The Lonergan Web Site presents the second section of the draft version of Philip McShane's introduction to Lonergan's writing on economics. A revision of this text will form part of the preface to Lonergan's economic writings which make up For a New Political Economy. This volume is volume 21 of the Collected Works, and is being prepared by The University of Toronto Press for publication and release in December, 1998. The following text is a portion of the draft version of McShane's introduction only, not the text that will be published. Many thanks go to Philip McShane for kindly providing us with this text. Thanks are also due to Monica Lambton, for her gracious assistance in transcribing the text for electronic publication.

© 1998 Philip McShane, All Rights Reserved.

"2. Context

Towards the end of his life Lonergan expressed the desire to write a primer on economics. ⁵ One might claim that this was what he had been aiming at from the beginning of his work in the area in the thirties, the result being a set of incomplete introductions to economics. Yet there was another dimension to those last years, and it is important to advert to that dimension at least sketchily here, since it is intrinsic to the restructuring of economic science.

First, however, we should pause over the character of the incomplete analyses represented by the two volumes of Lonergan's economics. The three versions in the present volume⁶ can be viewed as in a more satisfactory state of completeness than the version in the other volume: they appear to have been rounded off by Lonergan to his own satisfaction before he put them aside. The version in volume 15 is another matter: putting it together was a difficult editorial challenge, since Lonergan was reaching, over those last years, for a presentation that would be more contemporarily adequate, while at the same time folowing up his larger interests.

The analyses, however, rise uncomfortably above the present tradition of introductions to economics and it is best to be alerted to the consequent difficulties from the start. The perspective towards which Lonergan leads is concretely heuristic, especially opposed to the abstract model-building, mathematical or not, that is currently fashionable. That perspective, in its fullness, involves cultrual shifts that require some attention. However, it is best, first, to focus on Lonergan's work as it differs in its approach to elementary economics. That difference may be broadly identified by appealing to Schumpeter's characterization of the fundamental need for economic theory to "cross the Rubicon". "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. "⁷

No doubt some economists will say that macrodynamic economics is a present reality. That issue, I would claim, is to be settled not by random debate about the achievements of the disciples of Schumpeter, Keynes, Kalecki, whoever, but by a deep paradigm shift to a scientifically-structured division of labour within economic analysis. But for the present we maintain our elementary focus by comparing Lonergan's analysis with that of Schumpeter.

Both in his Theory of Economic Development and his two-volume Business Cycles. A Theoretical, Historical, and Statistical Analysis of the Cap[italist Process, Schumpeter takes his start form the dynamics of a stable economy and moves to a consideration of the "destablizing" effect of entrepreneurial acitivity.^<8 Lonergan however, focuses immediately on such acitivity, particularly in its occurence on the massive scale associated historically with economic cycles, revolutions, surges. He approaches that focus armed with precise analystic distinctions between basic and suroplus activities, outlays, incomes, etc and it is extremely important to note that these distinctions are equally relevant to the understanding and control of an economy without major surges.⁹

Both the understanding and the control deserve passing comment. Lonergan insists on deteminate understanding, whether the understanding is of the value of labour, the value of capital, or the propensities of consumers. There is no side-tracking into some labour theory of value¹⁰ , no effort to build in measurement of capital¹¹, and propensities are thrown not only into the strict analytic context already mentioned but into a normative context that transposes the meaning of rational expectations.¹² That analytic and normative context will eventually stimulate a massive reorientation of statistical analyses. Empirically-determined historical distributions will be contextualized by contrafactual historical studies that generate schedules of everarching possibilities, probabilities, actualities.¹³ The normative context is no mystery: the double-circuited and credit-centred economy is as naturally demanding as any motor engine.¹⁴ But the natural demand is multiply warped in our times by the vandalism of over-reaching limited economic understanding and centralizing Realpolitik. The fully differentiated normative context will take subtle account of this in its cultivation of global control.

The control envisaged by Lonergan is, of course, democratic, something quite beyond present or past dreams, requiring a shocking educational reorientation.¹⁵. And there is much else that is shocking: the democratic control has its parallel not in iron tracks but in ocean waves, a matter of coaching and coaxing the voyage of a global enterprise¹⁶; the focus is not on employment but on leisure and a quite different ethos of capital deepening¹⁷; centre stage is occupied by the conception, affirmation, and implementation of pure surplus income¹⁸, the global dividend; but most especially and initially there is the shocking yet evident need of a discontinuous leap to economics as an eightfold collaboration of global specialists.¹⁹

This last shock brings us to the topic of Lonergan's broader interest in those final years. The mood and drive of that interest can be intimated by two quotations which will focus Professor Lawrence's comment regarding Schumpeter's History of Economic Analysis as the vade mecum of those years.²⁰ The first is from a letter written as he neared the end of his 1981 course on circulation analysis:

"There remain four more Macro sessions, and I am finding helpful background for the Post-Keynsians in Schumpeter's HCE. Neoclassical "neutral money" is not from Walras who sharply separates his numeraire from monnaie (1087). He find the Tableaux economique and the development of marginal analysis to move towards general equilibrium (918), and I would add that the equilibrium would not be both general and micro once macro is solidly established".21

The second quotation is an aside - I refrain fromediting the spoken word - in an answer to a question regarding his analysis' relation to liberal theories, midway throught the same course in the following year:

"...Schumpeter is important to me: his book is History of Economic Analysis. What he does is to go over the centuries and he picks out the significant people; and this fellow says this, and this fellow says this, and so on. And he builds up and he is able to skip people because he doesn't see anything significant coming into their work. Gradually, he puts together a picture for you. And you will be able to say....like a thing I've been reading recently. There was a man at the end of the seventeenth century, Nicholas Barbon, who said: interest is the stock, the rent; just as rent, the payment to the landlord, was rent for land. And by stock he meant working capital, it was real. And that led to what is called real analysis: identifying money with what money buys. And that plagued a lot of nineteenth century economics and to a great extent the economics of the first four decades of the twentieth centurty. Well, Barbon, he came out about 1693 with his discourse on grain and it didn't catch on at all. But somebody else came up with similar ideas, a little more fully presented, around 1750; his name was Joseph Massie. And he added on the ideas of Locke, Hume; and Turgot was added to the flock. However, Adam Smith came in on top of that and he more or less didn't learn anything from these later people after Barbon. After Adam Smith we are really in Barbon's theory. And that is the source of the problem of real analysis. If you want to treat money that doesn't make a difference, well you can have a beautiful liberal monetary theory. But it doesn't say the way the thing works...."22

The Lonergan expert will recognize, perhaps, that Lonergan is pointing here towards the ongoing genesis of a genetic systematics that sublates historical studies. So, what Lonergan remarked of theology is true also of economics: "1) not a Platonic idea 2) but the many species (not individuals except as types, as dominating personalitites) 3) in a genetically and dialectically differentiated genus".²³ For the economist, however, this is strange territory. It can best be approached by raising the question, What was Schumpeter at in his History of Economic Analysis?

Even with only the clues of the two above quotations from Lonergan, one can surmise that Schumpeter was not doing ordinary history, reaching for von Rankes' wie es eigenlich gewesen. He was, in his own undifferentiated and incomplete way, struggling dialectically towards a genetic retrieval, ordering, and reordering of past struggles towards economic system. In Lonergan's view, that task is to be the task, not of any one economist, but a functionally-ordered set of enterprizes of different groups of specialists, with focus, for example, in a particular author such as Cantillon, or in the hisory of a system as it moves through Cantillon and Quesnay and onwards, or in the dialectical sniffing out of progress in the history of systems and applications, or in the later dependent task of reaching a genetic systematics that holds together, poised for selective application, the temporarily best within all of history's systems. That precise dirferentiation of tasks was certainly not envisaged by Schumpeter, but the forty years since his effort have provided ample evidence for the need that he implicitly faced.

The central issue is efficiency. I suspect some writer of a later time will look back at the undifferentiated muddling in economic theory of the turn of the milennium as Blaug views recent centuries of monetary theory: "An almost indescribable analystic sloppiness characterized some 200 years of development in monetary theory."²⁴ So I am led to recall Adam Smith's observation in the first chapter of The Wealth of Nations: "The division of labour, so far as it can be introduced, occasions, in every art, a proportionable increase in the productive power of labour". What has emerged in our time is a desperate need, and a pregnant possibility, of a division of labour on the level of mind and minding. The need in relations to the past has become increasingly manifest in the specialized searchings for textual integrities, for precise interpretations, for accurate histories, for discernments of progress. An equivalent fourfold need regarding the future lurks in the vague searchings for a basis of the three different goals of policy determination, economic planning, executive selectivity. Lonergan's fundamental achievement in economics is his discernment of the structure of the division of labour that would meet these needs with precision and so lift effete scholarship, disoreinted science, and ineffective journalism, into a humanly -efficient steering of the global enterprize.

A final methodolgical comment should bring us to our goal of contextualizing the analyses of these volumes.

Lonergan wrote in the early forties of Keynes' system as a basis of interpretation.²⁵ The same is more profoundly true of Londergan's macrodynamics, for it is a precise explanatory foundational achievement. It meshes into his fuller methodology of economic collaboration to provide a creative and critical perspective for the differentiated reading of texts, of histories, of systematizations, of the content and marketting of policies.

Perhaps the reader is now in a position to move from these few pointers and the descriptive hints. Lonergan's comments quoted above to reach some suspicion of the nature and relevance of Lonergan's drive against conemporary methodological confusion, against the neglect of real analysis that is a prevalent ethos, and towards a more preicse heuristic of what he omitted in his early efforts. We reach, then, I hope, some differentiating light on Lonergan's analyses. They are principally foundational works: grimly difficult reading, then, for someone seeking a beginner's view.²⁶ Certainly, the work of the last years of his life includes pointers towards an introductory primer. But the massively innovative primers that would meet millennial needs, 500-page texts of empirically-rich locally-oriented normatively-focused non-truncated writing, are distant probabilities.²⁷

⁵ Letter to Jane Collier, Cambridge, England, June 12th 1982.

⁶ Among the fragments in Part Two, chapter 8 stands out as a compact presentation of Lonergan's central thesis.

⁷ Joseph Schumpeter, History of Economic Analysis, Oxford University Press, 1954, p. 1160. To be referred to below as HEA.

⁸ Joseph Schumpeter's The Theory of Economic Development was first published in German in 1911. The English version appeared in 1934 (Oxford University Press). His work on business cycles appeared in 1939 (McGraw Hill). Regarding the possible dependence of Lonergan on Schumpeter, I would recall the scribbled notes from which the quotation in section 4, chapter 14 is taken. From those notes it would seem that Lonergan was reading Schumpeter from the perspective of his own elaborated view.

⁹ Less precise forms of Lonergan's distinction are of course familiar. Kalecki stands out here: "We shall subdivide the economy into two sectors producing investment goods and consumer goods, respectively. In each sector, we include the production of the respective commodity form the lowest stage. Thus the production of the materials and fuel will be allocated between the two sectors according to the uses that are made of them in the production." The Collected Works of Michal Kalecki, edited by Jerzy Osiatynski, Clarendon Press, 1993, "The Problem of Financing Economic Develoment', p. 23. He also writes of sectorizing taxation (pp. 34,35,40).

¹⁰ On value, see part one, chapter 3.

¹¹ The key point regarding determinacy is made on p. __, lines __-__, and it is useful to relate this to Robinson's claim: "The student of economic theory is taught to write 0 = f(L,C) where L is a quantity of labor, C a quantity of capital and 0 a rate of output of commodities. He is instructed to assume all workers [are] alike, and to measure L in manhours of labor; he is told something about the index number problem involved in choosing a unit of output; and then he is hurried on to the next question, in the hope that he will forget to ask in what units C is measured. Before ever he does ask, he has become a profesor, and so sloppy habits of thought are handed on from one generation to the next" ("The Prdouction Function in the Theory of Capital", Review of Economic Studies 21 (1955), p. 81. [My addition in square brackets - Paul Allen, LWS]

¹² The contrast between Lonergan's expectations regarding expectations and the present tradition is neatly brought out by a comment on Gordon's text on Macroeconomics: "I now know how my analysis differs from Gordon's and presumably others. He gives as the empirically determined propensity to consume 75% and to save as 25%. For me these are variables with saving increasing in the surplus expansion and consumption increasing in the basic." (Letter of Lonergan to McShane, Jan 10, 1979). Experts will recall fruther subtleties relating to the works of John Muth and Robert Lucas: see the work cited in note 10, below, the index under rational expectations.

¹³ The context is B. Lonergan, Insight, ch.4, section 2.2. Contrafactual historical studies, however, need the larger context of functional specialization to bring out their significance for dialectics and systematics.

¹⁴ The metaphor brings us to the heart of the matter. The central focus of advanced work at present may be taken as "examining optimal behaviour" (Olivier Jean Blanchard and Stanley Fisher, Lectures on Macroeconomics, M.I.T., 1993, p. 373) The metaphor would suggest that Lonergan's examination has the character of a driver's manual, where contemproary studies home in on orgainzing bad driving. The reader would do well, however, to venture into such a graduate text as the one cited, which seeks "to present life at the frontier, showing the various directions in which researchers are currently working" (ibid.,p.xi). I would note that such studies of actualities and probabilities, corrected by funcitonal circuit distinctions, would be sublated by the larger analytic context mentioned in the previous footnote.

¹⁵ "Coming to grasp what serious education is and, nonetheless, coming to accept that challenge constitutes the greatest challenge to the modern economy" (see below, p. ___). I would note that the economic core of this education is towards a democratic sensitivity to the demands of the two circuits. The issue of the quality of life is another matter: see C. Cobb, T. Halstead and J. Rowe, "If the GDP is up, Why is America Down?", The Atlantic Montly, October, 1995, pp. 59-78.

¹⁶ Relevant here is section 3 of chapter 14.

¹⁷ See below, chapter two, section 9.

¹⁸ The Lonergan student will recognize the enormity of the challenge by linking "pure surplus income" to topic of Insight such as "pure formulations" and "the pure desire to know practically".

¹⁹ The eightfold structure is the central topic of Lonergan's Method in Theology (Darton, Longman and Todd, 1972). For its relation to economics see McShane, Economics for Everyone. Das Jus Kapital, Commonwealth Press, Edmonton, 1997, chapter 5.

²⁰ See vol. 15, p. __.

²¹ Quoted from a letter of Lonergan to McShane, March 21, 1981.

²² I quote from a verbatim transcript of tape 9, by Nicholas Graham, of the lectures of Lonergan's Boston College course on Macroeconomics of Spring, 1982.

²³ Quoted from unpublished notes of the early sixties, available in the Toronto Lonergan Centre, Batch B,8,6,v.

²⁴ The Quantity Theory of Money from Locke to Keynes and Friedman, edited by Mark Blaug, Edward Elgar, 1995, p. 43. I take the opportunity to note here that the most manifest gap in Lonergan's text is that which has numbers 51-53 in Part One of this volume. One might suspect that to be related to finance: some theoretic of credit, interest, etc that would have paralleled and sublated Schumpeter's various efforts. Such a heuristic could have found a place in the other version of the analysis.

²⁵ See below, pp. __.

²⁶ I would suggest that the place to start work on Lonergan's economics is with chapter one of this volume, moving then to the text of 1944 as presented in either volume. See also "The Value of Lonergan's Economics for Lonergan Students", The Redress of Poise, 1998. I have discussed the problem of reading economics , including texts by Gordon and Robinson, in chapters one and three of Economics for Everyone. [Note: The first book cited in this footnote is McShane's forthcoming publication - Paul Allen, LWS]

²⁷ Relevant here is the heuristics of the transition from paradigm shift to the "normal science" of texts and programs. See, e.g. K.A. Pearce and K.D. Hoover, with a comment by A. Cottrell, "After the Revolution: Paul Samuelson and the Textbook Keynsian Tradition", pp. 183-222 of New Perspectives on Keynes, Annual, Supplement to History of Political Economy (27), edited by A.F. Cotrell and M.S. Lawlor, Duke U.P., 1995. The book deals, in the main, with the diffusion of Keynes' view. One must hope for a like diffusion, however distorted, of Lonergan's view, in the new millennium."

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