Updated: 1/13/20
Christian Economics: Teacher's Edition
If I have told you earthly things and you do not believe, how can you believe if I tell you heavenly things? (John 3:12).
Jesus warned Nicodemus that he did not understand heavenly things. How did Jesus draw this conclusion? Because Nicodemus did not understand Jesus' words about things in history. We sometimes call this teaching approach dumbing down. This was one reason why Jesus spoke to the masses in parables. He wanted to teach them about the kingdom of God. He used analogies from the world of daily economics in order to explain the theology of the kingdom.
I have adopted the same teaching strategy in this book: from simple to complex. I have done this because I am convinced of this fact: our minds are severely limited. We have great difficulty following long chains of reasoning. Even when we can follow them, we cannot remember them. Even when we remember a few of the arguments, we may be ignoring a crucial link in the chain of reasoning. This is why we all need complex ideas or processes to be dumbed down by someone who understands what is going on.
Despite these limitations, we eventually draw conclusions. We decide that A is true and B is false. So, we commit to A. We commit a portion of our lives, such as time or money, to pursuing A, developing it, and telling its story to others.
You may be about to commit to Christian economics. You are in the learning phase. You are trying to figure out what Christian economics is. You want to know how it differs from other forms of economics, which are in turn divided.
I want to help you draw a conclusion and then commit to it. To do this, I have adopted a strategy. I am not going to ask you to follow long chains of reasoning. That task must wait until the Scholar's Edition. You may choose not to accept that challenge. But you are willing to commit to this challenge: understanding enough about Christian economics and its main rivals to be able to make an informed judgment as to the truth or falsity of Christian economics. If you decide that Christian economics is true, you will then be responsible for committing to teaching it. Why? Because there are no free lunches in life. There are no benefits without comparable responsibilities, as you will learn in Part 1.
I begin Part 1 this book with a classic essay written by Leonard E. Read in 1958: "I, Pencil." Read was a great believer in the free market. He had been a political activist in the mid-1930s, but he gave up on politics in the 1940s. He went into education. He founded the first libertarian think tank in 1946: the Foundation for Economic Education. It was small and underfunded. It had no influence. He kept at it until his death in 1983. He got out the message of economic liberty. I was one of his converts in the same year that FEE published "I, Pencil."
Read it carefully. You will never forget it. That is why it has survived: it is truly memorable. He began with something that appeared to be simple: a pencil. As he shows in just a few pages, this simple consumer good is the product of an inconceivably complex system of production. It is so complex that no one understands it. We can barely explain it.
Read did not attempt to explain the complex market process that produces a pencil. He merely described it. I do my best to explain it in Chapter 2: Pencils and Providence. To explain it, I copied Read's example. I begin with something simple: an auction.
I use an auction as an analogy of the entire free market. I move from the simple to the complex. But my use of the auction is far more fitting than Read's use of a pencil to describe the market's process. This is because the free market really is a giant auction. An auction is not an analogy of the market. It is the market writ small. The macrocosm of the international free market is accurately reflected in the microcosm of a local auction. If you understand a local auction, you understand the market economy. You just don't know this yet.
Most people are familiar with auctions. They exist in many societies. They are organized sales. An auctioneer invites potential buyers to attend his auction. Then, one item at a time, he offers them for sale. People bid on them. The entire procedure is governed by one simple rule: high bid wins There are other rules, however. This is a crucial rule: open entry. In the American South, this used to be known as y'all come. Everyone is invited, with this recommendation. Bring money. The concept of open entry also applies to auctions. Anyone should be able to hold one. Auctioneers do not like this rule. They have persuaded politicians to set up legal restrictions on who may lawfully hold an auction. This benefits existing auctioneers. It holds down competition, thereby holding up final prices. The highest bids get higher.
The free market makes possible a pencil. It makes possible a lot more than pencils. Eric Beinhocker's 2006 book, The Origin of Wealth, was published by the Harvard Business School Press. On page 9, he tells us that retailers of goods use ID markers for inventory control. These are called stock keeping units: SKU's. He estimated that in the New York City region, the number of SKU's was in the tens of billions. This did not include services. Yet no human being or committee guides the market process that delivers these goods to buyers. I favor the free market. But I do not place my trust in it as Read did: in terms of man's autonomy under a highly limited civil government. Civil governments never stay limited, once they are granted autonomy by the voters and the intellectuals. In contrast, I place my trust in God's delegated covenantal sovereignty to individuals, families, churches, and civil governments. Christian economic theory is not humanism's economic theory. It denies autonomy to the creation, including mankind.
I believe in the auction process as the best moral arrangement for creating wealth. I also think it is the most efficient (least wasteful) arrangement for the production and distribution of this wealth. Morality and efficiency are linked in God’s created social order.
This process governs the internationally known website, eBay. Every day, 24 hours a day, people offer goods for sale, and other people bid money to buy them. These goods are often used goods. They are one of a kind. There can be only one buyer. The rule is clear: high bid wins. Everyone at an auction understands this rule. Everyone agrees to it in advance.
Here is an example. My wife purchased a used Viking sewing machine in 1976. It was a high quality machine. It was expensive despite being used. She bought it from a local high school. She used it until 2015. She got used to it, just as skilled craftsmen do with their tools. Then a part broke. She was told that this part was no longer being made, which was hardly surprising. To buy a new machine of comparable quality would have cost $1,500, and it would have been computerized. She would have had to re-learn sewing. I suggested that she go on eBay and see if she could buy the same model and year. She found several for sale. She offered the top price to one seller: $166, delivered to our door by UPS a few days later. The machine works fine. She kept a few spare parts off the old machine. She gave away the remainder to a local repairman. He will use it for parts. In this exchange, there were four winners. My wife is better off with the replacement machine. The woman who sold it was better off with $145 after shipping. The local repairman got a donation. eBay received a commission. eBay changed the world in less than two decades. It did so because it is the largest organized auction in history. But the unorganized auction is vastly larger: the free market.
If you think through the auction process, you will understand the free market. Things that have confused you about the free market will no longer confuse you.
It gets better. When you read about some new economic development, you will have a mental strategy to make sense of it. You will be able to break it down into its component parts by asking this: How would this work in an auction? That is because the free market is an auction.
The auction is not autonomous. Other institutions provide the free market with moral support and even physical protection in the case of the state. This protection must be paid for by someone. There are no free lunches. This is why any discussion of the free market as if it were autonomous is incorrect. It is incorrect because it is incomplete. It relies on a concept of the free lunch, a distinctly non-economic concept.
The auction process has built-in sanctions: profit and loss. These sanctions provide feedback to market participants. This feedback sends one of two messages. The first is the message sent by profit: Do more of the same. The second is the message sent by losses: Stop doing whatever you have been doing. The feedback is accompanied by meaningful sanctions in the form of money or lack thereof: black ink or red ink. Analytically speaking, the profit-and-loss system is the distinguishing institutional feature of the free market. This distinguishes the free market from all other institutional arrangements: constant information feedback accompanied by meaningful sanctions. This is why we can analyze the free market as a functioning institution that has no central planning agency. It is a bottom-up system of sanctions that operates predictably. Customers apply the positive sanctions: purchases that benefit customers and sellers. The positive sanctions are in the form of money payments: profits. The negative sanctions are applied by the accounting system: losses. At some point, either the unprofitable seller changes or else the customers change. Otherwise, the unprofitable seller runs out of money.
What does every market transaction have? A buyer and a seller. Therefore, in each chapter, I cover both the buyer and the seller.
I also have a section in each chapter on how a pencil fits into the picture. Leonard Read began with a pencil. I follow through on this.
I keep the chapters short.
I cover 21 topics. These are short links in the chain of reasoning. They are not connected in an unbreakable order. But they are connected.
When you finish Part 1, you will have a better understanding of the free market than the vast majority of voters do.
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