Updated: 1/13/20
Christian Economics: Teacher's Edition
When Joseph's brothers saw that their father was dead, they said, “It may be that Joseph will hate us and pay us back for all the evil that we did to him.” So they sent a message to Joseph, saying, “Your father gave this command before he died: ‘Say to Joseph, “Please forgive the transgression of your brothers and their sin, because they did evil to you.”’ And now, please forgive the transgression of the servants of the God of your father.” Joseph wept when they spoke to him. His brothers also came and fell down before him and said, “Behold, we are your servants.” But Joseph said to them, “Do not fear, for am I in the place of God? As for you, you meant evil against me, but God meant it for good, to bring it about that many people should be kept alive, as they are today. So do not fear; I will provide for you and your little ones.” Thus he comforted them and spoke kindly to them (Genesis 50:15–21).
Point two of the biblical covenant is hierarchical authority. It has to do with God’s delegation of limited sovereignty to man: the dominion covenant.
There is no clearer passage in the Bible than this one regarding the inescapable coherence of individuals’ plans and God’s overarching plan. The multiple plans of individuals throughout history are made in the context of a single plan for the ages.
Few people believe this. Few Christians believe it. But the Bible teaches it.
There are similar passages in the Bible regarding individual plans. This is well known: “The heart of man plans his way, but the Lord establishes his steps” (Proverbs 16:9). So is this: “The king’s heart is a stream of water in the hand of the LORD; he turns it wherever he will” (Proverbs 21:1). And this: “For we are his workmanship, created in Christ Jesus for good works, which God prepared beforehand, that we should walk in them” (Ephesians 2:10). But the passage in Genesis 50 is by far the clearest on the integration of the multitudinous plans of the many and the exhaustive plan of the One. There is an overarching unity governing all diversity. God’s macro planning is consistent with men’s micro planning. God’s macro plan gives meaning to men’s micro plans.
People raise this objection. If God’s plan is sovereign, then why does He condemn evil? It is an ancient argument. Paul was well aware of it.
What shall we say then? Is there injustice on God's part? By no means! For he says to Moses, “I will have mercy on whom I have mercy, and I will have compassion on whom I have compassion.” So then it depends not on human will or exertion, but on God, who has mercy. For the Scripture says to Pharaoh, “For this very purpose I have raised you up, that I might show my power in you, and that my name might be proclaimed in all the earth.” So then he has mercy on whomever he wills, and he hardens whomever he wills (Romans 9:14–18).
This argument makes it clear that God’s sovereignty is fundamental. God has a plan. He has made a decree. There is coherence to His plan.
This is the biblical solution to the problem of coherence between individual profitability and social benefits. Why is this a problem? It has two aspects. First, if we begin with the principle of methodological individualism, which free market economists do, then there is no scientific way to relate the success or failure of the collective with the success or failure of individuals, as judged by the individuals in question. There is no way to prove that microeconomic success produces increased macroeconomic success. Why not? Because, according to subjectivist economic theory, it is scientifically impossible to make interpersonal comparisons of subjective utility. There is no common, objective scale of economic value. This is the inescapable intellectual problem associated with all forms of what is called nominalism, which teaches that the meaning of the world is imputed by individuals. There can be no collective meaning for the nominalist.
When an economist recommends any policy to the government, if he is honest, he will say this: “There is no scientifically based advice that I can supply for the benefits of my recommendation. The best that I can do is to tell you what would be good for me, given my scale of economic value.” This is not what the government planners are paying him to provide. But this is all that he can legitimately provide, given the premises of methodological individualism. There can be no proof of common social benefits in the world of methodological individualism. There can only be individual assessments, which never agree. How, then, can politicians and bureaucrats discover or invent positive public policy? There is no answer from consistent individualists.
Second, a socialist planner, perhaps in North Korea or Cuba, might present this case. “Central planning can solve this problem. The Communist Party appoints economic experts. They decide what is best for the masses. They decide what to produce: quantity and quality. They control capital that is collected from taxes and borrowing. They allocate capital. They decide which classes shall receive what quantity of consumer goods. They tell managers what to produce.” To which a critic replies: “How can they know what is best for everyone? How can they collect economic resources without threatening coercion? How do they know what the most efficient uses are for all forms of capital? How do they know what to pay each worker? How do they know what the price should be for each capital asset, each consumer good, each consumer service?”
There was a well-known saying in the Soviet Union regarding how workers performed on the job. “They pretend to pay us, and we pretend to work.” The failure of central planning led to the economic crisis of the USSR in the late 1980s. Mikhail Gorbachev oversaw this collapse. His reforms triggered it. On December 25, 1991, he announced the end of the USSR. The Communist Party had already been overthrown in August. This was a peaceful end for the largest contiguous military empire in modern times.
There is no logical way for a methodological individualist to prove that what is economically satisfactory to any individual is beneficial for everyone. There is also no logical way for a methodological collectivist to prove that the outcome of central planning is good for all of the individuals or even a majority. In short, there is no logical way to resolve the conflict between the one and the many, the aggregate economy and the individual participants. This problem faces all philosophies and all economic theories.
The central planner necessarily plays the role of God. He assumes that the total economic value that he imputes to the proposed outcome of his central plan is what the masses would also conclude if there were some way to get inside their heads and measure each of their subjectively imputed values for everything they buy or sell. Yet no planner has ever used this language. That is because every planner knew that such a line of reasoning would be ridiculed by anyone who heard it or read it.
No human being is omniscient. God is. No human being is omnipotent. God is. No human being possesses absolute sovereignty. God does.
How does God reconcile the problems of the one and the many? By delegating temporary and limited ownership to individuals and organizations. He has announced a series of rules regarding private ownership. He holds every owner responsible for what he does with this capital. This combination of private property, ethics-based laws of ownership, and divine sanctions in history and eternity has led to the free market economy.
The free market social order is the outcome of a moral order established by God. It is not autonomous. It is not self-sustaining. It is non-coercive. It allocates scarce economic resources by means of this principle: high bid wins. It was not designed by men. It was designed by God and developed by men as they worked out the moral, legal, and institutional implications of private ownership, legal responsibility, the rule of law, profit and loss, and capital formation.
In 1920, Ludwig von Mises wrote a long article, “Economic Calculation in the Socialist Commonwealth.” He expanded this article in a long book, Socialism, in 1922. He argued that without private property, there is no way to estimate the value of resources. Without competitive markets, there can be no prices. Without prices, especially of capital goods, there can be no rational allocation of goods in terms of consumer demand. Therefore, he said, central economic planning is inherently irrational. Seven decades later, the Soviet Union’s economy collapsed. In 1979, the Premier of Communist China, Deng Xiaoping, had concluded that it was no longer possible to sustain the economy through central planning. He restored planning authority to private farmers. The economy began to grow the next year. This launched the most rapid economic development of any large nation in history.
The solution to the problem of poverty is the auction process. No other economic arrangement has solved the problem of poverty. There is nothing immoral about removing poverty. There is nothing immoral about the institutional arrangement that alone has reduced poverty for the masses. It is based on this moral and legal principle: private property, which includes the legal right to sell property. The guiding rule of the market is this: high bid wins.
Money is the most marketable commodity. It conveys great responsibility, since the range of choices is so wide.
The person who owns money must focus his attention on what he needs and wants as a consumer. He must also decide between present consumption and future consumption. These are allocation decisions. These decisions require planning if they are to maximize the person’s rate of return. The planning is highly specific: what one person wants to gain from whatever he possesses. This requires specialization. He is the best-informed person regarding what he possesses and wants to achieve. He is also the most responsible person. This responsibility matches the amount of money he possesses. The sanctions are highly personal. If he makes a mistake in his spending plans, he will suffer. If he is successful, he will benefit. So, with respect to both responsibility and motivation, the owner has an advantage over all others with respect to the available information as well as the accuracy of this information. The free market is the most efficient arrangement for maximizing the return from accurate information, which is highly decentralized. The owner of specialized information is in the best position of profiting from it. The market provides incentives for individuals to put this information to productive use for others, as paid for by others. This takes individual planning.
He is a kingdom agent. He serves either the kingdom of God or the kingdom of man. As a covenantal agent, he is inescapably a servant. There is no escape from covenantal hierarchy. He is God’s representative. The mark of this is the requirement of the tithe. Individuals and families are required by God to pay this to their local church. Paying the tithe is a mark of subordination (Hebrews 7:7–10).
Because money is the most marketable commodity, it provides the greatest safety from error. A person with money can afford to buy his way out of unexpected problems. This means that keeping money in reserve is a form of insurance. If he makes a mistake due to insufficient information or bad judgment, he can recover more easily if he has money in reserve. Money is therefore a tool for making specialized plans. The inherent risk of specialization is this: a lack of knowledge about the broader economy, i.e., the macroeconomic picture. Money offsets the liabilities of specialized information.
The morality of the free market rests on the legitimacy of private property and the moral requirement of the rule of law by civil government. Ownership is tied to personal responsibility. Any attempt by economists to justify the morality of the market without also justifying the morality of private property is the equivalent of the blind leading the blind into the ditch. The market is not value-free. Neither is economic logic.
The seller is an economic agent of future customers. He must make plans in terms of what he expects future customers to pay him to supply highly specific products. He also must plan responses to rival sellers. He does not want to face unexpected challenges. His plan helps him avoid these unexpected events.
The responsibilities of ownership are four-way: upward toward God, outward toward buyers, downward toward those under authority, and inward. The asset owner is required by God to factor in these competing responsibilities. This is a complex task. It mandates the imputation of value. Then the individual must decide in terms of his hierarchy of economic values. He uses his resources to satisfy his highest-ranked values first. If he has money remaining, he goes to his next highest value.
Because he cannot see the future clearly, he must deal with uncertainty. If his plan is successful, he will not be caught unprepared by events. He will not have to use money to buy his way out of problems. His plan is a means of reducing future losses. It is also a means of gaining above-average returns on his investments of money and time.
As a seller, he reaps his reward by accurate forecasting, coupled with an efficient, money-saving plan of action. It is not good enough to forecast the future accurately. He must also take steps that are consistent with his forecast. Profitable planning is both theoretical and practical. The reason why he can reap an above-average rate of return is his ability to understand a specific market. He competes against a relatively small number of producers. This is not like investing in the stock exchange, which is open to everyone with money anywhere on earth. A seller operates in a niche market. His tool of profit is his plan of action. The more specialized his plan, the greater the opportunity for both profit and loss.
Profit and loss are matters of monetary accounting. Customers who buy or refuse to buy impose these sanctions. Point two of the covenant, hierarchy, is always related closely to point four: sanctions. In business, entrepreneurship is a matter of future-orientation and planning, which are aspects of point two. But is is also a matter of profit and loss: point four.
A seller seeks to reduce his costs of production. This will enable him to gain greater profits. But competition will eventually force him to lower prices if he is to retain customers. This reduction in costs makes available production goods for other producers. More people are benefitted. This is a moral service to individual consumers and also society as a whole. It is an important aspect of stewardship.
A seller must reinvest in order to remain in the auction. He must find ways to deliver valuable products and services to consumers. This is an aspect of service. He must estimate what customers will want to buy in the future, and at what price. This is a speculative aspect of planning. He must plan on their behalf as their economic agent. If he guesses incorrectly, he will suffer losses. The customers are not badly hurt by his mistake. They can buy from other sellers. But he is badly hurt. The threat of losses and the lure of profits force owners of resources to be careful in their allocation. They must not waste resources. There is nothing immoral about this pressure.
The seller must not use force to gain sales. If he does, he is subject to negative civil sanctions. He must not cheat by lying. These moral restraints are imposed by civil law and also by market competition.
You shall not have in your bag two kinds of weights, a large and a small. You shall not have in your house two kinds of measures, a large and a small. A full and fair weight you shall have, a full and fair measure you shall have, that your days may be long in the land that the Lord your God is giving you. For all who do such things, all who act dishonestly, are an abomination to the Lord your God (Deuteronomy 25:13–16).
The market is not autonomous. It is under law. Theft and fraud are illegal. When governed by covenant law and its specified negative sanctions, the market is a moral institution.
It takes innumerable plans to produce all of the components of a pencil. It takes coordination of these plans. It takes vastly more plans to produce the capital equipment necessary to produce a pencil. There is no possibility that any individual or planning board could produce a pencil, let alone an automobile. This is because no planner is omniscient. There must be planning. There must also be a way to coordinate these plans. The pricing system is the auction process’s means of coordinating production.
The goal of individual profit produces the wealth of nations. That was Adam Smith’s argument in 1776. If there were no auction process, there could be no prices. That was Mises’ argument in 1920. If there were no prices, there could be no pencils. The critics of the market process have a moral obligation to show that a system that makes billions of inexpensive pencils available all over the world is inherently immoral. This is a difficult task.
On what moral basis do critics of the market process criticize the outcome of this process in delivering goods and services to consumers? The critics say that this process leads to economic inequality. But every system of economics does this. There are always winners and losers in every field, including the market process. Critics want the state to substitute other criteria for consumer demand. On what moral basis do they make their claim?
Christian economics provides an answer to critics of the market process who argue that, while the market’s system of profits and loss does provide enormous productivity, the private property system is not legitimate. The state’s planners must substitute other moral criteria for this system of private ownership. Critics of the free market argue that the plans of self-interested individuals to serve customers efficiently and therefore profitably are not moral, nor are the outcomes. Some of these critics say that the Bible teaches that reliance on private ownership is opposed to God’s law. But they offer no exegesis of biblical law to prove their case. This is because the Bible does not teach the social gospel, i.e., wealth redistribution by politics.
There is a biblical moral foundation for private property. The market process is the institutional result. There is moral coherence of the plans of the many (property owners) and the one (society). The result of this moral coherence is increasing per capita wealth.
When covenant-keepers understand the origin of the market society as the outcome of God’s sovereign plan and men’s progressive adherence to God’s laws of property, they should have great confidence in the legitimacy of the market’s auction process. They should also resist calls by welfare state advocates to redistribute wealth by the state’s power.
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