Monday, September 13, 2010

BIS #2038 TOWARDS A NEW ECONOMIC ORDER

Ivo Coelho sdb
DIVYADAAN, SEPTEMBER 13, 2010: Salesian Institute of Philosophy, Nashik, hosted a three-day Workshop “Towards a New Economic Order,” September 9 to September 11, 2010. The chief resource person was Philip McShane, professor emeritus from Mt St Vincent’s College, Halifax, Canada, who has degrees in mathematical physics, philosophy and theology, and is a world specialist in Lonergan, with a passion for implementing Lonergan’s economics as well as his ideas for global collaboration in all fields of knowledge. Among the participants were Prof. D.R. Bachhav, HoD Economics, KTHM College, Nashik; Prof. Agnelo Menezes of St Xavier’s College, Mumbai; Ms Dakshayani Madangopal, researcher, Shelter Don Bosco R&D, Mumbai; Mr Hugh Mascarenhas, Mr Roland Lobo, and Mr Anil Kataria, all in business and management.

McShane’s interest in economics began when Bernard Lonergan, who had written two essays on economics from a background of ten years of work, asked him to find him an economist who would read these essays. McShane went on eventually to edit one of these essays for publication, now available under the title Towards a New Political Economy (Collected Works of Bernard Lonergan Twenty- one). He has been giving lectures and workshops on economics in North, South and Central America, Europe and Asia.

Having “failed to make an impression” by means of global presentations of Lonergan’s economics, McShane tried out a different approach in Nashik: going “slowly by slowly” as they say out here. He began by presenting Lonergan’s fundamental idea: the distinction between two circuits in the production process, which he calls basic and surplus. The basic circuit produces consumer goods, while the surplus circuit produces goods that are necessary in the production of consumer goods (so capital goods if you like). McShane showed how standard economic textbooks fail to make this fundamental distinction – they tend to collapse both types of production into a single type, “business firms.” This is not to say that traditional economists are not aware of the distinction. It is just that they fail to make it a fundamental analytical tool, and they do not really make systematic use of it. In Lonergan’s hands, instead, it becomes an absolutely fundamental distinction, leading to different accounts of things like the effects of innovative discoveries, credit and banking, money, inflation and trade.

It is interesting to note that McShane avoided the word ‘profit’. Profit is too vague: it covers without distinguishing both the money set aside for surplus expenditures, as well as possible ‘pure surplus income’ (that is, money that is needed neither for basic nor for surplus expenditures).

The introduction of innovations into the surplus circuit, when backed up by credit, has the effect of leading to a surge in the surplus circuit. If this surge is to have its proper beneficial effects, McShane said, it should be assured an ongoing supply of investment. But this means that, when a surplus surge is going on, it would be (1) not wise to let the money flow immediately into the basic circuit; (2) wise to invest money – through the banking and other systems – into the surplus circuit. Surplus surges, however, are not meant to go on forever (so a car manufacturing company should not have as its goal the endless production of new cars). When the market has reached saturation point, the surge should be allowed to taper off, and then money should be made to flow into the basic circuit, leading to a rise in the standard of living for all. If money flows too early into the basic circuit, prices will rise because the quantity of basic goods available has not yet increased. If money does not flow into the surplus circuit during a surge, the surge will end too early, and the benefits of the surge will not be felt.

It should seem obvious that Lonergan does not envisage too much political and government participation in the economic process. McShane’s way of putting it was: no politicians even think today of pontificating on the laws of hydrodynamics. Eventually, when economics becomes a science, no political will even think of interfering in the economy.

One of the participants asked how this kind of attitude differs from traditional laissez-faire. The difference, I think, is that Lonergan does not believe in total and automatic market equilibrium through supply and demand functions. There is a role for human decisions and choices: thrift during a surplus expansion, benevolence during a basic expansion, is the way he puts it. But this means that Lonergan’s economics demands a massive cultural shift. McShane puts it this way: just as today we all know when someone is driving badly, and should really change gears, so, with adequate education; we will one day know when the economy is being driven badly, and what should be done.

Does all this sound too idealistic? Perhaps. But Lonergan’s – and McShane’s – immediate aim is simple: to understand properly and correctly the workings of the economy. The presupposition is that we do not as yet have a proper understanding of the economy. Economics, according to Lonergan, has not yet become a genuine science – and he is backed up in this opinion by a surprisingly large number of economists, from Joseph Schumpeter to Joan Robinson to Joseph Stiglitz. There is a very fundamental confidence underlying this conviction: the confidence that correct understanding will lead to, and is the only way leading to, correct action. In other words, you really can’t do anything if you don’t know what the problem is. So what can be done right away? Some can begin studying Lonergan’s economics. Others could simply spread the word; make a noise, that contemporary economics is ignoring the distinction between basic and surplus circuits. And perhaps all could join the SGEME – the Society for the Globalization of Effective Methods of Evolving (see www.sgeme.org). So have a go!

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