Chapter 9: Imputation
Updated: 3/2/20
And God saw everything that he had made, and behold, it was very good. And there was evening and there was morning, the sixth day (Genesis 1:31). Woe to those who call evil good and good evil, who put darkness for light and light for darkness, who put bitter for sweet and sweet for bitter! (Isaiah 5:20).
These passages have to do with casuistry: the application of general standards to specific historical cases. This is the essence of exercising judgment. With respect to economics, the entrepreneur imputes economic value to resources he possesses or can purchase. He compares their value today with the discounted value of his expected output from these resources in the future. He decides whether to buy or rent these resources in order to rework them into goods and services desired by future consumers. Entrepreneurship begins with the entrepreneur’s imputation of economic value.
1. Covenantal Foundations
This chapter is an extension of the fourth law under judicial (theocentric) laws: God evaluates performance. In Chapter 2, I wrote: “God sits on the throne of judgment (Revelation 20:11–15). Jesus sits at His right hand (I Peter 3:21–22). This is a judicial matter: God’s high court. God declares men’s guilt or innocence. Theologians call this judicial declaration imputation. But the concept of imputation applies to more than judicial performance. It applies to economic performance, aesthetic performance, and all other kinds of performance. God’s imputation is authoritative. There is no appeal beyond it” (2:C:4).
This chapter is also an extension of the fourth law of judicial (representative) laws: trustees are accountable. In Chapter 2, I wrote: “God holds owners accountable in the broadest sense: morally, legally, confessionally, and economically. They will give an account of their trusteeship at the final judgment. They must act as intermediaries between God and His property. They must evaluate their administration of God’s property in terms of God’s ethical and legal standards. They must think God’s thoughts after him. What God judicially declares—imputes—they must impute. Whatever God imputes economic value to, they must impute economic value to” (2:D:4).
This chapter is also an extension of the fourth law under stewardship laws: owners evaluate performance. In Chapter 2, I wrote: “This is an extension of the fourth law of the theocentric judicial covenant: God evaluates performance. Delegated owners also evaluate performance. They are supposed to evaluate performance in terms of the criteria established by God. They impute economic value because they are made in the image of God. They are able to do this because God does this. They are stewards of God’s property, so they have to be able to evaluate performance. They do as creatures what God does as Creator. They are supposed to think God’s thoughts after Him. They can do this self-consciously as stewards of the Creator God, or else they can do it as implicit stewards of some other god. This other god may be the state. It may be the free market. Ultimately, a self-proclaimed autonomous man serves himself as god” (2:E:4).
2. Judicial Imputation
God announced the quality of His work at the end of every day except day two of the creation week. He declared His satisfaction. This is the most important biblical example of imputation: assessing historical change by means of fixed standards. God evaluates. He declares His assessment. This is what He will do at the final judgment. All of history is marked by God’s constant assessments in terms of His law. He then imposes blessings and cursings in terms of His assessments (Leviticus 26; Deuteronomy 28).
As God’s judicial and economic agents, we are required by God to make similar assessments, i.e., imputations. We are to make similar declarations. We are to impose blessings and cursings. We are to use His law as our guide. Those who declare the opposite come under God’s judgment, Isaiah said.
Point four of the biblical covenant is sanctions. Sanctions are an aspect of God’s supreme court. God applies fixed biblical laws to specific judicial cases. This requires the exercise of judgment. God then announces “guilty” or “not guilty.” Then He imposes sanctions: positive or negative. To impute is to render judgment: point four of the biblical covenant.
In Calvinist theology, the doctrine of imputation refers to God’s declaration of the guilt or innocence of individuals. It is a judicial act, also called a forensic act. This doctrine plays a unique role in Calvinist theology. It is less important in other theological systems. God is seen as a judge. He imputes Adam’s sin to all humanity. He applies an ethical standard to all humanity: the perfect humanity of Jesus Christ. Christ’s perfection is assessed in terms of His conformity to God’s law. God assesses all individual ethical performance in terms of this standard. This is the model of all casuistry: the application of God’s law to historical circumstances. God does this. As creatures made in God’s image, so must human beings. Imputation has to do with judicial categories: saved and lost, redeemed and unredeemed. But this concept is not confined to the judicial category of justification. It is also the model for the ethical category of sanctification: the degree of ethical conformity to God’s law. Justification has to do with declaring saved or lost: the ultimate pass-fail final examination. Sanctification has to do with grading on a curve: the degree of individual conformity in history to a fixed ethical standard that was attained by Jesus Christ. It also applies to human institutions: corporate sanctification.
Point one: God’s sovereignty. He is the Creator. He is also the Imputer. He evaluated the quality of His work at the end of each of five of the six days (Genesis 1). On what basis? First, He had spoken the day’s work of creation into existence. Second, the creation was objectively real. It was capable of being catalogued, measured, and evaluated. Third, He implemented the creation in terms of pre-creation standards. We presume this, i.e., that God did not make things up as He went along. The New Testament adds that the Second Person of the Trinity was the executor. “For by him all things were created, in heaven and on earth, visible and invisible, whether thrones or dominions or rulers or authorities—all things were created through him and for him” (Colossians 1:16). Then He evaluated this work in terms of the faithfulness of the creation to His sovereign creative word.
There are no actions beyond the judgment of God. God evaluates every action. Then He renders judgment. An action is either good or bad. The final judgment will be the overall retroactive assessment (Matthew 25:31–42). This does not mean that God makes no further judgments from the end of the week of creation until the final judgment. God renders constant judgments. He evaluates constantly, just as He evaluated each day of creation. This is the archetype for man’s rendering of judgment. Man is made in the image of God. This means individual men and corporate man. Individuals are under a covenantal administration, but so are collectives. Individuals are subject to eternal sanctions. No covenantal institution other than the church extends into eternity. Individuals are given the ability to make judgments as judicial agents of God. This ability is built into man’s very being. Declaring and executing judgment are aspects of the dominion covenant.
The philosophical dualism between hypothetically unchanging logic and ceaseless change—Parmenides vs. Heraclitus—is resolved biblically by means of a doctrine that is based on metaphysics: the absolute sovereignty of God over His creation. This doctrine affirms both His omniscience and His omnipotence. He has laid down His law. All of the creation is under God’s providence, from subatomic particles (or are they waves?) outward to a hundred billion galaxies (or maybe two billion) with a hundred billion stars each. There is predictability in history because God is sovereign over history. He governs the creation. But in one tiny location in the universe, the earth, His providence is seen in linear history: creation, fall, incarnation, redemption, and final judgment. Here, the issues of history are ethical—not mechanical and not organic.
The universe is subject to laws. Because men are required by God to exercise dominion, they have been given minds that can render judgments. They can perform the art of casuistry: the application of ethical principles to historical cases. They can also do science: discover laws of nature, and then use these laws to exercise power over nature. What God does originally, men can and must do secondarily and analogically. This two-fold ability of comprehension and application is objectively inherent in men. God created men to do this on His behalf. The concept of “on His behalf” leads to point two of the biblical covenant: representation.
Point two: hierarchy. Each individual is under God. This is a judicial matter. He is under God’s Bible-revealed law. He acts as a steward under God-delegated ownership. He is required to rule over creation by means of God’s law, which includes the predictable regularities of nature. So, hierarchy, law, judgment, and inheritance are all part of an integrated system. The sovereignty of God is the foundation of this system.
1. The Image of God
Each person is made in the image of God. So is corporate mankind. So, each person is responsible for the administration of assets delegated by God. This means that the decision-maker is responsible upward to God. But, because the creation is under man, each person is responsible downward: to serve as God’s representative agent. Each person is responsible outward to other people, who also have their God-given tasks. This is the covenantal foundation of the division of labor. Finally, each person is responsible inward: conscience. The person seeks his own goals. He reaps rewards and pays costs.
This is the basis of Christ’s warning to count the costs when making plans. We must guess what the objective results of our plans will be. Then we must estimate the net increase in subjective economic value. This is the art of looking into the future, and then estimating retroactively what the outcomes of our plans will be. This means counting the costs, which Jesus requires us to do (Luke 14:28–32). [North, Luke, ch. 35]
Man is made in God’s image. He is required by God to imitate God, but as a creature. The phrase “thinking God’s thoughts after Him” applies to all casuistry: the interpretation of historical events in terms of God’s law. This ability is the covenantal basis of casuistry. How can covenant-keepers do this? By the mind of Christ. The One who is spiritual judges all things, but He is not subject to the judgment of others. “For who can know the mind of the Lord, that he can instruct him? But we have the mind of Christ” (I Corinthians 2:15–16). [North, First Corinthians, ch. 2]
2. Menger on Imputed Value
The doctrine of imputation is also central to modern economic theory. Indeed, it is the identifying mark of the transition from classical economics to modern economics. The epistemological revolution in economic theory that took place in the first three years of the 1870's was developed most cogently by Carl Menger in 1871 in Principles of Economics. Menger rejected the classical economists’ mutually self-contradictory explanations of economic value: the labor theory of value and the cost-of-production theory of value. Menger argued that economic value is imputed by final customers. They decide which goods and services are highest on their scale of values. Then they bid for ownership in the marketplace. These competitive bids establish market prices, which are the objective manifestation of imputed subjective value. Imputed value and objective price are linked by way of the free market’s auction process.
Why does a capital good possess economic value? Menger called this a higher-order good. He denied that this value is the product of the price of prior inputs. A capital good is valuable—commands a price—only because of entrepreneurs’ expectations regarding the future value of consumer goods: goods that customers will pay for. He called these lower-order goods. He wrote in Principles: “. . . the economic character of goods of higher order depends upon the economic character of the goods of lower order for whose production they serve. In other words, no good of higher order can attain economic character or maintain it unless it is suitable for the production of some economic good of lower order” (II:3:D). He made it clear that expectations are the key. “We therefore have the principle that the value of goods of a higher order is dependent upon the expected value of the goods of a lower order they serve to produce” (III:3:A).
There is no objective economic value, he concluded. “The value of goods arises from their relationship to our needs, and is not inherent in the goods themselves” (III:1). Therefore, he wrote,
It is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men. It is, therefore, also quite erroneous to call a good that has value to economizing individuals a “value,” or for economists to speak of “values” as of independent real things, and to objectify value in this way. For the entities that exist objectively are always only particular things or quantities of things, and their value is something fundamentally different from the things themselves; it is a judgment made by economizing individuals about the importance their command of the things has for the maintenance of their lives and well-being. Objectification of the value of goods, which is entirely subjective in nature, has nevertheless contributed very greatly to confusion about the basic principles of our science (III:1, final paragraph).
Philosophically, this position rests on nominalism: the power of a person to name, classify, and evaluate. This position rejects realism: value or characteristics that are inherent in a physical object. This debate is as old as philosophy. As I have written, biblical thought is based on a rejection of both autonomous realism and autonomous nominalism. Biblical thought rests on covenatalism. There is covenantal realism, because God created everything. The creation is objective. It objectively reflects the handiwork of God. There is covenantal nominalism, because God imputes meaning and value to His creation. This includes economic value. In contrast to biblical thought, Menger held to the autonomy of the creation and the autonomy of man. He therefore self-consciously adopted nominalism.
Just as a penetrating investigation of mental processes makes the cognition of external things appear to be merely our consciousness of the impressions made by the external things upon our persons, and thus, in the final analysis, merely the cognition of states of our own persons, so too, in the final analysis, is the importance that we attribute to things of the external world only an outflow of the importance to us of our continued existence and development (life and wellbeing). Value is therefore nothing inherent in goods, no property of them, but merely the importance that we first attribute to the satisfaction of our needs, that is, to our lives and well-being, and in consequence carry over to economic goods as the exclusive causes of the satisfaction of our needs (III:1).
Modern economic thought is officially nominalistic. But there is no escape from covenantal realism: the doctrine of original creation by God. Humanists who defend realism do not accept covenantal realism, so they adopt autonomous philosophical realism. They sneak philosophical realism through the methodological back door of price indexes and other statistical techniques of aggregation. These indexes require the aggregation of subjective economic value—individuals’ subjective imputations—which cannot be done without violating the principle of subjectivism-nominalism. All economic policy-making necessarily rests on an implicit denial of nominalism, for it relies on the assumption that an economist can make objectively valid interpersonal comparisons of subjective utility. So, there is an inherent dualism in humanistic economic thought.
Point three: ethics. This is related to law. There are laws governing economic value. These are to help us in formulating plans. The crucial criterion of economic value is simple: the extension of the kingdom of God in history. Covenant-keepers are supposed to honor this principle. “But seek first his kingdom and his righteousness and all these things will be given to you” (Matthew 6:33). [North, Matthew, ch. 15] In contrast, covenant-breakers seek to extend the kingdom of man.
1. The Kingdom of God
The doctrine of the final judgment has an inescapable economic implication: kingdom competition is zero-sum. Everything built up in history for the kingdom of man is transferred to the kingdom of God at the final judgment. This inheritance is individual. It begins in history at the time of each covenant-keeper’s transition from wrath to grace at conversion. This inheritance is primarily judicial: legal status before God. It is definitive. The person gains a legal share of the inheritance of the kingdom of God. But definitive inheritance is not final inheritance. History is a matter of progressive inheritance (I Corinthians 3). [North, First Corinthians, ch. 3] It builds up over time. Both the kingdom of God and the kingdom of man can expand their capital bases. One is wood, hay, and stubble. The other is gold, silver, and precious stones (I Corinthians 3:12). This is made public by God’s retroactive final judgment, but it is imputed by God through history. With respect to eternity, the wealth of the sinner is laid up for the just (Proverbs 13:22). [North, Proverbs, ch. 41] Postmillennialism teaches that this transfer will begin in history, and this will accelerate as we approach the final judgment. Amillennialism denies this. Premillennialism denies it with respect to the era we live in, meaning prior to Christ’s bodily return to set up a thousand-year kingdom.
So, the mutual benefits that market transactions offer are limited to history. Ultimately, this mutuality will prove to have been an illusion for covenant-breakers. Life really is a zero-sum competition. Winners take all. More to the point, winners are awarded all by God.
What has value? Anything that can extend the kingdom of God. But this implies that there must be standards of action. These standards are based on the law of God. They are an ethical extension of His character. He pronounced His work “good” at the end of five of the six days of creation. But this implies the existence of a standard of both process and final output. There was an appropriate means to achieve the end. The legitimacy of the end is the justification of the process. It shapes the theory of the process. The process then either conforms or fails to conform to the standard.
2. Identifying the Standard
This raises a question. How are we to discover the standard? The Bible has two legal concepts: the spirit of the law and the letter of the law. The two are consistent in the mind of God. They are also consistent in the work of God. Paul contrasted them in operation. “But now we have been released from the law. We have died to that by which we were held. This is so that we might serve in newness of the Spirit, and not in oldness of the letter” (Romans 7:6). The letter of the Mosaic law kills. The Holy Spirit of God renews it in the lives of individuals and institutions. This is a basic theme in the epistle to the Romans.
There is an inherent dualism in all autonomous thought between the letter of the law and its spirit. The conflict comes when explaining how the letter reflects the spirit and implements it. There is a conflict between them. A rigorous enforcement of the letter of the law—legalism—can undermine the original intent of the lawmakers. The most famous case in the Bible is Darius’ imprisonment of Daniel in the lion’s den. The king had been tricked by his counselors into issuing a decree regulating prayer. He could not break his own words (Daniel 6:14–17). The letter of the law was opposed to the spirit of the law. Another famous incident was the deception of the Israelites by the Gibeonites. The leaders of Israel were deceived. They verbally granted the Gibeonites’ safety, not knowing the Gibeonites were dwellers in the land. Joshua allowed the decision to stand (Joshua 9). He defended the letter of the law against the spirit of the law. Another famous incident was Solomon’s decision to execute his half brother Adonijah, despite Solomon’s promise to his own mother (I Kings 2:13–25). He defended the spirit of the law—the orderly transfer of the kingly inheritance—against the implications of the letter of the law: an unlawful transfer of this inheritance.
The criteria of ethical value are ethical: the spirit of the law. But they are also judicial: the letter of the law. The letter of the law preserves predictability of the courts. It makes judges less arbitrary. The spirit of the law upholds justice. It defends what is ethically right, not what is procedurally predictable. God enables the mind of man to choose an ethical path of justice without destroying predictability. But sometimes men fail.
A popular phrase is this: “What would Jesus do?” It is clear from the Gospel of John that Jesus confused most of those around Him most of the time. They constantly drew incorrect conclusions about what Jesus wanted to do or was going to do.
3. Permanent Standards
God’s standards are permanent ethically. They persevere through time. This is the challenge in every judicial and ethical system. The permanence and the applicability of impersonal, autonomous logic (Parmenides), despite the flux of autonomous history (Heraclitus) must be explained by the defenders of every legal or ethical system. Biblically, the answer is the doctrine of God’s permanence. “‘Then I will approach you for judgment. I will quickly become a witness against the sorcerers, the adulterers, the false witnesses, and against those who oppress the hired worker in his wages, those who oppress the widow and the fatherless, against those who turn away the foreigner, and against those who do not honor me,’ says the Lord of hosts” (Malachi 3:5–6). Consider Psalm 119, which is devoted to the benefits of biblical law.
Lord, your word stands forever; your word is established firmly in heaven. Your faithfulness lasts for all generations; you have established the earth, and it remains. All things continue to this day, just as you said in your righteous decrees, for all things are your servants. (vv. 89–91). Your commandments make me wiser than my enemies, for your commandments are always with me. I have more understanding than all my teachers, for I meditate on your covenant decrees. I understand more than those older than I am; this is because I have kept your instructions. (vv. 98–100). Seven times a day I praise you because of your righteous decrees. Great peace they have, those who love your law; nothing makes them stumble. I hope for your salvation, Lord, and I obey your commandments. I observe your solemn commands, and I love them greatly. I keep your instructions and your solemn commands, for you are aware of everything I do (vv. 164–68).
Biblical law is the God-given, God-mandated means by which all men are required by God to order their scale of values and their lives. By means of biblical law, all men are required to subdue the earth. By means of biblical law, all men are supposed to evaluate decisions and render judgment.
Biblical law applies to individuals and collectives. Both are under biblical law’s historical sanctions. This is true of collectives, contrary to libertarian social theory (Deuteronomy 28). A collective is under temporal sanctions, but not under eternal sanctions. Eternity trumps time. So, the temporal realm of personal sanctions elevates individualism over collectivism in history, but not in all cases. With respect to history, the collective is sometimes more important: the survival of nation, family, and church. Individuals often sacrifice their temporal interests for the sake of these larger interests. In doing so, they gain positive sanctions in eternity. Their inheritance (point five) is beyond the grave. “Do not store up for yourselves treasures on the earth, where moth and rust destroy, and where thieves break in and steal. Instead, store 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 will your heart be also” (Matthew 6:19–21). [North, Matthew, ch. 13]
Ethical value is the foundation of economic value. This conclusion opposes modern economic theory all the way back to the mercantilists. Not only is economic theory not value-free, contrary to what economists insist, it is value-derived. The very concept of economic value is undergirded by the concept of ethical value: extending the kingdom of God in history. There is nothing ethically neutral about economic theory.
Point four: sanctions. This is associated with imputation: judging events in terms of biblical law. The covenant-keeper is required by God to apply God’s Bible-revealed law to the decision-making processes in his life. He is under God’s authority (point two). His obedience is possible only because he possesses the ability to understand both the law and historical circumstances. He can accurately assess and then apply God’s specific laws to historical circumstances (point four). Because of this ability, he can assess the economic value of opportunities, which include multiple uses for capital. He can understand the hierarchy of values in terms of available opportunities. He can also understand God’s hierarchy of values. He is required to adopt God’s hierarchy of values rather than his own.
1. Economic Value: Subjective and Objective
Economic valuation is subjective in the sense that God is a person who evaluates things and relationships in terms of their potential uses. God declares specific economic value in terms of an asset’s comparative importance in the building of God’s kingdom in history. The human evaluator is also a person. He is supposed to make his evaluation in terms of the same goal: building the kingdom of God in history. Economic value is inherent in the relationships that exist among imputing agents in a world of scarcity and alternative uses. These relationships may have value in terms of building the kingdom of God. But they may have value in terms of building the kingdom of man. There is therefore competition over the authority of rival economic value systems in history. Biblical economics teaches that economic value is imputed by God (point four), and therefore economic value is subjective. But economic value is also objective. It is objective because human imputations are the outcome of God’s objective providence (omnipotence) and the objectivity in history of His original imputation (omniscience).
Christian economists must defend both the doctrine of subjective economic value and the doctrine of objective economic value. Both aspects of economic value must be seen covenantally, not autonomously. In contrast, humanistic free market economists assert that there is only subjective economic value, but then they smuggle in objective economic value through the methodological back doors of statistical aggregation and policy recommendations. To do this, they must assert, either explicitly or implicitly, their ability to make interpersonal comparisons of subjective utility, which is impossible if utility is only subjective.
Imputation is the source of all value, including economic value. A person declares value. This need not be verbal. It rarely is verbal. He evaluates. This verb points to the underlying action: to assess value. He considers his circumstances. These include opportunities. He assesses the competing bids—prices—for temporary control of scarce resources. This tells him what others think specific assets are worth. He may decide to bid higher. This does not mean that he subjectively values ownership of the asset more than others do. He may value it as hardly worth anything, but his wealth enables him to bid far more than competitors do. We cannot measure subjective value. We can measure objective bids. Monetary high bid wins.
2. High Bid Wins
A little-known example in the Bible makes this clearer. David’s first wife Michal later was given by her father Saul to another man (I Samuel 25:44). David in the meantime married lots of wives. After Saul’s death, when David was king, he demanded the return of Michal. Abner, who had served Saul, now wanted to serve David. David told him that this would not be possible unless Abner returned Michal to him. Abner told the second husband to surrender his wife. “Her husband went with her, weeping as he went, and followed her to Bahurim. Then Abner said to him, ‘Return home now.’ So he returned” (II Samuel 3:16). From what we can determine by her second husband’s demonstrated sadness at losing her, he loved her more than David did. But David’s high bid won. “Your wife or your life.”
Humanistic economics cannot scientifically resolve the ancient question of the relationship between economic value (subjective) and price (objective). To do so, a humanistic economist would have to give an account of the origin of economic value in terms of subjective imputation, yet also connect this imputation with objective prices. But he cannot scientifically make interpersonal comparisons of subjective utility. So, he cannot say scientifically that the person who values a scarce resource more highly than other bidders do is the bidder who pays the highest price. There may be little relationship between the comparative “height” of the value scale of the winning bidder vs. those of rival bidders. All that the humanistic economist can say scientifically is this: (1) ownership of this asset was highest on the buyer’s scale of values for this particular purchase; (2) ownership of this asset was highest on the individual scales of rival bidders for that particular purchase; (3) the highest bidder won. As with Michal’s second husband, a losing bidder may have wanted that item more than anything except life itself. He lost it because his was not the highest bid.
Because of the epistemological separation of value and price in humanistic economics, critics of the free market argue that the rich man who can out-bid a poor man has an unfair advantage. The poor man needs an item more, the interventionist insists. The poor man values it more. He just cannot afford to bid more. The interventionist rejects any suggestion that the allocation of wealth established by the free market is morally correct or even desirable. This allocation lacks legitimacy, he says.
This places the humanistic defender of free market allocation at a rhetorical disadvantage. He insists that economics is value-free. He refuses to invoke morality. He thereby concedes the moral high ground to the critics of capitalism because he denies that there is any moral ground in economic theory. The public thinks otherwise. The public knows instinctively that ethical neutrality is a myth in social affairs. So, humanistic free market economists have always had a problem persuading the public of the benefits of an unhampered free market. The public wants moral reasons for accepting any explanation of economic cause and effect. The humanistic free market economist refuses to provide any moral explanations. He thinks he occupies the epistemological high ground, assuming he thinks about epistemology at all. The public does not care about academic epistemology. It cares about justice.
Critics of the free market insist that they are calling for economic justice when they demand state intervention. The Bible rejects the claims of these critics, who insist that they come in the name of a higher morality with a call to redistribute wealth by civil law. To redistribute wealth, politicians and bureaucrats must violate property rights assigned by God. But free market economists refuse to challenge the claims of the critics in the name of a higher moral law. In refusing to invoke morality, they surrender the political confrontation to interventionists. The public is more impressed by an appeal to a false morality than an appeal to economic efficiency.
3. Humanism’s Dilemma: A Dialogue
Economists ask a crucial question: “What is the logical relationship between value and price?” For over two centuries, generations of economists have attempted to discover the answer, and it eludes them today as much as it did in the days of Adam Smith. The difference is, today the lack of any internally consistent answer is covered by far more layers of logical dead ends that were (and are still) described as successful solutions to the problem. Is value exclusively objective, also known as intrinsic? Or is value exclusively subjective, also known as imputed? The reason why I use the adjective exclusively is because humanistic economic theory has yet to show how value can be both subjective and objective. This dualism goes back to the same either/or exclusivity in Greek philosophy. The Greek philosophers asked: “Is an action morally good because of its intrinsic goodness or because either society or individuals say that it is good?” They never did answer this to each other’s satisfaction. It is still a dividing issue in ethics. In medieval philosophy, this dualism was manifested in the battle over realism (intrinsic) and nominalism (imputed). Let us begin the inquiry.
Assume that you are interrogating a humanistic economist. You ask: If all economic value is objective, then why do prices keep changing? What is it that makes them change? The economist answers: “Supply and demand change.” You then ask: But why does supply change? He answers: “In response to changes in demand.” But why does demand change? “Because people change their minds.” Why? “Because prices change.” Why do prices change? “Changing supply and demand.”
You see what is going on. We are going in circles. We had better talk about demand apart from price. “Sorry; you are not allowed to talk about demand apart from price, or price apart from demand.” All right, let me ask this: If the people change their minds about economic value because of changes in demand, then isn’t the price of everything really based on subjective value? “Yes, that is correct.” Personal subjective value? “Yes, that is correct.” But how is personal subjective value translated into objective value? “It isn’t; there is no objective value.” Well, then, how is personal subjective value translated into objective prices? “Through competitive bidding.”
You raise a new question: value to society. How can we be sure that the outcome of the objective individual bids reflects the true value to society? “By denying that there is any true value to society apart from the outcome of the objective individual bids.” But what if society disagrees? “There is no such thing as society; there are only individuals.” But what if individuals vote to change the outcome? “That is their legal privilege in a democracy.” Are you saying that democracy is a valid way to achieve social goals? “I am an economist; I can only tell you the outcome of events, given certain causes.” Should democracies vote to change the outcome of the bids? “I am an economist; there is no ultimate ‘should’ for an economist.”
Now you go for the kill. Then what is the value of economics? “Sorry; economics does not objectively exist; only economists exist.” What is an economist? “An economist is someone who does economics.” Then what is the value of an economist? “That must be determined subjectively.” Then what is the price of an economist? “All the market will bear.” Are we paying economists too much? “The free market will decide that.” Do we have a free market in economists today? “I’d prefer not to say; I might get fired. I work for a state university. It is not in my self-interest to answer your question.”
In my view, the answer is clear: yes, we are paying humanistic economists too much. Is my view correct? Keep reading.
Point five: succession. Jesus said: “The thief does not come if he would not steal and kill and destroy. I have come so that they will have life and have it abundantly” (John 10:10). This applies to every Christian. It applies to all Christian covenantal institutions. This principle applies to kingdom expansion.
The adjective “value-added” refers to increased value as perceived by economic actors. They can consume more than they did before (at the same price). They can also save more (at the same price). More is better than less at the same price. Maybe they will do both: consume more and save more.
1. Objective Perception
Can economic value be measured? This is one of the most divisive questions in economic theory. How can economic value be measured in an individual’s self-assessment? He cannot measure it. There are no objective units. Therefore, there is no cardinal measurement. There are only comparative assessments: more, less, or the same. These are ordinal, not cardinal. When your wife asks you how much you love her, say “a lot.” Do not say, “Compared to whom?” I hope this is obvious. (This should be obvious.) Next, if she says, “how much is a lot?” you are getting into a danger zone. You have already closed off the ordinal response: “Compared to whom?” But there are no cardinal units of measurement.
Can collective economic value be measured statistically? If not, then what is the meaning of the Gross Domestic Product statistic? If it can be measured statistically, on what basis can anyone defend this assertion? If we cannot measure our own individual improved conditions by a unit of measurement, how can statisticians measure the increased economic value of a nation’s resources? Is economic value being added to the nation? How can we know?
As the expansion of God’s kingdom in history renders the reign of sin less extensive, God’s economic valuations will increasingly shape the array of objective prices as His kingdom expands. More people will think God’s thoughts after Him, and act accordingly. Their subjective valuations and their objective bidding will produce objective prices that are more in conformity to what economic value would be in a sin-free world.
As history moves toward the final judgment, the prices of all scarce resources will come closer to what they would be in a world without sin. This will not be a world without scarcity. Scarcity is not the product of sin, even though cursed scarcity is (Genesis 3:17–19). [North, Genesis, ch. 12] There still will be allocation decisions in eternity. Time will still be sequential. A person can be in only one place at one point in time. No created being will ever be omniscient, omnipotent, or omnipresent. These are incommunicable attributes of God.
2. Ideal Prices
Every system of economic theory has a concept of ideal prices. Academic economists use this concept as a way to explain pricing in the real world. It is a pricing system that would exist if there were no uncertainty. These would be prices that would prevail under conditions of universal human omniscience: no profits and no losses. This is an unrealistic assumption theologically, because omniscience is not a communicable attribute of God. The assumption of omniscience leads to an inescapable conclusion in economic theory: money prices would cease to exist. If everyone were omniscient, there would be no need for money. In a world of omniscient decision-makers, there would be no uncertainty. Money evolves only because there is uncertainty. People hold money—the most marketable commodity—in order to reduce their uncertainty about future exchanges. Without money, there would be no money prices. So, there could be no money-based prices in a world of equilibrium. The very concept of an equilibrium price is self-contradictory. I developed this idea in Chapter 54 of the Teacher’s Edition. Therefore, the use of equilibrium prices to explain pricing in a world of uncertainty is illogical. It literally makes no sense. Yet I have never seen this obvious implication of omniscience discussed in any economics textbook or treatise, other than my own.
In contrast to omniscience, sin-free living is a communicable attribute. The proof of this is Jesus Christ, who was fully human and also sin-free. There will be prices in the new heaven and the new earth. There will be scarcity. There will be uncertainty. There will be money. There will be allocation decisions. But there will not be sin.
As people’s decisions conform more closely to the economic laws of God, there will be reduced waste. There will be ever-growing accurate knowledge. There will be compound economic growth. In short, there will be added economic value. This is an ethical requirement, according to Deuteronomy 8:18. “But you will call to mind the Lord your God, for it is he who gives you the power to get wealth; that he may establish his covenant that he swore to your fathers, as it is today.” Wealth is a form of covenantal confirmation of widespread obedience to the ethical terms of the covenant. [North, Deuteronomy, ch. 22]
3. Imputed Wealth and the Image of God
Deuteronomy 8:18 offers the promised sanction of increased corporate wealth for a covenant-keeping nation. There must be ways for citizens to see if the promise is being fulfilled. Otherwise, the promise was empty: unperceived sanctions. So, the concept of wealth is objective, in that it can be measured. It is also subjective, in that it can be perceived. So, in Christian economic theory, increased wealth is a legitimate goal and also a perceivable goal.
There are various statistical measures of increased wealth. All are faulty, in that their defenders cannot give an account of how these measures work in a world of competing subjective values, which change. Because man is made in God’s image, God’s imputation of increasing objective wealth can be perceived by mankind. There is a point of contact between God and man: the image of God in man. So, there is a point of contact between God’s imputed economic value and man’s imputed economic value. There is no way for self-proclaimed autonomous economists to defend their position in terms of their theory of purely subjective economic value, but a Christian can defend his position. It is internally consistent, although incomplete.
There is no need to seek perfection in establishing the relationship between a statistical theorem (Parmenides) and historical changes in both subjective and corporate value rankings over time (Heraclitus). As we say in America, “it’s close enough for government work.” Statistical sampling to estimate GDP is government work, in fact, although not in theory.
A rate of 2% per year per capita compound growth is not perceivable day to day or even year to year. But it has been perceivable decade to decade ever since 1800. Compound growth changes everything, as we have learned since 1800.
The main differences between modern free market economic theory and Adam Smith’s economics are these: (1) the substitution of philosophical nominalism-subjectivism for philosophical realism-objectivism as the explanation of economic value; (2) a far stronger defense of the concept of private ownership as central, rather than the division of labor.
The concept of economic imputation is nominalist in humanistic economics. In Christian economics, imputation is based on God’s act of economic valuation. It is ethical. It has to do with moral value. It is also epistemological: the imputation of coherence and meaning to historical objects and acts. The biblical criterion of imputation is the kingdom of God. The idea of imputation is central to economic theory. (It is also central to historiography.)
By shifting the explanation of economic value from realism to nominalism, economists have created epistemological dilemmas for themselves. How can they explain the relationship between value (subjective) and price (objective)? How can they defend the legitimacy of policy formation for collectives, when there is no scientific way to make interpersonal comparisons of subjective utility? How can they justify the development and use of statistical aggregates, when there is no scientific way to incorporate changes in subjective taste into the statistics? How can they compare statistical aggregates over time? How can they demonstrate scientifically that there is such a thing as economic growth?
The biblical solution is to affirm subjective economic valuation in the image of God in man. Men can accurately impute value, including economic value, because God did this retroactively, day by day, in the creation week. He will do so retroactively at the final judgment. He does so in between these two events. God tells men to evaluate all things by His laws. This is why we know that men can do this as redeemed creatures. The judicial art of casuistry is grounded in the image of God in man.
Men must make economic evaluations in their office as God’s stewards. They must evaluate their success or failure, individually and collectively, over time. Men are under God’s law, yet they are required by God to rule over His creation, also by law. They are responsible to God for the ethically consistent and economically efficient building of God’s kingdom in history. Because men can impute economic value, they can count the costs of their actions, which God requires of all men (Luke 14:28–32).
God’s Bible-revealed laws are men’s tools of dominion. They provide the standards of imputation. The judicial art of casuistry must be grounded in God’s Bible-revealed laws. A person must enforce the judicial letter of the law in terms of the spirit of the law: its goals for history. The letter of the law makes courts predictable, but its spirit must be upheld in order to achieve justice. There can be economic justice in history. If people do not believe this, they will lose hope.
Value and price are connected by means of men’s subjective imputations. This subjectivism can and does reflect objective reality and objective economic value. The link is the image of God in man. Men are told that corporate obedience to biblical law produces economic growth (Deuteronomy 8:18). Therefore, it is possible to make accurate statistical representations of the underlying reality. This is why we can achieve value-added living. God’s historical sanctions produce long-term patterns. These long-term patterns can be perceived by men. Men can evaluate the success of their decisions by means of sanctions, both positive and negative.
The epistemological foundation of analyzing market processes is a theory of price. Christian economics and humanistic economics offer rival theories of price. This is because they have rival epistemologies. There is no way to reconcile these two epistemologies.
Christian economics identifies this epistemological foundation as ethical. Ethics explains the imputation of value, which in turn explains the array of prices at any time. There are eschatological implications of this outlook. The postmillennialist argues that as the kingdom of God extends its influence through time, the more that progressive sanctification brings the array of prices into a closer relation to God’s imputed array of prices. The premillennialist argues that this will be true during the millennial kingdom when Jesus will rule in person, but not before. The amillennialist would argue that the array of prices either becomes less influenced by kingdom standards as the kingdom of Satan extends its power, or else the array is randomly influenced. But, in all cases, the array of prices is ethical. Prices reflect people’s individual hierarchy of values.
In contrast, humanistic economics announces that the correct analytical tool is based on man’s omniscience: equilibrium pricing. But this is conceptually impossible if humanistic economics is true. There could not be money prices in a world of equilibrium: a hypothetical world in which all people are omniscient. Money is a tool for reducing uncertainty. If there were no uncertainty, there would be no money. If there were no money, there would be no money prices. This is why humanist economics has no analytical tool that is epistemologically valid in terms of its own presuppositions. It has lots of graphs. It has lots of equations. What it does not have is a coherent theory of price.
________________________________
The complete manuscript is here: https://www.garynorth.com/public/department196.cfm