Chapter 48: State
Updated: 1/13/20
Christian Economics: Teacher's Edition
Let every person be subject to the governing authorities. For there is no authority except from God, and those that exist have been instituted by God. Therefore whoever resists the authorities resists what God has appointed, and those who resist will incur judgment. For rulers are not a terror to good conduct, but to bad. Would you have no fear of the one who is in authority? Then do what is good, and you will receive his approval, for he is God's servant for your good. But if you do wrong, be afraid, for he does not bear the sword in vain. For he is the servant of God, an avenger who carries out God's wrath on the wrongdoer. Therefore one must be in subjection, not only to avoid God's wrath but also for the sake of conscience. For because of this you also pay taxes, for the authorities are ministers of God, attending to this very thing. Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed (Romans 13:1–7).
The Apostle Paul made it clear that civil government is covenantal, not contractual. It is appointed by God. It is not optional. It is as universal as the family. There is no society that does not have at least one civil government. This passage categorically refutes any theory of Christian anarchism.
The text speaks of authorities in the plural. This is important. The state is not the only lawful authority. Families possess authority. So does the institutional church. Furthermore, a unitary state is not biblical. It lodges excessive power in the hands of an elite core of rulers at the top. There must be a hierarchy of rulers: point two of the biblical covenant. Lower magistrates possess lawful authority. It is possible for a central government to become a threat to justice. Lower magistrates must then challenge an unjust central government. A tax revolt is not biblical if conducted by private citizens. The text is clear: pay the taxes owed. Jesus was clear on this:
Then the Pharisees went and plotted how to entangle him in his words. And they sent their disciples to him, along with the Herodians, saying, “Teacher, we know that you are true and teach the way of God truthfully, and you do not care about anyone's opinion, for you are not swayed by appearances. Tell us, then, what you think. Is it lawful to pay taxes to Caesar, or not?” But Jesus, aware of their malice, said, “Why put me to the test, you hypocrites? Show me the coin for the tax.” And they brought him a denarius. And Jesus said to them, “Whose likeness and inscription is this?” They said, “Caesar's.” Then he said to them, “Therefore render to Caesar the things that are Caesar's, and to God the things that are God's.” When they heard it, they marveled. And they left him and went away (Matthew 26:15–22).The state provides peace. It provides personal safety. It facilitates trade. These activities make men richer. They make men safer in their ownership of property. These benefits must be paid for. Taxation is legitimate. Jesus refused to call on people to refuse to pay taxes.
When they came to Capernaum, the collectors of the two-drachma tax went up to Peter and said, “Does your teacher not pay the tax?” He said, “Yes.” And when he came into the house, Jesus spoke to him first, saying, “What do you think, Simon? From whom do kings of the earth take toll or tax? From their sons or from others?” And when he said, “From others,” Jesus said to him, “Then the sons are free. However, not to give offense to them, go to the sea and cast a hook and take the first fish that comes up, and when you open its mouth you will find a shekel. Take that and give it to them for me and for yourself” (Matthew 17:24–27).
I once gave a lecture on taxation. A tax rebel was in the audience. When I cited this passage, he answered that the disciples did not pay the tax. The fish did. His commitment to the tax revolt had clouded his ability to think clearly. The disciples owned both the fish and the coin. If you possess something as the owner, you have responsibilities that are part of the bundle of rights that you own. They paid the tax.
The state is not the outcome of independent sovereign citizens getting together to create a workable arrangement on their own authority. They are under God judicially. He is the source of civil government.
A civil government in one culture will be different from civil government in another. But all forms of civil government have this in common: there is a final earthly court of appeal. There is an agency that decides when enough evidence has been presented by contending parties, and it is time to hand down a verdict that is beyond normal appeal. There can always be an appeal to God, who may intervene. There can be an appeal to revolutionary action. There can be an appeal to another civil government to invade, thereby overturning the decision. Perhaps there can be a constitutional convention to overturn the law that led to someone’s conviction. But in most instances of a supreme court, the decision is final. The state imposes sanctions involving violence or the threat of violence. This is a mark of judicial sovereignty. The state possesses judicial sovereignty.
The crucial economic fact is this: the state possesses a monopoly of violence. There are no competing courts. There is no possibility for a rival court of appeals to intervene and unilaterally and autonomously reach a different conclusion. There is therefore no auction. The decision of the court is not supposed to be the outcome of the free market’s auction principle: high bid wins. In fact, any attempt to substitute the principle of high bid wins is a mark of corruption. It is a criminal offense in a just society.
The state is an inescapable concept. It is never a question of state vs. no state. It is always a question of which state. There is no such thing as a stateless society. I choose to explain this in terms of economics. Specifically, I invoke what Adam Smith invoked in 1776 in The Wealth of Nations: the division of labor. In the division of labor, some men specialize in violence. Others became masters of fraud. As they specialize, they increase their market share. They get a reputation for being skilled users of violence. They attract subordinates who are also good at violence, but who are willing to follow orders issued by someone more powerful at least for the moment. The skilled specialist puts together a gang. The gang operates in terms of violence. It does not respect property rights.
Next, there is competition among gangs. Some of them prove to be highly skilled. Their market share increases. Their territory also increases. They are able to apply their skills to more victims. Over time, warlords rise to the top of the gang alliances. Or perhaps there is a consortium of criminal syndicates. The point is this: the specialization of production is not limited to family and the free market. Other types of organizations can gain advantages based on economies of scale.
Over time, the victims threaten to revolt. It becomes more difficult for warlords to gain self-government and compliance from their victims. Warlords are forced to make adjustments. They allow greater predictability in their imposition of violence. So, there is at least a conceptual progression:from bully to gang, from gang to warlord, and from warlord to state. This hypothetical history makes more logical sense and more historical sense than the familiar story of a meeting of autonomous men to create a civil government by mutual consent and verbal contract—a meeting that somehow left no historical traces. This is the theory of the social contract, first proposed anonymously by John Locke in 1690, but more famously expounded by Jean-Jacques Rousseau in 1762 in The Social Contract. Far more accurate was Rousseau’s comment in his Discourse on the Origin of Inequality (1754): “Let us begin then by laying facts aside, as they do not affect the question. The investigations we may enter into, in treating this subject, must not be considered as historical truths, but only as mere conditional and hypothetical reasonings, rather calculated to explain the nature of things, than to ascertain their actual origin; just like the hypotheses which our physicists daily form respecting the formation of the world.” I think my hypothetical history of the origin of the state better fits the facts of human motivation and the specialization of labor. I could easily have substituted a similar theory: from a local family to extended families, from extended family to clan, from clan to tribe, from tribe to territorial state. This progression has to do with substituting impersonal political power for blood relationships, and also establishing a geographical monopoly of violence under law. At no stage was anyone or any institution autonomous.
God has established the state as the primary agency of justice (Exodus 18; Romans 13:1–7). The state’s system of courts is analogous to God’s court at the final judgment. The state declares justice, and it imposes negative sanctions. There will be a final assessment of guilt and innocence (Matthew 25:31–46). The state offers this preliminary judgment in history. It is the initial court of God’s justice. God’s court is the supreme court. Here is the judicial model. “The end of the matter; all has been heard. Fear God and keep his commandments, for this is the whole duty of man. For God will bring every deed into judgment, with every secret thing, whether good or evil” (Ecclesiastes 12:13–14). Here is the preliminary judicial manifestation in history: “And all Israel shall hear and fear and never again do any such wickedness as this among you” (Deuteronomy 13:11). When the sanctions match the infraction, when the punishment fits the crime, there will be greater self-government. Why? Fear. This will reduce the necessity of expanding the state.
The state does not extend into eternity. The state deals with certain kinds of public infractions: violations of law. The state’s purpose is to reduce the amount of evil-doing by imposing costs on evil-doing. Economic analysis informs us that when there is an increase in cost, there will be reduced demand.
Biblically speaking, civil magistrates are God’s ministers of justice. They are held accountable by God. But in the state’s division of labor, they are supposed to listen to the people. Taxpayers and citizens bear the financial costs of the state. Their cooperation is likely to be greater when the magistrates consider their opinions. There will be greater self-government if the people agree with the laws and their means of enforcement. The citizens will impute legitimacy to the state. This is crucial for its survival. It cannot afford to enforce laws that people evade or resist. Acceptance by the public reduces the cost of civil government.
Under biblical law, rulers act as mediatorial agents in between God and the individual. They represent God to the individual, and they represent the individual to God. This representational system is also true of parents and church officers. It is an aspect of point two of the biblical covenant: hierarchy.
There are economic considerations involved in all areas of the state. The state possesses the authority to collect taxes. It also regulates certain kinds of behavior. It provides a hierarchical court of appeals (Exodus 18). None of this is free of charge. There must be budgeting by state officials. The effects of tax collection are part of this budgeting process. The state’s officials do not want to produce a tax revolt comparable to the one described in I Kings 12.
In a modern democracy, voters have the authority to replace elected rulers. In contrast, they do not have the right to remove bureaucrats who are protected by law from being fired. The basis of such protection is a theory of bureaucrats as non-partisan technicians who enforce laws neutrally. This theory assumes that political power is ethically neutral. This is an error. The theory has been favored by bureaucrats, who want job security.
Bureaucrats have created their own judicially separate court system, which is not directly subordinate to voters. It is only occasionally subordinate to politicians. This is called administrative law. Administrative law judges act on behalf of a government enforcement agency, interpreting its rules and applying sanctions independent of the civil court system. This parallel court system has extended its power throughout the West.
Here is the fundamental economic fact regarding civil government. Within the state’s hierarchy, there is no system of autonomously generated prices. In this sense, it is comparable to any other corporation. Prices are set outside the state. Outside the state, there is a competitive market that is governed by the auction’s principle of high bid wins. There are capital markets that set the prices of capital equipment. There is nothing comparable to this inside any organization that has no ability to buy or sell, i.e., to own or disown.
State economic planning is a matter of subjective valuation by the magistrates. They must adhere to a system of sanctions that God has mandated to enable them to achieve God’s goals for the state, both collectively and locally. Here is the conceptual problem. How can the politicians establish objective performance criteria in order to maximize the state’s goals? In terms of humanism’s theory of methodological individualism, it is scientifically impossible to make interpersonal comparisons of subjective utility. State leaders must think representatively on the citizens’ behalf. But how? How can they design a required system of punishments to gain the cooperation that they need in order to attain the state’s goals? The Bible does not spend much space on this issue.
Then there is the issue of priorities. I wrote about this in Section B of Chapter 45 on the family. I see no good reason not to repeat those observations here, since they were originally developed in the context of civil government. Priorities are hierarchical: first, second, third. They are ordinal. They are not cardinal. They cannot be measured. There is no objective hierarchy of values. A goal is not objective: exactly this much more valuable than some other goal. According to subjective value theory, people use each additional unit of income to attain the most important as-yet unfulfilled goal. This is the concept of marginal economic value. It underlies all modern economics, especially Austrian School economics. It was first articulated by Carl Menger in 1871. The priorities are individual. There has never been a theory of collective economic values. All theories of collective economic planning rest on the existence of such an objective collective hierarchy of priorities. It must also rely on a theory of knowledge that is collective. But no such theory exists. All theories of individual decision making are inherently based on nominalism: individually imputed value. But there is no way to derive a concept of collective and objective value from nominalism.
This was the basis of Ludwig von Mises’ path-breaking essay in 1920, “Economic Calculation in the Socialism Commonwealth.” He concluded that all socialist economic planning is irrational. There is no way for the planners to obtain objective prices that accurately reveal the priorities of consumers. There is no private ownership. There is no way for asset owners to bid for other assets.
This criticism extends beyond civil government. It applies to every non-profit institution. Most institutions in society are non-profit. Surely, the family and the church are. So, how is the plan of a civil magistrate be said to be rational? How can the subjective economic evaluations of magistrates reconcile the subjective economic evaluations of all citizens? Magistrates can announce plans, but these plans are representative. They are to lead to objective decisions. But there is no scientific way for the decision-makers to know whether their decisions are conformable to God’s plans and the members’ plans.
This is the problem of the imputation of value: point four of the biblical covenant. Point four is always related to point two: hierarchical authority. The imposition of sanctions (point four) is always hierarchical (point two). The biblical solution of this dilemma is the doctrine of man as the image of God. Man has the analogous ability of God’s to impute value. God has the ability to assess and apply perfectly His permanent standards to historical situations. But humanist economic theory relegates God to Kant’s noumenal realm, where scientific cause and effect do not apply. Kant's god is not seen as the Creator and Final Judge.
The Bible has this law of economics: “You shall not steal” (Exodus 20:15). It also has this law: “You shall not covet your neighbor's house; you shall not covet your neighbor's wife, or his male servant, or his female servant, or his ox, or his donkey, or anything that is your neighbor's” (Exodus 20:17). The case laws of Exodus are found in Exodus 21–23. Many of them are laws of economics. There are laws defending private property. The free market is the inescapable institutional development of a legal order that defends the Bible’s laws defending private property. Property rights are inescapably the right to exclude. Property rights are grounded in the Bible’s story of the forbidden tree in the garden. The state enforces the right of individuals and groups to enforce the legal right to exclude. This is the meaning of property rights.
These rights are not negotiable. Politics is all about negotiation, as is the free market. But negotiation in the free market is based on private ownership. It is the right to trade away something that you own. In the negotiation of politics, however, politicians trade away what they do not own. They trade away some citizens’ property as a way to gain an economic advantage for their own political constituencies. They act as thieves on behalf of certain voting blocs. They misuse the state’s God-given authority to use coercion against criminals. They grant political favors to voting blocs. They get elected and re-elected on this basis. Biblically speaking, this is criminal.
Biblical civil law rests on the principle of the rule of law. All people are responsible to God by way of His law. No one is exempt. "There shall be one law for the native and for the stranger who sojourns among you" (Exodus 12:49). This means that private property must be defended by the state.
Imputation is point four of the biblical covenant. It is the issue of sanctions. The state imposes negative sanctions. It imposes these sanctions only because of imputation. Imputation in the field of civil government is the assessment of guilt or innocence. It is casuistry: the application of fixed principles of law and also specific legislation to specific cases where a violation is asserted by a plaintiff or the state. The violation is negative. The penalty is also negative. The biblical state is concerned with the imposition of negative sanctions, not positive sanctions. It does not create wealth. It is therefore not a lawful source of positive sanctions. It can provide positive sanctions for members of one group only by imposing negative sanctions on members of some other group. The state must not favor any person or group. “You shall do no injustice in court. You shall not be partial to the poor or defer to the great, but in righteousness shall you judge your neighbor” (Leviticus 19:15).
The family is the primary source of productivity, either directly or as owner of productive businesses. It can therefore lawfully provide positive sanctions. The church is God’s agency of spiritual healing. It can also provide positive sanctions. God authorizes deacons to offer charity (Acts 6). This is lawful because the church is not an agency of compulsion. In contrast, the state is an agency of compulsion. It therefore is not authorized by God to become an agency of positive sanctions. It is allowed to impose negative sanctions only for the purposes of establishing justice through restitution. The thief must pay restitution to his victim (Exodus 22:1, 4).
There is an inescapable conflict between humanism’s view of the economics of the welfare state and the Christian view. The welfare state is grounded on a concept of collective guilt. The mark of this guilt is economic inequality. The rich are defined as evil-doers because they posses wealth. They are accused of being immoral because of this. Welfare statists impute objective guilt to the rich because of the greater objective wealth of rich people. They call for “social justice.” This justice is corporate. It is imposed on the rich by the state in the name of the poor. The political programs are administered by government bureaucrats who receive salaries that are higher than those paid in the free market.
The welfare state rests on a re-writing of the eighth commandment: “You shall not steal except by majority vote.” It rests on theft. It steals from the rich and gives to the poor. It transfers wealth from those who do not have a sufficient number of votes to defend their property. It transfers this wealth to beneficiaries who have political influence. This wealth transfer is based on coercion: the state’s God-given monopoly of violence. The welfare state is a violation of biblical laws against theft.
The economic sanctions of the free market are these: monetary profit and loss. These sanctions arise in the context of forecasting and planning. They arise in the context of “high bid wins.” This is not the context of the state, where bribery is a crime. “And you shall take no bribe, for a bribe blinds the clear-sighted and subverts the cause of those who are in the right” (Exodus 23:8). “You shall not pervert justice. You shall not show partiality, and you shall not accept a bribe, for a bribe blinds the eyes of the wise and subverts the cause of the righteous” (Deuteronomy 16:19). There is no open bidding for court decisions. There is no competition of court systems. The state has a monopoly of declaring guilt and innocence, and then using coercion to enforce its decision.
The concept of inheritance is basic to state economics. It is the concept of succession. There must be continuity of law. Jesus’ ministry is the archetype: “Do not think that I have come to abolish the Law or the Prophets; I have not come to abolish them but to fulfill them. For truly, I say to you, until heaven and earth pass away, not an iota, not a dot, will pass from the Law until all is accomplished” (Matthew 5:17–18). If there is no judicial continuity, the state’s officials become arbitrary. Their decisions become unpredictable. This weakens property rights. It weakens liberty. People do not know how the courts will decide. They do not know how law-enforcement officials will interpret any law and then impose only appropriate negative sanctions. Without judicial continuity, it becomes expensive for individuals to make plans.
When citizens decide to break the continuity of obedience, they resist. They may launch a revolution. This centralizes power. It breaks continuity. It reduces predictability. But if lesser magistrates are persuaded that there is no other way to defend justice, they revolt. This is what Jeroboam did in a tax revolt against Rehoboam in I Kings 12.
But the word of God came to Shemaiah the man of God: “Say to Rehoboam the son of Solomon, king of Judah, and to all the house of Judah and Benjamin, and to the rest of the people, ‘Thus says the Lord, You shall not go up or fight against your relatives the people of Israel. Every man return to his home, for this thing is from me.’” So they listened to the word of the Lord and went home again, according to the word of the Lord (I Kings 12:22–24).
The state is not a market phenomenon. It is not the product of the market. The state, unlike the family, has a system of open exit. People can move away. This is an indirect bidding for resources. But there is no coherent pricing. There is no open bidding. Without coherent pricing, there is no way to establish a predictable connection between subjective value and resource allocation. This is not fatal to the state as long as it is limited by law and custom. But states are not governed by the extension of high bid wins: “Buy low. Sell high.” So, the logic of economic theory does not apply effectively to the state. There is no system of endogenous sanctions imposed by objective accounting: monetary profit and loss. This reveals the institutional limits of economic logic. Yet economists pretend to be able to discuss the operations of the state in terms of free market categories. An entire sub-field has attempted to do this: public choice theory. It has not been successful. Ludwig von Mises said why in his 1944 book, Bureaucracy. The sources of funding are different: market vs. compulsion.
Now we are in a position to provide a definition of bureaucratic management: Bureaucratic management is the method applied in the conduct of administrative affairs the result of which has no cash value on the market. Remember: we do not say that a successful handling of public affairs has no value, but that it has no price on the market, that its value cannot be realized in a market transaction and consequently cannot be expressed in terms of money.
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