economic development and the common good

7/31/2019 Economic Development and the Common Good

1/24

Koninklijke Brill NV, Leiden, 2007 DOI: 10.1163/156853507X204932

Worldviews 11 (2007) 203-225 www.brill.nl/wo

WORLDVIEWS

Economic Development and the Common Good:Lonergan and Cobb on the Need for a New Paradigm

Paul Hoyt-OConnorCenter for Religion, Ethics and Culture, College of the Holy Cross,

One College Street, Worcester, MA 01610, [email protected]

Abstract

John B. Cobb, Jr and his associates offer a critique of prevailing economic theory

and practice in the hopes of contributing to the reformation of both by examining

the meaning and relevance of the common good in the economic sphere. Tis

paper examines Cobbs critique of economic theory and practice and his contribu-

tion toward an understanding of economic life that would do greater justice to

environmental and communal sustainability. It also examines the contours of the

new paradigm for economic theory and practice that he and Herman E. Daly

propose. While that paradigm stands in need of greater elaboration, their worksuggests a line of further development, one that anticipates Bernard Lonergans

macroeconomic dynamics. Te latter, I argue, accounts for Cobbs concerns and

criticisms and provides a basis for the formulation of moral precepts that promote

economic progress in ways consonant with a fuller vision of human flourishing.

Keywords

John B. Cobb, Jr, Bernard Lonergan, common good, economic development,

economic theory

Introduction

When it issued its pastoral letter on the US economy nearly two decadesago, the National Conference of Catholic Bishops breathed new life intothe common good tradition (NCCB/USCC 1986). Teir lead inspiredtheologians, philosophers, and political theorists to consider the meaningof the common good and its contemporary relevance. (See Dupr 1993;


2/24

204 P. Hoyt-OConnor / Worldviews 11 (2007) 203-225

Hollenbach 1989; Rourke 1996.) Continuing their reflection upon eco-nomic and political life, the US Catholic Bishops reaffirmed more recentlythat adequate responses to the problems facing American society at thecusp of the new millennium demand renewed inquiry and reflection intocommon good (NCCB/USCC 1999). As they did in their first pastoralletter on the US economy, the bishops suggest that a sustained reflectionupon the common good would aid in specifying the conversions needed tolive faithfully in an increasingly complex world. At their best, their pastoralresponses strive to surmount shortcomings of individualist and collectivistconceptions of society, to challenge prevailing economic theory and prac-tice, and to invite the faithful to participate in more just and reverent waysof life.

Te struggle to take stock of the transformations of modern economicconditions and to formulate faithful responses to them has not been lim-ited to Catholic theologians, however. Tinkers across a broad spectrum ofChristian denominations have turned their attention toward the emergentglobal economy, its effects upon the environment, and its implications forsocial life. In the words of the World Council of Churches, the true wor-ship of God requires Christians to promote just, participatory, and sus-tainable communities and the integrity of creation.1 Te notion of thecommon good has also assisted that Council in the formulations of thepastoral responses that would guide Christians in resolving the ongoingtensions in how they ought to make a living while making a life for them-selves and their neighbors.

Tese tensions arise partly because the common good tradition affirmsthe value of economic activity and, at the same time, maintains that thehuman good transcends the merely profitable. While that larger good canonly be imperfectly embodied in this life, still the trajectory of an economicorder in particular and social life in general is to be judged in the light ofthat good. At its best then, the common good tradition has a reformistthrust. As it respects economic life and its proper place in the fabric ofhuman societies, that tradition seeks to transform social practices in waysconsonant with cultural, personal, religious, and transcendent values.

1) At its Nairobi Assembly, the World Council of Churches formulated the end of the trueworship of God to be just, participatory, and sustainable communities. Cognizant ofits implicit anthropocentric connotations, the Council proclaimed that the end was theintegrity of creation at its Vancouver Assembly in 1982.


3/24

P. Hoyt-OConnor / Worldviews 11 (2007) 203-225 205

Making the most of the traditional notion of the common good undermodern conditions, though, involves investigating the complex frame-

works of cooperation of concrete, historical communities and incorporat-ing the findings of contemporary social science and historical scholarship.In particular, it entails rethinking the relation of the economy to naturaland social ecologies in ways that do justice to the dynamic characterof economic arrangements and of social life and, thus, assisting those

who sincerely strive to live justly and faithfully. A practical philosophy ortheological ethics would seek to issue precepts in order to guide humanresponses to that dynamic reality. Such accounts would also specify the

ways in which individuals and communities have failed to abide by thoseprecepts and set themselves upon a path of disrepair and ruin.

John B. Cobb, Jr is a theologian who has devoted much of his time andenergy to examining conventional economics. He once remarked, theol-ogy is too important to be left to the theologians (Cobb 1994: 23), andthe same might be said of economics and economists. Motivated by anabiding concern for the integrity of creation and community, Cobb andhis associates offer a critique of prevailing economic theory and practice inthe hopes of contributing to the reformation of both by examining themeaning and relevance of the common good in the economic sphere. Inthe space allotted, I wish to examine Cobbs critique of economic theoryand practice, his contribution toward an understanding of economic lifethat would do greater justice to environmental and communal sustainabil-ity, as well as the contours of the new paradigm for economic theory andpractice that he and Herman E. Daly propose. While I maintain that theirparadigm stands in need of greater elaboration, their work suggests a lineof further development, one that anticipates Bernard Lonergans macro-economic dynamics. Te latter, I will argue, accounts for Cobbs concernsand criticisms and provides a basis for the formulation of moral preceptsthat promote economic progress in ways consonant with a fuller vision ofhuman flourishing.

Cobbs Account of the Economy and the Common Good

In the opening pages ofSustaining the Common Good, Cobb describes howhuman beings have always trodden somewhat heavily upon this earth.From ancient times, settled agriculture contributed to the desertification


4/24


of former breadbaskets, and the techniques of scorching and burning areeven now hastening deforestation. Te acceleration of the ruin of the cre-ated order, Cobb believes, has its sources largely in the economic theorythat justifies it. With genuine urgency then, he presses his case against cur-rent economic theory and practice because of the increasing scale andscope of the pending environmental and social disasters engendered bythem. He traces the source of these problems to the unwarranted faith oftheoreticians and policy makers in the power of economic growth and itspromise to save humankind from the very problems it generates. Tat faithCobb likens to an idolatry he terms economism (Cobb 1994: 27-29),and his critique of it seeks to lay bare how current economic arrangementsare unsustainable.

Te unprecedented scale of the problems facing humankind is due torapid globalization, and Cobb finds that the increasingly globally inte-grated economy is in part fueled by identifying economic development

with increases in the sheer volume of goods and services produced andsold. Te proponents of economic globalization see it as the best means tomake goods and services available to those peoples formerly denied them,but who are now included in the trade among ever more specialized econ-omies. Governments of lesser-developed nations have largely embracedglobalization, and identified their own economic development with increas-ing levels of domestic consumption and production, while political leadersof the developed nations see it as a means of indefinitely extending thereach of their own economies.

Cobb traces such misplaced hopes for global prosperity to the ways inwhich conventional economic theory and practice have fallen prey to fal-lacies of misplaced concreteness. He especially criticizes two fallacies: theidentification of economic development with economic growth as meas-ured by a nations gross domestic product (GDP), and the construal ofhuman nature as Homo economicus.

Cobb devotes considerable attention to the multiple ways in whichthe gross domestic product (GDP), the aggregate of payments made forgoods and services domestically produced, is a poor measure of economicdevelopment. First, he finds fault with how the costs of doing businessare calculated and thus prices determined. As a first approximation, GDPmeasures what he terms through-puts (Cobb 1994: 8, 96). Te costs ofthe inputs of non-renewable resources are accounted for by discount-


5/24


ing them, assuming all the while that technological advances will uncoverappropriate substitutes when needed. Te pollutants and industrial wastesthat are outputs of the productive process are in turn costs that are exter-nalized. Because the prices of commodities do not include the costs ofdepleting non-renewable resources and impairing the health of naturalecologies, they do not accurately reflect the full costs of production, andthus, total GDP fails to reflect accurately the progress or deterioration of acommunitys standard of living. Secondly, as a gross measure, GDP alsoincludes payments made because of worsening environmental and socialconditions (Cobb 1994: 95-97). Defensive expenditures refer to thosepayments precipitated by the problems accompanying economic growth,including increased expenditures for sanitation and toxic-waste removal,social services and psychiatric care, police and military forces, and prisonconstruction and weapons production. Tus, the aggregate GDP canincrease though the social situation is deteriorating. Tirdly, GDP also failsto account for valuable work for which no payment is made (Cobb 1994:97-98). For instance, work in the home or subsistence farming, both tra-ditionally performed by women, are left of out of account and are accord-ingly under-appreciated. When greater numbers of women have enteredthe workforce, rising GDP reflects the incomes they now receive as well asincreased household allocations for childcare, housecleaning services, andprepared meals. Overall, household incomes may have increased but, Cobbcautions, the social situation of families may not have improved as muchas the rising numbers would suggest.

Te confusion of rising GDP with economic development is abetted bya defective philosophical anthropology and sociology. Liberal and neo-liberal economic theory construes human being as Homo economicus, thusregarding human beings as inherently self-interested and as so many indi-viduals-in-markets. Motivated by their self-regarding desires which areinsatiable in principle, individuals contract freely with others in order tomaximize their consumption of goods. Human rationality is accordinglydemonstrated in calculating what is advantageous, and human liberty typ-ically consists in being free from any constraints not voluntarily assumed.Tis understanding of human beings, on Cobbs account, inexorably leadsto a tragedy of the commons since it fails to do justice to human societyand to those shared goods enjoyed within it. For as individuals are wrestedfrom networks of social relationships and divorced from their communal


6/24


traditions, they become so many rootless cosmopolitans. Just as economicgrowth can exhaust natural ecologies without counting the cost, so it candeplete social ecologies upon which economies actually depend. Whenencouraging self-interested behavior, markets erode the social conditionsof their own sustainability by rendering social relations and commitmentsprecarious and fragile.

In opposition to economism, Cobb proposes the alternative of earth-ism. In the first instance, earthism would seek to define more adequatelyeconomic development in terms other than rising aggregate GDP becauseit faces squarely the inherent limits of the planets finite environment.Tus, Cobb and Daly distinguish economic growth from economic devel-opment. By growth they mean the quantitative expansion in the scale ofthe physical dimensions of the economic system, and by developmentthey mean the qualitative change of a physically nongrowing economicsystem in dynamic equilibrium with the environment (Daly and Cobb1989: 71), and, as such, sustainable economic development does notthreaten to exceed the limits of finite creation. Being quantitative, aggre-gate or per capita GDP fails to measure such qualitative advance. akingthe case of non-renewable fossil fuels, for example, it is possible to imaginethat their more efficient use may lower overall GDP, if less fuel is demandedoverall. In its stead, Cobb and his associates propose an index of sustain-able economic welfare2 (Daly and Cobb 1989: 401-55; Cobb 1994: 54,96-99), which accounts for, among other things, resource conservationand pollution prevention, a communitys savings rate and the proportion-ality of incomes among that communitys constituent groups. He arguesthat genuine economic progress is promoted by preserving the integrity ofnatural and social ecologies and thereby fostering the conditions under

which sustainable communities and economies are possible.Earthism also conceives of human beings as persons-in-community.

Since individual identities are shaped in and through networks of socialrelations, the good of individuals is achieved by promoting the good oftheir communities. Teir common goods are not achieved by obtainingeconomic goods simply, for societies are not subservient to markets. Onhis account, economic development promotes coherent, flexible, locally

2) Te Index of Sustainable Economic Welfare is the work of Cobb, Daly, and CliffordW. Cobb.


7/24


organized regional economies that are subject to democratic control. Teliberty realized in such economies is not equivalent to the freedom cele-brated in neo-liberal economic theory, but rather is a liberty characterizedby responsible self-government and genuine interdependence.

Cobb does not wish to suggest, however, that local communities arecapable by themselves of achieving their own good. Local communitieshave all too often been guilty of provincial attitudes and discriminatorypractices, and the cultivation of smaller communities would not therebyremove sin from the human situation. Moreover, local communities oftencannot themselves solve their own problems, and they accordingly requirethe assistance of larger units with the means to do so. For these reasonsamong others, Cobb envisions that genuine human development wouldconsist in the promotion of communities of communities of communi-ties (Daly and Cobb 1989: 177-80). In accord with the principle of sub-sidiarity, higher units and more encompassing organizations stand insupport of the local communities and the human flourishing enjoyed inthem (Cobb 1994: 123-25). Moreover, Cobb warns that human commu-nities must also escape the anthropocentrism that has engendered so muchenvironmental devastation. Tus, his advocacy of localism has a universal-ist thrust. Te communion he envisions transcends human solidarity sim-ply, embracing the entire planetary community whose redemption wouldbe revealed in a new creation. Tough he believes that ultimate devotion isdue to God alone, an overarching concern for life on this planet is salutaryif not also required in order to overcome the self-regarding but shortsightedpractices of human individuals and groups.

Cobb on the Need for a New Paradigm

In these ways, Cobb criticizes prevailing economic theory and practice inlight of broader ecological and communal concerns. He and his associates

wish neither to belittle economists nor to denigrate their work, however.

Tey applaud the commitment economists commonly demonstrate toadvancing our understanding of markets and the processes of productionand exchange. Indeed, it is their conviction that market economies fosterhuman creativity and liberty and are thus more disposed to democraticcontrol. Consequently, they hold that economic theory does not need tostart over, but that it needs to be reconstructed on the basis of a paradigm


8/24


that both clarifies the excellence of its past work and sets it in a larger con-text (Daly and Cobb 1989: 19). Among the insights that they particularlyappreciate are those comprising price theory, though they recognize thatthe concept of price has limited validity.

A new paradigm would also, Cobb and his associates hope, reorienttheory and practice so that both are framed by earthist rather than econo-mistic suppositions. Tis paradigm would have the monumental task ofdisplacing a viewpoint that has had a long and sure hold on the discipline.

As a social science, economics has been shaped historically by its highregard for classical mechanics and its methods and by the aspiration thatits own disciplined study might one day enjoy a similar status. By develop-ing a theory of general equilibria, for example, Lon Walras sought to dofor economics what Isaac Newton and Pierre-Simon Laplace had done forastronomy and mechanics (Walras 1954: 47-48). Te powers of predictionand control that such a science promised proved to be quite alluring.Rather than heeding Alfred Marshalls advice that the Mecca of the econ-omist lies in economic biology rather than in economic dynamics (Mar-shall 1925: 14), economists, Cobb and Daly maintain, have insteadanalyzed markets in terms of the operation of the price mechanism, somuch so that Milton Friedman wrote of himself and other economists thatwe curtsy to Marshall, but we walk with Walras (Friedman 1949: 489).

Cobb and Daly propose instead to walk with Marshall by taking evolu-tionary biology as a model for a new paradigm of economic theory. As theemergence and survival of biological forms are to be understood in termsof the environmental conditions that are subsequently transformed by theinteractions among species, so, Cobb and Daly suggest, the developmentsof economies are to be understood. Tey strive to explain dynamic eco-nomic reality by grasping the interrelationships between patterns of pro-duction, commerce, and finance and their underlying social and naturalecologies. In that way then, they provide alternative formulations of mar-kets, full-cost prices, and indices of economic welfare. Tose formulationsare ones framed, moreover, in light of a more adequate account of thehuman person and the human good.

Cobb and Daly describe many of the elements that a new paradigmwould have to include, and they contribute to its formulation. As theystate, a new paradigm would consist in an interpretative framework thatduly appreciates the contributions of past inquiry by specifying the condi-


9/24


tions for their validity and application and, thus, setting those achieve-ments in a larger context. While Cobb and Daly do not fully articulate theterms and relations that would comprise such an interpretative framework,they do anticipate some of its features. First, it appears that the basic termsand relations of that interpretative framework will be ones other than thosetypically employed in accounts of the operation of markets. In their view,macroeconomic analyses of the markets in terms of the operation of aggre-gate supply and demand functions, while important in explaining thedetermination of prices, give overwhelming priority to the allocative func-tion of markets.3 On the basis of the laws of supply and demand, resourcesare efficiently employed in order to exploit first one and then anothersphere of profitable activity, and thus markets are understood to be thosemechanisms by which inputs and products are optimally allocated anddistributed. Tat analysis of markets, however, neglects to explain how theoptimal scale of an economy itself is to be determined. It is Cobb and Dalyscontention that a particular economy approaches its optimal scale only ifit respects the finitude of the resources upon which it depends and the car-rying capacities of the environment and society in which it is embedded.Tat scale is a determination lying beyond the power of the pricing mech-anism to make, however. Indeed, the operation of that mechanism takesthe scale of activity as a given, for the coordination of aggregate decisionsof demand and of supply is effected irrespective of the relative dimensionand scale of market activity.

Secondly, the determination of optimal scale is central also to a moreadequate account of economic development. For if economic growthdiverges from its optimal scale, it operates at cross-purposes with genuineeconomic development. Instead, the qualitative change characterizingeconomic development consists in part at least in the scale of a particulareconomy converging upon its optimum, and thus that determination iscrucial in distinguishing growth from development. Tirdly, by makingthese and other distinctions, Cobb and his associates seek to contribute

3) See Daly and Cobb 1989: 144-46. Cobb and Dalys criticism here is leveled at macro-economic analyses. Microeconomic analyses do attend to questions of scale in their studyof optimum levels of production for particular firms and industries. Tus, they argue thatthe paradigm that they envisage would effect a more thoroughgoing integration betweenthese two branches of economic analysis.


10/24


toward a normative account of economic development that would guideindividuals and their communities in making responsible decisions regard-ing the size and scope of their economic activities.

Te contributions and anticipations of Cobb and Daly do not consti-tute a full articulation of the new paradigm that they envision, however.

What is needed but not yet spelled out by them are precisely the terms ofthe framework that would explain the movements of economic reality as a

whole. Such a paradigm would provide the desired frame of reference thatspecifies the sets of conditions under which previously verified correlationsapply and accounts for the additional elements that they would introduce,along with the revisions of assumptions and suppositions that their intro-duction requires. In light of its fuller explanatory account of economicprocess, that interpretive framework would thus duly appreciate normativeachievements by situating them within a larger context. It would alsoredress long-neglected issues and guide a more responsible constitution ofmarket economies. Tough Cobb and his associates anticipate but do notfully provide it, the suggested paradigm is more fully articulated in Ber-nard Lonergans macroeconomic dynamics.

Lonergans Contribution toward a New Paradigm of EconomicAnalysis

Te economic crises of the 1930s moved Bernard Lonergan to study eco-nomics, and he was convinced that an adequate diagnosis of that deepdepression rested upon an analysis that went beyond the pricing system.Such an analysis would reveal, Lonergan maintained, a set of schemes dis-tinct though not separate from the price mechanism which spontaneouslycoordinates a vast and ever shifting manifold of otherwise independentchoices from demand and of decisions from supply. It is distinct from theprice mechanism, for it determines the channels within which the pricemechanism works (Lonergan 1999: 17). By grasping the intelligibility of

those prior schemes that condition the operation of the pricing system,Lonergan sought to understand exchange economies in ways consonant

with his account of the historical unfolding of the human good.


11/24


A Normative Analysis

Lonergan, too, set out to provide a normative account of evolving eco-nomic reality. His analysis is normative firstly in that it seeks to grasp theimmanent intelligibility or lawfulness of economic process. Because pro-duction, trade, and investment are not static entities but coordinated setsof activities that are performed over a series of intervals, the basic variablesof his analysis are rates, or so much every so often, and accelerations, orso much more or less every so often, of productive, commercial, andfinancial activities. In terms of those variables, Lonergan sought to under-

stand the interdependence among rates of production and payments aswell the linked sequences of their accelerations characterizing economicprogress and decline.

Lonergans analysis is normative in another sense. By explaining evolv-ing economic reality in terms of such variables, his analysis also aims toguide economic practice. Te immanent lawfulness of dynamic economiesdiscovered by his analysis provides, he argued, a basis for issuing preceptsthat would guide the free and democratic constitution of economic life.(See Lonergan 1999: xxxvii-xxxix.) Human beings order their lives andtheir economies intelligently inasmuch as they are responsive to the exi-gencies of dynamic exchange economies. Lonergan thought that intelli-

gent and responsible economic practice was attainable only by goingbeyond descriptive classifications to an explanatory account of economicprocess as a whole.

While this is not the place for a thoroughgoing account of Lonergansanalysis of the productive process and monetary circulation, still, several ofits features will need to be discussed in order to identify the points at

which the issues raised by Cobb and his associates intersect with the analy-sis that Lonergan provided.

Lonergans Analysis of the Productive Process

Lonergan defined the productive process as that aggregate of activitiesproceeding from the potentialities of nature and terminating in a standardof living (Lonergan 1999: 20), and in so doing, he distinguished thatprocess from the human and non-human potentialities from which itemerges as well as from the durable goods of past production which are nolonger in process but whose use has either entered into a societys standard


12/24


of living or become part of the productive process itself. Drawing thesedistinctions between natural potentialities, the productive process, and asocietys standard of living, Lonergan in no way wished to suggest thatthese three are separate and unrelated to one another. Rather, he distin-guished them precisely in order to grasp their interrelationships and thusunderstood the productive process in terms of his account of emergentprobability. (See Lonergan 1992: 487.)

As Patrick Byrne has recently argued, Lonergan conceived an economyas a nested series of schemes of recurrence or, in other words, an ecol-ogy which rests upon natural ecologies and supports in turn other socialand cultural schemes (Byrne 2003: 7-11; Lonergan 1999: 3-4, 92-93).

Arising from human insights and decisions, economic schemes are largelypatterns of human cooperation that seek to solve the problem of regularlyproviding the material conditions of a communitys ongoing way of life(Lonergan 1999: 28).

Lonergans analysis, then, begins with distinguishing the basic stage ofproduction and a series of surplus stages of production (Lonergan 1999:30-32). Te basic stage of production consists of rates of activities per-formed, for instance, every time bread is baked or cloth is woven and sewn.Ovens, looms and the activities involved in their production are not pro-duced for every loaf of bread or piece of clothing made. Rather, thoseproducer goods are used to produce an indeterminate series of loaves andclothes, and in this example, the use of ovens and looms belongs to thelowest surplus stage. Additionally, the machine tools and the activitiesinvolved in their production, tools that will in turn be used to produceovens and looms, belong to still higher surplus stages of production. Fur-thermore, these stages of production are functionally related to one another.Each stage of production consists partly in maintaining the current rates ofproduction comprising the next lowest stage and that of the basic stage ofproduction in supporting a communitys current standard of living. Eachhigher stage of production may also accelerate the next lowest stage, wid-ening and deepening the enterprises engaged within it.

While an economy seeks to produce and distribute the goods and serv-ices comprising a communitys standard of living, the productive processshould not be understood apart from the natural and social ecologies pre-supposed by it. Emerging from them, the productive process ceases tofunction if its underlying conditions are depleted. Consequently, underly-ing human and non-human potentialities need to be respected if that pro-


13/24


ductive process is to remain viable for the longer term. As a dynamicintegration of those potentialities, though, an economy could not very

well leave those underlying potentialities untouched. Indeed, they may betransformed, since flows of surplus goods and services may in turn comple-ment those potentialities in such ways that what was formerly deemedutterly impractical may subsequently be regarded as eminently feasible. Adeveloping economy, then, is characterized by an increasing complexitythat makes the most of what is available to it. In a complementary anal-ysis, Jane Jacobs attends to the increasing complexity and sophistication ofnatural and economic ecologies that recombine and reconvert energy sothat they may continue to fuel themselves (Jacobs 2000: 65ff.; see Byrne2003: 17-21). Tus for Jacobs as for Lonergan, mechanistic depictions fallshort of explaining dynamic environmental and economic systems.

Rates of Payments and the Condition for Dynamic Equilibrium

Lonergan did not rest content with an analysis of the productive process.Since in exchange economies, production is always production for sale,payments are made with the recurrence of productive routines. Classifyingthem in light of his analysis of the productive process, he specified severalaggregate rates of payments and their circulatory interdependence. Heidentified a basic and a surplus circuit in which the outlays of basic andsurplus supply are destined to become the income expended on basic andsurplus products, respectively, and those basic and surplus expendituresbecome in turn receipts from which outlays are subsequently made. Sec-ondly, he identified cross-over flows of payments between these two cir-cuits; for the flows of surplus outlays that become the incomes of thosecontributing to surplus production will in turn largely be spent on basicproducts, while a sizable portion of basic outlays is destined to purchasesurplus products in order to maintain, if not increase, the rates of basicproduction. As Joseph Schumpeter had earlier supposed, an analysis of thedynamic structure of production and exchange demands reconceiving thenature of macroeconomic equilibria, and on Lonergans account, equilib-rium consists principally in the balancing of the cross-over rates of pay-ments between the basic and surplus circuits. When an exchange economyis in a stationary state, its macroequilibrium is preserved so long as thecross-over rates of payments remain constant over a series of intervals.

When an exchange economy is expanding, however, its rates of payments


14/24


are accelerating across the board and accordingly, it is in dynamic equilib-rium only when changes in the rates of one of the cross-overs are matchedby corresponding changes in the other, so that the changing rates of cross-over payments remain balanced throughout a series of intervals. Other-

wise, one circuit would expand at the expense of the other: either a higherstandard of living is enjoyed at the expense of future development or manyare deprived of the fruits of developments which have already takenplace.

Te Pure Cycle

In his economic analysis, Lonergan sought especially to specify the con-ditions for the dynamic equilibrium of developing economies. On hisview, economic development begins with the introduction of innovations.Tat development is profound to the extent that the implementation ofbetter methods, equipment, and organization takes place within the higherreaches of surplus production, yielding a longer-term acceleration of eco-nomic activity. Te natural end of such an expansion of surplus produc-tion is a major expansion of basic production, but the widening anddeepening of basic production and an elevated standard of living takesplace only after a notable time-lag. Lonergan termed this wave-like expan-

sionary movement of the productive process the pure cycle, distinguish-ing it from the familiar trade cycle and its periods of prosperity andrecession. (See Lonergan 1999: 75-80.) With the consequent diversity andcomplexity of activity arising from integral economic development, pro-ductive, commercial, and financial operations are performed on a newbasis.

While not merely a monetary phenomenon, this pure cycle does indeedhave monetary conditions for its successful completion. Schumpeter andothers had previously adverted to the phenomenon of fluctuating entre-preneurial profits in their respective analyses of business cycles. Lonerganconceived such rates of returns as pure surplus income and understood

its function to lie in supporting the self-development of the productiveprocess that occurs during a major surplus expansion. Because the func-tion of pure surplus income is to enhance a societys productive capacityand, ultimately, to elevate its standard of living, he also referred to puresurplus income as a social dividend (Lonergan 1999: 133, n. 186). Itemerges in the initial phase of a major surplus expansion, but once a long-


15/24


term acceleration of surplus production tapers off and basic productionstands ready to undergo a long-term acceleration of its own, rates of puresurplus income should begin to revert to zero. Tat is, when the develop-ment of surplus production is no longer the going concern, individualsand communities should devote their monetary resources toward investingin basic production and elevating their standard of living. Lonergan heldthat the dynamic equilibrium of an expanding economy, that is the balanc-ing of the cross-over rates of payments through its various phases, dependsmost especially upon decisions made with respect to first increasing andthen eventually decreasing rates of pure surplus income.

For that reason, he referred to pure surplus income as the nerve centerof free economies (Lonergan 1999: 147). So long as individuals and com-munities grasp the significance of the cyclical fluctuations in the rates ofpure surplus income and respond accordingly, expansions of exchangeeconomies need not experience periods of negative acceleration or thosecontractions typical of recessions and depressions. Expansions of exchangeeconomies can take the form instead of the normative pure cycle. It is thegrasp of the normative intelligibility grounding such a possibility whichprovides a basis for the formulation of precepts that would guide humanbeings in responding appropriately to its demands and in bringing aboutits successful completion. In this way, Lonergans analysis is situatedsquarely within the long-standing tradition of political economy as a branchof practical philosophy that seeks to understand productive, commercial,and financial processes in order to promote the democratic control ofmodern exchange economies.

Evading the Requirements of the Pure Cycle

In Lonergans view, the pure cycle has yet to be successfully navigated andits normative requirements fully met. Tose failures have their sources invarious forms of bias or flights from understanding and responsibility.(See Lonergan 1992: 241-31, 244-59; Byrne 2003: 13-14.) In addition to

specifying the immanent norms and exigencies of economic processes,Lonergan also analyzed the distortions that arise when those requirementsare not met. It is especially the mistaken expectation that increasing ratesof pure surplus income can be obtained in and out of season that encour-age decisions which convert a major surplus expansion into a boom and amajor basic expansion into a slump and, thus, set the conditions for the


16/24


emergence of the more familiar business cycle. Additionally, he analyzedthe palliatives that economies have chanced upon whereby they attempt toavoid the recessions maladaptations would otherwise bring. For example,economies seeking favorable balances of foreign payments, Lonergan

warned, risk cultivating still more intractable problems.It would be mistaken, however, to think that international trade is

inherently ruinous for Lonergan. It is possible on his account to envisionhow economies may benefit from trading relationships. In an analysiscomplementary to Lonergans, for instance, Jacobs argues that the tradeamong urban economies is the concrete process by which the innovationsof one economy are shared with and improved upon by others. 4 By suchcross-fertilization, as it were, cities respective networks of producers andtheir suppliers are increasingly widened, deepened, and diversified as thefruits of innovations are more widely communicated and human societieslearn from one another how to do more with less. When pure surplusincome generated by the implementation of new ideas is devoted towardnot augmenting consumption but enhancing the productive capacitiesof all, it may be genuinely called a global dividend (Lonergan 1998:xxvii).

Far from respecting the normative requirements of the pure cycle, cur-rent trade policies and strategies most often seek to evade them. As a meansof securing substitutes for pure surplus income or of repaying foreigndebts, favorable balances of trade give rise to the deleterious effects thatCobb and others rightfully criticize. Lonergan, though, traces the unsus-tainability of trade practices in terms of the intelligibility immanent toeconomies themselves. Sustained favorable and unfavorable balances offoreign payments are inimical to integral economic development, tendingto encourage export-production and overspecialization while makingdomestic economies more vulnerable to market disruptions. Far frombecoming vigorous and innovative, such economies are increasingly fragileand subject to the vicissitudes of distant markets. Rather than the condi-tions for economic progress, such developments, on Lonergans account,set the conditions for longer-term stagnation and decline.

4) In her analyses, Jacobs places priority upon the processes of import-replacement ratherthan export-production whereby economies appropriate new ideas and innovative modes ofwork, tailoring them to local conditions. See Jacobs 1970: 145-79; Jacobs 1985: 135-55.


17/24


Tus, a Lonergan-inspired analysis of economic globalization would beframed in terms principally of an immanent critique of macroeconomictheory and practice. Tat analysis, as we have seen, begins with an accountof the immanent lawfulness of evolving economic reality that reveals thenormative requirements of integral economic development. For Lonergan,one-sided developments and unsustainable practices beg their own correc-tion, but one could well expect that the hard lessons to be learned throughsuch reversals will not be suffered easily. Because the analysis situates withina larger context some of the concerns raised by Cobb and his associates, letus consider how Lonergans analysis addresses the suppositions that Cobbargues lie at the heart of prevailing economic theory and practice.

Recontextualizing Cobbs Criticisms and Concerns

As we have seen, Cobb and his associates criticize the conception of humannature as Homo economicus, whose pursuit for individual advantages erodesthe cooperation and trust necessary for longer-term projects upon whicheconomies depend. Lonergan, too, found these notions of human desireand reason too truncated and the corresponding notion of the good overlyrestricted. For the guiding principles of action flowing from the desire for

profit are poorly adapted to the requirements of the various phases of thepure cycle.

On Lonergans account, problems arise in part because the very termprofit is overly ambiguous. On the one hand, profits may refer to theexcess of receipts over outlays, the constant normal profit that enterprisesmight even enjoy in the stationary state, a state in which rates of produc-tion and exchange are constant over a series of intervals. Profits in thestrong sense, though, are the returns obtained during periods of economicexpansion in which rates of production and exchange are accelerating.Lonergan understood these profits in terms of rates of pure surplus incomeand correlated their fluctuations with the wave-like movements of the pure

cycle. In terms of his analysis, the precepts of thrift and enterprise are per-haps appropriate when surplus production is expanding. Te pursuit ofprofits becomes counterproductive, though, when the basic sector is poisedto undergo a long-term acceleration of its own. At that point, the rates ofpure surplus income ought first to increase more slowly and then to declineeventually, reverting to zero when a basic expansion is fully underway.


18/24


Intelligent and responsible decisions seek not to maximize returns in andout of season but to promote the integrity of productive, commercial,and financial schemes since profits themselves depend upon the properfunctioning of those more fundamental schemes. Te good of theseschemes, once again, is not reducible to individual satisfactions but lies inpart in the order that makes their regular recurrence possible. Tus, Lon-ergans analysis is normative since it investigates well-functioning economicecologies as concrete goods of order. (See Lonergan 1972: 48-50; Loner-gan 1992: 619-21.)

As Lonergans economic analysis reorients human desire from maximiz-ing profits toward appreciating the value of the economic order, so too hisanalysis finds flourishing economies to consist in more than increased ratesof consumption and production. For Lonergan as for Cobb, increasinglevels of consumption and production may not be synonymous with grow-ing economic well-being.

Rising levels of aggregate or per capita GDP need not signal genuineeconomic progress, in Lonergans view. Economic development is the fruitof longer-term accelerations of production and exchange made possiblethrough the implementation of technological or social innovations. Tuscommunities transform their way of producing goods and services and ofproviding themselves with the material conditions for their way of life.Gross or per capita GDP, however, may have its sources not in the imple-mentation of new ideas but by extending the range of older ideas, andthus, increases in the levels of production and consumption may be due togrowth in the sheer levels of inputs utilized and not in the development ofthe ways economic ecologies make the most of the potentialities availableto it.5 For example, the tremendous levels of economic growth and pro-ductive output of the economic tigers of East Asia, like the former SovietUnion under Nikita Khrushchev, it seems, were generated largely fromincreased levels of inputs, not by greater efficiencies that transform thepreviously existing relations between resources and the goods and servicesproduced from them (Krugman 1997: 186-87). Economic growth undersuch conditions is not sustainable indefinitely since natural resources are in

5) Te distinction between the increase in productive output due to corresponding increasein inputs and that stemming from a change of input/output ratios is one that is commonlydrawn by economists. See for example Krugman 1997: 167-87.


19/24


finite supply. Increased levels of consumption and production due to suchincreasing industrialization enlarge only the scale and scope of current pro-duction methods and do not necessarily reflect their transformation.

No less importantly, rising GDP does not distinguish integral economicdevelopment from the accelerations of production and sales characterizingbooms. For Lonergan, such periods are second-order distortions of thepure cycle, resulting from failures to meet its normative requirements.Booms may arise when individuals fail to devote increases in their incometoward investing in the longer-term acceleration of surplus production.

When portions of pure surplus income are spent instead upon basic goodsand services, basic price levels are likely to rise and basic producers arelikely to receive windfall profits. o the extent that profits remainundifferentiated and Homo economicus a model of intelligent behavior,however, individuals are likely to interpret rising basic prices to mean thatmore and more of every kind of basic good is demanded, and they arelikely to interpret the rising profits of basic producers as signaling thatbasic production ought to expand to meet the need. Tus a major surplusexpansion is converted into a boom, a phase characterized by increasingrates of consumption to be sure, but one that cuts short longer-term devel-opment. For this reason, too, Lonergan proposed distinguishing the basicand surplus components of GDP in order to discern more adequately whatis truly going forward when rates of production and sales are accelerating.(See Lonergan 1999: 70-71, n. 87.)

Accordingly, Lonergan would agree that indices such as aggregate or percapita GDP are neither adequate measures of economic welfare nor dothose figures indicate sufficiently how the productive process is changing.In order to apprehend the movements of the economy and to discernappropriate responses to them, Lonergan attended to how the ratios ofrates of surplus production to overall rates of production, and of ratesof surplus income to rates of total income, change throughout the phasesof the pure cycle. More differentiated indices such as these are neededin order to explain the expansionary movements of an economy and tospecify precisely in what ways economies are growing. Otherwise, one can-not distinguish between normative developments and such second-orderdistortions.

Lonergans conception of the developments stemming from a successfulnegotiation of the pure cycle also touches upon the questions of optimal


20/24


scale and optimal use of natural resources. Rather than arising from increasesin the sheer volume of resources, economic expansions are characterized byrevisions in the ratios of goods produced from the resources utilized as wellas by transformations in the ways production is carried forward. As eco-nomic ecologies develop, new niches emerge so that increasingly little is

wasted. In this way, an economy becomes less dependent on those resourcesupon which it had become overly reliant in the past, as other potentialitiespreviously neglected now assume a more central role. While those potenti-alities include most immediately non-human, material resources, Loner-gan had human potentialities especially in mind. Economic developmentis characterized by making the most of non-human and human resourcesalike. Tus, economies are that much better positioned to develop theextent to which they are ready and willing to embrace the gifts and contri-butions of all those who fall within their sweep. In that way, Lonerganconceived economic development as but an instance of human develop-ment in general.

Toward a New Paradigm

As we saw above, Cobb and Daly argue that a new paradigm of economicanalysis is needed to explain economic development as the qualitativechange of a physically non-growing economic system in dynamic equilib-rium with the environment. Tey are hesitant, though, to refer to theirenvisioned paradigm as economic dynamics. Tey would rather followMarshalls lead in calling for an economic theory modeled upon evolution-ary biology.

Lonergan would agree that more than the methods and techniques ofclassical mechanics and statistical science are required in order to makesense of evolving economic reality. Explaining economic developmententails grasping productive, commercial, and financial schemes as so manysystems on the move, and it involves understanding the emergence ofincreasing complexity that is irreducible to the laws of preceding stages. odo so, his analysis presents a new economic paradigm whose basic termsand relations are other than those framing traditional analyses of the pric-ing mechanism. It does not invalidate the previous verified correlationsbetween supply and demand but understands them in terms of the dynamiccontexts in which they emerged and how the operation of the pricing


21/24


mechanism itself changes over time. Understanding an economy as dyna-mic in this way, Lonergans analysis seeks to determine in more adequatefashion the meaning of qualitative change as well as dynamic equilib-rium and its fulfilling conditions. Tus, his macroeconomic dynamics

would make possible what Cobb and Daly envision, namely a new para-digm that gives due appreciation to the excellences of the past while situat-ing them in a larger context.

Furthermore, Cobbs and Dalys proposed model of evolutionary biol-ogy may ultimately have shortcomings of its own. It is true that the pre-served record of biological species is replete with examples of short-livedoddities and developmental dead-ends. One-sided distortions of exchangeeconomies more often than not, however, have their sources not in thenatural functioning of human beings but fundamentally in their wayward-ness and ignorance. Tus, an explanatory account of the dynamic unfold-ing of exchange economies and of the systems of production, commerce,and finance embodied in them at any one time requires analyses of dialec-tical as well as developmental trends, thus discerning genuine achieve-ments from notable failures and distinguishing economic progress fromdecline.

It would be erroneous to claim that economists have given no thoughtto economic development and decline. Rather, they are struggling toascend from descriptive apprehensions of development and of decline toan explanatory account of both. While it is true that touted economic suc-cesses are often mixed blessings, since human motivations are rarely pureand human knowledge not entirely complete, still developmental and dia-lectical understanding must not be conflated. Neither is progress to betaken as the cause of decline, so that one affirms, in the words of Clement

Juglar, that the only cause of a depression is prosperity (Schumpeter1954: 1124). Nor is accelerated collapse to be taken as a utopian overture,so that one celebrates ever-deepening crises as portending a more gloriousfuture. Macroeconomic dynamics rather seeks to distinguish the dynamicof economic progress characterized by cumulative achievement from thedynamic of economic decline characterized by cumulative disintegration.In so doing, a new paradigm would specify a normative pattern of eco-nomic developments as well as the mistaken expectations leading to eco-nomic contraction and collapse.

In this way, then, Lonergan strove to understand human beings andtheir social good concretely and historically. Tat is, by their intentional


22/24


operations, human beings not only constitute their world but also set theconditions for their subsequent development. Te constitution of their

world and the transmission of its meaning and value shapes for better orfor worse the characters of succeeding generations and the world that theyand their children will inhabit. Understanding the trajectory of the his-torical unfolding of the human good entails grasping the differentials of itsprogressive realization, its one-sided distortions and, out of the resultantmanifold of events, the transformation and redemption of human beingsand their communities. In particular, Lonergan understood the constitu-tion of exchange economies in light of his understanding of the structureof the human good and its dialectical unfolding. oward this end, hehoped that his Macroeconomic Dynamics might contribute to a criticalscience of economics that would guide the intelligent, reasonable andresponsible constitution of economies.

Tus, Lonergans work in macroeconomic dynamics supplies in largemeasure a fuller articulation of the new paradigm anticipated by Cobb andhis associates and sets that paradigm in a larger explanatory context. In sodoing, Lonergan, like Cobb, was mindful of the educative effect an ade-quate economic analysis might have for the democratic constitution of oureconomies. By specifying the normative pattern of economic developmentsand the conditions of dynamic equilibria, he sought to provide a basis from

which precepts may be derived that would guide individuals and their com-munities. He recognized, though, that that task was not the work of onebut of many drawn from a diverse set of disciplines. As Lonergan wrote:

From economic theorists we have to demand, along with as many other typesof analysis as they please, a new and specific type that reveals how moral pre-cepts have both a place in economic process and so an effective application to it.From moral theorists we have to demand, along with their other various formsof wisdom and prudence, specifically economic precepts that arise out of eco-nomic process itself and promote its proper functioning. (Lonergan 1999: 105)

Lonergan was convinced that such guidance was needed if economies wereto develop in ways that enhance the lives and the good of human beings.It is the kind of analysis that adequate accounts of the common goodunder dynamic conditions so desperately require. Like Cobb and his asso-ciates, Lonergan believed that analysis is pivotal if individuals and com-munities are to be free to make informed decisions regarding their economic


23/24


development. Tat development does not result automatically from animpersonal and invisible mechanism. Rather, it is the fruit of intelligentand responsible choices whereby economies are ordered in light of highervalues. In that sense, Lonergans normative analysis would assist in direct-ing the democratic constitution of communities and economies and fos-tering that solidarity, informed by the religious and personal as well associal values hoped for no less by him than by Cobb, in their reflectionsupon economic development and the human good.

References

Byrne, Patrick H. 2003. Ecology, Economy and Redemption as Dynamic: Te Contributions ofJane Jacobs and Bernard Lonergan. Worldviews: Environment, Culture, Religion 7(1-2): 5-26.

Cobb, John B. Jr. 1999. Te Earthist Challenge to Economism. New York: St. Martins Press.. 1994. Sustaining the Common Good: A Christian Perspective on the Global Economy.

Cleveland: Pilgrim.Daly, Herman E. and John B. Cobb, Jr. 1989. For the Common Good: Redirecting the Econ-

omy toward Community, the Environment, and a Sustainable Future. Boston: Beacon.Dupr, Louis. 1993. Te Common Good and the Open Society. Review of Politics55:

687-712.Friedman, Milton. 1949. Te Marshallian Demand Curve.Journal of Political Economy

57: 463-95.Hollenbach, David. 1989. Te Common Good Revisited. Teological Studies50: 70-94.

Jacobs, Jane. 2000. Te Nature of Economies. New York: Modern Library.. 1985. Cities and the Wealth of Nations: Principles of Economic Life. New York: Vintage.. 1970. Te Economy of Cities. New York: Vintage.Krugman, Paul 1997. Pop Internationalism. Cambridge, MA: MI Press.Lonergan, Bernard J.F. 1999. Collected Works of Bernard Lonergan, Volume 15:Macroeco-

nomic Dynamics: An Essay in Circulation Analysis. Ed. Frederick G. Lawrence, PatrickH. Byrne and Charles Hefling, Jr. oronto: University of oronto Press.

. 1998: Collected Works of Bernard Lonergan, Volume 21: For a New Economy. Ed.Philip J. McShane. oronto: University of oronto Press.

. 1992. Collected Works of Bernard Lonergan Volume 3: Insight: An Essay in HumanUnderstanding. Ed. Frederick E. Crowe and Robert M. Doran. oronto: University oforonto Press.

. 1972.Method in Teology. New York: Seabury Press.Marshall, Alfred. 1925. Principles of Economics, 8th ed. London: Macmillan.NCCB/USCC. 1999. In All Tings Charity: A Pastoral Challenge for the New Millen-

nium. Origins29(26) (9 December).. 1986. Economic Justice for All: Catholic Social eaching and the US Economy.

Origins16 (3 June).Rourke, Tomas R. 1996. Michael Novak and Yves Simon on the Common Good and

Capitalism. Review of Politics58: 229-58.Schumpeter, Joseph A. 1954. History of Economic Analysis. New York: Oxford University Press.Walras, Lon. 1954. Elements of Pure Economics. rans. William Jaff. Homewood, IL:

Irwin. (Original French definitive edition: 1926.)


24/24

economic development and the common good

Documents