Lonergan’s ‘Circulation Analysis’ Provides Hope for World Economies

Newswise — The Occupy Wall Street movements, as well as continuing unrest across Europe and other parts of the world, reveal a general dissatisfaction with contemporary economic practice, says Dr. Terrance Quinn, professor of mathematical sciences at Middle Tennessee State University.

Quinn also points to the Harvard University economics students who in the fall of 2011 walked out of their professor’s class in a one-day protest, and posted a public letter expressing their dissatisfaction with establishment views.

“Professor Greg Mankiw’s economics textbook is used worldwide and represents establishment economics. But, as pointed out by his students, continuing dysfunctional global economics shows that those establishment views cannot be correct,” Quinn says.

“All of this points to the fact that establishment economics must have intrinsic flaws,” Quinn contends. “But what are those flaws? What is a correct economic theory? And what might we do?” According to Quinn, the current economic mess is rooted in errors that were identified more than 70 years ago by Bernard Lonergan (1904-1984), a Canadian philosopher and economist. His writings are now available in The Collected Works of Bernard Lonergan (University of Toronto Press). However, Quinn says, Lonergan’s economic theory has not yet caught the attention of mainstream economists. “There is a small but growing group of international scholars working toward understanding Lonergan’s economics,” he says, offering an example.

“Suppose a table saw is produced and sold by a tool-making firm to a home-construction firm. Then the home-construction firm uses the saw to build a home that it then sells to a family. While the home is a consumer good, the table-saw is not. The table-saw is used to produce consumer goods.

“This is only one part of one example,” Quinn says, “but already begins to reveal a key result. Similar tracking of real-life examples of money flow reveals that there are correlated dynamics between two types of firm in an exchange economy.”

Quinn says that this is in contrast to mainstream economics. While it speaks generally of firms and households, capital goods and consumer goods, it does not acknowledge the functional and explanatory significance of two types of firm. Nor does it build theory to explain real-life businesses and finance of real-life people, but constructs and imposes conceptual models.

“As we are seeing worldwide, this approach causes damage to economies and communities,” Quinn contends.

“Lonergan’s results show that in any economy — from village to global enterprise — there are two correlated flows of money, concomitant with new goods and services,” Quinn explains. “One flow buys what are called consumer goods; the other flow buys what are called capital goods. And the success of the economy requires that the correlated measurements of these be built, systematically and statistically, into economic practice so that credit can be given to real factors in the economy.

“The two types of firm are not yet considered and these measurements are not done,” Quinn points out.

“Another basic and related problem,” Quinn adds, “is the commoditization of money, so that the original meaning of ‘credit’ — ‘giving credit for insightful contributions’ — has been battered to death in the past 50 years. Institutions of financial operations have emerged which separate the flow and creation of money from its fundamental meanings of promise and credit in the productive process … We are mainly in the hands of detached Wall Street gamblers.”

Money has been separated from its economic function, Quinn contends. When a person buys a new house or a loaf of bread, he or she uses money as the means to purchase a consumer product. Money flow is a kind of measure of economic production and sale, or redistribution of ownership. Today, though, money is being treated as a commodity.

“We have separated money from its economic function,” Quinn says.

Movements like Occupy Wall Street point to these economic follies, notes Quinn, who believes that public pressure will need to help encourage government, economists and bankers toward a reassessment of financial operations.

In the long term, though, more will be needed, Quinn acknowledges.

“Thanks to the discoveries of Lonergan, there is the basis for a verifiable science of economics that goes to the roots of these matters.”

The best source text presently available for Lonergan’s economics is the 1998 Vol. 21 of his collected works, Quinn notes, adding that the problems in world economics are becoming more and more urgent.

“My hope is to help draw attention to Lonergan’s discoveries in economics, discoveries that so far have not yet been taken up by establishment economics,” Quinn says.

“There is an opportunity here for economists, financiers and other financial advisers. For those willing to take a serious look at Lonergan’s economics, there are scientific riches there that point to fundamental explanatory options that will help move us out of the present mess caused by establishment economics,” Quinn concludes.

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