Update: 1/13/20
Christian Economics: Teacher's Edition
A good man leaves an inheritance to his children’s children, but the sinner’s wealth is laid up for the righteous (Proverbs 13:22).
Point five of the biblical covenant is succession. It asks: “Does this outfit have a future?”
This verse is clear: a good man leaves an inheritance to his grandchildren. We are not told how a good man is supposed to accumulate capital in order to leave it to his grandchildren, but there is no question that this is a moral responsibility. We must therefore begin any discussion of capital with a moral premise: Christian economics is not value-free economics.
In an economy in which there is exclusive state ownership of capital, meaning the tools of production, there is no way that a man can accumulate capital to leave to his grandchildren. He cannot legally own capital. He surely cannot bequeath what he does not own. This verse is therefore a powerful denial of all forms of socialism. This is not apparent on the initial reading, but the conclusion is inescapable. There is no possibility under socialism of an inter-generational transfer of wealth within a family. Capital is not owned by families. It is owned by the state. Therefore, a good man cannot fulfill his responsibilities to God and to his heirs under socialism. This leads to an inescapable theological conclusion. Socialism is inherently immoral.
The focus of this verse is inheritable wealth. Wealth can come in many forms. It can be in the form of consumer goods. They can be sold for money. They can also free up money for investing, since the heir will not have to spend money to buy something equivalent. In most cases, however, inheritable wealth is in the form of either money or readily marketable assets.
This verse deals with family wealth. The section of Deuteronomy 28 that deals with positive national sanctions includes capital in the form of lending, i.e., money.
The Lord will open to you his good treasury, the heavens, to give the rain to your land in its season and to bless all the work of your hands. And you shall lend to many nations, but you shall not borrow. And the Lord will make you the head and not the tail, and you shall only go up and not down, if you obey the commandments of the Lord your God, which I command you today, being careful to do them (vv. 12–13).
This indicates that capital owned by individuals, families, and businesses can be used to lend abroad. This is international capital. By accumulating capital, individuals and organizations can extend the kingdom of God. This is done through lending. These are covenantal promises. They had to do with Israel as a holy nation. There is no biblical reason to assume that these promises ended with the replacement of the Mosaic covenant with Christ’s covenant. It takes capital to extend any kingdom.
To accumulate capital, people must be future-oriented. They forego the benefits of present consumption in order to accumulate capital. This capital can be used for consumption in the future. It can be given away. It can be used to fund projects that require money either to get started or to expand operations. It takes either money or tools of production to implement entrepreneurial ideas regarding future consumer demand. Without capital, there will be no innovation. These are the only sources of capital for businesses: (1) savings of the person starting the business, (2) savings of others who receive either shares of ownership or promises to pay, (3) an advance of money by consumers. The best example of case number three is a subscriber who sends money for a subscription. This is a loan that will be paid off by fulfilling the subscription.
Capital in the form of money allows a business to increase production. This is accomplished through the purchase of capital goods, labor services, and raw materials. This increases the division of labor, which in turn increases output. Increased output of goods that are purchased by customers increases per capita wealth. This is why individual investing for the sake of personal gain benefits the overall economy. It is the same as people bringing more goods to sell at an auction. The people bidding money to buy things are benefitted: a greater number of choices.
Jesus used agricultural parables to describe the kingdom of God. Here is one. It appears in the most important section of the parables of the kingdom.
That same day Jesus went out of the house and sat beside the sea. And great crowds gathered about him, so that he got into a boat and sat down. And the whole crowd stood on the beach. And he told them many things in parables, saying: “A sower went out to sow. And as he sowed, some seeds fell along the path, and the birds came and devoured them. Other seeds fell on rocky ground, where they did not have much soil, and immediately they sprang up, since they had no depth of soil, but when the sun rose they were scorched. And since they had no root, they withered away. Other seeds fell among thorns, and the thorns grew up and choked them. Other seeds fell on good soil and produced grain, some a hundredfold, some sixty, some thirty. He who has ears, let him hear” (Matthew 13:1–9).
The sower sacrifices present consumption for future income. There is great uncertainty about his investment of seeds. The soils are very different in their productivity, but the sower does not know which ones are truly productive. There can be no expansion without sowing. There must be an investment of capital and time. There is hope of a huge return, but there is no guarantee.
It is the dream of covenant breakers to have easy returns.
The dogs have a mighty appetite; they never have enough. But they are shepherds who have no understanding; they have all turned to their own way, each to his own gain, one and all. “Come,” they say, “let me get wine; let us fill ourselves with strong drink; and tomorrow will be like this day, great beyond measure” (Isaiah 56:11–12).
This dream is futile, Isaiah warned. The biblical basis of getting rich is righteous behavior, hard work, wise investing, reinvested profits, and limited consumption. Extensive alcohol consumption is not the biblical pathway to wealth.
The pursuit of wealth for wealth’s sake is also futile, Jesus taught.
And he told them a parable, saying, “The land of a rich man produced plentifully, and he thought to himself, ‘What shall I do, for I have nowhere to store my crops?’ And he said, ‘I will do this: I will tear down my barns and build larger ones, and there I will store all my grain and my goods. And I will say to my soul, “Soul, you have ample goods laid up for many years; relax, eat, drink, be merry.”’ But God said to him, ‘Fool! This night your soul is required of you, and the things you have prepared, whose will they be?’ So is the one who lays up treasure for himself and is not rich toward God” (Luke 12:16–21).
The man in this parable owned enormous capital reserves. He owned grain and barns. He expected to harvest even more grain. He thought he needed more barns. But he ran out of time unexpectedly. He did not understand this: men cannot serve both God and mammon (Luke 16:13). But this is not an argument against planting grain and building barns. Jesus did not criticize his planting and harvesting. He did not criticize the free market in grains, or the hope of profits, or increased output per unit of resource input, i.e., reduced waste. He criticized only the entrepreneur’s attitude of autonomy: “Soul, you have ample goods laid up for many years; relax, eat, drink, be merry.” Moses had warned the generation of the conquest about this attitude.
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).
Increased output increases buyers’ wealth: a wide range of choices. It helps to reduce poverty. Labor productivity rises because capital makes available better tools of production. Masses of people can attain greater comfort. But there are no free lunches in life. These benefits must be paid for. Someone must put up the money that will enable businesses to increase output. Someone must forego present consumption for the hope of greater wealth in the future. The free market makes this possible. No institutional arrangement has been more successful in reducing poverty. Why should anyone criticize it as immoral? On what basis? Surely not in terms of its economic result: compound economic growth after 1800.
A buyer has money. He can buy anything offered for sale. He can buy consumer goods and services. He can buy capital goods. He can lend money to entrepreneurs who will buy capital goods. He can give money away. These are capital-allocation decisions. Someone must make them. In the free market social order, the person who makes these decisions is the owner of money. Personal responsibility is legally attached to ownership. This is true of the Bible’s legal code. It is also generally true in every free market order.
The buyer must decide: consume now or invest. If he invests, he foregoes present consumption. This reduces demand for the goods he would otherwise buy and consume. This benefits businessmen who will take his money and hire workers, buy raw materials, rent space, and rent or purchase capital equipment. Prices do not rise because of the money spent by the business. Why not? Because the investor has foregone consumption.
The investor acts to improve his future economic condition. He is self-interested. Yet his self-interest makes possible added production. The customers of the business that uses his money to increase production are beneficiaries of this voluntary arrangement. No one is coerced. Everyone believes that each exchange that he is involved in will make him better off. This may not always be the case. People make mistakes. Some transactions will produce losses. But the liberty to make mistakes is basic to liberty. The biblical legal order connects ownership and responsibility. He who owns money and invests it wisely, thereby benefitting customers, deserves the benefits of this decision.
So, a man can use his money to become a consumer, or he can become an investor. If he does the latter, he moves from being a present consumer to being a future consumer. He aids the seller to do his work more profitably. He will share in the benefits if he becomes a co-owner, and the venture is profitable.
The buyer foregoes being a buyer of consumer goods in order to become a co-owner of production goods if he invests as a shareholder. He can also choose to lend the money at a fixed rate of interest. The point is this: the buyer decides not to be a final consumer for a period of time.
If he wants to increase the inheritance he leaves to his grandchildren, he must forego present consumption. He may not invest wisely, but without investing, he cannot attain the goal specified as mandatory by the author of Proverbs. It is a righteous goal. For a time, he must help fund the business community by providing money for capital creation.
What does the seller sell? He wants to sell to a customer. He wants money in exchange for specialized output. He wants to buy low and sell high.
In order to do this, he must become a buyer. He must buy raw materials, labor services, work space, tools of production, and above all, accurate information. Without these valuable assets, he will not be able to enter future retail markets with something to sell.
In order to become an investor, a buyer must temporarily defer consumption. He must hand over money to sellers for a time. In contrast, sellers, in order to become future consumers, must first become buyers of factors of production.
The producer of future goods and services must become future-oriented. He understands that future returns must offer hope that the return on investment will be positive. Present goods are safer than future goods. In order to persuade investors to turn over their money to producers, the producers must offer larger future returns. The man with money will apply a discount to future returns. They are not worth as much as guaranteed wealth today. Future goods sell at a discount to identical present goods.
The entrepreneur thinks that certain resources are underpriced. He buys them. This benefits resource sellers who would not otherwise have made a sale at that price. If the entrepreneur is correct about future prices and demand, he will make a profit when he sells. Then he will return and buy more goods and services from resource sellers. Other entrepreneurs will imitate him. Thus, increasingly accurate information spreads through the society about the true conditions of supply and demand. Resources will be priced more accurately. Accurate information is not a free resource. Someone has to pay for it.
Accurate information is decentralized and individual. The biblical system of private property makes it possible for sellers to buy the information they need in order to become and remain profitable. They build up capital by reinvesting their profits. This is positive for society. Those sellers who are most effective in meeting customer demand accumulate more capital. Wise investors are rewarded. This makes capital more productive.
But what happens when a wise investor dies? He passes the fruits of his wisdom to his heirs. This capitalizes them. They may be unwise owners. Solomon warned about this. “I hated all my toil in which I toil under the sun, seeing that I must leave it to the man who will come after me, and who knows whether he will be wise or a fool? Yet he will be master of all for which I toiled and used my wisdom under the sun. This also is vanity” (Ecclesiastes 2:18–19). This is an incentive for successful men to train their children. But grandchildren are two generations removed. He has limited influence in their lives. He has few opportunities to teach them economic wisdom. So, great fortunes get dissipated. This pattern is familiar: rags to riches to rags in three generations.
Pencil makers have devoted years to studying the manufacture of pencils and their marketing. The capital is in the buildings and equipment that produce pencils. Another form of capital is information. This may be the most valuable capital of all.
The industry does not change much, decade to decade. A pencil sold today looks like a pencil sold half a century ago. It has the same features. It operates the same way. A pencil is sharpened in a classroom on a pencil sharpener that is ancient. Students sharpen pencils the same way that their grandparents did.
The value of the information has not changed over the years. It still keeps out competitors, but competitors are not lured into the market by high profits enjoyed by existing sellers. There is an inheritance of ownership from generation to generation, but profits are conventional.
No one is exploited. Everything is voluntary. Techniques are handed down from generation to generation: techniques for using pencils, and techniques for manufacturing and marketing them. There is continuity in this market. Few industries have greater continuity.
The morality of inheritance was proclaimed by Solomon over three millennia ago. The Bible’s legal enforcement of private property was part of the inheritance of Mosaic Israel. This system of ownership was the inheritance of Israel. But the most valuable capital asset in Mosaic Israel was knowledge of biblical law.
You shall therefore lay up these words of mine in your heart and in your soul, and you shall bind them as a sign on your hand, and they shall be as frontlets between your eyes. You shall teach them to your children, talking of them when you are sitting in your house, and when you are walking by the way, and when you lie down, and when you rise. You shall write them on the doorposts of your house and on your gates, that your days and the days of your children may be multiplied in the land that the Lord swore to your fathers to give them, as long as the heavens are above the earth (Deuteronomy 11:18–21).
There would be an increase in biblical wisdom in Israel, generation by generation, as the sons became more skilled in interpreting and applying the Mosaic law to their circumstances. They would then teach their sons. This would result in economic growth and prosperity (Deuteronomy 28:1–14). But there had to be continuity. There had to be a systematic effort of the people to teach their children the rules of success: biblical laws. This inheritance could be dissipated by covenant breaking by a single generation. This was the story of Israel under the Mosaic covenant, which led to captivity under Assyria and Babylon. They lost their judicial independence. It was never restored after the return from captivity.
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