Conclusion to Part 5

Gary North - August 01, 2017

Updated: 1/13/20

Christian Economics: Teacher's Edition

But a man named Ananias, with his wife Sapphira, sold a piece of property, and with his wife's knowledge he kept back for himself some of the proceeds and brought only a part of it and laid it at the apostles' feet. But Peter said, “Ananias, why has Satan filled your heart to lie to the Holy Spirit and to keep back for yourself part of the proceeds of the land? While it remained unsold, did it not remain your own? And after it was sold, was it not at your disposal? Why is it that you have contrived this deed in your heart? You have not lied to man but to God.” When Ananias heard these words, he fell down and breathed his last. And great fear came upon all who heard of it. The young men rose and wrapped him up and carried him out and buried him (Acts 5:1–6).

Property in the free market is different from property in a non-profit institution. The difference has to do with ownership. The non-profit institution does not grant property rights to individuals who donate to the organization or who administer it. There is still hierarchical control, as is universally true in God’s world of delegated sovereignty, which we call authority. Point two of the biblical covenant is authority. But this authority does not involve the authority to buy and sell on behalf of the decision-makers. The sanctions are therefore different, as Ananias and his wife learned too late. They wanted to get credit with church members for having been more generous than they were. They sought positive sanctions in the form of imputation by others. God’s negative sanction against them was definitive. “And great fear came upon the whole church and upon all who heard of these things” (v. 11).

This difference in ownership has economic effects. The main one is this: the absence of pricing within a non-profit organization. There is also no pricing within a profit-seeking business, but there are prices generated outside a business. The buying and selling that go on at all times provide prices. But in non-profit institutions, no individual can legally lay claim to the organization's property. He cannot take advantage of ownership by selling into the general marketplace. He can at most benefit the organization as an employee or as a board member. He cannot personally profit from such sales.

Because there is neither internal pricing nor individual property rights, there is no endogenous monetary system of sanctions that provides direct personal feedback, either through gain or loss. Without such a system of direct feedback, there is no possibility of a precise theory of human action. Because most of life is lived in non-profit institutions, most of life lies outside the precision of economic analysis. A theory of non-profit decision-making resembles sociology.

Any attempt to apply the logic of the free market’s auction process to the operations of a non-profit institution will produce either narrowly focused predictable results or inaccurate results. There is no remotely scientific theory of human action outside of the market process.

Ludwig von Mises wrote Human Action in 1949. He wrote Bureaucracy in 1944. The earlier book made it clear that the logic of the free market process does not apply to bureaucracy. The structure of ownership is different. Therefore, the funding is different. He offered no theory of bureaucratic management that is as rigorous as the logic of the market in Human Action. He had already distinguished the two approaches in the subtitle of his great work, Socialism: An Economic and Sociological Analysis (1922). His analysis of the operations of the socialist commonwealth was primarily sociological, not economic. Economic logic does not apply to the operations of the socialist economy. There is no autonomous, endogenous system of pricing.

There is no feedback between subjective value theory and objective prices. Without pricing, humanistic economic analysis turns into sociology. “Buy low. Sell high” devolves into this: “Some do. Some don’t.”

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For the rest of this book, go here: https://www.garynorth.com/public/department193.cfm