Updated: 1/13/20
Christian Economics: Teacher's Edition
Now when Simon saw that the Spirit was given through the laying on of the apostles' hands, he offered them money, saying, “Give me this power also, so that anyone on whom I lay my hands may receive the Holy Spirit.” But Peter said to him, “May your silver perish with you, because you thought you could obtain the gift of God with money! You have neither part nor lot in this matter, for your heart is not right before God. Repent, therefore, of this wickedness of yours, and pray to the Lord that, if possible, the intent of your heart may be forgiven you. For I see that you are in the gall of bitterness and in the bond of iniquity.” And Simon answered, “Pray for me to the Lord, that nothing of what you have said may come upon me” (Acts 8:18–24).
The Bible does not authorize occupational licensing of market-based professions or services. A man’s skills are his gift from God. He is responsible for serving God faithfully by serving customers faithfully. Any attempt by the state to interfere with a man’s offer to serve other people in exchange is a violation of God’s dominion covenant (Genesis 1:26–28). It interferes with both buyer and seller in their pursuit of their goals. They are responsible for their decisions regarding exchange.
In contrast, there are barriers to entry on covenantal institutions: church, family, and state. These institutions are established by public covenantal oaths before God. They are not market institutions. They are not governed by the market’s principle of high bid wins.
Simon the magician did not understand this distinction between a market occupation and a covenantal calling before God. He saw that the apostles had unique abilities. He wanted to be an apostle who had the power of miracles. He thought this was an office that was available to people who were willing to pay. He thought he could buy his way into a profitable profession: high bid wins. He was wrong.
There was a restriction on who could become an apostle: the laying on of hands (Acts 8:17–19). An apostle could baptize someone. This was a matter of covenantal authority. The office was bound by a public oath to God as the oath’s enforcer. This screening process had nothing to do with a competitive market. The office of king, priest, or prophet was not for sale. These offices were protected by barriers to entry: oaths. A king had to be anointed. An apostle had to experience the laying on of hands. A prophet was called by God. Married couples are permanently and exclusively joined in a public ceremony.
Laws that establish occupational licensing are attempts by politicians to create economic and legal barriers to entry into a profession. These barriers reward existing practitioners. These laws discriminate against sellers who are outside of the existing guild. Licensing is designed to reduce competition. Competition is the essence of economic liberty: the legal right to make an offer. The legal right to bid is the essence of an auction. This is also true of a free market. Sellers compete against sellers. Buyers compete against buyers. Out of this competition come prices and voluntary exchanges.
Existing sellers want to avoid competition from newcomers. They want exclusive access to the money offered by buyers. They want to prevent newcomers from offering better deals to buyers. Better deals will force down prices. Thus, sellers join together and offer donations to political candidates who will vote to create licensing boards run officially by the government, but which are advised by members of the profession. The guild’s members recommend that licensing boards establish regulations that favor the existing sellers. For example, they recommend mandatory examinations that are written by members of the guild. Existing sellers are not required to take the examinations that applicants into the profession are required by law to take. Members also pressure the boards to make the exams more rigorous every few years.
Applicants are often required to attend state-licensed schools before they are allowed to take qualifying exams. These schools are run by members of the profession. These are sometimes expensive schools. Medical schools are by far the most expensive. The instructors require applicants to pass exams before graduation. Only after graduation do the graduates have a legal right to take the state board-required exam. Screening is by money, by time spent in class, by a series of school examinations, and finally by a general examination.
These are barriers to entry. They are always justified by the existing businessmen as ways to protect consumers. Otherwise, members insist, shady, fly-by-night sellers will enter the market and defraud customers. These unlicensed sellers will provide substandard service. Politicians go along with this line of reasoning if the payoffs from existing businessmen are large enough.
The existing standards defend guild members from competitors who may possess far superior skills at a lower price. They may self-enforce higher standards. There is an old slogan: “If the performance standards of the ancient world had been enforced by law, there would be no steel axes today, but there would be flawless stone axes.” Existing standards fall further behind as society grows more competitive. This is why existing sellers want the government to legislate legal barriers to entry. Existing sellers will be able to keep up with technology at a slower pace. In the name of banishing substandard suppliers of services, they also banish above-standard suppliers. My point is this: these standards are imposed by legislation. They are not the product of market competition.
The medieval towns of Europe were run by businessmen. Successful businessmen sat in the seats of civil authority. They passed laws prohibiting entry into the local market. They required anyone who wanted to manufacture anything that was already made by someone in town to serve for years as a low-paid worker, followed by years spent as an apprentice. They prohibited sellers from outside the town from bringing in goods for sale. The only exceptions were during regional fairs, which were rare. This was the guild system. It created an inherited system of manufacturing and political control. It worked for centuries against consumers.
This system of closed access still operates in every nation. What was once confined to towns now spreads across nations. Large manufacturers and established professions are protected by literally thousands of laws that keep them safer from competition. Licensing closes off markets from offers by unlicensed sellers. Potential buyers are forced to buy from local sellers. Their choices are limited by law.
This system is being undermined by digital services. These can be sold from anywhere on earth. Prices are low because sellers live in nations with low living costs. They also do not have to jump through bureaucratic hoops set up by bureaucrats, who in turn are authorized by politicians. However, for face-to-face selling of services, there is still protection through licensing.
Licensing is an intervention into the market by the state. It works against consumers, who are not allowed by law to make decisions about which offers are best for them. Instead, those sellers who want to reduce competition are in charge, through licensing boards, of which kinds of offers are legitimate.
Licensing is a violation of the biblical principle of the rule of law. The rule of law is clear: “There shall be one law for the native and for the stranger who sojourns among you” (Exodus 12:49). This has to do with civil law. Civil law is not to discriminate against a stranger. Defenders of licensing argue that a licensing law really does apply equally. It discriminates equally against covenant-keepers who want to sell unlicensed goods and resident aliens who want to sell unlicensed goods. In other words, there is equality before an unequal law. This justification of licensing is universal today.
For defenders of licensing, it is not enough that a seller uses scales that are the same for buyers and sellers, as the Mosaic law required. They say that this is not what equality before the law means. Equality before the law means equality before a law that keeps buyers from coming to agreements with unlicensed sellers.
These laws undermine personal responsibility. Buyers are not allowed to make decisions in terms of their judgments regarding which offers are best for them. They are not allowed to bargain with unlicensed sellers. They are required to submit to the criteria established by local bureaucrats. These criteria are recommended by existing sellers.
In terms of my argument that the free market is a gigantic auction, the classic example of a licensing law in the United States is the licensing of auctioneers. Auctioneers want lots of buyers to attend their actions. Competition among buyers will be fierce. Bids will therefore be higher. But auctioneers do not want competition from other auctioneers. They have reduced the supply of auctioneers through licensing.
A buyer owns money. He is in a stronger position than sellers most of the time because he owns the most marketable commodity. Licensing laws restrict this authority. They make buyers’ money less marketable. They say this: “Your money is no longer universally marketable in markets that are controlled by state licensing. It is marketable within a narrow range of choices: licensed sellers, licensed goods, and licensed services.”
This is bad for buyers in general. These laws are always passed in the name of protecting ignorant buyers from wily sellers. But the most wily sellers of all are the ones who call for licensing in the name of protecting buyers. They are systematically restricting the buyers’ legal right to make bids with their money. They are feathering their nests at the expense of competing buyers and competing sellers who would otherwise have made a transaction.
Licensing reduces the supply of legal goods and services. It reduces the range of variation of both the quality and the prices of goods and services. This is the explicit aim of licensing laws. Bureaucrats insist that the narrower range of prices and quality is advantageous to most buyers. “Buyers must not be allowed to buy substandard goods at market prices. To do so would be opposed to their true interests, which are best understood by experts in the field. Market prices under open conditions get too low. They increase the sales of substandard goods.”
Technological progress gets ahead of regulators. It makes it more difficult for regulators to regulate. This is especially true of digital products and services, which get more efficient at rates of change never seen in history. By the time the regulators write new rules and standards, the goods are obsolete. So, governments’ attempts to license sellers of these goods fail. The services and software can be offered online. They can be downloaded from anywhere. National boundaries no longer restrict sales significantly. Licensing is limited by geographical jurisdiction. These geographical jurisdictions are not recognized by sellers who live outside them. Buyers regain their authority.
Buyers who are restricted by licensing are shielded from increased innovation and lower prices. This is detrimental to buyers’ interests. It is also restrictive on their responsibility. They are not allowed to take action in terms of their best estimates of what is good for them. They must buy from state-licensed sellers only. The supply is restricted. Therefore, prices are higher: same demand, reduced supply.
Existing sellers are licensed. They benefit from restricted markets. They reap higher incomes. Would-be sellers are not licensed. They are harmed by licensing laws. They receive no income from sales in these restricted markets.
Existing sellers can hire less expensive employees if years of employment in a licensed business are required for licensing. People who want to get licensed compete against each other for these jobs. In the United States, the most grievous example if this is internship in a hospital. An intern is a physician. He has passed all academic hurdles. He has one hurdle to go: a year working in a hospital as a low-paid intern. This arrangement was established early in the twentieth century. Existing physicians wanted to require all new physicians to attend medical school before being licensed. This would have reduced the number of young physicians eligible for jobs in hospitals. Hospital administrations therefore opposed this educational requirement. State governments compromised. They mandated internships as also required for licensing, thereby silencing the objections of hospitals, which then gained the services of low-paid physicians.
Businesses grow dependent on the state. Their high incomes are the result of state interference. They continue to donate money to political campaigns. They fear losing this legal protection.
Licensing leads to reduced economic mobility. Poor people are kept out of some professions. The children of rich people in the field receive advantages. They are sent to school by their parents.
Newcomers are robbed of their traditional competitive advantage: price competition. Some may decide to go into black markets to find buyers. This undermines respect for civil law by both buyers and sellers. People who cheat do not make reliable citizens. But state licensing increases cheating.
For expensive services, such as medical operations, people fly to foreign nations where prices of medical procedures are a fraction of prices in nations where highly restrictive medical licensing is common. The cost of air fares keeps falling. The number of surgeons in foreign nations keeps rising. The price discrepancies between nations keep increasing.
There are numerous regulations on pencils, but there is no licensing of pencil manufacturers. The ability of local governments to control the sale of pencils would be limited. It is easy to buy pencils through the mail. The public would not take seriously any suggestion that unlicensed pencil sellers pose a threat to the safely of buyers.
The pencil market has traditional barriers to entry. This is a mature market. There are few opportunities for savings through innovation. Pencil brands in each nation are familiar. Still, most buyers do not think that one brand of pencil is superior to another. Children do not ask for specific brands. We do not see television commercials for pencils. Price competition has been operating for centuries. New sellers rarely enter the market. They can gain no advantage. Profit margins are minimal.
There is no biblical justification for state licensing of professions or businesses. There are explicit biblical reasons against such licensing. It restricts customer choice. It restricts sellers’ services. Sellers are not allowed to pursue their occupations or their callings without getting through bureaucratic restrictions that exist primarily because existing sellers want less competition. The sellers persuade politicians to create barriers to entry. This keeps out newcomers who are ready to offer services to customers. This restricts choice. It keeps prices above what they would be under open competition.
The creation of licensing procedures expands the power of bureaucrats into the lives of entire populations. The state must tax the public in order to staff these agencies. The public is squeezed from two sides: reduced customer choice and higher prices in the marketplace, and also higher taxes in the realm of politics. This is done in the name of protecting the public from incompetent or unscrupulous sellers. The public is considered incompetent to judge the quality of services offered to them, yet the public is considered competent to vote in elections for politicians who possess coercive authority over them. Then the politicians pass laws that are enforced by armies of bureaucrats who cannot be fired. The public knows nothing about what these bureaucrats do or how they do it. The voters know nothing about their budgets. Yet this is imposed on them because they are considered incompetent to shop for services on their own authority.
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