Many people are offended by the seemingly cruel and impersonal nature of economic progress, and so want to change it. If you were paying close attention earlier, you may recall this sentence, “Businesses that ignore these signals and continue to produce unwanted goods will eventually go bankrupt and their capital will be sold to other businesses that will produce goods the public wants—to the benefit of society.” It’s a sterile, declarative sentence. The business that goes bankrupt might wipe out the fortune of the family that owns it. The employees may lose their jobs or take a pay cut. These things cause pain and loss. If you are familiar with the five stages of loss, the third stage is bargaining, and most people will try and do anything they can to prevent it from happening.
The Austrian School of Economics treats the study of economics as a theoretical science. Just as one cannot break the law of gravity, one cannot break economic law. Our understanding may be refined, but that will still not allow one to fly. Unfortunately, most people are ignorant both of economic law and of the implications of trying to change it. In the next section, we will examine some of the economic fallacies and misperceptions that people have.
Money is the Root of All Evil
This frequent misquotation of the bible is, I believe, one of the most pernicious economic misperceptions ever to scourge the earth. First, let’s take a look at the actual bible passage:
But godliness with contentment is great gain. For we brought nothing into the world, and we can take nothing out of it. But if we have food and clothing, we will be content with that. People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction. For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs. – 1 Timothy 6:6-10.
First we see that it is the love of money that is a root not of all evils but of many kinds of evil. Verse 10 clearly states that people have wandered from the faith and pierced themselves with many griefs in their pursuit of money. This can occur in several ways. One is through opportunity cost. Time spent making money is most likely time not spent with family and friends. In today’s compartmentalized society, it is quite easy to allow oneself to be taken up with the pursuit of business at the expense of family, friends, and God. Another way that people can be lead astray is through dishonesty. The desire for money and can lead one to cheat, lie, commit fraud, and collude with the government.
Honesty in business practices is quite clearly against God’s law, and seven times warned specifically against dishonest scales of measurement (Leviticus 19:35-36; Deuteronomy 25:13-16; Proverbs 11:1, 16:11, 20:10, 20:33; Micah 6:10-11). The bible often condemns dishonest gain, but no where in the bible is business itself or the profit motive cursed, prohibited, or otherwise spoken about negatively. In fact, the bible often uses such language to motivate people to do what is right which brings us to our next misconception.
Selfish vs. Self Interest
Capitalism and trade have been condemned as selfish for thousands of years. Ever since the time Adam Smith first declared that, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest,” people have condemned capitalism as selfish and greedy. In fact, Karl Marx coined the term capitalist to serve as a foil to his communism. Hollywood has the infamous Gordon Gecko monologue stating that greed is good. The list goes on, but these are all distortions of the underlying economic concepts. Trade enriches both parties so long as they participate of their own free will and there is no fraud. In fact, what Adam Smith is really saying is that the reason people do for others is because it helps them.
Capitalism and free trade, business and commerce are completely in line with Jesus’ teaching that, “You know that the rulers of the Gentiles lord it over them, and their high officials exercise authority over them. Not so with you. Instead, whoever wants to become great among you must be your servant, and whoever wants to be first must be your slave (Matthew 20:25-27).” John D. Rockefeller became a millionaire not because he was strong, or a good fighter, or appointed to a high position. He became rich because he served a need that people had. He improved and enriched their lives and in return he prospered. There can be no principle more biblical than this when it comes to business and economic activity.
The Tax Man Cometh
Most people who find real economics too cruel or too selfish or too wasteful turn to the government. In their naivete they believe that government can some how turn the nature of humans and human action to something that it is not. They believe they can somehow circumvent human nature. But they can’t. Others are not so innocent; they come to government knowing full well that they mean to intend steal and defraud their fellow man. As we saw earlier, whether the government attempts to lower or raise prices, society as a whole suffers at the expense of a few. When government inflates, it has the effect of stealing from the populace and giving it to those the government spends money on first not to mention the economic havoc wreaked by the business cycle. Unfortunately, the economic mess caused by government intervention in the economy is usually met with even more calls for government intervention. And when the economy finally dies, we blame not enough government intervention.
Thou Shalt Not Steal
It is amazing how many people—Christians, Jews, and otherwise—think that stealing is somehow moral as long as the government does it for them. For example, the elderly in the United States are among the most politically active demographic. They can consistently be relied upon to vote for politicians who promise to increase or at least not decrease Social Security. And yet what is Social Security? Taxing (stealing) from younger people who work and giving to older people. Your grandparents most likely voted to steal your money last election!
Other people think that capitalism is inherently wasteful and harms the environment. They want the government to intervene to save the environment. Most environmentalists favor a centrally planned government—socialism. The president of the Czech Republic, Vaclav Klaus has called them watermelons: green on the outside, red (communist) on the inside. Ironically, the communist countries were some of the most polluted in the world. The fundamental problem is that centrally planned economies–whether socialist, communist, or fascist—destroy property rights. People care about their property. They don’t care about what is not their property. As a result, when the government owns everything, no one has any incentive at all to take care of the environment. In his book, All The Trouble in the World, P.J. O’Rourke has a funny, if tragic account of some of the environmental damage that was done to the former Czechoslovakia under communist rule.
The bottom line is that like nature, economics can be cruel, but we can’t make it nice through government intervention.
As we have seen, government intervention in the economy can only end in tears; and as stated before, the Austrian School’s attitude is that economics is what it is. As such, Austrian School economists tend toward the libertarian side of the political spectrum, however, there is no requirement. In fact, a socialist with an understanding of Austrian economics is even more dangerous than the bumbling fool economics of Franklin Delano Roosevelt who secured three re-elections for himself by destroying the economy. But for the moment, we will restrict this discussion to pro-economic politics.
The bible is quite clear on the subject. Governments impoverish and enslave people. God warned the Israelites through Samuel that a king would steal their livelihood, take their daughters as servants, and the sons as soldiers (I Samuel 8). God also warned that a king must not be allowed to become decadent, to raise a large army, to take many wives or accumulate too much gold and silver; moreover, a king must not consider himself better than his brothers (Deuteronomy 17). Within the context of the New Testament, it is quite clear that while we live earthly countries, we are citizens of God’s kingdom. As such we should be wary of any government with too much power. This fits very well with the Austrian economist’s libertarian bent.
The foundation of a good economy is property rights. Without property rights, there can be no trade. Without trade, division of labor falls apart, and we are left in perpetual poverty. The second requirement of a good economy is contracts. Trade is not so much an exchange of goods as it is an exchange of property rights. We often hear our grandparents or great grandparents talk about how in the old days, you didn’t need ten page long contracts. You just shook hands. What they are decrying is the devolution of contracts from an artifact of honor and honesty to an artifact of lawyers looking for any possible advantage. Regardless, as long as contract are honored, a society can prosper. This is why the Obama administration’s handling of the Chrysler bankruptcy is so disturbing.
Bankruptcy law is very clear about how debts are to be repaid, but the Obama administration has arbitrarily chosen politically connected creditors to receive preferential payment, effectively reducing the value of every contract in the entire country. When businesses and consumers cannot trust that a contract will be honored, they cannot trust trade to occur. Without trade, the division of labor breaks down, production falls, and society is impoverished.
The third requirement of a good economy is sound money. Money is too important to trust to government. Every government that we have records for has engaged in inflation. The temptation is simply too strong.
The last requirement of a good economy is a government that will keep its hands to itself. When Adam Smith described what we now called capitalism, it was in contrast with what he called mercantilism, a system where the government grants special favors, status, and contracts to certain businesses and organizations. Capitalism has only had a very brief existence in the Western world. It began in the American colonies as a matter of survival and caused economic growth unimaginable back home in Europe. The Revolutionary War was as much a rejection of mercantilism as anything else. Capitalism flourished until the Civil War, when Lincoln’s Republican party reinstated mercantilism. Ever since then, the American economy has slowly, bit by bit, had its capitalism stripped away.
Many people are frightened over the economic developments of the last year and even more frightened by the government’s response. Taking the off the distorted glasses of mainstream economics, and looking at the history of America through Austrian Economics, it is quite clear that under Woodrow Wilson and even more so under Franklin Roosevelt, the United States was a corporatist (fascist) economy. President may be Obama returning us to those times, but he is simply following in the footsteps left by President Bush who “abandoned free market principles to save the free market system.”
We survived Roosevelt’s corporatism, and as soon as we were free of him became the richest country on earth despite the shackles left behind in the form of Social Security, subsidized farming, labor unions, and bad monetary policy. Since then we have slowly allowed that freedom to be stripped away. We must see clearly that the government cannot solve social problems, it cannot prevent differences in income, it can only exacerbate them. As Thomas Jefferson said, “A government powerful enough to give us everything we want is also powerful enough to take it away.” We must also see that government cannot be used to force Christian morality. Regulating vices may seem good, but the same power that prohibits liquor can also prohibit the Lord’s supper.
By firmly understanding true economic principles and God’s teaching on the subjects of money and government, we may be able to return to an America of economic freedom and prosperity.