Chapter 23: Plan Reconciliation
Update: 4/13/20
When Joseph’s brothers saw that their father was dead, they said, “What if Joseph holds on to anger against us and wants to repay us in full for all the evil we did to him?’ . . . His brothers also went and lay facedown before him. They said, “See, we are your servants.” But Joseph answered them, “Do not be afraid. Am I in the place of God? As for you, you meant to harm me, but God meant it for good, to preserve the lives of many people, as you see today” (Genesis 50:16, 18–20).
Joseph’s brothers had sold him to slave traders, who sold him to Potiphar in Egypt. Potiphar soon placed him in charge of his business until his wife attempted to seduce him, and then lied that he was the culprit. Potiphar put him in prison, where the warden soon placed him in charge of everything. He correctly interpreted a pair of dreams related to him by a pair of Pharaoh’s servants, who had also been cast into the prison by Pharaoh. Two years later, he interpreted Pharaoh’s dream: seven fat cattle followed by seven lean cattle. He said this dream predicted seven years of large grain harvests followed by seven years of famine. Pharaoh believed him, and he immediately elevated Joseph to second in command. Joseph saved Egypt from famine. Then he saved his brothers and their households from famine.
At each stage, there were dreams and plans. The brothers originally had a plan for Joseph’s life. So did Potiphar. So did his wife. So did the warden. Each plan ended very differently from what the planners had planned. Pharaoh gave up planning. He turned national economic planning over to Joseph. Joseph was capable as a central planner. He had access to explicit revelation from God regarding Egypt’s economic future. Joseph was an entrepreneur. He understood the future economic environment. He executed his plan. He confiscated grain as taxes when grain was cheap. He stored it in Pharaoh’s newly constructed storehouses. He used Pharaoh’s money to build these storage facilities, which would have been huge. Then, when famine arrived on schedule, he sold the grain back to Egyptians at high prices. He bought low (the price of collecting the grain and storing it) and sold high at an enormous profit. He bought the Egyptians’ freedom. They sold their lands to Pharaoh. They would henceforth pay him an income tax at a flat rate of 20%. (In my era, Egypt would be regarded as a tax haven.)
This is the story of a series of individual plans for Joseph. Each plan had coherence to it. Each had ends and means. Joseph was the means. Each plan led to greater authority for Joseph. None of the individual planners could have foreseen what God had in store for Joseph and his family, least of all his brothers. This sequence of dreams and plans began with dreams. In two dreams, Joseph dreamed that he would rule over his brothers. They resented these dreams. They planned to kill him. This would put an end to his dreams of authority. “Come now, therefore, let us kill him and cast him into one of the pits. We will say, ‘A wild animal has devoured him.’ We will see what will become of his dreams.” His brother Reuben changed their minds with a profit-seeking plan: sell him to slave traders instead (Genesis 37). At the end, Joseph’s original dreams came true. He ruled over his brothers.
The brothers bought low and sold high. The slave traders did the same. Potiphar bought low and reaped a profit, but his wife short-circuited his plans. He was not paid when he placed Joseph into the prison. The warden got him for the price of a cell and food. He reaped a handsome profit: cheap management services of a high order. Pharaoh got him initially for free. He immediately recognized an economic opportunity. This man had access to God. Pharaoh could put him into service as a central planner and thereby reap a large profit. Pharaoh’s judgment was correct. At every stage, the planners used Joseph as an investment asset: a means to an end. The brothers, Potiphar, the warden, Pharaoh’s cupbearer, and Pharaoh all profited. Potiphar’s wife and Pharaoh’s baker reaped a loss. But the baker would have reaped this loss anyway: execution. The only big loser was the wife. She saw her targeted victim elevated to Egypt’s second in command. That must have been a bitter pill.
In the early stages, the planners used coercion to reap their profits: kidnapping, slavery, and prison. In the end, Joseph used coercion to extract wealth from Egyptians, but then he saved their lives. Central planning by the state necessarily uses coercion, but in this case, heavenly intervention saved a nation. The theology of Egypt elevated the Pharaoh to the position of the god/society link. It was a theology of the divinized state. This was a theology of tyranny. Through Joseph, God gave the Egyptians a taste of what this theology implies in theory: negative sanctions. But, in His common grace, God saved their lives. God also saved the lives of Joseph’s brothers and their families. His common grace to a nation of covenant-breakers blessed the lives of covenant-keepers. This is the biblical historical model.
Each profit-seeking planner was responsible before God for the evil of his plan. Joseph’s brothers understood this in Egypt. They feared Joseph’s retribution. But Joseph was a man of grace, peace, and forgiveness. He did not seek vengeance against any of those who had misused him as a means to their ends. They had treated him as if he were their lawfully purchased property. He was not. He was the victim of kidnapping. God's law demands the death penalty for this crime. “Whoever kidnaps a person—whether the kidnapper sells him, or that person is found in his hand—that kidnapper must be put to death” (Exodus 21:16). As second in command, he could have imposed this lawful penalty on them all. He did not.
His reply to his brothers was clear. “But Joseph answered them, “Do not be afraid. Am I in the place of God? As for you, you meant to harm me, but God meant it for good, to preserve the lives of many people, as you see today” (Genesis 50:20). Here we have a declaration of God’s absolute sovereignty in the affairs of men. Men act in terms of His sovereign decree. “The king's heart is a stream of water in the hand of the Lord; he turns it wherever he pleases” (Proverbs 21:1). It is not just a king’s heart that is in the hand of the Lord. It is all hearts.
Each planner had a plan. Each plan was part of an all-encompassing plan. God had announced the outline of this plan to Abram. “Then when the sun was going down, Abram fell sound asleep and, behold, a deep and terrifying darkness overwhelmed him. Then the Lord said to Abram, ‘Know for certain that your descendants will be strangers in a land that is not theirs, and will be enslaved and oppressed for four hundred years. I will judge that nation that they will serve, and afterward they will come out with abundant possessions. But you will go to your fathers in peace, and you will be buried in a good old age. In the fourth generation they will come here again, for the iniquity of the Amorites has not yet reached its limit’” (Genesis 15:12–16). The details of the plans of every planner in the sequence were reconciled by God’s grand plan. His plan was based on a covenant among God, Abram, and Abram’s unborn heirs.
Men seek their own ends. They have purposes (point one). Their plans are extensions of their individual purposes (point two). Most people think of themselves as ethical. They think they are doing the right thing (point three). They hope for a profit as the outcome of their plans (point four). They plan to repeat this process over and over, and then at last go to their well-deserved individual rewards (point five).
This outlook is based on a presupposition: there is ethical coherence in historical causation. The world is not ethically random. Therefore, our lives are not ethically random. We make our plans in terms of our faith that, in the long run, honesty really is the best policy. If we are honest, we will profit along the way. In a popular American aphorism, we will do well by doing good. This outlook is based on the Bible. Specifically, it is based on the first 13 verses of Leviticus 26 and the first 14 verses of Deuteronomy 28. There are parallel passages. The book of Job is also based on this outlook. Job’s assumption regarding this underlying ethical coherence was rewarded, but only in Chapter 42. In short, most people want to believe that there is a predictable cause-and-effect relationship between the righteous plans and acts of responsible individuals and the profitable outcomes of these acts. People recognize, as Job learned, that this predictability has limits. It is not immediate. But, in the long run, in the lives of most people, there is predictability between doing the right thing and achieving a positive result.
In the Christian West, this faith extends to the society at large. We believe this: if the laws of the nation are just, then lawful actions by most individuals most of the time will produce positive outcomes all across the society. The righteousness of the legal order establishes the limits of men’s actions. If citizens and residents of the nation restrain themselves and follow the law, and if they act honestly in their business dealings, the nation will prosper. There is an ethical coherence unifying the national one and the individual many. This is Trinitarian social theory, although people rarely make this connection. It is the reconciliation of the one and the many. In short, it is the reconciliation of individual plans.
This outlook is optimistic. Where it is widespread in a society, it produces optimism regarding individual futures and the nation’s future. This optimism is a fundamental feature of entrepreneurship. People start ventures on the basis of optimism. They do not launch businesses on the assumption that they will go bankrupt.
In 1846, Frédéric Bastiat’s book was published, Economic Sophisms. In Chapter 18, he wrote this memorable passage. It described the market-based coordination of the delivery of daily supplies to Parisians. “On coming to Paris for a visit, I said to myself: Here are a million human beings who would all die in a few days if supplies of all sorts did not flow into this great metropolis. It staggers the imagination to try to comprehend the vast multiplicity of objects that must pass through its gates tomorrow, if its inhabitants are to be preserved from the horrors of famine, insurrection, and pillage. And yet all are sleeping peacefully at this moment, without being disturbed for a single instant by the idea of so frightful a prospect. On the other hand, eighty departments have worked today, without co-operative planning or mutual arrangements, to keep Paris supplied. How does each succeeding day manage to bring to this gigantic market just what is necessary—neither too much nor too little? What, then, is the resourceful and secret power that governs the amazing regularity of such complicated movements, a regularity in which everyone has such implicit faith, although his prosperity and his very life depend upon it? That power is an absolute principle, the principle of free exchange.” This is what Leonard Read called the miracle of the market. But it is not a miracle. It is the development of an ethically coherent order of economic cause-and-effect. At its center is the Trinitarian God, who is both one and many. His legal order establishes protections for property: ownership, which necessarily involves the right of disownership.
Having asked his question, Bastiat answered it. “That power is an absolute principle, the principle of free exchange. We put our faith in that inner light which Providence has placed in the hearts of all men, and to which has been entrusted the preservation and the unlimited improvement of our species, a light we term self-interest, which is so illuminating, so constant, and so penetrating, when it is left free of every hindrance.” But free market economists refuse to invoke Providence, let alone God, in their intellectual defenses of self-interest. This puts them at a disadvantage when trying to persuade listeners.
The phenomenon that Bastiat described in 1846 was explained by F. A. Hayek in his 1937 essay, “Economics and Knowledge.” He focused on knowledge, just as I do in this book. Knowledge is decentralized and highly fragmented, yet the economy runs coherently and efficiently. Why? How? He wrote this: “. . . economics has come nearer than any other social science to an answer to that central question of all social sciences: How can the combination of fragments of knowledge existing in different minds bring about results which, if they were to be brought about deliberately, would require a knowledge on the part of the directing mind which no single person can possess?” There is no directing mind, he assumed but politely refused to say. So do his academic peers. Instead of invoking God, Hayek invoked spontaneity—Kant’s noumenal realm of scientific non-cause and non-effect. “To show that in this sense the spontaneous actions of individuals will, under conditions which we can define, bring about a distribution of resources which can be understood as if it were made according to a single plan, although nobody has planned it, seems to me indeed an answer to the problem which has sometimes been metaphorically described as that of the ‘social mind.’ But we must not be surprised that such claims have usually been rejected, since we have not based them on the right grounds.” He thought that economic logic would someday provide these right grounds. But it has not. Most people still want to believe that society is governed by ethical coherence. They are correct. It is. But free market economists refuse to speak of God or Providence. Bastiat knew better.
Economic theory tells us that individual economic plans are reconciled by the free market’s auction process. People need accurate information to construct profitable plans. They pursue their own ends, but they pursue them at a price. The free market’s system of competitive bidding for scarce resources produces a constantly changing array of prices. Prices change as conditions change. These conditions involve an unimaginable number of changes. The price system of the free market conveys these changes in a condensed form: objective prices. Individuals who are making plans for their economic futures find that their plans are easier to devise and easier to follow if they successfully incorporate these prices into their plans. They will not fly completely blind. This is the argument that Ludwig von Mises offered in his 1920 essay, “Economic Calculation in a Socialist Commonwealth.” The argument applies to central panning in a world without private property. But it also applies to individual planning. Prices enable people to allocate their resources in terms of plans that may work out to their advantage. Their plans may fail, but this will not be because they paid no attention at all to the economic facts conveyed by prices.
Prices do not provide explanations. Entrepreneurship involves making guesses about the objective causes of particular prices. But these guesses are bounded by prices. They are not wild guesses. They are guesses about causes and effects in a world of scarcity, especially a scarcity of accurate information.
Planners subjectively impute meaning to objective prices. This requires what economic theorists occasionally refer to: intuition. As in the case of spontaneity, intuition is another manifestation of Kant’s noumenal realm. Economists prefer to avoid this explanation, but all of them have it in the backs of their minds. This word coveys an admission: “We don’t know what it is. We cannot explain how it works. It operates in the realm of flux. But we know that someone who can convert bits and pieces of intuition into predictable processes can get rich. This is what successful entrepreneurs do.” I discuss this in Appendix A.
I call this process of understanding casuistry. It is accomplished by imputation. Christian theology used to discuss casuistry. It involves applying permanent ethical rules to individual circumstances. I have explained this in terms of God’s imputation, which is perfect and objective. Men are made in God’s image. They possess this ability as finite creatures. They possess the ability to impute accurate meaning to the world around us. This world is coherent. Above all, it is ethically coherent. People make plans (point two) in terms of ethics (point three), which requires them to impute future economic value (point four).
In a free market, each individual, whether acting as a consumer or as a producer, asserts his will by demonstrating his ability to pay for his plan in the marketplace. His performance is evaluated by the market by means of a system of profit-and-loss accounting. This is why people can work out their plans systematically. They can respond to changes in consumer demand. There is no single earthly unified plan. There is no single earthly planner present in the production process. On the contrary, the plans of acting individuals are very often in opposition to each other. Nevertheless, through the competitive action of the free market, the competing plans of each acting individual can be reconciled in a productive way.
When a buyer and a seller come together, they have different goals in mind. They have different plans. However, because they can bargain with one another, and because each of them can search out someone else who may be able to substitute for the person in front of him, there is a possibility for the working together of these various plans.
Both a buyer and a seller want to make a deal. If they enter into a voluntary exchange, each person has done so expecting to be better off. They both expect to win. There is no “equality of exchange.” Each one thinks he will be better off after the deal is completed.
Each market participant makes predictions about the economic future. These predictions may not come to pass. We are human; we do not know the future perfectly. One person may think that the price of an asset is going up in the near future, so he wants to buy now. Another person may think that the price of that asset is going down in the near future, so he wants to sell now. They can get together and make a transaction, each acting in terms of his best knowledge, and while one of them will be incorrect, at least for a time, the market still gets the benefit—price information—of the decisions of each of them. The best information that specialists possess is brought to bear on the operations of a tiny segment of the market.
Because of all these compacting plans and views of the future, the free market’s profit-and-loss system encourages the efficient meshing of everyone’s plans. This does not mean that everybody will be pleased with the results. People make mistakes. Some people lose money, while other people make money. Some people have their plans rewarded with profits, and other people have their plans rewarded with losses. The point is, there is a continual process of rewards and punishments in the free market. Good ideas or good plans, as judged by paying consumers, are rewarded with profits. Bad ideas or bad plans are penalized with losses. Therefore, throughout the day, or throughout the fiscal year, planners get feedback from the market. This feedback is from consumers. This tells producers whether or not they should pursue their present lines of production.
The free market is a self-regulating system for maintaining consumer authority, meaning the economic authority of the buyer, who possesses money: the most marketable commodity. This system of rewards by consumers is based on the moral principle of service to consumers. If consumers are not authoritative in the market, then some other administrative agency must issue plans to producers for the next month, year, or decade. If consumers do not rule as masters of the processes of production, then some other agency must do it. Specialized bureaucratic planners will issue directives to producers, and then later hold those producers accountable for everything that they have done with all the resources they have used.
There is no escape from planning. In a free market, there no escape from a system of information and incentives which pressures producers to judge their plans. The lure of profit and the fear of loss pressure these planners to revise their plans whenever their plans do not meet the demands of consumers. In contrast is a socialist system. There may not be any revision of plans until the economy crashes. Then leaders are forced to abandon the socialist system. This happened in Communist China in 1979 and Communist Russia in late 1991.
In a capitalist economy, consumers have a legal right to change their tastes. Producers must either conform to this shift in tastes or else suffer monetary losses. In a socialist economy, producers meet the plans of the planning agency, not the direct demands of consumers. They either conform to the requirements of the central planners, or else they are fired. Under Nazism and Communism, they could be executed. This is one way to reconcile plans. It leads to a production process motivated by the fear of not doing everything by the state’s written plan. This leads to confusion and arbitrariness. It is not possible to write down all of the required responses to every conceivable change in the economy.
There is no escape from the responsibility of making economic plans. The future is uncertain. It is also inescapable. People have to make plans. Individuals must make these plans. They may make them exclusively on behalf of themselves. More commonly, they make them as trustees of others, most obviously their families. Even in a centrally planned economy, individuals make plans. Somebody is held legally responsible for the results of these plans.
In a society with a high division of labor, these plans must be made in terms of today’s prices and expected future prices. The price system provides objective markers for decision-makers. These prices are the product of countless buyers and sellers who are acting in terms of the best plans they have and also in terms of the capital they own. Because people are self-interested, and because they do not want to make losses, they use the best information they possess when they make plans. But they may demonstrate poor judgment.
In a free market economy, the judges are future consumers. They will either buy or sell the output of particular plans of production. Consumers act on behalf of themselves or those people for whom they are legally responsible. In a socialist economy, the judges are bureaucrats who possess the power to reward and punish. Bureaucrats are supposed to act on behalf of the people, but there is no cause-and-effect system of rewards and punishments that places final authority in the hands of the voters. Final institutional authority is in the hands of representatives of the highest offices of the state.
The market process is a way of reconciling the competing plans of producers and consumers. Producers have an economic incentive to adjust their plans to the money spent by potential buyers. This incentive is highly personal for producers. These people are legally responsible for the outcomes of their plans, and they are also economically responsible. Private ownership establishes a legal connection between plans and economic results. The free market establishes an economic connection between plans and economic results. In this way, the one and the many are bound together by the price system. The many plans of individuals are reconciled by the outcomes of competing bids: prices. There is no comparable means for reconciling plans in a socialist system. In a pure socialist system, there are no prices. There is no market process in which competing bidders can establish monetary prices. This produces blindness on the part of consumers and producers. This was the point made by Mises in his essay, “Economic Calculation in the Socialist Commonwealth.” Central planners use coercion or the threat of coercion to reconcile the plans of producers and consumers. But they do so irrationally. Without prices, they are blind. They will lead the nation into a ditch.
Free market economists, especially those in the Austrian School tradition, make this argument without directly appealing to the God of the Bible. But to make this argument plausible, there has to be a system of civil law that protects the private property order. This civil law must be informed by a reliable system of ethics. There has to be an ethical foundation for the legal system. There also has to be a logically coherent relationship between ethics and predictable economic outcomes. If people do not believe that the legal system is just, they will not voluntarily cooperate with the state’s law-enforcement agents apart from the threat of violence against them. They will not use self-government to avoid breaking the laws of the legal system, especially when they think it is in their self-interest economically to do so. The predictability of the legal system steadily breaks down. The efficiency of the economic system breaks down with it.
Humanistic economists do not appeal to any system of law or ethics in their economic analyses. This is self-conscious on their part. They attempt to defend the efficiency of the free market process of exchange as an ethically and legally autonomous social arrangement. They face an enormous practical problem: gaining widespread support of the population for their system of economic causation. People want to believe that they can and will prosper by doing things the right way, but they also want to believe that in doing so, they are doing the right thing. Humanistic economists do not offer a cogent explanation for why the efficient market process is also morally just. They begin with the concept of value-free economics. This can lead logically to only one conclusion: a value-free social order with the free market economy serving as its foundation. But there is no such thing as a value-free social order. Most voters understand this and agree with it. They believe that they can safely ignore free market economists who come in the name of a metaphor: the invisible hand of the unfettered free market. Few people trust results of their economic decisions to a metaphor.
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The full manuscript is here: https://www.garynorth.com/public/department196.cfm