Updated: 1/13/20
Christian Economics: Teacher's Edition
The kingdom of heaven is like treasure hidden in a field, which a man found and covered up. Then in his joy he goes and sells all that he has and buys that field (Matthew 13:44).
This passage is an aspect of point three of the biblical covenant: ethics. It is an aspect of property rights. The man who found the treasure had the right to sell all that he owned for money, and then use this money to buy the field and everything in it. The buyer did not steal the treasure. Instead, he bought the field. The ownership of the treasure came with the ownership of the field. This was a matter of legal boundaries, which is another aspect of point three. The covenantal principle of legal boundaries is derived from God’s legal boundary around the forbidden tree.
If you understand this verse, you can also understand the importance of prices in an economy based on biblical law, which is always a free market economy.
For the sake of economic analysis, I begin with this principle: “Most knowledge is local.” This has a corollary: “Most knowledge is specialized.” You know more about yourself than any other person possesses. This is why God holds you responsible for what you do. Your specialized knowledge can become a source of profit for you. If you can serve consumers by means of it, you will have an edge as a producer/seller. Other competitors will have to match your specialized knowledge in order to match you.
The man who found the treasure had highly local knowledge. His knowledge was also highly specialized. He wanted to keep it that way until he bought the field. So, he covered up the treasure. Why? First, he did not own it. He just stumbled across it. Second, he did not steal it by carrying it away. Third, he did not own the land which held the treasure. If he had owned it, the treasure would by law be his. Fourth, and most important, he was surprised to find the treasure. He had not expected to find it. That was why Jesus used it as a parable of God’s kingdom. Those who find the kingdom of God did not expect to.
He knew at once that he wanted to own that treasure. Being an economically wise man, he wanted to buy it free of charge. This was possible. He could buy the field. Then he would legally own the treasure. He would pay a market price for the field. Then he would retrieve the now-hidden treasure at no extra cost. That means the treasure would be free of charge. Everyone likes a bargain. This would be the bargain of a lifetime. Again, this is why Jesus used this as a parable of the kingdom. On the one hand, it is more valuable than anything you own. On the other hand, you get it free of charge. You must pay for the “land,” but not the treasure. There is a cost for this decision to buy the field: the surrender of everything you own. But the kingdom of God is not available for direct purchase. It is not for sale to the highest bidder.
This is a more theologically sophisticated parable than most readers imagine. This is why Jesus used easily understood economic practices to convey its meaning. I call these parables “pocketbook parables.” People rarely understand theology, but they understand money.
As soon as he found the treasure, he possessed valuable information. Maybe he could sell this information to the owner. But this would at best result in a finder’s fee. He preferred instead to gain maximum profit: the full market value of the treasure. So, his best strategy was to buy the field.
There would be uncertainty involved. The owner might find the treasure. Maybe someone with no moral scruples would find it and steal it. Then he would buy the field but own nothing but the field. He did not want to own the field. He wanted only the treasure. In order to reduce the uncertainty of having the treasure removed by someone else before he bought the field, he concealed the treasure. Most of Jesus’ listeners could easily understand the logic of this strategy.
He sells everything he owns to obtain the money needed to buy the field. He could not possibly have afforded to buy both the field and the treasure if word had gotten out that there was a treasure on the property. The price of the field would have risen when would-be buyers started making purchase offers to the owner. A rising price would send a signal: “Something peculiar is going on here. Why is the price of this field rising?” That would attract snoopers. These snoopers can accurately be called treasure hunters.
This is what entrepreneurs are: treasure hunters. They see some price change. They think: “What is going on here?” They may follow up on this with an investigation. If they think there is an opportunity for profit, they bid the asset’s price higher. Word then gets out to other entrepreneurs.
The original discoverer understood this process. He knew he could not afford to buy it if word of his discovery somehow got out. The price of the field would rise. So, he concealed the treasure.
We could call this a discovery-price process. First the discovery; then a rising price. But once the rising price called attention to this discovery, there would be more investigations. What is the treasure really worth? No one knows. There are rival bids. We could call this a price-discovery process.
For as long as men have searched for bargains, they have understood the close relationship between price changes and new information. New information regarding some marketable asset begins to affect prices as soon the person with this new information begins to buy or sell ownership of the asset. This price change may attract attention if it is an anomaly. Potential buyers think: “What has changed? Should I buy some?”
The point is this: significant new information about an asset affects the price of the asset. The changed price alerts entrepreneurs to the possibility of profit in buying the asset. This undermines secrecy. The information spreads. The price may continue upward or downward. The people who are alerted by a changing price are people who possess enough money to produce additional changes in the movement of the price. There is feedback: changed price => curiosity => investigations => further price changes. What is the correct price? No one knows. It fluctuates.
There is nothing that spreads information faster than a price change that continues in one direction. As soon as the price change appears to be a non-random change, it gains attention. In the modern world, this can take place in far less than one second with trading based on computerized trading programs that buy or sell based on complex algorithms. In less time than it takes for someone to click a mouse, the market responds to a changed price. High-speed trading occurs at intervals shorter than any human can perceive the change, let alone assess its cause or its possible effects.
Some buyers and sellers must adjust their plans in terms of specific price changes. They must adjust their budgets. Others may not be affected immediately, but there will be repercussions further into the production/distribution process. People make plans in terms of prices. Changed prices always produce changed plans. The price system is modern society’s primary means of motivating people to reconcile their plans.
The man who found the treasure had time to sell all that he owned and purchase the field. The speed of this transaction was important to him. He wanted it to be completed before anyone else found the treasure and either removed it or bought the field before the original discoverer could buy it. He fully understood the effects of new information on asset prices. The new information, if accurate, would push the price higher than he could afford to pay, even after selling all that he owned to raise money. This was why he sought to stop the spread of this information. He hid the treasure.
A buyer has goals. These may be short-term, mid-term, or long-term goals. He has to make decisions in the present regarding his goals. He must decide which goals he may be able to obtain, but always with this proviso: at some price. As prices change, he must adjust his plans. He can afford to ignore most price changes, moment by moment, but he cannot ignore price changes that affect his budget negatively. As the saying goes, he fears running out of money before he runs out of month.
Prices are objective: so much money for this item. His budget is objective. He has only so much money. He would like to have more money at the end of the month than he had entered in his budget. He has an incentive to strive for this outcome. He can cut his spending, increase his income, or both. These adjustments are objective because prices are objective. The monetary costs of these adjustments are objective. In contrast, the psychological costs of making these adjustments are subjective.
He seeks better deals than he had thought he could obtain. The starting point for such a quest is price. Quality also counts, but quality is more subjective. It is more difficult to research and assess than price differences are. A price is objective. A changed price is therefore the starting point for most searches for a better deal. It catches people’s attention. It can be compared with the previous situation. It can be compared with its place in a budget.
A changed price is easily announced. In the digital age, a price in a developed capital market is conveyed around the world in seconds. It is limited only by the speed of light. This is important for buyers and sellers of securities: speculators. It is not important for buyers of consumer goods. They do not operate economically in terms of split-second decisions.
Buyers compete against buyers. They rarely compete against sellers. So, they do not have to concern themselves with constantly shifting prices. This is a concern for sellers, whose advantage stems from specialized knowledge. Sellers operate in market niches. Their wealth is less flexible than a buyer’s wealth. If a seller makes a forecasting error, he has fewer ways to adjust his plans at a minimal loss. There are few buyers for the output of his big mistakes. Because buyers possess money, which is the most marketable commodity, they do not need knowledge as specialized as sellers possess. They do not need to know the future with the precision that a seller requires. Money is a shock absorber for the potholes of life.
A seller makes money by possessing better knowledge of the future than his competitors. He better foresees what future consumers will pay for his output. He better foresees what his competitors will be offering, and on what terms. He buys low in order to sell high. He trades with highly specialized knowledge.
He is not omniscient. The future is uncertain to him and his competitors. They buy raw materials, capital goods, and either rent or buy production space. They rent the labor services of specific people. To do all of this, they require accurate prices. They sometimes pay lots of money to rent the services of specialized market researchers. These researchers are paid to offer accurate advice on how to get a larger return on investment for marketing campaigns. The entire process is marked by objective standards: accounting. Accounting is based on objective returns expressed in money prices. Accounting is retroactive. It is the market’s means of revealing a profit or loss. This is not subjective profit or loss. It is objective. Business owners and managers seek to maximize objective profits or at least minimize objective losses.
Prices convey information to owners: profit or loss. Owners must pay attention to the accounting signals provided by objective prices. If they fail to pay attention, they will not maximize company profits. They may even produce objective losses.
Sellers of raw materials in a mass market economy are generally price takers. They cannot affect the outcome of supply and demand. If they are wholesale sellers, they may be able to negotiate profitably with retailers. The larger the market, the less negotiating ability a seller possesses to affect prices. A farmer has no ability to influence the wholesale price of his crop. Supply and demand are international, not local.
Manufacturers and retailers are always seeking better information. Because most knowledge is local, they attempt to lure owners of specialized knowledge to share this with them. The price system is the institutional arrangement by which accurate knowledge becomes available. It is made available primarily through prices. A manufacturer can sign contracts that guarantee that he will be supplied on specific dates with specific products at specific prices. This enables him to produce output. Without prices, he could not stay in business.
A pencil sells at a price. Buyers buy specific pencils with specific features at specific prices at specific locations. The degree of specificity is extensive. A pencil is a simple product. It has only a few components. Most products are far more complex. Yet buyers can buy these products for specific prices at specific locations. At a modern big box store or supercenter, shoppers can select from tens of thousands of products on the shelves.
Without price signals, it would not be possible to make a pencil. In his essay, Leonard Read did not explain the nature of the price system. The word “price” does not appear in the essay. Yet the price system is the essence of the production process that Read described as a miracle. Without prices, a pencil would be as rare as a miracle. The price system coordinates production and distribution. It allows supply to equal demand. When we say “supply and demand are equal,” we must implicitly add this: “at some price.” The price system is central to the operations of the market. It provides the signals that guide the production/distribution system. These signals are objective.
The prices of specific pencils are stable. So is quality. There is a grading system. Buyers usually do not notice. They may go shopping for either #1 or #2 hardness, but that is about as much detail as most buyers wish to know. A pencil is not an important aspect of their lives. They pay little attention to pencils. Pencils are scattered all over the house. They get lost. They get found. No one notices. They all look alike. They perform simple but predictable tasks.
They are cheap. This is the result of constant innovation for four centuries. These innovations were tiny, but they have added up. This process of innovation has produced ever-lower prices for pencils. They are everywhere. The prices of the components of pencils have also fallen. This relentless price competition has made the pencil a universal consumer product. Children draw with pencils as surely as engineers sketch with them.
Prices are part of a constant bidding system. People make decisions daily in terms of prices. They adjust their plans because of changing prices. These prices are the result of competition: buyers vs. buyers, sellers vs. sellers.
The public has some understanding of the market’s function as a way to allocate resources. They go shopping all the time. They know about buying with money. But they do not understand that the crucial resource is accurate knowledge. It is not a free resource. To think of it as a free resource leads to innumerable errors, both intellectual and political. Thomas Sowell wrote a path-breaking book, Knowledge and Decisions (1980). It dealt with mistakes that arise from the assumption that accurate knowledge is either free of charge or else should be made free of charge by legislation. It is one of the most important economics books ever written.
Accurate, relevant knowledge is rarely a free resource. It must be paid for. By whom? In a free market, the answer is consumers. The system of market exchange benefits consumers. Consumers must pay for services rendered. This includes the services supplied by owners of accurate knowledge. Consumers reward the plans of those sellers who presented them with the best goods they thought they could buy. Consumers retroactively reward successful sellers. The sellers used the price system to identify the best deals available to them. Everyone uses the price system to buy and sell. Those who implement the most accurate information have the crucial economic advantage in a competitive world. This is why there is enormous worldwide competition for accurate information. There is greater demand for it than the supply of it at zero price. It is not a free good.
Prices convey information on the availability of billions of products. Most people ignore most prices. But when people go shopping, they look at price before most other aspects of the products they want to buy.
The lure of money income persuades people to sell or rent their most valuable knowledge to others, who bid for this knowledge in the form of bidding for the output of this knowledge. The man in Jesus’ parable who found the treasure concealed this knowledge until he owned the land and also owned the treasure. Then he presumably shared this knowledge with all: “Look what I own.” Only when he could not lose if his local specialized knowledge got out was he willing to share this information.
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