Updated: 1/13/20
Christian Economics: Teacher's Edition
Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. For where your treasure is, there your heart will be also (Matthew 16:19–21).
This is correctly seen as an otherworldly concept of rewards. Jesus clearly taught that money or wealth that is used to extend His kingdom in history will result in greater individual rewards in the world beyond the grave. There is economic continuity between personal history and personal eternity. More than this: this continuity is assured. Continuity in history is not assured. Moth and rust destroy: here is strong rhetoric. Thieves break in and carry off earthly wealth, most notably silver and gold. That which men trust in to provide them with continuity between the known world of the present and the uncertain world of the future is not reliable in history. Men’s departure from this world strips economic capital away from them. Paul put it this way:
But godliness with contentment is great gain, for we brought nothing into the world, and we cannot take anything out of the world. But if we have food and clothing, with these we will be content. But those who desire to be rich fall into temptation, into a snare, into many senseless and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evils. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs (I Timothy 6:6–10).
This is a deservedly famous passage. It focuses on the temporary benefits of riches, meaning the temporal benefits of riches. It contrasts the benefits of wealth, which are universal lures to destruction, with contentment with food and clothing: bare necessities. This is the mentality of a monk, yet Paul presented it as the correct guide to personal wealth.
How can this outlook be reconciled with the obvious benefits to mankind of accumulated capital? The benefits of tools in increasing men’s productivity and wealth have been at the heart of the defense of free market capitalism ever since the days of Adam Smith in 1776. He called his book An Inquiry into the Nature and Causes of the Wealth of Nations. His inquiry came to a monumental conclusion: the pursuit of individual wealth has produced the wealth of nations, in which the entire society participates and profits. This idea has shaped Western civilization ever since. This is the central idea of free market economic theory. Opponents of the free market have attacked it ever since he wrote it.
There is no evidence from biblical texts that anything that Jesus said or the apostles said in any way hints at the cause-and-effect pattern that Adam Smith presented. What Smith wrote was not grounded in Jesus’ teaching. Then how can it be correct? Only because of the system of economic sanctions that God originally built into the creation and also in the laws of private property that the Mosaic law established. Smith defended private property. So did Moses. Smith defended productivity. So did Moses. The first 14 verses of Deuteronomy 28 constitute a call to economic growth. Above all, so did Moses’ discussion of the fixed relationship between covenant-keeping and positive sanctions. “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). This places wealth within the framework of the covenant: covenant blessings. Here is the pattern: blessings (grace) => obedience (works) => greater blessings. The economic blessings confirm God’s national covenants. There is therefore no contradiction between the Mosaic concept of economic causation and Jesus’ teaching on the wisdom of accumulating wealth beyond the grave. The difference is this: the focus of the teachers on where wealth is to be accumulated. The Old Testament had only a few hints of God’s final judgment, and not one word with respect to personal wealth in the world beyond the grave. That was uniquely Jesus’ message.
This is also the issue of God vs. mammon (Matthew 6:24). Who or what was mammon? It was the god of this world: “more for me in history.” Accumulating capital for the sake of money, sex, power, and fame is futile. The benefits end with the death of the accumulator or even before. It soon passes to his heirs. What they do with what had been his wealth is uncertain. The pursuit of wealth is all vanity.
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. So I turned about and gave my heart up to despair over all the toil of my labors under the sun, because sometimes a person who has toiled with wisdom and knowledge and skill must leave everything to be enjoyed by someone who did not toil for it. This also is vanity and a great evil. What has a man from all the toil and striving of heart with which he toils beneath the sun? For all his days are full of sorrow, and his work is a vexation. Even in the night his heart does not rest. This also is vanity (Ecclesiastes 2:18–23).
This is a cry of despair by a wealthy covenant-breaker. Solomon explored the mindset of such a person throughout the Book of Ecclesiastes. History offers no deliverance, only vanity. Not so, said Jesus. There really is a way to take wealth with you. Transfer it into eternity while you live in history.
The capital that a rich man accumulates is not lost when he sells it. It is merely transferred to a new owner. The new owner’s wealth increases. Therefore, so does his responsibility. There is no such thing as a blessing that is covenantally separated from responsibility (Luke 12:47–48). The richest man in the world in my era is Bill Gates, who created Microsoft. He is worth $90 billion. He is steadily giving billions of dollars worth of Microsoft shares, tax-free, to the Bill and Melinda Gates Foundation, which is worth $37 billion. He advises other multi-billionaires that they should leave at least half of their wealth to charity. Gates is an atheist. His wife, however, is a church-attending Catholic. She was the driving force behind his decision to leave his business and devote his efforts to the foundation. He switched from a job to a calling: the most important thing he can do in which he would be most difficult to replace. Only one comparably rich entrepreneur has ever made this transition successfully: steel magnate Andrew Carnegie after 1901. But Gates is far more involved in the foundation’s operations than Carnegie was in his.
Jesus told the rich young man to sell all that he possessed and give the money to the poor. The man went away troubled (Matthew 19:20–22). The man had insisted that he had followed commandments six through ten. But now Jesus added something far more difficult: a positive command, not merely the avoidance of five sins. This was too much for him to bear. He would have to abandon his wealth. That was his god: mammon. So, he departed, troubled.
Jesus did not call for the destruction of his wealth, only its transfer to new owners. Jesus did not criticize capital. He merely warned the owner than he should sell it to others as a way to raise money. Then he should give away money to the poor. The young man would be de-capitalized, but the nation of Israel would not be.
This is the correct pattern for charitable giving by the wealthy. Their capital remains intact. It continues to generate productivity for its owners. Their society is not impoverished. But the wealth of the capitalists who built up this capital is transferred to new owners. These new owners are still part of the productive process. They possessed sufficient money to buy the capital from the existing owners. They were still part of the process of capital formation. But the owners who had accumulated this capital are now supposed to move on with their lives. They are to abandon the pursuit of more wealth. This capital will be transferred anyway. That is what death does to inheritances. Jesus warned that it is wise to arrange the transfer while you are still alive. Start early. “Avoid the rush!”
And he told them this parable: “The ground of a certain rich man yielded an abundant harvest. He thought to himself, ‘What shall I do? I have no place to store my crops.’ “Then he said, ‘This is what I’ll do. I will tear down my barns and build bigger ones, and there I will store my surplus grain. And I’ll say to myself, “You have plenty of grain laid up for many years. Take life easy; eat, drink and be merry.”’ “But God said to him, ‘You fool! This very night your life will be demanded from you. Then who will get what you have prepared for yourself?’ “This is how it will be with whoever stores up things for themselves but is not rich toward God” (Luke 12:16–21).
In the early 1970s, I knew a free market economist who advised a rich libertarian industrialist in Indiana, Pierre Goodrich. The economist’s name was Ben Rogge [ROWEguee). He told me this. “Rich people know how to accumulate wealth. They do not know how to give it away. I see my task as advising Goodrich in such a way that his money will not do too much harm.” He understood how destructive and wasteful large amounts of non-profit money can be. Rogge helped Goodrich design the Liberty Fund, which publishes reprints of libertarian books and classical liberal books. This is a limited but positive contribution to society. The Liberty Fund does not do anything innovative, but it does no harm. Rogge was successful.
Every charity has an official purpose. If it had no purpose, its officers could not raise much money. People do not donate their hard-earned money to organizations that have no official purpose.
The official purpose is the organization’s mission statement. In the world of profit-seeking business, this is sometimes called the USP: the unique selling proposition. I maintain the same acronym for charities: USP. I call it the unique service proposition. Yet there is no difference in economic principle between selling and service. What distinguishes them is this: access to the service. The buyer of a service buys it for himself or those in some way related to him. He exchanges money for unique and exclusive access to the service. In contrast, a donor buys the service for someone else. He has no legal claim on this service as a result of his transfer of money to the organization. He allows the organization’s decision-makers to decide who receives the services funded by his donation.
The mission statement generates donations. Donors agree with it. They decide that providing money to achieve it is worthwhile. A donor wants members of some identifiable group to benefit from the service provided by the charity.
There is an implied benefit for donors: the sense of participating in a righteous cause. But for the Christian who believes Jesus’ words about storing up treasure beyond the grave, there is an additional benefit: capital accumulation.
For any organization to achieve its mission, it must have a plan. There has to be some system of cause and effect between the donations coming in and the benefits flowing out. This system of causation should be sufficiently clear so that donors believe it. Otherwise, the larger donors will stop donating. The organization comes with a message: “Donate, and you will see the following types of benefits.”
The organization hires people who have expertise. If they do not know what they are doing, donors will stop donating. There must be a plan. There must also be employees capable of implementing the plan. The organization must be better at implementing its plan of action than competing organizations. Otherwise, donors may switch their allegiance to other organizations.
In effect, the organization represents donors, economically speaking. Donors have money. They do not have a plan of action or the expertise to implement it, but they share the organization’s official vision. So, they donate to it. They choose the organization to fulfill their purposes. They expect the organization to represent them to the beneficiaries. At the same time, they regard the organization as representing the beneficiaries to them. The organization is part of a hierarchy between donors and beneficiaries. This is why I classify planning as part of point two of the biblical covenant: hierarchy/representation.
Often in published fund-raising materials, there are photographs of beneficiaries. Donors and prospective donors can see a representative beneficiary of the organization’s mission statement. The image adds a sense of specificity: beyond beneficiaries in general. People are more likely to give to help a person than to support an impersonal cause. The easiest way to raise money from Christian women is by including photographs of smiling black children in sub-Saharan Africa. Middle age women have been the primary donors to Protestant foreign missions ever since the late nineteenth century. They are people-oriented.
There must be moral standards governing the distribution of the funds. The money raised for benefitting members of some group must be used for this purpose. Otherwise, donors will feel cheated.
Let us say that money is donated to feed the poor in an African famine. It is only in Africa these days that there are famines. The famines are always the product of war, either between tribally dominated nations or in tribal civil wars. The best way for a charity to see to it that the food gets to hungry people is to make a deal with smugglers: it provides the food for free, and the smugglers will sell it at a market price. There is great risk to get this food to hungry people in a war zone. The food will get through this way, but it will not go to the hungriest people. It will go to people who can afford to pay a smuggler. But this is not what the donors want. They did not donate food to enrich smugglers. Yet the fact is this: the best way to be reasonably sure that the food will get through is to make food delivery profitable for a smuggler. The charity does not adopt such a plan. The smuggler-based strategy sacrifices ethics to efficiency. Donors will not approve.
Donors want ethical consistency. They donate to what they regard as a righteous cause. They want the organization to match the ethical standard of the organization’s mission statement with the means adopted to fulfill it. As Christian fundamentalists say, “God’s work done in God’s way.” Humanists say: “The means must be consistent with the ends.” Donors do not believe that a righteous cause can be attained by the use of morally questionable means. Put differently, they believe in doing good, but only by good means.
For the free market, the primary economic sanctions are monetary profit and loss. This is not true in the world of non-profit organizations. In the world of non-profits, the sanctions are murky. So are the goals. “Help the poor.” “Save the planet.” “Change their minds.” What objective measures can be used to determine whether an organization is fulfilling its goals? In business, there is accounting. There is “black ink” for profits and “red ink” for losses. There is also accounting in the realm of non-profits. But the recipients of the non-profits’ benefits do not pay full price for them, unlike buyers in the world of profit management. They are subsidized by donors. So, there is no way for donors to know for sure if the benefits were sufficient to justify the donations. After all, there is strong demand for services priced below market. But is this donor-subsidized demand being spent well? How can donors know? For that matter, how can the managers of the non-profits know? Donors can see that money flows in, and money flows out. All of this money can be accounted for. No one is stealing money. But is this money achieving anything significant? How can donors know? This is the problem with financial sanctions in the world of non-profits.
Then there is the problem of positive sanctions for the managers. The organization has a mission statement. But maybe the mission statement no longer gets much financial support. Should the organization openly change its mission statement? This problem faced the March of Dimes, which was founded in 1938 to discover a cure for polio. When Jonas Salk discovered a cure in the mid-1950s, the March of Dimes had a major problem. How could it keep raising money? Should it shut down? The managers did not want to lose their jobs, so they switched the goal to finding cures for birth defects. That was an open-ended mission statement. There are lots of birth defects. The organization continues to raise funds.
Do the positive sanctions promoted by a reform organization reward the desired behavior? Is there greater adoption of this behavior among the charity's recipients? Why? To get the rewards or to achieve moral improvement? Do the recipients appreciate the benefits? Are the senior managers gaming the system to make it look as though the outcomes are what donors expected? Donors are in charge. Their money funds operations. But donors can be deceived by full-time managers who "spin" the fund-raising messages.
Do the donations create dependence by the recipients? Will the recipients ever escape this dependence? Is the money creating a class of welfare dependents? Donors do not want this. How can they be sure that this is not taking place? Is there consistency between the sanctions and the hoped-for results?
There are no sanctions in civil government comparable to monetary profit and loss under profit management. That was Ludwig von Mises’ point in Bureaucracy (1944). But the same criticism applies to non-profits. Managers do not have property rights to the assets of charitable institutions.
There must be wisdom in giving money away. Wisdom is always in short supply. It does not command a high price. There is more to biblical wisdom than a profit-and-loss statement. This is true in the for-profit sector. It is surely true in the non-profit sector, where the recipients of benefits are different from those who pay for the benefits.
Managers come and go. Recipients come and go. What about the non-profit organization? Does it persevere? Should it persevere?
Successful non-profits have large endowments. These keep the doors open. But endowments reduce the authority of donors, whose donations become marginal in the total budget of the non-profit foundations.
Over time, the official goals of the founders of non-profit foundations tend to be forgotten by the successors. The outlook of the founder is not shared by the future managers. The richest Calvinist who ever lived was J. Howard Pew of Sun Oil (1882–1971). He wanted to save the Northern Presbyterian Church from theological liberalism. He failed. This should have been obvious to him in 1967 when the denomination revised its confession of faith. But he never gave up hope. He and his siblings funded the Pew Charitable Trusts. These trusts ceased to be remotely Calvinistic within a year of his death. They no longer promoted his pro-free market outlook. He had for two decades funded Christian Economics, a tabloid sent free of charge twice a month to every minister in the United States. Within three years of his death, the bureaucrats at the Pew Trusts stopped funding the publication and thereby killed it. Today, the organization conducts public opinion surveys. There is nothing wrong with this, but it is neither Calvinism nor the free market. It is strictly non-ideological. It is not controversial. It is safe.
Non-profit charities are easily hijacked by upper-middle-class bureaucrats who are hired by the founder. They seem to share his vision until about ten minutes after he reaches room temperature. Then the organization begins to be transformed into something preferred by the employees. They were “yes men” until he died. They become their own men if he left a large enough endowment.
When a profit-seeking organization ceases to make a profit, it is replaced rapidly if its managers cannot adjust to the new economic conditions of supply and demand. This is not equally true of non-profits, including charities. The managers have no ownership rights to the assets of the organization. They can continue to benefit, but only as employees. They begin to focus on the means: receiving their salaries. They pay less attention to the mission statement, which is difficult to enforce if senior managers choose not to enforce it. The monetary sanctions paid to senior managers begin to direct the operation of the charity. That is what monetary sanctions are supposed to do. In the free market, monetary sanctions transfer authority to buyers. In the non-profit world, monetary sanctions transfer authority to donors. But the larger the charity’s permanent endowment, the less authority the donors possess. They lose leverage.
There is no economic theory of non-profits precisely because there is no system of built-in economic sanctions. The profit system is self-regulating because of profit and loss. Customers are in control. They evaluate the success of a company in meeting their wants at prices they are willing and able to pay. Donors have no comparable system of sanctions to guide their allocation of capital: time and money. Donors must think through the effects of their donations in the thinking and then the lives of the recipients. They must act on behalf of the recipients. They must “get inside the heads” of recipients. But how? There is no objective answer, unlike monetary profits and losses. It takes wisdom to evaluate the many factors. Biblical wisdom is best.
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