Christian Economics: Teacher's Edition
He turns a desert into pools of water, a parched land into springs of water. And there he lets the hungry dwell, and they establish a city to live in; they sow fields and plant vineyards and get a fruitful yield. By his blessing they multiply greatly, and he does not let their livestock diminish (Psalm 107:35–38).
This passage is associated with point two of the biblical covenant. It refers to capital that is supplied by God to His stewards. The stewards are supposed to manage the owner’s property in order to improve its value. Yet God is the source of the productivity of His capital. He retains full ownership. He intervenes into history in order to provide blessings for His stewards. This is an aspect of sanctions: point four. Point two and point four are always closely associated. But because I am discussing factors of production, which are inputs in the production process, I am of necessity discussing planning. Planning is part of point two. It involves economic forecasting and then implementing a plan of production.
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). First, as the Creator, He provides men with factors of production. He makes them legal owners. This is a matter of grace. Grace precedes law. Second, He grants to men the ability to make plans, just as He does. They allocate the assets entrusted to them by God in terms of a hierarchy of values. Third, He provides men with a law-order, both physical and moral. God’s Bible-revealed law is men’s tool of production. Fourth, He blesses or curses the output of men’s plans. Fifth, He either provides an inheritance over time to their designated heirs, or else He disinherits them. This five-point process of production reflects the five points of the biblical covenant: sovereignty, authority, law, sanctions, and inheritance.
Land and labor are two original factors of production. God created land on day one. He created everything else on days two through six. Man was created last. Man was given dominion over everything on earth that God had created. This general economic category of creation is called land. It was the highly structured but undeveloped inheritance that God transferred to Adam on day six. Mankind’s defining task is to administer this inheritance on behalf of God: the dominion covenant. Adam possessed knowledge and the ability to work. He used his knowledge to name the animals of the garden (Genesis 2:19–20). This took time. There was a sequence of production. If Adam did one thing, he could not do another at the same time. While he was naming one animal, he could not name another. He had to allocate his time. He was not given a wife until this preliminary task was completed. He had to do without. Doing without something valuable is evidence of original scarcity. Scarcity is inherent in the dominion covenant. It did not come in response to man’s rebellion. It is not a curse. The curse of the ground in Genesis 3 was a curse on a creation that already displayed scarcity.
Land and labor are not the primary factors of production. The primary factor of production is the grace of God. This is not what secular economics textbooks teach. This is why they are at bottom wrong, both analytically and morally. Secular economists do not begin with the doctrine of creation (point one): the source of raw materials. They do not consider the dominion covenant (point two): mankind as God’s steward. The grace of God includes biblical law and the laws of nature (point three). The historical sanctions (point four) that are attached to biblical law are manifestation of the grace of God. These sanctions are presented in Leviticus 26 and Deuteronomy 28. They are positive and negative. When positive, they multiply wealth through the generations. When negative, they cut short the inheritance or else transfer it to covenant keepers (point five).
The standard economics textbook speaks of three factors of production: land, labor, and capital. These generate income. Land generates rent. Labor generates wages. Capital generates interest. This three-fold classification is incorrect analytically. Capital is the product of land and labor over time. Capital is not an independent or original source of income.
Is time a factor of production? Yes. Men are responsible before God for their use of time. Time is a universal factor of production. Life is defined in terms of time. When your time runs out, you die. God’s gift of time ends. Everyone gets the same amount of it every day: 24 hours. Interest is not a payment for time in the way that rent is a payment for land, and wages are payments for labor. There are organized markets for land and labor. In contrast, life is not a marketable commodity. It is a non-marketable category of action. This means that interest is not a payment for time. Rather, it is a function of people’s time perspective. People discount the future value of hoped-for future income. Consider your situation. If you had a choice between a one-ounce gold coin delivered immediately or in one year, you would take delivery now. You might take delivery a year from now if you were offered benefits for waiting. These benefits are an interest payment for the other person’s temporal and temporary use of your coin. The other person will receive psychic income from the use of your coin for a year. He must pay you for this income. The price he pays is established through negotiation. Both you and the other person discount the value and price of future expected income. He wants the income now, and he is willing to pay for this. You also want the income now, but you are willing to delay at some price. You negotiate.
Economists classify raw materials as land. The Bible has many passages dealing with the value of minerals and agricultural output. “The name of the first [river] is the Pishon. It is the one that flowed around the whole land of Havilah, where there is gold. And the gold of that land is good; bdellium and onyx stone are there” (Genesis 2:11–12). The category of land is expressed in the Old Testament as milk and honey. It includes agricultural output.
Economists classify intellectual capacity as labor. So does the Old Testament. Adam’s first task was to name the animals of the garden. This was an intellectual task. He had to classify the animals and name them. This was a task involving analysis: identifying the animals’ various functions. Adam was a knowledge worker before he was a tiller of the soil. (The term “knowledge worker” was coined in 1957 by management specialist Peter Drucker, an American economist from Austria who was the most important theorist of corporate management in the second half of the twentieth century. In 1999, he wrote that “the most valuable asset of a 21st-century institution, whether business or non-business, will be its knowledge workers and their productivity.”)
God created the cosmos. It is under law.
And God said, “Let the earth sprout vegetation, plants yielding seed, and fruit trees bearing fruit in which is their seed, each according to its kind, on the earth.” And it was so. The earth brought forth vegetation, plants yielding seed according to their own kinds, and trees bearing fruit in which is their seed, each according to its kind. And God saw that it was good. And there was evening and there was morning, the third day (Genesis 1:11–13).
Adam possessed an understanding of the laws that govern nature. He had to; he was responsible before God to administer the creation (Genesis 1:26–28). This fact leads to a crucial conclusion regarding what man can know and how he can know it, which is the issue of epistemology. There is coherence between the laws of nature and the laws of the human mind. This fact impressed Eugene Wigner, the winner of the Nobel Prize in physics in 1963. He wrote this in 1960: “The miracle of the appropriateness of the language of mathematics for the formulation of the laws of physics is a wonderful gift which we neither understand nor deserve. We should be grateful for it and hope that it will remain valid in future research and that it will extend, for better or for worse, to our pleasure, even though perhaps also to our bafflement, to wide branches of learning.” This appeared in a professional journal: Communications in Pure and Applied Mathematics. The article’s title: “The Unreasonable Effectiveness of Mathematics in the Natural Sciences.” From a humanistic standpoint, this gift is unreasonable. From a biblical standpoint, it is an inescapable aspect of the dominion covenant.
In 1981, economist Julian Simon’s book appeared: The Ultimate Resource. He argued that human creativity is the ultimate resource, not minerals in the ground or land in general. This had been Leonard E. Read’s argument throughout his career, but especially in “I, Pencil.” This is a humanistic view of the matter. Read did attribute the overall market process to an undefined god, but Simon did not mention God or His providential sustaining of the world in terms of moral and physical laws. Simon, as with most economists, viewed the market process as autonomous. The Bible teaches that men are creative, but only subordinately. God is originally creative. Individuals are subordinately creative. This is stated in the most important passage in the Bible that deals with economic in particular and social theory in general.
Beware lest you say in your heart, ‘My power and the might of my hand have gotten me this wealth.’ You shall remember the Lord your God, for it is he who gives you power to get wealth, that he may confirm his covenant that he swore to your fathers, as it is this day. (Deuteronomy 8:17–18)
The visible blessings of God confirm the biblical covenant. The biblical covenant has external, visible sanctions attached to moral performance. If this is not true, then there cannot be a uniquely biblical economic theory or social theory. If this is not true, then I have wasted my life’s calling. This passage is the heart of the matter, methodologically speaking. This is the theological basis of what I have called methodological covenantalism. This is conceptually different from the rival views of secular economic theory, methodological individualism and methodological holism.
A buyer must allocate his money. The best way to understand this responsibility is to analyze it in terms of the five points of the covenant.
First, he has a purpose: to increase his wealth. In an advanced economy, this means that he wants to possess greater subjective wealth at the end of the production process than he began with. Purposeful action is the starting point of economic theory, beginning with God’s creation of the universe. Men are made in God’s image.
Second, the buyer receives money from God. This is the most marketable commodity. He has great flexibility in what he can purchase with this money. He is a steward and a trustee of God’s money. As a steward, he must devise a plan for administering this money.
Third, he does not have unlimited money. He faces monetary constraints. He therefore faces boundaries (point three of the biblical covenant). This fact is conveyed to him by an array of prices. Prices are set by competition: buyers vs. buyers and sellers vs. sellers.
Fourth, he must serve as an entrepreneur. He does not know the future perfectly. He is a creature. So, he imagines how much money future sellers will charge for their output.
Fifth, in structuring consumption, he must factor in the rate of interest. He must not equate the present value of money returned in the future with money owned in the present. He must apply a discount to future money. If he fails to do this, he will suffer a loss. Why? Because of this economic fact: the present value of money owned now is greater than the present value of hoped-for money in the future. This disparity is an aspect of responsibility before God. The owner is immediately responsible to God for whatever he owns. He must allocate it now. Assets in the future are problematical. It is risky to transfer ownership to another person. Personal responsibility for these assets cannot be avoided. Control over the asset is transferred, but final responsibility for its use is not transferred without a sale. This was the lesson of the steward who buried his master’s coin (Matthew 25:24–30). He feared to transfer the coin to a banker. This produced a loss for the master, who did not receive interest on the coin.
The fact that full responsibility of ownership cannot be transferred apart from the sale of the asset is why people fear a loss of money more than they desire a gain of the same amount of money. They focus on the loss. This is the message of the woman with ten coins who loses one. “Or what woman, having ten silver coins, if she loses one coin, does not light a lamp and sweep the house and seek diligently until she finds it? And when she has found it, she calls together her friends and neighbors, saying, ‘Rejoice with me, for I have found the coin that I had lost’ ” (Luke 15:8–10). A pair of psychologists, Amos Tversky and Daniel Kahneman, in the mid-1970's discovered this discrepancy between the fear of loss and the hope of gain. This seemingly obvious insight created an intellectual revolution within the guild of academic economists: behavioral economics.
There is continuity between presently owned assets’ present value in relation to the present value of the same assets in the future. This continuity is established by the rate of interest. This rate is established through competition in the market for loans: lenders vs. lenders; borrowers vs. borrowers.
The seller is the owner of a factor of production. He may sell, rent, or hold the asset. In the case of labor services, he may only rent out his labor. Modern law forbids slavery. Under the Mosaic law, he could sell himself into slavery (Deuteronomy 15:16–18). To understand the factor owner’s decision process, I apply the five points of the biblical covenant. Let us consider the seller of land or minerals extracted from the land.
First, he has a purpose: increased wealth. This presumably is more money. Second, he has a plan: exchanging ownership of the asset for money. He thereby transfers the responsibilities of ownership. Third, there is a pricing process operating: sellers vs. sellers, buyers vs. buyers. A market price reveals the available return from the sale of the asset. Fourth, he must be an entrepreneur. He must estimate how many sales he will generate. Then he must estimate costs of production, which are mainly for factors of production: land and labor. He then surveys the existing array of prices of these factors. He asks himself this: “Can I generate more money than I must spend in order to bring final output to market?” If other producers have not bid up factor prices, there is an opportunity for profit here. But there is also an opportunity for a loss. Rival producers expect customers to resist making purchases at the prices that the entrepreneur expects to prevail. They may be correct. He then makes a decision: to go forward with the production process. He must evaluate the value of money gained from the immediate sale of the asset vs. the income from the asset, if any, and the money generated by a sale later on. Fifth, he must discount the future value of the expected income generated from the asset. He must factor in the effects of time on his ownership.
If he decides not to sell, he retains all of the responsibilities of the ownership of this asset. The biblical view of human action is that the owner should pursue the kingdom of God (Matthew 6:33). He is supposed to increase the value of the assets that God has delegated to him. He is promised a high rate of return on this stewardship if he is successful, as the two productive stewards learned in Jesus’ parable of the talents (Matthew 25:14–23). Should he sell, rent, or hold? As a covenant-keeper, he must decide in terms of what is best for God.
Producers are guided by prices in their pursuit of gain. A producer of pencils must estimate future demand at specific prices for his pencils. He must estimate profits or losses.
He has an existing structure of production. He hopes to buy underpriced resources: land and labor. He also considers capital equipment, but capital is the product of land and labor over time. Why will there be underpriced resources? Because his competitors have not seen the opportunity for profit that he has seen. But he may be mistaken. Maybe he has overestimated the potential for profit. Maybe the factors of production are priced accurately. He will then not make a profit. Maybe the industry is overestimating the future return. Then the seller will make losses, as will most of his competitors.
Such forecasts are made by every producer of products that contribute to the production of a single pencil. No one can conceive of all of these decisions. No one knows how to make a pencil. But the competitive actions of decision-makers produce specific pencils offered for sale in specific locations at specific prices. You can buy a pencil at any time.
These are the original factors of production: (1) God’s grace, (2) His physical creation, (3) His law-order, both physical and moral, (4) His imputation of economic value, and (5) time. Man is the recipient of all of these. Covenant-keepers acknowledge this. Covenant-breakers do not.
People are to think God’s thoughts after Him, but as creatures. They are to impute economic value as He does. They are to increase the value of the assets entrusted to them by God. This is the economic meaning of this law: “But seek first the kingdom of God and his righteousness, and all these things will be added to you” (Matthew 6:33).
In a market society, competition establishes prices: sellers vs. sellers, buyers vs. buyers. These prices impose limits on every person’s budget. Each person must create a plan of action based on his hierarchy of economic values in relation to the prices facing him, and also in terms of the estimated time available to him to complete his plan. He must impute economic value in terms of God’s authoritative imputation. He must impute economic value on behalf of God as His legal agent as owner and economic agent as administrator. Then he must implement his plan. He must buy or sell. He must rent or lease. He must hire or fire. He must allocate the assets under his legal authority. God holds him responsible for this administration. He is guided by accounting profits or losses. These are success indicators. But they are not identical with success. “For what will it profit a man if he gains the whole world and forfeits his soul? Or what shall a man give in return for his soul?” (Matthew 16:26).
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