Christian Economics: Teacher's Edition
For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish’ (Luke 14:28–30).
This passage is associated with point two of the biblical covenant. All economic planning is categorized under point two. An economic agent under God allocates scarce resources that belong to God.
Here is the economic principle: count the cost. It applies to every area of life, not just economics. Why? Because we possess limited resources. This is most clearly the case in economic affairs. Here, accounting techniques are basic to our lives as producers and also as consumers. Most people have more things they would like to buy than money to buy them. Here is a familiar statement: “Human wants are infinite, but resources are finite.” This is incorrect. We are creatures. Creatures are not infinite. Wants are therefore finite, but their prices exceed the money that most people have to satisfy them.
The Bible teaches that a good way to deal with scarcity is to limit our wants. In a famous passage, Paul wrote:
But godliness with contentment is great gain. For we brought nothing into the world, and we can take nothing out of it. But if we have food and clothing, we will be content with that. Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs (I Timothy 6:6–10).
This is the threat of mammon, which offers this promise: more. The confession of faith of the disciple of mammon is this: “more for me in history.” This goal is not limitless wealth, for we are not infinite. Rather, the goal is indefinite wealth. It has no known limits. It therefore undermines contentment. It produces dissatisfaction.
A budget is a confession of faith: there are limits. It acknowledges that means are limited, so therefore goals are limited. Means must match ends in every area of life, especially budgetary means. It is legitimate to have large goals, but the Bible teaches that these goals must be theocentric. “The kingdom of heaven is like a grain of mustard seed that a man took and sowed in his field. It is the smallest of all seeds, but when it has grown it is larger than all the garden plants and becomes a tree, so that the birds of the air come and make nests in its branches” (Matthew 13:31b–32). To seek sufficient capital to attain these large goals is legitimate. But covenant-keepers must not substitute means for ends. They must not seek increased wealth for its own sake or for their sake. To do so is necessarily to declare the means as autonomous. Nothing is autonomous. God is the cosmic Owner.
The covenant-keeper and the covenant-breaker may adopt similar strategies to increase the economic means at their disposal. The difference is in their rival worldviews: theocentrism vs. anthropocentrism, theonomy vs. autonomy.
Budgeting reflects the five points of the biblical covenant. Point one, which is the sovereignty of God, is reflected in people’s decisions. People are purposeful. They are owners of assets, just as God is. Because they are God’s stewards, they are responsible to God and other people: point two. They make plans, which is an aspect of stewardship. Purposes require plans in order to be fulfilled. Plans are governed by a hierarchical scale of values: point two, which always relates to hierarchy. What should be the supreme value for covenant-keepers? Building the kingdom of God. Jesus said: “But seek first the kingdom of God and his righteousness, and all these things will be added to you” (Matthew 6:33). There are limits on our actions: boundaries. Boundaries are point three. We must allocate our wealth in terms of these priorities and economic limits. This is point four: judgment. The familiar phrase, “What would Jesus do?” applies to our allocation of funds. When implemented, our plans have effects over time: point five.
Consider Jesus’ parable of the tower. A tower is a large structure. It is a public structure. Anyone who begins building a tower is announcing his commitment to a major undertaking. People rarely want to do this, for fear of embarrassment for their failure to complete the project. Jesus’ listeners would have understood this fear. That is why He used this analogy. It made it easier to get across His point: to become His disciple is major undertaking (vv. 26–27). It is also public. Count the cost, He warned them. Finish what you start.
The budgeting process must consider the future. There is temporal continuity between the present and a project’s completion. There must be economic resources available in between the two events: starting and finishing. This future-orientation is a characteristic feature of successful people. The willingness to budget for major projects marks the creative entrepreneur. He counts the cost. This same mentality should be common among covenant-keepers, Jesus insisted.
The political philosopher Edward Banfield in the late 1960s argued in his book, The Unheavenly City, that future-orientation is upper class. The present-oriented person is lower class. Jesus advocated the upper-class mentality. This mentality is basic to long-term expansion. It is realistic. It counts the costs.
The person who budgets for big projects is likely also to budget for his personal consumption. The analogy could have applied to a consumer good: a high ornamental tower. It could have applied to a production good: a defensive tower. Whatever it cost to build, the builder had to arrange for funds in advance of completion. He could use any excess funds for personal consumption. The point was this: the primary budget is allocated to the completion of the tower. This alone would avoid the embarrassment of failure.
The consumer has a scale of priorities. He imputes value to them. They are ordered: first, second, third, etc. Clearly, once a person announces the construction of a tower, this places its completion on a high level. Other forms of consumption are placed lower on the list of priorities. This list can be revised.
A consumer faces the problem of unexpected expenses. These can disrupt his budget. He may be able to borrow money at high rates: credit card. Or he may have to draw down his emergency reserve fund. By how much? That depends on his budget’s accuracy.
Budgeting allows the consumer to coordinate his plans with others. He knows what items he must buy. He knows about prices. He knows what income is likely. If his information is accurate, he is likely to complete his various projects. Budgeting is a primary means of plan coordination. The price system is a major means of this coordination.
I analyze the budgeting process in terms of the five points of the biblical covenant. A budgeting consumer begins with a purpose: a goal. He then formulates a plan. Planning mandates pricing the items to be considered: the budget’s limit. Then comes judgment: assessing the money available vs. prices. Then comes a purchase at the end of the budgeting process. This is how a future-oriented person deals with his future as a consumer.
There is always uncertainty in planning. A plan should have money in reserve to deal with unexpected emergencies. There is also a profit opportunity. The buyer wants to experience a psychic profit at the end of the process: more value subjectively than he has today. He therefore wants a consumer surplus. In this sense, he is an entrepreneur: a profit-seeker. The money that he gives up to buy consumer goods must be worth less to him than the subjective value of the goods. This is the consumer’s profit.
A buyer possesses money. This enables him to purchase a wide array of goods and services. His planning manifests the five points of the biblical covenant. He has purposes. This is point one. He has a plan of action: first, second, third. This is point two. He has limited means: money and time. He therefore has a complicated task. He must narrow down the number of products to consider: point three, boundaries. He cannot look at everything. He must decide on the range of his investigation. He has limited time and limited money. This narrowing-down procedure is the initial stage of the budgeting process. He must apply judgment: fitting his plan to the available resources and prices. Next, he seeks a consumer surplus: greater satisfaction than he had at the beginning of the planning process. This is point five: an increase over time.
He already has normal monthly expenses to pay for. So, the money available for new purchases is marginal: whatever remains after the existing bills are paid. It is marginal money, to be spent on marginal goods and services. Even if he has sufficient money, he does not have a lot of available time to spend consuming resources. He must budget time and money.
He also must estimate how much value he will derive from the purchases. His tastes could change. His opportunities could change. What would be the effects on his budget? A man who is courting a woman has a budget. It will change if she decides to break off the relationship. There is always uncertainty.
We think of these plans as rational. They may not be rational. Psychologists have demonstrated that people make decisions in terms of evaluations that are irrational. These decisions do not make sense. The field of economics known as behavioral economics has developed since 1975. It presents numerous cases of irrational behavior that are repeated in experiments around the world. This is why the Austrian School of economics has an advantage over all rival schools, analytically speaking. Ludwig von Mises did not begin with an axiom of rationality. He began with the axiom of purposefulness. The opening words of Chapter 1 of Human Action (1949) are these:
HUMAN action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego's meaningful response to stimuli and to the conditions of its environment, is a person's conscious adjustment to the state of the universe that determines his life (p. 12).
Later in the book, he wrote:
Man is in a position to act because he has the ability to discover causal relations which determine change and becoming in the universe. Acting requires and presupposes the category of causality. Only a man who sees the world in the light of causality is fitted to act. In this sense we may say that causality is a category of action. The category means and ends presupposes the category cause and effect. In a world without causality and regularity of phenomena there would be no field for human reasoning and human action. Such a world would be a chaos in which man would be at a loss to find any orientation and guidance (p. 22).
Mises called this purposeful behavior. I call it responsible behavior. God holds us responsible for our actions. If there were no causality, there would be no responsibility.
The seller must deal with buyers in terms of their budgets. They make plans for spending money over time. The seller must match his spending decisions to theirs. He wants to have his product or service in front of a buyer at exactly the time when the buyer wants to buy. This way, he is more likely to get a sale.
Here is an example. Sellers of American women’s magazines each year schedule the December issue for a cover story on delicious Christmas recipes. There will be a full-color cover photo of a delicious meal. In January, the magazines will headline the existence of a new diet that lets you lose five or ten pounds effortlessly in only three weeks. The editors know that women will budget for Christmas cooking. They will be ready to spend money at the supermarket the next time they shop. On the other hand, the women will not set aside money for the January diet. The editors do not worry about this. They know about women’s motivation in January. Women will spend money on a diet plan issue, and find some other expense to reduce. They will budget calories and budget money in January. They may not be successful with either budgeting plan, but they will try.
The seller makes money through specialized knowledge. He knows more about how members of his targeted audience will spend than the members know. An editor knows in October that women will buy a diet issue in January. The women who will buy this issue do not have to know this in October. They can be confident that some seller will try to meet their demand next January. They will not go shopping and not find whatever they want for sale.
Wise sellers go with the law of large numbers. They understand statistical patterns. Most buyers do not know about any of this. They do not need to know. They possess money: the most marketable commodity. Money substitutes for specialized knowledge. Buyers do not have to study to gain the benefits of such knowledge.
A seller has to coordinate his plan to the buyers’ plans at the time of the hoped-for sales. He has a purpose: profit. He has a plan. He has a knowledge of prices: limits imposed by scarcity. He makes judgments about how to match his money to production goods, including advertising costs. This is the budgeting function. Finally, he wants to make a sale in the future. He may want repeat sales: continuity. This is how he will maximize his income.
He is an entrepreneur. He seeks to buy low and sell high. He can buy low only because his competitors do not see the profit opportunity is sales. They do not bid up the price of producers’ goods. They do not see the opportunity to sell as high as he thinks he will be able to sell at a later time.
As with the buyer, he has a system: purpose, plan, pricing, assessment, and purchases. The purchases are continuing operational expenses.
There is a sixth step. He will sell the output for money. He is not a consumer. He is a seller.
A pencil is so inexpensive that buyers in advanced nations do not budget for them. It is a marginal purchase. If it appears anywhere in a budget, it is under “school supplies.” A standard pencil may cost 25 cents if purchased individually, but under ten cents if bought in bulk. Pencils are normally purchased in bulk. A bulk purchase is still marginal in most people’s budgets.
Pencils are more likely to be purchased at the beginning of the school year. Parents buy them for their children. Manufacturers know this. So do retailers who buy pencils from manufacturers. The manufacturers plan ahead. They want to be able to meet demand. They also know what parents will be willing to pay.
So, buyers do not budget for pencils, but sellers do. This is typical of the relationship between buyers and sellers. Sellers are specialists in knowledge of their niche market. Buyers are not. They do not need to be knowledgeable. They need only possess money. The sellers will compete against each other in order to supply buyers with all of the pencils they are willing to buy at a familiar price.
Budgeting for the future is basic to economic survival. Someone who does not establish a budget is vulnerable to unforeseen expenses. More expenses will be unforeseen without a budget. People get used to monthly expenses in an advanced economy: food, rent or mortgage, utilities, insurance. But with more options to spend money, someone who does not want to be surprised by unforeseen expenses must plan his spending.
Obviously, sellers must pay close attention to budgeting. They rely on specialized knowledge for their income. In contrast, buyers rely on competition among specialized sellers for their supplies of consumer goods and services.
To the degree that buyers pay attention to budgeting, to that degree they mimic sellers in paying attention to details regarding income and expenditures. They become more future-oriented, as sellers must be. They can identify areas in the monthly spending patterns that are weak spots with respect to their will to discipline their spending. They gain greater self-control over their behavior. They gain greater control over their future. This is a mark of spiritual maturity. They become better stewards of the money entrusted to them by God. They serve God as trustees. Read Chapter 51: "Trusteeship vs. Autonomy."
People are required by God to assess the future impact in their lives of decisions they make today. This is why Jesus told His listeners to count the cost. Do not start grandiose projects that you will not be able to finish. If you start such projects but do not finish, you risk being ridiculed. Most people do not want to be ridiculed. In preparation for a large project, get experience first in forecasting with smaller projects. This is the case for budgeting.
This is not a warning against starting large projects. It is a warning against starting large projects without counting the cost. This book is the result of a self-education project that I began in the spring of 1960. It accelerated in March 1973, when I began to write a monthly article on an economic commentary on the Bible. It accelerated again in September 1977, when I budgeted ten hours a week, 50 weeks a year, until February 11, 2012 to writing the commentary. I finished a few weeks before the deadline. I had to budget my time systematically to achieve this.
Today, I can write a chapter like this one in less than six hours. This is only because of my prior investment of time and effort. There is a compounding effect of efficiency over long periods of time. This has to do with the specialization of knowledge. Had I not invested over 16,000 hours to researching biblical texts related to economics, I could not have written this book. It would have been a less accurate book. I wrote this as a seller of ideas, so that I could persuade readers to follow through on their own understanding of Christian economics, which is supposed to lead to implementation (James 1:22–25).
Count the cost.
At the same time, count the benefits. Do not be paralyzed because of what appear to be high costs if the returns are high enough. The estimated benefits may be much higher than the estimated costs. What matters is the difference between costs and benefits. Large projects always involve large costs. But large projects also achieve large results. Focus on the size of the results, not the costs in attaining these results.
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