in north-end Halifax. While Gary cut my hair we often discussed the economics of his barbershop. 14 If people decide to cut their own hair, it may have economic value but it would cease to have exchange value. ‘Economic value may be conceived as proportionate to the effort made.’ On the other hand, ‘exchange value may be quite indifferent to the amount of striving, and in any case it emerges only from a coincidence of decisions to exchange’ (CWL21 31). 15 You might notice that there is no mention of profit. Owners may pay themselves more than their employees, but what they pay themselves is still salary. For Lonergan ‘profit’ or ‘pure surplus income’ is a product of a surplus expansion. It results from the new money injected into the economy to finance the expansion and its function is to keep the expansion going. However, we are getting ahead of ourselves.

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Ec represents money held in anticipation of paying business expenses and Ic represents money held by consumers to purchase goods and services. Ic oEc and Icm Ec symbolize a rate of flow of funds from income to expenditures and from expenditures to income, respectively. In a stationary economy, the goal is to maintain the current standard of living. However, because things periodically break down, there is a need to replace equipment. The wise barber puts aside 5 per cent to cover the cost of replacing equipment.16 While the barber cannot be certain when his barber chair will break down, it will at some point.17 The purchase of a new chair is part of the total expenditure of the business. However, the purchase is not an ordinary expense, in the sense that aftershave, lotions, and the paying of property taxes or salaries are. The latter costs are associated with each haircut: there is a one-to-one correspondence between these items and each haircut. However, the barber chair makes possible an indefinite number of future haircuts. The relationship is not one-to-one.18 The purchase of the barber chair is, therefore, calculated over and above ordinary expenses. These two kinds of expenditures, ordinary and surplus, are treated separately. If we let Ic signify ordinary income and Is signify the surplus income (over and above ordinary income) derived from expenditures, then 95 per cent of expenditures go from Ec to Ic and 5% of expenditures goes from Ec to Is. Is  Is 

5% 95%

Ec 

Figure 5

Distinguishing two different kinds of income (Ic and Is) means we can distinguish two different circuits of expenditure and income: a basic circuit

16 We assign 5% as a reasonable estimate of replacement costs. See Pastkeynes Pastmodern Economics 11 n. 1. 17 The context is ‘probabilities of survival.’ See CWL3, chapter 4. The expected life of a barber’s chair may be twenty years, but a barber cannot predict with certainty how long chairs will be useful. 18 In ECA Lonergan uses an analogy from projective geometry to categorize the relationship between materials and product. In the basic circuit, it is point-to-point. In the surplus circuit, it is point- to-line, point-to-cube, and even greater. Lonergan writes: ‘[T]he same raw materials may be made into consumer goods or capital goods; and the capital goods may be pointto-line or point-to-surface or a higher correspondence; they may have one

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provides new consumer goods and services (what we have been calling ordinary goods) which enter into the standard of living, and a surplus circuit which supplies the new equipment or producer goods and services. Just as there are expenditures and income in the basic circuit, there are expenditures and income in the surplus circuit. Just as there are businesses, like the barbershop, supplying consumer goods and services, there are businesses that supply producer goods and services. Businesses may supply both basic and surplus goods. Again, the distinction is functional. A car dealer supplies cars to both families and to rental-car dealers. The first occurs in the basic circuit and the second in the surplus circuit. Surplus businesses also have expenditures. There is, then, a flow of transactions (income and expenditures) in the surplus circuit. Surplus businesses also pay salaries, which are spent, for the most part, on basic (ordinary) goods. There is then a flow of funds from the surplus circuit to the basic circuit. As we are dealing with a stationary economy, we assume that there is a fixed amount of money, which circulates at a set rate. In a real economy, rates can vary from one period to another over the unit of time under consideration. For example, there are seasonal variations in spending related to weather. In Canada, snow-shovel sales are slow in June, but bug-spray sales are up. Consideration of such variations may result in refinements of the theory, but they do not alter its fundamental terms and relationships. In any case, expenditures and incomes in each circuit are not equal, but total expenditures in both circuits must equal total income in both circuits. Assigning the designations (c) to basic transactions and (s) to surplus transactions, then Ec + Es = Ic + Is Assuming 5 per cent of all expenditure goes to the surplus circuit, then the circulation of money (in terms of percentages) is as shown in figure 6.19 correspondence at one time and another at another’ (CWL21 237; CWL15 21). The division is functional; it is not the materials but their function in the economy that determines the correspondence. For example, a metal can become the reed in a harmonica for personal use (point-to-point), a part of the machine that makes the harmonica (point-to-line), or the machine tool that helps makes the machine that makes the harmonica (point-to-surface). In the same vein, electric companies supply electricity to consumers for daily living and to plants that produce basic and surplus products. 19 There is a simplification here that follows from going along with Lonergan’s decision to lump together all levels of surplus activity into one surplus flow. At the first level of surplus circuit, if there is a 5% flow from income to expenditures, there would in fact only be a 4.75% flow from expenditures to

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5% 5%

5%

Is 

5% 90%

Ic 

95%

Ec 

Figure 6

In the basic circuit, the 5 per cent shortage of flow from Ec to Ic is met by a 5% flow from Es. The meaning of ‘is met by’ is normative. Equilibrium in Lonergan’s theory ‘is met by’ the balance of ‘crossover’ flows (his term) between the basic and surplus circuits. Dysfunction in an economy occurs when crossover flows operate to drain one circuit at the expense of the other. You will notice that the crossover flows between the two circuits balance. The same amount that flows as expenditures from the basic to surplus circuit returns as income from the surplus to the basic circuit. Given that we would expect 5 per cent of expenditures to shift from the basic to the surplus circuit, an equivalent amount of expenditure must return from the surplus circuit. If the flow to basic income was consistently less than expenditures, there would not be sufficient money to purchase new goods and services and the aggregate standard of living would decrease. Balancing such crossover flows from one circuit to another is, therefore, essential to maintaining the dynamic equilibrium of the whole system. It must be stressed that this dynamic equilibrium is not an automatic mechanism; its functioning requires intelligent intervention based on an understanding of crossovers flows and a willingness to implement the implications of the deincome. Why? Just as with supplies of basic goods and service for the barber shop, surplus suppliers have their own maintenance and replacement requirements that would also approximate at 5%. To be accurate we would need to show a further tertiary level of activity over and beyond the secondary one (Ecs o Ics; Ics o Ecs) with an addition flow of .025% We could include still further series of surplus circuits, each with their own 5% requirement for maintenance and replacement. In a theoretical sense, we can imagine this process going on forever. In practice, one will quickly come to a level where the additional production can be achieved by simply taking up slack in existing manufacturing capabilities and the process will stop. See CWL21 253 and Pastkeynes Pastmodern Economics 24.

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mand for balancing such flows. The entire thrust of Lonergan’s approach is towards an active and intelligent control of economic flows. So far, we have been talking about the production and sale of new goods and services. This does not account for all economic exchanges. Taxes, stock-market trading, bank loans, and the second-hand trade do not involve the purchases of new goods and services. Second-hand goods, for instance, are already part of the standard of living. The sale of such goods is simply a change of ownership. Stock transactions are also a kind of second-hand trade. Because stock-market transactions are simply a change of ownership, trade is typically based on speculation about the future value of the stock. The primary focus of business newspapers on the stock market as an indicator of economic well-being is for this reason fundamentally misplaced. Finally, tax is also a change of ownership that moves money from private or corporate ownership to government coffers. While taxes may target one circuit or another, the exchange itself is not operative; it is simply a change of ownership.20 Lonergan names all these transfers redistributive exchanges, identified and collected together as ‘R’ in the diagram below. There will be a flow between the redistributive function and surplus income and expenditure, and basic income and expenditure, that is, R o Ic; R o Is; R o Ec; and R o Es. Is 

Es 

R  Ec 

Ic  Figure 7

Now, all we have to do is turn the diagram counterclockwise 45° and we have Lonergan’s original diamond diagram.21 20 Governments subsequently purchase goods and services in the basic and surplus circuits with money collected by taxation. They can also redistribute money from one circuit to another in the form of baby bonuses, welfare payments, or grants to industry. Government taxation and spending taken together have considerable potential to affect crossover ratios. 21 Lonergan’s original diagram appears in CWL21 64. I have simplified the notation for the sake of this presentation. The key point is the visual ori-

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Es 

R 

Ec 

Ic  Figure 8

We have now assembled all the significant variables. The five circles represent the five ways buyers and sellers hold money in anticipation of transactions. The arrows represent the flow of exchanges. Exchanges occur in each circuit (basic and surplus), between each circuit (crossovers), and to and from the redistributive circle to both circuits. The key issue for maintaining the present standard of living in a stationary economy is the concomitance of the two circuits (Ic + Is = Ec = Es).22 This is achieved by balancing the crossovers flows (Ec o Is = Es o Ic). Failure to observe this requirement will drain one circuit at the expense of another.23 If the surplus circuit is consis-

entation of the diagram. In the original Lonergan used the ‘diamond.’ I have found using the square diagram, with the basic circuit on the bottom and the surplus circuit above, better from a pedagogical perspective. I saw Philip McShane present this diagram in a lecture on ‘Elementary Economic Dynamics’ at Memorial University in November 1996. It first appeared in print in Economics for Everyone. 22 On concomitance, see the editor’s introduction to the index of CWL21 325– 26. In the interests of simplicity, I have not taken into consideration the possibility of foreign trade, with its further complexities. Foreign trade allows businesses the expediency of selling their extra production abroad. It also makes it possible to pursue a policy of favourable balance of trade in order to prolong a surplus expansion. As Lonergan made clear, given the nature of crossover flows, the policy of favourable balance of trade is ultimately mistaken. See CWL21 94–96 and 310–17. 23 This does not of course prevent the few from improving their position at the expense of the many. The decrease is in the aggregate standard of living. The social distribution of wealth takes us beyond strictly economic considerations. However, as we shall see a surplus expansion by its nature tends toward an unequal distribution of wealth while a basic expansion spreads wealth around.

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tently drained in favour of the basic circuit, the equipment required to produce the goods that maintain the current standard of living is not replaced at an appropriate rate, and production therefore eventually decreases. On the other hand, if the basic circuit is drained in favour of the surplus circuit, fewer basic goods are bought and production must eventually follow suit. In both cases, the inevitable result is an overall decrease in the standard of living. In other words, production and money work hand in hand, and the two circuits work hand in hand; normatively, money flows must adjust to the pace set by production rhythms. This approach is in contrast to mainstream equilibrium analysis, which focuses its attention on monetary equilibrium and ignores production rhythms. 4

Economic Expansion and the Phases of the Pure Cycle

So far, we have not dealt with monetary circulation in an economic expansion. Although an economic expansion adds enormous complexity to economic analysis, the basic theory is relevant to any exchange economy, whether barter, feudal, mercantile, free-market capitalist, socialist, or state communist. In the economic phases what changes are the rates and quantities of money circulating in the two circuits and the ratios between them. In a stationary economy, all funds are used in maintaining the current standard of living. For there to be real economic growth, there has to be a significant infusion of new funds. However, crossover flows between the two circuits must remain balanced. Reassigning existing funds to finance an expansion only upsets the equilibrium of a stationary economy and lowers the overall standard of living. In a limited way, one can expend extra time and energy without compensation or sacrificing one’s current standard of living in order to expand a business. For small-scale ventures this may be sufficient, but it does not explain how a large-scale economic transformation, such as the industrial revolution, happens.24 Exchange economies can expand massively, as global economic growth in the past century shows. What follows is a rough sketch of what makes large-scale economic development possible in such an economy. Economic expansion can take different forms. Effort can be spent in expanding existing capacity to produce more of the same kinds of goods and services. For example, Robinson Crusoe can spend more time fishing and catch more fish. However, the development of new, more efficient means of production has the potential to transform the overall standard of living.

24 On short-term accelerations, see CWL21 276–77 and 280–81 and CWL15 116–20 and 126–28.

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If Robinson Crusoe invents a net, then he can catch more fish is less time. He will now have some time to spend on stone carving and other leisure pursuits.25 Such a transformation of an economy requires time and effort. In an exchange economy, money pays for time and effort. In a stationary economy, there is no extra money to pay the substantial additional expenditures (materials, salaries, and so forth) required for starting a new mode of production. All income is spent on maintaining the current level of production and services, that is, the standard of living. What is needed for an economic expansion is the creation of mechanisms of credit.26 For example, a bank can give an entrepreneur a line of credit. The bank is investing in an idea it thinks will pay off in the future. If the idea works, then the bank gets back the principal plus interest.27 When a bank does this, it is, in fact, injecting new money into circulation.28 Credit is not given in exchange for

25 Recall that Lonergan distinguishes widening and deepening. Moreover, ‘widening and ordinary expansion combine to work out the full potentialities of any given stage of development; since such potentialities are limited, they yield decreasing returns’ (CWL21 27). Those familiar with Lonergan’s economics will recognize that widening is a feature of the basic expansion and deepening is the feature of the surplus expansion. Widening and deepening are the essential ‘ebb and flow’ of a developing economy (ibid.). 26 In static-equilibrium models savings equal investments (S = I). This means that strictly speaking there can be no such thing as profits. On this, see CWL21 49. However, an economic expansion operates on the anticipation of profits because investors expect a return on their investment. The anticipated profit (pure surplus income) is generated by the credit provided to finance the expansion. During an expansion, there is an increase in the flow in the surplus circuit that cannot be accounted for by the investment of past savings. Eventually, when the economy returns to the stationary phase ‘investment equals savings, in the broadest sense, plus the net increment in circulating capital’ (CWL21 84). In short, credit is a tool for facilitating an expansion. It follows that there is no need for aggregate long-term expansion of credit in a stationary economy. Individuals may still need the kind of asset-based long-term credit used, for example, for mortgages. 27 On the missing text (sections 51–53) in FNPE McShane writes: ‘One might suspect that to be related to finance: some theoretic of credit and interest, etc., that would have paralleled and sublated Schumpeter’s various efforts’ (CWL21 xxx, n. 26). In the 1940s, Lonergan made notes on Schumpeter and Hayek on interest. See LEER, chapters 5 and 6 (Hayek) and chapter 7 (Schumpeter). In the 1980s, he returned to Schumpeter’s A Theory of Economic Development for clues. However, Lonergan did not incorporate whatever developments he made in his revisions to ECA. 28 Banks do not typically have funds held to cover 100% of money loaned. Bank laws may require that a certain percentage be on hand to cover potential losses. However, lending is mostly a matter of anticipating higher returns (interest) at a later date. The bank-rush scene in Capra’s film It’s a Wonderful Life illustrates this perfectly.

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any goods or services currently on the market. The money loaned to finance the project is spent on materials and salaries, increasing the quantity and rate of money circulating in the circuits. However, because there is a time lag between the start-up and the beginning of the production of new goods, there is, so far, no increase in goods and services to be purchased in the basic circuit, though we anticipate that there will eventually be new products on the market. Any expansion involves a phase where money is invested without an immediate improvement in the standard of living. In a stationary economy, the crossover rate (Ec o Is) is around 5 per cent of total expenditures. This flow handles the maintenance, repair, and replacement of existing equipment. However, in a surplus expansion there needs to be a steady increase in the rate and magnitude of monetary circulation in the surplus circuit in order to finance the creation of new equipment and related services. In other words, the expansion in production requires a concomitant monetary expansion. At the same time, there cannot be an overall increase in the rate of circulation in the basic circuit. An increase in the amount of money in the basic circuit and in the amount of production of basic goods would cause inflation. Nonetheless, an increase in surplus income means that there is an increase in salaries that workers can direct to the purchase of basic goods. If the ratio of spending on consumer goods to surplus goods increases, the equilibrium between the circuits is upset. Depending on the response, the economy may overheat, leading to a cycle of boom and bust, or else the surplus expansion is cut short. The boom-and-bust cycle occurs, for instance, when workers successfully demand salary increases to match the inflation caused by higher consumer spending. This increases production costs and a wage-price spiral ensues. Eventually the bubble bursts and recession or depression results. Expansion is cut short when the central banks respond to inflation with interest-rate hikes and tight-money policies. This is too blunt an instrument, as it makes borrowing more expensive and so, while it successfully dampens consumer inflation, it also cuts off the supply of money needed to finance the expansion and promising new ventures collapse. A solution suggests itself. In a surplus expansion, there is need for a continual stream of money to finance new production. At the same time, the expansion is generating surplus income. This surplus income can be reinvested. This is the reason for the slogan thrift and enterprise. By reinvesting in the surplus expansion rather than spending on consumer goods, it is possible to maintain the crossover balances necessary for dynamic economic equilibrium.29 Some combination of new credit and investment of

29 The crossover balances should adjust to shifts in the phase of the pure cycle. Both Walras’s general equilibrium and Marshall’s partial equilibrium

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current savings makes the long-term investment in new production possible. Eventually the new, more efficient, means of production will accelerate the rate of production in the basic circuit.30 The need for funds to finance the surplus expansion decreases and surplus income decreases. Production is more efficient and more goods and services are produced for sale in less time. An increase in money now needs to go to consumers to buy the new goods and services. Lonergan calls this a basic expansion. In the previous discussion of a surplus expansion, activity in the surplus circuit increased while activity in the basic circuit remained the same. Now, however, there needs to be a shift in the rate of flow between the two circuits in favour of the basic circuit. In this way, the transformation made possible in the surplus expansion can be widely exploited. When all the new production facilities are set up during the surplus expansion and exploited during the basic expansion, the overall standard of living improves and the economy can move into a new stationary phase. The succession of surplus expansion, basic expansion, and stationary phase Lonergan names the pure cycle. The key to maintaining the pure cycle is to respect the demands of the different phases. In the surplus expansion, the watchword is ‘thrift and enterprise.’ The surplus circuit expands, while the basic circuit keeps steady. With the shift to the basic expansion, the watchwords shift to ‘enterprise and benevolence.’ By ‘benevolence’ Lonergan is not simply pointing to the exercise of charitable works: the ultimate aim of an economy is not maximizing profit but maintaining and improving the standard of living. The practical need is for precepts that direct human enterprise to the task of completing the economic transformation. The aim is to spread around the benefits of the advances made possible by the preceding surplus expansion. The slogan ‘a chicken in every pot’ captures the intent quite neatly.31 Finally, in the stationary phase of an economy the benefits of the greater efficiency can be enjoyed. Leisure time increases and attention can shift

are equilibriums of supply and demand. Neither takes into account economic phases. For a sympathetic reading of Marshall and Walras, see Blaug, Economic Theory in Retrospect 371–424 and 570–613. 30 For example, the mechanization of textile manufacturing in the eighteenth century, through the invention of the cotton ginny, powered looms, and other technological advances massively accelerated the production of cloth. See Maxine Berg, The Age of Manufacturers, 1700–1820, 2nd ed. (London: Routledge, 1994) 235–54. On the acceleration of the circuits, see CWL21 241–44. 31 There is a historical irony here. Herbert Hoover used the slogan ‘A chicken in every pot and a car in every garage’ for his 1928 U.S. presidential campaign. The October 1929 crash cruelly cut short Hoover’s promise of universal prosperity.

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to cultural development. The goal is to maintain a steady pace. An appropriate precept (adopted from my maritime upbringing) might be ‘keep a steady hand on the tiller.’ 5

The Financial Problem

Lonergan’s discussion of the financial problem in FNPE merits a few words because it is his most extensive discussion of the subject and because it is a problem he would never solve to his satisfaction. As Lonergan understands it, the fundamental financial problem is ‘finding a stable and permanent solution for the monetary requirements of a long-term expansion.’32 Because there is no expansion in a stationary economy, people ‘have to be fitted out with a mentality that will aim at and be content with a going concern and a standard of living.’33 The need for finance is, therefore, limited. However, in an expansion, the main circuits have to provide more and more money at regular intervals. There have been a number of attempts to figure out how to do this, all of which have failed to solve the problem. These include using unused accumulations of money, increased gold production, favourable trade balances, systematic deflation, and greater efficiency in the use of current quantities of money. All these approaches subordinate the economic system to human use. Lonergan takes his stand on the claim that money must conform to the ‘objective exigencies of the economic system and not vice versa.’34 All these solutions fail to provide sufficient capital required for long-term expansion. ‘Unused accumulations [of money] are quite limited, and once they have all been brought into use then the problem returns.’35 We cannot be sure that the rate of gold production can meet the rate of increased circulation required for the expansion. A favourable balance of trade provides capital for investment but only at the expense of other countries and so merely ‘robs Peter to pay Paul.’ Systematic deflation makes the same amount of money do more work through falling prices. However, falling prices only kill enterprise and cut off the margin of profit needed to sustain the expansion. Greater efficiency of money, like expanding gold production, is uncertain, and what is required is a stable and permanent solution. As said above, Lonergan did not have a solution worked out for the financial problem. As the fundamental problem is long-term finance, the so-

32 33 34 35

CWL21 100. CWL21 98. CWL21 101. CWL21 100.

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lution involves long-term credit.36 Whatever solution emerges is certain to rely on an understanding of the pure cycle, and it will recognize that money is not a commodity but an account. Lonergan writes: ‘What is needed is a frank avowal that money is simply a system of public bookkeeping, and then a coherent and thorough transformation of all monetary practice in accordance with the fundamental fact. Thus we define the financial problem as the problem of working out and applying the view that money is public bookkeeping.’37 Money is an instrument for facilitating the exchange system, and the function of the exchange system is to serve the objective exigencies of the production process. It follows that there should be constancy in the exchange value of money. This is not a return to the gold standard or the adoption of ‘tight money’ policies as advocated by monetary conservatives such as Milton Friedman.38 Tight-money strategies try to contain inflation by maintaining the constant supply of money, a strategy rooted in the quantity theory of money. However, an economic expansion requires a steady increase in the money velocity in the circuits, first, in the surplus circuit to establish the new setup, and then in the basic circuit to exploit the new set-up. In any long-term expansion this requires a massive increase in the quantity of money in the circuits. The requirement of a surplus expansion is a steady increase in the flow and magnitude of money to the surplus circuits. The requirement for a constant amount of money in the circuits fails to meet the monetary needs for expanding production. Lonergan’s concern is not the amount of money but the constancy of its value. To answer this we need to determine what the correlations are between the velocity and the accelerator rhythms of production and the corresponding rhythms of income and expenditure. The set of correlations that emerge constitute a pattern of laws for economic activity. This is precisely what Lonergan attempts to do in his account of the structure of the exchange process. However, ‘to work out in detail the conditions under which this must be done, and to prescribe the rules that must be observed in doing it, is a vast task. It means thinking out afresh our ideas of markets, prices, international trade, investment, return on capital. Above all it means thinking out afresh our ideas on economic directives and controls. And if we are to do this, not on the facile model of

36 On credit, see Anderson and McShane, Beyond Establishment Economics, chapter 7, especially pages 145–47. 37 CWL21 104. 38 Milton Friedman, Monetarist Economics (Oxford: Blackwell, 1991). For an interpretation of Friedman’s work in light of Lonergan’s economics, see Darlene O’Leary, ‘Interpreting Friedman’s View of Business,’ JMDA 4 (2004) 40–52.

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the totalitarian or socialist regimes which simply seek to abolish the problems and with them human liberty, then there will be need not merely for sober and balanced speculation but also for all the concrete inventiveness, all the capacity for discovery and for adaptation, that we can command.’39 The call, then, is for a collaborative human creativity respectful of human liberty and mindful of the objective exigencies of the economic process. In ECA Lonergan does not discuss the financial problem at any length. Nonetheless, as we shall see, there are important developments that are relevant to solving the problem. First, his notion of superposed circuits provides a model for working with transactions among economic units. Long-term financing in contemporary economies is global in nature, and any solution to the problem must include a method for dealing with international economics and the financial flows involved. Second, Lonergan’s work on cycles of income and price is relevant, especially in his discussion of the series of crises in the price and income cycle. We need to understand what price-cycle changes signal about the production phases and our adaptation to them. Lonergan writes: ‘It may be noted that the triple crisis per cycle may perhaps correspond to Professor Schumpeter’s combination of three small cycles named Kitchins in one larger cycle named a Juglar, which has a ten-year period … [and] the pattern of six Juglars in one sixtyyear Kondratieff.’40 There was, no doubt, in his mind a significant correlation between long-term cycles and the financial problem. When Lonergan returns to economics in the 1970s he renewed his interest in the problem of long-term finance. He reread Schumpeter’s Theory of Economic Development and his glosses of the text reveal that he paid particular attention to what Schumpeter had to say about interest and credit. Certainly there was more emphasis on interest and credit than in his notes on the same book from the early 1940s.41 Schumpeter was very much interested in capitalist development, the financial phenomena concurrent with such developments, and in particular the periodic crises that accompanied the process. He coined the term ‘creative destruction’ for the process in which new means of production emerged and replaced existing forms, as when, for example, the telegraph replaced the pony express and rail replaced transportation by canal barges and horse and carriage. For Schumpeter, credit and interest were both phenomena of economic development. Without credit the entrepreneur is handcuffed and new ideas will 39 CWL21 105–106. 40 CWL21 306 [161–62]. 41 For Lonergan’s notes on Schumpeter from the 1940s see LEER, chapter 8. Lonergan’s copy of Schumpeter’s The Theory of Economic Development is held at LRI.

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not come to fruition. ‘Interest is a premium on present over future purchasing power.’42 When the interest payments flow from the surplus circuit, they act like a tax on profit. Failure to appreciate the proper function of credit and interest is characteristic of current financial mismanagement of economic development. The manipulation of credit tools and interest-rate adjustments without an adequate understanding of economic phases, as is current practice, is not the long-term solution to the recurrent crises of the trade cycle. At best these tools ameliorate some of its worst manifestations at the cost of cutting off a surplus expansion at the knees or throwing a wrench into the transition to a basic expansion. Given that Lonergan regarded ‘thinking out afresh our ideas on economic directives and controls’ as a key to solving the problem of long-term finance, the meaning of credit and interest will be important components in the eventual solution to the problem of longterm finance. Without it we will continue to suffer the ups and downs of the trade cycle and the jolts and shocks of its crisis periods. 6

The Trade or Business Cycle

The standard for economic development is the pure cycle and consideration of the pure cycle provides the first approximation to the study of an actual economy. In the pure cycle we assume that exchange decisions are intelligent adaptations to the demands of the rhythms of production. The rate of monetary flow shifts to each circuit in each phase in response to its demands, while crossover flows between the circuits balance so that the balance between the two circuits is maintained. The similarity between the pure cycle and the ideal line in history is clear: progress is essentially a matter of getting new ideas and exploiting them intelligently. With respect to the production process, there is a particular rhythm following from this creative series of events. It takes time to come up with and implement new, more efficient production and, in the meantime, the rate of the production of goods does not increase. Once the new means of production comes online production efficiency increases and the extra effort and expense that was required to bring it into existence are no longer required. Goals shift towards exploiting the new efficiencies for the good of all. This need is not just a matter of goodwill towards our fellows. The new goods need buyers and so the rate of flow in the basic circuit must increase. To maintain a pure cycle in an exchange economy, decisions for exchange must, therefore, observe the ‘ebb and flow’ of the production process. To the extent that

42 Theory of Economic Development 157.

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money decisions do not observe these demands, some degree of economic dysfunction occurs. A consideration of these dysfunctions provides a second approximation to an actual economy. It is manifest in the well-known phenomena of the trade or business cycle. The form and severity of the distortion in the cycle depends upon the kinds of decisions made, whether by consumers, governments, or corporations, and the policies in place. Lonergan’s analysis of the trade cycle assumes knowledge of the pure cycle. Because the analysis separates the economic mechanism from the psychology of decision-makers, the production process has its natural rhythms, which exist whether we choose to pay attention to them or not. The trade cycle occurs because of maladaptations to the pure cycle in which economic decision-makers do not in the main observe the precepts relevant for the appropriate phase of the cycle. In a surplus expansion or capitalist phase the precept is ‘thrift and enterprise.’ The goal is to maintain the present standard of living while bankrolling the expansion with ever-increasing funds from the redistribution zone. This means an increase in the rate of flow in the surplus or secondary circuit while maintaining current rates in the basic or primary circuit. The surplus income or profit accrued in the surplus circuit should then be reinvested so that the funds necessary to bankroll the expansion continue. If, however, the additional profit and income is diverted to the basic circuit, because the rate at which basic goods and services entering the market remains the same, inflation occurs as more money chases the same amounts of goods. Recall that because of the time lag required to retool or develop new means of production, additional goods are not yet available on the primary circuit. When inflation occurs, workers in a position to do so seek pay raises to keep pace with the higher cost of living. Profits are increasing with the influx of money into the surplus circuit, so employers are inclined to grant the raise. In the classic case, there is an artificial expansion or boom characterized by the wageand-price spiral. While some people benefit from the boom, it also has its victims. Because of inflation, funds that should have gone to invest in the expansion merely maintain a standard of living. In the meantime, the many people on fixed incomes cannot keep pace with rising costs and their standard of living decreases. Because the acceleration is artificial, eventually, the chickens come home to roost, and so the boom becomes a bust. The same effects characterize the speculative bubbles originating in the redistributional zone, which may accompany and exacerbate the boom. Lonergan identifies a second group of maladaptations that occur when the surplus expansion comes to an end and the basic expansion begins. The capitalist economic mantra is ‘maximize profit,’ and this precept defines the success of enterprises and indeed whole economies. The problem is that surplus income or profit is a phenomenon of the surplus expansion.

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The excess income that generates ‘profit’ or surplus income was meant to bankroll new enterprises and new means of production. When the new projects are completed, the need for investment income slows. If investment slows down, so does the rate of ‘profit’ or pure surplus income. The time has come to shift funds over to the basic circuit to put money in the hands of consumers to buy the new and improved products and services. However, if your notion of economic health is a function of profit, then a slowdown of the aggregate pure-surplus income is worrisome. The largest enterprises are in position to reap whatever decreasing profit is to be had. Big fish eat little fish and smaller enterprises disappear into the new conglomerates, or fail altogether.43 The effect of all this is to minimize or cut off, in the name of sound business, the exploitation of the new efficiencies created in the surplus expansion. Beyond the obvious economic effects related to the phases, there is the collateral damage to communities, especially in the contemporary context, where the multinational corporations, and the international finance that supports them, operate. Multinationals and international financial institutions function on the basis of the same dysfunctional principle of maximizing profit that has informed commerce since the mercantilists. They typically operate without paying much attention to the long-term interests of communities, whether economic, social, or cultural.44 In an effort to sustain the surplus expansion beyond its natural lifespan, governments may adopt a number of strategies. Chief among these are the policy of favourable balance of trade and government deficit financing. In a profit-motivated economy the goal is to increase the rate of monetary flow 43 Of interest here are Lonergan’s brief comments on ‘the principle of the level floor’ for dealing with the preservation of smaller-size units when there is a variation in profit margins and surplus income is decreasing, such as in the transition period between the surplus and basic expansion. Unfortunately, he does not return to the problem. See CWL21 93. 44 As the multinational corporation is in the main a post–Second World War invention, Lonergan does not address the problem of the multinational in 1942 or in 1944. When he returns to economics in the 1970s, he does. In the essay ‘Healing and Creating in History’ he writes: ‘If the multinational corporations are generating worldwide disaster, why are they permitted to do so? The trouble is there is nothing really new about multinational corporations. They aim at maximizing profit, and that has been the aim of economic enterprise since the mercantilist, the industrial, the financial revolutions ever more fully and thoroughly took charge of our affairs. The alternate to maximizing profit is inefficiency. All that the multinational corporation does is maximize profit not in some town or city, not in some region or country, but on a global scale … It remains that the long accepted principles are inadequate’ (CWL15 100).

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in the surplus circuit to sustain the surplus expansion. However, the surplus expansion cannot go on forever. In the objective situation, the flow of surplus income eventually decreases, signalling the shift to the basic expansion. In a basic expansion profits are decreasing. In the case of the policy of favourable balance of trade, the surplus circuit is buoyed by an imbalance in sales with foreign countries. In the case of deficit financing, a government runs a systemic deficit and creates additional funds through the sale of bonds.45 Both are short-term solutions that do not resolve the underlying problem of the decreasing surplus income. The inevitable is just put off for a while, though ‘for a while’ may be quite some time if the circumstances are right. The policy of the favourable balance of trade is a global version of ‘robbing Peter to pay Paul.’ How is the country on the losing end to make up its deficit? It pays in goods or through loans from the more-favoured country. The import of goods erodes national markets in the nation holding the favourable balance. In the case of debts they need to be repaid plus interest. If the imbalance is maintained, the debtor nation must eat away at the standard of living of its own citizens to meets it obligation. There is no way out of this dilemma, as there is no other source of income. Eventually a debt crisis looms, and in the end all that can be done is to write off the debt.46 This effectively kills favourable balance of trade as a strategy to sustain the surplus expansion. In the case of deficit government spending, the same dynamics occur, but internally. Again there is an influx of new goods and services promoted by the increase in government spending, whether it is for war production, make-work projects or ‘bridges to nowhere.’ In this scenario, bondholders become the lenders and taxpayers the debtors. Again, principal and interest must be paid. If the imbalance is maintained, the debt assumed in the taxpayers’ name follows the same path as in the favourable balance of trade. Much depends on who is taxed, but ‘perfect taxation mechanism are hard to devise, and the issuance of bonds has the favor of the rich, while taxes have the disfavor of all. Like everyone else, politicians know on which side their bread is buttered.’47 In any case, if bondholders are taxed, they will eventually catch on to the game and bond

45 Government budget deficits may in any interval be acceptable. The problem is a strategy of government deficit to sustain a surplus expansion beyond its natural limit. 46 My description of this complex line of events is sketchy. In ECA Lonergan explains this process using the model of superposed circuits. For an introduction to superposed circuits see chapter 4 of McShane, Economics for Everyone. On the dynamic of the favourable balance of trade, see Bruce Anderson, ‘Foreign Trade in the Light of Circulation Analysis.’ 47 CWL21 96.

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sales will drop. Otherwise, the bite must come out of the standard of living of working citizens to meet the obligations for repayment plus interest. The result, as this course continues, is ‘an ever richer rentier class living off the income of government bonds.’48 In the main, then, the effect of such strategies to maintain profit from the surplus expansion beyond its natural lifespan is to cut short the benefits that ought to have accrued to everyone from the surplus expansion. 7

The Possibility of Economic Recovery

In the 1930s mainstream economists had varying prescriptions for economic recovery from the Great Depression. Most famously, John Maynard Keynes hit upon government spending as a way to jump-start growth. It is, however, somewhat disheartening to realize that the depression was, in some sense, ‘cured’ by the Second World War, certainly an instance of government ‘investment’ in the economy. Nonetheless, there is a plethora of practical knowledge at hand. War bonds made sense in the Second World War, and the Marshall Plan helped rebuild Europe. Entrepreneurs know a great deal about how to start up a new business. New financial instruments such as micro-banking can have remarkable results for small business. Cooperatives provide an alternative that marshals the collective effort for shared goods. Efforts by the charitable ameliorate suffering and in many instances vastly improve the life of their recipients. However, as Lonergan understands it, a trade cycle is a manifestation of maladaptations to the pure cycle. It can only be understood as a compound of the pure cycle and its maladaptations. So the trade cycle is not inevitable, but its persistence in the contemporary context is almost certain as long as we do not understand what the pure cycle is. Until a solution to the problem of the trade cycle is commonly understood and effectively acted upon, our goodwill efforts to correct its worst faults will remain a matter of muddling along with the best intentions and inconsistent results. And when the inevitable financial crisis hits and recession ensues (whether admitted by economists or not), most suffer from it and the most vulnerable among us perish. Life or death may hinge on percentage-point shifts in interest rates. Lonergan’s solution to the problem of economic dysfunction was a truly democratic economics, one that promoted personal freedom by providing precepts for economic decision-making based on a scientific understanding of the economy. The model he arrives at by the end of chapter 4 of

48 CWL21 97.

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FNPE meets the basic goal in the economic sphere.49 The economic system can be understood as a pattern of dynamic relationships arranged according to different kinds of velocity accelerator rhythms. There is a real order (the production cycles) composed of primary and secondary rhythms, with secondary rhythms accelerating primary rhythms. The monetary structure facilitates production through primary and secondary circuits in which secondary circuits likewise accelerate the primary circuits. Further, there is a redistributional zone that can release excess funds into the main circuits. The economy, then is a structure, a human ecology with laws that must be respected. Lonergan writes: ‘To violate this organic interconnection is simply to smash the organism, to create the paradoxical situations 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.’50 A full understanding of economic concomitance, on the other hand, leads to the kind of proper maintenance of the economy that produces stability and economic well-being. It is a stability that includes economic expansion as well as the possibility of a static (stationary) phase. Economic health is not simply measured by growth. The broad pattern of economic growth is transformation followed by exploitation only to bring on deeper transformations. An economy is an ecology. It arises out of natural schemes of recurrences but expands to include the human ideas and actions that transform the potentialities of nature into economic goods

49 In the last chapter of FNPE, under the title of ‘Incidental Theorems,’ he considers applications of his analysis, linked to current problems which, in his words, ‘drive home the point that the possible equilibria of the exchange process are limited, and that this limitation imposes on man an obligation of adaptation and conformity under the threat and penalty of economic frustration’ (CWL21 76). These applications include the analysis of price spread and cyclic variation of profits, the price mechanism as it relates to expansion, the possibility of a static (stationary) phase, the mechanism of the favourable balance of trade, government deficit financing, and the nature of the financial problem. His work on price adds precision to the basic analysis of monetary circulation. By understanding price in the context of economic phases, Lonergan vastly enriches its meaning. Nonetheless, placing the discussion of price among incidental theorems indicates that price and price levels are not the fundamental variables of his macrodynamic economics. The strategies of the favourable balance of trade and government deficit financing are both attempts to sustain the surplus expansion in the face of the shift to the phase of basic expansion. In the long term, both fail because they violate the basic mechanism of the pure cycle. 50 CWL21 74.

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and services.51 Because its functions are interconnected, they need to be coordinated effectively. In an exchange economy, coordination depends ultimately upon the decisions of persons and communities poised to make economic decisions. ‘There has to be someone to decide what is being done, there has to be someone to do it, and there has to be someone for whom it is done. The function of the exchange economy is to answer all these questions continually, differences in the exchange economy arise from different methods of determining these answers, and … different parts of exchange economies are concerned with different parts of the answer.’52 Economies are organized according to some division of labour. There are institutions, roles, and tasks, each with their particular function in the whole. The economic questions and answers of the banker, the surplus supplier, and the basic consumer all differ. All decisions have to be coordinated in some way in light of the operation of the entire process. This is made possible by coordinating the monetary multipliers and accelerators of the economy: ‘Just as the movements of the controls of an airplane must be coordinated and all coordinations are not possible in all instances, 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.’53 In Lonergan’s view, enlightened, intelligent decision-makers who understand their concrete circumstances and their function in the economy and act according to its demands best accomplish this. In this respect baseball, which inspired the diagram of Lonergan’s economic macro-dynamic model, also has relevance for understanding economic decision-making. The outcome of the game cannot be known in advance. Players have managers who know the game and who help player performance. Lonergan envisages a future world in which the practical economist [the economic manager] is ‘as familiar a professional figure as the doctor, the lawyer, or the engineer.’54 Managers advise on what to do in a particular instance given their knowledge of the game, the players, and the situation. The situation changes quite rapidly, each team adjusting to the moves of the other, the performance of the players, and so forth. A good baseball manager is both a strategist and a tactician. In each move, the manager keeps in mind at least three contexts: the situation in the game itself, the season, and the

51 This analogy has been popularly examined in Paul Hawken, The Ecology of Commerce: A Declaration of Sustainability (New York: HarperCollins Publishers, 1993). Lonergan’s theoretical framework would significantly advance the move towards ‘sustainable’ economies. 52 CWL21 29. 53 CWL21 75. 54 CWL21 37.

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long-term goals of the team. Baseball commissioners enforce the rules necessary to ensure fair play and to look out for the best interests of the game. They do not interfere with the playing of the game. There is an analogous relationship between the functioning of an economy and the role of government. The players make the economic decisions. Practical economists are the managers. Government’s main function with respect to the economy is regulatory.55 The current tendency of government is to subsume economic matters to political goals, a phenomena well known to observers of elections. The problem with government-run businesses, not truly at arm’s length, is that political goals interfere with economic decisions. As a rule, bureaucrats do not make good business executives. It would be like having the commissioner’s office in baseball managing baseball games. The point of Lonergan’s approach is that it ultimately frees government to attend to its own proper consensus-building and regulatory functions by providing the tools for all economic decision-makers to make sound economic decisions. The first step towards real recovery is, then, a development in understanding, and we can locate Lonergan’s decision and subsequent effort to discover the science of economics as the major advance in that direction. Because economic recovery depends upon an adequate understanding of the signals that economic indicators provide, education becomes the major component in healing a dysfunctional economic system. The practical economists needed to provide coaching for economic decision-makers must be educated, and economic decision-makers need to understand why such local economists would have an important role to play in economic health. Education in its myriad forms is essential if we would create the proper ethos required for economic recovery. However, there is clearly an extra economic component to recovery. There must be a willingness to understand and a willingness to implement what we do understand. How does reason covert unreason? How do we shift thinking from a focus on short-term gain to consider the long-term consequences of current habits? How do we convince the unwilling to be 55 This does not, mean that the government is not an economic actor. There is the need for public goods and for coordinated action for the common good. Governments are also in need of the practical economist who would coach performance. Jane Jacobs in Systems of Survival (New York: Random House, 1992) argues that commerce and government function according to quite different and often contradictory values that are integral in their own proper sphere but dangerous when applied in the wrong sphere or inappropriately mixed. The so-called political cycle found in democratic economies – tight money right after elections and spending before the next to ensure re-election – is an instance.

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willing? These considerations involve us in political and cultural questions. They prompt questions about the nature of the human species in both its potentialities and its shortcomings. Economic recovery ultimately involves both the creative forces of human innovation and the healing forces that tackle unenlightened self-interest and shortsightedness. 8

The Emerging Viewpoint

About 1930 Lonergan began a search for the significant variables of a science of economics. His decision to pursue economics involved a number of factors. There was the long-standing dilemma of economic morality stressed by Watts and made palpable by the Great Depression. There were the shortcomings of mainstream economic theory, which neither anticipated the depression nor had any notion of how to get out of it. Finally, there was Lonergan’s interest in developing a Catholic alternative to Marxist and liberal theories of history that were so intricately connected to economic policies in both the communist and capitalist worlds. Lonergan’s initial position was rooted in the Catholic tradition. However, he was deeply influenced by scientific method and was, thanks to O’Hara and Dawson, aware of the need to develop a historical method without sacrificing his Catholic commitment to truth. In Dawson he found an ally in scientific method that insists on the verified hypothesis. He was able to grasp the isomorphism between the method of Thomas and scientific method. He brought the two together with the method of real analysis developed for the analytic concept of history. As we have argued, this took place in two stages. The first was a conception of history as a fundamental sociology; the second was an application of the analogy of classical scientific method to the philosophy of history. After a two-year hiatus from economics and the dialectic of history, Lonergan returned to economics, enriched by a better understanding of the science of interpretation and the methods of historiography, and having a more profound appreciation of the creative genius and methodological advances of Aquinas. Lonergan brought together his work in the philosophy of history and the theology of grace in an article on world process as applied to the theology of marriage in ‘Finality, Love, Marriage.’ This article presents his understanding of macrodynamic analysis at this point in his development and provides the theological context for his economics. In 1941 he returned to the economic puzzle. By the middle of the next year he had put together his fundamental discovery in FNPE, a work he explicitly understood as meeting the questions of classical political economy without falling prey to its errors. The solution was a generalization of classical and scientific economics that restores the intrinsic link between

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production and wealth and examines the laws for its proper functioning. He shows how a properly functioning economy provides the infrastructure for the cultural superstructure. However, Lonergan cuts his analysis off at this point. From here on, he will focus on refining his analysis of monetary circulation. In FNPE he establishes the significant variables, conditioned by the normative rhythms of the production process, which provide the basic model for monetary circulation in an economy and which will be the fundamental set of terms and relations in the new science of economics. From this point on, a set of precise questions about monetary circulation provide Lonergan with the impetus for development. In the next chapter we pause to consider in more detail the relationship among the basic variables of the science established in FNPE. Once this is done we can consider the final stage in the development of macrodynamic economics.

7 Developments after For a New Political Economy

It is enough that we attempt to indicate by concrete example a method of independent circulation analysis in the belief that it offers special advantages in handling some economic issues.1

In keeping with the title of our book we could well stop here. Lonergan’s account of the two-circuit economy, in which exchange decisions adjust to the realities of the production process, whether stationary or in a period of development, is the breakthrough to economic science. On the basis of its fundamental terms and relations Lonergan derives the pure cycle and generates precepts for good economic decision-making in light of the phases of the cycle. The ‘equilibrium’ of the system is met by balancing the crossover flows in light of the shifts of the phases in the pure cycle. Knowing the ideal line of economic development and its fruition in an improved standard of living provides the context for a critical assessment of economic dysfunction. However, despite the considerable effort spent on FNPE Lonergan put the essay aside.2 Why, then, did he stop? His overall aim had been to establish how an economy provides the material base for cultural restoration and advance. In this respect, his aim was not entirely on economic questions, but more broadly on the relationship between economy and culture. While writing the essay he must have realized that his economic theory

1 CWL21 113–14. 2 On dating of the manuscript, see Frederick Crowe, ‘Appendix: The Date of “For a New Political Economy,”’ in CWL21 319–24.

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required empirical refinements that were essential to the solution he had proposed. Lonergan knew that his incidental theorems, and indeed a lot before that, were messy, and he certainly knew that he had not solved the financial problem. He therefore made the decision to hold back on the larger questions about the relationship of economy and culture in order to concentrate on the purely economic elements of this larger project. In other words, the ‘breakthrough’ achieved in FNPE required ‘an envelopment and a confinement’ to economic science per se.3 What followed was a period of research and writing documented in fragments, notes on other economists, and incomplete essays. As Lonergan pushed forward, further questions arose with respect to economic dynamics itself. This is especially clear from the essay fragment ‘A Method of Independent Circulation Analysis.’ In the final section of this paper, ‘The Effect of Net Transfers,’ Lonergan’s analysis brought him to a level of complexity that led him to abandon this essay as well.4 There is a similar push towards complexity in the fragments on circulation trends and the price system.5 These fragments are evidence of the tremendous effort Lonergan put into determining, with systematic precision, the complexities of economic macrodynamics. If initially he thought he would get something as neat as Maxwell’s equations, he now certainly realized that determining the concrete specifics of turnover, circulation trends, and the price spread in relation to cyclical phases of the economy involved more.6 As a systematic thinker, he was not one to rest content with loose ends. Nonetheless, after a number of incomplete efforts, he decided it was best to clear up the basics of macroeconomic dynamics, leaving unfinished some of the questions he was working on in the fragments. The reasons for his decision to wrap things up at this point are unclear. There remained significant unfinished

3 The allusion is to Lonergan’s comments on metaphysics as conceived dynamically in Insight. He writes: ‘The evidence for a metaphysics has to be in dynamic terms. If a spatial image and a military metaphor may be helpful, the advance of metaphysical evidence is at once a break-through, an envelopment, and a confinement’ (CWL3 508 [484].) 4 CWL21, chapter 8, especially 134–51. 5 CWL21, chapters 9 and 10. 6 James Clerk Maxwell unified electricity and magnetism to develop the modern theory of electromagnetism. Later, Einstein figured out how to reconcile the relativity of motion with Maxwell’s laws. For the classic treatment on the addition of electromagnetism, see Sir Arthur Eddington, Space, Time and Gravitation (New York: Harper and Row, 1959), chapter 11, ‘Electricity and Gravitation.’ In Insight Lonergan refers to the Clerk Maxwell equations of electrodynamics in the context of scientific laws of the classical type. See CWL3 77, 91.

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business, especially concerning finance.7 In any case, he rounded off his work and wrote ECA. In this chapter I consider in somewhat cursory fashion the nature of the advance from FNPE to ECA and comment on the achievement of this final essay. 1

The Transition to ‘An Essay in Circulation Analysis’

While the evidence of Lonergan’s research and writing in economics prior to 1942 is sketchy, this is not the case with his work from 1942 to 1944.8 The material from this period sheds considerable light on developments leading to the writing of ECA. The material can be conveniently divided into three groups: notes on other economists, essay attempts, and fragments. I cannot begin to do justice to the complexity of the evidence, especially if I keep to the decision to present the material in a relatively non-technical fashion.9 However, in order to indicate the precise nature of Lonergan’s advances from 1942 to 1944, which is an advance in technical expression, I have chosen a set of strategic examples to illustrate developments. There are two general lines to Lonergan’s research during this period. The first concerns problem areas in his formulation of economic dynamics. These include the form and accuracy of expression with respect to both the production process and monetary circulation, efforts to develop an analytic framework for international trade, efforts to specify circulation trends, accounts of circuit velocities, the cyclical variation of price-spread ratio, turnover frequencies, and rates and their relationship to net transfers between circuits. A second related line of research concerns his reading of other economists, most notably Schumpeter, Hayek, Lionel Robbins, Frank Knight, and Heinrich Pesch.10 His reading of Hayek and Schumpeter in particular served to advance his understanding of a number of problem areas. There was a significant shift in approach after Lonergan put aside FNPE. The turning point seems to have occurred with an aborted essay titled an 7 On the incompleteness of Lonergan’s treatment of finance, see William Mathews, ‘Lonergan’s Economics,’ Method: A Journal of Lonergan Studies 3:1 (1985) 3–30 and Beyond Establishment Economics, chapter 8. 8 Incomplete essays are included in CWL21 along with a sample of fragments from the archives. See CWL21, part 2. For additional fragments and Lonergan’s extensive notes on economics, see LEER. 9 We can get a notion of the complexities of this material and the difficulties for interpretation it presents from Tom McCallion’s work on the ‘outlay page’ fragment found in CWL21 216. See Tom McCallion, ‘The Outlay Page: An Exercise in Interpretation,’ JMDA 4 (2004) 111–27. 10 See LEER, chapters 2–7.

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‘Essay towards a Pure Theory of Social Economy,’ written perhaps shortly after FNPE. All we have is one typed page with the title, handwritten. This seems to be all that he wrote of the projected essay. Significantly, the page was found folded and used to hold the later essay ‘A Method of Independent Circulation Analysis.’11 He restricted his focus in this next essay strictly to the specification of monetary circulation and its phases. Lonergan is clear about the methodological restriction he adopts in his study. At the start of the essay he writes: ‘Just as one can study Euclidean geometry without the slightest suspicion that it is a particular case of a more general geometry, so one can also adopt an independent circulation analysis in which the formation of concepts, the choice of postulates, and the seriation of deductions are dictated not by the higher exigencies of value theory but by the immediate and more germane considerations of monetary circulation itself. In this fashion one would obtain an independent analytic tool which, from its general compactness and simplicity, would perhaps prove more efficient in the solution of certain types of problems.’12 As with his earlier work on the dialectic of history, he employs a ‘divide and conquer’ strategy: he attends specifically to an analysis of monetary circulation in its relation to the primary production process, prescinding not only from further questions about how economy is related to politics and culture but also from any dialectic engagement with other approaches to economic theory. He writes: ‘No doubt, once such an independent tool were constructed and found successful, theorists would be troubled by profound questions regarding the developments that might result from the mutual interaction of equilibrium and circulation analysis. But such thoughts cannot occupy us here.’13 As far as we can determine, there were three attempts to forge an account of monetary circulation before he wrote ECA. These are ‘An Outline of Circulation Analysis,’ of which only a few pages survive, the more substantial ‘A Method of Independent Circulation Analysis,’ just mentioned, and one more of no known title. We can assume there was a third essay by comparing fragments with known versions.14 All we have of ‘An Outline of Circulation Analysis’ is the first few pages of the essay, in which Lonergan introduces the viewpoint and method of the essay to follow. He contrasts his approach with mainstream approaches. The central preoccupation of mainstream analysis is the price system tied to rational choice theory. On

11 Only the title page of the essay remains. It appears that Lonergan began the essay only to change his mind about the direction of his thought. This point is suggested by McShane, see CWL21 205–206. 12 CWL21 113. 13 Ibid. 14 See CWL21 xxi–xxiv for an analysis of the textual evidence.

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this view, all economic decisions are strategically indifferent. In Lonergan’s view, there is an economic mechanism independent of the price system. It is the task of decision-makers to know which decisions are of strategic importance and to adjust accordingly. It is noteworthy that from here on he abandons altogether the language of equilibrium theory. We find Lonergan’s struggles with the meaning of equilibrium in notes from this period.15 His disquiet with equilibrium analysis is an outcome of his effort to develop a fully dynamic foundation for economics. Both general and partial equilibrium theories are conceived within a static framework in which supplydemand equilibrium is a primary conceptual tool. Lonergan is interested in the effects of changes in rates of flow from interval to interval in both production and monetary circulation, and that requires a dynamic foundation. His context shifts from general or partial equilibrium to concomitance of the basic and surplus circuits in economic phases. Concomitance of the monetary and production process and in the two monetary circuits is a function of balancing the crossover rhythms in light of the exigencies of the particular phase. With respect to the possibility of an equilibrium rate of interest, Lonergan comes to the conclusion that there is no such thing. Equilibrium rate of interest makes the assumption that the amount of money available for loans equals the demand for loans, that is, that savings equals investment. While this may be the case in a completely stationary economy, financing an expanding economy requires, as we have seen, a rate of credit creation well beyond the amount available from individual savings.16 After FNPE there is greater precision on the dynamic foundations for economics. Monetary circulation is ‘not so much a rotational movement as an aggregate of instantaneous events, namely payments, which stand in a circular series of relationships.’17 Payments can be operative or redistributional. Operative payments can be in the basic circuit, from the basic circuit to the surplus circuit, in the surplus circuit, and from the surplus circuit to the basic circuit. Redistributional payments can flow within the redistributional zone, from the redistributional zone to the basic and surplus income or to the redistributional zone from basic and surplus expenditure. Lonergan moves to precisely specify the laws of circulation velocity. He directs attention to changes in the velocity of the flow of goods and services in each circuit and the related payments that occur interval by interval. 15 Lonergan’s notes on price and market equilibrium are in LEER, chapter 4, and his notes on the equilibrium rate of interest in LEER, chapters 5 and 6. 16 Lonergan’s makes his argument while considering Hayek’s account of the equilibrium rate of interest. See LEER, chapter 6. 17 CWL21 114.

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This leads to a detailed consideration of turnover rates and frequencies.18 If monetary circulation must adapt to the rhythms of production, then classes of payments must correlate with the series of production factors that begin with initial outlays, involve a series of transitional payments, and conclude with final sales. In this way payments are assigned a role in the production circuit, and the circuit is not complete as an economic event until the final sale. Circuit acceleration, then, is a function of some combination of turnover quantity and turnover frequency. For example, one could produce one hundred cars at a time (turnover magnitude) over a month (turnover frequency) or twenty-five cars a week. When we include payments in the calculation of the production circuit, the series is not finished until the car is sold. There is (1) an initial outlay of money at the beginning of production, (2) the various transitional payments that are made as goods move from factory to retail outlets, and (3) the final sale. It follows that there is a variation between the circuit of production per se and the circuit of production for sale because the turnover period depends upon the production cycle plus any lag in sales. For instance, some new cars may leave the factory in September but are not sold by the dealer until the following spring clearance sale. Shifting the turnover frequencies and magnitudes has an effect on payments. In our example, making one hundred cars at a time increases the magnitude of initial payments and delays final payment, while producing twenty-five cars a week increases the frequency of monetary circulation. Decisions regarding turnover frequency and magnitude will be in response to circumstances. Turnover frequencies tend to increase in the brisk selling of a boom to take advantage of demand and tend to decrease in a slump. Likewise, there are seasonal variations and, for example, in the case of utilities, daily variations to coordinate shifts in energy use related to the time of day. Lonergan found that he could correlate the velocity with which money circulated with the turnover frequencies of industry and commerce, and this enabled him to specify how the series of production factors from initial outlay to final sale are actually coordinated. The analysis of turnover grounds a distinction between short-term and long-term acceleration. A short-term acceleration results from improvements in the efficiency of the current production set-up. For example, better-trained workers and well-maintained machines can produce more in the same period. Likewise, shifts in turnover frequency and magnitude can take advantage of brisker sales, because changes in the turnover frequency can improve the efficiency of cash flow. Efficient businesses consider in

18 For Lonergan’s transitional work with turnover rates, see CWL21 134–51 and 157–62 and LEER, chapter 6.

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their set-up the number of units and the pace of production in light of payment schedules and expected sales. Short-term acceleration, therefore, is the result of the improved efficiencies in the already existing means of production. However, short-term accelerations cannot generate a surplus expansion. Long-term acceleration results from the transformation of the entire set-up, for example in the shift from hand-made textile production to the use of textile machines or the shift from horse and canal barge to railroad as a means of transport, and so forth. This can only happen with the infusion and steady increase of investment from investors and longterm credit from banks and governments. Differentiating short-term and long-term acceleration leads to a refinement in Lonergan’s account of the dynamics of the pure cycle. A surplus expansion begins with a proportional phase in which both the basic and surplus circuits are expanding at the same rate owing to the effect of a short-term acceleration. In a long-term acceleration, the surplus circuit expands while the basic circuit remains at a steady pace. Understanding possible variations in turnover magnitude and frequency of production and sales was key to Lonergan’s correction of the longstanding, and erroneous, quantity theory of money. The quantity theory of money postulates a correlation between the quantity of money and the value of money. The correlation is typically simplified to the equation MV = PQ, where MV is the quantity of money times its velocity and PQ is ‘price’ multiplied by quantity. The theory has been around in one form or another since at least the sixteenth century, when economic observers recognized a relationship between the import of gold and an increase in prices.19 In modern economics the theory is closely linked with Milton Freidman’s monetarism, which holds that inflation is a monetary phenomenon and argues, not surprisingly, that the quantity of money can be equated with the rate of inflation. On this basis Freidman argued for a strategy of maintaining price stability by controlling the amount of money in circulation, typically through the actions of a central bank. For Lonergan, however, inflation is not simply a monetary phenomenon. As we have seen, the function of money is to bridge the intervals between contributions to the production process and the sharing of its products. Therefore, the velocity of money correlates with the circuit of work, whose goal is production for sale. 19 Copernicus makes this observation in his ‘Memorandum on Monetary Policy’ (1517). See Oliver Volckart, ‘Early Beginnings of the Quantity Theory of Money and Their Context in Polish and Prussian Monetary Policies, c. 1520–1550,’ Economic History Review 50:3 (1997) 430–49. Lonergan cites Jean Bodin, Résponse aux paradoxes de M. Malestroict (1568) in his notes on Heinrich Pesch. See LEER chapter 2.

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The same quantity of money may circulate at a greater or lesser frequency and therefore accelerate the production process at different rates depending on the circuit of work it performs. In light of long-term phases, a circuit of payments in the surplus circuit accelerates the total quantity of production at a greater rate than the same circuit of work in the basic circuit. Furthermore, the quantity theory of money operates in a static equilibrium framework. Its effort is not directed towards a consideration of the intervalby-interval changes in monetary velocity. On this view, if you want to avoid inflation, a stable money supply is paramount. However, a long-term expansion of an economy requires an ever-increasing rate of increase in monetary velocity and quantity in the circuits. Price shifts signal expansion, so one can expect prices to increase in a surplus expansion. Lonergan was able to move beyond the rather simplistic materialist assumptions of monetarism and attend to how money actually functioned in the circuit of production and sales. The important element was the change in the velocity of money, interval to interval, as a correlation between circuit velocity and the turnover frequencies of industry and commerce.20 Lonergan writes: ‘In fact we shall be able to deal with the more precise ideas of turnover size and turnover frequency instead of the ill-defined ideas of quantity theory of money and velocity of money.’21 He was then able to correlate changes in turnover frequency with economic phases and specify in double summation form the nature of the correlation.22 He concluded: ‘The history of the development of money points to a preponderant role of increasing turnover magnitude in accelerations.’23 Lonergan’s achievement here in moving beyond the quantity theory of money is a stellar instance of the rich empirical bent of his analysis. His focus is on the schemes of recurrence with respect to circulating money in a dynamic economic system. We can with relative ease track shifts in turnover frequency and quantity in specific firms and industries to verify their correlations to changes in circuit acceleration. In contrast, the correlations of the quantity theory of money are static and assume a materialist conception of money. Given these assumptions, the theory fails to capture the flexibility of circulating money as it actually functions in an exchange economy. As we shall see shortly, this approach results in a misinterpretation of economic indicators such as shifts in price and income. A significant advance, already alluded to above, was in the account of the economic phases. McShane writes in For a New Political Economy: ‘What

20 21 22 23

CWL21 259. CWL21 135. See CWL21 266–68. CWL21 268 [CWL15 68].

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Table 1

Phases

D2Oc [interval change in basic circuit]

D20s [interval change in surplus circuit]

DH [relative change in crossover fraction]

Static phase Materialist expansion Cultural expansion Surplus expansion

0 + + 0

0 0 0 +

0 + + –

Phases

D2Oc [interval change in basic circuit]

D20s [interval change in surplus circuit]

DH [relative change in crossover fraction]

Static phase Basic expansion Surplus expansion Compound expansion Basic contraction Surplus contraction Compound contraction Basic disequilibrium Surplus disequilibrium

0 + 0 + – 0 – – +

0 0 + + 0 – – + –

0 + –

Table 2

– + – +

Lonergan is seeking … is a general characterization of cycles in terms of the substructures, “phases,” themselves consisting of intervals that are related to each other by “trends … determinate relations between successive intervals.”’24 In FNPE Lonergan postulated four economic phases: a capitalist, materialist, static, and cultural, as in table 1. With his decision to stick to a purely economic analysis he subsequently removed the cultural phase. He then developed a systematic account of economic phases based on a consideration of all the possible types of expansion and contraction of an economy. In ‘A Method of Independent Circulation Analysis,’ he devised a typology of nine possible phases, as shown in table 2.25 This model will be further refined in ECA, as in table 3.26 In general terms, the point to note in comparing the tables is both the systematic drive of Lonergan’s approach and the increased empirical specificity based on a consideration of 24 Editor’s footnote, CWL21 275 n. 4. 25 See CWL21 122–28 and 153–62. The chart is on p. 122. 26 CWL21 274.

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Table 3

II III IV V

dQs, dQc

dQs/Qs> dQc/Qc

dQs/Qs = dQc/Qc

dQs/Qs< dQc/Qc

Unspecified

Surplus advantage phase Surplus expansion Surplus contraction – Mixed phase

Proportionate

Basic advantage

Proportionate expansion Proportionate contraction Static phase –

Basic expansion Basic contraction – Mixed phase

Neither negative Neither positive Both zero One positive and one negative

interval-by-interval shifts in circuit velocity. In FNPE he classifies the phases of the pure cycle, including a cultural phase, and while acknowledging the dysfunctions of the trade cycle does not consider systematically the possible variations. In ‘A Method of Independent Circulation Analysis,’ on the basis of interval-by-interval shifts in acceleration trends between the circuits, in addition to the phases of the pure cycle, he includes all possible types of contractions and disequilibrium.27 He further refines his model in ECA to include a proportional phase that occurs in transitions between one phase and another. His notion of pure surplus income, while included in FNPE, takes on greater prominence, as Lonergan specifies more exactly the failures that create a trade cycle. He identifies the misunderstanding of pure surplus income as a key element in economic crashes. Related to this is a much more precise account of how fluctuations in price spread are connected to economic phases.28 One achievement that must have satisfied him greatly was his discovery of a correlation between his account of crisis in the cycle of the aggregate basic price spread and Schumpeter’s account of long waves.29 Lonergan systematically connected this cycling to ‘the structure of the productive process and the measure of human adaptation to the requirements of an acceleration of that structure.’30 Finally, there is the notion of super27 There is what appears to be an intermediate version between ‘For a New Political Economy’ and ‘A Method of Independent Circulation Analysis.’ See CWL21 152–53. 28 CWL21 175–83. 29 CWL21 306. 30 Ibid. By contrast, Lonergan viewed the Kondratieff cycle as having ‘more affinities with a philosophic theory of history than the merely mechanical structures we have been examining.’ CWL21 306 [CWL15 162]. In his notes on Schumpeter’s Business Cycles, Lonergan links Schumpeter’s treatment of capitalist growth with Toynbee’s notion of genesis or growth. See LEER, chapter 7.

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posed circuits.31 In FNPE, while the germ of the theory is present, he had not solved the problem of how to deal systematically with multiple economic units, as, for instance, in trade between two national economies. He wrote: ‘Whether from mental fatigue or from objective impossibility, I do not see that a general study of the interactions of several mechanical structures is possible. The problems are far too complex.’32 Nonetheless, he persevered. He conceived of additional flows ‘Z’ standing for a trade surplus or government deficit spending and ‘X’ standing for debt-servicing, each of which flowed to and from the redistributional zone in any particular economic unit (e.g. nation or region) to the basic and surplus circuit.33 Just as in an economic expansion, economies must adapt to this additional flow from trade imbalances or deficit government financing, whether positive or negative, by balancing the crossover flows in light of real economic phases. It is a model for handling international trade and for understanding mistaken strategies such as government deficit financing and the policy of a favourable balance of trade.34 Included among the fragments collected in For a New Political Economy is an earlier version of his account of superposed circuits in ECA.35 He would pare this down in the final essay. In FNPE Lonergan presented his key discovery: the existence of two distinct but related economic circuits and a notion of economic phases that he derived from an understanding of the relationship between the circuits. His notes on other economists from 1942 and 1943 point to his efforts to integrate their efforts in light of his discovery.36 As noted above, Lonergan gave considerable thought to disproving mainstream conceptions of equilibrium, in particular as applied to the market and to interest rates.37 Reading Hayek satisfied Lonergan that there was no such thing as an equilibrium rate of interest.38 His notes on C.F. Roos, Frank Knight,

31 For a helpful introduction to superposed circuits, see McShane, Economics for Everyone, chapter 4. 32 CWL21, 94. Of course, Lonergan touched on issues of trade in FNPE and had already reached an understanding of the merits and defects of favourable balance of trade and of mercantilist efforts to generate funds for investment through this strategy. He is aware of the need to include an additional flow to account for trade and government deficit financing. Lonergan’s difficulty in FNPE is the lack of a systematic way of handling international trade. 33 For a helpful diagram of superposed circuits, see CWL21 202. 34 CWL21 317–18. 35 See CWL21, chapter 13. 36 See LEER, passim. 37 See LEER, chapters 4 and 5. 38 See LEER, chapter 5.

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Joseph Schumpeter, Friedrich Hayek, and the Physiocrats all point to his interest in refining his understanding of the pure cycle in its differences from the trade cycle. Roos’s Dynamic Economics provided information on the mainstream understanding of the relationship of price and demand levels. Knight’s consideration of profit and indeterminacy as factors upsetting general equilibrium dovetailed with Lonergan’s interests. Knight’s position was that ‘it is quite unnecessary to believe that there will really be any progress towards equilibrium.’39 Lonergan’s reading of Hayek centred on the latter’s monetary theory of the trade cycle, a subject clearly related to the central issues of monetary circulation and its relation to the phases of the pure cycle. In addition, reading Hayek focused attention on turnover frequency and may have been helpful for grasping the deficiencies of the quantity theory of money. Schumpeter, however, is the most significant influence. Lonergan likely began reading him after FNPE, so Schumpeter’s work did not enter into his original formulation of circuits and phases. However, as already discussed, his work had an impact on Lonergan’s treatment of the triple crisis of longterm cycles.40 While hindered by his commitment to Leon Walras’s static theoretical framework, Schumpeter nonetheless understood that economic analysis needed to cross the Rubicon from statics to dynamics. He writes: ‘By “crossing the Rubicon,” I mean this: however important those occasional excursions into sequence analysis may have been, they left the main body of economic theory on the “static” bank of the river; the thing to do is not to supplement static theory by the booty brought back from these excursions but to replace it by a system of general economic dynamics into which statics would enter as a special case.’41 Lonergan accomplished in ECA what Schumpeter had anticipated in his Theory of Economic Development.42 The stationary (static) phase was one of three phases in the pure cycle. It was not, however, a ‘special case.’ Because the basic variables were dynamic, the stationary phase was also dynamic and was fully integrated into the full cycle, much as inhaling and exhaling are both moments in the cycle of human

39 Frank Knight, Risk, Uncertainty and Profit (Boston, New York: Houghton Mifflin Co., 1921) 168. The quotation is found in Lonergan’s notes on Knight. See LEER, chapter 3. 40 CWL21 306. 41 History of Economic Analysis (New York: Oxford University Press, 1955, [1954]) 1160, quoted in the editor’s introduction to CWL21, xxv. 42 Lonergan greatly admired Schumpeter’s Theory of Economic Development, calling it a ‘beautifully thought out piece of work.’ The remark was made at the 1978 Lonergan Workshop. Nicolas Graham’s transcript from the workshop is available from LRI.

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breathing.43 Lonergan had a higher regard for Schumpeter than for the more influential Keynes.44 He would have been sympathetic to Keynes’s claims about indeterminacy, but also would have agreed with the following assessment by Schumpeter of Keynes’s misnamed ‘general theory.’ Schumpeter writes: ‘Fundamentally Keynes accepts the Marshallian apparatus of economic theory and ... he only adjusted it in a number of points. But these points were very important for the explanation of the depression of the 1930’s and thereafter rightly attracted attention. Moreover his simple system that considers only a few aggregates was easy to master and to manipulate.’45 Lonergan’s nod to Keynes at the beginning of ECA is more a concession to his influence among contemporary economists than a credit to any influence on his own work.46 Lionel Robbins, who was the major figure writing on economic methodology in the 1930s, was greatly influenced by John Stuart Mill. Reading Robbins’s An Essay on the Nature of Economic Science must have brought into sharp relief Lonergan’s differences with the conceptualist notion of analysis that he had been working against since his time at Heythrop College. His notes on Pesch’s Lehrbuch der Nationalökonomie, while substantial, were mainly confined to the discussion of mercantilism and the physiocrats.47 In Lonergan’s later years, reading Schumpeter’s History of Economic Analysis

43 Lonergan writes: ‘The static phase is a limiting position between expansion and decline’ (CWL21 97). In a properly functioning economic cycle, the stationary phase is a natural outcome of economic expansion where the fruits of advancement can be enjoyed and the leisure for non-economic pursuits expands. It is the distortions of the trade cycle that deny us the benefits of the stationary phase and replace it with recession, depression, or economic stagnation. 44 Some economists shared this assessment. See Peter Drucker, ‘Schumpeter and Keynes,’ Forbes Magazine, 23 May 1983, 300–304 and Robert Heilbroner, ‘Was Schumpeter Right After All?’ Journal of Economic Perspectives 7:3 (1993) 87–96. 45 From lectures delivered in January 1948 at the School of Economics, University of Mexico, and included by the editors in Schumpeter’s massive and unfinished History of Economic Analysis, 1144. According to Schumpeter, Keynes’s system was made up of only four variables: quantity of money, consumption, investment, and interest rates. The variables are linked together by three relations, the liquidity preference function, the consumption function, and the investment function. The methodology is static. 46 Around the time he wrote FNPE Lonergan did make an interesting jotting in which he correlated Keynes’s notation with an equation that appears to be linked to his own work on price spread. See CWL21 214. 47 Lonergan’s reading on mercantilist theory entered into his understanding of why it was ultimately mistaken to use favourable-balance-of-trade strategies for financing economic growth. See CWL21 100–101 and 264. The physiocrats were of interest because of their efforts to diagram economic

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served a similar purpose. His reading of economic history is noteworthy because it tells of the ongoing significance for Lonergan of a dialectical reading of past achievements in economic theory. By combing the history of economic theory, Lonergan ‘read the past better than it was,’ refining his own work by setting it against the efforts of the best, such as Quesnay, Cantillon, Hayek, Schumpeter, and Knight.48 This also prepared him for presenting his argument to an audience of economists, though, as it turned out, it would make no difference in 1944. However, if we move to the present time there would be much to gain from a careful study of his research. It shows us how Lonergan was able to transform valuable, but incomplete, insights, strewn throughout the history of economic thought, into a systematic account of macroeconomic dynamics. It also provides clues as to how we might reread the history of economic thought in the light of his analysis. As Lonergan put it in 1942: ‘In economic history, general conclusions depend more on the validity of general principles of interpretation than on accuracy of factual detail.’49 To conclude, then. Lonergan’s push after FNPE was towards specifying with empirical precision the dynamics of monetary circulation. These included refinements in his understanding of the relationship between the production process and monetary circulation in the context of economic phases. He left behind the larger question of how economics related to politics and culture. Other than the always-present exigence for systematic understanding, he prescinded from moral questions about the economy. Certainly, he favoured a decentralized control of the economy. However, we should bear in mind that this assumes an ethos of responsible and informed economic actors. Still, Lonergan’s account explained any type of economy. The transitional essays leading to ECA reveal the details of his struggle and at times the overreach of his ambition. The effort to confine his inquiry to circulation analysis paid off and, much as cognitional analysis became the foundation for his metaphysics, circulation analysis becomes the foundation for a genuine science of economics. 2

‘An Essay on Circulation Analysis’

If FNPE was the breakthrough, then ECA was the confinement of the theory. The culmination of fourteen years of struggle, it is a great theoreti-

cycles (for example, Quesnay’s tableau économique) and their emphasis on the fundamental importance of production in economic analysis. See LEER, chapter 2. 48 On Lonergan’s interlocutors, see Frederick Lawrence’s introduction to CWL15, xlii–xliv. 49 CWL21 9.

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cal achievement: an original contribution to human understanding that reshapes the basic framework for economics. ECA builds on the basic structure developed in FNPE. Many advances worked out in the transitional essays make there way into ECA. The order of the presentation of the ECA generally follows that of the purely economic elements in FNPE.50 First, Lonergan introduces the underlying production process and then adds the distinction of production circuits. He next considers the classes of payments as they relate to the division of circuits. Then he introduces the diagram of monetary flows. This is the same material dealt with in the first five chapters, up to the introduction of the diagram, of FNPE. As in FNPE, he then turns to circuit acceleration and economic phases. In his discussion of circuit acceleration Lonergan includes a new section on the possibility of measuring the production process. The remainder of the essay expands on topics treated originally as incidental theorems. These include income cycles, the price-spread ratio, and the misadventures of government deficit spending, favourable balance of trade, and taxation. He establishes superposed circuits as a framework for understanding these misadventures. The essay does not include an introductory chapter comparable to the first chapter of the earlier essay. The fact that in the short unnumbered ‘Outline of the Argument’ section his number scheme begins at 4 suggests Lonergan intended to add something here, or had produced efforts he rejected.51 In subsequent revisions after 1978, he provided the missing introduction. Finally, in ECA Lonergan pared down his discussion of finance. He removed his introductory remarks on money, markets, and finance from chapter 3 of FNPE, proceeding straight into a discussion of the classes and rates of payment in monetary flows. We now turn to a brief overview of the essay with a selection of examples that help indicate the nature of the advances made in ECA. We begin with Lonergan’s refinement of his account of the factors of production and succession of enterprises involved in the production of ultimate products, that is, products for final sale. The significant transaction is the final sale. The final selling price includes all production costs that precede the sale, and therefore it is re-

50 One noteworthy change is a shift in the order of presentation of the cycle of incomes and prices. In FNPE the discussion of the aggregate price-spread ratio comes before the discussion of the cycle of basic and surplus income. In ECA the order is reversed. 51 The first time he taught the course he inserted ‘An Outline of Circulation Analysis’ as an introductory section. For later classes he provided new material on his methodology and added comments addressing the contemporary economic situation. See CWL15 xiv–xv.

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dundant to include all the sales involved in the production of goods in the analysis. Let us take as an example the purchase of a litre of milk. The product that is sold in litre cartons at the corner store has a history. The milk itself was obtained by the farmer from his cows. There was a significant outlay of money to produce the milk for sale, including feed for the cows, veterinary bills, etc., which the farmer recovers when he sells the milk to the milk factory. Likewise, the milk factory has a similar outlay, which is recovered when the milk is sold to the wholesaler. The wholesaler, who also has expenses such as rent and wages, in turn sells the milk to the retailer, where the final sale is made. All the factors of production involving an outlay of funds before the final sale must be included in the cost of the final sale in order for each of the preceding production factors to stay in business. In FNPE Lonergan accounts for these factors of production by distinguishing transitional and final payments and by noting that there was a lag between outlay and income. Under transitional payments, he includes all the payments preceding, but not including, the final sale. Only the final sale is considered in determining the rate of flow of the circuit. In the 1944 essay, he distinguishes initial, transitional, and final payments. Initial payments were only implicit in the 1942 essay. In FNPE he does not attempt to nail down his insight with mathematical precision. The real advance, then, is his use of the double summation to bring his insight, mathematically, into the relationship among all the enterprises and factors of productions from initial outlay to final payments. The ultimate product is the summation of the contribution all enterprises made to the ultimate product and the contribution of each enterprise is the summation of the contribution of each of its factors of production. The formula expressing these relationships is Q i = ¦¦ Q ijk j k

Q i is some ultimate product for sale, to which j enterprises each contribute a respective Q ij to the emergence of Q i. In each of these enterprises k factors of production, such as labour, management, and capital equipment in use each contribute a respective Q ijk to the emergence of the ultimate product Q i.52 The double summation formula expresses mathematically Lonergan’s insight into the monetary flow between initial and final payments involved in production for sale of goods and services.53 By contrast, 52 See CWL21 6. 53 Lonergan begins using the double summation formula in ‘A Method of Independent Circulation Analysis’ (CWL21 136–51). In the essay fragment ‘Circulation Velocities’ (CWL21 166–74) the formula enters into his work on turnover rates.

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in FNPE he recognized that factors of production involved a cyclic pattern of exchange and he had the insight that only the final sale ‘counted,’ but he had not gone beyond a descriptive presentation of his insight. We turn now to Lonergan’s specification of accelerations in the production process. In FNPE Lonergan handles the acceleration of circuits in sections 35–37 of the essay.54 The key notions are distributor multipliers, trader multipliers, and consumer multipliers. The distributor multipliers designate the acceleration of the crossover rates between circuits. Trader multipliers designate the rate of outlay in both circuits. The consumer multiplier designates the rate of sales in each circuit. These correspond roughly to some specification of a rate of goods produced for final sale and a rate of consumer demand. In his account of economic phases, Lonergan indicates that surplus production, which includes outlay and sales, will, if allowed, ultimately accelerate the rate of basic outlay and sales. The point emphasized is the importance of balancing the crossover flows. Lonergan does not distinguish between short-term and long-term acceleration of the circuits. Nor does he bring together in one expression the entirety of these relations. He is mainly concerned to point out the importance of establishing the conditions of continuity between intervals. As we indicated above, Lonergan’s investigation of turnover frequency in the intervening period led him to a more concrete specification of the continuity that included the distinction between short-term and long-term acceleration. By factoring the effect of short-term acceleration into an account of the relationship between the different levels of surplus production and the velocity of the basic circuit, Lonergan expresses, in a set of continuous functions, the nature of longterm acceleration of the production process. His expression incorporates the prior set of multipliers into a more comprehensive expression of the relationships of acceleration among levels of production. He obtains this set of equations by considering four series of continuous functions, f1c (t), f2c(t), f3c(t) … f1s(t), f2s(t), f3s(t) … A1, A2, A3 … B2, B3 … The subscripts 1, 2, 3 refer to successive stages in the production process: basic, the lowest of surplus stages, the next to lowest of the surplus stages,

54 CWL21 66–75.

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and so on. An expression of the type fnc(t) measures the rate of production on the nth level, while the derived function fns(t) measures the acceleration of the rate of production. The functions An measure the short-term acceleration of the rate of production on the nth level. This means that long-term acceleration is fns(t) – An. Finally, the function Bn measures the rate of production that is effecting merely maintenance and replacement on the next lowest stage. Thus, the rate of production effecting long-term acceleration on the next lowest stage is fnc(t) – Bn. Next, A, a – b, c – b ... represent time lags and k2, k3 ... are multipliers that connect ‘the rate of production effecting long-term acceleration and the rate of acceleration so effected.’55 Finally, by including the relevant time lags, we obtain the set of continuous functions that ‘state systematically … the conclusion that cycles are inherent in the very nature of a long-term acceleration of the productive process.’56 The result follows: k2 [f2c(t – a) – B2] = f1s(t) – A1 k3 [f3c(t – b) – B3] = f2s(t – a) – A2 k4 [f4c(t – c) – B4] = f3s(t – b) – A3.57 The result is a precise and integrated expression of the meaning of acceleration in the production process that is, in principle, open to the measurement of the rates of acceleration in any particular economy. This set of continuous expressions is Lonergan’s most exact expression of the core of his theory. Most telling, a revised form of these sets of functions appears on what is likely the final page he wrote on economics in 1944. The page is headed The Inevitable Cycle and dated March 23, 1944.58 Having established the dynamics of the production process Lonergan turns to monetary circulation. He excludes the introductory discussion of money and markets found in chapter 3 of the earlier work, and as ‘the sup-

55 56 57 58

CWL21 244 [CWL15 16–37]. Ibid. Ibid. CWL21 204–205. The double underlining is Lonergan’s indication that he regarded this page as important. As he rarely dated pages, that he did so here is significant. The other dated page from the period we have been considering is on the original manuscript of ‘Pantôn Anakephalaiôsis.’ About the 1944 page, McShane comments: ‘It seems worthwhile to suggest that Lonergan was entertaining the possibility of a further attempt at analysis, one that would exploit the related mathematical presentation of Circulation Analysis’ (CWL21 204).

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position of an exchange economy is the supposition of a relation to sales,’59 moves immediately to a discussion of the classes of payment. Production in an exchange economy is production for sale. Lonergan divided classes of payment into operative exchanges and redistributional exchanges. Operative payments are part and parcel of the productive process. Payments may be initial, transitional, or final depending on their location in the process of production for sale. In his account of the production process, products stand as a double summation [¦¦] of the activities of the relevant stage. It follows, given the parallel relationship of payments to the production process, that the formal structure of payments is also a double summation. As the production process is divided into a basic circuit and a surplus circuit, operative payments are also divided into basic and surplus payments. While operative payments are intrinsic to the production process, redistributive payments are not. They form a non-operative ‘remainder class.’ Lonergan provides greater clarity on a number of apparent borderline cases. For example, ‘financial operations are partly redistributive and partly payments for services rendered; thus in banking, payments of principle are redistributive, but payments on interest are operative, with interest paid to the banks as the final operative payment and interest paid to depositors an initial operative payment.’60 Consideration of classes of payments, in terms of the structure of monetary flows, turns classes of payments into rates of payment that are linked to the circulatory interdependence of the rates. While Lonergan now understands the structure of payments as a double summation occurring in a series of intervals, the fundamental structure of the monetary flows that result remains the same. He modifies the baseball diagram as shown in figures 9a and 9b.61 Basic and surplus trader and consumer balances (Tc, Ts, Cc, Cs) become basic and surplus supply and demand (Sc, Ss, Dc, Ds), and the remaining notation is changed to reflect this. There are, however, developments with respect to all the topics raised in FNPE. The account of circuit acceleration in ECA shows significant development. A discussion of turnover magnitudes and turnover frequency organizes the rather complex effort in FNPE to establish interval-by-interval continuity, framed in terms of trader, consumer, and distributor multipliers. Lonergan considers both short-term and long-term acceleration. Improvements in the efficiency of current production factors are behind short-term accelera-

59 CWL21 246 [CWL15 39]. 60 CWL21 252 [CWL15 45]. 61 CWL21 64 and 258. For the revised diagrams after 1944, see CWL15 184–5, 192, 195.

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Figure 9a FNPE (1942)

Figure 9b ECA (1944)

tions; however, long-term acceleration, directed towards a transformation of production, requires ever-increasing quantities of money, which in turn leads to positive increases in turnover magnitude and frequency. ‘Thus, the general theory of circuit acceleration is that it takes place, in a constrained

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and limited way when quantities of money in the circuits are constant, but without let or hindrance when quantities of money are variable.’62 This backs up Lonergan’s point that flexibility about the quantity of money in circulation and its rate of circulation is vital to economic expansion. A policy of money constancy, if truly adopted across the board, severely limits the possibilities of economic expansion. In actuality, to ameliorate the strictures of tight monetary policy of national governments, multinational corporations employ creative forms of international financing.63 After considering the condition of the acceleration of monetary circuits, Lonergan moves on to an advanced discussion of the theoretical possibility of measuring the productive process. This is a topic that he did not address in FNPE. Lonergan frames the argument in terms of the vectors of an n-dimensional manifold. He concludes that ‘one may characterize the acceleration coefficients as greater or less than unity according as the stages of the process are accelerating or decelerating, as notably greater than unity when current production is expanding speculatively, and perhaps as tending to be notably less than unity in the liquidation of a crisis.’64 This confirms the general correlation between proportional rates of acceleration in the circuits and the phases of the process. Lonergan deleted this section in his revisions of ECA at the end of his life. As is clear from a comparison of the various versions of the manuscript, Lonergan either shortened or removed a number of technically advanced sections of the original manuscript to make it more accessible. In any case, there is no reason to think he disavowed his original work. We have already discussed the advances in Lonergan’s conception of economic phases. The main thrust of the development is towards a generalized account of production phases that includes the phases of the pure cycle and all possible maladaptations. The organizing principle of his account of phases is the proportional rates of change in primary and secondary production (dQc and dQs).65 The section on ‘Cycles of the Productive Process’ takes advantage of Lonergan’s refinement in understanding of circuit acceleration. In ‘The Phases in Circuit Acceleration,’ which follows, he introduces the topic of the relationship between price-level variations and

62 CWL21 266. 63 In the 1980 version of his course on macroeconomics at Boston College Lonergan mentions in this regard the phenomenon of Eurodollars. The transcript of the course is available at the Boston College Lonergan Institute. 64 CWL21 274. 65 Lonergan represents this organization of the types of economic phases in the chart found in CWL21 274 and presented above, as table 3, on page 193.

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production rates in the phases. He dispenses with ‘vulgar notions of money being sound because it is rigid.’66 Distinguishing between scarcity price and price as related to the economic phases, Lonergan shows how changes in level of production connect to variations in price and establishes the critical importance of variations in the rate of savings, where savings means ‘ratio of surplus income to total income.’67 He concludes: ‘The acceleration of the production process, if it is to succeed and not be destroyed by circuit maladjustments, postulates that in a proportionate expansion the rate of savings be constant, that in a surplus expansion it increases, that in a basic expansion it decreases.’68 This conclusion has important implications for the discussion of price and income to follow. Among other things, Lonergan wanted to explain the 1929 crash and its economic consequences. This led him to an investigation of the production process and its relationship to monetary circulation. The set of terms and relations diagrammed in the ‘baseball’ diagram provide that basic structure. His account of circuit acceleration and the pure cycle are built on this foundation and provide the pure form or ideal type for economic development. The means for maintaining this model of economic progress derives from the principle that money decisions must adapt to the phases of the production or suffer the consequences. Knowing the ideal type provides a basis for understanding the kinds of dysfunction that can occur. While a historical analysis of the Great Depression would yield a complex of causes, the root cause is the misunderstanding of what Lonergan called pure surplus income as it manifests itself in such indicators as price changes and income distribution.69 Lonergan deals with this misunderstanding in his account of the cycle of incomes and prices. 66 67 68 69

CWL21 282. CWL21 283. Ibid. In his initial analysis of the depression in 1931, Schumpeter in ‘The Present World Depression: A Tentative Diagnosis’ (in Essays of Joseph Schumpeter, ed. R.V. Clemence [Cambridge, MA: Addison-Wesley Press, 1951] 96–99) includes among its general economic causes industrial fluctuations manifest in Juglar waves and the agrarian crisis due to changes in methods of cultivation. To this he adds monetary policy, protective tariffs in Germany, the effect of reparations and inter-allied payments, the flight of capital from some countries, the gold-standard act in England, the lack of elasticity in the price system, and ‘many factors of minor or local importance’ (98). Interestingly, in light of current events, he writes: ‘Breakdowns of stock exchange speculation may intensify a depression or even be an immediate cause of the location of a turning point, although it would be quite wrong to look upon them as a cause’ (98). Like Lonergan, Schumpeter’s focus was on production as the primary process.

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The overall historical tendency towards transformation of the economic set-up, followed by its exploitation, resulting in the improvement of the standard of living, defines the pure cycle. To approximate this ideal type for economic development requires that the circulation of money adapt to the demands of the pure cycle. In exchange economies the obvious indicators for decision-makers are variations in income and price. Lonergan establishes that concomitant with the economic phases there occur cyclical variations in profits, price spread, and the distribution of income. Misinterpretation of these key indicators is at the heart of maladaptations to the pure cycle. In ECA Lonergan addresses these questions in the chapter ‘Cycles of Income and Prices.’ He writes: ‘Traditional theory looked to shifting interest rates to provide suitable adjustment. In the main we shall be concerned with factors that are prior to changing interests rates and more effective.’70 The primary task of the chapter is ‘to inquire into the manner in which the rate of saving, G, is adjusted to the phases of the pure cycle of the production process.’71 Understanding the rate of saving, G, and its function in an economic expansion will be essential in any healthy adaptation to the economic phases. In a stationary economy, that is, one in which we do not anticipate a transformation of the means of production, the proportion of money circulating in the basic and surplus circuits is constant. About 5 per cent of basic income is normally directed towards maintenance, repair, and replacement costs met in the surplus circuit. To keep the two circuits balanced, 5 per cent of surplus income (salaries, etc.) must be directed to spending in the basic circuit. ‘Savings’ in this context means that proportion of money set aside by business in anticipation of maintenance, repair, and replacement costs and any money directed to the redistributional circuit in anticipation of consumer needs. In this instance, the function of banks is to distribute the pool of resources, much as insurance companies do. With insurance, the money taken in from policies is used to pay out claims. In a stationary economy there is no ‘investment’ beyond the costs of maintaining the current standard of living. All saving, G, is directed to maintenance, repair, and replacement, and there are, strictly speaking, no profits to be had. What producers pay to themselves is simply a business cost. Maintaining the current standard of living requires that the crossover flows between the basic and surplus circuit balance. Income must equal expenditures and the proportion of expenditures and incomes in both circuits must remain at a constant rate. If there is an increase in the propor-

70 CWL21, 285. 71 Ibid.

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tion of money going to the surplus circuit, it is done at the expense of basic income. There will be less money to spend on goods produced, and the standard of living for most drops. The effect on the basic circuit is the same as having a wealthy miser hoarding cash under the bed, for there are, in the main, no new ventures in which to invest. An economic expansion cannot be financed from existing resources. Savings in a stationary phase go towards maintaining the current standard of living. It is true that people can work longer hours and plant efficiencies can be maximized. However, a surplus expansion requires a massive influx of money, much more than could be provided by scrimping and saving. Thus, in an economic expansion, there must first be a massive increase in the rate of savings, G. A surplus expansion requires credit creation, which is an increase in the flow of money into the economy, in this instance the surplus circuit. If it cannot come from the basic circuit, where can it come from? The answer must be the redistributional zone. Lending institutions therefore provide the credit. It is an investment in new production that will likely improve the efficiency of production. More can be produced for less and so there is hope that in time the standard of living can improve for all. However, the introduction of credit can create problems. Credit increases the flow of money from the redistributional zone to surplus expenditure and, as expenditure equals income, results in an increase in surplus income.72 This income is over and beyond that required for maintenance, repair, and replacement. Its job is to finance the expansion. Income originating as credit from the redistributional zone should be reinvested in the surplus circuit to maintain the expansion. Such income is pure surplus income. It is that part of aggregate surplus demand directed towards new capital investment and is differentiated from that part directed towards maintenance, replacement, and repair. With the introduction of pure surplus income, the rate of savings, G, is split to include that part of surplus income directed to maintenance, repair, and replacement and that part of G that is pure surplus income. The introduction, through credit creation, of pure surplus income has effects on income distribution, prices, and the price-spread ratio that need to be understood for an economic expansion to reach its full potential and to positively transform the standard of living. Widespread misunderstanding of the real meaning of increased profits, the rise and fall of prices, and the shifts in the distribution of income pro72 Interest that accrues to lenders is ‘the premium on present over future purchasing power’ (Schumpeter, Theory of Economic Development 157). As there are two circuits, interest should be differentiated according to the appropriate circuit. Investment interest has its source in profits; consumer interest has its source in future paychecks.

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duces the trade cycle, which, if extreme enough, causes a boom and bust cycle. As noted, a surplus expansion requires a steady increase in the rate of saving moving to the surplus circuit in order to finance the transformation of the production set-up. There will be no immediate increase in the availability of goods in the basic circuit because the new production facilities are in the planning and assembly stages and have yet to produce anything. It is useful to keep in mind that economic development involves a flurry of new developments. For example, the development of a new computer chip leads to many related developments that open up opportunities for savvy entrepreneurs and investors. Consequently, in order for the transformation to reach its full potential, investment income needs to be continually reinvested in the surplus circuit, not spent in the basic circuit. In Lonergan’s view we can approximate this situation most readily with an anti-egalitarian shift in income distribution. The richest income classes will have more income than they can spend in the basic circuit and will, therefore, be more inclined to invest in the surplus circuit. This provides the ever-increasing proportion of money needed in the surplus circuits to finance the expansion. Concurrently, basic spending must not increase, as the production of basic goods has yet to increase and increased spending on basic goods only inflate prices. This strategy is the basis for the precept of ‘thrift and saving’ in a surplus expansion. Thus, the higher incomes of the rich should go towards investment, not lavish living. Likewise, increased profits should not be a signal for labour unions to demand higher wages. As the surplus expansion moves along, the new and more efficient set-up begins to produce goods for basic markets. Concurrently, the rate of saving devoted to new investment begins to decreases and the demands for maintenance of the new means of production start to increase. It follows that the rate of pure surplus income begins decreasing. Profits decrease. What is now called for is an egalitarian shift in income distribution. While the surplus expansion required an anti-egalitarian shift to maintain the level of new fixed investment, the basic expansion requires an egalitarian shift to exploit the benefits of the transformed economy. As the basic expansion reaches its conclusion, the economy shifts to a new stationary phase in which there is no significant economic expansion on the horizon. The standard of living has improved for all, and the shared task is to maintain it. If the fundamental adjustment to the productive cycle is inadequate, there is a mechanism of automatic adjustment achieved through changes in the price level. If too much money moves to the basic final market, there is not enough savings. In this case the selling price on the basic market rises. Inversely, if savings are excessive and not enough money moves to the basic final market, the price level falls. These movements either contract or expand the purchasing power of money. If the price level rises, this shifts

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income to the higher income brackets. If the price level falls, then income shifts to lower income brackets. ‘A sufficient rise in prices will always succeed in adjusting the rate of saving to the requirements of the productive phase … [A]s prices rise, real saving is forced upon each lower group; on the other hand, as prices rise, the consequent increment in speculative profits and so of surplus income is far greater than the average spending effected by the small numbers in the higher brackets.’73 Such an adjustment works as long as the shift in distribution happens by increasing the money in circulation and not by decreasing the monetary income of other brackets. But producers interpret higher prices as a signal to increase production and concurrently there are demands for higher wages. If the demands are met, a wage-price spiral follows, a situation exacerbated by speculators. The desire of central banks and governments to curb inflation by tightening the money supply cuts the expansion off at the knees. For, unless the quantity of money in circulation expands as rapidly as the productive expansion of quantities requires, there will be a contraction of the process, and then, instead of adjusting the rate of saving to the requirements of the productive process, the productive cycle is cut off to adjust to the rate of saving. However, for the expansion to work as it should, the rate of saving must adjust to the requirements of the productive process. In an ideal scenario, as the production cycle shifts to the basic expansion there is a comparable egalitarian shift in income distribution to lower incomes brackets. The rate of savings will be decreasing, and this means that there should be steady increase in the rate of circulating money moving to basic demand. If the rate of savings decreases, then profits naturally follow suit, for pure surplus income is the reward for investment, and as new fixed investment begins to decrease, so too does the proportion of pure surplus income to total monetary income. If, however, the accepted business ethos is that the profits of the surplus expansion are the true indicator of economic success regardless of the economic phase, then a decreasing rate of profit will be viewed as a problem. Various strategies follow which attempt to forestall the requirement to move money to basic demand: for example, a policy of deficit government spending, interest rate adjustments, taxation policies, and trade surpluses. The automatic mechanism of this phase is falling prices. This fall in prices increases the purchasing power of income and in this way brings about the egalitarian shift in the distribution of monetary income. Lonergan writes, ‘The egalitarian shift in income is, in the main, a merely theoretical possibility.’74 Why? Unless the fall in prices is met by an increase in production, this brings about a fall in the total rates of payment going to

73 CWL21 287–88. 74 CWL21 289.

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producers. The price fall is wrongly interpreted as a signal to cut back production. The fear of recession looms and everyone braces for hard times to come. The proper adjustment to the rate of savings fails to take place and prices fall further. Eventually, prices fall far enough so that surplus income is reduced to the appropriate proportion of total income and prices stabilize. The downward spiral halts the basic expansion, and the economy waits until there is enough demand for the replacement of existing production factors to start the cycle again. To sum up, rising profits are a feature of a surplus expansion, decreasing profits are a feature of the basic expansion. The rise in prices is an automatic mechanism of the surplus expansion and the fall in prices is an automatic mechanism of the basic expansion. Falling prices and profits spell bankruptcy or takeovers for weaker commercial and financial units, leaving what is left of the decreasing proportion of pure surplus income to those corporations and financial institutions positioned to vacuum up what surplus remains. It is the failure to understand the function of pure surplus income and the misinterpretation of the signals that changes in absolute price levels provide that give us the trade cycle of growth and recession, which if severe enough becomes a depression.75 Lonergan writes: 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: just as the production of new fixed investment is over and above all current consumption and replacement products, so pure surplus income is over and above all current consumption and replacement income: just as the products of new fixed investments emerge in cyclic fashion, so also does pure surplus income emerge in cyclic fashion. It is mounting from zero at a moderate pace in the proportionate expansion; it is mounting at an enormous pace in the surplus expansion; but in the basic expansion first average, and then aggregate pure surplus income begins to decline, and eventually they have reverted to zero. Now it is true that our culture cannot be accused of mistaken notions on pure surplus income as it has been defined in this essay; for on that precise topic it has no ideas whatever.76

75 There is a difference between relative and absolute price changes. A relative price change is a signal for either a rise or drop in production, as it is a function of supply and demand. An absolute price change is related to economic phases. In the latter instance, prices tend to rise in a surplus expansion and fall in a basic expansion. See CWL21 289–90. 76 CWL21 297–98.

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As we can see, Lonergan was well aware of the novelty of his notion of pure surplus income. He notes that the capitalist culture has some idea of how to effect the anti-egalitarian shift of the surplus expansion, but no idea about how to bring about the egalitarian shift of the basic expansion. It is achieved only through ‘the contractions, the liquidations, the blind stresses and strains of a prolonged depression.’77 The solution to this crisis involves finding a way to smoothly reduce net aggregate savings in the shift to the basic expansion so that the benevolent effects of the basic expansion can be realized. As pure surplus income increases and decreases depending on the phase of the pure cycle, so does the price-spread ratio. Expressed non-technically, the price-spread ratio is an index of the ratio of the proportion of costs to the possibility of profit. ‘The greater the fraction that basic income is of total income (or total outlay), the less the remainder which constitutes the aggregate possibility of profit.’78 The costs of production are simply that fraction of outlay that goes to basic income. Lonergan ties the notion of cost to the distinction between surplus and basic income. Thus, for example, dividends are costs, but the element of pure surplus in the salaries of managers, replacements costs, and so forth are not. Linking the pricespread ratio to his two-circuit analysis reveals that the price-spread ratio also shifts with shifts in economic phases. The price-spread ratio provides an indicator for producers of the direction of future production, because current production always is in reference to future sales. As we might expect, in the surplus expansion, the price-spread ratio increases; in a basic expansion, it decreases. As with the cycle of price and income, misunderstanding of the price-spread ratio leads us to a trade cycle. If the pricespread ratio is increasing, then future sales will be greater than present sales. The increasing spread is fodder for speculators, who live on the adage ‘buy low and sell high’ and use various techniques to take advantage of perceived market trends. Inversely, a decreasing price-spread ratio encourages producers to slow down production in anticipation of lower profits. This is not the way to bring about the basic expansion. Production should be on the increase to provide for the increasing demand in the basic circuit. Again, speculators exacerbate the situation by selling high in anticipation of dropping profit shares or with techniques such as short selling to extract a profit from a falling market. Lonergan’s quite detailed analysis in this section further refines our understanding of the relationship between monetary circulation and economic phases and, of special note, provides

77 CWL21 298. 78 CWL21 302.

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some indication of how an the ideal shift from a surplus to a basic expansion might be achieved. A precise analysis of the shifts in pure surplus income in light of the price-spread ratio allows for an intelligent anticipation of the direction of markets. Inversely, such analysis provides further indication of how speculative booms and crashes occur. Lonergan then connects his analysis of price-spread ratio and its crises to Schumpeter’s analysis of the business cycle. Finally, ECA includes the theory of superposed circuits to handle trade between economies and the effects of government deficit financing, taxation, and favourable-balance-of-trade economic strategies. This is an important development as it provides a structure for handling the complexities of government intervention in an economy and for exploring the full empirical complexities of global economic exchange. It was a creative stroke on Lonergan’s part to use the redistribution zone as the conduit for the transfer of funds between economic systems. It provided an appropriate image for conceiving the complexities of global trade and finance. International trade in a global economy, in which supply circuits are international and financial institutions are global players who can move money in disregard of borders, only increases the complexities of price and profit. The model of superposed circuits provides a structure for inquiry into those economic issues arising from globalization such as the effects of free trade, tariff barriers, job outsourcing, foreign investment, and debt in developing economies. The essay ends with an incomplete section on deficit spending and taxes. As to why Lonergan ended here we can only speculate. There is a more detailed discussion of this material in an earlier chapter, ‘Superposed Circuits.’ Perhaps the question of taxation raised issues for Lonergan about the role of government in the economy that moved him to consider issues beyond a strict macroeconomic account of circulation analysis. In many respects, this brief account of the advances made in ECA misses the technical detail and therefore much of the rich insight in this essay. Nonetheless, it is clear from the instances highlighted that the essay is a significant refinement of the breakthrough to economic science achieved in FNPE. How might we succinctly characterize the advance? The trend is towards a purely theoretical formulation of the laws of circulation analysis and towards the precise specification of economic phases. Lonergan restricts his analysis to pure macroeconomic inquiry and so the larger questions concerning the relationship of economic process to zones of human living are excluded from consideration. He observes the canons of empirical method, so he moves in the direction of greater empirical richness, excluding what cannot be verified (canon of parsimony) and including

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all that must be explained (canon of complete explanation).79 The result is a set of laws of circulation analysis that provide a generalized heuristic structure, or upper blade, for the science of economics. The achievement, then, is completely general with respect to the zone it investigates, and while Lonergan establishes principles to guide applications of his theory, he does not analyse any particular economic situation. 3

Shelving of the Economics

Lonergan stopped working on economics in 1944.80 We know the essays were shown to some economists and the response was general incomprehension.81 His choice, while difficult, was probably a wise one. Lonergan’s 79 The canons of parsimony and complete explanation are relevant to all genera of science. Hence, they appear in Lonergan’s account of the canons of interpretation. For a comparative analysis of the relationship between the canons of empirical method and the canons of interpretation, see Philip McShane Process 150–52. Lonergan’s macroeconomic analysis is fully empirical and so properly weaves together both set of canons. Economics is, after all, a human science and human meaning is therefore relevant. 80 Lonergan did give a public lecture on economic centralization the following year in Kingston, Ontario; a third-person report of appears in LEER, chapter 8. He did not address economic issues again in public until the 1970s. He mentions the economy and economic theory in chapter 7 of Insight, and occasionally a reference occurs in his published essays. 81 In Caring about Meaning (181) Lonergan gives the following information: P.L. [Pierre Lambert] You consulted economists? B. Lonergan Yes, I had consulted a fellow who was in charge of the Tax Foundation in Canada. (He was predicting what the budget would be. Chartered accountants and corporation lawyers established the Tax Foundation so that they would have an independent opinion on what taxes were needed. The man was offered a better job and thought it a good thing for the Foundation to get everyone a move up, so he left it and went into the Canadian section of an economic group that informed businesses about trends. He set up the branch here in Canada.) He was in contact with a professor at McGill about the manuscript. Also, in Boston, through Joe Flanagan, and in St Louis, it was shown to economists, you see. Charlotte Tansey This was later on? B.L. No, at the time I got no encouragement from anyone I showed it to in ’44. P.L. So you put it aside? B.L. Until I saw that there was room for it. If you publish a book and no one understands it and it doesnct sell –? (It will be almost impossible to get it published in any case.) The reference to Joe Flanagan, in all likelihood, refers to a date around

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work had been essentially a solo effort. He lacked a community of scholars with whom he could effectively communicate his discovery. He evidentially judged the probabilities for successful communication of this work to be low: he later came to the conclusion that it would take a century or two before his theory would be generally accepted. He could have spent much time and effort trying to communicate his work without necessarily improving the odds for its transmission. As with all his other economic writing, Lonergan did not finish ECA. McShane, in his editorial introduction to For a New Political Economy, writes: ‘Towards the end of his life Lonergan expressed the desire to write a primer on economics. One might claim that this was what he had been aiming at from the beginning of his work in the area in the 1930s, the result being a set of incomplete introductions to economics.’82 We can assume there were questions Lonergan had not satisfactorily resolved when he stopped in 1944. For example, one might fruitfully pursue questions about the scale of economic organization addressed by Catholic thinkers such as Pesch, Chesterton, and E.F. Schumacher.83 Lonergan’s principal concern was to specify the fundamental variables of macroeconomic dynamics, but he was certainly aware that, besides microeconomic questions about firms and households, community and regional economic development was a significant zone for inquiry in any democratic economy and certainly was a central focus of the Catholic ‘third way’ approach to economics.84 Lonergan

1980. Patrick Brown, in a private correspondence, informed me that in 1980 Joe Flanagan asked him for a copy of the manuscript to send to Michael Novak at the American Enterprise Institute. 82 CWL21 xxiv. 83 Pesch’s theory of solidarism and Chesterton’s distributism employed the subsidiary principle to argue for smaller-scale organization of economic units. For a discussion of Chesterton’s understanding of distributism see Richard Gill, ‘Oikos and Logos: Chesterton’s Vision of Distributism,’ Logos 10:3 (Summer 2007) 64–90. For an overview of contemporary distributism, see Race Matthews, ‘Distributism: Past, Present and Future,’ a paper presented by the Hon. Dr Race Mathews, at the Australian Chesterton Society Conference, Melbourne, 8 May 2004; available at http://www.secondspring .co.uk/articles/mathews.htm (accessed 23 June 2009). E.F. Schumacher’s works draw on this tradition: see Small Is Beautiful: A Study of Economics as if People Mattered (London: Abacaus, 1974) and Good Work (New York: Harper & Row, 1979). 84 For a review of Catholic ‘third way’ approaches to economics from the perspective of Lonergan’s economics see Stephen L. Martin, Healing and Creating in Economic Ethics: The Contribution of Bernard Lonergan’s Economic Thought to Catholic Social Teaching (Lanham, MD: University Press of America, 2008), especially chapters 1–3.

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was interested enough in the emergence of national economic councils in Europe in the early 1930s to keep his notes on them. In the 1940s, he pointed enthusiastically to the work of the Antigonish Movement.85 A development of this zone in light of macroeconomic dynamics would be helpful to the many community development organizations around the globe that, in very practical ways, are trying to build truly democratic economies. In this respect the writings of Jane Jacobs, who has insightfully studied this zone from a common-sense perspective, might be fruitfully integrated into Lonergan’s theoretical prospective.86 It is here also that Lonergan’s work meshes readily with the concerns of liberation theology. I would note in passing that the model of superposed circuits is highly significant, as it provides the theoretical framework for dealing with issues such as debt relief, international trade, and global finance, which are of special concern to developing nations. Lonergan also left hints of his thinking about the relationship of economics and culture, the subject he left off with at the end of FNPE, in his discussion of regional cultures in the philosophy of education lectures of 1959, in the discussion of the role of culture in the reversal of the longer cycle of decline in Insight, and in his writings on the human good and meaning, most notably in chapters 2 and 3 of Method in Theology. However, the more obvious unfinished business in Lonergan’s economics is in the zone of finance, in particular the problem of long term-finance. Certainly, his basic account of the monetary circulation in its relationship to production rhythms provides a solid base for development. He establishes the vital role for finance, especially credit, for initiating and maintaining economic expansion and establishes that, normatively, money flows to the two circuits must vary concomitantly with real flows. The major problem is long-term finance. Long-term expansion requires a steadily increasing positive flow of funds from the redistributional balances to the surplus circuit. There is a need to ensure stable and effective long-term loans so new

85 See his review of M.M. Coady, Masters of Their Own Destiny in the Montreal Beacon, 2 May 1941. Republished in CWL20 68–73 and LEER, 151–54. 86 Jane Jacobs’s ideas on economics are developed in The Economy of Cities (New York: Random House, 1969), Cities and the Wealth of Nations (New York: Random House, 1984), and The Nature of Economics (New York: Random House, 2000). While Lonergan scholars have noticed Jacobs’s ideas, no sustained effort has been made yet to link her work to macroeconomic dynamics. Given Jacobs’s interest in regional economies, the development of a meso-economics out of Lonergan’s macrodynamic economics would augment her work. See Patrick Byrne, ‘Jane Jacobs and the Common Good,’ in Ethics in Making a Living: The Jane Jacobs Conference [10–11 April 1987], supplementary issue of LW 7 (Atlanta: Scholars Press, 1989) 169–89.

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projects are not defeated by jumps in the interest rate. Whatever solutions emerge must acknowledge that money is a means of public bookkeeping and that the laws for the use of money must be coordinated with the laws of objective economic process. After setting his economic manuscripts aside, Lonergan shifted gears and began a study of verbum in Thomas Aquinas. With this he began a systematic study of cognitional theory. It signals a more purposeful investigation of the dynamics of human interiority. This study was followed by Insight: A Study of Human Understanding, which was built on the discoveries of his verbum articles. In Insight the account of cognition grounds an epistemology, a metaphysics, an ethics, and a philosophy of religion. The analytic method developed for his philosophy of history is here enriched by his retrieval of the accounts of human cognition in Aristotle and Aquinas. There are about two pages written on economics in chapter 7. It is, however, only in light of the emergence of his economic essays that we can begin to realize the background work that prepared Lonergan to write those few pages. Nevertheless, Insight can readily be employed as the philosophical companion to his economics. The notion of generalized empirical method developed there is the relevant general method for economic methodology.87 Specifically, his accounts of classical and statistical methods, emergent probability, and genetic and dialectic methods all possess a relevance to economic methodology. Chapter 18 on the possibility of ethics provides a structure for considering how economic theory pertains to decision-making. However, in Insight the account of understanding and reason is more developed than the account of will. In 1953, while in the middle of writing the book, Lonergan was informed that he would be moving to Rome. He then rounded off what had been intended to be a much longer work on methodology. The result is that he did not have the leisure to develop more fully and concretely an account of the dynamics of human will. His treatment of will is limited to what was necessary to write the chapter on the possibility of ethics. If he had had the time, would he have exploited more fully Aquinas’s account of the will?88 One effect of all this is that the problem of the implementation of metaphysics, the problem which Lonergan originally identified with Plato in 1934 in his ‘Essay in Fundamental Sociology,’ was left unsolved in Insight. He had put the issue aside in 1937 to focus on the analytic conception of history. It remained the missing piece of what we might characterize as a life-long project to develop a theory of Catholic Action. 87 See Philip McShane, Lonergan’s Challenge to the University and the Economy (Lanham, MD: University Press of America, 1980), especially chapters 5–7. 88 Thomas Aquinas, Summa theologiae, 1-1, q. 87, a. 4 and 1-2, qq. 1–28.

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The Scientific Revolution in Economics

With the discovery of macroeconomic dynamics Lonergan establishes the foundation for the emergence of a fully empirical science that could guide a democratic control of economy. Schumpeter was right that this feat would require the discovery of the laws of economic dynamics. Lonergan had now discovered the set of fundamental variables for such a macroeconomic dynamics. His notion of economic dynamics is normative; the laws discovered are general, objective, and apply to any economic context. His fundamental insight is the recognition that there are two distinct but related circuits in any economy whose circuits are connected by crossover flows, which require balancing in order to ensure the long-term continuity of the structure. Monetary flows are linked to the real flow. Money is the means whereby the chains of the production process are linked. As the real flow of the production process is primary, monetary flows must adapt to the real flows of production. This view overturns the mainstream notion that the price system is primary and debunks the psychology of ‘animal spirits’ that informs rational-choice theory. Lonergan developed a theory of economic phases based on his account of the exigencies of the production process and the various adaptations in monetary circulation required by these exigencies. He developed an account of the pure economic cycle that explains why the trade cycle is a distortion of the pure cycle. In the process, he developed the notion of pure surplus income that accounts for the existence of profits during periods of economic expansion. His theory also accounts for the diminishing profits experienced in the transitional period, when the surplus expansion is winding down and the basic expansion gets going. His understanding of economic phases provides a prescription for avoiding economic contraction. Thus, the boom-and-bust phenomenon is not, as generally thought, unavoidable. If economic contraction can be avoided, then Lonergan has provided an account of economics that effectively counters Marx’s claim that capitalist economies have internal contradictions that will eventually destroy capitalism. At the same time, he corrects the capitalist notion that profit maximization is the primary goal of business. Lonergan’s economics is the breakthrough to system and science in economics. It is not, however, a closed system. Rather, it proves to be a framework for discovering new laws. A prime example is Lonergan’s own discovery of the structure of superposed circuits. In significant ways, Lonergan’s macroeconomic dynamics turns mainstream economics inside out. This is true both of the theory itself and the approach that underlies it. The fundamental notions of macroeconomic dynamics, the priority of the production process, the two-circuit economy, and the pure cycle, are a radically new organization for the study of

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economics. With respect to his procedure, there are a series of significant differences. First, mainstream economics, despite its mathematical presentation has for the most part a common-sense orientation.89 It seeks answers to practical questions such as how do we lower unemployment, raise profits, or increase the GDP? It places a high value on prediction. Lonergan’s theory differentiates science and common-sense practicality. His goal is explanation of the classical type. Assuming that ‘similars are understood similarly,’ classical method in science seeks the relations of things to each other that were true generally. Thus, the primary scientific goal is to understand how an economy works. A scientific understanding of economy would improve dramatically practical deliberation on economic questions. There is a useful parallel to be drawn in this case with the original Copernican revolution. Ptolemaic astronomy could accurately predict the movement of the sun and planets, solar and lunar eclipses, and so forth. It was able to do this based on accurate observations of the movements of the sun and moon in the sky and finding the repeatable patterns. However, the success of the predictions was independent of any understanding of the true relationship of the sun, the earth, and the moon. Copernicus, however, sought to explain the relationship between the sun and the earth. Therefore, for him the goal was to understand what an ellipse is. Prediction is secondary to explanation. For this reason mainstream economics is ‘dubiously practical’ because predictions without a real understanding of what an economy is lead to uncritical and often erroneous notions about what is actually occurring in a particular economy. For example, based on the notion that increasing GDP is the measure of a healthy economy, one may choose raising GDP as a goal and have a notion as to how out this might be accomplished. Confident predictions of GDP growth over the next fiscal quarter or fiscal year are made. The prediction may even turn out to be accurate. However, whether that’s an acceptable or even dependable target depends on whether in fact GDP is a reliable indicator of economic health.90 Certainly, in the context of macroeconomic dynamics, ‘raising GDP’ is a poor measure for determining real growth, as it fails fully to take into account the distinction between operative and redistributive exchanges, and within operative exchanges it fails to distinguish between basic exchanges and surplus exchanges. Developing economic indicators based on explanatory terms and relations would vastly improve the available data for use in the real 89 This is the view of Bruce Anderson in Beyond Establishment Economics, especially chapter 6, ‘Snapshot Economics versus Real Analysis.’ 90 For a popular summary of criticism of the GDP as a measure of economic well-being see Ted Cobb, Ted Halstead, and Jonathan Rowe, ‘If GDP Is Up, Why Is America Down?’ Atlantic Monthly, October 1995.

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economy. Imagine, for instance, the problem of putting a space probe on Mars if your science is based on a simple circular model of planetary motion around the sun rather the perturbed ellipse of the Newtonian model. Similarly, how can we have a successful economic policy based on a model that fails to distinguish the two circuits that actually exist? Second, Lonergan’s theory is fully empirical. He criterion for explanation is economies in their full empirical richness, leaving out nothing of significance. Mainstream modelling relies on simplified models that exclude the complexities of real economies. For example, the well-known IS/LM model considers only changes in the quantity of monetary exchanges in relationship to the changes in interest rates. There is no differentiation of basic and surplus exchanges, and the model ignores production factors, such as turnover periods, altogether. Redistributive and production exchanges are all lumped together. There is no notion of dynamic process at all; an IS/LM curve provides a snapshot of the changing relationship of interest rates and monetary exchanges and we can compare them at different points in time. Lonergan’s theory takes into account both the production process and the exchange process. It measures the supply and demand of goods and services and differentiates them based on their functional relationships in the economic structure. For Lonergan the relationship of monetary exchange to interest rate is not an explanatory relationship at all, and there is no such thing as the equilibrium rate of interest. Interest for Lonergan is understood functionally in the context of economic phases. Third, Lonergan makes a sharp distinction between economic mechanisms and the decisions of economic actors. For Lonergan economic decision-making ought to follow from an understanding of the patterns of economic circulation, not from accounts of the psychology of decisionmakers. The question of whether economic actors are ‘rational’ decisionmakers is not in his view germane to understanding the underlying schemes of production. In any case, rational choice for Lonergan would include an examination of the underlying economic process. He handles decisionmaking theory in ethics. Lonergan’s approach results in a set of explanatory variables that differ substantially from mainstream theories. While mainstream economics relies on descriptive notions of property, price, rational expectation, equilibrium, and so forth, Lonergan’s distinction of productive and redistributive exchanges, his differentiation of basic and surplus circuits, and his notion of the cycle are explanatory. Lonergan develops the notion of pure surplus income and the pure cycle that have no equivalent in mainstream theory. In his theory innovation (the new idea) is the most significant destabilizing factor in an economy. A good idea redirects effort towards the establishment of a more efficient means of production and sales and towards the

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production of new goods. Finance adjusts to the demand of this effort. In mainstream economics, changes in the quantity of money are the cause of disequilibrium. These affect interest rates and aggregate demand and can cause supply shocks. Lonergan’s theory accounts for variations in economic activity in terms of economic phases that constitute a pure cycle. Analysis of the phases of an economy determines the proper response to economic variations. Mainstream economics imagines a steady-state economy with equilibrium growth as its goal. Responses are determined by the effort to flatten out the economic phases to meet the equilibrium ideal through financial measures such as taxation and interest-rate manipulation. Such strategies produce a trade cycle. Finally, the goal of mainstream economics is profit maximizing. Mainstream economists work to provide economic policies for central authorities, whether they be governments, central banks, labour unions, economic policy advisers, money managers, or corporate boards of directors. Lonergan’s interest, however, was in maintaining and improving the standard of living for all. He sought to promote economic democracy by providing an understanding of an economy that could be a communal ethos. Lonergan was not a practical economist. His contribution is foundational and theoretical. As foundational it is a fundamental shift in economic methodology. As a economic theoretician, Lonergan might be compared to the theoretical physicist who leaves it to the experimental physicist to develop the tools for verification in particular instances. However, he did provide an indication of the practical precepts to be derived from his understanding of the phases of the pure economic cycle: ‘Thrift and enterprise’ in a surplus expansion, ‘enterprise and benevolence’ in a basic expansion. It is now a matter of implementing the practical implications of the theoretical advance in real economies. This will include an experimental component as general laws and principles are adapted to concrete circumstances in the dialectic of history. Lonergan knew the scope of the challenge in 1942. He wrote: ‘A generalization [of economics] will postulate a transformation not only of the old guard and its abuses but also of the reformers and their reforms; it will move to a higher synthesis that eliminates at a stroke both the problem of wages and the complementary problem of trade unions; it will attack at once both the neglect of economic education and the blare of advertisements leading the economically uneducated by the nose; it will give new hope and vigor to local life, and it will undermine the opportunity for peculation corrupting central governments and party politics; it will retire the brain trust but it will make the practical economist as familiar a professional figure as the doctor, the lawyer, or the engineer; it will find a new basis both for finance and for foreign trade. The task will be vast, so vast that only the creative imagination of all individuals in all democracies will

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be able to construct at once the full conception and the full realization of the new order.’91 Such a solution is made possible only by subsequent transformations of education and culture. There are then further issues. How is the new context to be implemented in human history? How do we heal the fragmentation of contemporary academic life in which theory is alienated from practice? How are the counter-positions of prevailing theory and practice effectively reversed? How is any theory effectively translated into good practice? All these problems pointed to the need for a framework for human collaboration. Thus, while 1944 was significant because it was the end of the fourteen-year climb to the theoretical heights of macroeconomic dynamics, it was also the beginning of a revolution in Lonergan’s outlook.

91 CWL21 36–37.

8 Further Contexts

Besides the tasks in each field there are interdisciplinary problems. Underneath the consent of men as scientists, there is their dissent on matters of ultimate significance and concern. It is in the measure that special methods acknowledge their common core in transcendental method, that norms common to all sciences will be acknowledged, that a secure basis will be attained for attacking interdisciplinary problems, and that the sciences will be mobilized within a higher unity of vocabulary, thought, and orientation, in which they will be able to make their quite significant contribution to the solution of fundamental problems.1

Schumpeter said, ‘The foundations of significant creative achievements, notably theoretical ones, are almost always laid in the third decade of a scholar's life.’2 Macroeconomic dynamics was Lonergan’s third-decade achievement. In charting its development, we have identified five stages in its emergence. Lonergan began with the received tradition of Catholic social theory. This is the initial viewpoint. He takes as his own the socialreconstruction challenge of the Catholic encyclical Quadragesimo Anno and situates his economics as part of a larger task of developing a theology of Catholic Action based on the Pauline theme from Ephesians 1:10, of ‘the integration of all things in Christ.’ He developed this theme in ‘Essay in Fundamental Sociology’ and ‘Pantôn Anakephalaiôsis (Restoration of All Things).’ This is the second stage. The next stage is a methodological

1 Method 22–23. 2 John E. Elliott, ‘Introduction’ to J.A. Schumpeter, The Theory of Economic Development (London: Transaction Publishers, 1983) viii.

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advance. The early work in the philosophy of history held promise as a method for dealing with dynamic systems of human meaning, including economics. By focusing attention on the philosophical component of that effort, Lonergan identifies the method of real analysis in the essays on the analytic concept of history. Real analysis is dynamic in conception, resulting in ‘a causally and chronologically inter-related view, as the Newtonian astronomy.’3 It provides a general methodological foundation for his work in economics. The seeds of the fourth stage stretch backwards to the initial decision to study economics, beginning with Lonergan’s interest in socialcredit theory. No doubt he made progress in the early years; however, the breakthrough to the science of economics depends upon the methodological developments of the analytic concept of history. Lonergan spells out the breakthrough in FNPE. This is the fourth stage. In ECA he confined this breakthrough to the field of macroeconomic dynamics with an analysis of monetary circulation. This is the fifth stage. Lonergan’s initial reach was for a theology of Catholic Action that would chart a course of action in response to the distemper of the times. His response was theoretic, his conviction being that action will need intelligent control. ‘All the good intentions in the world are compatible with all the blunders conceivable.’4 His goal in doing economics was to provide the required theory. With his two-circuit approach he identified a core set of significant variables. Like Galileo’s law of falling bodies and Newton’s mechanics before him Lonergan’s macroeconomic dynamics was an achievement of classical science. Classical science anticipates the systematic and abstract from which concrete reality converges. Abstraction in this sense enriches sensible presentation by anticipating intelligibility in the data and, when successfully formulated, reveals what is essential or important and omits what is incidental or irrelevant. Lonergan’s account of circulation analysis is abstract and systematic in this sense of the word. He pays attention to particular instances only as an illustration of a more general point and he leaves out analysis of how the theory might work in the particularity of real situations. Still, the foundational character of the analysis did reveal general precepts related to the phases of the pure cycle, much as his cognitional analysis generates an analogous set of normative precepts based on the levels of intentionality. With respect to elements of decline, Lonergan directed his attention to the phenomena of trade cycles, which are a typical, if deformed, pattern of contemporary economic life. He has little to say

3 ACH 8. 4 EFS in LEER, 20.

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explicitly about economic recovery other than the very important general precept that good economic decisions respect the nature of the economic mechanism, though clearly his analysis would be pertinent to any deliberation on economic recovery. The achievement in economics was one, albeit important, step forward in a much larger project. 1

A Sketch of Developments after 1944

Lonergan returned to economics in the mid-seventies. At the time he was encouraged by Mikał Kalecki’s work recognizing the reality of two economic circuits.5 Kalecki was an influence on the post-Keynesians, whom Lonergan hoped might be a bridge for his ideas to economists. However, the return to economics brought no significant developments to the 1944 version of ‘An Essay in Circulation Analysis.’ The topic of economics appears in a number of talks from the mid-1970s, most notably ‘Moral Theology and the Human Sciences’6 and ‘Healing and Creating in History.’7 He began reading contemporary economists and popular writings on economics.8 At the

5 See Michał Kalecki, Selected Essays on the Dynamics of the Capitalist Economy, 1933–1970 (Cambridge: Cambridge University Press, 1970). 6 CWL1 301–12. The essay was written at the request of the International Theological Commission in 1974. It was edited by Frederick E. Crowe and published in MJLS 15 (1977) 1–20. 7 ‘Healing and Creating in History’ was originally delivered as a lecture at the Thomas More Institute in Montreal in 1975 and published in Bernard Lonergan: 3 Lectures, Thomas More Institute Papers 75, ed. with intro. by R. Eric O’Connor (Montreal: Thomas More Institute for Adult Education, 1975) 55–68. It was subsequently published in 3Coll 100–109 and CWL15 97–106. 8 Among the books read in which Lonergan made marginal notes are Richard Barnet and Ronald E. Muller, Global Reach (New York: Simon and Schuster, 1974); Daniel Bell and Irving Kristol, eds, Capitalism Today (New York: Mentor Books, 1971) and The Crisis in Economic Theory (New York: Basic Books, 1981); Mark Blaug, The Methodology of Economics (Cambridge: Cambridge University Press, 1980); Jean-Yves Calvez, La pensée de Karl Marx, 7th ed. (Paris: Éditions du Seuil, 1956); Alfred S. Eichner, ed., A Guide to Post-Keynesian Economics (White Plains, NY: M.E. Sharpe, 1979); Robert Heilbroner, ed., Economic Means and Social Ends: Essays in Political Economics (Englewood Cliffs, NJ: Prentice-Hall, 1969); Elisabeth Johnson and Harry G. Johnson, The Shadow of Keynes (Oxford: Basil Blackwell, 1978); Ervin Laszlo, The Relevance of General Systems Theory (New York: Doubleday, 1972); Eugen Loebl, Humanomics (New York: Random House, 1976); Adolph Lowe, On Economic Knowledge (New York and Evanston, IL: Harper & Row, 1965) and The Path of Economic Growth (London: Cambridge University Press, 1976); Bertell Ollman, Alienation: Marx’s Conception of Man in Capitalist Society

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suggestion of Eric Kierans, Lonergan read current issues of the Economic Journal.9 He investigated the multinational corporation, a significant institutional development since 1944.10 From 1976 onward, he fielded questions on economics at the Lonergan Workshops. From 1978 to 1983 he taught the course ‘Macroeconomics and the Dialectic of History’ at Boston College. Lonergan used the 1944 manuscript as a text. He soon began to rewrite sections of that manuscript and to draft versions of the introduction missing from the original manuscript. Despite writing new material for an introduction, the length of the volume decreased. His intention was to make the volume more accessible. A comparison of the various versions of the manuscripts confirms this fact. Technically difficult sections were either eliminated, or reduced and simplified. In subsequent years he added Gordon’s introductory text, Macroeconomics, treating it as a foil for his own manuscript.11 This suited Lonergan, as he was still struggling with his contribution as a dialectician, which is evident in his rereading of Schumpeter’s work. Teaching the course brought his economics to the attention of a sympathetic audience. The significant advances for Lonergan’s work in economic science after 1944 were methodological. The development begins with a shift towards the explicit personal appropriation of the subject who knows and deliberates about economics, or any other subject, and is completed with Lonergan’s formulation of the method of functional specialization. We might best suggest the broad lines of this shift by comparing the tone and emphasis of his two studies of Thomas Aquinas which bookend the writing of the two economic essays. Lonergan’s dissertation on the development of gratia operans is a study of a speculative or theoretical development in Aquinas’s thought. (Cambridge: Cambridge University Press, 1972); Joan Robinson, Economic Heresies: Some Old-Fashioned Questions in Economic Theory (New York: Basic Books, 1971); Joan Robinson and John Eatwell, An Introduction to Modern Economics (Maidenhead, Berkshire: McGraw-Hill, 1973); W.W. Rostow, Politics and the Stages of Growth (Cambridge: Cambridge University Press, 1971); Joseph A. Schumpeter, Capitalism, Socialism and Democracy 3rd ed. (New York: Harper & Row, 1950), A History of Economic Analysis (New York: Oxford University Press, 1974), and The Theory of Economic Development (Cambridge, MA: Harvard University Press, 1968); and Amartya Sen, ed., Growth Economics (Harmondsworth: Penguin Books, 1970). My thanks to Gerard Whelan, who produced this list from his research in the Lonergan Archives. 9 His notes on articles from the Economics Journal are available at LRI. 10 LRI Archive File A3458 has Lonergan’s notes on Richard Barnet and Ronald Muller, Global Reach: The Power of the Multinational Corporations (New York: Simon and Schuster, 1974). 11 Robert J. Gordon, Macroeconomics (New York: Little, Brown and Co., 1978).

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As such, it takes advantage of the surge of interest in the historical studies of Aquinas of this time. In this respect, it is a modern work. Lonergan was able to import to the interpretive task the analytic framework he developed for the study of history. As suited a dissertation in theology for the Gregorian University in the pre–Vatican II era, the style is scholastic. What stands out in this work, in light of Lonergan’s later achievement, is its lack of any appeal to the data of human interiority. There is no real hint of the Lonergan of Method in Theology who highlights the foundational significance of the theologian’s appropriation of his or her own interiority. Therefore, while the elements of science and history had made their entrance, the self-conscious shift to interiority had yet to announce itself in writing.12 There was, of course, always an existential core to Lonergan’s work, which made its first appearance in his admiration for Newman’s Grammar of Assent. In his discussions on logic in the Blandyke essays, the appeal is to the experience of understanding and reasoning, opposing conceptualist logic with the operation of mind itself. In the 1930s, Thomas’s intellectualist position on understanding grounds his notion of the dialectic of history. However, it is only with the Verbum articles that Lonergan embarked on a systematic study of human interiority. The shift was likely prepared by his struggle with the concrete specification of his economic discovery that went into ECA, an outstanding instance of which was his analysis of turnover in industry. In any case, with this move, Lonergan’s shift out of the classical mind-set really gains momentum. He begins with intellect. In Verbum he uncovers, in massive and convincing detail, the cognitional position that grounds Aquinas’s understanding of intellect and reason. He shows that Aquinas’s position depends upon an implicit appeal to the operations of the human mind. The study is a crucial stepping-stone for Lonergan’s own account of human cognition in Insight. He may well be referring to his own study on Aquinas in the following comment from Method in Theology on interpreting major classics: The major texts, the classics ... not only are beyond the initial horizon of their interpreters but also may demand an intellectual, moral, religious conversion of the interpreter over and above the broadening of his horizon. In this case the interpreter’s initial knowledge of the object is just inadequate. He will come to know it only in so far as he pushes the self-correcting process of learning to a revolution in

12 In chapter 18 of Insight Lonergan introduces the notion of ‘rational selfconsciousness.’ Choice is willed as a course of action. See CWL3 621–24 [598–600].

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his own outlook. He can succeed in acquiring that habitual understanding of an author that spontaneously finds his wavelength and locks on to it, only after he has effected a radical change in himself. This is the existential dimension of the problem of hermeneutics. It lies at the very root of the perennial divisions of mankind in their views on reality, morality, and religion.13 And one can add economics. The effort to reach up to the mind of Aquinas gave Lonergan a luminous self-appreciation of his own intellect that becomes the foundation for generalized empirical method. Generalized empirical method deepens and expands in a remarkable manner the seed of real analysis from his early writings on the philosophy of history. Real analysis derives from a dynamic analysis of action. The view depends upon an understanding of the act of understanding.14 His examples are in the sciences, but his goal is the analysis of history. By the time he writes Insight Lonergan’s understanding of understanding has now been vastly enriched. There have been numerous accounts of the elements of cognitional theory which ground generalized empirical method, so I will avoid another one here.15 Certainly those elements are relevant to any full and systematic account of economic methodology. The adoption of generalized empirical method makes it impossible to consider a zone of inquiry without consideration of the structured anticipations and operations of the inquirer. And of equal significance, one cannot appropriate the operations of the investigator without considering the corresponding objects under investigation.16 This has massive implications for methodology in all the sciences, and especially the social sciences.

13 Method 161. 14 In the ‘The Analytic Concept of History’ Lonergan makes the case as follows: ‘c) Logical and real analysis. When the act of understanding is the unification of abstract terms, these terms may be a logical or a real multiplicity. The essential definition of man, “rational animal,” is a logical multiplicity, genus and difference. The following analytic concepts are based upon real analysis. The metaphysical concept of material reality as a compound of existence and essence, accident and substance, matter and form. The chemist’s concept of material things as compounds of elements. The Newtonian analysis of planetary motion as a straight line modified by accelerations towards the sun and the other planets’ (8). 15 The best short introduction to his cognitional theory by Lonergan himself is ‘Cognitional Structure’ in CWL4. 16 See 3Coll 141.

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Lonergan’s account of generalized empirical method in Insight differentiates classical, statistical, and genetic and dialectic methods, all of which are complementary to each other and all of which are relevant to the method of economics. As we have seen, circulation analysis was an achievement of classical science. Classical science anticipates system, while statistical method anticipates data that does not conform to system. Certainly statistical methods would be relevant in the science of economics, but they were not Lonergan’s concern in his economic essays.17 In chapter 3 of Insight Lonergan provides the analysis of statistical heuristic structure in the sciences, an analysis relevant to his economics. His notion of emergent probability brings together classical and statistical methods and grounds his novel account of world process. Lonergan indicated the full range of its explanatory power at the end of his treatment of space and time in chapter 5, when he writes: ‘Concrete extensions and concrete durations are the field of matter and potency in which emergent probability is the immanent form of intelligibility’18 As human beings are part of world process, emergent probability is relevant to human development, ethics, human history, and ultimately to the realization of the supernatural solution to the problem of living. Genetic method anticipated development, while dialectic method anticipates deviations from normative development. Together they provide a methodological basis for the application of emergent probability to the dialectic of history. There are other relevant enrichments. The account of common sense in chapter 7 of Insight builds and expands on insights from Lonergan’s earlier work on progress and decline in the dialectic of history, and the ideal of cosmopolis anticipates a detached and disinterested critical community that develops policy for the practical direction of history. The analysis of the conditions for restoration or recovery, the third movement in the dialectic of history, is the subject of chapter 20. Finally, in the epilogue of Insight, Lonergan points towards the theological element in world process. The philosophy of history is positioned as the formal element in a theology of the mystical body. Lonergan then takes up the question of the relationship between theology and the social sciences. The gist of his position is this: the specifically Christian contribution to the economy is the exhortation to effective charity. If one is to love one’s neighbour, then we must acknowledge his real economic needs and work towards their recurrent supply. To apply moral exhortation without an understanding of how

17 Lonergan mentions statistical method only once in CWL21. In ‘An Outline of Circulation Analysis’ (112) he makes a distinction between the statistical approach and the analytic approach he proposes. 18 CWL3 195 [172].

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economies function is an empty gesture. Moral theology needs economic science in order to be moral. One cannot do ethics without reference to the related science. Thus, a development of economic science is part of the creative vector in human history. To ignore it is to stagnate or, worse, hand over our liberty to the forces of totalitarian control. This is the force behind Lonergan’s remark that ‘if Catholics had spent some of their time in the British Museum … we might have a good answer to Marx.’19 Similarly, the social sciences need theology. While social scientists can do research proper to their field without reference to theology, once thought turns to practical application, then moral questions arise where the context is concrete human living. With this we encounter the problem of the social surd. Lonergan writes: ‘The development of the empirical, human sciences has created a fundamentally new problem. For these sciences consider man in his concrete performance, and that performance is a manifestation not only of human nature but also of human sin, not only of nature and sin but also of the de facto need of divine grace, not only of a need for grace but also of its reception and of its acceptance or rejection. It follows that an empirical human science cannot analyze successfully the elements in its object without an appeal to theology.’20 Social theory, no less than philosophy, needs more than the right answers; it needs a way to turn ideas into good practice. Just as goodwill needs intelligence, so intelligence needs goodwill. However, given the reality of sin and its cumulative infection of the social order evident in the longer cycle of decline, recovery and advance is a matter for Christian praxis. The journey was, however, not complete. Lonergan’s account of cognition is still in the vocabulary of scholastic faculty psychology.21 While we now take for granted that Insight is a set of ‘five finger exercises’ in selfappropriation, the point is not at all clear in the book.22 Moreover, while Lonergan’s self-appreciation of intellect and reason is well developed, the same is not true of the elements of deliberation. This aspect of his thought remains relatively undeveloped, yet it is at the heart of any strategy of imple-

19 CM 163. 20 CWL3 765 [743]. 21 See Frederick E. Crowe, ‘An Exploration of Lonergan’s New Notion of Value,’ Science and Espirit 29 (1977) 123–44 and Philip McShane, ‘Quodlibet 9: Some Foundational Pointings Regarding Evaluation’ for two interpretations of Lonergan on evaluation. 22 David W. Tracy, ‘Bernard Lonergan and the Return of Ancient Practice,’ Lonergan Workshop 10 (1994) 319–31 points to the issue. Philip McShane, Lonergan’s Challenge to the University and the Economy tackles the issue at length.

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mentation.23 Clearly, the issue of implementation continued to dog him in Insight. Despite the achievement of a notion of metaphysics as an integral heuristic structure, Lonergan still had not resolved to his satisfaction the question of how to effectively implement that structure in history. In Insight cosmopolis is the possibility of an authentic higher viewpoint directing human collaboration. Yet he writes: ‘Cosmopolis is not Babel, yet how can we break from Babel? This is the problem. So far from solving it in this chapter we do not hope to reach a full solution in this volume.’24 The implementation of the metaphysics in Insight requires massive collaboration, not just in its practical task but also in the division of theoretical labour. Furthermore, it requires a theological component. Lonergan had been well aware of all this from the beginning. His search for a theology of Catholic Action implicitly acknowledged the fact. The problem of the philosophy of history is the issue of collective responsibility.25 In FNPE he writes: ‘There will be need not merely for sober and balanced speculation but also for all the concrete inventiveness, all the capacity for discovery and for adaptation, that we can command.’26 Plato’s ghost still haunts him. We can detect pressure towards that discovery emerging in Lonergan’s seminars in Rome, especially the seminar ‘De Intellectu et Methodo’ as it is represented in extant notes, and in the seminar ‘De systemate et historia.’27 The difficulty was strangely small: as he expressed it in conversation to Philip McShane in 1966: ‘It’s easy: you just double the structure.’28

23 Lonergan himself comments on this narrowing of focus in Insight in comments on affectivity made in ‘An Interview with Bernard Lonergan, S.J.,’ 2Coll 221–23. He writes: ‘There is in Insight a footnote to the effect that we’re not attempting to solve anything about such a thing as personal relations. I was dealing in Insight fundamentally with the intellectual side – a study of human understanding’ (221–22). 24 CWL3 267. 25 See ‘Natural Right and Historical Mindedness,’ 3Coll. 169–83. 26 CWL21 105–106. 27 Some relevant documents include ‘De systemate et historia,’ Notes on lectures at the Gregorian University, 1959–60; Notes for ‘De Intellectu et Methodo,’ special course, Gregorian University, Rome, 1961; ‘Notes from De Methodo Theologiae,’ special course, Gregorian University, Rome, 1962 and 1963; and ‘The Method of Theology,’ ten lectures in the Institute of Sacred Dogma of the summer school program, Georgetown University, Washington. His public lectures during this period also exhibit these developments. See ‘Existenz and Aggiornamento’ and ‘Dimensions of Meaning,’ CWL4. 28 See Philip McShane, ‘The Origins and Goals of Functional Specialization,’ paper delivered at the 20th Annual Fallon Memorial Lonergan Symposium, 31 March–2 April 2005, Loyola Marymount University, Los Angeles.

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Certainly, this is an oversimplification. For one thing, Lonergan would need further illumination on will and value to bring out subtleties in the understanding and implementation of the structure. First, the second and seventh specialties, while corresponding to the what-question, differ modally.29 The ‘what’ of interpretation asks What is it? The ‘what’ of systematics asks What might we do?30 Second, this modal difference in fact colours the two phases of functional specialization. Interpretation is a specialization of the ‘what question’ and systematics or planning is a specialization of the ‘what-to-do question.’ Third, that difference reaches deeply into the fundamental nature of notio entis, described sketchily in chapter 12 of Insight. Chapter 11 makes the crucial point that the pure desire in its reach for its objective does not constitute the subject as centre or starting point.31 The notion of being, then, does not place the subject or the subject's will in a privileged position. Here, somewhat out of place, faculty psychology returns to the field to shed some light. The notion of being is also a notion of the good: its drive dictates the movement through the first four specialties (research, interpretation, history, and dialectic) up to the centre of page 250 of Method.32 Lurking in the second half of that page is a sophisticated turn to the subject that is a further refinement of the notion of value. It pivots on the self-affirming subject locating ‘intellectual appetite’ within being’s dynamic as the heart of the subject’s contribution to that dynamic.33 The word ‘heart’ here is not metaphorical: but to reveal its full meaning here would require a contemporary re-investigation of what Peghaire called the forgotten sense, vis cogitativa.34 In any case, the shift to the oratio recta of the second four specialties occurs here. It brings out the risky personal responsibility that is the ground, under grace, of functional specialization as

29 See CWL18, appendix A. A brief account of functional specialization follows below. 30 See Philip McShane, ‘Cantower 8: Slopes: An Encounter.’ 31 CWL3 344–71. 32 What follows draws heavily on Philip McShane’s ‘Cantower IX: Position, Poisition, Protopossession.’ 33 In Insight Lonergan writes: ‘Will, then, is intellectual or spiritual appetite. As capacity for sensitive hunger stands to sensible food, so will stands to objects presented by the intellect. As a bare capacity, will extends to every intellectual object, and so both to every possible order and to every concrete object as subsumed under some possible order’ CWL3 621 [598]. 34 In Verbum (CWL2 43–44 n.150) Lonergan refers to Julien Peghaire’s article ‘A Forgotten Sense: The Cogitativa According to St Thomas Aquinas,’ The Modern Schoolman 20 (1943) 123–40 and 211–29. See also Frederick E. Crowe, ‘Complacency and Concern in the Thought of St Thomas,’ Theological Studies 20 (1959) 1–39, 198–230, and 343–95.

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method.35 It relocates the adoption of the position in Insight: one might say that the Position becomes a good, ‘the possible object of rational choice.’36 The meaning of ‘rational choice’ here is far richer than the simplistic utility-maximization of rational-choice theory common to mainstream economics. How much of this Lonergan worked out in his later years is a matter for future scholarship. Nevertheless, despite the absence of his full perspective on interiority in Grace and Freedom, it is a mistake, I think, to deny him the sophistication regarding the will that we find in Aquinas.37 If, with Frederick Crowe, we speak of a new notion of value in Lonergan or of refinements in his consideration of deliberation, then we should expect new subtleties.38 My suspicion is that this is unfinished business in Lonergan, and his interest in and frequent reference to the existentialists following the publication of Insight would seem to confirm this view.39 When he completed Method in Theology, and as it was being prepared for publication, Lonergan presented his manuscript (with the exception of chapter 14) in lectures at the Milltown Institute in Dublin, Ireland, in the summer of 1971.40 He expressed the view at the time that some of it was better than the forthcoming book, but he never attempted a revision.41 Nor did he seek to explicitly apply his method. There are refinements in his later works. Indeed, one can detect refinements in the abandoned file of February 1965 in which Lonergan set down his breakthrough to functional specialization.42 In any case, it is worth paying attention to the section in Method in the chapter on dialectics where Lonergan asks for commitment, a thematization of commitment, and a duplication of that thematization.43 As Philip McShane argues, it is the per se key scientific moment in functional specialization.44 Of course, per accidens, the commitment can occur anywhere at any time. Frederick Lawrence, writing of the debate on method between Gadamer and Habermas, presents Habermas’s mood: ‘Even and especially

35 This point is made in Frederick E. Crowe, ‘Dialectic and the Ignatian Exercises,’ in Lonergan Workshop 1 (Missoula, MT: Scholars Press, 1981) 1–26. 36 CWL3 624–26 [601–602]. 37 Summa theologiae, 1-2, qq. 1–28, but passim. 38 Frederick E. Crowe, ‘An Expansion of Lonergan’s Notion of Value,’ in Lonergan Workshop 7 (Atlanta, GA: Scholars Press, 1988) 35–57. 39 Most obviously in Phenomenology and Logic: The Boston College Lectures on Mathematical Logic and Existentialism (CWL18). 40 LRI Archives Files A1306–20. Questions after lectures, LRI Archive Files A1851–58. 41 Lonergan’s comment was related in a conversation with Philip McShane. 42 LRI Archive File A472. Also relevant LRI Archive File A473. 43 Method 250. 44 Philip McShane, ‘Cantower XXXIX: Functional Dialectics.’

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in the human sciences, then, a properly scientific moment is a condition of the possibility for enlightened, emancipatory critique. Without such a theory, human beings will be left incapable of passing judgment upon a socioeconomic order whose traditions legitimate the exploitation of the many for the profit of the few.’45 The scientific moment, however, is not a new Plato or Aristotle, but an aggregation of existential and thematic stands that sublates Aristotle’s notion of a virtuous person. ‘Habermas seems to be optimistic about the effectiveness of a practical philosophic discourse based upon an explicitly and formally specified ideal speech situation and in anticipation of the realization of the universal communicative community.’46 The ideal speech situation and the universal community are mythic. Lonergan's strategy is to promote the best efforts to lay bare the existential gaps between our personal value and the unknown terminal value that grounds the field, the point where, existentially, human striving and its failures meets the divine initiative. Functional specialization is the solution that emerges for coordinating the vast human effort to bring into existence the pantôn anakephalaiôsis that is the progress of the mystical body of Christ. Plato’s philosopher-king is replaced by a cosmopolitan community composed of specialists struggling to bridge the gap between their personal value and the unknown terminal value that grounds all value. 2

Functional Specialization

Lonergan’s original goal was to bring morality into economics. Yet he consistently drew a sharp distinction between the schemes of recurrence that constitute the economic mechanism itself and the patterns of human decision-making. In this respect Lonergan adopts, after a fashion, Max Weber’s separation of science and morality, but without the positivist presuppositions. For Lonergan, however, the differentiation of the science of economics and human decision-making is ultimately temporary. Understanding the nature of things is a component of knowing what to do and the probability of good economic outcomes increases as one better understands the science of economics. A large part of his goal in doing economics was to derive precepts for directing economic decision-making. The study of economics tells us how the car works; knowing the drivers is a matter of understanding human beings. As we have seen, Lonergan’s development after 1944 greatly expanded his understanding of drivers and how they de-

45 Frederick Lawrence, trans., H.-G. Gadamer, Reason in the Age of Science (Cambridge, MA: MIT Press, 1998), xxv. 46 Ibid. xxvvii–xxviii.

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cide. In Insight he explores what occurs when the desire to understand is given free rein and when it is kneecapped by the flight from understanding. He delves into the social consequences of both. He elaborates on the philosophical elements of a higher supernatural viewpoint that opens up the prospect of reversing the effects of decline. In Method he differentiates deliberation as a fourth level of human intentionality and establishes in the structure of the good a framework for integrating the science of economics within the larger context of human deliberation. But all that is foreground. It is functional specialization that provides the methodological context for collaborative action in general and economics in particular. Plato’s ‘turn to the Idea’ raised the question of the relationship between common-sense practice and theory. Both zones are constitutive of the human good and relevant to the making of history. However, common sense and theory do not proceed in quite the same way nor do they intend the same ‘object,’ ‘object’ meaning the end or terminus of the inquiry. The appropriation of interiority makes it possible to properly differentiate the two realms and their objects and to grasp their common root in the general dynamics of human intentionality. Common-sense intelligence is spontaneous and practical; it deals with the particular and concrete and is fundamental to the self-constitution of human meaning in history. The economy and its institutions are a creation of common-sense intelligence. Theory, by contrast, is reflective and systematic; it is orientated to what is universal and general. The science of economics is a theoretical activity and the academy is its typical, though not exclusive, institutional setting. The tasks of the real economy can be divided up with the efficient and flexible operation of the whole economy in mind. The various factors of production and the institutional structure of markets are examples of a practical division of labour in action, a point exploited by Adam Smith in his Wealth of Nations.47 The practical division of labour relevant to the set-up of the economy cannot be simply duplicated in the institutions, roles, and tasks of the theoretical realm. There is a need for a distinct theoretical division of labour within the academy. The implementation of the Idea originally envisioned by Plato requires in the contemporary context a collaborative method. Generalized empirical method provides Lonergan with the base for developing functional specialization. Basic to the division of tasks of func47 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Modern Library, 1937), where Smith famously identifies the efficiency of the division of labour in manufacturing. Lonergan acknowledges that the practical division of labour is crucial to progress in the first stage of meaning.

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tional specialization are four levels of conscious intentionality (experience, understanding, judgment, and decision) and two modes of operation (analytic and synthetic). The analytic mode begins with concrete experience and moves towards a general or universal viewpoint. The goal is a generalization that enriches experience with meaning and structure. Thus, Lonergan’s analytic concept of history, while it begins with the given flow of history, ends with an account of ‘what history is.’ The structure of the human good and macrodynamic economics are also analytic achievements. The ascent from experience to this universal viewpoint builds on the achievement of the past: it is an ongoing collaborative recovery of past achievement. The process gathers data or information, interprets its meaning, and establishes a history of events, that is, an account of what is moving forward. In its final stages, the process is a dialectical exercise, revealing the contradictions and shortcomings of each one’s efforts, and out of this forges a set of basic positions. By identifying specialized activities corresponding with the four levels of conscious intentionality, Lonergan differentiated the four analytic specialties, which are Research (a specialty of experience), Interpretation (a specialty of understanding), History (a specialty of judgment), and Dialectic (a specialty of deliberation). The crucial turning towards implementation of the vision occurs with the question for deliberation. There is a curious doubling of the structure of cognition when we reach the level of deliberation. Dialectic gives us our best analysis. It aims to answer the question, What do we really value? The exigence of the specialty is towards taking a personal stand. However, deliberation centrally includes the question, What might we do? Thus, it seeks out possible courses of action. The mode shifts from recovery of the past to anticipation of the future. With this, we turn from Dialectic to Foundations with the intent of moving forward the best ideas, as determined in Dialectic. This change in mode is a shift in interior emphasis from understanding to will.48 Intelligence is now poised to work out creatively the best means of implementing foundations. Here, the structure of the good, enriched by suc48 See CWL3, chapter 18. Lonergan’s sublation of intellect and reason to deliberation resolves an ambiguity in Aristotle’s understanding of the relationship of reason and will. In Nic. Eth. 1139b 4 Aristotle writes: ‘Therefore, choice is either the appetitive intellect or the intellective faculty of appetition, and man is this kind of principle.’ In ‘Questionaire in Philosophy: Response’ Lonergan writes that the ‘primacy of the judgment of value … breaks away from the ambiguity of Aristotle’s Nic. Eth. (VI, 2, 1139b 4)’ (CWL17 381). I note as well that the shift to the forward-leaning specialties is more than simply a shift in emphasis from understanding to will. In the last four specialties there is also a greater need for the creative imagining of future possibilities.

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Table 4 Functional specialties49 Research – Collecting and selecting the relevant data, written or otherwise. Interpretation – Establishing the meaning of the data. History – Figuring out what is actually going forward. Dialectic – Sorting through the various interpretations and histories with the aim of coming up with the best story or explanation. Foundations – Expressing the best directions forward in a way that is not tied to particular places, ages, and times. Doctrines (Policy) – Reaching relevant pragmatic truths within a foundational context. Systematics (Planning) – Drawing on past strategies and discoveries while envisaging future concrete possibilities and their probabilities. Communications – Collaborative reflection on the local level that selects creatively from the range of possibilities developed in the prior eight specialties.

cessive approximation to the concrete situation, provides foundations for a concrete application of social analysis. Thus, the objective of the synthetic mode is the integration of the best ideas that emerge in the analytic mode into the flow of history. It is an intelligent procedure aimed at working out the correspondence between the generalities of theory and the particularities of an actual situation. Its temporal orientation is towards the future. It begins with the personal commitment that affirms the general viewpoint attained in the prior analysis and moves, in stages, towards a concrete realization of the vision, taking into account the particularity of the situation. Thus, a basic stance is converted into policies or doctrine; policies require planning (systematics); and planning selects from all the possibilities generated those that best match the local situation. This gives us four synthetic specialties corresponding with the four levels of conscious intentionality, but conceived in reverse order from the analytic specialties. These are Foundations (a specialty of deliberation), Doctrines (a specialty of judgment), Systematics (a specialty of understanding), and Communications (a specialty of experience). The new integration is a cooperation that adds flesh and bone to the universal viewpoint that is the goal of Dialectic and is appropriated and expressed by Foundations. There is an internal feedback mechanism within functional specialization itself. The results are communicated, and these communications become data for further research. Research brings historical data into the theoretical loop, and Communications marks the outward expression of results in each field to other academic and scientific communities and to the non-specialist audiences. Table 4 presents a full list of the specialties with a description of their primary function. 49 Adapted from Bruce Anderson, ‘Discovery’ in Legal Decision-Making (Dordrecht: Kluwer Academic Publishers, 1996) 167.

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Functional specialization is both an internal division of labour for theoretical collaboration and an external communication to the practical realm. Internally, a feedback loop connects data with results. Philip McShane has made a helpful suggestion concerning understanding the functional specialty of Communications. Within the functional-specialization feedback loop itself, communication is of specialist to specialist.50 Specialist communication advances the various fields themselves and facilitates interdisciplinary work. This kind of communication is generally inaccessible to the non-specialist, for to understand it requires one to learn the methods of the field. Think, for example, of the technical expression of scientific journals. There is, however, the important issue of communicating significant results of specialist labour to non-specialist audiences.51 This can be a difficult task, not only because the possibility of misunderstanding is high, but also because the transition from theoretically differentiated consciousness to undifferentiated consciousness can lead to a degeneration of the original meaning.52 Theory can ‘fuse more with common nonsense than common sense, to make the nonsense pretentious and, because it is common, dangerous and even disastrous.’53 Despite inherent dangers, it is here that the specialist effectively contributes to the practical making of history. Thus, a differentiation of types of communication would make clearer the difference between developments in theory itself and communicating its significance for the making of history. The points of contact between the world of practice and the world of theory occur in the two specialties of Research and Communications. What happens in history becomes new data for analysis and synthesis. The specialty Communications converts this theoretical activity back into history. By differentiating the internal re-circulation move50 The distinction first appears in Philip McShane, Process (Halifax: Mount St Vincent University, 1989). He identifies a matrix of types of communications between specialists in the eight specialties in addition to communications between the specialists in the functional specialty and non-specialists, as, for example, in most teaching, popular presentations of theoretical discoveries, communication to policy-makers, and so forth. 51 Philip McShane in ‘Quodlibet 2, Convenient Images of Creative Control of Meaning’ first introduced the idea. It is worth noting that even communications between different types of specialists is subject to this difficulty. For instance, the interpreter may have an inadequate grasp of the materials handed over by the specialist, but still judges the results sufficient for his or her purposes based on a belief in the reliability of the researcher’s conclusions on that subject. On the important role of belief in human collaboration see Method 41–47. For an analysis of the cognitional structure of belief see CWL3 729–35 [717–23]. 52 See Method 97–99. 53 Method 98.

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ment of analysis and synthesis from its external relations, we can grasp the mechanism by which functional specialization functions as a higher control of history. The circulation of the eight functional specialties in the theoretic zone constitutes the upper blade for the direction of human history. The lower blade is the movement of history itself. The movement upwards from history to the higher theoretic zone occurs through the specialty Research, while the movement from theory to historical practice occurs through the specialty Communications. In sum, functional specialization provides a method for the intelligent and responsible control of circulation of the theoretic Idea in its interplay with the flow of history. What began as a search for the differentials of history in ‘An Essay in Fundamental Sociology’ in 1934 is satisfactorily resolved with the discovery of functional specialization in 1965. The presentation of functional specialization in Method in Theology is, however, uneven. Lonergan was an outstanding dialectical thinker. He took to heart Leo XIII’s exhortation to augment and perfect the old. In his appropriation of Aristotle and Aquinas he sorted out the best from the tradition that nurtured him. He had a talent for finding the best elements of thinkers with whom he disagreed. Beyond this, he recognized the profoundly personal element in dialectic which challenges one’s own corrupted thinking. His own progress was a slow climb out of the parochial Roman Catholicism of his youth. In his later years, he was a thinker stretching out towards the emergence of a new catholicity, comfortable with the notion of contributing to the cooperation of world religions.54 He accomplished this primarily by digging deeply within the tradition which formed him, finding its best expression and bringing it up to date. The later chapters of Method in Theology, however, reveal a weakness with respect to his thinking forward in concrete fantasy towards a future reality. Perhaps more than any other twentieth-century thinker, Lonergan understood the need to find the link between the ‘turn to the Idea’ and its implementation in history. He understood that the withdrawal from practicality was for the sake of a return. He left a sketch of the way back, but overall he left to others the task of working out a strategy of return.55 This explains in part the sketchiness of Lonergan’s account of the forward-looking specialties in Method in Theology. His notes on functional specialization from 1965 54 See 3 Coll. passim. 55 See especially Method 288–90. Robert Doran’s work in Systematics makes a beginning, most recently, ‘Reflections on Method in Systematic Theology,’ in LW17 23–52. Philip McShane’s Cantowers, Sofdaware, and Quodlibet series are devoted to the development of functional specialization. These are all available at http://www.philipmcshane.ca.

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indicate that he had a much more complex vision of these various specializations than appears in Method in Theology. It was only shortly after his discovery of functional specialization in 1965 that Lonergan was discovered to have lung cancer. The effects of disease, which nearly killed him, had a drastic effect on the level of Lonergan’s energy.56 He was unable to devote to Method in Theology the same energies he devoted to the writing of Insight. We can only imagine what Method in Theology would have been like had Lonergan been able to maintain his energy level. How might the presentation of Foundations, Doctrines, Systematics, and Communication have differed? In the chapter on Foundations, for instance, there is much fuel for thought on how functional specialization sublates Insight.57 He only hints at the creative character of this specialty.58 In the chapters on Doctrines and Systematics, Lonergan presents some applications of these specialties to issues in Catholic theology, but gives little indication of the massive reorientation he originally envisaged for these specialties.59 Regarding the final specialty, Communications, Lonergan declares the ‘great importance of this final specialty,’60 yet at thirteen pages his treatment is stunningly short. Likewise, he barely hints at the significance of functional specialization for interdisciplinary work. Yet, this promises to be a most significant feature of the method. Not only does functional specialization transform theological method, it provides a basis for the transformation of cultural reflection and establishes an invariant foundation for communication among all the sciences, both natural and human. The issues, which confounded theology and led to the development of functional specialization, occur in all the sciences. The division of labour discovered is likewise applicable. All modern science is collaborative and thus prone to the same basic division of tasks. For example, the fundamental division between the analytic and synthetic modes of functional specialization emerges in physics as a division

56 See William Mathews, ‘A Biographical Perspective on Conversion and the Functional Specialties in Lonergan,’ MJLS 16 (1998) 133–60. 57 Method 286–88. 58 See McShane, ‘Cantower XIII: Functional Specialization and Chapters 17 and 18 of Insight.’ Why creative? Its per se emphasis is on foundational advance rather than on taking a stand on past achievement. Deliberating forward is about bringing something into existence: What are we going to do? It requires new ideas that transpose or adapt past solutions to the present situation. 59 For a recovery of the larger vision, see Philip McShane, ‘Systematics, Communications, Actual Contexts,’ in Religion in Context: Recent Studies in Lonergan, ed. Timothy P. Fallon and Philip Boo Riley (Lanham, MD: University Press of America, 1988) 59–86. 60 Method 355.

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between theoretical and applied physics. Similar divisions can be identified as operating implicitly in any other field of study. Attempts have been made in the last twenty years to demonstrate the value of the functional-specialist division of labour in various fields.61 This link between fields based on the same division of labour vastly opens up the possibilities for interdisciplinary work. Sharing the general methods common to a particular functional specialty links interpreters in different fields. A profound advantage of the method of functional specialization is its ability to connect the work of one specialty with that of other specialties. All the specialties are part of a collaborative flow from data to results. Interpreters need the work of researchers, just as historians need the work of interpreters and researchers. Grasping that all the specialties are links in a unified chain is a much-needed inoculation against totalitarian ambitions emanating from any one specialty or scientific field. Furthermore, the hierarchy of sciences built on the worldview of emergent probability is relevant to the ordering of functional specialization. Recognizing this works against the reductionist tendencies apparent in the work of many eminent natural scientists, who, though competent in their own zones of inquiry, often

61 For an overview, see Philip McShane, ‘Implementation: The Ongoing Crisis of Method,’ JMDA 3 (2003) 11–32. For an early effort at functional specialized collaboration, see Terry J. Tekippe, ed., Papal Infallibility: An Application of Lonergan’s Theological Method (Washington: University Press of America, 1983). More recently, see JMDA 4 (2004). McShane has explored the need for functional specialization in physics in ‘Elevating Insight: Space-Time as Paradigm Problem,’ MJLS 19:2 (Autumn 2001); in economics, in Economics for Everyone and Pastkeynes Pastmodern Economics, chapter 3; in linguistics, in A Brief History of Tongue (Halifax, NS: Axial Press, 1998); in musicology, in The Shaping of the Foundations, chapter 2; and in literature, in Lonergan’s Challenge to the University and the Economy (Lanham, MD: University Press of America, 1980), chapter 5. Bruce Anderson, in ‘Discovery’ in Legal Decision-Making, discusses functional specialization as applied in the philosophy of law. Terrance Quinn discusses functional specialization in mathematics in ‘Reflection on Progress in Mathematics,’ JMDA 3 (2003) 97–116. Robert M. Doran, in a series of articles in Theological Studies and MJLS, has been developing a theological systematics along functional lines. See, for example, ‘Intelligentia fidei in De Deo Trino: Pars Systematic,’ MJLS 19 (2001) 35–83; ‘Bernard Lonergan and the Functions of Systematic Theology,’ Theological Studies 59 (1998) 569– 607; and, more recently, ‘Implementation in Systematics: The Structure,’ JMDA 3 (2003) 264–72. Ian Brodie has applied functional specialization to religious studies in ‘Bernard Lonergan’s Method and Religious Studies: Functional Specialties and the Academic Study of Religion,’ MA thesis, Memorial University, 2001. And see, most recently, Scott Halse, ‘Functional Specialization and Religious Diversity: Bernard Lonergan’s Methodology and the Philosophy of Religion,’ PhD thesis, McGill University, 2008.

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extend results in one area willy-nilly to other zones of inquiry.62 No selfrespecting teacher of English literature, for instance, could claim in public, without embarrassment, that sciences were irrelevant to the arts. Likewise, physicists or biochemists could not ignore the ethical questions relevant to their research. The discovery of functional specialization makes explicit the integral connection among all fields of theoretical inquiry. If implemented in the academy, it would, I believe, transform the institutions of higher learning and would eventually dissolve the barrier erected between C.P. Snow’s ‘two cultures.’63 However, I would also anticipate a renewed resistance to the trend towards the reduction of inquiry to what is practical. Functional specialization is built upon interiorly differentiated consciousness that, even as it establishes a common basis in intelligence for common sense and theory, sharply distinguishes the two and affirms the validity of each. An implementation of functional specialization would lead to the development of more adequate forms of expression for each specialty. Currently, a typical journal article in the humanities is often a hodgepodge of different specialties. We would expect this when there is no clear understanding of the division of labour. The implementation of functional specialization would permit a more finely tuned development of each specialty, which would naturally lead to more differentiated expression. We might recall here a historical precedent. The natural sciences came into their own as empirical sciences once they were differentiated from natural philosophy. After Newton, one did not expect philosophers to readily grasp what was going on in physics journals. Similarly, there was a shift in chemistry after 1871. Subsequently, a specialty within philosophy called philosophy of science emerged that concerned itself with the methodological foundations of physics and other sciences. Any good present-day philosopher of physics would recognize that his or her work is cross-disciplinary and involves two distinct kinds of expression. In this light we can, for example, relocate Lonergan’s own work in Insight. In the light of functional specialization, most of chapter 17 on interpretation can be relocated in the specialty of Dialectics. Likewise, chapter 16 on ‘metaphysics as science’ is a contribution to Foundations. 62 For example, Edward O. Wilson’s much-discussed Consilience: The Unity of Knowledge (New York: Random House, 1998) is an ambitious attempt to explain human life from the methodological viewpoint of a biologist. While rightly stressing the underlying significance of biology for understanding human living, Wilson nonetheless manages to reduce the zone of human meaning to its underlying biological categories. 63 C.P. Snow, The Two Cultures and the Scientific Revolution (London: Cambridge University Press, 1959).

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The division of labour in functional specialization is implicit in the way things are already done. Its base is in a verifiable account of human intentionality, and it assumes the fact of human collaboration in the advancement of knowledge. Even a superficial perusal of the activity of modern empirical sciences and academic disciplines reveals their unavoidably collaborative nature, even if that collaboration involves fierce competition and disagreement among the participants. Disagreement only reveals more clearly the need for the specialty Dialectic, whose job it is to evaluate what is produced, including an evaluation of who produces it. Lonergan writes: ‘A further objectification of horizon is obtained when each investigator operates on the materials by indicating the view that would result from developing what he has regarded as positions and by reversing what he has regarded as counter-positions. There is a final objectification of horizon when the results of the foregoing process are themselves regarded as materials, when they are assembled, compared, reduced, classified, selected, when positions are developed and counter-positions reversed.’64 In any case, the necessity of teamwork in the natural sciences is readily acknowledged. In the social sciences and humanities, the illusion of individual autonomy may be easier to maintain, where the working environment is an office retreat. Still, arts professors teach together in departments, devise programs in common, have conferences, and contribute to journals. In all fields there is some process that starts with input of data and leads to the communication of results. Functional specialization makes explicit the functional divisions that are implicit in this general process. Making the division explicit means that the collaboration will likely be more efficient. If we are going to get better results it makes sense to split up the work in an intelligent way. There is, after all, power and efficiency in a division of labour. If it is intelligent it is more productive, even when the ‘production’ we have in mind is reflective.65 Because of the general nature of the functional-specialist division of labour, it is relevant to economics and can also help in the mutual interchange of economics with other social sciences, ethics, philosophy, and theology. Initially, we can divide up the activities of economists into those that contribute to an evaluation of the current situation and those that contribute to future development, both of economics itself and of the economy. Thus, evaluation of the current situation involves the collecting of statistical and other data, that is, research, interpretation of data, and presenting relevant economic histories, and evaluation of differing results, that is, dialectics. 64 Method 250. 65 Of course, the meaning of production and efficiency applied to a cultural activity is different than in business. Relevant here are Josef Pieper, Leisure, the Basis of Culture (New York: Pantheon Books, 1964) and Jane Jacobs, Dark Age Ahead (Toronto: Vintage Canada, 2005), especially chapters 2 and 6.

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When the focus turns to the future one can make methods explicit as in foundations, establish economic policy, develop economic plans, and communicate results to specific audiences. The two basic orientations can even occur in the same journal article. An economist, for example, can devote a section of an article to an analysis of data on rates of production rhythms and then in another section offers suggestions regarding the implication of the evaluation for economic policy. Functional-specialist division of labour can be applied even if its philosophical basis is not fully grasped. Because the division is operated implicitly, it allows for an easy identification of the specialties. Much as there is a visible division of an orchestra into brass, strings, woodwinds, and percussion, it should be relatively easy to indicate the eight specialties in economics. As we apply it to the curriculum in departments of economics, the division might reveal connections among work in different specialties and prevent confusion occurring because of a failure to appreciate different functionally defined tasks. Economic theorists and those who work in the various branches of applied economics might grasp more readily how they can help each other out. Finally, the occurrence of a parallel division of labour in related sciences and disciplines opens up lines of communication that, if developed, would be of tremendous significance for public policy. The policy questions that emerge in current political debate typically require contributions from many sciences and disciplines. Take, for example, efforts to clean up the effects of environmental pollution. Any such effort brings into the debate representatives from the various natural and social sciences, ethics, economics, marketing, and so forth. To this we add contributions from various public-interest groups. The route from data to social results is extremely complex. A functional-specialist division of tasks provides a way to order the process that would bring out the creative contributions of each participant and provide a way to sort out differences without forcing a predetermined result. In this context, an economist applies the results of the various investigations to the situation at hand. The economist and the ethicist are not at odds. The two are simply understood to be contributing to different elements in a collaborative process. It is with the development of functional specialization that Lonergan finally was able to solve the puzzle of how to ‘make economics moral.’ His economic theory provides the understanding of how economies function properly, and functional specialization provides the way for the effective implementation of the theory. 3

The Challenge of Lonergan’s Economics

This book has been a study of the early development in the thought of Bernard Lonergan that led to his discovery of foundations for the science of economics. My primary objective has been to chart that development,

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indicating its significant stages. Chapters 1 through 7 cover the period up to 1944 to the point where Lonergan reached a satisfactory conclusion to his quest for an analysis of the general structure of economic process. The present chapter offers a sketch of subsequent developments relevant to economic theory. Generalized empirical method provides a sound methodological starting point for a philosophy of economics and would ground an expansion of the application of the core discovery of 1944 to incorporate statistical, genetic, and dialectic methods. Functional specialization provides an integral structure for applying a theoretic division of labour in economics and in all related fields, and for implementing the results in everyday life. How well these stages mesh with a comprehensive account of Lonergan’s development is a question for further research. It seems clear, however, that Lonergan’s interest in economics was not peripheral to the central themes in his life’s work. Lonergan was moved to respond to the crisis of his time. In 1934 he speaks of an ‘asinine confidence in political economists [that] … has landed the twentieth century in an earthly hell.’66 Later, in Insight, he repeats the theme: ‘Had the implication of present short-comings not been overlooked with such abandon, had the apostles of progress not mistaken their basic views for premature attainment of future perfection, then the disillusionment of the twentieth century could hardly have been at once so unexpected, so bitter, and so complete.’67 And, we may recall from Method, ‘a civilization in decline digs its own grave with relentless consistency.’68 Surely he was speaking of the contemporary situation. Nonetheless Lonergan did not believe the situation was hopeless. He was a Catholic and a Jesuit man of faith, and he held the conviction that the adequate response was ultimately religious. In 1934 he writes: The nature of progress is to reconquer through Christ the loss nature sustained through sin. For from sin we derive a double evil: ignorance of the intelligible and difficulty in obeying the intelligible. The function of progress is to increase leisure that men may have more time to learn, to conquer material evil in privation and sickness that men have less occasion to fear the merely factual and that they may have more confidence in the rule of intellect, to struggle against the inherited capital of injustice which creates such objective situations that men cannot be truly just unless first the objective

66 EFS in LEER 20. 67 CWL3 710 [688]. 68 Method 55.

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situation is changed, and, finally, I am not certain I speak wildly, out of the very progress itself to produce a mildness of manners and temperament which will support and imitate and extend the mighty power of Christian charity. This then is the virtue of progress, the virtue of social justice, by which man directs his action so that it will be easier for his neighbors and his posterity to know and to do what is right and just.69 In Insight he writes: The realization of the solution [to the problem of evil] and its development in each of us is principally the work of God, who illuminates our intellects to understand what we had not understood and to grasp as unconditional what we had reputed error, who breaks the bonds of our habitual unwillingness to be utterly genuine in intelligent inquiry and critical reflection by inspiring the hope that reinforces the detached, disinterested, unrestricted desire to know and by infusing charity, the love, that bestows on intelligence the fullness of life.70 In Method, in unadorned prose, he writes: ‘Finally, we may note that a religion that promotes self-transcendence to the point, not merely of justice, but of self-sacrificing love, will have a redemptive role in human society inasmuch as love can undo the mischief of decline and restore the cumulative process of progress.’71 The mess in economics was an outstanding theoretical problem in the 1930s and Lonergan tackled it, buoyed and inspired by a religious faith that demanded he use his talent and that opportunity for the betterment of humankind. His solution in economic theory certainly stands independent of his larger view, but not its implementation. He knew the problem was larger than economics or politics. There are, then, a number of challenges that Lonergan’s economics presents us. In 1944 Lonergan could not find a sympathetic economist who could grasp what he was on to. The field of economics carried on with essentially the same standard model with a Keynesian twist. In 1975, when he returned to economics, Milton Friedman was the new twist and Lonergan again noted that economics was still the significant example of a science in disarray. In 2008 both the global economy and the study of economics remain a mess to be sorted out. Friedman is out now and Keynes is making 69 EFS in LEER 42–43. 70 CWL3 751 [730]. 71 Method 55.

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a comeback. What the world badly needs is a new idea about economics. It is my belief that the new idea we need has been around since 1944. Just because an idea is the right one does not mean it will be a successful one. There are both probabilities of emergence and probabilities of survival. While macroeconomic dynamics emerged in 1944, its survival is not assured. At the moment, learning Lonergan’s economics requires personal commitment of considerable time and energy. Not everyone has the right circumstances or the requisite skill level or, to be frank, the inclination. Furthermore, there are special problems in fermenting a revolution in economic theory in our current global climate. In 1905 Albert Einstein, while working in a patent office in Switzerland, published his paper on the special theory of relativity. In 1916 he published his paper on the general theory of relativity. In the interim he had gained support among many leading physicists. In 1919 The Times of London’s headline proclaimed a ‘Revolution in Science’ and later a New York Times editorial on relativity theory declared that ‘the foundations of all human thought have been undermined.’72 Einstein began as an outlier in the world of physics, but his ideas took hold with relative speed. Part of this is surely an accident of time and place, but part of it speaks to the difficulty of effecting a revolution in the human sciences. Mendel’s gene theory, the product of an obscure monk, lay dormant for forty years, but once his work reached the right ears the revolution in genetics happened quickly.73 Lonergan is an outlier in world of economics, but unlike Einstein’s or Mendel’s, his work has failed after more that sixty years to make any dent in the world of economics. Lonergan was well aware of the difficulties his theory faced, and no doubt this had much to do with his decision to set his work aside in 1944. Like physics, the human sciences also have to overcome the ideology of mechanical determinism. Unlike physics, the human sciences, because they are concerned with human affairs, are more prone to be infected by bias. However, even if economists were convinced of the new idea, it remains that there are powerful forces with vested interests with their hands on the levers of economic policy. Currently the prevalent ideology makes profit the goal, but ‘profit as a criterion encourages the egotism of individuals and groups; individual and especially group egoism is a bias that generates inattention, obtuseness, unreasonableness, and social irresponsibility.’ Furthermore, economics ‘has turned out to be an engine of decline.’74 The challenge of Lonergan’s 72 Walter Isaacson, Einstein: His Life and Universe (New York: Simon & Schuster, 2007) 264, 278. 73 Robin Marantz Henig, The Monk and the Garden: The Lost and Found Genius of Gregor Mendel, the Father of Genetics (Boston: Houghton Mifflin, 2001). 74 CWL17 369.

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economics is not a simple one of marshalling the effort to understand and communicate it; the challenge is how to counter a global culture in decline digging its own grave with relentless consistency. No doubt Lonergan’s explicit religious orientation is in some respects an impediment to the spread of his ideas in economics, even though his economic theory stands on its own. Similarly, problems stem from the difficulty and style of his presentation of the theory. These problems are, I hope, solvable. Lonergan speaks of the need for serious education, and serious education in economics will require a shift in the way we go about teaching and writing. It is a matter of encouraging the creative intelligence of students and fellow travellers; it is a matter of finding the courage to resist the halfmeasures of current education practice; it is a matter of staying the course. Lonergan’s dream was of an economist in every village knowledgeable of the fundamental rhythms of the economy and guiding the decisions of its citizens. Economics for him was a tool for democracy. While the challenge is great, if even a few take it up I believe the probabilities for the survival of the idea will improve. After all, we only ever have the next step.

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Bibliography

Works by Bernard Lonergan The following is an alphabetical list of works of Lonergan consulted for this book. It is divided into published and unpublished works. Where applicable, I indicate subsequent publication in the Collected Works directly below the original publication data. Note : LRI refers to the Lonergan Research Institute of Regis College, Toronto. Published Works ‘The Analytic Concept of History.’ Edited with an introduction by Frederick E. Crowe. Method: Journal of Lonergan Studies 11:1 (1993) 1–36. Caring about Meaning: Patterns in the Life of Bernard Lonergan. Edited by Pierrot Lambert, Charlotte Tansey, and Cathleen Going. Thomas More Institute Papers 82. Montreal: Thomas More Institute, 1982. Collection: Papers by Bernard Lonergan. Edited by Frederick E. Crowe. London: Darton, Longman & Todd, 1967. Collection: Papers by Bernard Lonergan. Collected Works of Bernard Lonergan 4. Edited by Frederick E. Crowe and Robert M. Doran. Toronto: University of Toronto Press, 1988. ‘Conversations with Bernard Lonergan 1969–1980.’ In Curiosity at the Center of One’s Life: Statements and Questions of R. Eric O’Connor. Edited by Martin O’Hara. Thomas More Institute Papers 84. Montreal: Thomas More Institute, 1987, 371–440. De ratione convenientiae eiusque radice, de excellentia ordinis, de signis rationis, systematice et universaliter ordinatis, denique de convenientia, contingentia, et fine incarnationis. With appendix Aliqua solutio possibilis. Xerox copy of mimeographed edition. Rome: St Francis Xavier College, 1953.

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De Verbo Incarnato. 3rd ed. Ad usum privatum. Rome: Gregorian University Press, 1960. De Deo Trino II. Pars Systematica seu Divinarum Personarum Conceptio Analogica 3rd ed. Rome: Gregorian University Press, 1964. The Triune God: Systematics. Collected Works of Bernard Lonergan 12. Translated by Michael G. Shields. Edited by Robert M. Doran and H. Daniel Monsour. Toronto: University of Toronto Press, 2007. For a New Political Economy. Collected Works of Bernard Lonergan 21. Edited by Philip J. McShane. Toronto: University of Toronto Press, 1998. ‘Functional Specialties in Theology.’ Gregorianum 50 (1969) 485–504. ‘Gilbert Keith Chesterton.’ Loyola College Review 17 (1931) 7–10. Published in Shorter Papers, Collected Works of Bernard Lonergan, 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 53–59. Grace and Freedom: Operative Grace in the Thought of St Thomas Aquinas. Edited by J. Patout Burns. London: Darton, Longman & Todd, 1971. Grace and Freedom: Operative Grace in the Thought of St Thomas Aquinas. Collected Works of Bernard Lonergan 1. Edited by Frederick E. Crowe and Robert M. Doran. Toronto: University of Toronto Press, 2000. ‘The Gratia Operans Dissertation: Preface and Introduction.’ Method: Journal of Lonergan Studies 3:2 (1985) 1–49. ‘Infinite Multitude.’ Blandyke Papers. Student journal, handwritten, Heythrop College, 291 (February 1929). Published in Shorter Papers, Collected Works of Bernard Lonergan 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 45–47. Insight: A Study of Human Understanding. 2nd ed. London: Longmans, 1958. Insight: A Study of Human Understanding. Collected Works of Bernard Lonergan 3. Edited by Frederick E. Crowe and Robert M. Doran. Toronto: University of Toronto Press, 1992. Macroeconomic Dynamics: An Essay in Circulation Analysis. Collected Works of Bernard Lonergan 15. Edited by Frederick G. Lawrence, Patrick H. Byrne, and Charles Hefling, Jr. Toronto: University of Toronto Press, 1999. ‘Mediation of Christ in Prayer.’ Edited by Mark D. Morelli. Method: Journal of Lonergan Studies 2:1 (1984) 1–20. ‘Merging Horizons: System, Common Sense, Scholarship.’ Cultural Hermeneutics 1 (1973) 87–99. Published in Philosophical and Theological Papers 1958–1964. Collected Works of Bernard Lonergan 17. Edited by Robert C. Croken, Frederick E. Crowe, and Robert M. Doran. Toronto: University of Toronto Press, 1996, 49–69. Method in Theology. London: Darton, Longman & Todd, 1972. The Ontological and Psychological Constitution of Christ. Collected Works of Bernard Lonergan 7. Edited by Michael G. Shields, Frederick E. Crowe, and Robert M. Doran. Toronto: University of Toronto Press, 2002.

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‘The Original Preface of Insight.’ Method: Journal of Lonergan Studies 3:1 (1985) 3–7. ‘Pantôn Anakephalaiôsis (The Restoration of All Things).’ Edited by Frederick E. Crowe. Method: Journal of Lonergan Studies 9:2 (1991) 139–72. Phenomenology and Logic: The Boston College Lectures on Mathematical Logic and Existentialism. Collected Works of Bernard Lonergan 18. Edited by Philip J. McShane. Toronto: University of Toronto Press, 2001. Philosophy of God, and Theology. London: Darton, Longman and Todd, 1973. Philosophical and Theological Papers 1958–1964. Collected Works of Bernard Lonergan 17. Edited by Robert C. Croken, Frederick E. Crowe, and Robert M. Doran. Toronto: University of Toronto Press, 1996, 159–220. ‘Quartercentenary.’ Loyola College Review 27 (1941) 22–25. Published in Shorter Papers. Collected Works of Bernard Lonergan 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 83–89. ‘Quebec’s Opportunity.’ The Montreal Beacon, 12th year, no. 50, 2 May 1941. ‘Questionnaire on Philosophy: Responses by Bernard Lonergan.’ Edited by Mark Morelli. Method: Journal of Lonergan Studies 2:2 (1984) 1–35. ‘Questionaire on Philosophy: Response.’ In Philosophical and Theological Papers 1958–1964. Collected Works of Bernard Lonergan 17. Edited by Robert C. Croken, Frederick E. Crowe, and Robert M. Doran. Toronto: University of Toronto Press, 1996, 352–83. ‘Questions with Regard to Method: History and Economics.’ In Dialogues in Celebration. Edited by Cathleen M. Going. Thomas More Institute Papers 80. Montreal: Thomas More Institute, 1980, 286–314. ‘Reality, Myth, and Symbol.’ In Myth, Symbol, and Reality. Edited by Alan M. Olsen. Notre Dame: University of Notre Dame Press, 1980, 31–37. Published in Philosophical and Theological Papers 1958–1964, Collected Works of Bernard Lonergan 17. Edited by Robert C. Croken, Frederick E. Crowe, and Robert M. Doran. Toronto: University of Toronto Press, 1996, 384–90. Review of André Maurois, I Remember, I Remember. The Canadian Register, Quebec edition, 20 February 1843. Published in Shorter Papers, Collected Works of Bernard Lonergan 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 162–64. Review of Andrew J. Krzensinki, Is Modern Culture Doomed? The Canadian Register, Quebec edition, 19 September 1942. Published in Shorter Papers, Collected Works of Bernard Lonergan 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 160–61. Review of E.I. Watkin, The Catholic Centre. The Montreal Beacon, 28 June 1940. Published in Shorter Papers, Collected Works of Bernard Lonergan 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 141–142 Review of Francis Stuart Campbell, The Menace of the Herd. The Canadian Register,

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Quebec edition, 24 April 1943. Published in Shorter Papers, Collected Works of Bernard Lonergan, 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 165–67. Review of George Boyle, Democracy’s Second Chance. The Canadian Register, Quebec edition, 20 June 1942. Published in Shorter Papers, Collected Works of Bernard Lonergan 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 157–59. Review of Harry M. Cassidy, Social Security and Reconstruction in Canada. The Canadian Register, Quebec edition, 10 April 1943. Published in Shorter Papers, Collected Works of Bernard Lonergan 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 168–70. Review (in Latin) of L.W. Keeler, The Problem of Error, From Plato to Kant: A Historical and Critical Study. Gregorianum 16 (1935) 156–60. Published in Shorter Papers, Collected Works of Bernard Lonergan 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 131–35. Review of M.M. Coady, Masters of Their Own Destiny. The Montreal Beacon, 2 May 1941. Published in Shorter Papers, Collected Works of Bernard Lonergan 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 143–46. ‘Saving Certificates and Catholic Action.’ The Montreal Beacon, 7 February 1941. Published in Shorter Papers, Collected Works of Bernard Lonergan 20. Edited by Robert M. Croken, Robert M. Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007, 68–73. A Second Collection. Edited by William F.J. Ryan and Bernard Tyrrell. London: Darton, Longman & Todd, 1974. Shorter Papers. Collected Works of Bernard Lonergan 20. Edited by Robert C. Croken, Robert M Doran, and H. Daniel Monsour. Toronto: University of Toronto Press, 2007. A Third Collection. Edited by Frederick E. Crowe. New York: Paulist Press, 1985. Three Lectures. Thomas More Institute Papers 75. Montreal: Thomas More Institute, 1975. Topics in Education. Collected Works of Bernard Lonergan 10. Edited by Robert M. Doran and Frederick E. Crowe, revising and augmenting the text prepared by James Quinn and John Quinn. Toronto: University of Toronto Press, 1993. The Triune God: Systematics. Collected Works of Bernard Lonergan 12. Translated from De Deo Trino: Pars Systematica (1964) by Michael Shields. Edited by Robert M. Doran and H. Daniel Monsour. Toronto: University of Toronto Press, 2007. Understanding and Being: An Introduction and Companion to ‘Insight.’ Edited by Elizabeth A. and Mark D. Morelli. Toronto: Edwin Mellen Press, 1980. Understanding and Being. Collected Works of Bernard Lonergan 5. Edited by Elizabeth A. Morelli and Mark D. Morelli, augmented by Frederick E. Crowe,

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Index

a: acceleration coefficients (factors), a′, a″, 140–1 n. 45, 200–1 A, symbol of economic activity, A′, A″, 143, 200–1 AI, short-term acceleration rate, 141 n. 44, 184 Acceleration, 40–41, 49, 108, 115, 140–1 n. 45, 144, 148 n. 69, 150, 158, 172, 175, 179–80, 189–90, 193, 198, 200–1, 205, 227; circuit a., 202–5; short-term and long-term a., 167 n. 24, 189–90 Adaptation, to the demands of the economic phases, 59 n. 138, 60 n. 143, 132, 173, 179 n. 49, 193, 206, 208–10, 230 Adjustment(s): automatic a. of price levels, 208–9; interest rate, 206; to the rate of savings, 210 Analogy: from baseball, 165–6; in economics, 40, 116; in philosophy of history, 74, 78–80, 83 n. 70, 104, 113; from projective geometry, 162; scissors a., 44, 79, 103, 108, 113–15, 182, 213, 238 Analytic concept of history, 57, 90, 94–8, 102–10, 112–17, 129, 138, 182, 227; and economic theory, 4, 21–2, 49, 108, 110, 127, 223, 235

Anderson, Bruce, xii, 16, 18, 19 n. 58, 140 n. 42, 143 n. 54, 154 n. 12, 161 n. 13, 177 n. 46, 219 n. 90, 236 n. 49, 240 n. 61 Antigonish Movement, 6, 9, 56, 215 Aquinas, Thomas, 9, 12, 14 n. 45, 25, 31, 33, 34–5, 41 n. 80, 54, 71 n. 21, 74–80, 83, 87, 92 n. 3, 94, 96, 106–7, 112–17, 119, 150, 182, 216, 225–7, 231 n. 34, 232, 238; on intellect, 75–8; on will, 116, 233 Aristotle, 9, 19, 27, 30, 32–3, 39, 49, 74, 76, 95–6, 216, 233, 235, 238; De Anima, 32–3; Economics, 9, 49; influence on Joseph’s Logic, 27 n. 19; Lonergan’s appropriation of, 238; and the notion of a thing, 30; philosophy of, 9, 74, 76, 95–6, 216 Bi, rate of replacement, 140–1 n. 45, 200–1 Balances: consumer, 202; crossover, 169, 174, 188, 206; redistributional, 215; trader 171 Banks and banking, 165, 168–9, 180, 190, 202; central b., 169, 190, 209, 220; function of, 206; micro-b., 178

284

Index

Barrett, William, 24 Barter, 138, 143, 154–6, 167 Basic expansion, 152, 192, failure to shift to, 60 Belief: Newman on, 31–2, 70 n. 15; notion of, 31, 40, 50, 70 n. 15, 86, 237 n. 51 Biology, biological, 42, 45, 80, 87, 101, 119–20, 121 n. 30, 143, 241 n. 62. See also Determinism, biological Blaug, Mark, 29, 39 n. 76, 43 n. 83, 136, n. 27, 160 n. 11, 169, n. 29, 213 n. 81, 224 n. 8 Bolshevism, 50–1, 67, 71–2, 86, 108. See also Marxism Bonds, 177–8 Booms and slumps, xi, 7, 133, 169, 175, 189, 208, 212, 217. See also Cycle(s), trade; Long waves Borrowing. See Credit Boyer, Charles, Fr, 112 Brahe, Tycho, 139 Brodie, Ian, xiii, 240 n. 61 Brown, Patrick, xiii, 3 n. 2, 4 n. 3, 47 n. 100, 107 n. 45, 115 n. 12, 118 n. 19, 134 n. 23 Bubbles, speculative, 175 Bureaucracy, 10, 61–2, 136–7, 157 Business cycle. See Cycle(s), trade Byrne, Patrick, xiii, 74 n. 35, 160 n. 10, 215 n. 86 C: consumer demand, C′ basic c. demand, 202–3; C″ surplus c. demand, 202–3 Calculus, 41, 48–9 n. 106, 79–80, 82–3, 110 Canons: of complete explanation, 213; of empirical method, 29, 40, 79 n. 54; of interpretation, 79 n. 54, 116; of parsimony, 212 Cantillon, Richard, 13, 197 Capital: circulating, 168 n. 26; as descriptive category, 140; flight of, 205 n. 69; goods, 53, 81, 162 n. 18; investment, 171–2, 207

Capitalism, ix; free market, 6, 8–9, 134, 156, 167; liberal , 7, 51–5 Capitalist phase. See Surplus expansion Categories, general and special, 57, 84, 93, 107 n. 45, 108 Catholic Action, 9, 21–2, 25, 55–8, 66, 67–72, 85, 89–90, 91–4, 107–8, 110, 112, 117, 124, 129, 216, 222–3, 230; and economics, 84–5; as precursor of functional specialization, 90 Catholicism, 24–5, 41–2, 56–7, 63, 65, 238 Catholic social theory, 8–11, 25, 56, 66, 85–6, 124, 222 Catholic Worker Movement, 9, 56 Chamberlin, Edward, 7 n. 17 Charity, 51, 72–3, 84, 88, 99, 121–2, 228, 245; effective, 228, 238 Chemistry, xii, 15, 23, 42, 102, 241 Chesterton, G.K., 214 Choice: and the dialectic of history, 83, 85; in economics, 88, 101, 133, 141, 146, 157, 187. See also Rational choice theory Christianity, 44, 48, 56, 73, 120, 125 n. 23 Circuit(s), xi, 16, 56, 101, 108, 124, 136, 179, 195, 198; acceleration in, 200, 204, 206; basic, 101, 129, 141, 156, 161–2; and economic expansion, 167–74, 208; and lags, 159–60 n. 10, 169, 190–1, 193; monetary, 143; and phases of the pure cycle, 150; as schemes of recurrence, 76 n. 51; relation of basic and surplus c., 41, 49, 104, 137, 149, 164–9, 174, 186, 194, 217 (see also Concomitance); superposed, 59, 128 n. 8, 129, 130 n. 12, 131 n. 13, 173, 177 n. 46, 193–4, 198, 212, 215, 217; surplus, 101, 129, 141, 156, 162–6; two distinct c., xii, 41, 114 n. 8, 127, 129, 131, 144–5, 147–50, 153, 158, 194, 214, 219, 224. See also Circulation analysis; Production, circuits Circulation analysis, 129, 131, 184, 187,

Index 197, 212–13, 223, 228 (see also Circuits); circulation trends, 185–6 Coady, M.M., 6, 215 n. 85 Cognition: and belief, 237 n. 51; concepts as by-products of, 68; Lonergan’s account of, xii, 32–3, 39, 57, 63, 76, 79 n. 57, 94–6, 216, 226–7, 229. See also Cognitional theory Cognitional theory: as foundation for dynamic methodology, 42, 67, 80; and functional specialization, 234–5; and generalized empirical method, 104 n. 37; Lonergan’s interest in, 5, 14, 24, 116, 159, 216; and logic, 68, 75; and macrodynamic analysis, 197; and methodology, 5, 12, 32, 40, 67; normative character of, 109, 223 Collaboration, 222, 230, 237, 240, 242 n. 6; academic, 17; and the advance of human knowledge, 242; and belief, 32; cosmopolis as the possibility of, 230; interdisciplinary, 130, 222, 237, 239–40; need of a framework for, 221, 230; shift from dependency on nature to dependency on social c., 156. See also Functional specialization, as framework for collaboration Common good, 140, 181 n. 55 Common sense intelligence 86, 92, 234 Communism, 8–9, 51–2, 135–6 Compound expansion and contraction, 193 Concept(s): analytic and synthetic, 92, 97, 102–3, 105, 227 n. 14; of apprehension and of understanding, 102; mathematical, 95 n. 16, 187; in Plato, 73; universal, 31 Conceptualism: 25–7, 31, 38 n. 67 & 71, 39, 41–2, 64–5, 67–8, 78 n. 50, 85; in economics, 165; Hegelian, 149 Concomitance, 104, 129, 157–8, 164, 166, 169, 179, 188, 206, 215 Consumer(s): basic; 180, goods and producer goods, 154–6, 162 n. 18, 163, 169; multipliers, 200; needs,

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206; spending, 168. See also Balances, consumer Continuity, problem of, 159–60 n. 10, 200, 202, 217 Contraction(s), and economic phases, 192–3, 209, 211, 217 Cooley, Larry, 30 Cooperation: as fruit of love, 99; of world religions, 238. See also Collaboration Cooperatives, 6 n. 13, 61, 178 Cooperative Commonwealth Federation Party (CCF), 6–7 Copernicus, Nicolas, 139, 190 n. 19, 218 Cosmopolis, 106, 133 n. 19, 228, 230, 233 Coyne, Edward, 59–61 Crash of 1929, 6–7, 170; Lonergan’s explanation of, 193, 205–10 Creative minority, 117 n. 18 Creativity: capitalism and, 134, 136–7; and economic recovery, 182, 220–1, 247; in economy, 149–50, 173–4; entrepreneurs as creative, 133; and the functional specialties, 235 n. 48, 239, 243; human thought as creative, 42, 46–8, 96, 142; in international finance, 204; and progress, 46, 96–8, 150, 229 Credit, 168–69, 171–4, 207, 215; creation of, 157 n. 5, 188, 207; Schumpeter on, 173–4 Crisis: cultural, 44, 48; economic, 12; existential, 12; in the West, 10, 25, 43–5, 55, 65, 67, 71, 107 Crossover flows, 101, 141, 164–7, 174, 184, 194, 200, 217; crossover fraction, 192. See also Balances, crossover; Expenditures, crossover Crossover rates. See Crossover flows Crowe, Frederick, xii, 10 n. 26, 11 n. 30–1, 13 n. 39, 26–7, 33, 35, 38, 68, 69, 112 n. 3, 115 n. 12 Cultural expansion, 130 n. 12, 152, 192–3; economic surplus and, 90; mechanism of, 49 n. 108, 152 Cultural phase. See Cultural expansion

286

Index

Culture: classical, 24, 44 n. 87, 65; classicist notion of, 11 n. 30, 25, 41, 43, 57, 63, 66; crisis of, 44; material, 47; modern, 25, 44 n. 87, 65, 124; primitive, 45–6, 80–1; regional, 45–7; 215, religion and, 44, 47 Cycle(s): of income and prices, 206–12; contractions and the pure c., 192–3; phases of the pure c., 129–30, 150, 167–71, 184, 191–3, 195, 204, 220, 223; pure c., xi–xii, 127, 131, 141, 153, 170, 184, 204–6, 217–18; pure c. contrast with trade cycle, 60 n. 143, 101, 132, 174–8, 217; pure c. and crossover balances, 169 n. 29; pure c. as ideal line, 89, 101, 150–1, 154, 174, 184; pure c. and monetary circulation, 159; pure c. and the problem of overproduction, 59 n. 138; pure c. and production, 154–5, 158; pure c. and pure surplus income, 211, 219; pure c. and the rate of saving (G), 206; refinements in the analysis of the pure c., 190, 193; shorter and longer c. of decline, 10, 99, 215, 229 (see also Decline); trade c., 14, 53, 58, 65, 133, 148, 193, 195, 196 n. 43, 207–8, 210–11, 212, 220. See also Long waves D, demand: D′, basic demand, 203–4; D″, surplus demand, 203–4 D, symbol of rate, 143 d/dt, non-specified differential, 143 d2s/dt2, acceleration coefficient, 140–1 n. 45 DA, fundamental rhythms, 143; DA′, 145, 152, 158; DA″, 145, 152, 158 Dawson, Christopher, 10–11, 25–6, 43–50, 66, 70–2, 78 n. 51, 80–1, 106, 110, 124, 127, 149–50, 152, 182 Debt, 177, 194, d. crisis 177, 212; d. relief, 215 Decision-making, economic, xi, 88–9, 141, 178, 180, 184, 216, 219, 233; coordination of, 180; process of, 142, 216. See also Choice; Deliberation

Decline: of civilization, 48, 146–7, 156, 244, 247; cultural, 48, 72 n. 64; and the dialectic of history, 4, 68, 70, 73 n. 32, 83–6, 90–100, 105, 109, 117, 228, 234, 245; economic, 16, 53, 196, 223, 246; of liberty, 61; of the polis, 12 n. 37; major and minor, 99, 101, 105. See also Cycle, shorter and longer c. of decline Deepening. See Widening and deepening Deliberation, 104, 116–17, 142, 229, 232, 234, ; and functional specialization, 235–6; d. practical, on economic questions, 218, 224 . See also Choice; Decision-making Demand(s): basic d., 202, 209; consumer, 200, 207 n. 72; for higher wages, 147, 208; and interest rates, 200; for loans, 188; d. levels and price levels, 195; salary d., 169; surplus, 207; and turnover, 189. See also Supply and demand Democracy, 8, 70 , 123, 133, 140; and economy, 55, 61–2, 70, 123, 125–6, 137, 220, 247; effective, 62; and neoclassical economists, 140 DeNeeve, Eileen, 40 n. 77, 132 n. 17 Depression (economic), 23, 101, 169, 196, 205 n. 69, 210, 211. See also Great Depression Descartes, 32, 38 n. 71, 39 Description and explanation, 35, 78 n. 53, 139–41 Determinism: biological, 48, economic and historical, 51, 108, 135, mechanical, 246 Development: cultural, 81–2, 145–6, 150–1, 171; economic, xi–xiii, 48–50, 80–1, 90, 101, 104, 110, 124, 127, 134, 137 n. 31, 146, 160 n. 11, 167, 173–4, 184, 204, 205–6, 208, 214; general form of speculative, 113–14; as ideal line, 60 n. 143, 184; regional, 47, 214; spiritual, 10, 44 Diagram(s): ‘baseball’ d., 127–8, 131 n.

Index 13, 158–67, 180, 202, 205; —, dating of, 159–60; Lonergan’s use of d. in economics, 16, 127–8, 198; and the physiocrats, 186 n. 47; and understanding, 34–7, 159 Dialectic(s): absolute, 85–6, 97; of community, 87 n. 81; of fact and thought, 82, 85–6, 96, 152; as a functional specialty, 100–1, 231–2, 235–6, 241–2; as general form of critical attitude, 108; Hegelian, 42, 67, 78, 107; of history, xii, 24, 84–90, 93, 96, 103–7, 100 152–3, 182, 187, 220, 225–6, 228 (see also Analytic concept of history; History, philosophy of); —, critical function of, 73, 93, n. 6, 100–1, 108; Marxian, 67, 83, 85, 135; multiple, 98 n. 20; Plato’s, 103, 154, 216, 230, 233–4; rates of, 104; and the structure of choice, 100 n. 23 Differentials: for economics, 41, 49, 133; for history, 49 n. 106, 78–9, 84–5, 91, 93, 97, 103–7, 110, 238 Disequilibrium: basic and surplus, 193; and the quantity of money, 220 Distribution: financial d. and restriction of production, 59; income d. in the surplus expansion, 135. See also Wealth, distribution of Distributism, 214 n. 83 Dividends, 211; social credit d., 58–61 Division of labour, 3, 49, 81–2, 143–5, 180, 234; and functional specialization, 91, 106, 117, 234, 237–44 Doran, Robert, xii, 55 n. 128, 93 n. 5, 120 n. 27, 123 n. 41, 238 n. 55, 240 n. 61 Double summation (∑∑), 199, 202 Douglas, C.H. (Major), 48 n. 105, 58–9 Douglas, Tommy, 6 dQ′, rate of production: dQ′, primary r., 193, 204; dQ″, secondary r., 193, 204 Drucker, Peter, 196 Duns Scotus, John, 33 n. 49, 38 n. 71 Dynamic methodology, 67; Darwin’s

287

theory of evolution as, 42; in economics, 8, 13, 15, 21–3, 40, 43–4, 46, 48–9, 52, 57–8, 66–8, 107, 110, 118–19, 124–5, 136, 141–4, 149–50, 160, 185–6, 188, 191, 195, 219, 227; and functional specialization, 90; human cognition and intentionality as, 42–3, 47, 96, 105–6, 110, 124–5, 216, 231, 234; Ignatian exercises as, 63; origins of in Aquinas, 74–5, 119; and theory of history, 43–50, 57, 65, 68, 78–80, 92–3 102–3, 106–7, 110, 127, 150, 223, 227. See also Equilibrium, dynamic; Macrodynamic economics Dynasties, Egyptian, 81 E, expenditures, 159, 161; E′, basic e., 159, 161–6; E″, surplus e., 162–6 École Sociale Populaire, L’, 92 Economic essays, possible order of composition, 128 Economic expansion. See Circuits, and economic expansion Economics: and culture, 122, 133–8; as a human science, 107, 115, 213 n. 79; Lonergan’s discovery of e. science, xii, 5, 15, 21–4, 33, 40, 88, 90, 112 n. 2, 125, 129–32, 184–5, 197–8, 212–13, 217, 223; method in e., 29, 67, 225; and morality, 7, 50–1, 84, 182, 229, 233; and religion, 122; as a science, 9, 15, 17, 43, 84, 106, 108, 110, 136–40, 178, 182–3, 212, 218–19, 225, 228–29, 233–4; standard model of, 7, 23, 43, 58, 65, 245; as an unsatisfactory science, 8, 61–2, 65–6, 136–7, 140, 245. See also Functional specialization, in economics; Political economy Economic theory: classical, 8, 108, 134,139–40, 182; equilibrium, 46 n. 94, 159–60 n. 10, 188; mainstream, 49, 66, 67, 136–7, 149, 160 n. 11, 167, 178, 182, 187–8, 194–5, 217–20; Marxist, 13, 136; neo-classical, 13, 108, 139–40; practical implications of, 131–2 Economists: classical, xi, 13, 19, 133–7,

288

Index

democratic spirit of classical, 19; mainstream, 13, 18, 43; Marxist, 13; neo-classical, 137, 140 Economy: as an ecology, 179; direction of, 167; goal of, 9, 51–2, 110, 124, 217, 220; as a material substratum, 46, 54, 134, 147, 152, 184; primitive, 80–1, 138, 143, 146, 149, 154 n. 1; regional, 16, 214–15; self-regulating, 23, 54. See also System, economic Education: economic, 181; need for serious, 247; neglect of economic 220; transformation of, 221 Efficiency: and division of labour, 234, 242; economic, 52, 145–7, 149, 157, 170–1, 224; and maximizing profit, 176 n. 44; monetary, 189; and the planned state, 8; of production, 174, 189, 202–3, 207; and social organization, 61 Einstein, Albert, 139, 185 n. 6, 246 Emergent probability, 46, 49, 84, 87, 117–25, 142, 216, 228, 240. See also Recurrence Empirical, Lonergan’s push towards e. precision, 129–30, 179 n. 49, 197. See also Macroeconomic dynamics as empirical; Method(s), generalized empirical method Ephesians 1:10: 57, 64, 222. See also Integration of all things Epistemology, 17, 27, 57, 104, 124, 216; intellectualist, 42, 65, 71, 75, 78, 106, 126, 226 Equilibrium: dynamic, 164, 168–9, 185 (see also Concomitance); general e. theory, 7, 13, 23, 43 n. 83, 46 n. 94, 160 n. 11, 167, 168 n. 26, 169–70 n. 29, 219–20; Knight on general e., 195; Lonergan on, 160 n. 11, 164, 167, 187–8, 194; market, 134, 141, 188 n. 15; static, 191 Ethics, 109, 125, 216, 219, 228, 242–3; and economics, 8, 89 n. 24, 140, 214 n. 84, 215 n. 86; Lonergan’s early interest in, 5–6, 69–70; natural-

law, 54; theological, 107. See also Morality Euclid, 34–6 Evil, 46; and dialectic, 102, 104; ignored by liberalism, 108; problem of, 72, 85–6, 92, 244–4; social evils, 53, 61; supernatural conjugates and, 51, 72, 84, 99–100, 245 Exchange economy, 124, 127, 134, 136–7, 143, 150, 153, 155–8, 167–8, 172, 174, 180, 191, 201–2; limitations of, 158 Exchange system. See Exchange economy Exchanges, operative and redistributional, 101 Exigencies: cognitional 83; economic, 136–8, 141, 171–4, 188, 217 Expenditures: basic, 161–4, 206; crossover, 16264, 206; in stationary phase, 168–9; surplus, 162–4, 206 Faith, 11, 31, 86, 97; Catholic f., 65; Christian, 24, 73; in human progress, 48; Lonergan’s course on, 112; Lonergan’s essay on, 69; Lonergan as man of, 31, 65, 244; as supernatural virtue, 72, 84, 99–100 Fallon, Valèrie, 10 n. 26, 52, 66 Family wage. See Just wage ethic Fascism, 8, 69, 99 Finality: absolute, 119–20, 123; horizontal and vertical, 120–4; obediental, 120 Final products, ordinary and overhead, 145–7 Final sale, significance of in macroeconomic dynamics, 198–200. See also Payments, initial, transitional, and final Finance: deficit f. as strategy to reverse economic depression, 60; function of, 157–8; international, 176, 204, 212, 215; problem of long-term, 171–4, 215–16 Flanagan, Joseph, xiii

Index Fluid dynamics, 40, 48 n. 106, 68, 78, 110 Ford, Henry, 145–6 Fragments, Lonergan’s: economic, 22, 126 n. 4, 128 n. 8, 130 n. 12, 185–7, 194; logic, 69 n. 9 Frankfurt School, 86 Freedom: Aquinas on, 114; grace and, 21, 36, 73, 114, 116; Lewis Watt on, 50–5, 62–3; Lonergan’s notion of, 21–2, 70, 76, 83–4, 108, 137–8, 140; and morality, 50; ordered, 70, 108, 137–8; political and economic, 8, 50–5, 61–3, 70, 133, 135, 137–8, 157–8, 178, 229; and progress, 62, 90 Friedman, Milton, 172, 190, 245 Friere, Paulo, 140 n. 43 Functional specialization, 233–43; and analytic and synthetic methods, 235–6, 239–40; as circulation, 237–8; as collaborative framework, 236, 242; and communication to non-specialists, 237; in economics, 234, 242–3; implementation of, 241–4; Lonergan’s account of as incomplete, 238–9. See also Division of labour, and functional specialization G, rate of saving, 206–7 Galileo, 83, 96, 139, 223 Gasset, Ortega y, 10 n. 28, 41 GDP gross domestic product, as inadequate measure of economic growth, 49, 218 Generalization, 28, 98, 108, 139 n. 39, 235; of economic science, 139–40, 182, 220–1; and problem of induction 39–40 Geometry: Euclidean, 34–6, 187; nonEuclidean, 35–6; projective, 36, 41, 44, 110, 162 n. 18. Gold: g. standard, 59 n. 142, 171–2, 205 n. 69; importation of and inflation, 190; production of and economic expansion, 171 Gordon, Robert J., 225

289

Government, xi, 16, 58–61, 134, 137, 165, 177, 181, 190, 204, 220; centralized, 220; and deficit finance policies, xi, 60, 176–9, 194, 198, 209, 212 (see also Finance, deficit, and economy); and favourable balance of trade policies, 137 n. 31, 165, 209, 212; g. relief, 6; Social Credit g. in Canada, 58 n. 136; and taxation, xi, 165, 175, 209, 212; totalitarian, 70, 137–8, 172–3, 229. See also Bureaucracy Grace: and free will, 21, 100, 111–14, 116; and functional specialization, 231–2; and the hierarchical world order, 119–22; need for, 92, 229; operative, 112; and philosophy of history, 118, 182; as supernatural, 85, 99 Graham, Nicolas, 3 n. 2, 36 n. 60, 195 n. 42 Great Depression, xi, 6, 7, 8, 14, 23, 58, 65, 69, 107, 178, 182, 196, 205 Habermas, Jürgen, 232–3 Halse, Scott, 240 n. 61 Harrod, Roy, 7 n. 17 Hartley, David, 28–30 Hawken, Paul, 180 Hayek, F.A., 7 n. 17, 29 n. 28, 43 n. 83, 126 n. 4, 140 n. 41, 168 n. 27, 186, 188 n. 16, 194–5, 197 Heath, Thomas, 35 Hefling, Charles, xiii, 39 n. 73, 118 n. 21 Hegel, Georg Wilhelm Friedrich, 12, 18, 42, 67–8, 71, 78 n. 50, 85, 103–4, 107, 135 n. 25, 149 Higher control: for the direction of history, 72–3, 85; functional specialization as, 253; need for, 75; third stage as, 93, 97 Historical-mindedness. See Historicity Historicism, 41 n. 80 Historicity, 4, 24–5, 41, 44, 51, 74, 106–8 Historiography, 103, 115–16, 182 History: as flow, 103; persons as agents in, 78; scientific understanding of, 79; and system, 106–7. See also Ana-

290

Index

lytic concept of history; Dialectic, of history; Philosophy of history; Stages of history Hitler, Adolf, 69 Holy Spirit, 88, 122 Hope, 72, 84, 99, 245; and economics, 207, 220 I, income, 159, 161; I ′, basic i., 159, 161–6; I ″, surplus i., 159, 162–6 Idea(s): socially effective, 81–2; the turn to the i., 234, 238 Ideal types, 107, 117 n. 18, 139, 205–6 Ideologies, totalitarian, 8 Image(s), 36–7, 39, 114, 158–9, 185 n. 3, 212. See also Phantasm Implementation, 4 n. 3, 57, 70, 72–4, 91–2, 98, 110, 111 n. 27, 129; of functional specialization, 19, 241–3; of macrodynamic economics, 243, 245; of metaphysics, 29, 93, 110, 216–18, 230–1, 234–5, 238, 240 n. 61, 243 Incarnation, 47 Incidental theorems, 113–32, 179 n. 49, 185, 198 Income, investment, 176, 208 Income distribution, xii, 205, 207; and the economic phases, 208–10 Indeterminacy, 23, 195–6 Inference, in logic, 36–8 Inflation, 58, 157, 169, 172, 175, 190–1, 202 Injustice, 8, 56, 61, 95, 244; capitalism and, 8, 135 Insight: casual acts of, 34; common sense i., 4; and emergence, 121; Lonergan’s account of in Blandyke Papers, 33–5, 40; and oversight, 109; into phantasm, 32–3, 39, 75; reflective, 117 n. 17 Insurance, 206 Integration (restoration) of all things, 47, 57, 66, 90–2, 107, 119–20, 123, 222 Intellect, development of, 76. See also Will, relationship of to intellect Interest: 202, 207; equilibrium rate of,

188; investment, 208; manipulation of i. rates, 220; rates, 196 n. 45, 206, 209, 216, 219–20 interiority, 25, 116, 216, 226, 232, 234 International trade. See Trade, foreign Interpretation: canons of 79 n. 54, 116, 213; and economics, 138–9, 182, 191, 197, 206, 210; and functional specialization, 231, 235–6, 241–2; in Insight, 79, 113, 241, of Lonergan’s economics, 20–1,186 n. 9; methods of, 113–16, 182; scholastic i. of Thomas Aquinas, 33 n. 49, 75; as scientific, 79, 182 Invariance, 78–9, 239 Investment, 152, 156–8, 168–72, 178, 190, 194 n. 32, 196 n. 45, 206–10; foreign, 172, 194 n. 32, 212; long-term, 81, 170; savings and, 168–70, 188. See also Income, investment IS/LM curve, 219 It’s a Wonderful Life, 168 Jacobs, Jane, 181 n. 55, 215, 242 n. 65 Jevons, William, 136 Joseph, H.W.B., 27 n. 19, 42, 94 n. 11 Juglar, Clement, 173, 295 n. 69 Justice, 95, 154; augmented by Christian charity, 84, 100, 245; divine, 64; economic, 53; in the Temple states, 81; social, 55, 158, 245 Just-wage ethics, xi–xii, 6, 13, 52–5; Lonergan’s criticism of, xi–xii, 13, 110, 124 k, expansive fraction of surplus outlay, 140–41 n. 45, 201 Kalecki, Michał, 148, 224 Kant, Immanuel, 19, 69 Keane, Fr, 12 n. 34, 13 n. 39, 38 n. 71, 71 n. 20, 74 n. 33, 127, 153 n. 75 Kepler, Johannes, 139 Keynes, John Maynard, 7 n. 17, 8 n. 19, 14, 59–60, 89, 160 n. 11, 178, 196, 224 n. 8, 245 Kierans, Eric, 4 n. 5

Index Kitchen, Joseph, 173 Knight, Frank, 43n 83, 126 n. 4, 186, 194–5, 197 Kondratieff, Nicolai, 173, 193 n. 30 Kuhn, Thomas, 107n 47 labour unions, 208, 220 Lawrence, Frederick, xiii, 52, 54–5, 197 n. 48, 232–3 Leeming, Bernard, 27, 94 Leisure, xii, 49, 58, 81, 116, 216, 244; and culture, 81–2, 143, 146–7, 151, 242; and economy 143, 145–7, 152, 168, 170–1, 196 n. 43 Leo XIII, 8, 25, 41 n. 80, 238 Leontief, Wassily, 7 n. 17, 160 n. 11 Le Play, Frederic, 44–5 Liberal democracy. See Liberalism Liberalism, 8–9, 50 n. 109, 51, 53, 64, 70–2, 86, 108, 182 Liberty. See Freedom Liddy, Richard, 15, 26 n. 8, 27 n. 16, 36 n. 61, 94 Lindahl, Erik, 7 n. 17, 126 n. 4 Logic, 26–7, 42, 227; as control of second-stage meaning, 41, 43, 67, 102, 124; foundations of, 5, 24–6, 40; and method, 39; John Stuart Mill’s, 27–31, 39, 80 n. 63; Lonergan on, 27 n. 19, 33, 42, 57, 63, 68–9, 75, 94–5, 107, 124, 226; Hegelian, 67; Newman on, 32–3, 65, 95; as subdivision of methodology 5, 26. See also Analysis, logical and real; Inference Lonergan, Bernard: – anti-centrist tendencies in, 61–2, 137 n. 31; appropriation of interiority, 25, 116, 216, 226, 229–32; Boston College, 3–4, 116 n. 14, 204 n. 16, 225; and Catholicism, 24–5, 41, 63–5, 238 (see also Catholic Action); classicist education, 24–5, 41–2, 43, 57, 63; at College of the Immaculate Conception, 4, 111–12, 117, 126; contribution as a dialectian, 187, 197, 225, 238; decision to shelve economic theory,

291

14, 75, 213–14, 216; development of and his notion of will, 216, 231–2, 235; ‘divide and conquer’ strategy, 92–3, 129, 187; doctoral dissertation, 11–17, 20–2, 71, 110, 112–17, 124, 126, 128, 138, 141, 160 n. 10, 225–6; in England, x–xi, 5–6, 26; and Ignatian spirituality, 63–4; initial viewpoint in economics, 21–2, 24–6, 57, 63–6, 110,123–4, 222; interest in economics, xi, xiii, 2–14, 56, 85, 108, 117, 233, 244; as a Jesuit, 5, 11, 55, 92, 111, 244; and J.S. Mill, 42–3; in Kingston (Regiopolis) 62 n. 151, 126; notes on economists, 194–5 (see also Fragments, economic); as orthodox Catholic, 31, 63; reading in economics, 224–5 n. 8 (see also Schumpeter, Lonergan’s reading of); L’s refinement of the notion of value, 231– 2; in regency, 55, 58, 68, 80; return to economics, 224–5; in Rome, 22, 24, 26, 59, 68–9, 71, 92, 216, 230; shift from classical to modern context, 11 n. 30, 57, 65–6, 124, 225–6; tertianship, 91–2 – Works referred to: ‘Analytic Concept of History,’ 12, 93–4, 106 n. 44, 109, 227 n. 14; ‘Analytic Concept of History, in Blurred Outline,’ 94; Blandyke Papers, 5 n. 10, 25, 33, 36–40, 42, 63, 69, 75, 95, 226; ‘Essay in Circulation Analysis,’ 82, 130 n. 12, 131, 184–8, 190, 197–8, 204, 212–13; ‘Essay in Fundamental Sociology,’ 12 n. 38, 47 n. 100, 69, 71, 74–5, 85–7, 89, 94–5, 150, 152, 216, 222, 238; ‘Finality, Love, Marriage,’ 22, 87, 88 n. 85, 112, 117–19, 122–4,126, 142 n. 51, 182; ‘The Form of Inference,’ 5 n. 10, 38, 126; ‘For a New Political Economy,’ 113–32, 179 n. 49, 185, 198; Grace and Freedom, 114 n. 8, 116, 120 n. 26, 126 n. 2, 140 n. 45, 232; Insight: A Study of Human Understanding, xii, 3–4, 13, 27, 32–3, 39–40, 46–7 n. 97, 49 n. 108, 53, 57 n. 132, 67–71, 73 n.

292

Index

32, 78–80, 84–8, 92, 94, 99 n. 21, 102, 106, 108–9, 113 n. 5, 116, 120, 122, 133 n. 19, 135 n. 25, 142, 149, 157, 185 nn. 3 & 6, 215–16, 226, 228, 230–32, 234, 239, 241, 244–5; ‘A Method of Independent Circulation Analysis,’ 128, 130 n. 12, 185, 187, 192–3, 199 n. 53; Method in Theology, 3–4, 47, 57 n. 133, 89 n. 91, 97, 99–101 109–10, 122, 215, 226, 232, 238–9; ‘Outline of an Analytic Conception of History,’ 93–5; review of Coady, 6 n. 13; Pantôn Anakephalaiôsis (The Restoration of All Things), 12, 54, 57, 64, 71, 76, 86, 88–9, 110–11, 118–19, 121, 124, 201, 222; Phenomenology and Logic: The Boston College Lectures on Mathematical Logic and Existentialism, 232 n. 38; ‘Theory of History,’ 93; Topics in Education, 49 n. 108, 62, 118 n. 21, 134 n. 23; Verbum: Word and Idea in Thomas Aquinas, 33 n. 49, 38, 75, 76 n. 42, 94, 114, 116, 120 n. 26, 216, 226, 231 n. 34 Long waves, 193, 205 Lotz, Jim, 5 Love. See Charity Macrodynamic economics: as empirical, 40 n. 77, 116, 129–30, 137, 139, 185, 191–3, 197, 212, 217, 219; contrasted with mainstream economics, 217–20; reception of, 13–15, 245–7; shifts in Lonergan’s approach to, 186–8; stages in the development of, xii, 20–2, 24, 110, 128–9, 222–31 Maintenance, repair, and replacement, 145, 147, n. 56, 149, 152, 169, 206–7, 222–3, 244 Maladaptations to the pure cycle, 175, 178, 204, 206 Maréchal, Joseph, 94 Market(s), 143, 156–57, 172, 198, 201, 212, 234; basic, 208; invisible hand of, 135; m. equilibrium 134, 141, 188 n. 15, 194; m. system, 6, 51, 53, 134; monopoly control of, 59; national, 177;

stock, 6, 49, 141, 165. See also Capitalism, free market Marshall, Alfred, 7–8, 160 n. 11, 169–70, 196 Marshall Plan, 178 Martin, Stephen, 214 n. 84 Marx, Karl, 82, 103–4, 108, 134–7, 147– 9, 217, 224 n. 8, 229 Marxism, xi, 5, 6, 9, 41, 50 n. 109, 51, 55, 57, 67, 70, 72, 99, 108, 137, 182. See also Bolshevism Materialist expansion. See Basic expansion Materialist phase. See Basic expansion Mathematics: functional specialization in, 240 n. 61; as deductive field, 95–7; in the development of macrodynamic economics, 68, 110; Lonergan’s interest in, 25, 40–1, 65; modern revolution in, 96 n. 15; as upper blade, 113. See also Calculus; Geometry Mathews, William, xii, 14, 26 n. 8, 27–9, 71 n. 18, 127 n. 6, 142 n. 51, 186 n. 7, 239 n. 56 Maxwell, James Clerk, 185 McCallion, Tom, xii, 40 n. 77, 102 n. 29, 132 n. 17, 186 n. 9 McShane, Philip, xii, 4 n. 5, 16, 18, 19 n. 58, 79 n. 54, 88 n. 88, 93 n. 5, 94 n. 11, 101 n. 26, 119 n. 24, 128 n. 8, 130, 143 n. 54, 159 nn. 9–10, 161 n. 13, 165 n. 21, 168 n. 27, 172 n. 36, 177 n. 46, 187 n. 11, 191–2, 194 n. 31, 201 n. 58, 213 n. 79, 214, 216 n. 88, 229 n. 21, 230–2, 237, 238 n. 55, 239 nn. 58–9, 240 n. 61 Meaning, stages of, 43–4, 97, 104, 124, 234 Mendel, Gregor, 246 Mendeleyev, Dmitri, xii, 15 Menger, Carl, 136 Mercantilism, 176, 194 n. 32, 196 Metaphysics: Aquinas’s, 33 n. 49, 74–5, 87, 96; Aristotle’s, 33, 74, 96; cognitional theory and, 197; dynamic, 106, 185 n. 3; history and, 104 n. 37, 107; implementation of, 29, 93, 216; in

Index Insight, 69–70, 109, 185 n. 3, 216, 230; method and, 124; as science, 241 Method(s): analytic and synthetic, 102– 3, 235–6, 239–40; of approximation, 83, 98, 101–2, 105 109, 139; classical, genetic, statistical, and dialectic, 43, 138–9, 228, 244; critical, 93 n. 5, 100; as division of logic, 26; generalized empirical, 12–13, 19, 22, 29, 43, 57 n. 133, 84, 97, 104 n. 37, 106, 216, 227–8, 234, 244; scientific, 42, 57, 104 n. 37; shift from static to dynamic, 57, 80. See also Dynamic methodology; Functional specialization Mill, John Stuart, 13, 25–31, 39–40, 42–3, 65–7, 102, 196. See also Logic, John Stuart Mill’s Mixed phases, 193 Modern state. See Nation State Monetary circulation, 129, 131–2, 146, 158–67, 179 n. 49, 187–9, 195, 197, 202–4, 223; Marx on, 148 n. 68. See also Production process, and monetary circulation Money, xii; constancy of, 172, 204; as dummy, 154,156–7; eventual elimination of, 154 n. 1; exchange value of, 172; function of, 49, 155–8, 167, 172, 217; as intrinsic physical value, 59, 191; invention of, 153; as medium of exchange, 154; and phases of the pure cycle, 167–72, 174–8; quantity theory of, 116 n. 16, 129, 159–60 n. 11, 172, 190–1, 195 (see also Turnover and quantity theory of money); m. supply and investment, 169, 172, 191, 209, 212; as system of account, 172, 216. See also Finance; Monetary circulation Monopolies, 59, 61 Morality, 105–6, 226–7; and economics, 6–10, 30, 50–7, 65–6, 68–70, 89, 110, 129, 133, 182, 197, 224, 228–9, 233, 243. See also Ethics Morelli, Mark, 27 n. 18, 31 n. 37, 56 n. 130

293

Multinational corporations, 137 n. 31, 176, 204, 225 Multipliers, 189, 200–2 MV = PQ, simplified correlation of quantity theory of money, 190 Myrdal, Gunner, 7 n. 17 Mystery, 73 n. 32 Mystical Body. See Theology, of the Mystical Body Nagel, Ernest, 28, 30 n. 33 National Economic Councils, 59–63, 215 National Socialism. See Fascism Nation states, 8, 25; criticism of, 60–2 Nature: human, 182, 229, 244; human power over, 154 n. 1; potentialities of, 89, 101, 119, 121–2, 142–3, 179; and the what question, 120; and world order, 119–22, 142–3 Nell-Breuning, Ostwald von, 9 Newman, John Henry, 5, 25, 31–3, 37–9, 41, 43–4, 65–70, 75, 94–6, 102, 226: influence on Lonergan, 5, 25, 27, 31–2, 43–4, 37–9, 65–70, 75, 94–6, 106, 226 Newton, Isaac, 80, 83, 98, 102, 139, 219, 223, 227 n. 14, 241 Nietzsche, Frederich, 135 n. 23 Nominalism, 31 Notio entis, 231 O’Hara, Charles, 35–6, 42 n. 81, 44, 182 O’Leary, Darlene, 172 n. 38 Organization(s): community development o., 215; economic, 10, 50, 54, 61, 214; political, 8, 56, 81–2; social, 61, 81 Outlay: initial, 156, 189, 199; lag from o. to final payment, 199; and price spread ratio, 210–11; rate of in the circuits, 199–200 Overproduction, the problem of, 58–9 Ownership, 51, 134 n. 20, 145–6, 165; government o., 137 n. 31 Payments: initial, transitional, and final,

294

Index

143 n. 54, 156, 189, 199, 217; operative and redistributional, 143 n. 54, 188, 202, 218. See also Exchanges, operative and redistributional Peghaire, Julien, 231 Periodic table, xii, 15, 23, 102, 173 Person(ality), 76, 83, 88, 122 Pesch, Heinrich, 9, 52–4, 63, 66, 110, 116 n. 15, 124, 126 n. 4, 138 n. 33, 148, 186, 190 n. 19, 196, 214 Phantasm, 32, 34–5 , 37, 39, 75–7, 159, 237. See also Insight into phantasm Philosopher-king, 72–3 Philosophy: British, 65; Greek, 73, 82; as higher control, 73; implementation of, 229; as procedurally deductive, 92, 96–7, 105–6; scholastic, 64–5 Philosophy of economics, 244 Philosophy of history, 4, 21–2, 48–9 n. 106, 57, 90, 92–5, 98, 102–4, 106–9, 111–17, 127, 129, 138, 182, 223, 227 n. 14, 235; and Catholic Action, 57, 68, 70, 108–10, 112; and collective responsibility, 230; Dawson’s, 10, 44–6, 48; as formal element for theology of the mystical body, 86, 88, 120 n. 27, 228; general line in, 70, 106; Lonergan’s, 3–4, 10–13, 20–1, 25, 47, 50, 57, 66, 68, 70–2, 78–90, 91–111, 114, 117–18, 122, 124, 129, 140, 182, 216, 223, 227; practical, 11, 50, 70, 78, 89–90; secular, 8–9, 25, 56, 70–1, 108; Toynbee’s, 10. See also Analytic concept of history Philosophy of science, 42, 107, 241 Physics, 78–9 Physiocrats, xi, 148 n. 67, 195–6 Pieper, Josef, 242 n. 63 Plato, 12, 31, 69, 72–3 , 82, 91, 95. See also Dialectic, Plato’s Platonism, 73 Polanyi, Karl, 9 n. 25 Political economy, 21–2, 30 n. 31, 93, 108, 118, 126, 128–9, 137, 139–40, 149, 153, 182 Political science, 88

Post-Keynesians, 224 Potency: accidental, 121 n. 30; in metaphysics, 38 n. 71, 75–6, 106; obediental, 87, 120 (see also Finality, obediental); in space and time, 228; sensitive, 33–4 n. 49 Practical theory of history. See Philosophy of history, practical Praxis: Christian, 146, 229; economic, 85, 116–17, 146; existential, 64; relation of theory to, 10–11, 28, 57, 68, 70, 85, 91–2, 116–17. See also Catholic Action Precepts: economic, 30, 61–2, 126, 134, 136, 138, 152, 158, 169–70, 171, 175, 178, 184, 208, 220, 223, 233; transcendental, 133 n18, 223 Prediction: in economics, 141, 218; in science, 43, 141 Pre-motion, 77–8, 89, 114 Price: cyclical variations of (see Pricespread ratio); system, 140, 187–8, 205, 217 Price shifts, as economic signal, 173, 191. See also wage-price spiral Price-spread ratio, 132, 179 n. 49, 185–6, 193, 196, 198, 206–7, 211–12 Private property, 51–3; as descriptive category, 140, 219; and taxes, 162 Production: circuits of, 131, 143–9, 153, 154, 163–4 n. 19, 167, 198; and culture, 147, 152, 242 n. 65; factors, 198–200, 234; and finance, 168–70, 207–8; and labour, 66; lags in, 156, 169, 208; in mainstream economics, 219; mathematical expression of factors of, 199–200; measuring, 198, 201; and monetary circulation, 13, 16, 48–9, 127, 129, 143, 153, 156, 158–9, 167–9, 172–6, 179, 182–3, 186–91, 197, 201–11, 215, 217, 219–20; phases of, 127, 150–3, 16, 170, 173–6, 179, 217; and phases of the pure cycle, 158; and price, 205; as primary, 127, 129, 149, 153, 155, 184, 205, 217; process of, 48, 68, 127, 134; rate of, 127, 204–

Index 6; restriction of in response to falling prices, 59–60, 209–11; short- and long-term acceleration of, 189–91, 200–1; in social credit theory, 58–9; in socialism, 137 n. 31; and social organization, 81; and standard of living, 36, 49; transformation of means of, 127, 125, 150, 158, 170 n. 30, 173, 190, 206–8; universal rhythms of, 68 n. 4, 117 n. 18, 142–7, 243 Profit(s), 51; capitalist, 148 n. 69; decline in, 135 n. 24; maximization, 110, 133, 136 n. 27, 170, 175–6, 190 n. 44, 217, 220. See also Pure surplus income Progress: Christianity and, 48; cultural, 129,147; Dawson’s notion of, 48, 78 n. 51; and dialectic of history, 4, 83–90, 91, 95–102, 105, 108–9, 228, 245; difference between change and, 76; economic,49, 135, 151, 156, 174, 205; Hegel’s notion of, 76; as ideal line, 83, 127, 150, 174; of intellect in Aquinas, 75–8; J.S. Mill’s notion of social p., 28; and leisure, 244–5; liberal notion of, 8, 108, 244; liberty and, 62, 133, 157; Marx on, 83; of the mystical body, 85–6, 233, 244–5; and solidarity, 77; soteriological dimension of, 73 n. 32; technology and, 47, 80 Proportionate expansion, 193, 205, 210 Prosperity, 58, 133, 170 n. 31 Psychology: of association, 28; of decision-makers and the economic mechanism, 141, 175, 217, 219; faculty p., 33 n. 49, 229, 231, 235 Pure forms, 29, 80, 83, 101, 129, 205 Pure surplus income: 79 n. 57, 101, 117, 161 n. 15, 168 n. 26, 176, 193, 205, 207–12, 217, 219 Q: basic q. index, Q ′, 193; surplus q. index, Q″, 193 Quadragesimo Anno, 9–10, 21, 53–5, 61, 107, 222 Quantum mechanics, 42 n. 81

295

Quesnay, François, 13, 147–9, 197 Quinn, Terrance, 41 n. 79, 240 n. 61 R, redistributional balance, 202–3 Rational choice theory, 88–9, 187, 217, 219, 232 Reade, John Collingwood, 59–60 Real analysis, 23, 29 n. 30, 68, 92–3, 102–3, 107, 109–10, 124, 182, 218 n. 90; contrasted with logical analysis, 102, 227; as dynamic, 23; and generalized empirical method, 227; and macroeconomic dynamics 107; and the philosophy of history, 102, 223 Recession, 101, 143, 169, 178, 196, 210. See also Cycle(s), trade Recovery: cultural, 129; economic, 7, 101, 132, 178–82, 224; as element in dialectic of history (see Redemption, as element in dialectic of history); and first phase of functional specialization, 101, 235 Recurrence, schemes of, 46 n. 94, 49, 119–21, 142; in economics, 48, 142, 153, 179–80, 191, 199, 233. See also Cycle(s); Functional specialization Redemption: as element in dialectic of history, 4, 85–6, 77, 90, 97–102, 105, 228; and sin, 77 Religion: and belief, 40; and culture, 44, 47, 118; and morality, 105–6, 227; philosophy of, 216; as redemptive, 245; revealed r., 86 Renaissance: accidental and essential, 99; as element in dialectic of history (see Redemption, as element in dialectic of history); ideal of R. man, 91 Rentier class, 178 Repair. See Maintenance, repair, and replacement Replacement, costs, 162. See also Maintenance, repair, and replacement Rerum Novarum, 8–9, 55 ‘Restoration of all things.’ See ‘Integration of all things’

296

Index

Returns, increasing and diminishing, 145 Revolution: Bolshevik, 51, 69; and Catholic Church, 50 n. 109; in deductive thought, 91, 95, 96 n. 16; financial, 176; Industrial, 8, 25, 47, 56, 167; Keynesian, 7; Lonergan’s scientific r. in economics, 62, 141, 217–21 (see also Lonergan, introduction to modern science); marginal, 136; Marx on, 107; nihilist, 48;scientific, 15, 19, 57, 74 Rhythms, economic, xii, 49, 68 n. 4, 142, 147. See also Production, universal rhythms of Ricardo, David, 13 Robbins, Lionel, 28–9, 54 n. 124, 126 n. 4, 186, 196 Robinson, Joan, 7 n. 17, 30 n. 34, 136 n. 28, 148 n. 69, 225 n. 8 Roos, C.F., 43 n. 83, 126 n. 4, 194–5 Rosenberg, Nathan, 49 n. 107, 134 n. 20, 157 n. 5 Rostow, W.W. 43 n. 83, 225 n. 8 S, supply: S′ basic supply, 202–3; S″ supply, 202–3 Sacred Heart, 64 Saving certificates, 117 Saving(s), 158, 168; rate of and economic phases, 205–11. See also Investment, savings and Schemes of recurrence. See Recurrence, schemes of Scholarship: development in historical s., 12, 25, 41, 65, 74; Lonergan s., 18–19 Scholasticism, 64–5, 226, 229. See also Thomism Schumacher, E.F., 9 n. 25, 214 Schumpeter, Joseph A., 7–8, 13–15, 19, 54, 67, 147–9, 160 n. 11, 168 n. 27, 173, 193–7, 206 n. 69, 207 n. 72, 212, 217, 222; Lonergan and, 46 n. 94, 148 173–4; Lonergan’s reading of, 29 n. 8, 43 n. 83, 126 n. 4, 148, 168 n. 27, 186, 193, 225; on Pesch, 54

Science: applied, 96, 103, 106, 217; Aristotelian, 19, 42, 74; in Athens, 82; belief and, 40; canons of, 213; classical, 41–2, 142 n. 51, 218, 223, 228; as collaborative, 17, 239; differentiated from natural law, 241; as explanatory, 141; and generalized empirical method, 137 n. 30; as inductive, 105–6; Lonergan’s introduction to modern, 24–5, 41–4, 65, 136–7, 226; Mesopotamian, 81; modern empirical, 12, 74–5, 77, 137; and morality, 66; pure, 103; social, 45. See also Economics, as a science; Philosophy of science; Theology, and the human sciences Secular, secularist, 24–5, 44, 54, 55 n. 87, 65, 70 n. 15. See also Philosophy of history, secular Sen, Amartya, 30 n. 34, 88 n. 88, 225 n. 8 Sexuality, 118–21 Shackle, George, 7, 23 n. 2, 58 n. 134 Skinner, B.F., 30, 72 Smith, Adam, 13, 234 Snow, C.P., 241 Social credit, 6, 48 n. 105, 58–60; as inflationary, 58. See also Government, social credit g. in Canada Socialism, 6–7, 50 n. 109, 69, 108, 137 n. 31, 148 n. 69, 167, 173 Social order, 100, 107, 121, 123, 137, 229; Liberalism and, 10, 71; reconstruction of, 54 Solidarism, 9, 52–4, 61–2, 214 n. 83 Solidarity: economic, 154; ground of, 76–7; of human operations, 77, 81, 87, 93, 97, 104, 106, 122 Species: genera and, 130; in the study of human beings, 45, 77, 87, 120–1, 182. See also Nature, human Spengler, Oswald, 48 Spirit: and matter 46, 51, 78 n. 51 Spiritual: appetite (see Will); s. core of Western civilization, 44, 47–9. See also Development, spiritual; Spirit and matter

Index Sraffa, Piero, 7 n. 17 Stages of history, 80; spontaneous and reflex, 80–2, 86, 96–7, 105–6 Stalin, Joseph, 69 Standard of living, xii, 110, 119, 122–4, 129,142 n. 51, 144 n. 56, 145, 147, 149, 152, 154–6, 158, 161–2, 164–70, 175, 177–8, 184, 206–8, 220 Static phase. See Stationary phase Stationary phase, 152, 192–3, 195–6 Statistical law, 78 n. 50, 83–4, 104, 119. See also Method(s), classical, statistical, genetic, and dialectic Stewart, J.A., 31 Subsidiary principle, 61, 81, 214 n. 83 Sumner, William Graham, 59–61 Superchemistry, 154 Supernatural, 228: adds no new data, 114, 141; conjugates, 84 n. 73; s. finality and economics, 119; and the philosophy of history, 70, 72, 84–6, 90, 114; s. solution to problem of evil, 100, 228, 234 Supply and demand, 53, 140–1, 143, 163, 169–70 n. 29, 202, 210–11, 219. See also Money supply, and investment. Supply shocks, 220 Surplus expansion, 134, 152, 175 System: economic, 23, 48, 62, 133, 146 n. 64, 171, 179, 181, 191; planetary, 137; tendency towards, 82. See also History, and system Systematics, 106; as functional specialty, 231, 236, 238–40 T, trader demand; T′, basic t. demand, 202–3; T″, surplus t. demand, 202–3 Taxation, xi, 137 n. 31, 156, 161–2, 165, 177, 198, 209, 212, 213 n. 81, 220 Technology: and culture, 47–9, 80–2, 123, 146 n. 64, 150; and economy, 80–2, 90, 110, 123–4, 127, 135, 147, 170 n. 30 Temple states, Mesopotamian, 81 Theology: of the Assumption, 64; Cath-

297

olic, 57, 239 (see also Catholicism); of Catholic Action (see Catholic Action); and economics, 112, 243–5; and functional specialization, 242; of grace, 182 (see also Grace); and human sciences, 92, 228–9; liberation, 215; of marriage, 112, 117–22; moral, 229; of the mystical body, 70, 85–89, 94, 111, 119–20, 228, 233; renewal of, 5; and stages of meaning, 124 ‘Theory of History,’ 93 Thomism, 25, 27, 31, 71; Lonergan’s criticism of, 71, 75; Suarezian, 27. See also Scholasticism Thought: deductive and inductive, 91, 96–7, 105–6; as discursive, 94 Tight money policies, 59–60, 159 n. 142, 169, 172, 181 n. 55, 204–5, 209 Totalitarianism, 8, 138, 229, 240. See also Government, totalitarian Toynbee, Arnold, 10, 13, 44–6, 117, 146 n. 64, 193 n. 30 Tracy, David W., 22 Trade: favourable balance of, 166 n. 22, 171,176–7, 179, 194 n. 32, 212 (see also Government and favourable balance of trade policies); foreign, 144–5 n. 59, 160, 166 n. 22, 172, 186, 194, 212, 215, 220; second-hand, 165 Transformation and exploitation, economic, 127, 143, 148 n. 69, 150, 157–8, 168, 150–1, 176, 179, 190, 203, 206. See also Cycle(s), pure Trinitarian missions, 88 Turnover: 130 n. 12, 160, 185–6, 189–91, 195, 199 n. 53, 200, 202, 219, 226; and quantity theory of money, 116 n. 16, 190–1, 195 Understanding, 30–1, 49–50 n. 76, 64, 67–9, 87, 91, 94–6, 102, 104–5, 117, 216, 227; in Aquinas, 36 n. 71, 75, 226; distinction between u. and judgment, 32, 38–9, 94–6, 105; flight from, 109, 234; and functional specialization, 234–5; in Hegel, 68; as

298

Index

implicitly dynamic, 30, 43, 108; as interpretation, 20; and rationalism, 86; reflective, 38; scientific, 42–3, 75; theoretical and practical, 133; understanding of, 75, 227 Universal: concrete u., 122; order, 73 n. 32; and potency, 76; u. concepts and particulars 31, 33 n. 49, 37, 75–9; u. categories in history, 101, 105–6; viewpoint, 79, 80 n. 63. See also Production, universal rhythms of Utilitarianism, 10 n. 36, 28–30, 88 Value(s): economic, 154, 156, 161 n. 14; exchange value, 53, 161, 172; hierarchical scale of, 54, 55 n. 128, 121, 123, 135 n. 23; Jane Jacobs’s theory of, 181 n. 55 Variables (economic): as functional, 163; fundamental, 23, 40, 67, 101, 130, 158–66, 179 n. 49, 214, 217 Variation(s): v. and economic phases, 186, 193, 220; seasonal v. in demand, 163, 189; in population, 152; in price, 132, 204–5, 220; in profit margins, 176; in rate of savings, 205; in turnover, 186 Velocity, circuit: c.v. and accelerators, 179; c.v. of money, 49, 172, 188, 190– 3; c.v. of production, 49, 144, 159, 220; c.v. and turnover, 189–93; correspondence between c.v. of money and of production, 172, 190, 220 Vico, Giambattista, 74 Viewpoint(s), higher, 72, 82, 84, 86, 106, 108, 120, 136, 139, 230 Virtue(s): as critical tool in Plato, 72–3; supernatural virtues, 84, 99 (see also Charity; Faith; Hope) Vis cogitativa, 33 n. 49, 37, 231

Wage-price spiral, 169, 209 Walras, Leon, 46 n. 94, 67, 136 n. 27, 160 n. 11, 169 n. 29, 195 War: Civil (American), 49; First World, 8, 24, 58; post–Second World, 176 n. 44; Second World, 24, 69, 115 n. 13, 178 Watt, Lewis, xi, 5, 7, 26, 50–5, 59, 63, 110, 124, 133; connection to social credit circles, 59 Wealth: creation of, xi–xii, 133–4, 182–3; distribution of, xii, 166 n. 23; social, 166 n. 23. See also Income, distribution of Whelan, Gerald, xiii, 3 n. 2, 4 n. 5, 225 n. 8 Wheldon, Fay, xii Wicksell, Knut, 7, 13 Widening and deepening, 136 n. 27, 145, 147, 151, 168 n. 25 Will: free w. and determinism, 51, 83 (see also Determinism); and dialectic, 103 105–6; relationship of to intellect, 51, 74–80, 87–8, 105–6, 223, 231 n. 33, 235 n. 48. See also Aquinas, Thomas, on will; Grace and free w.; Lonergan, Bernard, development of and his notion of will Wilson, Edward O., 241 World order, 22, 111, 118; Aquinas’s account of 119; and economy, 89, 101–2, 118, 125, 142; as hierarchical, 49, 87, 89, 120–4, 130. See also Emergent probability World process. See world order Wust, Peter, 10 Zanardi, William, xiii