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Greed and fear on the way upand greed and fear on the way

down was how the editor of anational newspaper, speakingrecently on BBC TV, charact-erised the current economiccrisis. His version of keyeconomic drivers, as well as hisbelief that boom and slump arethe inevitable counterpart ofthese drivers, presents a bleakscenario of the humancondition. Runs on banks, thecredit crunch, job losses are aninevitable part of what it is tobe human. Maybe all moralists, secular and religious,concur on greed as the root of the present malaise.Bernard Lonergan would beg to differ. In 1980, whiledescribing how recession turns to depression, into acrash, and even stagnation, he wrote:

In equity it (the basic expansion) should be directed toraising the standard of living of the whole society. Thereason why it does not is not the simple-mindedmoralists reason: greed, but the prime cause isignorance. When people do not understand what ishappening and why, they cannot be expected to actintelligently. When intelligence is a blank, the first lawof nature takes over: self-preservation. It is notprimarily greed but frantic efforts at self-preservationthat turns recession into depression, and depressioninto crash.

i

So, in our ignorance, we are now heading for arecession, and maybe worse: panicking by queuing

up outside Northern Rock, promoting non-competitive mergers or spending billions of publicmoney on bailing out the banking system. But whatis that we are ignorant of?ii

Social teaching

Stephen Martin has recentlyshown how, in comparisonwith Lonergan, the diverseinsights of Catholic socialteaching are rather like sheepwithout a shepherd. iii Theinsights are there, but taken onboard differently by differentpeople and so the real analysiseasily shifts from the body ofChurch teaching to other, andoften non-economic, forms ofanalysis.iv For Lonergan even

the Churchs most economically prescriptive socialteaching, say on the living wage, is difficult to apply judiciously in a modern economy. So the strongpresumption in Catholic Social Teaching in favour ofprivate property might well have been quoted insupport of the recent drive in the USA and the UK toextend home ownership as widely as possible, butthat drive has led us into the present housing bubble

and ensuing crisis in the money markets. Similarly,more or less all of us are against unbridled profit, aseven the phrase suggests. But what level of profit isallowable? And is the same level of profit justifiableat all stages and in all sectors of a modern economy?In this area at least, to be effectual, moral principlesneed the grounding of technical specifications. v

Autobiographical contexts

Lonergans interest in the workings of the economy

lay in his own experience of the depression in theCanada of the 1930s and the rise of Hitler in Europe.He was, for example, studying for his BA finals atLondon University in 1929-1930, and had to hurry

Our Economic Problem

Greed or Ignorance?

Peter Corbishley

Many commentators on the crisis that has rocked banks andstock markets all over the world would tell us that the problemis simply greed. But a brief look at the remarkable insights intoeconomics of the Canadian Jesuit, Bernard Lonergan, wouldsuggest a rather different diagnosis, as well as a new way out ofour recurring economic injustices, argues Peter Corbishley.

Photo by midwinderphoto at flickr.com

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Our Economic Problem Greed or Ignorance?

Peter Corbishley

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www.thinkingfaith.org

home from Rome back to Canada before World WarII. He had practical understanding of the way inwhich the strictures of the Social Credit Movementwere a recipe for economic disaster for those businesspeople who tried to apply them. He saw howeconomic upheavals could have drastic politicalconsequences. Further his work on economics is anexpression of his intellectual concern, developedwhile still at Heythrop College, for how we are toparticipate in a redemptive, and so progressive,human history a topic we return to below. Later,with the development of his general account of worldprocess, known as emergent probability, heunderstands levels of technology and standards ofliving as emergent within economies. The questionhe faced up to was how standards of living could bedistributed equitably across everyone living within a

modern economy.vi

A religious perspective

Yet it needs to be emphasised that during this periodhe also became a Jesuit and a priest. So he undertakeshis dialogue with economists such as Keynes, Klecki,Kregel, Robinson, Saffra, Scuhmpeter and Walrasfrom within a religious horizon. He has in mind, ashe used to say in asides during his lectures, the needsof the widow and the orphan. His dialogue, too, is

increasingly based on his personal encounter with themind of Aquinas and so reflects not the manuals onAquinas but a shared desire to bring new things outof the old. Lonergans first step, then, is not toappropriate the Churchs social teaching and thenstep into the direct application of that teaching.Rather he engages in a three step process. He takes afirst step backwards into the vetera. Then, workingwith the dynamism given by the old, he takes asecond step out of the immediate arena of practicalengagement and enters into a somewhat lonely

dialogue with modern economists. He was unablepersonally to take the third and forward step intopractical application, but the need for that step isincreasingly evident. George Sorosvii for example,calls for a new paradigm for economics based on adifferent epistemology to the one he sees as prevail-ing. It is to the merit of Lonergan that his dialoguewith Aquinas provides a grounding for such anepistemology, and that his dialogue with economists

provides them with a paradigm that enlarges theworld in which they, and so all of us, might one daylive, while remaining true to the Gospel.

Insight into a sustained path for economic growth

Lonergans fundamental insight is to identify an S-shaped cycle for the economic cycle. With propermanagement of the economy we can smooth out thecycle of boom and bust into an S-shaped wave. viiiHe comes to this insight through recognising thatany economy, from earliest times onwards, operateswith two separate circuits one related toconsumption and the other to production. A moderneconomy, he argues, does not run through a singlecircuit from production to consumption, moving upand down like a roller coaster between boom and

slump, but through two. The first Lonergan calls thebasic circuit, the second the surplus circuit. The S-shaped curve is Lonergans account of how we couldlink these two circuits together to smooth out theride into a single upward movement.

Basic and surplus circuits

The initial distinction between basic and surpluscircuits can be noted from the fact that from early onin human social development we give time to

creating technologies. We take resources from thebasic task of finding and consuming a standard ofliving and devote this surplus to developing technol-ogies. In the basic circuit of the economy we deliver astandard of living to each other, but in the surpluscircuit of an economy we invest in developing newtechnologies which expand the means of productionand provide the basis for a higher standard of living. ixThe economic requirement for literacy and educationin modern economies requires that young people betaken out of direct production and placed within the

surplus circuit so that at a future date the society as awhole reaps the benefits of the higher standard ofliving that comes from higher educational standards.An individual, too, can take time out from earning aliving to undergo training or receive education beforereturning to the work place to earn a higher standardof living, as is still generally the case for UKgraduates from university.x

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The surplus expansion

The expansion of the basic circuit provides a higherstandard of living. The expansion of the surpluscircuit expands capital formation to underpin higherstandards of living in the basic circuit. Surplusexpansion comes about through investment intechnological, or as we have just indicated, inhuman, capital. As investment in capital develops,surplus expansion becomes increasingly complex. Wewill illustrate a simple one-to-one investment inmaking a knife, and then something of thecomplexity of the multi-levelled structure of capitaldevelopment using the example of the clothing sectorin an economy where innovatory investment isdriven firstly by industrial and then by scientificrevolutions.

The knife culture

In pre-historic leather manufacturingxi a cutter usesa single knife to cut up an animal skin to produce aleather coat. One animal leads to one coat, but theone knife can be used time and time again. Time, it istrue, has to be taken out from hunting animals inorder to make the knife in the first place, but oncemade, the knife increases efficiency. A technologicalinnovation becomes part of an economy. Making the

knife brings in a line of production that of makingknives that is surplus to the basic stage ofproduction in which we make and sell coats, forexample. The knife improves the standard of living asthe coat is now no longer just something throwntogether across the shoulders. Equally importantly,there develops a secondary level of production whichmakes the machines that make the knives. Inaddition the machines that make the knives forcutting leather can also be used for making knivesthat do things other than cut leather or make clothes.

The machine culture

As we have just indicated, machines are used to maketools, and, in turn, machine tools are used to makemachines. There is not only a basic circuit ofproduction and consumption, but there are one ormore secondary or surplus lines of productionproducing the machines that produce the machines.Staying with our example of the clothing industry,

plantations produce cotton like hunting foxesproduces the material for fur coats. But, as theindustry develops, cotton gins clean cotton, spindlesmake that cotton into cotton thread, looms weave thethread into cloth, and sewing machines make thecloth into cotton dresses.xii One cotton plant is stillmade into one cotton dress, but time and money hasbeen taken out from making cotton dresses to makethe machines that make the cotton gins, the sewingmachines, the looms and so on. The introduction ofdifferent power sources water, steam, electricity further increases the possibilities for ranges ofavailable machinery. So we can have a great numberof levels of production, not all focussed on theclothing industry, which are in a hierarchy ofremoves from the basic stage of making a dress or asuit purchased as part of a standard of living. xiii

Investment in the application of new power sourcesin new types of factory, or in investment utilisingnew scientific knowledge leads to further expansionof the surplus circuit.

Raising capital for the expansion of the surplus circuit

The complexity of modern capital investment in thesurplus circuit of production can be glimpsed from Andrew Marrs recent BBC series on Britain from Above. More importantly, from an economic point

of view, is the sheer scale of the capital investmentand the time required to invest in inventions thatexpand existing levels of surplus production in such amodern complex society. The amount of money isone thing, but it may well be the case that years go bybefore new goods are sold into either the surplus orbasic circuits. If the benefits of new inventions are tobe shared across the society, somebody has to takethe risk of investing in the latest wave of innovation,in a new level of surplus expansion. Historically, risk-taking individuals have invested in what we are

calling a surplus expansion. Our understanding of therisks of such entrepreneurship gives us ourunderstanding of profit.

The role of profit

Raising money for the surplus expansion is relativelyunproblematic. The fact, of course, is that nodifficulty is experienced in financing the surplusexpansion. It is the first step towards increasing the

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standard of living of the whole society, and thereseems to be little evidence that entrepreneurs,financiers, engineers, workers, are commonlyhesitant about taking that step.xiv A major reason isprofit. Shortly we again quote Lonergan at somelength on profit, but, given his reference to equity inthe first quotation above, we should note that herecognises the value of the anti-egalitarian shiftinvolved in risk-taking investment in the surplusexpansion. In that sense, he is not anti-capitalist.Risk-taking investment in a surplus expansionrealises the possibilities open to us in an emergentworld order. Nor is he anti-socialist in that hestresses the importance of to us all, namely theegalitarian shift that comes from the full expansionof the basic circuit within a given economic cycle.The moral norms for the surplus expansion can be

said to be thrift and enterprise, those for the basicexpansion might well be benevolence and enterprise.Neither set can be applied without regard to ourtechnical understanding of where we are in theeconomic cycle.

Signalling the transition into the basic expansion

Lonergan, therefore, distinguishes between a surpluscircuit and a basic circuit within the economic cycle.His economic model moves from investment in

expansion of a surplus circuit to investment inexpansion of a basic circuit. Investment in a surpluscircuit increases the efficiency of production.Investment in a basic circuit creates rising wages andfalling prices. Our critical mistake is to apply the rateof profit appropriate to risk-taking investment in thesurplus circuit to investment in the expansion of thebasic circuit. Profit moves from being a motive tobeing a criterion of economic activity. Profit-makingas a motive for risk-taking investment in newtechnology is one thing, entrepreneurial rates of

return as a criterion for low-risk investment isanother. Moreover, if in fact we are investing ingeneralising the benefits of new technology to newconsumers in the basic circuit, but we continue toexpect the level of profit that motivates a surplusexpansion, then sooner or later we will lead ourselvesinto a slump. The slump begins, that is, when theproviders of low-risk investment in the expansion ofthe basic circuit find that entrepreneurial level profitsare not materialising and they use this fact as the

criterion for contracting their operations. Tomaximise the standard of living realisable within thepossibilities of a given technology, we have to haveeconomic reasons for changing the expectationsabout profit that currently surround investment inthe basic expansion. So, for Lonergan the economicreasons are that firstly profit is a social dividendproduced by the economic expansion of the surpluscircuit, and that, secondly, to avoid the bust thatfollows boom we have to learn how to manage thedistribution of that dividend across the longer cycleof the economy. The requirements for a normalprofit remains, but any excess over that is a socialdividend. It is not money to be spent. It is notmoney to be saved. It is money to be invested ..xv

The social dividend

In accounting terms, profit is simply the excess ofwhat has been received over what has been paid out.When profits are excessive this definition of profiteasily leads to demands for higher wages, or for thelowering of prices. Lonergan, however, is notfocusing on the accounting understanding of profit.Instead he is pointing to a social dividend that, atcertain phases of the economic cycle, is available toinvest in raising the standard of living of the wholepopulation. The social dividend is founded on pure

surplus income, namely the income over and abovethe income required for current consumption and thecurrent replacement of what is required to producethat level of consumption. All organisations requirethe consumption and replacement income that keepsMr Micawber happy and provides the constantnormal profit familiar to so-called not-for-profit, co-operatives or third sector organisations within ourown society. In aggregate pure surplus income iswhat is left over when normal profits have beenmade. Lonergan identifies pure surplus income with

net aggregate savings, namely the money available tothe whole economy that does not need to be spent tomaintain the standard of living of that economy.

Identifying pure surplus income in Lonergans ownwords

However, the phenomena here referred to by the termpure surplus income are not, as is the term, a creationof our own. The phenomena are well known.

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Entrepreneurs are quite well aware that there are timesof prosperity in which even a fool can make a profitand other mysterious times in which the brilliant andthe prudent may be driven to the wall. Entrepreneursare quite aware of the ideal of the successful man, aman whose success is measured not by a high emergentstandard of living nor by the up-to-date efficiency of

some industrial or commercial unit but by increasingindustrial, financial, and social power and prestige. Inthe old days when the entrepreneur was also ownerand manager, pure surplus income roughly coincidedwith what was termed profit. Today, with increasingspecialisation of function, pure surplus income isdistributed in a variety of ways : it enters into [the]very high salaries of general mangers and top-flightexecutives, into the combined fees of directors whentogether these reach a high figure, into theundistributed profits of industry, into the secretreserves of banks, into the accumulated royalties, rents,

interest, receipts, fees, or dividends of anyone whoreceives a higher income than he intends to spend atthe basic final market.

xvi

There are echoes here of the contemporary moralcondemnation of windfall profits, excessive citybonuses, high salaries, and the life styles of the richand famous. However, Lonergan moves on fromdecrying individual greedy bankers on Wall Streetor in the City to an account of how we can establishan economic order that is both efficient and moral.

The baseball diagram

We have briefly introduced Lonergans key distinc-tion between surplus and basic circuits which allowshim to distinguish between two different types ofgrowth or expansion. However we have notdescribed the baseball diagram which Lonergan usesto express mathematically the financial flows acrossproduction, consumption and redistibutional circuitsas supply, demand and redistributional functions.xvii

The redistributional function works through banks,investment companies, colonial powers, internationalcompanies, larger firms and wealthier individualswho pitch quantities of money into the circuits.Their actions accelerate and decelerate the movementof finance between the surplus and basic circuits,within and across economies, often further impover-ishing the weaker. In the context of the contemporary

crisis, the resale of houses is redistributive, whereasfinancial operations are partly redistributive andpartly payments for services that are part of the basiccircuit. So in terms of the current debate in the USAthere is not only a Main Street and a Wall Street, butan E Street xviii that invests in the long term surplusexpansion. Current liquidity problems in the redistri-butional circuit may spill over into a depression inthe High Street - to revert to a UK phrase and toincreasing unemployment leading to a real contrac-tion in the basic circuit. What Lonergan enables us tonote is that the loss of liquidity may also negativelyaffect entrepreneurial investments in, say, the tech-nologies of renewable energy, which in the UK arenot currently regarded as commercially viable, andthis would lead to a failure to realise the possibilitiesactually available to us in the face of climate change.

Research into the categories of the analysis

Lonergan has provided just a beginning. Work needsto continue on understanding his theoretical work.But for that to become practical we also need to beable to read off which parts of an economy are in thesurplus or basic circuits. Our present economicstatistics are built on the belief that fundamentallythere is only one circuit, namely straight fromproduction to consumption. They measure what they

can and in any case are descriptive of what ordinarypeople can recognise as buying and selling. Incontrast Lonergans categories are analytic, so weneed to develop different categories to research thestatistics to underpin the narratives of where we areup to and what we are to be about. At the momentLonergans analysis just provides what he calledrather convincing indicators.xix Lacking statisticallybased narratives, Church commentators and otherswill find it difficult to produce decisive policystatements, suggest relevant programmes or support

effective interventions. Other interests and motiveswill remain dominant. Fortunately the task is notmerely academic, and given these pointers, it is nowtime to return to indicate some of the non-economicpre-conditions for managing an equitable economy,an economy that embeds justice in a way that reachesthe parts that other versions of distributive justicecannot reach.

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Towards a democratic economy

In Lonergans worldview, one of the conditions forestablishing an equitable economy is that theteaching of a fuller understanding of the economycomes to inform the democratic actions of ordinarycitizens in their everyday lives. Lonergan is not afriend to bureaucracy xx whether of the state or theinternational corporation. He argues instead that theradical re-distribution implied in the basic expansioncomes about through citizens, including businesspeople, acting on a critically realist understanding ofhow an economy works. There is a role then for aChurch with a world-wide educational system inpreparing the ground for the reception of a criticallyrealist account of the economy, and here it can benoted that Lonergan wrote on education and

schooling as well as the economy.

Human bias

The difficulties to be faced are not only intellectual.Implementation of a new economics will not bewithout problems. For those for whom all this talk ofeconomics seems to leave faith and human weaknessoutside the window, Lonergan also has anunderstanding of bias, of our tendencies tolimitation rather than transcendence. He points to

those elements of individual and group behaviourthat have formed the backdrop to much of the left-versus-right political-economic accusations. Groupsexploit their positional situations to preserve theirown advantage. Individuals, too, use theirintelligence to maximize gains for themselves againstthe interests of others. In addition, there are thelacunae in our psychological make-ups that open usup to dysfunctional uses of power in advertising, inthe board room or on the factory floor.xxi Finally, andperhaps most difficult to overcome, there is our

pragmatic realism. The short-termism referred to bycommentators on the City reflects our inability to seefurther than in front of our noses. A new economicsrequires the partnership of a renewed evangelisation.

A renewed evangelisation

Moments of heightened anxiety and crisis openpeople to look for solutions, to hear good news. Andit is indeed true that the suffering servant can heal

contemporary evils. But, if the proclamation of thelife, death and resurrection of Jesus Christ is to be atthe level of the crisis of our times, the Church needsto operate with theoretical understandings that canlift our contemporary, common sense grasp of howan economy works out of its current pitfalls. After all,it is when economies falter and fail that economicsbegins to rule our lives, and it is not only believerswho want a world in which politics is not reduced tothe economy (as in Bill Clintons famous phrase, Itsthe economy stupid.) It is not only Christians whowant their family life to be free of impoverishmentand the insistent and incessant need to make aliving. It is not only Catholics who see the raisondetre of humanity as something more than justeconomics, and who want to live without the ups anddowns of the economy being the central focus of our

understanding of what it is to be human.

Further details on Peter Corbishley can be found onwww.englishwww.englishwww.englishwww.english----english.co.ukenglish.co.ukenglish.co.ukenglish.co.uk

If anyone has the money or the time to make co-operativehousing (and other forms of resident-controlled housing) partof the 2012 legacy in East London, please e-mailpeter@englishpeter@englishpeter@englishpeter@english----english.co.ukenglish.co.ukenglish.co.ukenglish.co.uk

i P82 Lonergan, BJF (1999) Macroeconomic dynamics : anessay in circulation analysis University of Toronto Pressii The ignorance extends to our choice of politicians cfAlesina, A, Roubini, N, Cohen, G Political cycles and theMacroeconomy Cambridge, Massachusetts : The MITPress. Nouriel Roubini has been predicting the currentcrisis for a number of years cf.http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.htmliii

Martin, S (2008) Healing and creativity in economic ethic :the contribution of Bernard Lonergans economic thought to

catholic social teachingUniversity Press of Americaiv

Cf Longley, C (23rd

August 2008) An acceptable face ofcapitalism The Tablet p10-11. Here organisations withdifferent interpretations of how to run our economy areboth said to claim the mantle of the Churchs SocialTeaching. Then, as happens in this article, the realargument easily shifts both from the economy and theChurchs teaching to a left-right political analysis.v

Cf Shiller, RJ (2008) The subprime solution Princetonvi A sympathetic account this period of Lonergans life,including of his economics, can be found in Matthews,WA (2005) Lonergans quest : a study in desire in the authoring

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of InsightUniversity of Toronto Press cf pp109-131. For

the his economic writing up to the end of World War IIsee Lonergan, BJF (1998) For a new political economy.University of Toronto Press.vii Soros, G (2008) The New paradigm for financial markets :the credit crisis of 2008 and what it means. London: Public

Affairs Ltdviii For a diagrammatic representation, see Appendix 1ix We need to distinguish two different kinds of techno-logical investment. To give examples from the UK, thereis, firstly, the kind of technology currently called hightech, although the phrase high tech covers a number ofdistinct technologies. In an actual modern economy,therefore, there may be surplus expansion taking placewith several different technologies. In contrast,investment in the basic expansion is spent ontechnologies that expand consumption directly. It maybe that the UK has not recently invested in this kind oftechnology, but instead bought in high techconsumption goods from abroad, eg. Korea or Japan.The lack of investment in the second kind of technologyprobably underlies the common belief in the decline ofUK manufacturing.x The fact that the economic model of education can leadto a reductionist playing down of a genuine humanisticunderstanding of the benefits of education, as may wellbe the case currently in the UK, does not take away fromthe distinction between basic and surplus circuits in theeconomy.xi Leather manufacturing has been taken as an examplebecause of my own experience of working with localCMT companies and support agencies in the 1970s inTower Hamlets, in the East End of London - businesseswhich now only exist if they produce for the expensiveend of the market. Tower Hamlets, itself, is a tellingcomment on our inability to deal with poverty on anational let alone an international scale. An area northeast of St Dunstans in Stepney, close to where I live, waschosen as the location for a neighbourhood basedpoverty reduction programme of the early New Labourgovernment. Ironically the programme area substantiallyoverlaps with an area mapped out as vicious and semi-criminal or as experiencing chronic want nearly 150

years ago. Cf 1889-99 map:http://booth.lse.ac.uk/cgi-bin/do.pl?sub=view_booth_and_barth Relative povertyseems to have a persistent geographical element to it.xii The clothing industry in Tower Hamlets now remainsas an import-modify-export with a made in the UKlabel industry, but Lonergan also uses clothing as anexample. The question remains as to whether realinvestment in computerising the industry would haveretained rather more employment in the local area.

xiii With clothing industry we have already noted theone-to-one relation of cotton and coat, as well as the one-to-many of a single knife or loom to many coats. One tomany relations of a loom, say, to a line of production canbe expressed mathematically as point to linerelationships, then machines that make the looms are ina point-to-surface relationship with a standard of living,and so on through point-to-volume into n dimensions

to be handled, Lonergan believed, though matrixalgebra.. Finally, the distinction between basic andcircuit is not through classification of objects or activitiesas either basic or circuit. The distinction and thehierarchical relationships are explanatory and functional.The same object or activity can at one time be part of thebasic circuit and at another part of the surplus.Electricity can be used to power the CERN experimentor light bulbs in a house. The same make of light bulbcan be used in an office in a factory, in a shop or athome.xiv P82 Lonergan, BJF (1999) op cit.xv P81-2 Lonergan (1999) op cit. It may well be that whathas happened in the UK is that the surplus incomeavailable for investment from the surplus expansion hasbeen spent through raising the standard of livingdirectly, for example by taking out credit againstprivately owned but mortgaged houses.xvi Written in 1944, P153 Lonergan, BJF (1999) op cit.xvii

Redistribution here does not mean giving from therich to the poor, but models how financial institutionsredistribute money between basic and surplus circuits.xviii E street where E stands for entrepreneur. The nameE street is my illustration, not Lonergans. However, hedoes suggest that investment cycles that produce afundamental transformation of the capital equipment ofan economy include long-term accelerations that preparefor the fundamental transformation, and long termaccelerations that realise the benefits of that fundamentaltransformation. Cf p162 Lonergan (1999) op cit. IfLonergan is correct then in a modern complexeconomies there is a third street of entrepreunerialactivity that continues to run alongside the High Streetand Threadneedle Street in the City, even if the rate ofactivity in E street varies over time.xix

p72 Lonergan (1999) op cit.xx Interestingly his critical comments on bureaucracycome first in his writings on education cf pp60-61Lonergan, BJF (1993) Topics in Education University ofToronto Press lectures delivered in 1959. De Neeve, E(2008) Decoding the economy : understanding change withBernard Lonergan Thomas More Institute Papers/08 p131notes that More than half of all international trade takesplace within global enterprises. This means that sales arenot organised through market exchanges, but through a

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i P82Lonergan, BJF(1999 ) Macroeconomicdynamics : an essay in circulation analysis University of TorontoPressii The ignorance extendsto our choice of politicianscf Alesina, A, Roubini, N, Cohen, G Political cycles and the Macroeconomy Cambridge, Massachusetts: The MIT Press. NourielRoubini hasbeen predicting the currentcrisisfor anumb er of yearscf.http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.htmliii Martin, S (2008) Healingand creativity in economicethic: th e contribution of Bernard Lonergans economicthought to catholicsocial t eachingUniversity Pressof Americaiv Cf Longley, C (23 rd August2008) An acceptable face of capitalismThe Tabletp10-11. Here organisationswithdifferent interpretationsof howtorun our economy are bothsaid toclaim the mantle of the ChurchsSocialTeaching. Then, ashappensin thisarticle, the realargumenteasily shiftsbothfrom the economy and the Churchsteaching toaleft-right politicalanalysis.v Cf Shiller, RJ (2008) The subprime solution Princetonvi A sympathetic accountthisper iod of Lonerganslife, including of hiseconomics, canbe found inMatthews, WA (2005) Lonergans quest : a study in desire in the authoringof Insight University of TorontoPresscf pp109-131. For the hiseconomic writing up tothe end of World War II see Lonergan,BJF(1998)For a newpolitical economy. University of TorontoPress.vii Soros, G (2008) The Newparadigm for financial markets : the credit crisis of 2008and what it means. London: Public AffairsLtdviii For adiagrammatic representation, see Appendix1ix We need todistinguishtwo differentkinds of technologicalinvestment. Togive examplesfrom the UK, there is, firstly, the kind of technology currently called hightech, althoughthe phrase hightechc oversa number of distincttechnologies. Inanactual modernec onomy, therefore, theremay be surplusexpansiontaking place withseveraldifferent technologies. Incontrast, investmentin the basic expansionisspent ontechnologies thatexpand consumptiondirectly. Itmay be thatthe UK hasnotrecently invested inthiskind of technology, butinstead boughtinhigh techconsumptiongoodsfrom abroad, eg. Koreaor Japan. The lack of investmentin the second kind of technology probably underliesthe commonbelief in the decline of UK manufacturing.x The factthatthe economic modelof educationc anlead toa reductionistplaying downof agenuine humanistic understanding of the benefitsof education, asmay wellbe the case currently inthe UK, doesnot take away from the distinctionbetweenbasic and surpluscircuits inthe economy.xi Leather manufacturing hasbeen takenasan example because of my ownexperienc e of working withlocalCMT companies and support agenciesin the 1970sin Tower Hamlets, inthe EastEnd of London- businesseswhichnowonly existif they produce for the expensive end of the market.Tower Hamlets, itself, isatelling comment onour inability todealwith poverty ona nationalletalone aninternationalscale. An areanorth eastof StDunstansin Stepney, close towhere I live, waschosenas the locationfor aneighbourhood based poverty reductionprogramme of the early NewLabour government. Ironically the programme areasubstantially overlapswithan areamapped out asviciousand semi-criminal or asexperiencing chronic want nearly 150years ago. Cf 1889-99map:

http://booth.lse.ac.uk/cgi-bin/do.pl?sub=view_booth_and_barthRelative poverty seemsto have apersistentgeographicaleleme nttoit.xii The clothing industry inTower Hamletsnowremains asan import-modify-exportwitha made inthe UK label industry, butLonergan alsousesclothing asan example. The questionremains astowhether real investmentin computerising the industry would have retained rather moreemploymentin the localarea.xiii Withclothing industry we have already noted the one-to-one relationof cottonand coat, aswell asthe one-to-many of asingle knife or loom tomany coats. One tomany relationsof aloom, say, toa line of productioncanbe expre ssed mathematically aspointtoline relationships, thenmachinesthat make the loomsare in apoint-to-surface relationship witha standard of living, and soonthrough point-to-volume intondimensionsto be handled, Lonerganbelieved, thoughmatrixalgebr a.. Finally, the distinctionbetweenbasic and circuitisnotthrough classificationof objectsor activitiesaseither basic or circuit. The distinctionand the hierarchicalre lationshipsare explanatory and functional. The same objector activity canat one time be partof the basic circuitand atanother part of the surplus. Electricity canbe used topower the CERN experimentor lightbulbs inahouse. The same make of lightbulb canbe used inanoffice ina factory, inashop or athome.xiv P82Lonergan, BJF(1 999) op cit.xv P81-2Lonergan (1999) op cit. Itmay wellbe thatwhat hashappened inthe UK isthatthe surplus income available for investmentfrom the surplusexpansionhasbeen spentthrough raising the standard of living directly, for example by taking outcreditagainstprivately owned butmortgaged houses.xvi Writtenin 1944, P153Lonergan, BJF(1999) op cit.xvii

Redistributionhere doesnotm eangiving from the richto the poor, butmodels howfinancialinstitutionsredistribute money betweenbasic and surpluscircuits.xviiiEstreet where Estandsfor entrepreneur. The name Estreet ismy illustration, notLonergans. However, he doessuggest thatinvestment cyclesthat produce afundamentaltransformationof the capitalequipmentof aneconomy include long-term accelerationsthatpre pare for thefundamentaltransformation, and long term accelerationsthatrealise the benefitsof thatfundamentaltransformation. Cf p162Lonergan(19 99) op cit. If Lonerganis correctthen ina moderncomp lexeconomies there isathird streetof entrepreunerialactivity thatcontinuestorunalongside theHighStreet and Threadneedle Streetinthe City, evenif the rate of activity inEstreet variesover time.xix p72Lonergan (1999) op cit.xx Interestingly hiscritical commentson bureaucracy come firstin hiswritingson educationcf pp60-61Lonergan, BJF(1993 ) Topics in Education University of TorontoPresslectures delivered in1959. De Neeve, E (2008) Decodingthe economy : understandingchange with Bernard Lonergan ThomasMore Institute Papers/08p131 notesthatMore thanhalf of allinternationaltrade takesplace withinglobalenterprises. Thisme ansthatsales are notorganised throughmarketexchanges, but througha command system of accounting pricesdecided withinthe corporation. After going onto

commenton the internationalfinancialand currency transfersthatare partof the businessof multinationalcorporationsand internationalfund investors, she concludesthis paragraphby saying, almostprophetically asregardsthe presentsituation, thatRegulating internationalfinancialtransactionequitably remainsan issue for world financialstability.xxi Cf for example Zimbardo, P (2007) The Lucifer effect London: Rider onAbu Ghraib

Appendix 1 :Appendix 1 :Appendix 1 : Appendix 1: The s curveThe s curveThe s curveThe s curve

The following diagram describesaseries of 2booms and 2slumpsin amodern economy. The 5phasesdonot form acycle. Living standardsdorise acrosstime, butare inequitably distributed.

Incontrast Lonergansmodel of the economy enableshim tosmooththe sequence of boomsand slumpsintoa single cycle based onthe sor sigmoidcurve. The modelhas 5phases (notmarked here) where phase 5atthe top of the curve isequaltophase 1at the bottom of the curve butclearlyatahighe r standard of living asindicated by the greater quantity of goodsavailable inthe economy. Nowthe redistributionalfunctione quitably switchesthe focusof investmentfrom surplusexpansion tobasic expansionover the longer term. Inadditionthere is asingle identifiable cycle. xxi

Further ReadingFurther ReadingFurther ReadingFurther Reading

The Lonergantitlesare m ore readily available onwww.amazon.com thanonthe UK site.

Burley, P (1989) A vonNeumann Representationof LonergansProductionModel EconomicSystems Research 1:3317-30De Neeve, E (2008) Decodingthe economy : understandingchange with Bernard Lonergan ThomasMore Institute Papers/08

http://www.thomasmore.qc.ca/tmi.html

Lonergan, BJF(1998) For a newpoliticaleconomy University of TorontoPressLonergan, BJF(199 9) Macroeconomicdynamics : an essay in circulation analysis University of TorontoPress

Martin, SL (2008) Healingand creativity in economics the contribution of Bernard Lonergans economicthought t o Catholicsocial teaching University Pressof America

Matthews, WA (2005) Lonergans quest : a study in desire in the authoringof Insight University of TorontoPress cf pp109-131

McShane, P (1998) Economics for everyone Das Jus Kapital AxialPresshttp://www.lonergan.org/axialpress/index.html

command system of accounting prices decided withinthe corporation. After going on to comment on theinternational financial and currency transfers that arepart of the business of multinational corporations andinternational fund investors, she concludes thisparagraph by saying, almost prophetically as regards thepresent situation, that Regulating international financial

transaction equitably remains an issue for worldfinancial stability.xxi Cf for example Zimbardo, P (2007) The Lucifer effectLondon : Rider on Abu Ghraib

Appendix 1 :Appendix 1 :Appendix 1 :Appendix 1 : The s curveThe s curveThe s curveThe s curve

The following diagram describes a series of 2 booms and2 slumps in a modern economy. The 5 phases do notform a cycle. Living standards do rise across time, but areinequitably distributed.

In contrast Lonergans model of the economy enableshim to smooth the sequence of booms and slumps into asingle cycle based on the s or sigmoid curve. Themodel has 5 phases (not marked here) where phase 5 atthe top of the curve is equal to phase 1 at the bottom of

the curve but clearly at a higher standard of living asindicated by the greater quantity of goods available in theeconomy. Now the redistributional function equitablyswitches the focus of investment from surplus expansionto basic expansion over the longer term. In additionthere is a single identifiable cycle. 1

Further ReadingFurther ReadingFurther ReadingFurther Reading

The Lonergan titles are more readily available onwww.amazon.com than on the UK site.

Burley, P (1989) A von Neumann Representation oLonergans Production Model Economic Systems Research

1:3 317-30

De Neeve, E (2008) Decoding the economy : understandingchange with Bernard Lonergan Thomas More InstitutePapers/08

http://www.thomasmore.qc.ca/tmi.html

Lonergan, BJF (1998) For a new political economyUniversity of Toronto Press

Lonergan, BJF (1999) Macroeconomic dynamics : an essay in

circulation analysis University of Toronto Press

Martin, SL (2008) Healing and creativity in economics thecontribution of Bernard Lonergans economic thought to Catholic

social teachingUniversity Press of America

Matthews, WA (2005) Lonergans quest : a study in desire inthe authoring of Insight University of Toronto Press cpp109-131

McShane, P (1998) Economics for everyone Das Jus KapitalAxial Press

http://www.lonergan.org/axialpress/index.html

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