Updated: 5/25/21
Christian Economics: Teacher's Edition
Then Joseph said to Pharaoh, The dreams of Pharaoh are one; God has revealed to Pharaoh what he is about to do. The seven good cows are seven years, and the seven good ears are seven years; the dreams are one. The seven lean and ugly cows that came up after them are seven years, and the seven empty ears blighted by the east wind are also seven years of famine. It is as I told Pharaoh; God has shown to Pharaoh what he is about to do. There will come seven years of great plenty throughout all the land of Egypt, but after them there will arise seven years of famine, and all the plenty will be forgotten in the land of Egypt. The famine will consume the land, and the plenty will be unknown in the land by reason of the famine that will follow, for it will be very severe. And the doubling of Pharaoh's dream means that the thing is fixed by God, and God will shortly bring it about (Genesis 41:25--32).
Commissioners collected excess grain: one-fifth of the harvest (Genesis 41:34). The text does not say whether Joseph bought the grain with Pharaoh’s money or confiscated it in the name of Pharaoh. I think Joseph bought it. Here is my reasoning. After Pharaoh bought the people’s land with grain, Pharaoh taxed them permanently at 20% (Genesis 47:23–26). But the original rate of grain accumulation was 20%. If Pharaoh had possessed such taxation authority before the surplus years, why had he failed to exercise it? Why was this a new tax policy under Joseph? Conclusion: it wasn’t a tax policy. Joseph paid for it. So, there was no resistance.
Joseph was an entrepreneur. He predicted the economic future. There would be seven good years followed by seven bad ones. He then offered a plan to Pharaoh: store up grain for the famine. Pharaoh took his advice. He made Joseph second in command. Joseph became a manager. Joseph had a plan to sell grain to future consumers. Consumers knew nothing of this. Farmers knew nothing of this. So, they did not bid up the price of grain. Joseph was able to buy low for seven years. Then he sold high--very high. Joseph's plan saved Egypt. It also made Pharaoh even more rich and powerful.
The division of labor collapsed in Egypt during the famine. How do we know this? Because the money failed. "And when the money was all spent in the land of Egypt and in the land of Canaan, all the Egyptians came to Joseph and said, 'Give us food. Why should we die before your eyes? For our money is gone'" (Genesis 47:15). Egyptian consumers had relied on their money to save them. This proved to be short-sighted. Pharaoh wound up with their money. Then he bought their land with food.
This was not normal. In normal times, consumers with money are in a strong bargaining position. They have what sellers want: money. But because of the famine, there was a reversal of economic roles. After a year of famine, Pharaoh had both the money and the grain. He was in the driver's seat. Joseph's forecast and subsequent planning had made this possible. The monetary system had collapsed. The economy had collapsed. The division of labor had collapsed.
Economics is a detailed study of the division of labor. So it has been ever since Chapter 1 of Adam Smith's book, An Inquiry into the Nature and Causes of the Wealth of Nations: Of the Division of Labor. The division of labor is a vast system of mostly voluntary exchanges. Smith designed his book to persuade readers that the free market has no design and no designer. Smith's Invisible Hand was not God. It was a metaphor.
Christian economics begins with a unique premise: there is a cosmic central planner. God is the owner of the cosmos. He upholds it moment by moment. Nothing happens that is not part of God's plan and His decree. Nothing surprises Him. This is the economic implication of the biblical doctrine of providence. God is absolutely sovereign.
The Bible also teaches that God has delegated portions of His sovereignty to men, who act as His stewards, whether they believe this or not. There will be a final judgment, at which time God will evaluate each individual's economic performance (Matthew 25:14--30). This is the doctrine of delegated sovereignty, also known as authority. In the field of economics, this is the doctrine of stewardship. Men hold title to everything they own, including their lives, on behalf of God.
Covenant keepers are supposed to acknowledge this. They are supposed to understand that they hold title as judicial representatives of God. They hold title in the name of God. They have what lawyers call a fiduciary relationship with God. They are trustees. But biblical trusteeship is a two-way concept. All covenants are two-way judicial arrangements. Trusteeship is covenantal because the dominion covenant (Genesis 1:26--28) is covenantal. The trustees trust God to uphold them when they act responsibly on His behalf.
Blessed is the man who trusts in the Lord, whose trust is the Lord. He is like a tree planted by water, that sends out its roots by the stream, and does not fear when heat comes, for its leaves remain green, and is not anxious in the year of drought, for it does not cease to bear fruit (Jeremiah 17:5--9).
Ownership is theocentric. God owns all things. God is the source of all blessings. "Every good gift and every perfect gift is from above, coming down from the Father of lights, with whom there is no variation or shadow due to change" (James 1:17). This includes the gift of money (treasure).
As for the rich in this present age, charge them not to be haughty, nor to set their hopes on the uncertainty of riches, but on God, who richly provides us with everything to enjoy. They are to do good, to be rich in good works, to be generous and ready to share, thus storing up treasure for themselves as a good foundation for the future, so that they may take hold of that which is truly life (I Timothy 6:17--19).
What is it about money that is so alluring? It seems to provide autonomy: independence. It seems to provide safety from life's common afflictions. "A rich man's wealth is his strong city, and like a high wall in his imagination" (Proverbs 18:11). Money insures against future negative sanctions. It also provides access to positive sanctions. It can become addictive. "He who loves money will not be satisfied with money, nor he who loves wealth with his income; this also is vanity" (Ecclesiastes 5:10).
The seller pursues money. He sells to a customer in exchange for money. Sellers want money because money is the most marketable commodity, as the Austrian economist Carl Menger wrote in 1892, and as his intellectual follower Ludwig von Mises wrote in 1912. The customer is in a position of economic authority because he owns money. This is not the same as legal authority. The buyer and the seller are both owners. They both possess delegated legal sovereignty over their property from God. In terms of their lawful control over property, they are equal in the sight of God. Their legal claims must be honored by the civil government. "You shall not pervert justice. You shall not show partiality, and you shall not accept a bribe, for a bribe blinds the eyes of the wise and subverts the cause of the righteous" (Deuteronomy 16:19). But with respect to economics, there is a hierarchy: buyer (seller of money) over seller (buyer of money). This is because the buyer owns the most marketable commodity. He can buy almost anything he wants if he has enough money.
In presenting the logic of economics as it applies to the market, an economist should begin with ownership. People who make an exchange are owners. They are buyers. They are sellers. It is therefore a conceptual error to avoid discussing the buyer in equal detail as the seller in any exchange.
Economists focus on explaining how the free market delivers the goods on time and at a price that producer-targeted buyers are willing and able to pay. It is much more difficult to explain the production/delivery system, which really is an integrated system, than to explain the buyer. But it a conceptual error to ignore the buyer. Sellers compete against sellers. Buyers compete against buyers. This is the heart of the free market's system of cooperation. This is why, in this and succeeding chapters in Part 1, I include a section on the buyer. I begin with the buyer because he possesses economic authority because of his money. The seller does not.
The buyer possesses money. The monetary system is the central institutional arrangement in a modern economy. Money is common in most exchanges. The buyer is a seller of money. There are more passages in the Bible warning against excessive money than there are warnings against excessive work. Men can and do pursue too much money, the Bible assures us. They can also work too hard and too long. But the common motivation for working too much is the pursuit of money. "Do not toil to acquire wealth; be discerning enough to desist. When your eyes light on it, it is gone, for suddenly it sprouts wings, flying like an eagle toward heaven" (Proverbs 23:4--5).
Economics textbooks focus on the structure of production. They do not focus equally on the structure of consumption. People's desire to consume is assumed. Indeed, ever since Adam Smith, consumption has been regarded as the central motivation of production. "Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it" (Wealth of Nations, Bk. IV, Chap. 8, Para. 49). Then why do economists focus on production? This has led to an unbalanced understanding of economics. The consumer is king. Why? Because he owns money. Producers seek to sell him things in exchange for a portion of his money. So, when the economist begins his analysis, he should begin with the consumer or the customer, not the producer. The buyer is in authority.
The buyer possesses money. Money gives him the widest range of choice among producers and services. It is universally desired. He can buy today or tomorrow. There will still be lots of sellers tomorrow. There will still be an immense flow of goods and services for sale in a free market society.
The buyer knows that he is not omniscient. He has no special skills in forecasting the economic future. He does not want to be caught short in the future. This means caught short of money. Money is a safety net. Whatever is the crisis that comes, money in sufficient quantity will be able to reduce the negative effects of this crisis. So, money is an insurance policy against the unknown. It can be used to buy an insurance policy. What does the insurance policy provide if a crisis hits? Money. Here is a good rule: If you are worried about an unexpected setback, own money. Here is another good rule: "If you want to take advantage of an unexpected opportunity, own money."
To gain money, a person usually must work. He sells labor services for money. He is a supplier of labor services. Economists devote many textbook pages to labor. But, as I have said, they devote far fewer pages to laborers as future consumers. Why do most people work? To earn (buy) money.
A consumer accumulates money because he prefers not to specialize in consumption. He does not accumulate all of the goods that he might conceivably use in the future. Instead, he accumulates money. He can buy whatever he wants whenever he wants it if he has enough money. Money saves him time and trouble in forecasting the future. It also saves on storage space.
Buyers in general do not specialize in forecasting their future consumption. There is nothing special about forecasting future supplies of most goods and services. Buyers buy whatever they want at familiar retail outlets. They buy during normal business hours. If they buy online, they buy at any time. They assume that whatever they will want to buy will be on sale at a familiar price. They are usually correct in this assumption, except during hurricanes or other natural disasters. This is what Leonard Read called the miracle of the free market. But it is not a miracle. It is a day-to-day reality. A buyer does not think about it. It is in the back of his mind. He pays little attention. He cannot explain how this happens. He simply trusts in the delivery system: the free market. Usually, his trust is rewarded.
A buyer defers to the many sellers with respect to forecasting his economic future. It is not his responsibility to predict what he will want to buy: what, when, where, and how. He rests mentally in the confidence that profit-seeking sellers will be there when he wants their services. He safely does this.
A seller specializes in production in order to achieve a competitive advantage. This analysis goes back to Chapter 1 of Smith's Wealth of Nations: Of the Division of Labor. Smith offered the story of the pin makers who, through the division of labor, can produce large numbers of pins. These pins command a low price: large supply in relation to demand.
In his economic capacity as a future buyer of money, a seller tries to predict what buyers will want to buy in the future, and at what price. He becomes both a forecaster and a planner: a forecaster of future demand and also a combiner of the production goods required to meet future demand at a profit. We call such a person an entrepreneur.
The entrepreneur imagines future demand. He asks the same questions that a reporter or an historian asks: who, what, where, when, why, and how? Who will buy a particular consumer good? What is this consumer good? Where will the sale take place? When will the sale take place? Why will the sale take place? Finally, how will the buyer know who will sell the item, where, and when? But a buyer, unlike a seller, does not need to ask why. He knows why. A seller will be after his money.
In contrast to a buyer, a seller conducts market surveys. He looks at general economic indicators. He pays attention to the price of production goods. He is far better informed about the future state of consumer demand than consumers are. A buyer does not need to know what he will want to buy, or where, or at what price sometime in the future. The producer pays attention to business. The buyer does not. The buyer trusts his employer to take care of business. This is not his responsibility. He assumes he will be paid a predictable amount of money. Normally, this assumption is correct.
Buyers rarely compete against sellers. When they go on Amazon to buy something, they do not think this: "I am in competition with sellers." Instead, they think this: "Sellers are competing with each other for my money. The more, the merrier!" Buyers cooperate with sellers in search of greater wealth. They trade with each other in the hope of attaining better individual situations. Buyers must bid higher than other buyers in order to gain this cooperation. Sellers must bid lower than other sellers in order to gain this cooperation. Out of this competition come market-clearing prices.
A buyer does not think much about pencils, nor should he. Pencils are familiar items. They are easily available in any supermarket. Only if the buyer is a poor person in a village will he have to give much thought to buying a pencil. If he lives in a middle-class city, and if he ever wants a pencil, he can buy one. He probably will buy a box of them. They are cheap. He will be able to see when he is running out.
A pencil seller faces a predictable market. There may be increased demand when children go back to school, but demand does not fluctuate much, year to year. A seller may face ups and down of prices in the raw materials he buys. Maybe a pencil-making machine will break down, but these are familiar costs of production. Will he face a shortage of wood? Paint? Metal for holding the erasers? It is possible, but in a worldwide free market, there are usually lots of other suppliers. So, the pencil market is predictable. With so little uncertainty, there will be few opportunities for either profits or losses. The seller of pencils follows a routine. Sellers can be confident that there will be buyers. Buyers can be confident that there will be sellers.
There is nothing miraculous about the market for pencils. Yet without the institutional arrangements of the free market social order, a pencil would be a rare item. It would be expensive. It would be like a pin in a world without a division of labor. Pin makers would be highly skilled craftsmen.
Sellers specialize in search of elusive future profits. Buyers are far more passive. They do not get rich through entrepreneurship. They gain whatever they want whenever they earn enough money to be able to outbid competing buyers on shopping day: the day of judgment for sellers. Buyers impute value subjectively to a vast array of goods and services. Then they place their objective bids in the form of money.
Sellers need to pay close attention to their targeted buyers. Buyers can safely afford to be more laid back. There is no rush. They possess money. This is what sellers want today and will want in the future. The buyer can go shopping when he is ready to buy. Until then, he can safely ignore the economic future if he has money. This is not true of the seller.
If a seller profits, this is because he has paid close attention to the future, and his plans have worked out. He specializes in prediction. The buyer has paid far less attention to the future. He relies on the free market to provide him with money and products to buy. Most of the time, this is what the free market does. This is not a miracle. It is the result of specific institutional factors: widespread private property, the rule of law, stable money, double-entry bookkeeping, respect for contracts, the absence of widespread envy, and the desire of everyone to be a little better off next year.
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