EMtext
An Economist's Meditations on
Economy and Christianity
Richard A. Stanford
All rights reserved. No part of this book may be reproduced, stored, or transmitted by any means—whether auditory, graphic, mechanical, or electronic—without written permission of the author, except in the case of brief excerpts used in critical articles and reviews.
CONTENTS
Preface
PART 1. GOD AND SCIENTIFIC INQUIRY
1. Creation Theories
2. The Anthropic Principle
PART 2. CREATION'S BOUNTY VS. ECONOMIC SCARCITY
3. Economic Resources
4. Labor
5. Specialization
6. Capital
7. Entrepreneurship
8. Profit
9. Rent
10. Property
PART 3. THE SELF AND OTHERS IN ECONOMIC BEHAVIOR
11. Self-interest vs. Altruism
12. Opportunity Cost
13. Risk and Return
14. Moral Hazard
15. Ethics in Business
16. Exploitation
PART 4. RELIGIOUS IMPLICATIONS OF ECONOMIC DECISIONS
17. Incentives
18. Sheep vs. Goats
19. Efficiency vs. Equity
20. Investment
21. Failure
PART 5. ECONOMIC IMPLICATIONS OF RELIGIOUS ACTIVITIES
22. Calling
23. Deserving
24. Miracles
25. Gifts
26. A Quid Pro Quo World
PART 6. THE HUMAN CONDITION
27. Poverty
28. Liberation Theology
29. Wealth
30. Economic Growth
31. The Environment
PART 7. CONCLUSIONS
32. Conclusions
Glossary of Terms Used in This Book
Return to START Menu
PREFACE
Since I am not trained as a theologian, I will not try to speak authoritatively about theological matters per se. My effort will be directed toward examining intersections of economy and religion in America purely from the perspective of a trained economist who is a professing Christian.
Even though I am not trained as a theologian, I am nonetheless a seeker of theological truth, but such an admission does not in any sense make me unique. Anyone who deliberately and honestly attempts to understand divinity is a seeker of truth about the nature of deity and the practice of religion in the contemporary environment. My particular quest is of course filtered by my graduate training as an economist. This also does not make me unique, only rare since it seems that few with economic training are inclined to delve into theological issues.
In this book, the term “economy” refers to a society’s institutional arrangements for allocating its scarce resources, producing goods and services, and distributing them to its population. The term “economics” refers to the study of economic relationships, i.e., descriptions of economic phenomena, theories about how they work, and policies to manage them. Terms for many other disciplines that study their subject matters end in “-ology”, e.g., theology, sociology, cosmology. A parallel term ending in “-ology” to mean the study of economic matters would be “econology”, but this term has not supplanted “economics” in popular usage.
Organization of the Book
The chapters in Part 1 consider concepts of deity relative to efforts of scientific inquiry.
The chapters in Part 2 explore the apparent contradiction between the presumed abundance of the created universe and the economic premise that all resources are scarce.
Economic theory is predicated upon the assumption of rationally self-interested behavior. The chapters in Part 3 explore the possibility of reconciling economic self-interest with Christian admonitions of altruism.
An economy is not an island unto itself. Almost everything that happens in an economy has implications for the larger society of which the economy is a part. The chapters in Part 4 explore the religious implications of economic decisions.
Likewise, whatever happens in the non-economic realm of a society has spill-over effects on the economy. The chapters in Part 5 examine the economic implications of religious activities.
The chapters in Part 6 discuss the human condition ranging from poverty to wealth, and considers the potential for improvement in human welfare in redistribution vs. growth.
Part 7, the final section of the book, offers conclusions with respect to intersections of economics and religion.
Richard A. Stanford
March, 2011
One of the characteristics that distinguishes humans from lower animal species is a seemingly insatiable quest for explanations of causation. No lower animal forms are thought to seek explanations of how the world works. In modern parlance, this human search for explanations may be described as "scientific inquiry."
One of the characteristics that distinguishes humans from lower animal species is a seemingly insatiable quest for explanations of causation. No lower animal forms are thought to seek explanations of how the world works. In modern parlance, this human search for explanations may be described as "scientific inquiry."
A Modern era supposition is that scientific method can yield conclusions that are relative (rather than absolute) “truths” which can stand until rejected or displaced by newly-discovered knowledge. Postmoderns dismiss scientific inquiry and contend that “facts” and “truth” are specific to circumstances and influenced by the observers, and thus are suspect.
A well understood aspect of scientific inquiry is that "it takes a theory to displace a theory." Earlier and more primitive explanations of a phenomenon may become recognized as inadequate or simply wrong. Postmoderns may take the nihilistic position that no objective theory is possible, but it seems to be a human proclivity through all epochs to continue to embrace even an acknowledged wrong theory until a newer and apparently more accurate theory of causation of the phenomenon comes along to displace the earlier theory.
As described by novelist Dan Brown in his book Angels and Demons[1], in ancient times all unexplained phenomena were attributed to divine causation. In this sense, the Genesis 1 and 2 "creation" stories were early and primitive theories of creation advanced by ancient Hebrews. Over the past four or so millennia, scientific inquiry has developed ever more sophisticated theories of the creation of the world, the universe, and multiverses, culminating by the end of the second millennium C.E. in the "Big Bang" theory advanced by particle physicists. A problem for modern readers of the Bible is the implication that the primitive theories of creation in the Bible should continue to be accepted as correct and accurate, even in the face of modern scientific knowledge.
A post-Postmodern reconciliation of the primitive explanations with the traditional theory of creation may lie in the belief (or recognition) that omniscient God is the ultimate source and provider of all knowledge, scientific and otherwise, and that God has continually (but gradually) released ever more knowledge to humans through the ages as they became able to grasp and understand it. Because the biblical cannon was firmly established by the fourth century of the Common Era, nothing of what has transpired in either theological thought or scientific knowledge has been added to it since that time. But God has continued to allow humans access to ever more scientific knowledge. What this implies (if it is true) is that the biblical creation stories should be regarded and valued as the best explanations by primitive peoples of a mysterious phenomenon, given the "science" of their day, but that there are better, more accurate, and more complete explanations in this latter day.
IF they are indeed theories of creation. Theologians have found different meanings in the so-called “creation stories”. One is that ancient Jews believed that all humans are shards of light and that light equals soul or consciousness.[2] In most of the biblical "creation" stories, light plays a crucial part. In the Genesis 1 account, God said "Let there be light," there was light, and God said that it was good. "Light" as a euphemism for enlightenment or revelation appears in a number of New Testament texts as well, among them Matthew 4:16, 5:14-16; Luke 1:79, 2:32; John 1:4-5, 9, 3:19-21, 5:35; Acts 13:47, 26:23; Romans 2:19; 1 Corinthians 4:5; 2 Corinthians 4:4, 6; Ephesians 1:18, 5:8, 5:13; Hebrews 6:4; 1 Peter 2:9; 1 John 1:5, 7, 2:8; Revelation 22:5. Jesus called himself the "light of the world" (John 9:5, 12:35, 46).
Could it be that the so-called "creation" stories were not theories
of creation at all, but rather explanations of enlightenment? The Genesis
stories actually are explanations of how God enlightened humans and revealed
to them aspects of his own nature. In the sense of scientific inquiry noted
above, God has continued to enlighten humans, not only with understandings
of himself, but also with ever more complex and accurate explanations of
causation of once (and still) mysterious phenomena. It's not that the "Big
Bang" theory is in conflict with the ancient creation stories; both are
specific to the theological and "scientific" understandings of their respective
times.
Chapter 1 Endnotes:
[1] Dan Brown, Angels and Demons, Pocket Books, 2000.
[2] Megan McKenna explains this in the video series, “Living the Questions”, livingthequestions.com LLC, http://www.livingthequestions.com/xcart/home.php.
2. THE ANTHROPIC PRINCIPLE
It may seem strange to include a physics topic in an exploration of postmodern intersections of economy and religion, but the reason will become apparent in short order. Recently theoretical physicists have been discussing the so-called "Anthropic Principle." The Anthropic Principle is the recognition that the universe seems to be carefully and finely tuned to support life.
Some have called the Anthropic Principle the "Goldilocks Principle”[1] since all of the necessary parameters exhibit "just-right" values to enable life to begin and evolve:
- Gravity is just strong enough to keep the universe from collapsing, but just weak enough that stars and planets could coalesce.
- The electromagnetic force of the outpouring of light and heat from stars is just sufficient to balance the gravitational forces of their own masses, which try to make them collapse.
- The strong nuclear force is just strong enough to hold the nucleuses of atoms together, even though the positively charged protons try to repel each other.
- The resonance level of carbon, which is the basic building block of life, is just sufficient that pair bonding of helium nucleuses can occur to produce carbon molecules.
- Supernovas have occurred, not too close to earth and not too far away, so that their shockwaves have been just sufficient to cause planets to coalesce and to make heavy elements available for the formation of life.
Some theoretical physicists regard the Anthropic Principle as a sneaky way to slip religion into physics theories. They rue the Anthropic Principle since it implies that an external entity was instrumental in the creation process. In their quest to explain the “singularity," i.e., the instant of creation at the so-called "Big Bang,” they continually seek an explanation of creation that is internal to received physics theory. However, a prominent theoretical physicist is supposed to have quipped that the Anthropic Principle has shaken the atheism of some theoretical physicists.
The Anthropic Principle doesn't prove the existence of God or that a divine being created the universe, but it provides perhaps the strongest circumstantial evidence that humans are likely to find in affirmation of the ancient religious tradition of divine creation.
Extreme Postmodernists would be inclined to deny both the biblical creation myth stories because they are part of a suspect “grand narrative,” and also the scientific evidence underlying the Anthropic Principle simply because it is reputed to be objective knowledge based upon observed facts that are collected in order to support an absolutist doctrine. Yet, such empirical evidence may appeal to post-Postmodernists’ need for an object of belief in which they can place trust.
In 2010, physicists Stephen Hawking and Leonard Mlodinow published their book entitled The Grand Design.[3] In it they make the case that our universe is but one of an infinite number of universes with different laws of physics that were birthed spontaneously in the Big Bang. Our universe happens to be one (and there may be others) that has just the right characteristics to support life, but it is also the only universe that we can observe by virtue of being inhabitants of it. Although they do not explicitly deny the existence of God, Hawking and Mlodinow conclude that a divine being was not necessary to the spontaneous occurrence of the Big Bang, to the properties of a universe that can support life, or to the establishment of the physical laws that govern the observable universe.
Hawking and Mlodinow’s theory of spontaneous creation of a life-enabling universe hinges completely on the mathematical possibility of an infinite number of universes, at least one of which is capable of supporting life. While it may be mathematically possible for an infinite number of other universes to exist (or to have existed), there is as yet no credible evidence of their existence. The existence of multiple universes is pure speculation based on mathematical possibility.
A time-honored adage of scientific inquiry is that it takes a theory to displace a theory. The biblical creation story is a primitive creation theory, but one that continues to be held sacred by Jews and Christians, even today. The physicists’ multiple-universe theory is an alternative to the primitive biblical theory. Hawking and Mlodinow assert that the Big Bang-multiverse theory has passed all tests to which it has been subjected. The challenging question for present-day Christians is whether it suffices to displace the primitive biblical theory.
Even if a divine being theoretically was not necessary to the spontaneous creation of the universe(s), this may be a sufficient condition, but not a necessary condition. The strongest argument that theoretical physics can make at this point is that our life-supporting universe could have been birthed as Hawking and Mlodinow theorize. But Hawking and Mlodinow still have not eliminated the possibility that a divine being did in fact spark the Big Bang and arrange (design?) the life-supporting laws of our observable universe.
This twenty-first century “could have been” theory may be consistent
with Postmodern thought, but religious Jews and committed Christians
are
not likely to regard it as compelling, and it is not likely to deter
their
subscription to the pre-Modern notion that the universe was created by
God who continues the process of creation through cosmic and evolution
processes. This is a faith-based position that has survived both
the Modern and Postmodern cultural epochs to serve as a foundational
belief
at the threshold of the post-Postmodern era.
Chapter 2 Endnotes:
[1] See the interview by Steve Paulson with physicist Paul Davies at http://www.salon.com/books/feature/2007/07/03/paul_davies.
[2] Robert J. Sawyer, Calculating God, Tom Doherty Associates, LLC, 2000.
[3] Stephen Hawking and Leonard Mlodinow, The Grand Design, Bantam Press, 2010.
PART 2. CREATION’S BOUNTY VS. ECONOMIC SCARCITY
God’s creation, the universe, is a bigger “place” than humans can imagine, and thus it contains virtually unlimited quantities of natural resources. Yet, under presently known technologies, only some of the resources on and under the earth’s crust are economically accessible. This means that the prices that they command must be sufficient to cover the costs of discovery, extraction, transportation, and processing. Future technological advances may give humans access both to more of the earth’s resources and to the bounty of the universe beyond the earth by lowering the access costs relative to resource prices so that access becomes entrepreneurially viable.
From a pre-Modern perspective, it may be said that God specializes in the on-going process of creation. Humans use the resources of the creation and specialize in producing capital goods and consumer goods. The chapters in this part explore intersections of economy and religion in the economic uses of creation’s bounty.
3. ECONOMIC RESOURCES
Nineteenth century economists identified three categories of productive resources: land, labor, and capital. Labor, the productive resource inherent to the human being, found its earliest application in extracting produce from the land. Early economists understood land to be a "free gift of nature," the quantity of which was not capable of augmentation by human effort ("They ain't making more land!").
In contrast to land, capital can be fabricated by human effort from natural elements. Capital can thus be distinguished from land by the fact that the stock of it can be increased. Nineteenth century economists designated "interest" as the return (or income) to any human-made productive resource, and "rent" as the income to any resource not capable of reproduction by human effort. A reconciliation of the economic concepts with scripture might be that God created "land," whereas humankind "creates" (or fabricates) capital from the natural elements contained in the "land."
Additions to the stock of physical capital are socially desirable because capital has the effect of amplifying the productive ability of humans. A most elemental example of capital is a lever which enables a person to move a mass much larger than possible by muscle power alone. Capital includes plant (the buildings within which production takes place) and equipment (the machines and tools used to convert raw materials into finished consumables). Modern examples of capital also include rolling stock (trucks, trains, planes), warehouses, computers, and communications devices. A crucial problem is that if human effort and physical resources are devoted to producing capital, they must be diverted from the production of consumables. The impetus to foregoing present consumption is that a larger capital stock can enable the production of even more consumables in the future.
Modern economists refer to land and labor as "natural resources" and "human resources," respectively. They also note that virtually all examples of either (except "virgin land" and newborn babies) have blended into them various amounts of capital. Capital is invested into land by clearing, contouring, leveling, plowing, irrigating, treating with herbicides or pesticides, and infusion with fertilizers. Capital is invested into human beings through acculturation, education, and training.
Modern economists also acknowledge a fourth productive resource, entrepreneurship. The entrepreneur is the "mover and shaker" in any social system. The entrepreneurial roles are to innovate (i.e., do something new and different) and to assume risk in so doing. Entrepreneurs are motivated by the potential for capturing profit. Unsuccessful entrepreneurship incurs losses. Without entrepreneurship, productive relationships would never change.
4. LABOR
Postmodern commentaries contain surprisingly few references to labor.
I have alluded to labor issues in other chapters. The purpose of
this chapter is to pull together those matters and consider them in light of
Postmodern thought.
Labor, Meaningless or Sacred?
In an apparent state of cynicism and depression, the preacher in Ecclesiastes 2:21-23 says that labor (“work”) is meaningless:
Whether labor is meaningless or sacred, the economist is not capable of judging. This question must be left to theologians to argue. What the economist can say is that as long as market economy is the prevailing form of economic organization, the principal enabling condition for eating is working to earn income that can be expended on edibles (and other consumables). In a market economy, the only consumption alternatives to working are stealing and receiving gifts. Communitarians, socialists, and gift economy advocates may imagine alternative distributional mechanisms for enabling consuming apart from working. In an authoritarian socialist regime it would be necessary to use the police power of the state to allocate labor resources and motivate (i.e., force) production of consumables. A gift economy might be congruent with communitarian thought, but the vehicle for motivating production of consumables is obscure.
For those who take labor to be sacred, we might ask what are the implications
of labor-saving technological advances that increase labor’s productivity.
With productivity increase, ever more consumables can be produced from
the same amounts of labor and physical resources, or lesser amounts of
labor can be used to produce the same quantities of consumables.
If labor is sacred, does this imply that labor-saving technological advances
are evil?[1] Or are the labor-saving technological advances gifts
of God, and thus also are sacred? What if, in the not too distant
future, automation and cybernation advance far enough to relieve humans
of many of the requirements of physical labor and management functions?
How then shall society occupy the hands and minds of those in the population
who are displaced by automation? TV entertainment and virtual-reality
games? One of the worst things that a government must deal with is
rising unemployment that allows idle people to stand around on street corners
carping about the government and fomenting revolution.
The Malthusian Prospect
Thomas R. Malthus argued in his famous 1798 “Essay on Population” that population growth may press upon the carrying capacity of the earth.[2] A modern interpretation of Malthus’ hypothesis is that as population grows, and with it the quantity of labor, per capita income will fall until it reaches the subsistence level. If it falls below subsistence requirements, Malthus thought that enough people would starve to stabilize the population with income levels hovering about the subsistence level. Malthus, a Church of England parson, invoked the “four horsemen of the apocalypse” (described in Chapter 6 of the book of Revelation) to represent the forces that would constrain population growth: war, pestilence, disease, and famine.
Two phenomena thus far have averted the Malthusian prospect on global scale, although it can be argued that it has been manifested in certain third-world countries. One is that technological advances in agriculture during the nineteenth and twentieth centuries have succeeded in vastly increasing the food production capacity of the earth. Problems of distribution of foodstuffs from excess production regions to deficit regions remain a problem.
The second phenomenon is demographic transition.[3] Scientists concerned with population issues have observed that with the introduction of modern medical technologies into a low-income region with high birth and death rates, the death rate in the region falls, causing an increase of the population growth rate. However, as the per-capita income of the region increases with economic growth, people begin to have smaller families so that the birth rate tends to fall toward the lower death rate. This has the effect of reducing the population growth rate and stabilizing the population of the region. Why people tend to have fewer children as per capita income increases is a subject of continuing analysis and debate by natural and social scientists.
Population growth spurts in low-income, slow-growing countries imply that they are in the middle of their demographic transitions, with attendant problems of feeding their burgeoning populations. Both Postmodern and Communitarian thinkers favor government action to address the population growth problem, but the proper role for government to play is a topic of ongoing debate. Some have advocated that governments and NGOs implement a “family planning” approach (a euphemism for birth control) in those regions. Others have posited that the best hope for reducing their rates of population growth lies in improving the status of women and promoting economic growth to raise their per capita incomes and induce completion of their demographic transitions.
The dual phenomena of technological advance and demographic transition have slowed global population growth, and there is a possibility that the global population may at some future time stabilize as high population-growth regions enjoy income increases sufficient to complete their demographic transitions. However, demographic transitions can go too far as revealed in several European countries. Birth rates in those regions have fallen so far relative to the declining death rates as to render population growth rates negative.
Although Postmodern thinkers are skeptical of such “grand narratives”
as the Malthusian prospect and explanations of why it has not happened,
both might fit nicely with Communitarian ideology.
Immigration
High-income countries with negative population growth rates have difficulty achieving and sustaining positive economic growth. One way in which such countries can sustain positive economic growth is to tolerate and even invite immigration from low-wage, high population-growth-rate regions of the world. Those who emigrate from their low-wage and economically stagnant environments tend to be the more capable and driven members of those societies.
However, immigration, legal and otherwise, has been shown in many regions
to precipitate local opposition on racial, ethnic, lingual, religious,
and employment grounds. The employment issue is that immigrants who
are willing to work at lower wage rates than locals take the jobs that
“rightfully belong” to the locals, and thus tend to cause rising unemployment
among the local labor force. The counter argument is that although
in the short run immigration tends to have a wage-leveling effect, the
longer-run effects are that the immigrants bring new human capital and
entrepreneurial drive, pay taxes, and increase demand for the economic
output of the region, thereby stimulating economic growth.
Exploitation of Labor
Karl Marx (Das Kapital, 1867) hypothesized that capitalism would exhibit an ever sharper dichotomization of society into a property-owning class of capitalists (the bourgeoisie) and a propertyless laboring class (the proletariat). Worsening class conflict would culminate in violent revolution of the laboring class to overthrow the capitalist class. Although Postmodern thought is generally skeptical of such “grand narratives”, Postmoderns often have favored the class struggle component of Marxist thought as a vehicle for replacing capitalism with authoritarian socialism.
Liberation theologians have described capitalism as a "class war by the rich against the poor”. In economic interpretation, this is a charge that the rich exploit the poor, and more specifically that the capitalist class exploits the laboring class. Liberation Theology attempts to graft Marxian class struggle onto Catholic theology via a dialectical process. A dialectical process occurs when an existing situation (a "thesis") comes up against an opposing force (i.e., is confronted by an "antithesis") and culminates in a blended outcome (a "synthesis"). Marxian dialectical materialism hypothesizes a confrontation of the power and material wealth of the bourgeoisie by an exploited and impoverished proletariat, out of which comes a synthesis in the form of a dictatorship of the proletariat to control the possession and use of material wealth. The intent is both to eliminate exploitation and to alleviate poverty.
The possibility of exploitation of labor occasionally arises as a topic in the context of wage negotiations in Western market economies. A common charge is that workers are being exploited by employers, but the intended meaning of exploitation is elusive. Does it mean that some workers receive less income than they would like? ...less than others receive for similar work? ...less than they need in order to subsist? ...less than the employer could pay? ...less than the executives or shareholders (capitalists) receive? Or is the complaint really that the income of the highest salaried executive is many times that of the lowest-paid shop-floor worker, and thus is "obscene"? For non-economists, exploitation may be much like pornography as assessed by US Supreme Court Justice Potter Stewart: “I shall not today attempt further to define [hardcore pornography]; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it….” [4]
In the economic definition of exploitation, an employer exploits a productive resource (a worker, a machine, a computer program, or anything else that is involved in the production process) if the employer captures a larger share of the market value of the product than warranted by the marginal contributions of the other resources provided by the employer. Evidence of exploitation may lie in enterprise profits that are greater than normally possible in the industry. However, this is not a certain identification of exploitation since "super-normal" profits may occur temporarily until competitive pressures compete them away, or they may be attributable to successful entrepreneurship.
An enabling condition to exploitation of labor is that the employer is more knowledgeable of resource market conditions than are the owners of resources, including human labor. The possession of better information allows employers of resources to take advantage of the providers of labor resources when compensation rates are negotiated.
A second enabling condition to exploitation is the exercise of monopoly power. In the labor market, monopsony power (monopoly power on the buyer's side of the market) enables the employer to take advantage of employees by paying sub-normal wages. The best antidote to monopolistic exploitation is more intensive competition in both product and resource markets.
Because of the intricacies of productive interrelationships and the difficulties of measuring both costs and contributions to production, it is very difficult to verify the actual occurrence of exploitation in an economic sense. That a company executive's income is larger than the incomes of other company employees cannot be a basis for judging that worker exploitation has occurred. Simply because a menial worker's income is low and perhaps not even adequate to meet the subsistence needs of his family is not a basis for identifying exploitation. The fact that a company pays workers in third-world countries less ("sweat-shop wages") than it pays workers to perform the same functions in its home-country facilities is not per se evidence of exploitation. Nor is the loss of jobs evidence that exploitation has occurred. Nor is the fact that a company is operating profitably evidence of exploitation.
Unless ignorance or monopoly position has enabled the owners of capital to take advantage of its workers and this can in some way be documented, income differentials among employees (including managers) may be attributable only to productivity differences among them.
Economists presume that in free societies labor market participants are "free agents" who choose where to work of their own volition. Can one who freely accepts employment at an offered wage rate be exploited? The answer, unfortunately, is "yes" if the worker is ignorant of alternatives or unwilling to relocate to take advantage of alternative employments. In the latter case, worker immobility confers upon the employer monopsony power that enables the employer to pay lower wages. A possible example lies in public education where the labor force consists largely of rather immobile female dependents of males who are employed in the commercial sector. If the wage rate that the employer must pay in order to attract an adequate labor force is lower than the market value of labor’s productivity, the workers are indeed exploited.
Exploitation in the labor market is the deliberate and systematic effort
on the part of one party to take advantage of other parties by paying wages
less than values produced at the margin. Occasional, accidental, and unintentional
circumstances of compensation less than value produced should perhaps not
be construed as exploitation if the situation is soon remedied. As has
been adopted in court tests of monopolization under American antitrust
law, the acid test of exploitation might be taken to be the identification
of specific intent to exploit.
Unemployment
Unemployment is one of the so-called “twin evils” of market capitalism (the other being inflation). The “Great Depression” of the 1930s decade saw unemployment in many of the Western market economies approach a quarter of their respective labor forces. In the early post-World War II period, the governments of the US and the UK were the first in the world to legislate responsibility of the government for achieving and maintaining high enough rates of employment, and implicitly low-enough rates of unemployment. Natural recovery forces accompanied by Keynesian-inspired government policy were gradually reducing unemployment during the second half of the 1930s decade when fortunately (or not) World War II ensued to mop up all remaining unemployment and further pull into the labor force people (students and women) who prior to the war were in school or who did not work outside of the home. Macroeconomic policy during the post-WWII era has alternated between dampening inflation and reducing excessive unemployment. Occasionally, during periods of “stagflation”, government has found itself addressing both simultaneously.
Unemployment increases in particular locales for three principal reasons: cyclical downswings that reduce the demand for the goods and services produced by labor, technological advances that have the effect of “saving labor”, and the outsourcing of product and offshoring of production to lower-cost locales. Local labor interests vigorously oppose both outsourcing and offshoring with commensurate loss of employment in local industries. An economic argument is that the jobs lost from local non-comparative-advantaged industries releases labor to be retrained and reemployed in comparative-advantaged industries at higher wage rates.
All three of these forces have been at work during the “Great Recession” of 2008-2010. By mid-2010 unemployment had become principal object of the Obama administration economic policy and the premier issue in the 2010 mid-term Congressional election races. Although the industrial, commercial, and financial sectors of the US economy were showing signs of recovery, the US unemployment rate remained stubbornly above the 9.5 percent level of the labor force. Productivity had continued to increase over the course of the recession as businesses released labor and the retained employees carried out essential production activity. By mid-2010 businesses were producing and selling more output and beginning to invest in new capital, but of the labor-saving types.[5] Economists were forecasting a slow and painful recovery with respect to unemployment that might last several more years. The policy debate focused upon whether to implement another round of stimulus spending (as advocated by many Democrats) or leave in place tax cuts that had been enacted during the previous administration (favored by most Republicans).
The 2010 unemployment conundrum begs a critical question about how in
the twenty-first century American society should provide the food, fiber,
and shelter essentials to sustain the lives of its population. If
life is to be sustained by working to earn enough income to buy the essentials,
then what is the responsibility of government to ensure enough employment?
Does this responsibility extend to providing government employment if there
is insufficient employment in the private sector? An affirmative
answer would seem to be congruent with Postmodern thought. If the
link between eating and working is to be broken, then what are to be the
mechanisms that motivate production and work, and that handle the distribution
of output to the society? A communitarian response would seem to
fit this alternative.
Chapter 4 Endnotes:
[1] In 1811 and 1812, English textile workers led by one Ned Ludd broke and burned newly installed machines for fear that the machines would disemploy them. Ned Ludd’s name served to identify the so-called Luddite movement. Today the term “Luddite” refers to a person who fears technological advance that increases labor productivity and which may result in job loss.
[2] In economic theory the Malthusian prospect is analyzed with a production function in which output is dependent variable and labor is independent variable. Other resources (land, capital, materials) are assumed to be given and fixed in supply. The production function exhibits what economists call the phenomenon of “diminishing returns”, i.e., as one input (labor) increases relative to quantities of other inputs (capital, materials), output will increase at a decreasing rate, eventually reach a maximum, and then decrease absolutely. In the figure following, Q is the quantity of output (product); L is the quantity of labor available (a proportion of the population); TP is total product that varies as the labor input is changed; APL is average product, a.k.a. output per capita of labor; MPL is marginal product of labor; S is the subsistence requirement for a laborer and his dependents. Diminishing returns occurs between the L1 and L3 quantities of labor as output (TP) increases at a decreasing rate (i.e., TP increases but is concave downward). Marginal productivity is maximized at the L1 quantity of labor. Output per capita (APL) is maximized at the L2 quantity of labor. Total output (TP) is maximized at the L3 quantity of labor (also the quantity at which MPL is zero). As per Malthus’ argument, the maximum labor force that can be sustained by this economy is the L4 quantity of labor plus dependents (i.e., the maximum population). If the quantity of labor should increase beyond L4, output per capita of the labor force (APL) would be less than necessary to meet the subsistence requirement (S) of the average laborer and his dependents, so enough people would starve to return the labor force to L4. The average wage (APL) would thus hover in the vicinity of the subsistence level.
[3] A graphic depiction of the demographic transition model accompanied by a brief outline exposition of it may be found at the Barcelona Field Studies Centre website, http://geographyfieldwork.com/DemographicTransition.htm.
[4] Justice Potter Stewart, concurring opinion in Jacobellis v. Ohio, 378 U.S. 184 (1964), regarding possible obscenity in The Lovers.
[5] Robin Harding, writing in The Financial Times, says “One reason for jobless recoveries is that employers now use recessions to push through improvements to productivity, Mr Krueger [the US Treasury’s chief economist] said. That reduces their need to hire back staff quickly. US productivity rose rapidly throughout 2009 and the first quarter of 2010.” “Top economist sees hope for US jobs”, The Financial Times, September 12, 2010, http://www.ft.com/cms/s/0/7e899264-be98-11df-a755-00144feab49a.html?ftcamp=rss&ftcamp=crm/email/2010912/nbe/InTodaysFT/product.
5. SPECIALIZATION
Specialization according to the economic principle of "comparative advantage"
(what the apostle Paul called "gifts") together with division of labor
and trade, are principal ways in which human welfare increases in an open-economy
world. An open-economy world is one in which governmentally imposed
hindrances to trade (tariffs, quotas, etc.) are minimal.
Humans specialize in producing things that serve their needs as consumer goods or capital goods. Some of God's creation is directly consumable (e.g., biological products that grow in the wild or in bodies of water), but God does not create complex consumer goods or capital goods.
Capital goods are by definition "man-made means of production” that can produce other goods, either consumer goods or more capital goods. To produce capital goods, humans must forego consumption-related productive activity and leisure, and this requires a deliberate decision to do so.
God's creation provides the natural resources for humans to use in the production of consumer goods and capital goods. Nineteenth-century economists referred to natural resources as "free gifts of nature" or "free gifts of God."
Some of the resources used by humans are capable of replenishment, e.g., forests and fisheries. Other resources that are extracted from the environment are so-called "wasting assets," i.e., they are extracted and used but are incapable of being replaced. Examples are mined minerals and extracted petroleum.
Logically, humans eventually could exhaust the earth's wasting assets, but thus far (by God's leave?) humans have continued to discover more such assets at faster paces than they waste. And the universe turns out to be a very big place that is replete with wasteable assets--all capable of serving human needs once the technological knowledge possessed by humans advances enough to permit humans economical access to them.
Investment in capital assets by humans is the principal way in which humans pursue economic growth that increases per capita incomes and thereby raises levels of material human welfare. The impetus for humans to engage in capital investment rather than expend on exhaustive consumption is a future orientation that is sparked by the expectation of adequate return to the investment.
Some subhuman animal species also engage in "investment" in capital goods, e.g., birds build nests and beavers build dams, but they are thought to do so as a matter of instinct rather than deliberate future-oriented decision behavior.
Consumer nondurables have short lives and are consumed "immediately" but leave residues or waste that either pollutes the creation or are recycled by humans into other consumer goods or capital goods.
Consumer durable goods and capital goods have longer lives, but they "depreciate" (deteriorate from wear and use) and eventually have to be scrapped. Scrapped capital goods need to be replaced if economic growth is to continue to enhance human welfare. Scrapped capital goods and durable consumer goods may despoil the creation, or humans may recycle them into other capital and consumer goods.
All of the so-called "built environment" consists of capital goods and durable consumer goods constructed by human beings. God created the natural environment; humans constructed the built environment. God does not build structures to serve as capital goods or consumer durables.
Consumer durable goods and capital goods serve minimal human needs for shelter and workspaces. But many of them have features and qualities far beyond the minimal needs for shelter and workspaces. To refer to such goods, sociologist and economist Thorstein Veblen coined the term "conspicuous consumption" which first appeared in his 1899 book, The Theory of the Leisure Class. Conspicuous consumption durable goods are evidences of affluence and exclusivity.
It is a characteristic of human behavior to attempt to acquire and build up personal wealth to be exhibited as durable conspicuous consumption goods, e.g., second-home mansions in the mountains, at the beach, or on the lake, high-powered boats, and luxury cars. Jesus implied the sinfulness of people who accumulated wealth far beyond personal need and reserved it to their exclusive use, but who could not take their wealth with them at death.
It is also a characteristic of human behavior on the parts of those who are unable to acquire durable conspicuous consumption goods to indulge in resentful envy, a variant of covetousness that the last of the Ten Commandments prohibits and implicitly renders sinful.
God, who specializes in creation, may not engage in production of capital goods, but a question to be considered is whether God provides the impetus to humans to engage in investment behavior. God is reputed to have created humans in his own image, and thus to have endowed them with god-like intelligence and a modicum of free will, including the ability to perceive future possibilities and to engage in deliberate decisions to invest or consume based on expected return criteria.
Is it really God who sparks human investment activity and the accumulation of capital by humans? And is it God who is the ultimate source of the technological knowledge that may eventually enable humans to access the resources of God's greater creation beyond the earth itself?
6. CAPITAL
Capital, a crucial ingredient in the functioning of all modern economies irrespective of how they are organized, is described by economists as a "man-made means of production." But the writer of Genesis says in the first verse of the Bible that ..".God created the heavens and the earth." (NIV) The Psalmist says in chapter 24, verse 1, "The earth is the LORD's, and everything in it, the world, and all who live in it." Isaiah says in chapter 45, verse 18, "For thus says the LORD, Who created the heavens, Who is God, Who formed the earth and made it, Who has established it...." Is there a contradiction here? How is capital created, by whom, and how does it fit into God's creation?
The motivation to invest in capital is anticipation of a rate of return that is adequate to cover the cost of borrowing funds to finance the investment. One who undertakes such investment is a "capitalist;" the income earned from capital is called "interest." Capitalists perform a socially beneficial function by increasing the stock of capital, which in turn enhances human productive capacity and enables a larger flow of consumables.
"Capitalism" is a form of economic organization based upon private property and the accumulation of capital. There are two distinct varieties of capitalism. Fascism is a form of authoritarian capitalism in which the stock of capital is privately held, but the control of it lies with a dictatorial authority that determines the product mix and specifies production quotas to be met by the capitalists. Market capitalism employs market mechanisms as the means of enabling widespread participation in the social determination of the society's product mix and to divide current production between consumer goods (which meet immediate needs) and capital goods (which enhance future productive capacity).
As a general rule, Western democratic societies have rejected authoritarian capitalism. But even within these societies, social liberals may feel uncomfortable with private enterprise capitalism because of its distributional implications. The private ownership of the stock of capital may result in inequality in the distribution of wealth if the ownership of capital is not widely dispersed. The distribution of income also may become skewed toward entrepreneurs and the owners of capital since successful entrepreneurship yields profit income and the capital yields interest income to its owners. Social liberals who feel strongly enough about this issue may become socialists who advocate state ownership of the stock of capital, or communists who advocate collective ownership of it.
Even though capitalism is a system based upon capital accumulation, it should be apparent that capital is not the exclusive province of capitalism. A stock of productive capital is essential to any form of economic organization. In medieval feudalism, the manor house, outbuildings, wagons, cattle, and tools constituted the nobility's stock of capital. German fascism relied heavily upon an industrial base of privately owned capital. The Soviets found that they could make little progress with a dictatorship of the proletariat until they had accumulated an adequate stock of capital. Examples of capital can be found in biblical literature. In the parable recorded in Matthew 21:33-43 and Luke 20:9-18, the landlord accumulated capital by planting a vineyard and hedging around it, and by building a wine press and a tower. The crucial question is not whether a society must rely upon a stock of capital, but who should own it and how it should be controlled.
What is God's role in regard to capital? The Judeo-Christian tradition understands God to be the creator and sustainer of the universe, hence the initiator of life and the provider of the natural resources that nineteenth century economists referred to as "free gifts of nature." There is a clear-cut division of function between deity and humanity. Investment in capital is a peculiarly human activity. God provides the natural resources in his creation; human beings extract the raw materials from nature and combine them to produce consumable goods and capital equipment. A Moslem might impute a divine role into human investment and productive activity by adding the phrase "by the grace of God" (or "Allah willing") at an appropriate place in the previous sentence.
But there has to be a dilemma here for both deity and humanity. Capital formation is a human process that both extends the productivity of God's creation and improves the welfare of human populations by increasing the flow of consumables. But the processes of production and capital formation also involve depletion of natural resources and degradation of the environment by extraction and pollution. These effects may be moderated by determined efforts to diminish pollution and by exploration to discover yet more natural resource reserves. Resource extraction serves the present generation by enabling the production of consumables, but it also constrains the consumption possibilities of future generations unless the future generations can discover and access more deposits of natural resources, either on this planet or in the greater universe.
Capital formation serves the future generations by enhancing future productive capacity, but the concomitant environmental pollution has to impair the quality-of-life potential of future generations. If God looks favorably upon a human process that improves the welfare of his human subjects, is he at the same time displeased if the by-product of capital formation is environmental degradation?
7. ENTREPRENEURSHIP
The operative forces influencing the composition of wealth holding in an open society are technological advance and entrepreneurship. Economists distinguish among three functions in this process. Invention is the development of an idea for a new product or new process. Entrepreneurship is the assumption of the risk of innovation in the attempt to put the new idea into commercial operation. Management is the routine oversight, coordination, and control of the on-going process once it has been established on commercial scale. It is possible, though rare, for all three functions to be performed by the same person. Examples include Henry Ford, Edwin Land, and Bill Gates.
During the latter half of the twentieth century the more typical situation has been for the inventor to sell his or her invention to someone else who undertakes the entrepreneurial function. The "someone else" may be a single-person venture capitalist, or it may be a corporate entity that institutionalizes the entrepreneurial function. Since there is no guarantee of the success of any entrepreneurial venture, failure results in losses that may impoverish the would-be entrepreneur. Successful entrepreneurship is rewarded by profits, which, if they are not dissipated in “riotous living”, may cumulate to vast fortunes. Management is successful if the efficiency or productivity of the established process can be improved. Successful managers are rewarded by their governing boards with salaries and bonuses which often are tied to specified performance indicators like sales, stock values, or rate of return on assets.
The entrepreneur is the "mover and shaker" in virtually all economic processes. Without entrepreneurship, change simply does not occur. Development economists have come to recognize the crucial role which entrepreneurship must play in the economic development process. There are examples of regions of the world which contain rich deposits or reserves of natural resources, but which remain untouched because no one yet has been willing to assume the risks of innovation. By the same token, there are desert or arctic places that are essentially devoid of natural resources, but which have been made to bloom by the exercise of entrepreneurship and the expenditure of effort and resources. The main problem of the traditional society (e.g., pre-British India) is an absence of a mechanism to invoke entrepreneurial activity. Without entrepreneurship, nothing changes.
Entrepreneurship is not specific to market economy. Entrepreneurs have been the agents of economic change through the ages, irrespective of the form of economic organization. In systems other than capitalism the change agents may function as bureaucratic or political entrepreneurs. Old Testament biblical entrepreneurs include Noah who built the ark, Joseph who organized the Pharaohs' grain storage business, Moses who led the Israelites to a new homeland, David who achieved political consolidation, and Solomon the builder. In the New Testament, the apostle Paul was an entrepreneur who spread the gospel to the non-Jewish world. These biblical entrepreneurs were inspired or directed by God. Is it possible that God today plays some role in the impetus to human entrepreneurial action in the modern world?
In the modern world, economic entrepreneurs create wealth in a dual sense. Financial wealth is created when equity shares (stocks) or debt claims (bonds) are issued to finance entrepreneurial ventures. But it can also be argued that successful entrepreneurship also enhances the values of the natural resources provided in God's creation. We may also infer that successful entrepreneurs seem to possess a certain gift that others in society lack. The gift lies in the entrepreneur's ability to create jobs and generate incomes for those who hold the jobs. However, no entrepreneur is motivated to innovate and assume risk simply to create jobs and generate incomes for other members of society. This special ability is entirely a by-product of the pursuit of profit and social recognition.
I am privileged to know and go to church in company of a number of people who have achieved significant accumulations of wealth by means of successful entrepreneurship. Some of them inherited at least part of their wealth, but most started out from very modest circumstances. Although I am not privy to precise information about their charitable contributions, I observe that many of them have been extremely generous in regard both to their own church and to various non-church-related charities. Even so, I suspect that their greater social contributions have lain in the employment and income generation by-products of their entrepreneurial successes. Whether the entrepreneurially successful have been generous givers or not, their entrepreneurial successes have benefited the lower-income segments of society (i.e., "the poor") in the forms of job creation, income generation, and an increased flow of lower-priced consumables.
It's easy to envy and begrudge the accumulation of wealth among the affluent members of our congregations. But why not celebrate both entrepreneurship and the wealth that flows from it? The employment and income generation by-products are benefits to society. An appropriate role for both clergy (religious institutions) and academy (the educational establishment) is the infusion of social conscience so that those who achieve wealth via entrepreneurship or otherwise will be inclined to put it to good uses.
"What good is it for a man to gain the whole world, yet forfeit his soul?" (Mark 8:36, NIV). Does realizing a profit mean that one will lose one's soul? Is realizing profit evidence of sinful behavior? Is profit a legitimate income?
8. PROFIT
The Classical economists of the nineteenth century identified three types of resources that they called "factors of production": land, labor, and capital. After Joseph Schumpeter's early-twentieth century contribution, entrepreneurship was added to this list. The incomes (or "returns") to these productive factors are, respectively, rent, wage, interest, and profit. The nineteenth century economists regarded the incomes of the original three as clearly earned by their productivity. But since profit is computed as the residual between revenue and costs, there has been a lingering question as to whether profit is also an earned income.
The reason that profit warrants examination in light of scripture is that socialists, particularly Marxists and Liberation Theologians, tend to regard profit as an illegitimate type of income which should go, not to the capitalist, but to other resources, particularly labor. Even social liberals who would not consider themselves to be socialists tend to be uncomfortable with the realization of profit by business interests.
There are thirty-nine uses of "profit" and its derivatives in the Old Testament of the Bible. Most of them imply gain from personal behavior; twelve seem to relate to the modern concept of profit from commercial activity or the use of resources. There are thirty-five references to profit in the New Testament, but only four of them seem to relate to profit in the commercial sense. In some of its biblical uses the word "gain" may come closer to the modern meaning of commercial profit. There are nine uses of "gain" in the Old Testament, five of which are seem to pertain to commercial profit. There are thirteen uses of "gain" in the New Testament; three are related to commercial profit.
The Old Testament references to profit are probably not intended to shed light upon the modern concept of commercial profit, but some out-of-context interpretations may be useful. Although Psalm 30:9 may simply refer to "the pit" as the grave and the body turning to dust after death, an imaginative interpretation is that of a miner who works in a dangerous mining operation; if he is killed (and his body goes to dust) the mine owner can no longer profit from his labor. Proverbs 14:23 suggests that employers can realize profit on employed labor. But the profit in Ecclesiastes 1:3, 2:11, 3:9, and 5:16 seems to be about the return for the use of labor, what modern economists call a "wage." Ecclesiastes 5:9 suggests that profit should be enjoyed collectively by society, but it is the king (a capitalist?) who captures the profit. This interpretation provides a biblical basis for the socialist's regard of profit as an illegitimate income when captured by the capitalist (the king). Ecclesiastes 7:11 and 10:10 could be about using intelligence to improve efficiency, thereby to enhance profit. Isaiah 30:5 might be about inefficient labor that can turn no profit for the employer. Jeremiah 12:13 seems to suggest that failed entrepreneurship will yield no profit. In Jeremiah 13:7 a piece of spoiled merchandise cannot be sold at profit.
In the New Testament, Matthew 16:26 and Mark 8:36 seem to declare that profit is not legitimate because it causes the loss of one's soul. This interpretation may confuse cause and effect. A causally more appropriate interpretation may be that exploitative behavior by a commercial venture which results in loss of one's soul will yield useless profit, i.e., short-term gain which can be enjoyed only during the few years of material life, but long term loss for the duration of eternity. Matthew 25:30 lies at the end of the parable of the talents; the third servant who buried the talent entrusted to him and thus earned no interest is evicted from the household. This suggests that profit is a legitimate income to be pursued. Luke 17:10 chastises servants (employees?) for doing no more than their duty, thus not working to earn profit for the employer.
Proverbs 3:14 asserts that the return on investments in wisdom will be greater than that from silver or gold. Proverbs 15:27 suggests that greed for gain (profit) will be destructive of familial relationships. Proverbs 28:8 seems to suggest that ill-gotten (usurious and unjust) gain shall be taken away and given to the poor. Isaiah 33:15 suggests the illegitimacy of exploitative profits: a righteous person who despises exploitative profit (gain of oppressions) shall "dwell on the heights" (verse 16). Ezekiel 22:13 implies the illegitimacy of exploitative profit (dishonest gain). In Acts 16:16, a damsel (servant, employee) brought her masters (employers) gain because of her special capability (spirit of divination). In Acts 19:24, another person with special ability (a silversmith) brought gain to his group (craftsmen). Philippians 3:7 suggests that personal profit is illegitimate because it is an opportunity loss to Christ.
So, what conclusions follow from these interpretations of scripture? They do not seem to indicate that all profit is illegitimate, only that which is exploitative (usurious, unjust, from greed). In many places the scriptures simply mention profit or gain in passing as if it is a normal result of employing resources effectively and efficiently. A few scriptures suggest that failure to pursue profitable opportunities constitutes dereliction of duty.
The modern economic conception of profit is the difference between revenue and cost. If the difference is negative, it is known as a "loss" rather than a profit. The computation of "accounting profit" deducts the total of explicit costs denominated in monetary terms from the total of realized monetary revenue. "Real profit" or "economic profit" is the net difference between all benefits and all costs to the commercial entity. All benefits include those recognized by the commercial entity's accounting system plus any which are not recognized by the accounting system or denominated in monetary terms. All costs include not only those recognized by the accounting system, but also those non-pecuniary costs which economists refer to as opportunity costs (the value of what is not done) and psychic costs.
Economists today regard profit as playing an essential role in an economy organized around markets. According to Joseph Schumpeter, the entrepreneur is the moving force in the market economy. The essential roles of the entrepreneur are to introduce innovations and to assume risk in so doing. Without entrepreneurship nothing would ever change in the economy. Since there is no guarantee of success, the entrepreneur might suffer loss if the innovation is unsuccessful. But if the innovation is successful, the entrepreneur would capture profit as a reward for the assumption of risk. Profit then plays a dual role in the modern market economy: before the fact of innovation it serves as a motivation to assume risk; after the fact of innovation it is a reward for the assumption of risk if the innovation is successful, but a negative profit (a loss) is a penalty for assumption of risk if the innovation is unsuccessful.
Economists also identify a third essential function played by profit in a market economy. It is the signaling mechanism that makes the consumer sovereign. Consumers "vote their preferences" of goods and services by spending their purchasing powers (either from current income or accumulated wealth). The "dollar votes" are tallied in the income statements (a.k.a. "profit and loss statements") of business firms. Firms whose managers choose to ignore the preferences of consumers by producing goods that they do not care for will suffer losses and eventually failure. Firms whose managers recognize and meet consumer preferences may enjoy profits and survival. Profit then is the reward to business firms for acquiescing in the sovereignty of consumers over them. This function actually is coincidental with that of entrepreneurship since it is an entrepreneurial function to select an appropriate product mix to produce and sell.
This signaling mechanism may fail to work properly if competition is impaired. This may happen when firms in some industries achieve monopoly position (a single seller of a product for which there are no close substitutes) or monopoly power (the ability to determine prices even if they are not actual monopolies). With sufficient monopoly power, the management of the firm can attempt to impose "producer sovereignty" over consumers by first deciding what they wish to produce, and then through manipulative marketing efforts attempt to convince consumers to want these products.
Even without attempting to impose producer sovereignty, a seller with sufficient monopoly power may engage in monopolistic pricing to raise price above what would be the competitive level. If the seller's demand is "inelastic" (i.e., unresponsive to price changes), raising price should increase the firm's revenues and may enhance its profit margin. Monopsony (monopoly on the buyer's side of the market) power in a resource market (e.g., the labor market) may enable a resource employer to pay less than competitive resource prices, and thereby to exploit the resource by paying it less than the value of its marginal contribution to the production process. Greed may become the driving motivation for the achievement of either monopoly or monopsony power.
Modern economists are generally agreed that entrepreneurial profits and profits that result in competitive markets are legitimate and serve useful economic functions. They are also generally in agreement that monopoly and monopsony profits are undesirable and indicative of impairment to the market mechanisms. These conclusions are in general congruence with biblical scripture regarding profits. The problem is that since any profit income is a residual between revenues and costs, it is not easy to discern what portion (if any) of the residual is attributable to monopoly or monopsony power. It is tempting to socialists and social liberals to regard any profit incomes as illegitimate consequences of the exercise of monopoly and monopsony power.
What can be done about the illegitimate and undesirable portion of profit income that is attributable to monopoly and monopsony? In economies like those of the U.S. and the U.K., public policy is levied in the form of antitrust (or antimonopolies) laws, but they are only as effective as the vigor of their enforcement. If public policy in this regard becomes ineffective, socialists may advocate nationalization of industry to capture the profit incomes for use by the state, and Marxists may advocate violent revolution to establish a dictatorship of the proletariat that will eliminate the profit income.
9. RENT
In economic theory, "rent" is the income captured by any factor of production that is demanded but which is fixed in supply, and purely because it is fixed in supply. Actually, any income may be a composite of wage (labor income), interest (capital income), rent, and profit (a residual of total income less all other incomes).
The bulk of the income of a rock star, e.g., Elvis, was rent for his unique persona rather than wage for his hours "worked" or interest on his personal capital. We may remember that Chevy Chase's by-line was "I'm Chevy Chase, and you're not!" The economic interpretation of this statement is that "I can pull down rental income because of who I am, and you can't because you're not me." Back to Elvis: there are numerous Elvis impersonators today who are in fact attempting to capture some of the Elvis rent. Needless to say, the owners of the Elvis estate attempt to reserve all such rent to the estate and prevent its capture by imitators.
Anyone who receives an income greater than which is warranted by hours worked at a "going" wage rate is receiving some combination of interest on his/her human capital (education, training, experience) and rent for his/her special and unique ability or persona. Bill Clinton now gets more than $100,000 per speech, mostly rent!
Originally, rent was taken by early 19th century economic thinkers to be the return only to land. "They ain't makin' any more land," so buy whatever land you can because the price can be expected always and only to rise. Of course, this adage has been disproved recently. As the nineteenth century unfolded, economic thinkers came to the realization that rent is the income to any factor of production that is fixed in supply, not just land.
Henry George, in his 1879 book Progress and Poverty, advocated replacing all other taxes with a "single tax" on land.[1] George argued that government could tax away all rents, and this would have no effect on the use of land (the supply of which is perfectly inelastic). Well, of course, this is exactly what kings (through the ages, including those of the Old Testament), manorial lords, popes, and present-day governments have attempted to do. Humans aren't making any more land (except perhaps to recover river silt by dredging it). As Henry George himself pointed out in an 1890 article, the only land (more generally, "natural resources") available for human use was created by God "in the beginning."
So, why should any human be allowed to capture and enjoy any rent from
the fixed supply of natural resources that are the bequest of the Creator?
Shouldn't all such rents accrue to the Creator? Should an argument
be made from the pulpit that congregants should expect to enjoy no more
than their wage and interest income (if it could be objectively identified),
but all income in excess of that should accrue to God as rent in the form
of church contributions?
Chapter 9 Endnotes:
[1] Henry George, Progress and Poverty , 1879; see http://www.henrygeorge.org/denigris.htm.
10. PROPERTY
Advocates of socialism (including many Postmodern thinkers) might wish to eliminate the private ownership of property which is essential to the functioning of a market economy. The Old Testament of the Bible does not contain the word "private," and the nine incidences of it in the New Testament do not pertain to ownership. Since the Bible does not use the term "property," we must look for biblical synonyms that fit the modern sense of the term. The terms "possessions" and "goods" seem to be closest in meaning. There are ten Old Testament references and four New Testament references to possessions. There are twenty-six references to "goods" in the Old Testament, and fifteen in the New Testament.
Virtually all of the references to "goods" in both Old and New Testament suggest a private property meaning. But the biblical references give us mixed signals about the ownership of possessions. The first verse of the Bible acknowledges God to be the creator of the heaven and the earth; implicitly, God "owns" the entire universe. The Psalmist says that the earth and everything contained in it belong to God (Psalms 24:1, 50:12, 89:11). In verses 26 and 28 of Genesis 1 the writer says that God let humankind rule over all the earth (Genesis 1:26, 28); this implies at least stewardship (although the word is not used in the Old Testament) if not possession. It is noted in Genesis 26:14 that Isaac acquired great possessions (“flocks and herds and servants”, NIV) which the Philistines envied. The Israelites acquired property while in Egypt (Genesis 47:27). After their exodus from Egypt and the forty years of wandering in the wilderness, God gave the "promised land" to the Israelites (Exodus 12:25). Once they took possession of the land, they acquired great possessions. The writer in Second Chronicles (32:27-29) notes that God gave Hezekiah, King of Judah, great riches. The preacher in Ecclesiastes 1-2 declares the accumulation of possessions (and knowledge as well) to be meaningless. It is noted in Acts 2:44 and 4:32 that members of the early church pooled their possessions and held everything in common and “gave to anyone as he had need”, thereby establishing a primitive model for socialism.
In a world characterized by scarcity, virtually everything of value has a price greater than zero. It necessarily follows then that everything of value must be owned by someone, and its price must be paid by others in order to gain ownership or control over it so that it may be used or consumed. Fundamentally there are only two modes for rationalizing the ownership and control over scarce resources: collective ownership with allocation of use by authority, and private ownership with allocation through market mechanisms.
Most economists in the West would advocate private ownership of resources over collective or common ownership. The problem of common ownership is that users of common resources have no incentive to conserve or enhance the value of those resources. Indeed, the incentive lies with using up the resource as rapidly as possible before others do so. There are numerous examples which we might examine: using water from a village well or from a stream, grazing sheep on a village common, grazing cattle on the open range, commercial fishing of the open seas, timber cutting or mining from public lands, off-shore petroleum drilling and extraction. Even members of a church group dining at a pot-luck dinner may exhibit the phenomenon since the most desirable dishes seem to be exhausted by the first people through the serving line. The problem can be variously described as over-grazing, over-fishing, or over-consuming.
Economists describe these circumstances with a symbolic term: “dipping from a common pool”. The problem of the common pool is that no one has incentive to conserve its contents, and all have incentive to dip as much as they can before others do. The inevitable consequence is the tendency for the pool to be exhausted. With respect to strip mining, this phenomenon has been referred to as "the rape of the land."
We should acknowledge that some natural resources, such as timber and the fertility of croplands, are capable of replenishment (or are "renewable"). Mineral and petroleum resources are examples of "wasting assets" in the sense that as they are extracted the quantity is "used up" and cannot be replenished. Such wasting assets are especially subject to the common pool principle. But so also are renewable assets if human populations do not make deliberate efforts to re-seed, rotate crops, let land lie fallow periodically, or properly fertilize. "Slash and burn" agriculture and the cutting of the rain forests in tropical regions are examples of dipping from a common pool without replacement.
The depletion of renewable resources by each generation impairs the ability of the earth to support future generations and constitutes a human failure of stewardship with respect to God's creation. It is debatable whether the exhaustion of the non-renewable resources of the earth constitutes a breach of stewardship. In giving humankind dominion over all the earth, did God give mineral and petroleum resources to humankind to be used, and hence used up? Human populations of the future may not be limited strictly to the finite resources of the earth. After all, in the Judeo-Christian tradition, God created the whole universe.
There are a few exceptions to the principle of the common pool. Continued dipping from the well of knowledge does not seem to exhaust it. And people who subscribe to the Judeo-Christian tradition believe that God's reservoir of grace has no bottom to it either.
Economists in the West usually favor private ownership of finite resources because an owner has incentive both to conserve the limited amount of the resource and to try to enhance the value of the resource. The market plays a vital role in this regard by bidding the market price to a level that rations out frivolous and wasteful uses of the resource. Competitive (i.e., non-monopolistic) pricing of privately owned resources ensures that they are used in their most socially efficient applications. Also, a positive market price has the effect of slowing the rate of exhaustion of a resource. However, if monopoly power has been exercised in the pricing process, resources may be misallocated to socially inefficient uses. The appropriate role of public policy (i.e., the exercise of intervention authority) in a market economy is the preservation of competitive conditions. This implies the prevention or punishment of monopolistic control.
How does private ownership of property square with the biblical proposition that the universe belongs to the Creator? In giving humankind dominion over all the earth (and the entire universe?), God implicitly grants use rights to each generation of human beings, and these use rights must in some way pass to subsequent generations. As noted above, our "choice set" for allocating rights to use the earth's resources consists of either collective or private ownership. If use rights are owned collectively (e.g., under a regime of socialism), they will have to be allocated by exercise of some central authority in order to avert the resource exhaustion problem of dipping from the common pool. With private ownership of resources, the problem of the common pool can be avoided as long as the exercise of monopoly power can be prevented or averted.
PART 3. THE SELF AND OTHERS IN ECONOMIC BEHAVIOR
Western economic thought is essentially egoistic in the sense that economic actors are assumed to be rationally self-interested in their behavior. The chapters in this part explore the implications of self-interested economic actions upon other members of society and the possibility of reconciling economic self-interest with Christian admonitions of altruism.
Economists understand humans to be self-interested, that is, to
serve
their own interests in dealings with other humans. This would seem to
be
congruent with the Postmodernist’s presumption of the individual’s
extreme
subjectivity of values and interests. It is the presumed rational
pursuit of self-interest that underlies the functioning of a market
economy.
In An Inquiry into the Nature and Causes of the Wealth of Nations
(1776),
Adam Smith asserted that the pursuit of self-interest may also serve
the
public interest as well because it is often true that what an
individual
wants coincides with the interests of the larger society. This was a
radical
notion at the time because it had been presumed that individual wants
always
were mutually exclusive with "the public weal."
Critics of capitalism take "greed" and "self-interest" to be synonyms, but they prefer the language of "greed" to that of "self interest." In the nineteenth century Marxian perception, greed is the motivation that causes the capitalist class to exploit the laboring class. A modern economist might reject the notion that greed and self-interest are synonyms. Self-interest is an objective or clinical term, whereas greed is value-laden. Greed might be understood as self-interest in the extreme, that is, without regard to the interests of others.
One might imagine a continuum with perfect
altruism at one end, extreme greed at the other, and varying degrees of
self-interest in between.
| | |
| * | * |
| * | * |
| * | * |
| * | * |
| * | * |
| * | * |
ALTRUISM [ * * | | | * *] GREED
<=== LESSER SELF-INTEREST GREATER ===>
For most societies the continuum might be characterized as a normal distribution with a "bell-shaped" graph for a typical population. The distribution could be skewed in one direction or the other for some societies or some subgroups of any society.[1] Jesus, the epitome of ultimate selflessness, would define the altruistic extreme. Toward this end of the continuum would be people of conscience who are generous and who attempt systematically to practice selflessness. Toward the extreme of perfect greed would be egocentric people who may upon occasion engage in "random acts of kindness." Around the middle of the continuum would be the majority of the population (the ninety-five percent who fall within two standard deviations of the mean) consisting of normal people who are rationally self-interested but who often engage in altruistic acts. I suspect that most of us fall into this middle range.
The Bible contains no references at all to the terms "interest" or "self-interest." It contains only ten usages of the term "greed" and its derivatives; six appear in the Old Testament, four in the New Testament. As a group they seem to support the contention that greed is an extreme form of behavior, and the implication is that such extreme behavior is sinful. None of these or any other biblical references seem to suggest that human beings should not take care of themselves and their loved ones. Indeed, Jesus noted that we love ourselves and implored us to love our neighbors as ourselves (Matthew 19:19, 22:39; Mark 12:31, 33; Luke 10:27).
It cannot be denied that people engaging in market activity may become greedy, and greed may in fact have become the driving force of some (how many?) engaged in entrepreneurial, marketing, and financial activities. Marketing specialists and traders in financial markets may be especially susceptible to the motive of greed because they are always driven to achieve higher sales, larger market shares, or higher market values. But entrepreneurs may be different. Everett Hagen suggests that a true entrepreneur is motivated not by the prospect of profit but by the desire to achieve success through innovation, and in so doing to gain social recognition.[2] In this conception, profit is a reward for successful innovation after the fact. For a real entrepreneur, money is only a numeraire of success, not an object of pursuit.
It is not appropriate to jump to the conclusion that all market dealings are characterized by greed. Greed as a universal motivation would be destructive of the functioning of market economy because it would lead each market participant to cynicism and distrust of other parties to market transactions. Nor should we assume that there is a higher incidence of greed among the affluent or altruism among the poor. Many wealthy people are generous contributors to worthy causes, and some poor people are stingy.
Economists understand that the well being of other members of society may be compatible with an individual's self-interest. They hypothesize that satisfaction depends upon a number of independent or deterministic variables.[3] One or more of those independent variables may represent the well being of family members, neighbors, or the humanity as a whole. The possibility of such determinants of satisfaction means that it is perfectly rational for self-interested people to act in the interests of others.
Economists presume all economic beings to be self-interested, even committed Christians who are urged to be altruistic (i.e., selfless) givers. But how can these two presumptions be squared with one another? Are they simply incompatible or mutually exclusive? Perhaps not if church and other charitable contributions can be construed as "goods" which, when "purchased," yield satisfactions to the purchaser (i.e., the giver). The purchase prices are the opportunity costs of other goods that cannot be purchased with the income devoted to the contributions.
This may seem to contradict the sense of altruism that ideally would involve generosity without expectation of return. From the perspective of human nature it may indeed be economically rational to engage in altruistic acts that involve foregone consumption possibilities. "Compensation" for such acts may be in the form of a "feel-good" effect after the fact. Ministers of the gospel may admonish us to "give selflessly," but perhaps the admonitions would be more effective if they were to acknowledge the baser economic reality of the human condition: give because you will indeed feel good about your generosity.
Why does altruism seem to be such a scarce "good" in the modern world? Either because the price is too high (in terms of foregone satisfactions from material goods which cannot be bought with the contributed income), or because personal valuations of it (satisfactions derived) are judged to be too low.
Here is where Christians have fallen down during the Postmodern era
in transmitting to successive generations the force of Jesus' teachings
relative to the well being of fellow humans. People simply have not
been
led (by family? by clergy? by academy?) adequately to value the
benefits
of altruism relative to the opportunity cost of the portion of earned
income
given up in making the contribution. Herein lies a challenge for
the coming post-Postmodern era.
Chapter 11 Endnotes:
[1] The shape of such a distribution for a specific population might be ascertained by administering to a large-enough sub-set of the population sample a well-designed survey instrument containing questions intended to discern attitudes of survey subjects with respect to hypothetical greed vs. altruism situations.
[2] Everett Hagen, The Economics of Development, Richard D. Irwin, 1980, page 217.
[3] A satisfaction function may be represented in functional notation as
12. OPPORTUNITY COST
In the passage in Luke 14, verses 25-33, of the Bible’s New Testament, Jesus specifies that the cost of becoming his disciple is leaving family and selling all of one's possessions. To an economist, this suggests the economic principle of opportunity cost.
The opportunity cost of doing something is the highest-valued alternative that is not selected. Opportunity costs are attendant upon every life decision, however monumental or trivial. When I decide to spend a half hour typing out these thoughts, I must forego all other alternative uses of my time. The opportunity cost of the next half hour devoted to this essay is a half hour of time that could have been devoted to preparation for my class at 8 a.m. tomorrow morning. The opportunity cost of a career in higher education is a foregone career in business, industry, finance, medicine, or ministry.
What is the opportunity cost of my annual contribution to my church? I could devote it to the purchase of consumables that would enhance my own comfort or that of my family. I could devote the amount to acquiring some asset that would enrich my stock of wealth. I could use the money to pay down on my accumulated debt. Or, I might use it to add to my retirement fund.
Since opportunity cost is the highest-valued alternative foregone by the individual, it is entirely subjective, a concept that is congruent with Postmodern thought. What is most important to me might be of lesser importance to another person who contemplates an equivalent annual church contribution. While I might explore the theological implications of any of these alternative uses of that amount of money, for purpose of argument I'll say that the highest valued foregone alternative for me is the addition to my retirement fund accumulation.
This is no trivial consideration. Suppose that over a 40-year period inflation is not an issue and that my contributions increase gradually over the period from $0 during the first year to, say, $5,000 in the 40th year of my career, with average contribution over the period of $2,500 per year. The contribution total over the 40-year career is $100,000. But the accumulation total over the 40-year career would be much larger by virtue of the fact that the earlier-period contributions would earn interest which compounds in later periods. The value of an annuity averaging $2,500 per year for 40 years invested at 6 percent rate of interest is nearly $400 thousand dollars!
But perhaps I should contemplate this trade-off a bit more. Suppose that I take the retirement contribution alternative and forego the church contributions. I will build my "treasure on earth," but it will benefit me only for that short period of time between my retirement and my death. The opportunity cost of this choice would be to jeopardize my "treasure in Heaven" for eternity. As a Christian, my motivation to forego my earthly wealth accumulation in favor of the 40-year church contribution alternative is to follow Jesus' dictum to accumulate my treasure in Heaven.
13. RISK AND RETURN
Copyright 2011 by Richard A. Stanford
The principles of stewardship, risk, and return on investment are illustrated in the Parable of the Talents which Jesus relates in Matthew 25:14-30 (a variation of which appears in Luke 19:11-27) in the New Testament of the Bible.
In this parable Jesus says that the Kingdom of Heaven is like a man going on a journey who entrusts various amounts of his property (denominated in "talents") to three servants on the basis of his assessment of their abilities, but he gives them no instructions as to what to do with the property. The implication is that the talents entrusted to the servants are real property, but they may also have included liquid assets such as money. Apparently the man has a reputation for "hard-nosed" business dealings.
The two servants entrusted with the largest amounts (five and two talents, respectively) engage in trade and so double the amounts by the time the man returned. We don't know the duration of the man's absence, but if it was a year this implies a yield rate of 100 percent per annum. Shorter or longer periods of time imply commensurately higher or lower per-annum yield rates, e.g., if the man was gone for a quarter of a year, the first and second servants would have achieved a per-annum yield rate of 400 percent.
The third servant, entrusted with only one talent, buries it in the ground for safe-keeping and returns it intact to the man upon his return. The man rewards the first two by entrusting them with even more of his property. But the third servant is thoroughly chastised for not at least investing the talent with a banker at interest. The man punishes this servant by taking the talent from him and entrusting it to the servant who then has ten talents; the third servant is cast out of the household. In concluding the parable, Jesus asserts a seemingly harsh conclusion that those who have (what is not clear) will be given more (of what, for what purpose?) whereas those who have not (again, what is not clear) will have taken away from them even that which they had.
Does the last statement (verse 29) imply that the rich will get richer while the poor get poorer? I don't think so. It seems to me that Jesus perhaps intended to indicate that those who have greater ability and are faithful in employing it will be given more (of what, the resources of the earth?) over which to serve as stewards, while those with less (no?) ability will have taken from their stewardship even that little bit with which they were entrusted.
In modern financial parlance, the servants assume a "fiduciary trust" over the talents given to them by the man; the "prime directive" that a trustee must obey is to preserve the asset over which the trustee exerts control so that it may be returned to the owner intact. But in this parable, apparently the owner expected much more from the servants than simple fiduciary trust. They are expected to exercise entrepreneurship to increase the value of the trust. Even though no instructions were given in regard to the use of the property, the servants knew from past experience with the owner's dealings that some "return" in addition to the principal was expected. The evidence is in the behavior of the first two servants, and in the third servant's statement, "I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed." (verse 24, NIV). Entrepreneurship of course entails risk, so the first and second servants were fortunate that they didn’t actually lose the property that was entrusted to them [as indeed might have happened during the 2008-10 economic crisis].
The scenario of the parable is suggestive of a modern circumstance, although the "fit" admittedly is loose. A present-day "venture capitalist" is someone of wealth who has funds to invest but who does not himself undertake the entrepreneurial role. Rather, prospective entrepreneurs who may have ideas but no funds approach him with proposals. He evaluates the would-be entrepreneurs and their proposals, choosing to reject some and entrust funds to others.
While modest returns may be realized on relatively low-risk investments such as stocks, bonds, or certificates of deposit, a venture capitalist is willing to commit funds to risky ventures in expectation of much greater returns if the ventures are successful. Most venture capitalists are sufficiently risk averse that they choose investment opportunities with favorable odds of success so that they can continue to "stay in the game." However, some venture capitalists may be gamblers; a gambler is one who gets satisfaction from occasional wins in adverse-odds bets even though the probabilities are such that he will lose more than he wins.
There is no way of knowing in advance whether the ventures will be successful, or if successful just how successful. The venture capitalist thus assumes the financial risk of the venture even as the prospective entrepreneur assumes non-financial risks, e.g., reputation and relationships with family and friends. The venture capitalist risks not only the loss of income on his investments; he also risks the very funds invested (the principal) if the funded ventures fail.
The ideas that become entrepreneurial successes yield profits that are split between the entrepreneur and the venture capitalist at some agreed-upon formula. Successful entrepreneurs may be invited to "return to the well" with other proposals for consideration in the future. In the case of an unsuccessful venture, the would-be entrepreneur's reputation is spoiled and the venture capitalist is "out" his investment. Needless to say, the venture capitalist will not likely entertain subsequent proposals from would-be entrepreneurs who have lost funds for him in earlier failed ventures.
Perhaps it would be taking the analogy too far to suggest that God is like a venture capitalist, but let's explore this possibility a bit. In Genesis we are told that God gives dominion over all the earth to mankind; this implies a fiduciary trust over the real property of the earth. In a very real sense God risks his creation by placing control over it in human hands. He may even be gambling with the creation to place it in human hands. The analogy weakens because fiduciary responsibility and control are passed from generation to generation rather than being reclaimed by God at some point (is this what the flood was about? is this what will happen at the end of the world?). Since God has not yet held any particular generation responsible for the return of his creation in original or improved condition, it is an open question whether population growth coupled with economic development have resulted in improvement (via capital accumulation) or deterioration (due to resource depletion, pollution) of the environment (creation). Have we "made the world a better place?"
On a more personal basis, God also commits fiduciary trust to each of us with respect to our very lives. Some of us, like the first and second servants in the parable, invest our lives with education and training, and a few exercise successful entrepreneurship over our lives to achieve great returns on the investment. Others, like the third servant in the parable, do little with our lives, returning them at their ends to God "intact," thus fulfilling the responsibility of fiduciary trust. Some simply throw away their lives in idle uselessness or self-destruction. What are the consequences?
Here is another parable that presents a bright possibility: reward for successful stewardship and entrepreneurship over God's creation and our very lives. Is the reward material or spiritual? In this life or the next? But there is also a dark side: if we do not preserve God's creation or if we squander our lives we may be thrown "into outer darkness."
14. MORAL HAZARD
Moral hazard is a problem that occurs when a principal commissions
an agent to act on his behalf, but the agent engages in shirking, pursues
self-interest to the detriment of the principal's interest, or indulges
in dishonest or immoral behavior. A special case of moral hazard occurs
when one party in good faith attempts to provide some possibility of benefit
to other parties, but finds that beneficiary parties take advantage of the
possibility in ways not perceived by the provider and to the detriment
of the provider, themselves, or innocent bystanders. This phenomenon may
be referred to as "beneficiary moral hazard."
Economists have long been aware of the possibility of beneficiary moral hazard in a number of economic arenas. The classic example is that of deposit insurance. In the wake of massive banking failures during the Great Depression, the U.S. Congress enacted legislation that provided for the insurance protection of depositor balances, initially to the extent of $3000 per account, but for only one account per depositor. Banks that were members of the Federal Reserve System were required to pay nominal amounts, computed as a percentage of customer deposits outstanding, into an insurance fund to be administered by a government-owned corporation, Federal Deposit Insurance Corporation (FDIC). If a bank failed, its depositors' balances would be paid out of the accumulating insurance fund. Other things remaining the same, this was a good thing because it helped to restore confidence in the U.S. banking system during the late-1930s and '40s. In subsequent decades the insurance coverage was extended to $5000, then $10,000, $30,000, and finally $100,000 per deposit, which is where it stands today. A similar share insurance program was also established by Congress to cover "deposits" in saving and loan institutions (S&Ls) to be administered by the Federal Savings and Loan Insurance Corporation (FSLIC).
The problem which began to manifest itself during the 1960s and '70s was that depositors, feeling secure in the belief that their deposits were fully protected by insurance, ceased to pay attention to the financial soundness of the banks and savings and loan institutions where they placed their deposits. And bank and S&L managers, secure in the belief that their depositors’ balances were fully insured by agencies of the federal government, felt relieved to undertake ever more risky loans, both domestically and internationally. Domestically, high-risk loans with the potential for high returns were extended upon the basis of real estate collateral on the belief that land values would only continue to increase. Eventually, the real-estate boom broke and land values fell precipitously, particularly in the Southwest of the United States. The disastrous effect was that many borrowers could not repay their loans. Banks foreclosed on loans and took over the real estate collateral which had become worth far less than the principal values of the loans.
Internationally, U.S. bankers issued risky loans to both foreign governments and private companies, and then had difficulties collecting principal and interest when the loans "went bad." It was all too easy to co-opt the U.S. government into guaranteeing foreign loans in the interest of preventing an "international banking crisis." Governmental loan guarantees free bankers to issue high risk loans with potential for high returns if they do not "go bad," which of course many did.
Today it is widely recognized, at least in academia even if not in public policy circles, that the sources of the 1970s bank and S&L failures were government loan guarantees and federally sponsored deposit insurance programs. Both depositors and bankers (including S&L managers) were guilty of the moral hazard of taking undue comfort in the subsidized insurance schemes, and thus indulging in behavior that eventually resulted in a debacle. Eventually the FSLIC's accumulated fund was depleted in redeeming depositors’ accounts. The FSLIC was eventually declared bankrupt and its insurance liabilities absorbed by the FDIC. Likewise, the FDIC's fund depleted to dangerously low levels. The Congress voted billions of dollars from the general revenues of the U.S. government during the late-1970s to bail out failed S&Ls and banks whose depositors' balances far exceeded in sum the accumulated insurance funds. In retrospect it could be recognized that the nominal insurance premiums paid by banks and S&Ls were nowhere near adequate to cover the potential liabilities of the insurance systems. The massive bail-out funds confirmed that the deposit insurance in effect was being heavily subsidized by the federal government. It would be wrong to conclude that deposit insurance per se is bad. Deposit insurance with premiums set at realistic rates to fully cover the actual liabilities would force depositors and bankers fully to take into account the risks they are assuming.
Before going on to identify other recent examples of beneficiary moral hazard, we can generalize the phenomenon as follows: in any circumstance where one party stands ready to assist, bail-out, or redeem another party when they get into trouble, there is the potential for beneficiary moral hazard, and particularly when the cost of bail-out is borne largely if not completely by someone else. Here are some more examples.
Flood insurance is good in that it helps those who suffer the natural disaster of a flood to recover and rebuild. However, when such flood insurance is provided at subsidized rates by public authority and coverage is made available for structures in known flood plains, people are encouraged to build "in harm's way," secure in the knowledge that they will be "bailed-out," at least financially, following the next flood. Worse still, instead of taking the flood insurance benefits to rebuild at an alternate site above the flood plain, they usually proceed to rebuild at the same site which is just as prone to flooding as ever it was.
A virtually identical example of beneficiary moral hazard lies in hurricane insurance that is provided at subsidized premium rates to people who build beachfront homes out over the dunes. Historical data indicate that it is highly likely that roughly every ten years a hurricane is going to destroy or at least cause serious damage to the homes. When the inevitable occurs, insurance policy holders take their insurance benefits and, of course, rebuild at the same sites, but even farther out over the dunes. In the cases of both flood and hurricane insurance, the moral hazard follows not from the availability of the insurance itself, but from the fact that the insurance is subsidized out of the public coffers. I once heard a friend who owns beach-front property say that he could not afford such hazard insurance if he had to pay full-cost market rates for it.
Parents unwittingly encourage beneficiary moral hazard by their teen-age children when they absorb or share the cost of their automobile insurance premiums. The knowledge that "I am covered" and someone else is paying the premiums invites teenagers to take chances on the roadways. Highschoolers might become more careful drivers if they were forced personally to pay the full costs of their auto insurance premiums with the knowledge that the premiums would vary significantly with their demonstrated driving behavior.
Parents of college students foster beneficiary moral hazard when they provide general subsidies of their offsprings' "living expenses," including their parking tickets. If dad is going to cover it (or even some significant part of it), why not go ahead and park in prohibited zones? It's just a "cost of doing business," i.e., a cost of getting the education.
Recently we have seen reports of the escalating costs incurred by fire departments, rescue squads, and EMS providers. To a significant extent these rising costs are attributable to the fact that some people are more willing to hike or ski in risky places or do risky things with the certain knowledge that if they get into trouble they will be rescued. The rescue service providers' budgets are of course largely subsidized out of the public coffers or contributions, so that the rescued parties rarely are charged the full costs of their rescues.
Beneficiary moral hazard may also result in response to unemployment compensation and social safety nets. People who become unemployed during an economic downturn are eligible for unemployment compensation benefits at some proportion of their earned incomes while they were still working. The intent is to provide relief while the out-of-work person seeks new employment. Empirical evidence suggests that the effect is to enable the benefits recipient to remain unemployed longer and to be more particular in his or her job search than might be the case in the absence of such benefit eligibility. The costs of such extended private search thus descend upon the larger society.
A similar phenomenon may result from eligibility for welfare benefits. Welfare benefits are well intended to provide a social safety net for the poorest members of society. If those who become eligible can survive comfortably enough on the benefits, there is little incentive to seek employment that might enable them to earn more income than provided by the benefits. Welfare dependence tends to become chronic and endemic as subsequent generations who are born into it develop an attitude that the world owes them sustenance.
Beneficiary moral hazard can even occur on a global scale at the level of national and international politics. Supranational organizations such as the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD, the "World Bank") make funds available to national governments at below-market interest rates for "good purposes." The World Bank provides loans at favorable (beneficial) rates to "third world countries" for long-term development projects. IMF funds are available to member countries that find themselves suffering short-run crises, particularly in regard to threats of currency depreciation. The bail-out potential of the IMF invites moral hazard on the parts of government officials who are encouraged to run budgetary deficits which are financed by inflation-inducing money creation. Funds from the IMF enable a government to postpone a currency depreciation and thereby avoid taking corrective action until the necessity of devaluation becomes painfully obvious to international currency speculators. World Bank subsidized-rate funding encourages government officials to promote ever higher-risk development projects that may have little potential for completion or improving the well-being of their citizens. Often the only people who benefit from such subsidized funding are the sponsoring government officials and project administrators.
We could go on with yet other examples of beneficiary moral hazard potential in daily life. But perhaps the ultimate potential for beneficiary moral hazard for Christians lies in the belief that God promises redemption and salvation if only the sinner will repent of his sins and believe in God’s son. But human beings find it difficult to make the behavioral transition from a life of thoughtless sin to one of deliberate rectitude and sinlessness.
It is a great relief for Christians to believe that God continues to love them, as sinful as they are reputed to be. The belief that God promises salvation even if they continue to slip into sin but ask forgiveness should be a great comfort. Since Christians believe that there is no limit the depth and extent of God's grace, they may be tempted to sin ever more so as to claim even more of God's grace upon repetitive repentance. Maybe the promised salvation is too cheap! It's "subsidized" by God's merciful grace. Someone else "paid the price." Would Christian behavior be different if they had to pay full-cost premiums for their sin-insurance policies?
15. ETHICS IN BUSINESS
Business ethics is a topic that was not much discussed prior to a couple of decades ago, probably because discussion of it might betray the existence of a problem. There are now both textbooks and courses with titles containing the term "Business Ethics." Of course, there really is no such thing as a particular variety of ethics peculiar to business. The discussion should be about ethics in the generic sense, but as applied to business settings.
Business activity involves complex interactions between producers and consumers, employers and employees, managements and owners, business executives and members of the communities in which their firms operate. While these relationships are essentially economic in nature, they also have moral dimensions. Some of these dimensions include the work environment, the effects of pollution and depletion of natural resources, and the safety of consumers.
Business is an economic institution that has to be based upon a moral foundation if business relationships are to be reliable and predictable. Nonetheless, we hear and read of a variety of practices in business which most Americans would judge to be unethical, among them bribery, embezzlement, breaking contracts, price fixing, collusion, deceptive advertising, falsification of expense accounts, underreporting of income or padding of expenses on tax reports, use of substandard materials, producing and selling products which fail to function as advertised, failing to divulge to consumers possible product dangers, and so on. Any of these behaviors may erode the moral foundation of business and make business activity both unreliable and unpredictable.
The pursuit of profit has traditionally been viewed as the chief motivation to engage in productive activity. The pursuit of profit cannot be regarded as a morally neutral activity because the receipt of profit income may lead to inequality in the distribution of income between those who are entrepreneurially successful and those who are not or who do not choose to behave in an entrepreneurial fashion.
A problem that has emerged in the United States during the second half of the twentieth century is a crisis of legitimacy and authority: a challenge to the legitimacy of business, its right to exist, and the right of people to own and use business property to their own private benefit. Statistical evidence in support of this contention is found in numerous surveys and polls that indicate that Americans believe that the ethical standards of business are lower than those of American society as a whole.
In order to provide a framework for thinking about ethics in business contexts, it will be convenient to employ a classification scheme provided by W. Michael Hoffman and Jennifer Mills Moore in Business Ethics: Readings and Cases in Corporate Morality.[1]
In simplest terms, morality may be defined as what is good or right for human beings. Ethics involves choices in regard to moral precepts. A choice may be ethical or unethical depending upon whether behavioral rules are obeyed, or whether the choice yields good or right results for those who are parties to the decision, and perhaps also for "innocent third parties." Hoffman and Moore identify three ethical orientations that cover most of the positions that can be taken by business decision makers.
1. Ethical relativism is the position that there is no one universal standard or set of standards by which to judge the morality of an action. An ethical relativist may hold the same act to be morally right for one society, but morally wrong for another. A similar distinction may be applied to two individuals within the same society. An act that is taken to be moral in one set of circumstances may be regarded as immoral in another (situational ethics). A problem of ethical relativism is that each person's ethics are specific to the person; no comparative moral judgments are possible. Ethical relativism is entirely consistent with Postmodern thought.
An ethical relativist may base morality upon social customs and conventions. Students of international business often are urged to adopt a polycentric worldview (tolerance and appreciation for cultures alien to one's own) incorporating ethical relativism. "When in Rome, do as the Romans do," even if it involves engaging in acts that would be unacceptable at home (like paying bribes).
2. At the opposite end of the ethical spectrum from ethical relativism are those who believe in the existence of universal standards of ethical behavior. For Immanuel Kant (1724-1804), moral criteria were "categorical imperatives" in the sense that they are absolute and unconditional, irrespective of the consequences. Examples of Judeo-Christian scriptural dictums which may serve as categorical imperatives include those found in the Ten Commandments (e.g., prohibitions against stealing and lying), scriptures relating to oppression (see the chapter on "Exploitation"), the Golden Rule ("Do unto others as you would have them do unto you"), and Jesus' command to love one's neighbor as oneself (Matthew 19:19, 22:39; Mark 12:31, 33; Luke 10:27). Religious fundamentalists of the early twenty-first century, whether Moslem, Jew, or Christian, would perhaps be most comfortable with categorical imperatives in the form of scriptural dictums to guide their behavior.
3. The intermediate range of the ethical spectrum is occupied by a variety of positions that focus upon the outcomes of behavior. Consequentialism is the belief that the consequences of an action are the sole bases for judging whether an action is right or wrong. For a consequentialist there is no universal standard of ethical behavior; any action that yields a desirable outcome can be rationalized as ethical. For a consequentialist the end justifies the means as ethical, or if it is an undesirable end, the end indicts the means as unethical. Two consequentialist positions are those of ethical egoism and utilitarianism.
An ethical egoist believes that every person ought always to act so as to promote the greatest possible balance of good over evil for himself. Therefore, an act contrary to one's self interest is an immoral act. Ethical egoists can argue that others' interests should be respected because treating others well also promotes their own self-interest in the long run. The Golden Rule is not incompatible with ethical egoism.
In contrast to ethical egoism, utilitarianism holds that people ought to act so as to promote the greatest total balance of good over evil, or the greatest good for the greatest number. A rule utilitarian would obey those rules which experience has shown generally promote social welfare, even when doing so does not always lead to good consequences. An act utilitarian may hold that one ought to act so as to maximize total good even if doing so violates rules which usually promote social welfare.
Milton Friedman raises an interesting question in regard to means and ends: If the end does not justify the means, then what does?[2] He goes on to suggest that if a person is serious in raising this question, for him the means are actually a more important end than the end that had been contemplated. We may infer that such a person is less likely to be an act utilitarian than a rule utilitarian or a categorical imperativist.
We may infer that some variety of consequentialism must underlie the rationale of any dictator who assumes absolute political authority. A society that finds itself with a dictator can only hope him or her to be a benevolent act utilitarian rather than an autocrat who is an ethical egoist. Likewise, societies with democratic polities should attempt to elect act utilitarians rather than ethical egoists. Act utilitarianism is perhaps the ethical orientation most consistent with the pragmatism of late-twentieth century American social and political liberalism. Late twentieth-century Christians who are religious liberals might tend toward rule utilitarianism, whereas Christian fundamentalists are more likely to be categorical imperativists.
While numerous scriptural references imply care for other members of society, there do not appear to be any explicit scriptural dictums that are congruent with act utilitarianism. Although Cain's question in Genesis 4:9 ("Am I my brother's keeper?") went unanswered, an affirmative answer often is adduced to it. A liberal translation of "brother" to refer to all of humanity would seem to suggest an act utilitarian orientation. In Luke 10:29, a lawyer asks Jesus, "And who is my neighbor?" Jesus replies with the story of the Good Samaritan that concludes that the neighbor is the one who showed mercy to the injured man. Although never stated explicitly, the implication is that "neighbor" refers to anyone encountered, and in the limit all of humanity. The latter interpretation implies an act utilitarian ethical orientation.
In 1776, Adam Smith (who trained as a moral philosopher) tied ethical egoism and utilitarianism together when he asserted (in the Wealth of Nations) that pursuit of self-interest by each member of society may contribute more to the common weal (welfare) than the individual either knows or intends.
The concept of justice plays an important role in ethical considerations in American society. Procedural justice is achieved when appropriate procedures are employed, as for example when universal rules are obeyed. However, the use of just procedures may not yield desirable results. The Golden Rule, "Do unto others as you would have them do unto you," is an example of a categorical imperative which would achieve procedural justice, but which may not result in desirable consequences if others choose not to reciprocate.
Distributive justice is achieved when benefits and burdens of economic activity are distributed fairly, but this begs a question of what constitutes fairness. The egalitarian notion of distributive justice is an equal (or as nearly equal as possible) distribution of benefit and burden. Non-egalitarians may hold that fairness is achieved when the benefits and burdens are distributed on the basis of some specific criterion, such as need, merit, effort, hard work, or contribution to society.
The principle of justice underlying American capitalism has tended to emphasize contribution to society recognized by market demand as the criterion for judging the fairness and hence the justice of distribution. Americans typically have not expected everyone to end up with an equal share of benefits and burdens; rather, those who receive more do so because of their greater contribution.
It can be argued that business interests must behave relatively more ethically than less so in order to ensure continuance and reliability of business relationships. Are business decision makers, by training, social conditioning, or innate character (among those who select themselves into business occupations), inclined to be ethical relativists, ethical egoists, utilitarians, or categorical imperativists? I think that we are likely to find some of each kind in any walk of life, including business. My guess is that business activity has a natural attraction for ethical egoists. Those who are intimately engaged in international business operations probably become drawn to ethical relativism. Business people who are professing Christians are more likely to be rule utilitarians or categorical imperativists. Social liberals who are act utilitarians are likely to be drawn into politics.
Although American business interests may be characterized by egoism as a predominant guiding principle of their ethics, Adam Smith's premise that there often is a convergence of private interest with the public weal goes a long way toward explaining why some may engage in actions which serve their own self interests while at the same time engaging in rhetoric to the effect that they are also contributing to the public welfare. This issue is made more obscure because some in the non-business public take self-righteous positions in criticizing the self-serving actions of American business decision makers.
In the last couple of decades, the American business community has given
the appearance of becoming more socially aware and responsible. This may
be a manifestation of a quest for legitimacy in the face of challenge to
the power and authority wielded by business executives. Many businesses
have created and displayed business ethics statements. Some have gone to
great lengths to indoctrinate their employees to act upon the tenants of
their company ethics statements. For others such statements may be little
more than marketing ploys. To the extent that business executives take
their corporate ethics statements seriously and back them up with civic
generosity, this suggests that they are becoming less egoistic and more
utilitarian in ethical orientation.
Chapter 15 Endnotes:
[1] W. Michael Hoffman and Jennifer Mills Moore, Business Ethics: Readings and Cases in Corporate Morality, McGraw-Hill, Inc., New York, 1990.
[2] Milton Friedman, Essays in Positive Economics, The University of Chicago Press, 1953.
16. EXPLOITATION
The word "exploitation" attained currency during the nineteenth century
at the hands of social reformers, and it is invoked quite often today by
Postmodern critics of market capitalism. It became the basis for an advocacy
of violent revolution by Karl Marx and his followers. Marx hypothesized
that the capitalist class (the "bourgeoisie") in industrial societies like
those of Germany, France, or England would exploit and oppress the working
class (the "proletariat") to such an extent that the working class would
rise up in violent revolution, throw off their "chains of oppression,"
and establish an authoritarian socialist state (a "dictatorship of the
proletariat"). It never occurred to Marx that "the revolution" would come
in Czarist Russia rather than the industrial economies of Western Europe.
A twentieth century venue for the word "exploitation" is labor-management relations in Western market economies, and particularly the context of wage negotiations. Potential for exploitation also occurs when sellers provide misleading information about their products or take advantage of the ignorance of buyers.
The Bible contains a couple of instances of the plural noun "exploits," but does not otherwise contain the verb "to exploit" or any of its derivatives. The more commonly used synonym in modern parlance might be "to take advantage of," but biblical language does not seem to employ this usage either. The closest synonym in biblical language is "to oppress." The New Testament is strangely silent on the topic of oppression with only four references. While there are 107 Old Testament instances of "oppress" and its derivatives, the majority of them having political rather than economic connotations. Taken together they present a biblical view of exploitation:
- One should not attempt to take advantage of another in trade or any other interpersonal dealings (Leviticus 24:14; Hosea 12:7; Micah 2:2).
- Hired servants (employees?) should not be exploited (Deuteronomy 24:14).
- One should not oppress the poor and needy (Job 20:19; Psalm 72:4; Proverbs 22:16) or take advantage of orphans, widows, or strangers (Isaiah 1:17; Jeremiah 7:6).
- God will be a refuge for the oppressed (Psalm 9:9, 12:5) and shall execute judgment and justice for them (Psalm 103:6, 146:7).
- Oppressors and exploiters shall be punished (Psalm 72:4, 103:6; Proverbs 22:16; Isaiah 16:4; Jeremiah 30:20; Malachi 3:5).
- Those who are righteous and do not exploit, oppress, or take advantage of others shall be rewarded (Isaiah 33:15-16).
- And although there is no outright statement to the effect, an inference which may be gleaned from both Old and New Testament biblical literature is that the poverty of some people may be attributable to exploitation (Psalm 107:39; Ecclesiastes 4:1; James 2:6).
The issue of labor exploitation is explored in another chapter in this book, so this chapter will be focused upon more general aspects of exploitation. An employer succeeds in exploiting a productive resource (a person, machine, computer program, or anything else that is instrumental in production) if the employer captures a larger share of the market value of the product than warranted by the marginal contributions of the other resources provided by the employer. Evidence of exploitation may lie in enterprise profits that are greater than normally possible in the industry, but this is not a certain identification of exploitation since "super-normal" profits may be attributable to successful entrepreneurship.
One enabling condition to exploitation occurs when a seller of a product or service possesses more and better information than the buyer can acquire, or when the seller provides false or misleading information about the product or service. The disadvantaged buyer may then pay a price that is higher than warranted by the product's performance.
A second enabling condition to exploitation is the exercise of monopoly power. In the product market, monopoly power enables the seller to charge higher than competitive prices. The best antidote to monopolistic exploitation is more intensive competition in both product and resource markets.
Because of the intricacies of productive interrelationships and the difficulties of measuring both costs and contributions to production, it is very difficult to verify the actual occurrence of exploitation in an economic sense. Unless ignorance or monopoly position has enabled the owners of capital to take advantage of its workers and this can in some way be documented, income differentials among employees (including managers) may be attributable only to productivity differences among them.
Does exploitation occur in the modern world? Used car salespersons often claim to have no knowledge of the histories or physical conditions of the vehicles on their lots. Executives of pharmaceutical companies have been known to suppress information about the deleterious side effects of some of their products. Executives of tobacco companies have claimed to have had no knowledge of the carcinogens present in their products. Are these examples of exploitation in product markets? Does exploitation occur when marketing efforts have the effect of manipulating wants or creating wants that did not pre-exist? Is it exploitation to induce people to buy things that they do not need or cannot afford?
Slavery is the ultimate basis for exploitation of labor. Slavery was commonly practiced during Egyptian, Greek, and Roman times. Its practice in the United States of America legally came to an end with the Emancipation Proclamation issued by President Abraham Lincoln in September of 1862, and which became effective on January 1, 1863. Because a slave is property to the owner, the owner can exercise sovereignty in the use and disposition of it. The owner of a slave can treat it like a piece of capital equipment which should be adequately maintained (fed, clothed, housed, and medicated as needed) and from which a "return" is expected, but no compensation otherwise need be provided to it. In market economies where slavery is not explicit, if a worker produces value greater than his subsistence requirements, compensation that covers no more than subsistence requirements would be exploitative and might be regarded as "slave wages." Christmas toys and ornaments often are reputed to be produced in China by "slave labor."
In South Asia and the Middle East, children who weave fine oriental carpets are paid the equivalent of only "pennies per day." In the United States, prison labor typically is compensated (if at all) at wage rates far below going market rates for comparable skills "on the outside." Civilians drafted into military service usually receive nominal incomes far below what they might have earned in the private sector. Within the family it is not unusual for older siblings to be impressed into the service of baby-sitting their younger siblings at below-market wage rates. Are these examples of exploitation in resource markets? They are only if the compensation provided is less than the value produced at the margin by employing an additional worker.
Illegal immigrants often perform menial tasks at wage rates well below those at which citizens would be willing to work. Some American firms have been known to shift production to "Maquiladora" sites on the Mexican side of the Rio Grande where they can pay wage rates that are fractions of what they used to pay for comparable skills in the United States. Within the United States, firms often relocate away from "rust-belt" regions where production has become unprofitable because high-level wages exceed marginal revenue productivities. They shift operations to the "sun belt" where production again can be profitable because they can hire workers at lower wage rates (typically non-union scale) that are less than marginal revenue productivities. Are the circumstances described in this paragraph examples of exploitation? Again the economic answer is "yes" only in those cases where the compensation provided is less than the marginal value produced.
There is a strong presumption in macroeconomic analysis that when resource owners behave adaptively rather than rationally (i.e., when they only react to circumstances rather than forecast and take advantage of them), prices of inputs lag behind changes in prices of final goods. If wage rates lag behind the prices of the products which laborers produce, this may cause marginal revenue productivities to rise relative to wage rates, with unintended exploitation as a consequence.
Another circumstance of exploitation may emerge when productivity-increasing technological advances are implemented faster than wage rates are increased. Even if workers originally were hired at wage rates which were equivalent to their marginal revenue productivities, the technological advance may raise marginal revenue productivity relative to the market wage rates, thereby resulting in exploitation whether intended by the employer or not.
The examples of exploitation in the foregoing paragraphs may convey the impression that exploitation is the rule rather than the exception in the modern world. Surely this cannot be true as a general rule because honor, respect, and integrity are essential to the continuance of commercial relationships. Markets have some significant capacity to police themselves in regard to price gouging and under-compensation of resources. As an old saying goes, "Fool me once, shame on you; fool me twice, shame on me!" Rational people can be counted on to avoid systematic exploitation once it is perceived; the corollary is that systematic exploiters, once identified, should lose market position and ultimately fail. Exploitative conditions can persist only as long as ignorance and immobilities reign and monopoly power can be practiced. Do people who remain ignorant and immobile get what they deserve? Is it a legitimate function of government to protect people from their own ignorance and immobility?
In a perfectly competitive world (one characterized by perfect knowledge, instantaneous and costless adjustment, and absence of monopoly), exploitation would not be possible. Economists think that competition is the best antidote for the prevention or elimination of exploitation as well as monopoly. Economists are also generally agreed that promotion and protection of competition (i.e., the prevention and aversion of monopoly) is a legitimate object of public policy. With continuing erosion of competition in product and resource markets, the potential for exploitation may in fact become the rule (if it has not already done so) rather than the exception. If public policy (such as vigorous enforcement of antitrust laws) cannot make competition adequate to the task in market economy, society will be tempted to pursue the Marxian alternative of socialization of the production process as the means of averting exploitation.
PART 4. RELIGIOUS IMPLICATIONS OF ECONOMIC DECISIONS
An economy is not an island unto itself. Almost everything that happens in an economy has implications for the larger society of which the economy is a part. The chapters in Part 7 explore the religious implications of economic decisions.
17. INCENTIVES
In Matthew 20:1-16, Jesus relates a parable about a vineyard owner
who hires workers at different times during the day but pays all of the
workers the same amount at the end of the day.
The central point of this parable is that God is generous, whether "fair" or not. An extension is that all believers receive the same salvation whether they became believers at an adolescent age or confessed at the eleventh hour and fifty-ninth minute before death. This follows from the Christian belief that salvation is by God's grace rather than anything that one can do to earn it.
Concerning "fairness": Economists identify three distributional principles: (1) to each according to need; (2) to each equally; and (3) to each according to contribution or effort. To a socialist, the first principle would be fair but difficult to implement, the second would be a pragmatic substitute for the first, but the third would be unfair. To a capitalist, the third principle would be fair because effort is rewarded, but neither the first nor the second would be regarded as fair.
In the parable, the master in effect implements the second principle. What is ironic is that distribution "to each equally" would likely be taken as "fair" by a social liberal whereas compensation commensurate with effort (the capitalist principle) would not because it leads to distributional inequalities (and the perception by social liberals of distributional inequity). Yet in Jesus' parable, the workers react to the equal distribution as unfair; so also would most twenty-first century hearers of the parable. If, from the perspective of a social liberal, fairness is equated with distributional equality, perhaps God is both generous and fair. It is only from the perspective of market capitalism that an equal distribution would be judged unfair because some of the workers would get more than "their due." This may be why many twenty-first century hearers may find the parable distasteful.
Another concern with the sense of this parable is that the manager apparently compensates the workers hired early in the day for their effort, but "gifts" the same amount to the workers hired later in the day, irrespective of their effort. Compensation of workers is hardly comparable to a gift of salvation. When a manager hires workers, there is a two-way flow of value: first from the workers in terms of effort provided to the manager, then from the manager to the workers in terms of wages. In economics we distinguish such a quid pro quo transaction from a "unilateral transfer," which is a one-way flow of value. All gifts are unilateral transfers, e.g., birthday gifts, church contributions, missions offerings, and foreign aid. God's gift of salvation is the ultimate unilateral transfer. Maybe this is the contrast that Jesus intended to convey.
Is this parable based in reality or did Jesus simply pull this circumstance from the air? I think that maybe he did, because I can't imagine any basis in either fact or experience for a rational manager of an established and successful commercial enterprise to actually compensate workers as the master in the parable is reputed to have done. I think that Jesus posed the irrationality of a human master doing this as a contrast to divine behavior. Equal distribution of salvation is a divine prerogative that a human manager of a commercial process would not (“in his right mind”) contemplate. I think that Jesus might just have pulled this parable from the air (and others as well) as a means of teaching about how the Kingdom of Heaven is different from the world in which we live.
With respect to the world in which we live, the workers in Jesus parable are not likely to show up looking for "work" before 5 p.m. the next day. Their incentive structure has been irreparably impaired (as often happens under socialism or entitlement welfareism). My point is that even after we have discovered the truth that God's distributional principle is grace (rather than effort), we still have to "get on" in this world that is characterized by scarcity. Resources still have to be allocated, and product still has to be distributed. Incentives still matter. We still have to behave economically on this side of the grave even if we have discovered God's promise of salvation on the other side of the grave.
18. SHEEP VS. GOATS
In Matthew 25:31-33 Jesus talks about separating the sheep from the goats. His meaning may be perfectly clear but it leads one to wonder what Jesus may have had in mind about goats that they need to be separated from the sheep. I would like to explore an alternative interpretation to that usually adduced to this passage. I hasten to stipulate that I have no personal knowledge of sheep and goats. However, one day as we were discussing entrepreneurial behavior, one of my graduate school professors told a story about sheep and goats with what seemed like some authority.
It seems that domesticated sheep are among the dumbest of the mammals that God put upon the earth. Aside from their lack of intelligence, they suffer the shortest of time horizons (the importance of these two facts will become evident below). Their principal, and perhaps only, concern is the short-sighted one of eating the nearest available grass. The only criterion that governs the movement of a sheep is the direction in which the next clump of grass is to be found. Sheep have no ability to "think" about the fact that the more grass they eat, the fatter they become, which only makes them more marketable and ensures their ultimate demise.
Goats, on the other hand, are a bit more intelligent than sheep. Goats can sense danger and they have some ability to sniff-out the location of "greener pastures." Although a goat can mingle peaceably in civil society with sheep, a goat will never follow a wandering flock of sheep. But a flock of sheep will follow a goat, especially a "billy goat." Goats are the natural leaders of the cloven-hoofed world.
Shepherds often take advantage of this fact by including a billy goat in the flock of sheep. Then, as long as the shepherd can control where the goat goes, the sheep will follow. Rods and staffs are particularly useful in reaching ahead to direct the path of the billy goat.
A number of lessons follow from this story:
The first economics lesson: If you wish to get ahead in this world, it is good advice that while everyone else is being a sheep, you should be a goat, i.e., you must be entrepreneurial. The principal functions of entrepreneurship are to perceive opportunities and assume risk in innovation to pursue the opportunities. Since the vast majority of people are too imperceptive of opportunities and too risk averse to function as entrepreneurs, true entrepreneurship is a rare leadership quality.
A sociology lesson: Because entrepreneurship involves doing "something different," it usually violates social norms. Goats are social deviants in a flock of sheep. Entrepreneurship as well may be understood from a sociological perspective to be a form of social deviance.
A second economics lesson: Modern economists identify an ideal-type economic person (the nineteenth century concept was the now politically incorrect "homo economicus" or economic man) described by modern economists as a "rational expectations decision maker" or REDM. The five essential characteristics that an REDM must possess high intelligence, good understanding of "the way the world works," awareness (perceptivity) of what is going on, a long-enough time horizon (i.e., concern for what the future holds), and a drive to use all available information in forecasting future states. REDMs are not always right in their forecasts, but their forecast errors tend to be random rather than systematic. To the extent that their forecasts are accurate, REDMs can make decisions to take advantage of opportunities and avoid (or manage) risks.
In contrast, a second type of person forms forecasts of future states by default. Default forecasters generally extrapolate recent and current conditions into the near future, e.g., tomorrow is going to be much like today because today is a lot like yesterday. Adaptive forecasters are a third type who recognize that today is somewhat different from yesterday, so they build into their forecasts of tomorrow today's circumstances plus an error term (i.e., an adaptation) to recognize their yesterday's error in forecasting today's circumstances. Both default and adaptive forecasters tend to indulge in systematic forecast errors, i.e., they are often high or often low relative to what actually transpires, and the decisions based on these systematically erroneous forecasts are sub-optimal.
Modern economists hypothesize that if a population were composed one hundred percent of REDMs, then governmentally implemented macropolicy changes would be ineffectual because REDMs would "see them coming," take advantage of them or shield themselves from them, and thus neutralize them. By virtue of the fact that macroeconomic policies (fiscal, monetary) often do have their intended effects, we may infer that the population is not composed one hundred percent of REDMs. In fact, the vast majority of people "out there" are default forecasters or only slightly-better adaptive forecasters. The contingent of REDMs is at most only a small intelligent, knowledgeable, perceptive, and driven elite in any society.
The moral of this story is that the majority of the people in any society are not REDMs. They lack the requisite intelligence and adequate understandings of the way the world works; they usually pay little attention to what is going on; they typically have very short time horizons; and they often are too lazy to use all of the information at their disposal to make rational forecasts of future states. Their forecasts often entail systematic forecast errors that serve as poor bases for their life decisions. The vast majority of people are like sheep that are easily led astray or manipulated by social thought leaders. It is the small elite of REDMs who have the potential to be the social thought leaders and who, if they are not too risk averse, can function as society's entrepreneurs, i.e., they can be the goats of society.
A theology lesson: Beware of the goat in a flock of sheep because it may have the capability both to lead the flock to greener pastures, or to lead the flock over the edge of a cliff. Don't worry so much about the "wolf in sheep's clothing" as about the "goat in the flock of sheep." The goat is much more subtle as a social thought leader within the flock. If the goat's social thought leadership is well directed, it can lead the sheep to greener pastures, but if the goat's social thought leadership is misdirected, the goat can lead the flock into perdition.
19. EFFICIENCY VS. EQUITY
Economic systems such as those organized around markets naturally attempt to achieve efficiency. Whether or not they also achieve equity is purely a coincidental matter.
The compulsion to achieve efficiency is built into the structure and behavior of the system. This is because self-interested market participants are motivated to maximize net satisfactions, incomes, or profits. The operative word here is "net." Each of these objects of pursuit is a difference between a positive amount and a negative amount. The negative amount usually is some form of pain or cost. In order to maximize the difference, the actor must attempt simultaneously to maximize the positive amount and minimize the negative amount. It is this effort at minimization of the negative that results in choices of efficient means.
A society's wealth is its stock of accumulated assets. Its income is the flow of value generated during the current period by productive effort. Income not completely consumed during the period of generation may be used to acquire assets that add to the stock of wealth. A growing stock of wealth is the basis for generation of more income.
Two similar terms may be used to describe the distribution of income or wealth across a population. "Equality" and its negative "inequality" are factually descriptive of the distribution. "Equity" and its negative "inequity" are matters of value judgment. There is no endogenous or systemic drive to achieve equity. Equity is a condition that some one or group within society must judge and then resolve to achieve. While efficiency falls within the province of economy, equity is a matter to be addressed by political and religious institutions.
Often there is a trade-off between efficiency and equity in economic relations. Much of what society attempts to do in pursuit of equity tends to impair efficiency. For example, governmental regulation of business to ensure worker safety tends to increase the costs of doing business. Much of what is done to enhance efficiency tends to impair distributional equity. Reducing marginal tax rates to encourage the assumption of risk by entrepreneurs may worsen the distribution of income if the entrepreneurs are successful.
The trade-off relationship between efficiency and equity requires a process of optimization. In economic thought, optimization is the maximization of some goal subject to one or more constraints. Either efficiency or equity may be taken as the principal goal, with the other serving as the constraint. For example, society might take a goal for its economy to become as efficient as possible subject to achievement of a sufficiently equitable distribution of income. From a social liberal perspective, the efficiency-pursuing juggernaut of market economy needs to be tempered by infusion of social conscience to market participants. The infusion of social conscience into economic decision-making should be a role and mission of the religious establishment.
Is efficiency an intrinsic value in the materialistic world? Efficiency is served when resource-saving technological advances are implemented by exercise of entrepreneurship. Successful entrepreneurship results in profits that tend to aggravate the inequality in the distribution of income. Whether or not the reward to the successful entrepreneur is judged to worsen the distribution of income depends upon the distributional principle subscribed to: to each according to contribution, or to each according to need.
There is a widely-held presumption among economists that successful entrepreneurship tends to benefit other members of society in providing spill-over employment and income-earning possibilities, otherwise referred to as the "trickle-down effect." The vilification of this concept by social liberals has yet to render it impotent, although the efficacy of it remains in dispute. Nonetheless, we are back to the need to infuse a sense of social conscience into those entrepreneurs in order to increase the probability of their engaging in socially redeeming behavior.
20. INVESTMENT
The parable recorded in Matthew 21:33-43 and Luke 20:9-18 is about a householder who invested in a vineyard, then left the working of it to tenants while out of the country.
Jesus chose commercial/managerial motifs for a number of the parables. In this one we have an absentee landlord whose tenants not only take advantage of this absence ("while the cat's away, the mice will play"), but also mistreat and eventually kill the landlord's representatives, including his own son, when they attempt to collect the landlord's share of the produce.
This is reminiscent of twentieth-century circumstances that I have heard of in India and Pakistan. It is also suggestive of a sort of reverse-Mafia situation in which the subjects of control succeed in inflicting harm upon those attempting to collect tribute, rather than the other way around if the subjects fail to pay up.
At first glance the scenario is less related to a circumstance of a modern capitalistically-organized economy than it is to that of a medieval feudalistic economy. Feudalism is one of the alternatives to capitalism that economists discuss as possible forms of organizing an economy. The vineyard landlord is much like a "lord of the manor," albeit one who is out of the country but who sends his knights (or other vassals) to collect rents from the serfs in his absence. The serfs rise up in rebellion, refuse to turn over the landlord's share of the produce to his representatives, and inflict bodily-harm upon them, even killing the landlord's son.
Jesus asks the parable listeners what they think that the landlord will do to the wicked tenants; they reply (as likely would we) that he should punish them (even put them to death) and let the vineyard to other tenants. Jesus' reply then reveals the parallelism of the described circumstance to that of God and his Son. The wicked tenants may reject the landlord's (God's?) son and eventually kill him, in which case the vineyard (God’s creation?) will be let to other tenants who will both operate the vineyard productively and turn over the landlord's share of the fruits of it to him. The rejected stone (the landlord's son) will become the corner stone (would a better analogy have been a key?) that serves as the foundation stone of the Kingdom (or gives the new tenants access to the vineyard).
Is it a valid implication that the inheritors of the Kingdom of Heaven (those who believe in Jesus Christ as savior and confess their sins) should be deliberate in attempting to achieve material fruitfulness while they are yet working the vineyard (a la Max Weber in The Protestant Ethic and the Spirit of Capitalism, 1905), a portion of fruit of which is due back to God as tithe? Or does working the vineyard to make it fruitful imply simply that the vineyard workers must be evangelically productive?
In another sense the scenario of the parable is a lot like an aspect of modern market economy. The landlord accomplishes investment in the vineyard by planting and hedging it, and then building the wine press and tower (I don't know the purpose of the tower unless it was needed as a "lookout" platform to enable observation of the approach of robbers who would "hijack" the crop). Implicitly, then, the landlord functions both as a "capitalist" in the modern sense of the word, and as an entrepreneur in undertaking the venture which turns out to be riskier than he had imagined.
The investment likely involved a substantial sum of money. The invested money may have come wholly from the landlord's accumulated wealth, but some or all of it may have been borrowed (in our day and economy, most of it likely would have been borrowed from capital markets or a venture capitalist).
We may infer that with the investment in the vineyard's capital, the landlord wanted to recover his capital outlay from the proceeds of selling the produce raised over a number of years, the so-called "effective life" of the capital. It is this need to recover the capital outlay and pay off any debt incurred in borrowing the investment funds that constitutes the landlord's economic justification for claiming a share of the produce.
Of course, the landlord also wants to recover more than the amount of the original capital outlay so that the investment may be deemed profitable and allow an increase in his wealth. Here is where a Marxian socialist might become agitated. Indeed, it is the potential for capturing profit that provided the entrepreneurial impetus to undertake the venture. But a modern economist could argue that the profit (if any) is the reward for assuming the risk incurred in undertaking the venture.
I would guess that there may have been some convention governing the landlord's share of the produce (what? maybe a fourth, a third, or even half?). The rebellious workers, in refusing to give the landlord his conventional or agreed-upon share of the produce, in effect are stealing the landlord's capital investment; implicitly they are also stealing any borrowed funds which now cannot be repaid and will result in the landlord's default on his loan. Theft is a non-volitional unilateral transfer of value.
With this in mind, it is understandable why the landlord will wish to evict the tenants and may wish to punish them or have them punished. But what right does he have to put them to death? This is a rather extreme conclusion which seems to present a contrary-to-fact jurisprudence. Such a contrary-to-fact jurisprudence may impair the hearer's ability to relate to the scenario. Jesus occasionally offers contrary-to-fact economic scenarios or conclusions, but with a purpose. This strategy is to start with a familiar setting, but then shift to an implausible circumstance or conclusion in order to offer the strongest possible contrast to the ways of this material world and what a rational person would normally do or expect. The contrast is thus a pointer to the true nature of God or of the Kingdom of Heaven. A possible negative of such an approach is the risk that if the parable scenario is so contrary to their own economic experiences, the hearers will not be able to relate to it.
What about the vineyard owner's ability to participate in the Kingdom? The heroes in Jesus' parables more often than not are poor people and workers. Are the landlords of this world, by their very wealth and position, excluded from possible entry into or participation in the Kingdom? In this particular parable, it seems that it is the vineyard owner who is vindicated in the end, and it is the wicked workers who are excluded and punished (in an ultimate sense). Can this be taken to suggest (in contrast to the implied messages of some of the other parables) that wealthy landlords might be admissible after all? Or that the poor cannot automatically count on God's generosity and grace? Indeed, will all of the meek inherit the earth?
Although the workers kill the landlord's son (or reject the stone which eventually becomes the corner stone), even they, wicked as they are, still may have a chance to come back to work in the vineyard (participate in the Kingdom) if only they will confess and renounce their sin of killing the landlord's own son.
21. FAILURE
Just as death is a part of life, failure is a part of the working of the market economy. Efforts by government to avert failure or minimize the pain of failure tend to prolong and aggravate the circumstances that result in failure.
Anyone who launches a new venture hopes for success and expects success, else he/she would not actually launch the new venture. I am using the term "venture" here in a very broad sense. Any new and different activity that is expected to change the conditions of one's life is a venture. Marriage is a venture. Higher education is a venture. Accepting a new job is a venture. So also is the purchase of a new car, a new house, furnishings, etc. Retirement is even a venture.
In economic analysis, we usually think of a venture as a new business enterprise. A new business enterprise is started by an entrepreneur who assumes risk in the hope of reward. The economic rationale for a new business start is the projection that the revenue stream over the life of the venture will exceed the ventures' operating expenses by enough to amortize any debt incurred in launching the venture and allow at least as much profit over these costs as can be gotten in the next best use of the entrepreneur's resources. This commonly considered concept of profit is what economists call "accounting profit."
Any economist worth his or her salt would insist that the true measure of profit is "economic profit." Economic profit is the sum of all pecuniary (measured in money units) revenues received by the venture from its operations plus any non-pecuniary benefits enjoyed by the entrepreneur in connection with the venture less the sum of all explicit costs incurred by the venture plus any psychic and opportunity costs suffered by the entrepreneur in connection to the venture. The distinction between economic profit and accounting profit is important because the latter may be positive even as the former is negative (and vice versa) due to unmeasured and unrecognized non-pecuniary benefits and costs.
There are of course no guarantees of the success of any newly-launched venture. As we have seen in recent months and years, the world is a risky place in which to operate. Joseph Schumpeter described the turbulence of a market economy as "a perennial gale of creative destruction" in which new ventures are started and rise to success as they destroy the monopoly power of older ventures that eventually fail if they cannot compete with new technologies or modes of production and management.
Business failures in the process of creative destruction have a cathartic effect for the economy, much in the same way that forest fires in national parks have beneficial effects. Forest fires clear out the dead wood and underbrush on the forest floor, and the heat of the fire opens seedpods (e.g., pine cones) to disperse the seed and give new life to the forest. In similar fashion, the market economy's process of creative destruction helps to clear out the dead wood in the economy's business sector and gives new life to vibrant new competitors. The new competition curbs the monopoly power of the old survivors.
American society is a humane society in the sense that our democratic polity has attempted to avert or diminish the pain of loss and failure in the operation of the American mixed-market economy. The U.S. Congress during the twentieth century enacted legislation to provide for numerous social safety nets, including welfare benefits, unemployment compensation, subsidized deposit insurance, subsidized casualty insurance, and subsidized mortgages.
As nice as it might seem for government to insulate its people from the pain of failure, such safety nets and subsidies cause market participants to send and receive the wrong signals. People who become eligible for welfare assistance get the signal that they are not responsible for their own well-being. People who become eligible for unemployment compensation get the message that they do not have to be diligent in seeking new employment. Both welfare assistance and unemployment compensation create a disconnect between working and eating. All subsidies create the illusion that the subsidized products or services can be had at prices that are less than their costs of production. Subsidies that lower prices increase demand for the subsidized products relative to their supplies, thus subverting the market signal that the products are actually scarce goods.
The well-intended safety nets have created a situation of chronic dependence of parties who have come to rely upon the welfare and unemployment benefits. This dependence now seems to persist through subsequent generations in a culture of dependence. It is no wonder that people born into this culture of dependence often have little sense of personal responsibility for their own welfare or any connection between working and eating. Many feel that the world owes them sustenance. It can be argued that this is yet another manifestation of Postmodern cultural transformation during the post-World War II era.
During the early years of the twenty-first century, failure became apparent in the financial turbulence experienced by the global economy. Michael J. Boskin provides a litany of the components of what has turned out to be a "perfect storm":
Depositors, confident that their deposits were insured up to the limit of $100,000 per account, paid ever less attention to the soundness of the banks holding their deposits. Builders built houses in known flood plains with confidence that government-subsidized flood insurance would take care of any losses that home-buyers might suffer. Second home-buyers could buy and build beach houses ever farther out over the dunes with confidence that when the inevitable hurricanes came to destroy their second homes, their government-subsidized insurance policies would provide enough benefits to rebuild even larger houses and ever farther out over the dunes.
Toward the end of the twentieth century and on into the twenty-first century, unscrupulous parties in the financial sector learned to "work the system" in capturing excessive profits, and in so doing erected a "house of cards" that was doomed to collapse. Ensuing efforts to avert failure by "bailing out" the financial system have only served to delay and worsen the eventual bottoming of the economy.
Many of government's efforts to avert failure and alleviate pain and suffering, well intentioned as they are, have impaired the natural functioning of the market economy and led to calls to "throw the baby out with the bathwater," i.e., to replace capitalism by nationalizing banks and socializing both the financial sector and the real economy.
People die. Businesses fail. God does not prevent either. Hard words, but both processes are essential aspects of life in a free society.
PART 5. ECONOMIC IMPLICATIONS OF RELIGIOUS ACTIVITIES
As noted at the beginning of Part 4, an economy is not an island unto itself. Whatever happens in the non-economic realm of a society has spill-over effects on the economy. The chapters in Part 5 examine the economic implications of religious activities.
22. CALLING
On the presumption that all Christian believers are called to ministry, my church (First Baptist Church, Greenville, South Carolina) has for many years used the slogan “Every member a minister”. To be called by God to the vocations of ministry, evangelism, or the mission field is a phenomenon well substantiated in scripture. A problem for any young Christian believer is to hear and recognize such a call, and then to respond to it in an appropriate way.
Does the concept of calling also apply to vocations other than ministry? Even if one does not feel called by God to ministry, evangelism, or missions, can one be called to some non-ministereal vocation or to a particular job within that vocation? Upon occasion we hear of a person with special abilities outside of his occupation that he has “missed his calling”. Can vocational calling be a purely secular phenomenon, or can God call each person to a vocation, even if it is not to ministry, evangelism, or missions?
The Apostle Paul seems to suggest the divinity of vocational calling in I Corinthians 12 and in Romans 12 when he asserts that all persons have special gifts and that all together complement each other in the body of Christ and the church.
My father was what people in the trade called a "real hardware man." Having worked for fifty years for the same wholesale hardware distributor, he had become vice president for sales by the time of his retirement. At any one time he had a veritable catalog of ten to twenty thousand different items (tools, screws, pipe fittings, paint, heaters, lawn mower parts, etc.) in his head. When a customer called with a vague description of a needed item, my father could cite manufacturer and item number, dimensions, finish, and bin location in the warehouse. I think that my father felt a sense of calling to be a hardware merchant. Although I never heard him say in so many words that he felt such a calling, I remember his enthusiasm for his vocation. His greatest joy in his vocation was to go into the warehouse and find an obscure item that a customer needed to complete a job or a repair. Yet my father stumbled into his vocation as some doors closed to him while others opened. Were the closing and opening doors the work of God in calling my father to a vocation in the hardware trade?
I think that my father was proud that I went to college (he did not have the opportunity) and then on to become a teacher, but I suspect that he was disappointed that I felt no such calling to enter the hardware business with him. While in high school I felt that God may have been calling me to a ministerial or missionary vocation, but circumstances in college diverted me toward the study of economics and a vocation as a teacher. I too have felt enthusiasm and a sense of joy in teaching young people about economics. Was my vocation ordained of God?
A Calvinist belief in predestination would be congruent with the view that God has a "will” or “a plan” for the life of each Christian believer. By implication, “the plan” entails a divinely designated vocation. This idea often initiates a quest by the young person to discover both the plan and the associated vocation. Many times such quests are frustrating and they often are apparently fruitless.
I cannot deny the possibility that omnipotent God is able to call human beings to his divine purposes. I am thus comfortable with the belief that God can and often does call people to ministry, evangelism, and mission, or to any other special purpose that may suit God’s intent.
However, my Arminian predilections favor the view that the mass of humanity other than those whom God has called to his special purposes is left to a free-will process of discovery of vocation. Rather than a plan for each individual, I believe that God has a generic hope for all of humankind, i.e., all human beings collectively and each one severally will turn to him, worship him, repent of their sins, and accept the offer of salvation to an eternal after-life. But I am skeptical that God has predestined the course of history. I am also skeptical of the idea of “God’s will for my life” or that God has designed a unique plan for the life of each human being whom he has not called to his special purposes. I think that God leaves each person who has not been called by him to a special purpose or vocation to seek and discover the vocation which best suits him or her.
Economists approach vocation with the Principle of Comparative Advantage, first identified by economist David Ricardo in his 1817 book, Principles of Political Economy and Taxation. According to the Principle of Comparative Advantage, all entities (nations, regions, groups, persons) have unique resource endowments and should specialize according to their comparative advantages. If they do, the welfare of the world will be enhanced, and under ideal circumstances maximized. Nineteenth century economic writers referred to resource endowments as “free gifts of nature”. It does not require a heroic leap to the view by believers in God that resource endowments are gifts of God.
Protection (tariffs, quotas, non-tariff barriers) and subsidies impair the comparative advantage specialization of nations and thereby diminish welfare on a global scale. Nations sometimes subsidize industries for which they do not have comparative advantages, and thereby distort the global allocation of resources and diminish the welfare of their own citizens as well as others.
There are moral implications of subsidies to non-comparative advantaged domestic industries. A notorious example lies in the subsidies provided by the governments of the United States and the European Union to their domestic sugar beet producers. The effect of subsidies to American and European sugar beet producers is to steal the comparative advantages of poorer peoples in the Caribbean basin and Africa who can produce sugar from cane at lower costs than those of American and European farmers who produce sugar from beets. American and European citizens also suffer diminished welfare both because they pay higher prices for sugar and because they pay the taxes which finance the subsidies to their domestic sugar beet farmers.
A good case can be made with economic theory that there are forces inherent in market mechanisms that induce entities (from persons through nations) to specialize according to their comparative advantages. Self-interest is the motivation to take advantage of the opportunities that yield the greatest benefits. Loss and pain have the effect of diverting people from their lesser advantages or disadvantages. Are there inherent or natural or divine forces that lead people to their vocational callings? Are there forces that inhibit people from recognizing their callings or developing their vocations?
Though usually specified in terms of opportunity costs, comparative advantage also may be defined as greatest absolute advantage or least absolute disadvantage. From this perspective, it is a logically impossibility for an entity not to have a comparative advantage. However, it is possible to miss one's calling and specialize in one of the lesser absolute advantages that might be another party's least absolute disadvantage.
To illustrate the welfare implications of comparative advantage specialization or the lack of it, suppose that the world is populated by four persons whose advantages in performing six functions are arrayed as illustrated in the following diagram. Person I has advantages in performing five functions, A, B, C, D, E, with levels of capability represented by the plus (+) symbols. She can perform function F, but only poorly as indicated by the minus (-) symbols. Person II can perform three functions, B, C, D, with capabilities represented by plus symbols. He can perform functions E and F, but with disabilities as represented by the minus symbols.
A++++++++++
B++++++++ B+++++++
C++++ C+++ C-
D++ D+ D--- D-
E+ E--- E------- E---
F------- F---------- F----------- F-----
Persons III and IV have no advantages at all. They have only disadvantages, arrayed top-to-bottom in ascending order of disadvantage as represented by the minus symbols. Although persons I and II have lesser advantages in function C, they should contract with Person III to perform function C since function C is Person III’s least absolute disadvantage, and hence Person III’s comparative advantage. Person III should also trade the product of function C to persons I and II in exchange for the products of functions A and B, respectively.
Function D should be left to Person IV since it is Person IV’s least absolute disadvantage, and hence her comparative advantage. She can sell the products of function D to persons I, II, and III to acquire the products of functions A, B, and C from them.
But who should perform functions E and F? Person I has an advantage in function E while all others in this four-person world have disadvantages in performing function E. Thus Person I has a subsidiary comparative advantage in function E and might consider “moonlighting” in function E in her spare time. All of the four persons are disadvantaged in performing function F, but Person IV is least disadvantaged in function F relative to all others. Person IV thus has a subsidiary comparative advantage in function F and might contemplate undertaking it as a second job.
What if Person I fails to identify her comparative advantage or stubbornly refuses to pursue it after it has been revealed to her? Perhaps for some non-economic reason she perceives her “calling” to be function C and thus prepares herself for a vocation in it. In so doing, function A goes unperformed since no one else can undertake it at all, and Person III is displaced from his comparative advantage in function C. Person III has to shift to function D and person IV to function E, in each case greater disadvantages. Persons III and IV, already poor by possessing no exploitable absolute advantages, are further impoverished by the decision of Person I to specialize in function C. The “missed calling” of Person I has the effect of diminishing the welfare of the whole (four-person) world. Everyone loses when people miss their callings. Even Person II suffers a loss of welfare since there is now none of the product of function A to be consumed.
An example often used in the economics classroom is that of a lawyer who is the best trial attorney in town. This lawyer can also research legal questions, perform the functions of a file clerk, act as receptionist, clean the office, and cut the grass outside the office. Moreover, she can do all of these other function more efficiently (with expenditure of less time and effort) than can anyone else that she could hire to perform any of them. Does this mean that she should undertake all of them? Of course not. The more time and energy that she devotes to the other functions, the less she has to devote to trial-related activities. She should specialize in doing what she does absolutely the best and hire others to perform her lesser-advantaged functions, even if she could do them better than they can. One of the things she should not do is waste her time and energy in cleaning her office.
Comparative advantage at the regional or national level may not be easily recognizable by actors who can attempt to exploit it. In the study of international business, it is well understood that the relevant actors are the directors and managers of firms that might engage in international business transactions and direct foreign investments. In order for them to discover the comparative advantages of a region, they must first perceive regional competitive advantages for their firms, i.e., they must see greater opportunities for profitability in the region than in other regions. In this sense, the phenomenon of competitive advantage is a recognizable proxy for the phenomenon of comparative advantage.
As an economist I am led to contemplate the possibility that the process of discovering one's comparative advantages might serve as the vehicle for discovery of one's calling to vocation. But persons, like business firms, may also have difficulty in discerning their own comparative advantages and recognizing calls, divine or otherwise, to vocation. What are the recognizable proxies for calls to vocations that are difficult to discern? From an economic perspective, they are the perceived personal benefits and costs of entering into alternative vocations. The benefits and costs include emotional and psychic aspects as well as those that are denominated in monetary terms. The benefits are revealed as the person becomes aware of the vocational opportunities. It is up to the individual to accomplish the "due diligence" work necessary to identify and quantify the costs. From an economic perspective, a person's optimal vocation is the one that promises to yield the greatest net of benefits in excess of costs.
I am a member of a fairly affluent church congregation. On a recent Sunday morning as one of our associate ministers was offering the morning prayer, she reminded us of our general affluence in contrast to the poverty of the homeless, or "street people" as they have come to be known. We were then entreated to remember that the street people may be as deserving as we of the riches which we enjoy.
Whatever else she may have prayed and the sermon that followed that morning were lost on the economist. My mind immediately went into deep contemplation over whether indeed the street people were as deserving as am I of the fruits of my labor. Who deserves what in this material world that we inhabit?
From a Christian perspective, nobody "deserves" anything, least of all the salvation that God freely gives as a matter of grace if we will but repent of our sins and profess belief upon his only son as savior. This is the one crucial promise that God has made to humankind. Although Jesus urged us not to be anxious about tomorrow, we are not promised material well-being (the proverbial “rose garden”) even if we do renounce our sinful ways and profess belief. The most that we can hope for in this world is emotional staying power based on the confidence that "in the end" our prize is the continued existence of our souls in the presence of God throughout eternity. So, who indeed deserves what?
"Deserve" is a word which should be used sparingly in theological discussions. God, the creator and sustainer of humankind, deserves the reverence and worship of his human subjects, but no single human being actually deserves either salvation or anything else that human beings can regard as good. If anything from a theological perspective, humankind deserves judgment for its sinfulness. Otherwise, deservedness in a positive sense is a human concept, not a condition imputed or adjudicated by the divine.
Virtually all human perceptions of deservedness involve questions of judgment, and hence in accordance with Postmodern thought are highly subjective. What score does this student deserve on his paper? What raise does that employee deserve? Which candidate deserves my vote? In the commercial realm, what performance does the buyer deserve from this product? What level of service does the customer deserve from my firm? Often the venue for judgment about deserving is expressed in the first person: I deserve an A on my paper. I deserve a raise. I deserve value commensurate with the price that I paid for the product. I deserve good service from your company. I did not deserve the response that I got from my boss/spouse/child.
One context for the word "deserve" is the material and hence the economic world of work and reward for one's labors. From a literal biblical perspective, once God evicted humankind from the Garden of Eden, human beings were required to labor to meet their very subsistence needs if they wished to survive. In this literal interpretation, work is sacred. It is ordained by God himself as the means by which sinful human beings should achieve sustenance until the end of their days of material life. Whether one subscribes to a literal interpretation or not, as a practical matter work is the crucial linkage between eating and living. One works to produce or capture what is to be consumed. In modern, money-using societies, work generates the income that can be expended to acquire the consumables that are essential to survival. In this context then, those who work may be said to "deserve" the fruits of their labor that enable their very survival. They certainly regard themselves as deserving of what they work for.
Fundamentally, there are only three ways to acquire material possessions: to work for them, to be given them, and to simply take them. From a human perspective, the material possessions acquired by the "sweat of one's brow" are regarded by most persons as deserved. A donor may reach the judgment that the recipient deserves his beneficence, or he may provide a bequest in spite of his judgment that the bequest is thought to be undeserved. The taking of something would be no problem in a world of abundance. Appropriation that leaves a sufficiency for the rest of society creates no social distress. However, in a world that is characterized by scarcity, taking something without an appropriate exchange of value (quid pro quo) has come to be regarded as theft.
The criminalization of appropriation has been a blight upon social relations throughout the ages. To the criminal mind, simply wanting something may be adequate justification for taking it; deservedness may play no part in the decision thought process. Or, the criminal may presume that he deserves what he takes even if he has not worked to establish deservedness. Where life is in jeopardy for want of sustenance, can need override deservedness as a justification for taking? Victor Hugo's Les Miserables story of Jean Valjean's stealing a loaf of bread comes to mind.
Another context for the word "deserve" is the human judgment that another person may or may not deserve what he or she "got." For instance, it is not uncommon to reach the judgment that when something bad happens to an acquaintance thought to be a good person, the good person did not deserve the bad consequence. But sometimes "good things" happen to "bad people," and we judge that the benefit was undeserved. It is sometimes suggested that the good or bad things that happen to people are the rewards or punishments visited upon them by the divine. My own belief is that God neither rewards nor punishes human beings during their material lives; divine judgment (and reward) is reserved for administration in the afterlife.
These considerations lead to other troubling questions: Are those who are unable to work undeserving of sustenance? Most people of conscience would probably respond in the negative. How about those who choose not to work? That's more debatable. And what of those who can so arrange their affairs as to become dependent upon people who generate income sufficient to support not only themselves but also others whom they choose to support as dependents? And what of a society that so arranges its affairs as to collect portions of income from all who are able and willing to work for redistribution to those who are unable or unwilling to work? The socialization of the consumption process breaks the linkage between working and eating, and thereby tends to impair the incentive to work. The socialization of consumption is a characteristic of communitarianism.
Do all who are born deserve to live simply by virtue of the facts of their births? If one recognizes the creation of life as divine, the inevitable answer to this question has to be "yes," at least long enough for the young to reach ages of intellectual accountability when they can discover the possibility of salvation and choose to accept or reject it. As a general rule, humankind has through the ages responded to the compulsion to support its dependent young and regarded the young as deserving of support. Marriage has been regarded by the religious as a divinely ordained institution that enables not only procreation, but also the support of dependents by one or both adult partners. Marriage thus accommodates adult dependency of one partner upon the other, and it may be said that the dependent partner as well as their offspring deserve the support of the principal income earner in the marriage partnership, irrespective of the gender of that partner.
Most societies (but not all) through history have regarded the infirm and the physically and intellectually incapable as deserving of support. The principal responsibility for this support historically has fallen upon the families, even through the adult lives of the infirm and incapable. Religious and charitable institutions through the ages have assumed that the infirm and incapable deserve sustenance, and have thus assumed such responsibilities up to their physical and financial capabilities. Only in the last couple of centuries have governments of nation states begun to assume responsibilities for the care of the infirm and incapable, implicitly adopting the view that they deserve sustenance. This process of the socialization of the support of the infirm and incapable had proceeded far enough by the end of the twentieth century as to have largely relieved families of the burden of such support, even to the point that the view is generally accepted that it is the responsibility of the state, not the family, to provide support to the infirm and incapable. It can be argued that this is a manifestation of emerging communitarianism.
What do the elderly deserve in the way of support? In more primitive and brutal times, this was a less compelling issue since average life spans were much shorter than those of the late twentieth century, and smaller proportions of ancient societies survived to "elderly" status. For those who did, three historical conventions seemed to have emerged. In a few societies the elderly were regarded as being of no further use and were disposed of, perhaps with ritual. In some societies, the elderly were on their own to beg for sustenance once their physical abilities had deteriorated to the point that they could no longer fend for themselves by working. And in some societies, the families of the elderly assumed responsibility for their support. In the latter case, the term "family security system" applies. Examples of all three conventions still may be found in societies outside of the industrially developed and financially mature parts of the world.
A fourth convention gradually emerged and became predominant after the Industrial Revolution ensued in the West. In this mode, people who could generate more income than needed for present consumption began to realize the need to save part of their income flow and invest it to accumulate enough of an estate so that the income generated by the estate could support them during a post-working period of "retirement." We might use the term "self security system" to refer to such arrangements. The implication is that the person who has worked throughout a conventional working life then "deserves" to enjoy the fruits of his or her labors and accumulations once the ability to work has diminished. For those who succeed in accumulating substantial estates (real or financial) early in their working careers, the choice to retire even before their working abilities diminish becomes a reality. The question may be debated whether they "deserved" to amass such estates, and then whether they "deserve" to enjoy the incomes flowing from those estates while they are yet capable of work.
During the twentieth century, and particularly in the industrial and post-industrial parts of the world, societies have adopted the presumption that the elderly deserve support irrespective of the amount of work accomplished during their adult lives, and irrespective of their abilities to have saved and accumulated out of their income flow during working lives. It has been a short step from socializing the support of the infirm and incapable to the additional socialization of the support of the elderly, a "social security system." This process of socialization, OASDHI (old age, survivors, disability, and health insurance) in the United States, has further contributed to breaking the linkage between working and eating in modern Western societies, with the consequence of progressive impairment of the work incentive structures of those societies. Shades of communitarianism can be perceived in the socialization of old age security.
The endpoint of such progression can be perceived only indistinctly from the vantage point of the beginning of the twenty-first century. But it portends a gradual economic dysfunctioning of twenty-first century societies unless they can design adequate work incentive systems or otherwise automate the production of the essentials of subsistence.
So where does this leave our contemplations of who is deserving of what? I can perceive of four distinct possibilities: (1) Nobody during material life deserves anything, and everything (both material and ephemeral) arrives as a matter of grace conferred by the divine. (2) We deserve what we work for and earn. (3) We deserve sustenance and comfort, irrespective of whether and how much we work, and thus we feel justified in taking what we need and want. Or, (4) life is deserving of sustenance by virtue of existence, and sustenance should be socialized to ensure fairness of distribution. The implications of the latter two possibilities are troubling for the future of humankind.
24. MIRACLES
Miracles are revelations of God's self, power, and love to human beings. As recorded in biblical literature, they often had the effect of temporarily suspending or altering the functioning of the laws of nature. Some of the miracles described in the Bible also seemed to have suspended normal economic relationships.
There are five uses of the word "miracle" or its plural in the Old Testament and thirty-five uses of it in the New Testament. In all of the Old Testament citations, the writer or speaker refers to miracles which God or his designee (e.g., Moses or Aaron) have done in the past, usually in connection to the exodus of the Israelites from Egypt.
In the New Testament there are a few descriptions of actual miracles done by Jesus (Mark 6:52, John 2:6-12, 4:46-54, 6:1-14). Most of the other references are allusions to miracles (John 3:2, 9:16, 11:47, 12:18; Acts 2:22) or reports of miracles that have been done at earlier times (Luke 23:8; John 2:23, 6:2, 11:47, 12:18). The miracles of the New Testament are attributed to five parties or groups: Jesus, God (Hebrews 2:4), the apostles (Acts 4:16, 22) including Paul and Barnabas (Acts 15:12; 19:11), early church members (Acts 8:6, 13; 1 Corinthians 12:10, 28; Galatians 3:5), and false prophets (Revelation 13:14, 16:14, and 19:20). There are in the New Testament numerous incidents of a miraculous nature but which are not described with the word "miracle." Examples include the quieting of the wind and sea by Jesus (Mark 6:51), instances of walking on water by Jesus and Peter (Matthew 14:25-29, Mark 6:48-49, John 6:19), Jesus' raising Lazarus from the dead (John 11:1-45), and most of Jesus' acts of healing (e.g., Matthew 11:5, 15:31; Luke 5:15, 7:22; John 5:8-11). Jesus' own resurrection is of course the ultimate miraculous event.
In a companion book (Economy and Christianity in the Postmodern Era) I have described the application of the analytical methodology as used by economists to construct a "god model." My own god model is based upon a number of premises about the nature of God, one of which is that God is omnipotent. Given these premises as foundations, I employ inductive logic to structure an abstract model that is my generalization about the nature of God. With this generalization in mind, I can employ deductive logic to derive conclusions about the likely behavior of God. If I accept the premise that God is omnipotent, then a necessary conclusion to be deduced from my god model is that God must have the ability to do miracles. I have no basis for doubting the ability of God, his son Jesus, or others empowered by God to perform miraculous acts.
Two biblical examples of miracles that seem to have violated the scarcity nature of the material world are God's provision of "manna from heaven" to the Israelites to eat while they were wandering for forty years in the desert (Exodus 16:15, 35; Numbers 11:6-9; Deuteronomy 8:3, 16; Psalm 78:24), and Jesus' conversion of water (of value approaching zero, a so-called "free good") to wine (a valuable commodity otherwise producible only at some cost in terms of resources and human labor) (John 2:1-11). Even Jesus' healing miracles have economic implications because the costs of infirmity were henceforth averted, and the healed persons, many of whom were beggars, could become gainfully employed to support themselves.
My inference is that God's purpose in causing or enabling miraculous suspensions of the laws of nature was to capture the attention of people and convince them of his power and intent. The miracles described in both the Old and New Testaments certainly had this effect.
A lingering question is whether God today still causes or enables miraculous events to occur. While I have certainly experienced God's presence and love, I have not witnessed events during my lifetime that I would judge to be miraculous. This may simply be attributable to my imperceptiveness or God's choice not to reveal them to me. However, given my acknowledgment that God has the power to act miraculously in the world, I am led to numerous further questions. Does God exert active control over the weather, or does he influence climatic conditions? Disasters that descend upon some seem to be miraculously averted for others. What was God's role in hurricanes Hugo, Andrew, and Katrina, or in El Nino related weather disasters? Does God allow some automobile accidents to happen, while preventing others from occurring (the miraculous "near-miss" phenomenon)? If the latter, how does God choose which ones to prevent while allowing others to maim or kill even devout Christians? Does God miraculously guide the hand of certain surgeons in performing some operations, but not the same surgeons when performing other operations and not other surgeons in their work? If not, how does God choose whom to bless with healing? Does God miraculously allow some people to "beat" cancer, but others (including devout Christians) to succumb to cancer? I find it difficult to believe that God is capricious in his selective suspensions of the laws of nature. Or is it that God uses some selection criteria that are unknown and perhaps unknowable to humans, or at least to me personally?
I think that some of the events of the modern world which people deem to be miracles are actually happenings for which there are very low, but still non-zero, probabilities of occurrence. Even things with very low probabilities of occurrence still happen. For example, if there is a one-in-a-million chance of an event occurring, somewhere in a million opportunities it will occur. When it does occur, those who witness it may be inclined to call it a "miracle" and attribute it to the "hand of God." Such happenings may be non-events. For example, in 9,999 of 10,000 similar automobile accidents in the past the driver was killed, but in one particular similar instance a driver survives the accident. Although the result may have been purely a matter of probability, some will be inclined to regard the survival of the driver as a miracle and look for God's intent in preserving the life of the driver. A variation on this example provides another interesting puzzle. Suppose that in 9,999 of 10,000 similar automobile accidents the driver has survived, but in one particular instance a driver is killed. Again, the event occurred as a matter of probability, but friends and family of the driver, suffering acute emotional distress, may blame God or presume that God had some particular intent in taking their loved one from them prematurely. I am skeptical that such low-probability occurrences are revelations of God's love, intent, or power.
My own sense of this issue is that today God rarely acts in the world by suspending the laws of either nature or the principles of economics. I suspect that God influences the course of modern history, if at all, by "moving" human agents to act in his behalf. This is not to deny that God is capable of suspending the laws of nature or economics for his own purposes or has not done modern-day miracles of which I am not aware, but it is to suggest that God may choose to influence the world in a much more subtle manner today than he may have chosen to do in Bible times.
If God does today act to manipulate the physical or economic aspects of the world, or if he should begin to do so on a basis more often than rare occasions, it would have deleterious effects upon scientific inquiry. On a most general plane, the purpose of scientific (including economic) inquiry is to discern "the way the world works." Scientists repeat experiments time after time in the search for identifiable and regular patterns of structure or behavior. Economists search massive amounts of empirical data looking for reliable statistical associations among variables. In the end, these activities involve gaining confidence in understandings of the physical and social mechanisms of the world.
Continual dabbling by the deity in the workings of the world would seriously disrupt the ability of physical and social scientists to gain understandings of the systems and mechanisms that they are examining. I believe that God has enabled human beings to gain scientific understandings of the workings of the world, and this sharing of scientific knowledge may in fact be one of God's greatest (and most miraculous?) blessings of humankind. The progress that "Science" has made during the twentieth century supports an inference that God does not (often) today act in miraculous manners to suspend natural laws.
These musings lead to even more troubling questions. Another premise at the foundation of my personal god model is that God is omniscient--God knows or can know everything in the universe. But it is not clear to me whether God's omniscience extends across all of time, including the future. If God's omniscience extends to the future, the premise of omniscience is in conflict with another of my fervently held premises, i.e., that God extends to me (and all other human beings) free agency. The premise of God's omniscience is also incongruent with the inference that God today acts in the world by influencing or "moving" people to belief and action. If God does so move people to belief and action, is this a form of indirect manipulation of the laws of nature and economics that contradicts the presumed free agency of humankind?
In adopting a premise that God accords free agency to human beings, I have implicitly rejected an alternate premise that God predestines the course of human events. Predestination is mutually exclusive with free agency. If God has already traced out all of future history and human destiny, then we are nothing more than marionettes dancing at the ends of the strings that God is manipulating. And to what end other than God's own amusement? I can't imagine that God could continue to be amused by a marionette show for even an instant of time. I am led to the belief that God presents us with choices, including the ultimate choice of accepting or rejecting salvation, but then leaves the choosing completely to our discretion. My inference is that God may fervently hope that all human beings will make the "right choice," but God cannot know that particular human beings will make the right choice.
And what of the contention that God has "a plan" for the life of every professing Christian, for whom it is a duty and a quest to find God's will? I believe that God has a generic hope for all of humankind (i.e., that all will discover and choose salvation), but I am skeptical that God has planned out my (or anyone else's) life in any significant detail.
There may be some biblical support for the contention that God's omniscience does not extend into the future. God seems to have been surprised for Adam and Eve to have violated the prohibition of eating from the tree of knowledge in the Garden of Eden. God also seems to have been both surprised and disappointed at the emerging wickedness of humankind, so much so as to resolve to destroy most of humankind with a flood. A sequence of biblical events for which God appears to have had foreknowledge and which appears to have been predestined are Jesus' birth, death, and resurrection. This sequence of events confirms that God does have the ability of foreknowledge and foreordination.
Future human behavior may be predictable for a large-enough group and on average, even by humans themselves. In addition to explanation, prediction is also an objective of physical and social science inquiry. Although behavior on average may be predicted with some degree of confidence, it is a highly risky enterprise to predict the behavior of any single human actor, and it simply is not possible for one human being to know with certainty what another single human being will do in a particular set of circumstances.
God surely has no less ability than do human beings to predict aggregate behavior. But can God know with certainty that particular human beings will respond in a desirable manner to divine influences? If God does know with certainty how particular human beings will respond to his urgings, then can human beings be free agents? If God does indeed accord to human beings free agency, then can he know (or let himself know) what they will decide and how they will act in particular circumstances?
24. MIRACLES
Miracles are revelations of God's self, power, and love to human beings. As recorded in biblical literature, they often had the effect of temporarily suspending or altering the functioning of the laws of nature. Some of the miracles described in the Bible also seemed to have suspended normal economic relationships.
There are five uses of the word "miracle" or its plural in the Old Testament and thirty-five uses of it in the New Testament. In all of the Old Testament citations, the writer or speaker refers to miracles which God or his designee (e.g., Moses or Aaron) have done in the past, usually in connection to the exodus of the Israelites from Egypt.
In the New Testament there are a few descriptions of actual miracles done by Jesus (Mark 6:52, John 2:6-12, 4:46-54, 6:1-14). Most of the other references are allusions to miracles (John 3:2, 9:16, 11:47, 12:18; Acts 2:22) or reports of miracles that have been done at earlier times (Luke 23:8; John 2:23, 6:2, 11:47, 12:18). The miracles of the New Testament are attributed to five parties or groups: Jesus, God (Hebrews 2:4), the apostles (Acts 4:16, 22) including Paul and Barnabas (Acts 15:12; 19:11), early church members (Acts 8:6, 13; 1 Corinthians 12:10, 28; Galatians 3:5), and false prophets (Revelation 13:14, 16:14, and 19:20). There are in the New Testament numerous incidents of a miraculous nature but which are not described with the word "miracle." Examples include the quieting of the wind and sea by Jesus (Mark 6:51), instances of walking on water by Jesus and Peter (Matthew 14:25-29, Mark 6:48-49, John 6:19), Jesus' raising Lazarus from the dead (John 11:1-45), and most of Jesus' acts of healing (e.g., Matthew 11:5, 15:31; Luke 5:15, 7:22; John 5:8-11). Jesus' own resurrection is of course the ultimate miraculous event.
In a companion book (Economy and Christianity in the Postmodern Era) I have described the application of the analytical methodology as used by economists to construct a "god model." My own god model is based upon a number of premises about the nature of God, one of which is that God is omnipotent. Given these premises as foundations, I employ inductive logic to structure an abstract model that is my generalization about the nature of God. With this generalization in mind, I can employ deductive logic to derive conclusions about the likely behavior of God. If I accept the premise that God is omnipotent, then a necessary conclusion to be deduced from my god model is that God must have the ability to do miracles. I have no basis for doubting the ability of God, his son Jesus, or others empowered by God to perform miraculous acts.
Two biblical examples of miracles that seem to have violated the scarcity nature of the material world are God's provision of "manna from heaven" to the Israelites to eat while they were wandering for forty years in the desert (Exodus 16:15, 35; Numbers 11:6-9; Deuteronomy 8:3, 16; Psalm 78:24), and Jesus' conversion of water (of value approaching zero, a so-called "free good") to wine (a valuable commodity otherwise producible only at some cost in terms of resources and human labor) (John 2:1-11). Even Jesus' healing miracles have economic implications because the costs of infirmity were henceforth averted, and the healed persons, many of whom were beggars, could become gainfully employed to support themselves.
My inference is that God's purpose in causing or enabling miraculous suspensions of the laws of nature was to capture the attention of people and convince them of his power and intent. The miracles described in both the Old and New Testaments certainly had this effect.
A lingering question is whether God today still causes or enables miraculous events to occur. While I have certainly experienced God's presence and love, I have not witnessed events during my lifetime that I would judge to be miraculous. This may simply be attributable to my imperceptiveness or God's choice not to reveal them to me. However, given my acknowledgment that God has the power to act miraculously in the world, I am led to numerous further questions. Does God exert active control over the weather, or does he influence climatic conditions? Disasters that descend upon some seem to be miraculously averted for others. What was God's role in hurricanes Hugo, Andrew, and Katrina, or in El Nino related weather disasters? Does God allow some automobile accidents to happen, while preventing others from occurring (the miraculous "near-miss" phenomenon)? If the latter, how does God choose which ones to prevent while allowing others to maim or kill even devout Christians? Does God miraculously guide the hand of certain surgeons in performing some operations, but not the same surgeons when performing other operations and not other surgeons in their work? If not, how does God choose whom to bless with healing? Does God miraculously allow some people to "beat" cancer, but others (including devout Christians) to succumb to cancer? I find it difficult to believe that God is capricious in his selective suspensions of the laws of nature. Or is it that God uses some selection criteria that are unknown and perhaps unknowable to humans, or at least to me personally?
I think that some of the events of the modern world which people deem to be miracles are actually happenings for which there are very low, but still non-zero, probabilities of occurrence. Even things with very low probabilities of occurrence still happen. For example, if there is a one-in-a-million chance of an event occurring, somewhere in a million opportunities it will occur. When it does occur, those who witness it may be inclined to call it a "miracle" and attribute it to the "hand of God." Such happenings may be non-events. For example, in 9,999 of 10,000 similar automobile accidents in the past the driver was killed, but in one particular similar instance a driver survives the accident. Although the result may have been purely a matter of probability, some will be inclined to regard the survival of the driver as a miracle and look for God's intent in preserving the life of the driver. A variation on this example provides another interesting puzzle. Suppose that in 9,999 of 10,000 similar automobile accidents the driver has survived, but in one particular instance a driver is killed. Again, the event occurred as a matter of probability, but friends and family of the driver, suffering acute emotional distress, may blame God or presume that God had some particular intent in taking their loved one from them prematurely. I am skeptical that such low-probability occurrences are revelations of God's love, intent, or power.
My own sense of this issue is that today God rarely acts in the world by suspending the laws of either nature or the principles of economics. I suspect that God influences the course of modern history, if at all, by "moving" human agents to act in his behalf. This is not to deny that God is capable of suspending the laws of nature or economics for his own purposes or has not done modern-day miracles of which I am not aware, but it is to suggest that God may choose to influence the world in a much more subtle manner today than he may have chosen to do in Bible times.
If God does today act to manipulate the physical or economic aspects of the world, or if he should begin to do so on a basis more often than rare occasions, it would have deleterious effects upon scientific inquiry. On a most general plane, the purpose of scientific (including economic) inquiry is to discern "the way the world works." Scientists repeat experiments time after time in the search for identifiable and regular patterns of structure or behavior. Economists search massive amounts of empirical data looking for reliable statistical associations among variables. In the end, these activities involve gaining confidence in understandings of the physical and social mechanisms of the world.
Continual dabbling by the deity in the workings of the world would seriously disrupt the ability of physical and social scientists to gain understandings of the systems and mechanisms that they are examining. I believe that God has enabled human beings to gain scientific understandings of the workings of the world, and this sharing of scientific knowledge may in fact be one of God's greatest (and most miraculous?) blessings of humankind. The progress that "Science" has made during the twentieth century supports an inference that God does not (often) today act in miraculous manners to suspend natural laws.
These musings lead to even more troubling questions. Another premise at the foundation of my personal god model is that God is omniscient--God knows or can know everything in the universe. But it is not clear to me whether God's omniscience extends across all of time, including the future. If God's omniscience extends to the future, the premise of omniscience is in conflict with another of my fervently held premises, i.e., that God extends to me (and all other human beings) free agency. The premise of God's omniscience is also incongruent with the inference that God today acts in the world by influencing or "moving" people to belief and action. If God does so move people to belief and action, is this a form of indirect manipulation of the laws of nature and economics that contradicts the presumed free agency of humankind?
In adopting a premise that God accords free agency to human beings, I have implicitly rejected an alternate premise that God predestines the course of human events. Predestination is mutually exclusive with free agency. If God has already traced out all of future history and human destiny, then we are nothing more than marionettes dancing at the ends of the strings that God is manipulating. And to what end other than God's own amusement? I can't imagine that God could continue to be amused by a marionette show for even an instant of time. I am led to the belief that God presents us with choices, including the ultimate choice of accepting or rejecting salvation, but then leaves the choosing completely to our discretion. My inference is that God may fervently hope that all human beings will make the "right choice," but God cannot know that particular human beings will make the right choice.
And what of the contention that God has "a plan" for the life of every professing Christian, for whom it is a duty and a quest to find God's will? I believe that God has a generic hope for all of humankind (i.e., that all will discover and choose salvation), but I am skeptical that God has planned out my (or anyone else's) life in any significant detail.
There may be some biblical support for the contention that God's omniscience does not extend into the future. God seems to have been surprised for Adam and Eve to have violated the prohibition of eating from the tree of knowledge in the Garden of Eden. God also seems to have been both surprised and disappointed at the emerging wickedness of humankind, so much so as to resolve to destroy most of humankind with a flood. A sequence of biblical events for which God appears to have had foreknowledge and which appears to have been predestined are Jesus' birth, death, and resurrection. This sequence of events confirms that God does have the ability of foreknowledge and foreordination.
Future human behavior may be predictable for a large-enough group and on average, even by humans themselves. In addition to explanation, prediction is also an objective of physical and social science inquiry. Although behavior on average may be predicted with some degree of confidence, it is a highly risky enterprise to predict the behavior of any single human actor, and it simply is not possible for one human being to know with certainty what another single human being will do in a particular set of circumstances.
God surely has no less ability than do human beings to predict aggregate behavior. But can God know with certainty that particular human beings will respond in a desirable manner to divine influences? If God does know with certainty how particular human beings will respond to his urgings, then can human beings be free agents? If God does indeed accord to human beings free agency, then can he know (or let himself know) what they will decide and how they will act in particular circumstances?
25. GIFTS
"No pain, no gain." "You get what you pay for." Quid pro quo. We value what we have to work for. Does this mean that we value less what is given to us free of charge?
The parable in Matthew 22:1-14 and Luke 14:15-24 is about a king who gives a wedding feast for his son, but those invited have other priorities. Some of them make light of the invitation. One invited guest has work to do on his farm, another at his business, and the rest of the invitees mistreat or kill the messengers delivering the invitations. So the king sends his army to destroy the murderers and their city, then sends other messengers to invite any they encounter on the street (or in the fields) to the feast. One who comes does not wear proper wedding garb (in that day the king would have provided the wedding garments for the guests) and thus deliberately insults the king who has him bound and thrown out.
In this parable Jesus departs from his convention of starting with a familiar setting, and then shifting to an unexpected conclusion. The wedding feast is a unique situation, a once-in-a-lifetime opportunity for the invitees to enjoy the abundance of the king's wealth. But they do not take the invitation seriously; other priorities outweigh the king's invitation; their slight insults the king with disastrous consequences.
The word "abundance" is one of the key words of modern economic thought. It is significant because it is the opposite of material scarcity, which is the principal economic characteristic of the material world in which we live. The scarcer is something, the higher its price. The more abundant is something, the lower its price. Things that are perfectly abundant are so-called "free goods" which have zero prices. The solution to the economic problem of scarcity would be the achievement of universal abundance so that everything would be free. Few (except Karl Marx) have envisioned "final solutions" to the economic problem of the material world.
Gifts are anomalies in a world of scarcity. Although economists are fond of asserting that "there is no such thing as a free lunch," this is true only from the perspective of society taken as a whole. Any single member of society can enjoy the gift of a free lunch at the expense of other members of society. A gift is a voluntary unilateral transfer of value. But gifts constitute a problem for human behavior because they seem to violate the true scarcity nature of the items given. The gift (for example, a diamond engagement ring) may have cost the giver dearly, but for the recipient it is like a "free good." While we may expect recipients to respond with gratitude, human nature often yields a perverse sort of behavioral response. We under-value what we do not have to pay or work for.
Wealth is also an anomaly in a world of scarcity. On the first page of his book, The Affluent Society (1958), John Kenneth Galbraith notes that ..".the experience of nations with well-being is exceedingly brief. Nearly all throughout all history have been very poor." But in this parable we have a tale about an exception to the general rule of poverty. The king in the parable is really wealthy (Johnny Carson's audience might have shouted in unison, "How wealthy was he?"). He was so wealthy that he could give away (zero price) admission to his feast to as many guests as he wished! The neat thing about wealth is that it can allow one to minimize the significance of scarcity; even a high positive price becomes irrelevant to one who is wealthy enough. The possession of wealth may pervert incentives and responses to scarcity.
In the parable the invitees are asked to suffer no pain in order to enjoy a prospective gain (they get "quo" without having to give up any "quid"). For many of them the prospective gain meant little and they ignored it. The consequence was their ultimate destruction.
Is God like the king in the parable? Are human beings the invitees to the Kingdom of Heaven that is like the king's feast? Is the admission price simply a matter of grace that for all intents and purposes renders it a "free good" because of its sheer abundance? All one has to do to join the feast is believe and confess. What kind of price is this?
Is God wealthy like the king in the parable? Just how wealthy is he? Can he invite all of us to his feast and grant us "free admission?" Some of the invitees certainly accept God's invitation of admission to the Kingdom (salvation) by grace and are glad of it. But there are some invitees who, because they have to pay no significant price to participate in the abundance of the feast, "blow off" the opportunity as worth little more than the price they have to pay for it.
It is tempting to impute a Jew/Gentile divide to this parable. The first guests invited (the Jews?) reject the invitation, so God issues invitations to the rest of humanity (Gentiles?). Many (but not all) accept the invitation, and some arrive ill-garbed to participate in the feast. Are these the ones who are only nominal church members, who only feign belief and confession? Is their fate to be cast into outer darkness as a consequence of professing empty belief? I'm sure that a biblical scholar would be able to come up with a better interpretation.
And what happens to the invitees who reject God's invitation to his feast in the Kingdom of Heaven? Their destruction lies in eternal damnation. This is another parable in which Jesus has described rather extreme consequences for the villains of the parable: death and destruction. Would such extreme treatment of the slighting guests be contrary to Jewish or Roman law? Maybe so, but the central actor in the parable is a king who exercises sovereignty over his subjects, not just a wealthy farmer or businessman inviting guests to his son's wedding. Political sovereignty means that the sovereign can do anything he wishes with (and to) the subjects and resources of his kingdom. There is a bright possibility with a dark side to it: God can be perfectly generous to those who accept his invitation, but in his sovereignty over the universe, he can ultimately destroy those who ignore it.
26. A Quid Pro Quo World
God may be thought by Jews and Christians to be the ultimate giver of true gifts. A Judeo-Christian belief is that God created the universe and has “given” it to humans to use. In our prayers, public and private, we often thank God for his “blessings” and attribute all good things to God’s benevolence. As Eric Raymond has noted, gift cultures are predicated upon material abundance[10], and this is consistent with the concept of the abundance of God’s creation. A reconciliation of the presumed abundance of God’s creation with the scarcity of the material world that is that local scarcities occur even if there is global (or universal) abundance (see Part 4).
In contrast to the unilateral-transfer nature of a true gift, market economy entails bilateral exchanges of value, a.k.a. quid pro quo transactions, in the context of material scarcity. Market economy is the decision-making and motivating mechanism of capitalism, and quid pro quo exchanges are the essence of market transactions.
The material world in which we live is a quid pro quo world, i.e., one in which humans rationally expect something that they judge to be of the same or greater value in return for the value given in voluntary exchange. The quid pro quo expectation is a characteristic of the human species that only occasionally is found in sub-human species. As Adam Smith noted in The Wealth of Nations (1776), no one has ever seen a dog exchange bones with another dog.
But, is quid pro quo exchange a purely human phenomenon? Can the quid pro quo principle apply to relations between the human and the divine? Indeed, does the quid pro quo principle describe all of creation, and ultimately the nature of God as well?
Humans almost always want something from the deities that they worship: a good hunt, rainfall, abundant crops, children, good health, healing of disease, surgical success, longevity, safe transit, employment, income, wealth, etc. …and relief from violence occurring in nature (tsunamis, earthquakes, volcanic eruptions, hurricanes, tornados, etc.) or violence perpetrated upon their persons or their property by other humans, etc. …and forgiveness of sins. …and salvation to a promised heavenly afterlife. This list could go on forever. It leads one to wonder whether it would even be possible for humans to worship a deity without wanting something from the deity. In expectation that their prayers of want will be answered, humans offer honor, worship, adoration, glorification, and obedience to their chosen deity. Quid pro quo.
And does the deity, let’s just say God, want anything from the human subjects? The Judeo-Christian belief is that God created the world (indeed, in modern language, the whole universe) and gave the resources of the universe to humans to use. And the accompanying presumption is that God does in fact expect obedience, and glorification, and adoration, and worship, and honor in return. Another quid pro quo.
The Jewish tradition (Old Testament) is that the essential relationship between God and humans is one of human sinfulness that requires the human to confess sins, repent of them, and seek forgiveness from God. Christianity (New Testament) adopted the sin-confession-repentance-forgiveness (SCRF) axis from the Jewish tradition. Further, Christians believe that forgiveness of sin and salvation to an afterlife follows from genuine confession and repentance of sin accompanied by belief in God’s son, Jesus, as savior. Quid pro quo again.
It is a fair guess that humans almost certainly get more than they hope
for or deserve in this exchange with God. After all, God offers salvation
to a heavenly eternity. But given human nature, it would also be
a fair guess that through the ages God probably has gotten far less in
return from humans that he might have hoped.
Oneness Without Forgiveness?
The SCRF axis is so central to Christianity that most Christians would be challenged to imagine a relationship to God that is not based on it. Postmodern thinkers believe that a pluralism of religions can produce ultimate peace and “oneness” with deity. Can achieving oneness with deity be the ultimate goal of religious practice apart from sin and forgiveness? A study of “Religions of the World” suggests that while most “Western” religions are centered upon the SCRF axis, there may be other religions that are not SCRF based.[11] Individuals practicing such religions may seek peace and oneness with deity figures or ancestors on the basis of reverence apart from any concept of sin that requires the deity’s forgiveness. But the peace and oneness with the deity that they seek is in return for the reverence of the deity.
Some scientists seem to experience a reverent relationship with the divine that is not SCRF based. Albert Einstein, in his 1956 autobiographical essay “The World As I See It”, describes his own religious sense:
Chapter 26 Endnotes:
[1] Eric Steven Raymond, "The Hacker Milieu as Gift Culture," http://futurepositive.synearth.net/stories/storyReader$223.
[2] Lewis Hyde, The Gift: Imagination and the Erotic Life of Property, Vintage Books, 1983.
[3] R. I. M. Dunbar, “Neocortex Size as a Constraint on Group Size in Primates”, Journal of Human Evolution 22 (1992): 469-493.
[4] Ronald Coase, "The Nature of the Firm," Economica, November 1937, Volume 16, Number 4, pp. 386-405.
[5] D. H. Robenson, Control of Industry, 1923, p. 85.
[6] Gifford Pinchot, "The Gift Economy," http://www.context.org/ICLIB/IC41/PinchotG.htm.
[7] Genevieve Vaughan, For-Giving: A Feminist Criticism of Exchange, Plain View Press, 1997, http://www.for-giving.com/.
[8] Genevieve Vaughan, paper given in the summer of 2002 at the Women's World Conference at the University of Makerere in Uganda, http://www.gift-economy.com/articlesAndEssays/theGiftEconomy-article.html.
[9] See “Forgiveness” in Wikipedia at http://en.wikipedia.org/wiki/Forgiveness for an exposition of the role of sin and forgiveness in a number of religions.
[10] Raymond.
[11] See “Forgiveness” in Wikipedia at http://en.wikipedia.org/wiki/Forgiveness for an exposition of the role of sin and forgiveness in a number of religions.
[12] Albert Einstein, “The World As I See It”, 1956, http://lib.ru/FILOSOF/EJNSHTEJN/theworld_engl.txt.
[13] Krista Tippett, “Einstein’s God”, interview with Freeman Dyson and Paul Davies in Einstein’s God, Penguin Books, 2010, p. 34.
[14] Krista Tippett, “The Biology of the Spirit”, interview with Sherwin Nuland in Einstein’s God, Penguin Books, 2010, p. 46.
[15] Tippett, p. 48.
[16] Krista Tippett, “Quarks and Creation”, interview with Paul Polkinghorne in Einstein’s God, Penguin Books, 2010, p. 264.
PART 6. THE HUMAN CONDITION
John Kenneth Galbraith notes that although nearly all nations throughout history have been poor, great wealth has been enjoyed only during the last couple of centuries in the small corner of the world populated by Europeans and North Americans. The five chapters in this part deal with the human condition in its environmental setting and how economies, polities, and religions deal with it.
27. POVERTY
In the first chapter of his book The Affluent Society (1958), John Kenneth Galbraith contrasts the conditions of the rich and the poor. He notes that although nearly all nations throughout history have been poor, great wealth has been enjoyed only recently (the last couple of centuries) in the small corner of the world populated by Europeans and North Americans. He then paints a picture of the poverty experienced by humanity through the ages:
This poverty was not the elegant torture of the spirit which comes from contemplating another man's more spacious possessions. It was the unedifying mortification of the flesh--from hunger, sickness, and cold. Those who might be freed temporarily from such burden could not know when it would strike again, for at best hunger yielded only perilously to privation. It is improbable that the poverty of the masses of the people was made greatly more bearable by the fact that a very few--those upon whose movements nearly all recorded history centers--were very rich.
This is a pretty bleak picture of the existence of humankind through the ages, but one that evokes images of scenes that I have witnessed in West Africa and South Asia. Does it square with life in first century Palestine as we can understand it from New Testament scripture?
In Luke 4:18 Jesus quotes prophesy in Isaiah, ..". he has anointed me to preach good news to the poor" (NIV), and indicates that the scripture has been fulfilled in the presence of those hearing his words. In Luke 7:22 Jesus tells the disciples of John to tell John that ..". the good news is preached to the poor." Jesus began the Sermon on the Mount with the Beatitudes, the first of which is " Blessed are you who are poor, for yours is the kingdom of God" (Luke 6:20; also with variation "poor in spirit" in Matthew 5:3). Jesus' intent in these passages apparently is to communicate to the poor good news about an afterlife rather than relief of their human condition.
But in the Sermon on the Mount Jesus also says to "Give to everyone who asks you" (Luke 6:30) and to give to the needy, but to do so in secret (Matthew 6:3-4). In Matthew 19:21, Mark 10:21, and Luke 18:22 Jesus tells a rich young man to sell his possessions and give the proceeds to the poor. Similarly, in Luke 12:33 Jesus tells his disciples to "Sell your possessions and give to the poor.” Luke relates Zacchaeus' encounter with Jesus which concludes with Zacchaeus' promise, " Look, Lord! Here and now I give half of my possessions to the poor" (19:8). These passages do seem to focus upon relief of the human condition rather than telling good news.
In the parable of the sheep and goats related in Matthew 25:31-40, Jesus says that the righteous will inherit the Kingdom because ..". whatever you did for one of the least of these brothers of mine [the poor?], you did for me" (verse 40). The message here seems to make the connection between the possibility of an afterlife and relief of the human condition.
As recounted in Luke 14:13-14, Jesus tells his host, a Pharisee who has invited him to dinner, that “…when you give a banquet, invite the poor, the crippled, the lame, the blind, and you will be blessed. Although they cannot repay you, you will be repaid at the resurrection of the righteous.." In the parable following this passage, a man has a banquet, but none of the invited guests attend; so in anger he directs his servant to ..".bring in the poor, the crippled, the blind and the lame" (verse 21). In these passages, physical infirmity seems to be coincident, if not synonymous, with poverty.
Jesus contrasts the sumptuous life of a rich man to that of Lazarus, a beggar covered with sores (Luke 16:19-31). Mark (10:46) and Luke (18:35) relate Jesus' encounter near Jericho with a blind man (Mark identifies him as Bartimaeus, the son of Timaeus) sitting by the roadside begging. In John 9:1-8, Jesus passes a man blind from birth, which invokes the question from the disciples as to whose sin caused the blindness; Jesus “spit on the ground, made some mud with the saliva, and put it on the man's eye” (NIV) and after the man washes he can see; subsequently the neighbors identify him as one who sat and begged. The focus of these stories and encounters seems to be upon healing infirmity rather than relief of poverty.
One day while teaching in the temple, Jesus noticed a poor widow who contributed two copper coins, all that she had (Mark 12:42-43; Luke 21:1-4). The poor widow in this story serves as a model of generosity.
As related by John in Chapter 12, when Jesus visits the home of Mary, Martha, and Lazarus in Bethany, Mary anoints Jesus' feet with some very costly ointment which Judas suggests should have been sold and the proceeds given to the poor [verse 5]. In Mark 14:3-6, a woman anoints Jesus' head with a bottle of expensive perfume; when other people present comment that the perfume might have been sold and the proceeds given to the poor, Jesus replies, "The poor you will always have with you, and you can help them any time you want..." (verse 7). Matthew sets this incident at the house of Simon the Leper in Bethany (26:6-12). So, the poor are simply "there," and likely always will be.
Finally, in John 13:29 when Judas left the Last Supper after betraying Jesus, some of the disciples thought that Judas had gone to give something to the poor, but, alas, this was their misconception.
There are occasional references in the Gospels to the sick and demon possessed (e.g., Mark 1:32), with only an implication that these may also have been poor. On occasions Jesus fed several thousands of people (Matthew 14:15-21, 15:32-38; Mark 6:35-44, 8:1-9; Luke 9:12-17; John 6:5-13), but there is no indication that they were particularly poor, only hungry at the moment in remote locations.
We may stipulate that first century Palestine was a poorer place than that we know today in the United States of America. Relative to ours, it was an agrarian society using primitive technologies; it must certainly have experienced a lower per-capita income in terms of real purchasing power (i.e., abstracting from making some sort of exchange-rate conversion between the late-'90s U.S. dollar and the first-century denarius). The welfares of two such societies separated by nearly two millennia hardly are comparable, and we may suffer illusions in contemplating the well-being (or perceived lack thereof) of those in Bible times. But my overall impression from reading the New Testament (in any translation) is that Galbraith's depiction of "unedifying mortification of the flesh" simply does not fit very well the environment in which Jesus moved. This may simply be my illusion which follows from Galbraith's observation that most of recorded history has centered upon the movements of the rich and powerful. Not much ever is written about the lives of the poor.
If we take first century Palestinian society on its own terms without reference to our own, we must recognize that it exhibited a distribution of income that ranged from the very low to the very high (economists are inclined to discuss matters of occupational groupings and income levels, but not "social classes"). The society of the first century in Palestine seems to have been populated by a number of identifiable occupational categories: land owners, a Levitical class, bureaucrats attached to the Roman occupation, commercial traders, artisans, tenant farmers, fishermen, household servants, slaves, and beggars. I can only guess that the fishermen and tenant farmers were toward the lower end of the income distribution; the middle was comprised of artisans, traders, bureaucrats, and Leviticals; and the landed gentry possessing most of the wealth occupied the upper end of the income spectrum.
Some landowners were of course better-off than others; many may have struggled to eke out livings from their lands, especially if the lands were arid or of low fertility. The poorer landowners likely would not have had servants attached to their households. Some of the servants of the more affluent landowners may in fact have been slaves (in the sense of chattel property). But others were considered part of the wealthy person's household, perhaps as indentured servants, and some may have been more like employees in the modern sense than either slaves or indentured servants. It would probably be a mistake to presume that servants were poor or any poorer than other occupational groups in such an agrarian society. Servants attached to secure households were themselves relatively secure in an economic sense.
At the very bottom of the income spectrum were the "dispossessed" of society who begged for a living. While there are occasional Gospel references to them, there is no way to estimate what proportion of first-century society they may have comprised, or the depth of the impoverishment that they suffered. I suspect that in a society without social security, "the poor" consisted mostly of orphans, widows, people with infirmities that prevented them from working for their livings, and elderly persons not being cared for by their adult children. Often the condition of the poor is peripheral to other messages that are being conveyed in the Gospels, e.g., the healing of infirmities rather than the relief of poverty. Of course, the two may be connected: physical infirmity may be the source of economic impoverishment.
While the disciples seem to have been drawn mostly from the lower-income segments (except the tax collector, Matthew), their own references (e.g., in John 13:29) to "the poor" suggest that they did not regard themselves as being particularly poor or of a poor class. Although Jesus himself trained as an artisan (a carpenter), he implies his own poverty in Matthew 8:20, "the son of man hath not where to lay his head," but we may infer that Jesus' poverty was a matter of choice rather than necessity. Jesus' movements and encounters seem mostly to have been among the middle income and wealthy segments of Palestinian society. Indeed, Jesus often is depicted attending social occasions at the homes of the well-to-do. Occasionally he comes into contact with the poor by chance encounters along the road, in the marketplace, or at the temple. In these instances he relieves their physical suffering by healing their infirmities, but this may have been an enabling condition to relief of their own poverty by engaging in gainful employment. In no circumstance reported in the New Testament is Jesus depicted as dispelling or relieving poverty except by healing infirmity.
The message that comes through New Testament literature is that those who have achieved affluence should show compassion to the poor by sharing their substance, but that there is little hope of eliminating the problem, even by sharing. In Jesus' words, ..".The poor you will always have with you, and you can help them any time you want." (Mark 14:7) If there is a compelling message in the Gospels, it is not to relieve poverty; rather, it is found in the Great Commission (Matthew 28:19-20), i.e., to go tell the good news to all nations.
If Galbraith is right, poverty has been the normal lot of humankind through the ages. In the Genesis story of the Garden of Eden, human beings initially enjoyed a luxuriant state of nature. However, after the original sin and God's eviction of Adam and Eve from the Garden of Eden, humankind found itself in a state of dire poverty, toiling to earn or produce just barely enough to meet subsistence requirements. Implicitly, this state of poverty is a condition created and mandated for humankind by God himself.
Modern social scientists have a tendency to regard the existence of poverty as evidence of some traumatic failure of the economic system. The existence of poverty in this latter day does not imply that something bad has happened or that some systemic failure has occurred. Indeed, the fact that some societies and some individuals in any society seem to have achieved a modicum of affluence implies that something good has happened. The good that has happened is the successful exercise of entrepreneurship by human beings to employ the God-given natural resources more productively. What is God's role in this process? Does God initiate entrepreneurship as a means of relieving the human condition of poverty? Does the relief of poverty occur as a by-product of humankind's quest for the accumulation of wealth and control over its environment? Does God enable or provide impetus to this quest? Could it be that God himself authored humankind's drive to accumulate?
A belief widely held by non-economists is that most commercial activity is a so-called "zero-sum game," i.e., if one member of society gains, others necessarily must have suffered loss. This notion was advanced by the character played by the actor Michael Douglas in the film "Wall Street." Another description of such a phenomenon is a "win-lose" situation. We must acknowledge that exploitative activity may indeed be a zero-sum game (gains are just offset by losses), or worse, a negative-sum game (the sum of the losses exceeds the gains). Deceit, ignorance, or immobility may enable some to gain at the expense of others. But the vast majority of all economic transactions have to be positive sum events. Where parties to a transaction are free agents, both must perceive themselves to gain or the transaction simply won't be completed (it is also true that either or both may perceive themselves to have gained at the expense of the other). Successful entrepreneurship is almost always a positive-sum (i.e., a "win-win") phenomenon. Not only does the entrepreneur become wealthy; others benefit as new or lower-priced products are introduced and as jobs are created and income is generated.
It appears that over the past two millennia the Christian mission has slipped ever farther away from communicating a gospel about salvation to an afterlife, and ever more toward a "social gospel" which focuses upon relief of the human condition in this material world. Yet the funds collected by well-intentioned Christian churches and expended on poor relief may be a lot like trying to raise the level of the sea by spitting into it. It's not likely to have the desired effect, and it appears that Jesus himself acknowledged this point in Mark 14:7. A cynical view would be that contributions for poor relief (or to alleviate world hunger) may do more to salve the consciences of the donors than to scratch the surface of the problem.
There is a difference between crisis relief and poor relief. Generosity by the affluent may relieve dire human suffering when calamity strikes, e.g., when drought, earthquake, flood, volcanic eruption, or war occurs. But some modern economists are concerned that repeated or continual subsidy to relieve the distress of poverty may impair society's incentive structure and eventually weaken or break the linkage between eating and working. An example is the establishment of a poverty threshold below which the poor are guaranteed entitlement to income support. Such income maintenance tends to weaken the incentives of the poor to try to get and keep work. But also weakened are the incentives of the productive members of society to continue to work and pay the taxes that subsidize the poor. Progressive impairment of the incentive structure may create an environment of dependency that can endure from generation to generation.
In the end Jesus entreated us to orient ourselves toward the afterlife and tell the rest of humanity about it. Jesus also taught that we should be compassionate toward the poor (and a true believer would want to do so), but this is not the main priority. Is it possible that the best hope of the poor while they yet live in this material world may lie in economic development rather than Christian benevolence? I am reminded of a saying that I first encountered on a demonstration farm operated by the Methodist Church in Pakistan:
Teach me to fish, and I eat for a lifetime.
28. LIBERATION THEOLOGY
A common description of Liberation Theology is that it is a movement
by Catholic priests, principally in Latin America, that emphasizes the
Christian mission to bring justice to the poor and oppressed through political
activism.
Orientation. The Liberation Theology movement may be more politically oriented than theologically based. Becoming serious about Jesus' teachings in regard to the poor may have provided the occasion for Latin American churchmen to advocate a political struggle to achieve “liberation”, but Jesus' poverty teachings were around for a nearly two millennia before the Liberation Theology movement got under way. The emerging Liberation Theology concern with the condition of the impoverished is coincident with the Postmodern cultural epoch, but it is not clear that it is a manifestation of the Postmodern cultural orientation.
On second thought, the Liberation "Theology" movement may be more economically based than either politically or theologically based. What it really involves is an advocacy of a Church-mounted effort to counter economic exploitation by those who have attained monopoly power.
Justice. The avowed mission of Liberation Theology is "to bring justice to the poor and oppressed," but the injustice needs to be specified. The existence of poverty per se is not unjust. There always will be in any society a distribution of income ranging from the affluent at one end to the poor at the other end. Income distribution alone cannot be a source of injustice, but exploitation, if it can be identified, can be a source of injustice.
Some liberation theologians have associated capitalism with sin as a cause of poverty, and they have described capitalism as "class war by the rich against the poor." The routine and mundane activities of capitalism (production, trade, investment) are not sinful per se; but exploitation may have sinful implications. Only one who is naive of economic realities would consider sin to be the root source of poverty.
John Kenneth Galbraith (The Affluent Society, 1958) asserted that poverty has been the normal lot of human-kind through the ages. Sin has also been around from nearly "the beginning," but it is a stretch to assert that either is the cause of the other, i.e., correlation (or covariation) per se does not constitute causation. Some have been affluent in every age, but increasing general affluence dates only from the past couple of centuries with the onset of scientific advance and Industrial Revolution.
If "sin is the root source of poverty," then it might be argued from a biblical perspective that it dates from God's response to the "original sin" by evicting mankind from the Garden and requiring him to toil to earn his sustenance through a finite lifetime. One might wonder if God had second thoughts around the beginning of the eighteenth century and only then began to dribble out scientific knowledge for humankind to discover and mount an industrial revolution that would enable increasing affluence.
Exploitation. From an economic perspective, the assertion of a "class war by the rich against the poor" is a charge that the rich exploit the poor. Technically, one succeeds in exploiting other resources by capturing a share of output that is greater than warranted by input into the productive process, and this is virtually impossible to ascertain or verify. Also, income differentials may be attributable to successful entrepreneurship rather than exploitation. Few economists would regard successful entrepreneurship as exploitation, but some liberation theologians may do so.
Class Struggle. Liberation theologians often invoke political theory, principally Marxism, to propose means of alleviating both exploitation and poverty. Marx's "political theory" of class struggle can result in redistribution of wealth if the class struggle is successful. Redistribution alone can make some better off only by making others worse off. For a redistribution of wealth to make the society better off, the opportunity gains by the recipients of the redistribution must be greater than the losses due to the impairment of the incentive structure for those from whom wealth is taken. There is of course no objective basis for making such a comparison. Redistribution per se cannot serve as a vehicle "to combat poverty." Improvements in well-being on a global (rather than individual) scale have to be produced, not just redistributed.
A redistribution that emerged from a successful Marxian-type of class struggle might diminish the root cause of the distributional inequality, i.e., the possession and exercise of monopoly power. The economic objective of a Marxian class struggle is to displace the power of the bourgeoisie to exploit the proletariat. We might infer that it is also the underlying (but not well articulated) objective of a Liberation Theology movement. However, human nature being what it is, it is likely that those who lose wealth and power in a redistribution would figure out how to “work the system” to reattain their wealth and power. Achieving distributional equality one time is only a start; ensuring that distributional equality is maintained is a matter of employing the police power of the state to abridge personal liberty.
Liberation theologians have based the need for social action upon biblical scriptures (e.g., Isaiah 61:1, Matthew 10:34, Luke 22:34-38, and Matthew 26:51-52) implying that the mission of Jesus is to "bring a sword" (social unrest) rather than peace (social order). The adoption by liberation theologians of Marxian class struggle as the operative vehicle of change is ironic since Marx explicitly denied the relevance of religion, and beyond that construed it to be "the opiate of the people." The class struggle that Marx perceived between proletariat and bourgeoisie never actually flowered because of the emergence of a mutuality of interest between the proletariat and the bourgeoisie; also because in the democratic societies of Western Europe and North America the class lines between proletariat and bourgeoisie have blurred.
The Church. Liberation Theology attempts an integration of Catholic theology to Marxism, specifically dialectical materialism that aligns with revolutionary movements. A dialectical process occurs when an existing situation (a "thesis") comes up against an opposing force (i.e., is confronted by an "antithesis") and culminates in a blended outcome (a "synthesis"). Marxian dialectical materialism is about the hypothesized confrontation of the power and material wealth of the bourgeoisie by an exploited and impoverished proletariat, out of which comes a synthesis in the form of a dictatorship of the proletariat that controls the possession and use of material wealth. It would be a stretch to presume that the poor, once "liberated" from their exploitation by the rich, are equipped to become the managers of society's wealth.
The "orthodox" position of the Roman Catholic Church has been opposition to liberation theology. Cardinal Ratzinger (subsequently Pope Benedict XVI) has opposed elements of Liberation Theology that advocate acceptance of Marxism and armed violence. A continuing concern is that the advocacy of class conflict would seem to support temporal messianism. Class conflict within the Roman Catholic Church might threaten the authority of church hierarchy. Orthodox priests within the Catholic church have disagreed with liberationist theology on grounds that it does not represent the entire meaning of God, and they have accused liberation theologians of "mining the Bible" to find passages that support their political, social, and ideological goals.
Political Economy Foundations. The political underpinning of Liberation Theology has been "dependency theory." Dependency theory posits that industrial countries at “the center” (Western Europe and North America) have succeeded in exploiting countries at “the periphery” (“third-world” countries in the Southern Hemisphere) to keep them in a state of perpetual dependency on the center.
The economic basis for dependency theory (and thus Liberation Theology) is the possibility that a nation’s "terms of trade" (the ratio of its export prices to its import prices) will deteriorate due to perverse income elasticities of demand (the relative responsiveness of the global demand for its export products to changes of income levels in importing countries). If this happens to a nation that produces mostly primary products (agricultural, fisheries, and mineral products), it may become more dependent on other nations that produce industrial products to import its primary products.
There may have been some evidence of adverse changes of low-income nations' terms of trade at mid-twentieth century, but toward the end of the twentieth century and on into the twenty-first century, it appears that the reverse has happened. The terms of trade have turned against the industrial nations' exports and in favor of the exports of the primary product producing nations. This outcome undercuts the economic basis of Liberation Theology.
29. WEALTH
During my church-going life, upon occasion I have heard sermons in
which wealth was disparaged and poverty was extolled. Often there was an
accompanying effort to impose a load of guilt upon any who had accumulated
significant amounts of wealth. The targets of such sermons often
seemed to be the most affluent members of the preacher's own congregation.
How do people become wealthy, and why does it matter?
In primitive societies wealth existed in the form of land and those things that could be grown or raised upon it. They were wealthy who had acquired property rights over the land. Similar circumstances may be found in the modern world in societies whose economies are based upon agriculture or some form of natural resource endowment. Income is generated to benefit the owners by working the land or otherwise exploiting the natural resources. The owners themselves may work the land, or they may hire or impress others to work it for them. How the distribution of wealth has emerged in any particular society is a story buried in the history and pre-history of that society. The particular distribution of wealth may be perpetuated over literally centuries by inheritance, class, and caste.
Over the past couple of centuries in those regions of the world that have experienced technological and industrial revolutions, the perception of what constitutes wealth has broadened beyond simple real estate to encompass financial instruments which are claims on real things. A collateral perception has emerged that wealth in financial forms can be created by human beings. Financial wealth consists in the first instance as claims issued by parties against themselves, but which are construed as assets when acquired and held by others. While technically there is no limit the ability of people to issue claims against themselves, there certainly are market constraints upon the ability to do so. The demand for such claims has in fact increased over time to allow ever more claims to be issued and held as wealth by others.
The concept of the creation of wealth by human beings is a relatively new idea, perhaps emerging and becoming popular no earlier than the nineteenth century. Before then it was well understood that land and other natural resources were so-called "free gifts of nature," quantities of which could not be augmented by human effort. No mere mortal could create wealth; such was an exclusively divine prerogative. Even so, the values of such natural resources tended to rise over time as demand for them increased due to population growth. As the twentieth century unfolded, the wealth of society could be perceived to increase both because the values of the real things appreciated, and also because financial claims (e.g., stocks, bonds, bank accounts, certificates of deposit), issued in ever greater quantities, became regarded as forms of wealth.
An open society is one without a well-defined class structure. The distribution of both real and financial wealth among the members of an open society like that of early twenty-first century America, though significantly unequal, is also very dynamic. There is some perpetuation of the wealth distribution by inheritance from each generation to the next. However, experience indicates that over an extended period of time the possession of wealth by families changes rather drastically. There are numerous examples of the dissipation of accumulated wealth by the second or third generation of offspring of those who achieved the accumulation. A common description of a spectacular rise to success is "rags to riches." A variation on this description is also cited: "Riches to rags in three generations." Some business history research has been devoted to the phenomenon of the disappearance the typical family-owned firm within a few decades (two or three generations) after the passing of the founder. In a dynamic market economy like that of the United States, new accumulations of wealth are achieved by people whose parents and grandparents were impoverished. An analogy is that the preferred rooms in the upper floors of a hotel are always occupied, but rarely by the same people.
A number of Jesus' parables and teachings are about people who are wealthy. The passage in Matthew 19:16-30 is not a parable, but a recounting of a chance encounter between Jesus and a young man. The young man asks Jesus what good deed must he do to have eternal life; Jesus tells him to keep the commandments, which the young man says that he has observed. The young man presses Jesus as to what else he lacks; Jesus tells him that if he sells his possessions and gives the proceeds to the poor, he will have treasure in heaven. The young man then left sorrowfully because he had great possessions. Jesus then tells his disciples that it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God. The disciples ask Jesus who then can be saved; Jesus replies that "With men this is impossible, but with God all things are possible." When Peter asks what those will have who have left everything to follow Jesus, he replies that those who have followed him will in the new world (the kingdom of Heaven?) receive a hundredfold of what they have foregone, and they will inherit eternal life.
In the opening chapter of his book, The Affluent Society (Boston: Houghton Mifflin Company, 1958), John Kenneth Galbraith sets the stage for an examination of the behavior of the wealthy:
In Jesus' day (and perhaps today as well), truly wealthy people were rare, and it would have been even rarer still that a young person had acquired great wealth. So a chance encounter with a wealthy young man was an unusual circumstance which Matthew thought deserved recounting.
We are not told anything about how the young man came by his great possessions. Perhaps the most likely avenue was inheritance. If the young man was a scion of an "old money" family, we might expect him to be familiar with "having things" and to behave with propriety. Having "nice things" probably results in emotional attachments to them, and this makes it difficult to give them up. This may account for the young man's sorrow at Jesus' suggestion that he ought to sell his possessions.
On the other hand there are too many examples of "spoiled rich kids" who have little regard either for their parents' possessions or their own. Some of them live lavish, undisciplined lives with little empathy for the rest of society. As Galbraith notes, the wealthy have a tendency to make themselves look foolish.
Another means to wealth for a young person is to have achieved early and spectacular success in some entrepreneurial venture. In this latter possibility the young man was nouveaux riche, and as yet had not learned how to handle his new condition. Possession and accumulation of "things" seems to become the indicator of success for the nouveaux riche, and they may also become attached to their things. We are reminded of the bumper sticker that says, "He wins who dies with the most toys." Accumulation seems to have become the "name of the game" in modern acquisitive society.
In either case the rich young man has become so attached to his possessions that he became sorrowful when Jesus told him to sell all and give the proceeds to the poor. Even though the young man left the encounter in sorrow, we can only surmise that he did not sell his possessions and give the proceeds to the poor. It is just possible that the rich young man eventually was moved to take Jesus at his word. Maybe he did sell at least some of his possessions and give the proceeds to the poor. Jesus gave him an incentive: to acquire treasure in heaven.
But this begs an interesting question: is it enough to be generous with some of our wealth while holding back much of it, or must we give up all of it in order to meet the condition for entry into the afterlife? Are we talking here about physically foregoing material possessions (all of them?), or is the real issue a sufficient change of attitude on the part of the wealthy (or any of us, no matter how poor)?
Although Jesus himself said that it may be more difficult for a rich man to enter the Kingdom of God than for a camel to pass through the eye of a needle [and we recognize that this may have referred to a hole in the Jerusalem city wall which a man could pass though but a camel could not], he concluded that "with God all things are possible." This has to be the great hope of the wealthy (or for that matter anyone in whatever condition of poverty or affluence). Is the implication that God in his omnipotence can move wealthy people to such material generosity that they, even they, may enter the Kingdom of God?
How does this square with the proposition that salvation is by grace rather than by works? And what are we to make of Jesus' assertion that those who have given up all to follow him will be rewarded a hundredfold (and receive eternal life)? Since that foregone by the disciples is material in nature, is the promise of hundredfold compensation also of a material nature? The promise of reward (whether material or spiritual) for virtuous behavior implies a quid pro quo condition, even in matters of the soul, and it does suggest the importance of works to the salvation condition.
30. ECONOMIC GROWTH
Economists distinguish between economic growth and economic development. "Growth," taken to be an improvement in the material well being of humans, is usually measured as the rate of increase of per capita real income or output of a society. "Real" means that adjustments have been made to eliminate the effects of inflation so that the real component of nominal income increase can be examined. "Per capita" means that some measure of the total output of a society, typically its Gross Domestic Product (GDP), has been divided by the population of the society to get a measure of income on a per-person basis.
"Development" is understood to mean change in the structure of society. The various dimensions of social structure include economic, social, political, moral, religious, and environmental. Development is both a requisite of growth and a consequence of growth--they are inseparable.
A serious problem is that development is typically disruptive of social structures, and thus entails costs. While by definition growth yields only benefits, development seems to involve mostly costs. A rational judgment of whether a process of development cum growth is desirable should be based on the relationship between the benefits of growth against the costs of development, i.e., Bg/Cd. If the value of the ratio of Bg/Cd is greater than 1, the growth-development process is desirable. It is undesirable if the value of the Bg/Cd ratio is less than 1.
Economists make the case that the most effective poverty-alleviating vehicle over the past couple of centuries has been economic growth, and that market economies are more favorable to growth than are authoritarian economies.
A modern economist is led to the suspicion that the suffering of the poor may be less amenable to relief by sharing the existing wealth than by a process of economic development that increases the society's stock of capital (which is part of its physical wealth). The poor are helped via the "spill-over effects" of employment and income generation, and in terms of a growing volume of lower-priced consumables that are more affordable to the poor.
There is a good bit of evidence in the literature of economic development that with continuing growth of the global economy, income per capita has risen. Even the poor at the lower end of the income spectrum usually enjoy welfare gains, although the gap between their incomes and those of the wealthy (successful entrepreneurs) may widen. This is not to deny that some elements of any society may become worse-off as economic development ensues, but the same probably would be happening in a stagnant economy. Even so, I am compelled to the conclusion that there is likely to be greater potential for relief of poverty in entrepreneuralizing the world's scarce resources than in socializing them. The most likely outcome of the latter is to ensure the perpetuation of poverty.
Because of continuing economic growth over the past couple of centuries, most people have become materially better-off than their predecessor generations. And those who live in the societies that have enjoyed the fastest rates of economic growth may “live like kings” relative to people in societies that have experienced little or no growth. An “international demonstration effect” occurs when people in low-income societies become aware of higher living standards in societies that have enjoyed faster rates of economic growth. International demonstration effects have motivated people in low-income countries with authoritarian political regimes to try to achieve the benefits of faster economic growth by replacing their regimes with democratic polities coupled to market economies.
It is a rough and imperfect analogy that "A rising tide floats all boats." Economic growth makes a society on average better-off, but some become better-off faster than others, and some may actually become worse-off, thereby worsening both local and global distributions of income and wealth. Even if those toward the lower end of an income or wealth distribution have become materially better-off, a widening distribution tends to breed resentful envy among those at the lower end of the distribution toward those closer to the top.
Resentful envy may spill over into social dissatisfaction and
political
unrest. Possible outcomes might be
parliamentary efforts to curb the income earning or wealth accumulation
abilities of those toward the upper end of the distribution, or to
redistribute
income and wealth from those at the upper end of the distribution to
those at
the lower end. A more extreme outcome
might be a movement (parliamentary or revolutionary) to replace market
capitalism with some form of socialism.
In the early twenty-first century we see low-income societies with authoritarian regimes attempting to achieve the growth benefits of successful market economies with democratic polities. It is ironic that at the same time we find in higher-income market economies with democratic polities efforts to achieve distributional equity by socializing the distributions of income and wealth.
31. THE ENVIRONMENT
Economics instructors tell their students that economics is about the
scarcity of productive resources relative to the wants of humans for the
products that can be produced from those resources. Economics is about
economizing, conserving, and allocating those scarce resources to achieve
efficiency and productivity (the ratio of outputs to inputs) in the process
of enhancing the material well being of society.
By the very nature of their subject matter, economists are interested in conserving the environment, and they favor "long time horizons" that stretch to some number of future generations and their well-beings. There is no essential conflict between economic and environmental concerns as long as the sides of any environmental and growth discussion are given due consideration and benefits are rationally judged against costs. There is substantial overlap between the interests of growth economists and environmentalists, but if either pushes too far toward their respective extremes (environmentalists to stop growth, or growth economists to ignore environmental concerns), the mutuality of interest will evaporate.
There seems to be some asymmetry of assessment of benefits and costs between those who promote growth and those who favor environmental protection and restoration. Growth advocates go to lengths to identify the benefits of growth and may overestimate the values of them while overlooking or minimizing the costs of development. Avid environmentalists tend to the opposite extreme, i.e., identifying all of the costs of development and overestimating their magnitudes, while overlooking or undervaluing the benefits of growth.
In the past couple of decades, growth economists and environmentalists have become progressively more suspicious and skeptical of each other. Environmentalists often indict economic growth as the principal villain in despoiling the environment. Growth economists suspect that an ardent advocacy of environmental "sustainability" actually may be a veiled "stop-growth" movement. Growth economists are firmly convinced that on-going growth serves the larger humanity by improving material well-being across the income spectrum, and especially among the poorest in low-income societies. But there are always tradeoffs. A cost of growth that improves material well-being may be usage of resources that may be perceived as environmental damage. The rational question is whether the benefit is worth the cost.
Environmental advocates occasionally express the view that when some gain from the environment, others must have suffered loss. Most economists would not be sympathetic to that viewpoint, and would relegate it to the pre-Industrial Revolution era of Mercantilism, i.e., the pre-Modern era. There is much evidence that economic activity is not a "zero-sum game," but rather a positive-sum game. Economic activity is "quid pro quo," i.e., trading "this for that." Unless such trading is dictated by authority, it is voluntary so that both parties to any such trade have to perceive that they will gain in order for the trading activity to ensue. When some part of the environment is "despoiled" by "greedy industrialists" (the development) who may gain profit (or suffer loss), there are other members of society who are made better off, namely the consumers of the products flowing from the industrial activity (the growth). Environmentalists seem to stress the "rapacious" nature of industrial despoilage but ignore the "pro quo" that accompanies it.
The extraction of mineral and petroleum resources certainly leaves less of them in the earth so that it appears that stocks of natural resources are being "depleted." However, at the end of World War II the best estimates available were that the world may have had around 40 more years of coal if it continued to be extracted at mid-twentieth century rates. Early in the twenty-first century, and with accelerating extraction of coal, current estimates are that we may have two or more centuries worth still available. How can this be? Technological advance has increased the efficiency with which we use our coal resources, and processes of exploration and discovery have identified and proven previously unknown coal deposits. And, technology is advancing with respect to the ability to burn coal (or coal-derived products) with ever-less ejection of carbon and particulate matter into the atmosphere. There are even hints of technologies to be developed that may be able to extract carbon from the atmosphere and either bury it below the sea floor or make other useful products with it. Similar stories can be told with respect to many other natural resources. The very same process of technological advance that is making progress to conserve the earth's resources and enable more efficient and cleaner usage of them is indicted by environmentalists for despoiling the environment. Growth economists maintain that even as the physical resource stocks of the earth's natural resources are depleting, the "effective stocks" continue to be increased by technological advances.
Some environmentalists have suggested that "science" and "technology" have "come together" of late to cause extreme environmental degradation. Science and industry complement each other in advancing technology. The role of science is to develop or discover new "basic" knowledge, while that of industry is to apply the newly-discovered basic knowledge in order to develop technologies for producing the goods and services that enhance human material well being. With this division of labor, it is easier to assess blame upon industry (its “R&D”) for bringing to market new technologies that impair the environment, and to absolve "science" for any role in environmental deterioration. But this is a false division and it begs the question "what is the source of all knowledge," whether basic or applied. If this is a multiple-choice question, I can think of two possible answers: (a) human beings alone and by their own intellects discover and create new knowledge; or (b) God is the source of all knowledge. Those who believe in the omnipotence, omnipresence, and omniscience of God may find it difficult to avoid answer (b). But if (b) is the actual answer, then a couple of follow-on questions are: "Why has God let us have so much knowledge that we can use to despoil the "free gift of nature?" And "Why has God dribbled out the knowledge so slowly (i.e., made the scientific inquiry and entrepreneurial processes so arduous) that we still haven't been able to eliminate poverty and replenish the earth that we have despoiled?"
How does the on-going discussion of "global warming" fit into this discussion? There is a good bit of "long-view" evidence that the earth has been cyclically warming and cooling through the ages. The present warming trend is not unlike that about twelve thousand years ago around the end of an ice age. Whether human activity is responsible for or has aggravated the present warming trend is uncertain. Global warming, whether a natural phenomenon or caused by human activity, may impair the productive capacity of tropical and arid regions of the earth, and thus further impoverish the populations of those regions. But global warming is also likely to extend the growing seasons of more northerly regions, and thus enhance their productive capacities. Environmentalists seem to focus on the former and underestimate the latter possibility.
Since it is not yet apparent that human effort can actually suspend the global warming process, the solutions to the human problem lie in open borders. This means trade and immigration, unilateral transfers (e.g., foreign aid and benevolence by religious and other charitable organizations) from those regions that are gaining to people in regions that are suffering from global warming. This also means the transfer of new technological knowledge to those regions that are suffering to enable them to adapt to the global warming process.
How do these ruminations pertain to religion? In the Eden "myth story" recounted in Genesis 3, the sinful couple is evicted from the Eden paradise and must work and earn their way through the rest of what would become finite life spans. From a scriptural perspective, this may be interpreted as the "genesis" of both economics and environmental preservation. God's conferring upon humankind "dominion over all the earth" provides implicit license to humans to use the resources of the earth. Concepts of both economics (beginning with Adam Smith's 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations) and environmentalism (emerging seriously only late in the twentieth century) have led to the further inferences that human beings ought to use the resources of the earth efficiently and without wasting them during each generation (the economic inference), and to conserve them for use by future generations (the environmental inference).
In the New Testament Jesus preached two gospels, a short-run social gospel about how human beings should live with and treat each other during physical life, and a long-run salvation gospel about the "next life." The short-term orientation is the well-being of humans and how they live with and treat each other during finite physical life. The long-term and ultimate orientation is the "next life" which I infer has neither economic nor environmental dimensions. Even though in Genesis God gave humankind "dominion over all the earth" and hence license to use the resources of the earth, there does not appear to be any New Testament gospel in regard to environmental preservation or restoration. I do not think that it is appropriate for an "environmental gospel" to compete with either the social gospel or the salvation gospel preached by Jesus. I fear the possibility that a strident "evangelical environmentalism" might eclipse both the social and the salvation gospels in the mission of the church.
John Kay, in his January 9, 2007, column in the Financial Times, conjectured that environmentalism now has achieved all of the requisites of a religion in its own right. It possesses a myth story of "The Fall" in the form of the loss of harmony between man and nature caused by our materialistic society, and an apocalypse myth story in the form of human wickedness that has damaged our inheritance. However, there is no redemptive story in environmentalism that would provide an object of worship. It might be more appropriate to call environmentalism an advocative secular ideology rather than a religion. There is something to advocate from an ideological perspective, but nothing to worship from a religious perspective.
In comparison, economic growth emanating from the operation of market economy has an apocalypse myth story, the "dismal" population growth story told in 1798 by Church of England Parson Thomas Robert Malthus in his Essay on Population. In Malthus' story, continuing population growth will press upon the carrying capacity of the earth, causing per capita incomes to fall and hover about the subsistence level, and massive starvation if population growth should continue to grow beyond the carrying capacity of the earth. Malthus invoked the "four horsemen of the Apocalypse" described in the New Testament book of Revelation as the vehicles that would ultimately limit population growth: war, pestilence, famine, and disease.
But growth economics also has two redemptive stories in the forms of on-going technological advance that extends the carrying capacity of the earth, and demographic transition that curbs population growth. In a demographic transition, as people become more affluent they want to have fewer children, hence birth rates fall toward death rates. In this reality (more than a myth story), technological progress has enabled global output to outrun population growth, and demographic transition is reducing the global rate of population growth. On-going economic growth has enabled per capita incomes to continue to rise and alleviate poverty. The Malthusian Apocalypse is thus averted. Economic growth may be closer to being a religion (a secular religion) than is environmentalism.
Is either environmentalism or economic growth a "religion"? Both are advocative secular ideologies, not religions. There is no need to mix these advocative secular ideologies with Judeo-Christian religions. Any serious movement to insert an environmental advocacy statement into a church mission statement should invoke a movement to complement it with an economic growth advocacy statement. Economic growth serves the needs of the poor by raising per capita incomes, and this fits in very nicely with Jesus' short-run social gospel. It is unclear how environmental protection serves either the social gospel or the salvation gospel.
PART 7. CONCLUSIONS
These deliberations about economy and religion allow some tentative conclusions to be drawn. The conclusions that follow are my own. They help me to understand the world in which I live relative to Christian admonitions and economic realities.
32. CONCLUSIONS
Conclusions about economy and religion can be only very tentative. The reader is invited to critically examine these conclusions and to compile a list of his or her own conclusions.
A. ECONOMY AND RELIGION
1. Scarcity. Scarcity, the raison d'etre of economics, is the essential characteristic of the material world that we inhabit, though it surely must not be a characteristic of a heavenly afterlife. Economics is about a material world characterized by scarcity. Religion, and in particular Christianity which expects a non-material afterlife, provides a code of humane conduct during material life.
2. Material incentives. Although Jesus taught that we need not be concerned with meeting our material needs, economic incentives still matter, even for the most devout Christian believer. Meeting one's material needs and beyond that material success in this world is achieved by determined response to material incentives. The righteous suffer and the wicked prosper; the rains fall upon the fields of the just and the unjust alike. Apparently God does not "promise us a rose garden" during material life, even for those who have professed belief in his son. Ultimately, God promises the Christian believer only one thing: eternal life in the presence of God.
3. Wealth creation. The inherent and intrinsic wealth of the universe is attributable to the Creator. But material wealth in the form of capital can be "created" by investment on the part of human beings. Those who accumulate capital become wealthy in a material sense. By-products of the accumulation of material wealth are job creation and income generation, but the accumulated wealth may distort preferences. The accumulation of wealth by successful entrepreneurship also sparks resentful envy among the non-entrepreneurial.
4. Self-interest. Although self-interest governs all human activity, it may be tempered by social conscience. An important role of family, clergy, and academy is to infuse all of society, but especially the wealthy, with social conscience so that they will be inclined to employ their wealth for socially redeeming purposes.
5. Poverty. There will always be relative poverty by virtue of the existence of a range of income distribution in any society. Absolute poverty will exist for the foreseeable future, but the best hope of eliminating it is economic growth.
6. Economic development. The poor may be better served by economic growth and development than by benevolence. Improvement of the condition of the poor may be better served as a by-product of entrepreneurial activity to achieve economic development. The entrepreneurial creation of real wealth (productive capacity) may employ the poor, give them income, and produce a larger flow of affordable merchandise. Benevolence can only socialize (i.e., redistribute) the existing wealth. Nonetheless, for the devout Christian believer benevolence will be a by-product of the joy of a promised salvation.
7. Liberty. Liberty is a fundamental requisite of both the practice of religion and the successful functioning of market economy. When liberty is impaired, both religion and economy suffer.
19. Government and the economy. Government’s interventions into the economy may serve the needs of consumer sovereignty, enterprise freedom, and religious liberty if the intrusions are well designed to alleviate the shortcomings of market mechanisms. Governmental interventions beyond this threaten consumer sovereignty, enterprise freedom, and religious liberty.
8. Economics and the environment. There is no essential conflict between economic and environmental concerns as long as the sides of any environmental and growth discussion are given due consideration and benefits are rationally judged against costs. By the very nature of their subject matter, economists are interested in conserving the environment, and they favor "long time horizons" that stretch to some number of future generations and their well-being. Environmentalism is not a religion any more than growth economics is a religion; both are advocative ideologies.
9. Poverty relief. Most Western economists favor
growth as a more effective poverty-relieving vehicle than redistribution.
Postmodern thought favors socialistic redistribution, liberation struggles,
gift economy, gender-neutral economy, and feminist roles in economic decision-making.
B. POSTSCRIPT: TESTAMENT
I’ll leave it to the reader to judge whether the following testament of faith is inspired or simply diabolical:
10. God. There is a divine being that initiated the creation of the universe and continues to be active in its cosmic and evolutionary processes. Humans, who have no such divine creation capacity, can use resources in nature (God’s creation) to invest in capital that enhances human welfare.
11. Afterlife. I once heard a preacher say that "All of us are going to inherit eternal life; some of us are going to enjoy it." The ominous implication is that there may be many who won't. We inhabit a material world for an average lifespan of about four score years beyond which there may be an afterlife for those fortunate enough to discover a portal to it. Assuming the reality of a spiritual afterlife, these four score years of material life are of minuscule duration compared to the eternity of an afterlife. In the grand scheme of things, "dust to dust" is a very short period of time.
12. The purpose of life. The purpose of life in this material world is to find a portal to the afterlife. For some a portal is discovered by searching for it; others may simply stumble upon it. For some a portal is presented via a process of evangelization by those who have already discovered it. Many never find a portal to a heavenly hereafter, and this likelihood causes great anxiety for committed evangelicals. Is there only one portal, or are there multiple portals? For Christians, belief in the death and resurrection of God's son, Jesus of Nazareth, is the essential portal to the Kingdom of Heaven. For biblical literalists it is the exclusive portal to everlasting life. The Postmodern view entails a pluralistic tolerance of other religions. This view accommodates a belief that God is capable of relating to humans in any form and by any name that God wishes.
13. Meaning in life. Meaning is found in life by engaging in activity that is of significance with respect to the humanity that lives coextensively with one's own material life. Most find meaning by engaging in humane or benevolent activity; some, e.g., Adolph Hitler, have found meaning in perpetrating tyrannical acts upon coextensive humanity.
14. Heaven and Earth. Earth is the material place that we inhabit while we enjoy physical life. We know where it is and can locate ourselves and other living beings on it. Heaven is the “virtual place" that is believed to be the place where in the future the human soul may enjoy eternal life in the presence of God. Occasionally at funerals it is referred to as the "better place." However, while it is not possible to know the locational coordinates of Heaven, it may be thought of as having both future and present temporal dimensions. In the present, the “Kingdom of Heaven” is coextensive with material earth and may be envisioned as an "overlay" to it but only for those who know of it and seek it. An analogy that may be helpful is to think of Earth as a computer program running in the "foreground"; it is what we see and feel happening; it is our physical reality. Heaven is like a computer program running in "background," i.e., it is there and operating but functioning without visibility to the computer user; it is a divine "virtual reality." It is knowable to believers but unknown to those who are unaware of it and do not seek it. For Christians who seek the Kingdom of Heaven, the teachings of Jesus serve as a moral code of behavior while occupying material earth.
15. Salvation. In the material world there will always be distributions of income ranging from the very poor to the very rich. As Jesus put it, "the poor you will have always with you." While Jesus taught that the "meek shall inherit the earth" and "it is more difficult for a camel to go through the eye of the needle than for a rich man to enter the kingdom of God," he also concluded that "with God all things are possible." Both the poor and the rich can “be saved”.
16. Gospel. The gospel is the mission. During his material life Jesus preached a “social gospel” about how humans are to live with and treat each other. Beginning with the first century Christian church, the Christian mission has been to preach a “salvation gospel”. While Jesus urged benevolence to the poor, poor relief appears to have been a less significant priority than healing the infirm and forgiving their sins. After nearly two millennia, relief of the human condition (poverty and diseases) seems to have ascended to equivalent or even greater significance than evangelization.
17. Material success. Material success or failure in this life has little to do with eternity. Does God capriciously reward some devout believers more than others, while letting some of the righteous suffer the degradation of extreme poverty and infirmity? I suspect that God neither punishes nor rewards human beings in this material life; all punishments are levied and rewards are conferred in the afterlife.
18. Thanksgiving. The Pharisee thanked God that he was not like "that Publican over there." Is it not arrogant for a Christian to thank God for his rich material blessings while there are other, even more righteous Christians, who suffer impoverishment? I find it difficult to believe that God capriciously rewards some and not others. Economists think that the achievement of affluence in this world is due to some combination of inheritance, luck, opportunity (being in the right place at the right time), and entrepreneurship to take advantage of it. For what then should we offer thanks? For life itself and the opportunity to discover a portal to a heavenly afterlife, and for the material ingredients of life that enable the opportunity to meet our material needs and achieve material success. But not for the achievement itself; that was the sin of the Pharisee.
Glossary of Terms Used in this Book
This glossary contains economic terms that are used in the text plus
some additional terms that are used in other glossary entries. The
included meanings, elaborations, and examples pertain specifically to the
contexts of discussions in this text. Undoubtedly, many of the terms
have other meanings than those included here. No effort has been
made to include religious and theological terms in this glossary on the
assumption that the reader already has some familiarity with them or can
glean their meanings from other sources.
academy, the educational establishment encompassing kindergarten through graduate educational institutions.
abundance, the unusual economic condition of the material world such that more of an item is available for human consumption than humans need or want; the opposite of scarcity; the evidence of abundance is a zero or negative market price.
administered price, the valuation of a good as determined by an authority.
advancing technology, discovery or development of new ways of making a material good or improving the function or quality of the good.
affluence, a high state of human well-being characterized by the ability to consume in excess of subsistence requirements and the possession of wealth greater than necessary for comfortable survival.
agent, one who acts on behalf of another (the “principal”) in conducting business activity; moral hazard occurs if the agent engages in shirking, pursues self interest to the detriment of the principal's interest, or indulges in dishonest or immoral behavior.
altruism, an orientation of humans to curb or suppress self-interest and to attempt to meet the needs of other humans.
amortization, the process of paying down and eventually paying off a financial debt; literally, “to kill” the debt.
antitrust law, a.k.a. “antimonopolies” law, legislation enacted with the intent of preventing the acquisition of monopoly position and attendant monopoly power by business firms, and to punish or criminalize the exercise of monopoly power; American antitrust law began in 1890 with the passage of the Sherman Antitrust Act.
authoritarian capitalism, a.k.a. “fascism”, a form of economic organization that involves investment in capital for profit by private owners who respond to the dictates of an state planning agency that determines product mix, product characteristics and qualities, and production quotas.
automatic stabilizers, mechanisms installed by legislative action into economies that work automatically to offset macroeconomic swings; once installed, automatic stabilizers require no further human intervention; examples include a progressive tax rate system that leaves more purchasing power in citizens pockets as an economic downswing decreases incomes, and unemployment compensation that increases the spendable income of eligible recipients as unemployment rises; both system automatically decrease the injection of purchasing power into the economy as it recovers.
bail-out, financial support provided by government to a private-sector entity (productive or financial) to prevent its failure.
beggar-my-neighbor policy, a trade strategy designed to steal the natural comparative advantages of trading partners by creating artificial competitive advantages for domestic producers; the usual methods are to subsidize domestic industry or to keep the domestic undervalued on world markets, thereby increasing employment in domestic export industries at the expense of employment in the trading partners’ economies.
behavioral premise, a prior assumption about how a dependent variable responds to one or more independent variables.
beneficiary moral hazard, a special case of moral hazard that occurs when one party in good faith attempts to provide some possibility of benefit other parties, but finds that beneficiary parties take advantage of the possibility in ways not perceived by the provider and to the detriment of the provider, themselves, or innocent bystanders.
benefit-cost analysis, an analytical process used by economists for comparing the sum of the benefits (B) of a contemplated action to the sum of the costs (C) that are likely to result in undertaking the action; if the B is greater than C, or if the value of the ratio B/C is greater than 1, the contemplated action is desirable or justifiable on economic grounds, abstracting from moral implications unless the values of moral outcomes have been imputed and included in the benefit or cost totals; the contemplated action is undesirable if B is less than C, or if the value of the B/C ratio is less than 1; benefit-cost analysis is fraught with the potential for abuse if conducted by interested parties, e.g., advocates are likely to overstate benefits and understate or omit some costs, while opponents are likely to omit or understate benefits and overstate some costs.
big-bang theory, the physics hypothesis that the universe began with a huge burst of energy followed by expansion that continues to the present day; the so-called “singularity”, the instant of creation has yet to be explained by modern physics theory; the possible role of a creator being is a continuing object of debate among theoretical physicists.
bourgeoisie, the wealthy capitalist class comprised of successful entrepreneurs who have wrested control over production processes that was once exercised by individual craftsmen.
budget deficit, the excess of expenditures by an entity (person, company, government) over its revenues during an accounting period, usually the year; governments typically run budget deficits more often than budget surpluses; government budget deficits are financed either by direct money creation or by issuance of government bonds which often results indirectly in new money creation and inflation as a consequence.
budget surplus, the excess of the revenues of an entity (person, company, government) over its expenditures during an accounting period, usually the year; governments rarely run budget surpluses, but a surplus occurs there usually is a political debate over whether to increase spending, decrease outstanding debt, or impound the surplus.
bureaucratic morass, the increase in the complexity of decision-making through innumerable layers of bureaucracy in private business firms, not-for-profit institutions (including churches), and government offices.
business ethics, a term implying that there is a special variety
of ethical rules for business decision-makers; there actually is no such
thing as a particular variety of ethics peculiar to business; discussion
should be about ethics in the generic sense, but as applied to business
settings.
capital goods, "man-made" means of production that can be used to produce
consumer goods or other capital goods; capital goods are durable and typically
have multi-year lives over which a stream of productive services
are yielded, but which depreciate (deteriorate) due to use and weathering
during their useful lives; capital includes plant (the buildings within
which production takes place) and equipment (the machines and tools used
to convert raw materials into finished consumables).
capitalism, a form of economic organization that involves investment in capital for profit.
clergy, the religious establishment of a region or country.
common pool, the existing quantity of a resource that is owned in common (i.e., by no one) and is available to all to use as they wish; rational users of the resource naturally have incentive to dip (use the resource) from the common pool early, often, and as much as possible to preempt other users from the resource; such “dipping” tends to exhaust the common pool; examples include the village green, the open range, ocean fisheries, mineral and petroleum deposits, and space.
communism, the utopian culmination of the transition among forms of economic organization envisioned by Karl Marx in which the economic problem of scarcity relative to want insatiability has been solved by production rationalization and social indoctrination.
communitarianism, an ideology characterized by individuals finding meaning and fulfillment as members of communities of which they are a part; by the enjoyment of the use of things that are not possessed as property; and by a planning role for the state to influence the allocation of resources to achieve community needs.
comparative advantage, the economic principle that individuals, groups, regions, or nations should specialize in producing those goods or services that can be produced at lowest opportunity cost compared to others so that welfare gains can be realized by exchanging those goods or services with trading partners whose comparative advantages lie with other goods for which the individual, group, region or nation is a higher opportunity cost producer.
competitive advantages, advantages (cost, performance, marketing, etc.) that are specific to a particular business firm relative to its competitors; competitive advantages are firm-specific; to be distinguished from comparative advantages which are region-specific.
constructionism, a Modern epoch analytical approach that entails building up an explanation of a phenomenon from its elements.
consequentialism, the belief that the consequences of an action are the sole bases for judging whether an action is right or wrong; for a consequentialist there is no universal standard of ethical behavior; any action that yields a desirable outcome can be rationalized as ethical; the end justifies the means as ethical, or if it is an undesirable end, the end indicts the means as unethical.
conservatism, a political orientation that emphasizes personal decision-making discretion, private ownership and control of property, personal responsibility for well-being, and minimal role for government to play in social processes and personal activity; conservatives generally value historical and traditional cultural norms and political modes and often are resistant to change when confronted by new circumstances.
consumer durables, consumer goods with durable characteristics that have lives typically longer than a year and yield a stream of services or satisfactions over their useful lives; examples include household appliances, housing, and motor vehicles used only for personal conveyance, i.e., not in commercial applications.
consumer non-durables, consumer goods that typically have lives less than a year and yield all of their satisfactions upon consumption; examples include foodstuffs and articles of apparel.
consumer sovereignty, the personal liberty of the individual to choose how to spend (or not spend) his or her disposable income.
consumerism, a societal mentality that results when consumer sovereignty is taken beyond the bounds of human need; the continuing message in the advertising media is that “more is better”, old possessions are obsolete, and new models are “must have” items, so even if the things that one possesses are adequate to a comfortable lifestyle, one is confronted continually with the message that he or she needs to dispose of the old model and buy the new model; a consumerism mentality emerges in the form of a “bandwagon” effect that induces a growing element of the population to submit to the advertising pressures.
corporation, one of three principal forms of business organization, the other two being single proprietorship and partnership; under incorporation laws in most countries, a corporation is a legal person that can sue and be sued in courts of law; the corporation has a life apart from its owners that begins with the legal process of incorporation and ends with final bankruptcy; in the US, corporate charters are issued and supervised by state governments, usually the office of Secretary of State; the other forms of business organization are coincident with the lives of the owners and thus suffer unlimited liability in regard to what the owners do, but the corporate form of business organization enjoys limited liability in the sense that shareholders of a corporation cannot be sued for what the corporate legal person does; hence the assets of the shareholders of a corporation are protected from suit; the officers of a corporation can be prosecuted for criminal activity or subjected to civil suits for damages that are attributable to decisions made by the corporate officers; corporate net incomes (revenues less allowable expenses) usually are taxed at “flat rates” (rather than progressive rates) in most US states and by the US federal government; corporations enjoy financing advantages over other forms of business organization because corporations can issue additional shares in themselves or indebtedness claims (corporate bonds) against their assets; in most market economies, the corporate form of business organization is becoming more popular to take advantage of its limited liability and capital financing features even though business and tax reporting requirements are more stringent and costly for corporations.
crowding-out effect, the decrease of private sector investment consequent upon an increase of interest rates due to an increase of government expenditures that require financing a deficit by borrowing from the capital markets.
deconstructionism, the Postmodern literary approach that breaks
down a text into elements in order to glean the essential meanings of the
text.
deflation, the negative of inflation, occurs when the general price
level falls; sometimes referred to a “too little money chasing to many
goods”, deflation often occurs during the recession phase of a business
cycle due to declining incomes that cause demand for goods and services
to decrease relative to supplies; deflation may be a consequence of a decrease
of the money supply of a region.
demanders, those humans who are “in the market” seeking to purchase quantities of a good.
democratic sovereignty, the right of citizens of a democratic polity to cast their political votes for the candidates whose expressed positions are most congruent with the preferences of the individual voters, and without fear of political reprisals.
demographic transition, the change from high birth and death rates in primitive societies to lower birth and death rates as those societies experience economic development and growth; death rates have been observed to fall sooner and faster than birth rates fall due to the rapid introduction of modern medical technology in low-income developing economies; debate ensues among social scientists as to explanations of the falling birth rates in the demographic transition process; since death rates typically have fallen sooner and faster than birth rates have fallen, societies in the midst of their demographic transitions have suffered more rapid population growth that has made it more difficult for economic growth to raise per capita incomes; the completion of the demographic transition process restores slower rates of population growth similar to those before the demographic transition started.
dependent variable, the object of scientific experimentation or social science modeling.
dictatorship of the proletariat, the authoritarian socialist management mechanism that Marx thought would succeed capitalism once the proletariat rose up in violent revolution to overthrow the bourgeoisie.
diminishing returns, the economic production phenomenon of output increasing at a decreasing rate as ever more inputs are employed in a fixed production process; Thomas Malthus theorized that as population continued to increase relative to the fixed production capacity of the earth, diminishing returns to labor would be exhibited by falling per capita incomes.
diminishing marginal utility, a variant of the principle of diminishing returns that applies to consumption experience; in successive units (e.g., bites) of a consumable good, normal people gain less and less additional satisfaction from the marginal (additional) units.
distributional principles, in economics: to each according to need; to each equally; and to each according to contribution or effort; to a principled socialist, the first principle would be fair but difficult to implement, the second would be a pragmatic substitute, but the third would be unfair; to a principled capitalist the third principle would be fair because effort is rewarded, but neither the first nor the second would be regarded as fair.
distributive justice, the form of social justice in which the burdens of a social process are distributed fairly, irrespective of whether or not the procedures are deemed fair.
dollarization, either the deliberate or unintentional substitution of another nation’s currency (often the dollar, sometimes the euro) for the domestic currency of a nation; the main reason for dollarization of a nation’s currency is the inability of its government to effect fiscal discipline or control its money supply to prevent inflation; when a nation’s currency becomes dollarized, the government of the nation loses control of domestic monetary policy that is in effect ceded to the central bank of the foreign nation whose currency becomes used in the nation.
dollar votes, the expression by consumers of their preferences by spending to purchase goods and services; dollar votes are tallied in the income statements (a.k.a. "profit and loss statements") of business firms; firms whose managers choose to ignore the preferences of consumers by producing goods that they do not care for will suffer losses and eventually failure; firms whose managers recognize and meet consumer preferences may enjoy profits and survival.
economic development, a change in the social structure of society; the various dimensions of social structure include economic, social, political, moral, religious, and environmental; development is both a requisite of growth and a consequence of economic growth.
economic efficiency, the relationship between quantities of resources used in a production process and the quantity of output that can be produced by the resources; economic efficiency is served by reducing the quantity (or cost) of the inputs necessary to produce a particular quantity of output.
economic good, any material good for which the sum of human needs and wants exceed the quantity available such that it has a positive price, thus exhibiting the characteristic of scarcity.
economic growth, an improvement in the material well being of humans, usually measured as the rate of increase of per capita real income or output of a society, and usually accompanying or preceded by a change in the structure of society, a.k.a. “economic development”.
economic integration, the process of removing territorial barriers to the transaction of goods and services and the movement of materials, capital, and people across historical territorial boundaries; economic integration enables trade creation in pursuit of indigenous comparative advantages within the integrating region, but may entail trade diversion as trade (imports, exports) are shifted away from true comparative advantages that lay outside the integrating region.
economic liberalization, the political process of removing or diminishing existing restraints on trade.
economic resources, three categories of productive resources identified by nineteenth century economists are labor, land, and capital; modern economists also acknowledge a fourth productive resource, entrepreneurship.
economic system, the set of social, political, and economic arrangements by which a society determines its product mix, how goods and services are to be produced, allocates its scarce resources to alternative uses, and distributes its product to its members.
efficiency, the relationship between the output of a productive processes and the inputs necessary to produce the output; efficiency is served by reducing the quantity of inputs necessary to produce a specified quantity of output; there often are trade-offs between efficiency and equity in pursuit of either.
elasticity of demand, the ratio of the percentage change of quantity demanded of a good or service to the percentage change of its price or the incomes of buyers that measures the relative responsiveness of quantity sold to a change of price or income.
entitlement welfareism, a distributional system that provides material or monetary unilateral-transfer benefits to eligible recipients who are entitled by the law to receive them.
entrepreneur, the “moving force” in the market economy; one who assumes risk in the process of innovation by introducing a new product, process, or organizational structure; a successful entrepreneur is rewarded by profit in a market economy, but since there is no guarantee of success, the entrepreneur might suffer loss if the innovation is unsuccessful.
entrepreneurship, the process of innovation and assumption of risk in the effort to launch a new business venture or alter the structure or functioning of an existing business; there is no guarantee of success in a truly entrepreneurial venture; success of a private-enterprise entrepreneurial venture is rewarded by profit; failure is punished by loss which may be personal and emotional as well as financial; from a sociological perspective, entrepreneurship is a form of social deviance.
environmentalism, the concerted effort to preserve, conserve, and replenish the natural environment (a.k.a. “God’s creation”), and to repair or ameliorate damage done to the environment by human activity to extract mineral and petroleum resources, process raw materials into consumer and capital goods, and construct transportation and port systems, industrial complexes, and residential housing facilities.
equipment, the machines and tools used to convert raw materials into finished consumables; equipment is usually housed within a producer’s “plant”.
equity, the goal of fairness in the distribution of something across a population of possible users; there often are trade-offs between efficiency and equity in pursuit of either.
ethics, choices in regard to moral precepts; a choice may be ethical or unethical depending upon whether behavioral rules are obeyed, or whether the choice yields good or right results for those who are parties to the decision, and perhaps also for "innocent third parties."
ethical absolutism, the belief in the existence of universal standards or “categorical imperatives” of ethical behavior that are absolute and unconditional, irrespective of the consequences.
ethical egoism, the belief that every person ought always to act so as to promote the greatest possible balance of good over evil for himself; therefore, an act contrary to one's self -interest is an unethical act.
ethical relativism, the position that there is no one universal standard or set of standards by which to judge the morality of an action; an ethical relativist may hold the same act to be morally right for one society, but morally wrong for another; a similar distinction may be applied to two individuals within the same society; a problem of ethical relativism is that each person's ethics are specific to the person; no comparative moral judgments are possible.
ethnocentrism, the exclusivistic view that one's own culture and circumstances are superior to all others; ethnocentrism in religion entails the view that one's own religion contains truth, but others' religions do not.
exploitation, the phenomenon of one human taking advantage of or controlling the productive abilities of other humans; the ability to capture value greater than warranted by one’s own contribution to a production process; exploitation occurs if a resource receives compensation that is less than the value of its marginal contribution to the production process.
externalities, a.k.a. “spillovers”, a so-called “market failure” consisting of positive and negative side-effects of consumption or production activity that impinge upon innocent by-standers to market transactions and thus are not recognized by markets; negative externalities resulting from the production or consumption of a good result in the market over-allocating resources to production of the good; positive externalities resulting from the production or consumption of a good result in the market under-allocating resources to production of the good; examples of positive externalities include the benefits of public health care and public education; examples of negative externalities include various kinds of environmental pollution.
factors of production, four categories of productive resources: land, labor, capital, and entrepreneurship.
failure, the inability to succeed in a venture undertaken; business failure is inability to generate enough revenue from sale of produced goods or services to cover operating costs and amortize debt incurred in purchasing capital assets; the consequence of entrepreneurial failure is loss, the opposite of profit.
fascism, a.k.a. “authoritarian capitalism”, a form of economic organization that involves investment in capital for profit by private owners who respond to the dictates of an state planning agency that determines product mix, product characteristics and qualities, and production quotas.
fiduciary trust, the responsibility of one who holds assets belonging to another to preserve those assets and return them to the owner intact.
financial liberalization, the process by which the financial sector is freed from governmentally imposed restrictions on lending, interest rates, and exchange rates.
fine tuning, the belief held by many economists in the second half of the twentieth century that fiscal and monetary policies could be managed with such precision as to eliminate business cycle swings and the oscillating pressures of inflation and deflation; economists of the late-twentieth century have come to the realization that fiscal and monetary policies are not so amenable to fine tuning as to eliminate or even ameliorate cyclical swings.
fiscal discipline, the ability and willingness of a political administration to restrain its expenditures to the revenues that are available to be used during the period, e.g., to balance its budget.
fiscal policy, the deliberate manipulation by the government of its own budget to counterbalance swings of spending in the private sector, i.e., in the business and consumer sectors; fiscal policy action involves increasing spending or decreasing taxation during a downswing in order to counterbalance decreased spending in the private sector, and vice versa for an upswing; if a fiscal policy stimulus works as expected, an economic contraction will come to an end and the economy will begin to expand, returning production, employment, and income generation to more normal conditions; implementation of a fiscal policy change usually is a time-consuming and cumbersome process that requires legislative action; a growing number of macroeconomists have become skeptical of the ability of government policy makers to implement fiscal policy changes without overreaction that aggravates macroeconomic instability.
foreign direct investment (FDI), the establishment or acquisition of productive facilities in countries other than the home country of the investor (person or company), and in which the investor acquires and retains a controlling interest in the investment; in the case of an acquired company with widely dispersed shareholding, a “controlling interest” may be as little as (or even less than) ten percent of the outstanding shares of an acquired entity; in distinction to foreign portfolio investment (FPI) in which the investor has a non-controlling interest, typically less than ten percent of outstanding shares of the acquired company.
fraud, intentional deception perpetrated by one party to a market transaction upon the other party to the transaction in order to capture gain in value at the expense of the other party; examples of fraud include misrepresenting the characteristics of products or services being offered in the market, hoaxes in the form of product or service offers that are never delivered, and agreeing to contract terms that are not fulfilled.
free agency, the reputed ability of humans to assess alternatives and choose from among them without external influence or control, e.g., by a divine being.
free good, any material good that is available in sufficient abundance relative to human need or want for it such that its market price is zero.
free market economy, a market economy with no significant role played by government in the processes of determining product mix, methods of production, resource allocation, or output distribution; a term used mostly by non-economists and particularly by critics of market capitalism who wish to point out the faults and failures of market capitalism; technically, there is no such thing as a free market economy since virtually all economies throughout history have been mixed economies.
general price level, a macroeconomic measure of the average of all commodity prices in a region or nation; in computing the general price level average, the included components are usually weighted by the quantities of the goods purchased.
gift, something of value that is provide free of charge to a recipient; a unilateral transfer of value with no expectation of reciprocity.
gift economy, an economy in which production is accomplished or controlled by a single entity (often a tribal chieftain) and distribution is accomplished at the discretion of the producer/controller who makes all decisions about the needs of his or her constituents.
global warming, a trend for temperatures to rise that is reputed by many environmentalists to be under way on a global scale; the present trend, if it is actually happening, is not unlike that which occurred about twelve thousand years ago around the end of an ice age; whether human activity is responsible for or has aggravated the present temperature change phenomenon is uncertain; whether a natural phenomenon or caused by human activity, global warming could impair the productive capacity of tropical and arid regions of the earth, and thus further impoverish the populations of those regions; a potentially offsetting effect is that global warming could also extend the growing seasons of more northerly regions, and thus enhance their productive capacities; some scientists find evidence of the prospect for a new ice age in the future, a phenomenon that would render the global warming hypothesis irrelevant.
globalization, the increased mobility of humans in search of better job opportunities and living conditions (immigration and emigration) and the quest by business firms to locate production geographically at the least-cost and most efficient production sites; globalization has been fostered by technological advances in transportation, communications, and computing; the process of globalization has entailed both off-shoring (shifting production to foreign locales) and out-sourcing (acquiring materials, parts, and components from foreign producers).
god model, an abstract representation of the deity.
goods, things with tangible characteristics that are consumable by humans; some matter taken from the natural environment (i.e., God's creation) are directly consumable; other consumer goods are processed or manufactured from matter taken from the natural environment.
government failure, the inability of government to alleviate or repair perceived market failures with market modification approaches; examples include failing to enact and enforce laws or directives that support and enhance the functioning of market economy; failing to account for secondary (and tertiary, etc.) effects of well-intentioned government actions, resulting in unintended consequences; basing programs and policy actions upon the requisites of political expediency rather than economic realities; basing political actions upon the requisites of regime preservation rather than the needs of public welfare; inability or unwillingness to exercise fiscal or monetary discipline; policy overreactions that increase economic instability; ceasing to function purely as a neutral or disinterested umpire in the market economy; overstepping the role of rule-maker and umpire to become a player in the market; attempting to controvert natural comparative advantages, and enacting legislation that invites moral hazard.
greed, extreme form of self-interest that impinges upon the welfare of other members of society.
Gross Domestic Product (GDP), a measure of the market value (at current prices) of all final goods and services (excluding all purely financial transactions) produced within a country and sold legally (including the imputed value of rents, but excluding illegal transactions and Do-It-Yourself activity) in a given time period (excluding used goods produced in prior periods); GDP is admittedly an imperfect measure of the value of the output of a country due to many (e.g., the output of informal and underground economic activity), but it is used nearly universally by multinational organizations to make international comparisons of well-being at the level of the aggregate economy and is at present the best available measure of macroeconomic output.
ideology, (1) a value orientation that advocates or legitimizes a relationship of political power and/or economic interest between social groups; a concrete program or plan for political action; examples: communism, socialism, capitalism; (2) a collection of ideas that makes explicit the nature of a good community; the ideas by which a community translates its values into reality; examples: individualism, communitarianism.
import substitution industrialization (ISI), a strategy implemented by the government of a nation to contravene the natural comparative advantages of other nations or develop new or latent comparative advantages (“infant industries”) within the nation; the usual vehicles of ISI policy implementation have been subsidies for domestic producers and tariffs on imported goods that would compete with domestically produced goods, with the intent of reserving the domestic market for exploitation by domestic companies; ISI development policies have failed almost universally, not only because they contravened the comparative advantages possessed by those nations that implemented them, but also because they induced more imports of raw materials, machinery, and technology than the reduction of imports that were tariffed.
incentives, factors taken into consideration that can motivate an action; for an entrepreneur, the expectation of a return adequate to compensate effort and risk; for an employee, adequate wage income and low-enough taxes to motivate work effort.
income, the monetary purchasing power received by a human factor of production; any income may a composite of wage (labor income), interest (capital income), rent (return due to unique ability), and profit (a residual of total income less all other incomes).
income distribution, the range of income received by a population quintiles or deciles arranged from lowest to highest.
independent variable, one of several possible hypothesized influences upon a dependent variable.
individualism, an ideology characterized by the notion that the community is no more than the sum of the individuals in it, and that each individual finds fulfillment in a struggle for survival; by property rights as the best guarantee of individual rights; by the presence of competition to ensure an appropriate allocation of resources; and by a role for the state which is limited to protecting the private rights of the individuals who comprise its society; the economic philosophy associated with political philosopher John Locke.
industrial policy, an strategy of a political administration to determine what industries and companies within industries should survive, and actions to ensure their survival by subsidies and protectionist policies (e.g., tariffs on competing imports); some European governments historically have implemented industrial policies, but American administrations usually have rejected industrial policy, preferring to allow market mechanisms to determine industrial success or failure.
inequality of the distribution of income, a factual description of the proportions of the income of a society received by successive deciles or quintiles from lowest to highest; to be distinguished from distributional inequity which is a matter of perception that the degree of factual inequality is socially unacceptable; the merit-based distributional mechanism of capitalism virtually ensures that income is unequally distributed.
inequity of the distribution of income, the perception that the degree of factual inequality in the distribution of income is socially unacceptable; the merit-based distributional mechanism of capitalism virtually ensures that income is unequally distributed, but it is an object of debate as to whether the existing distribution is inequitable.
infant industry, a fledgling industry in a region that may or may not have natural comparative advantages suitable to the industry; governments pursuing import substitution industrialization (ISI) development policies often have imposed trade restraints and provided subsidies to what they perceive to be infant industries; the intent is to reserve the domestic market for domestic producers so that they can “grow up” by exploiting latent scale economies and be able to compete with the larger-scale producers in other countries; infant industry protection and support rarely has been successful in ISI strategies.
inflation, the macroeconomic phenomenon of an increase in the general price level or a region or nation; to be distinguished from an increase in the price of a single good (a microeconomic phenomenon that results from changes of demand for or supply of the good); inflation, sometimes described as “too much money chasing too few goods”, is caused by government budget deficits that are financed by money creation, either directly (printing it) or indirectly as a consequence of financing the budget deficit by issuing bonds when interest rates are kept from rising; the negative of inflation, deflation, occurs when the general price level falls.
interpersonal comparisons of satisfactions, comparisons of satisfactions between persons that are strictly prohibited in economic analysis; intertemporal comparisons of satisfactions from the same activity experienced by the same person at different points in time are permitted in economic analysis.
investment, the process of acquiring additions to the stock of capital by diverting some portion of earned income from consumption to enable the purchase of real capital assets (plant and equipment); “investment” in a financial sense is the use of savings to purchase financial instruments (stock shares, bonds, etc.).
kleptocracy, a political administration with budget authority or access otherwise to government funds that have been transferred to private (and often secret) bank accounts in other countries.
interest, the return (or income) to any human-made productive resource, i.e., capital.
interest rate, the price for using a dollar’s worth of money for a specified time period, usually the year.
invention, the process of developing an idea for a new product or process; to be distinguished from entrepreneurship which is the innovation and assumption of risk in implementing a new process or putting across a new product on commercial scale.
laissez faire, the economic philosophy introduced by Adam Smith in his 1776 book, An Inquiry into the Nature and Cause of the Wealth of Nations that favors a minimal role for government to play in the market economy.
labor, the productive resource inherent to the human being; the physics concept of “work” (mass times distance moved) accomplished by the human agent; the more modern term for labor s “human resources”.
land, a productive resource understood by early economists to be a "free gift of nature," the quantity of which is not capable of augmentation by human effort; the more common term is “natural sources” to refer to the now archaic term “land.
legal reserve requirement, the requirement mandated by law or administrative fiat for commercial banks to hold reserves in the form of very liquid assets (usually vault cash and government bonds) that can be quickly liquidated to meet sudden and unexpected cash withdrawals by depositors; in the US the required reserve ratio usually ranges between 7 and 12 percent of a bank’s outstanding deposit liabilities, depending upon the size of the bank; the required reserve ratio may be changed by the central bank in implementing monetary policy, but this has become a rare occurrence in the US due to the amplified effects of a reserve ratio change on the volume of bank deposits.
leveling the playing field, action by government to offset or neutralize the advantages of foreign companies in selling merchandise in local markets.
Liberal, one who is willing to take pragmatic approaches to dealing with society’s ills, including expanding the role of government as needed.
liberal, one who prefers a minimal amount of intrusion of authority into personal decision-making.
liberalization, the process of removing constraints upon personal and commercial decision-making imposed by governments or religious authorities; types include economic liberalization, financial liberalization, trade liberalization.
Liberation Theology, a movement by Catholic priests, principally in Latin America, that emphasizes the Christian mission to bring justice to the poor and oppressed through political activism.
loss, the negative of profit; the excess of operating expenses over revenues during an accounting period; a loss signals the producer that the rate of production of a good or service should be decreased or that it should no longer be produced for the market.
macroeconomy, the economic relationships among a large number of participants, often represented as the whole economy of a region or nation; macroeconomies may entail any number of microeconomic entities and relationships.
Malthusian prospect, a situation envisioned by Thomas Malthus in 1799 in which the population of the earth will have grown to such an extent that it “presses” upon the carrying capacity of the earth to drive incomes down to the subsistence level; population growth beyond this point would result in starvation to serve as a constraint on further population growth.
management, the routine oversight, coordination, and control of on-going production processes once they have been established on commercial scale; to be distinguished from the functions of invention and entrepreneurship, although there are a few examples of all three functions be accomplished by the same person, e.g., Thomas Edison.
managerial rationalization, the (unspecified) process envisioned by Karl Marx by which the state would take over the stock of capital and improve the efficiency of the production processes to such an extent as to relieve scarcity.
market capitalism, a form of economic organization that involves investment in capital for profit and employs market processes as the principal decision-making and motivating vehicle; market capitalism entails private ownership of the means of production and participatory decision-making through market mechanisms.
market failure, a term often used by critics of market capitalism to refer to faults or shortcomings in the functioning of capitalism; reputed market failures include externalities not recognized by markets, public goods not provided by the private sector in response to market price and profit signals, the accumulation of monopoly power by producers of goods or services, and macroeconomic instability.
market liberal, one who prefers a minimal role for governmental authority to play in determining the nature of the outcome of market exchanges.
market mechanism, the decision-making and motivating vehicle of market capitalism; a market mechanism involves the interaction of demanders and suppliers to determine market price of a good when its quantity demanded is matched to its quantity supplied.
market price, the valuation of a good transacted in a market as determined by interaction of demanders and suppliers.
maroeconomic instability, expansion and contraction of output of a regional or national economy accompanied by falling and rising unemployment levels, greater or lesser rates of inflation, and variations of interest rates, more so for short-term rates than for long-term rates; macroeconomic instability creates uncertainty that constrains enterprise freedom.
mercantilism, a government policy advocating state regulation of industry and trade, originally practiced in the sixteenth to nineteenth century era of nation state-making, but persistent into the twenty-first century in the form of protectionism and industrial planning.
microeconomy, the economic relationship among a small number of participants, e.g., the market for a particular good; in distinction from a macroeconomy, a large-scale economic system at the level of region or nation.
miracle, a phenomenon that appears to violate understood physical laws or the economic characteristic of scarcity.
mixed capitalism, predominantly a market economy in which government implements various market modification actions to address perceived market flaws or failures.
mixed economy, an economy entailing a combination of market mechanisms and authoritarian direction to determine product mix, methods of production, resource allocation, and output distribution.
mixed socialism, an economy that is predominantly an planned and directed by centralized authority to determine product mix, but which employs market mechanisms to determine methods of production, resource allocation, and output distribution.
Modernity, the cultural and intellectual milieu of the period roughly coincident with the Industrial Revolution up to the middle of the twentieth century, and characterized by individualism, belief in the possibility of gathering absolute facts and reliance upon reason to discern absolute truths (religious and scientific), ethics based upon religious teachings and cultural conventions, and monotheism; see Table 1 in Chapter 1 for a list of characteristics of Modernity pertaining to economics.
model methodology, a.k.a., deductive method, apriori method, the process employed by social scientists, particularly economists, when conducting experiments is not feasible, to discern principles about the workings of a real world phenomenon; model method starts with a presumed behavioral premise, makes assumptions of constancy of extraneous matters, employs inductive reasoning to structure an abstract model of the phenomenon under study, and uses deductive logic to derive conclusions about the phenomenon; if sufficient data can be captured by field observation or are available in published historical sources, the derived conclusions may be subjected to empirical verification or rejection.
monetary policy, the deliberate manipulation by the government (usually its agent, the central bank) of the money supply or the interest rate (the so-called “price of money”) in the interest of offsetting macroeconomic swings in the economy; while monetary policy changes can be implemented by decisions of the monetary authority (rather than by legislative action) more quickly than can fiscal policy changes, a growing number of macroeconomists have become skeptical of the ability of central bankers to implement monetary policy changes without overreaction that aggravates macroeconomic instability.
monopoly power, the ability of a producer or seller to exercise pricing or other discretion by virtue of being the only producer or seller in the market for a good.
monopsony, a market for a good or service in which there is only one buyer, i.e., monopoly on the buyer’s side of the market.
moral hazard, a problem that occurs when a principal commissions an agent to act on his behalf, but the agent engages in shirking, pursues self-interest to the detriment of the principal's interest, or indulges in dishonest or immoral behavior.
moral precepts, personal or societal views of what is good or right for human beings; ethics involves choices in regard to moral precepts.
natural resources, non-manmade materials in nature that can be used in economic production of consumer goods or capital goods.
night-watchman functions, the routine functions that government must undertake on behalf of a market economy, including enacting a system of law, providing for the protection of property, ensuring domestic serenity with well-organized, trained, and restrained police forces, providing for national security by maintaining an efficient military establishment for defensive purposes, maintaining and enforcing a system of weights and measures, and providing a reliable and elastic money supply, the quantity of money in circulation outside of the banking system of a country; the money supply (narrow definition) consists of coin and currency held by persons and organizations outside of banks, checkable deposits owned by members of the public and held as liabilities of banks, and travelers checks; other liquid assets such as savings accounts and time deposits may be included in broader definitions of the money supply; no coin or currency held within the banking system as till or vault cash is part of the circulating money supply.
open society, one that is without a well-defined class structure and in which it is possible for individuals to rise from impoverishment to affluence by personal effort.
nominal value, the monetary value of an economic good as determined
in markets by the forces of demand and supply; a value that has not been
adjusted to remove the effects of inflation or deflation.
normal profit, the amount of profit that is typical of an industry
and can that can be earned in other uses of a firm’s resources in the industry.
nuisance good, any material goods that is present in such abundance exceeding the total quantity of it needed or wanted such that one would not pay a positive price to acquire more of it; some humans might pay others to rid themselves of some quantities of a nuisance good; implicitly, the price of a nuisance good is negative; a.k.a. “bads”; examples include garbage, sewage, pollutants in the air or water.
offshoring, shifting production to foreign locales.
open market operations, purchases or sales of bonds in the bond market by the central bank of a nation, the side effects of which are to increase or decrease, respectively, the quantity of money in circulation; only the treasury department of a government can issue government bonds, but the central bank of a nation usually is empowered to buy and hold previously-issued government bonds in its inventory, and then to sell bonds as it deems necessary to meet the needs of macroeconomic stability.
open-economy world, an international trading context in which governmentally-imposed hindrances to trade (tariffs, quotas, subsidies, etc.) are non-existent or minimal.
opportunity cost, what must be given up in order to acquire something; the usual presumption is that the true opportunity cost of something acquired is the highest-valued item or activity given up; a.k.a. “real cost”.
optimization, maximization of a desirable goal relative to constraints that prevent absolute maximization; constraints often are subsidiary goals relative to a selected primary goal to be pursued; many business decision-makers are thought to engage in optimizing (rather than maximizing) behavior with respect to profit by pursuing a target rate of return on invested capital.
outsourcing, acquiring materials, parts, and components from foreign producers.
patriarchial capitalism, a system of economic relationships dominated by male members of the society and characterized by investment in capital for profit.
perfection of competition, three dimensions include perfect market knowledge, instantaneous adjustment to changing market conditions, and costless adjustment; none of these dimensions are descriptive of real-world competitive conditions, but technological advances in transportation, communications, and computing have diminished the degrees of imperfection in all three dimensions.
plant, the buildings within which production takes place; the producer’s plant houses the productive “equipment”.
policy activism, the deliberate manipulation of the government’s budget and the money supply in the effort to achieve and maintain macroeconomic stability.
political economy, the complex of political system and economic system in place in a region; typically, a mixed market economy is coupled with a democratic polity, or a socialist form of economic organization is paired with a centralized and authoritarian polity; historically, “political economy” referred to the undivided study of economics and politics before the two disciplines drifted apart around the turn of the twentieth century.
polity, the political system in place in a country.
political entrepreneurs, government functionaries that innovate and assume risk in promising or proposing the provision of political goods to favored interests.
political goods, benefits provided by government functionaries to favored interests in the forms of appointments, employment, sponsorship of desired legislation, etc., in exchange for votes or other modes of support to ensure the political survival of the functionaries.
political integration, the process of establishing a super-national or super-regional political administration encompassing a number of nation states or regions and entailing the surrender of elements of national sovereignty to the super-national or super-regional political entity; a politically-integrated super-state may be organized as a unitary state (with no significant political subdivisions), a confederation of constituent states that retain significant elements of sovereignty, or a federal state that is fully sovereign but which may allow elements of sovereignty to constituent political subdivisions; the United States of America is a politically integrated region with a constitution, governed by a presidential-congressional polity, and organized as a federal system with centralized fiscal (including taxation and spending) and monetary policy powers; the “eurozone” (twelve of the current fifteen member states of the European Union) has a super-national monetary authority (the European Central Bank) that coordinates monetary policy among the central banks of the eurozone member states; the European Union has a parliamentary assembly, a high court, and a “commission” that oversees regulatory harmonization, but it has yet to achieve full political integration that would enable either coordinated or centralized fiscal policy; with the approval of a constitution, the EU seems to be moving toward becoming a federal political entity.
pollution rights, the specification of permissions for business enterprises to continue to pollute the atmosphere or waterways at levels that society deems tolerable (in current political discussion, a “cap” on pollution), and then allow (and promote) market trading of the pollution rights among firms in polluting industries; in a so-called “cap and trade” approach to dealing with environmental pollution, the expenses that firms incur to buy such pollution rights cause them to internalize the spillover costs of pollution so that they show up in the firms’ income statements; if pollution rights are set too high or are given away to current polluters, the “cap and trade” system is meaningless.
polycentrism, a worldview of respect, tolerance, and appreciation of other peoples' economies, polities, and cultures; polycentrism takes a pluralistic view with respect to religious traditions.
positive-sum game, a term borrowed from the mathematics of probability theory which in economic contexts describes a market transaction in which both parties to the transaction gain value even though each party may perceive the other party to lose value in the exchange; in distinction to a “zero-sum game” in which if one party to a transaction gains value, the other party must have lost an equivalent amount of value.
Postmodernity, a post-World War II cultural and intellectual transformation of society described by certain philosophers and social commentators and characterized by subjectivity, social fragmentation, ethical relativism, literary and theoretical deconstruction, rejection of absolute truth, and religious pluralism; see Table 1 in Chapter 1 for a list of characteristics of Postmodernity pertaining to economics.
post-Postmodernity, hypothesized by some social commentators to be the successor to the Postmodern cultural epoch and characterized by social revulsion at the extremes of the Postmodern epoch, reversion to pre-Modern reliance upon religious traditions of belief in absolute truth and associated ethical values, but conditioned by the Postmodern insistence upon religious pluralism; religious fundamentalism or reawakening is cited by some social commentators to evidence a post-Postmodern cultural transition; the characteristics of post-Postmodernity are continuing to evolve.
poverty, the low-level state of well-being that is characterized by consumption at or near the margin of subsistence and the possession of little material wealth; relative poverty is represented toward the bottom of an income distribution of a society; absolute poverty is has been defined as receiving income (monetary or equivalent) of no more than an absolute amount, e.g., $1 per day.
pragmatic liberalism, the social and political willingness to employ the offices of government as needed to address perceived social ills.
principal, an owner or dominant decision-maker in a venture who commissions others (agents) to act on his behalf.
private goods, goods produced in a market economy in response to market price and profit signals, and which have prices low enough that individual members of society can purchase them and secure them for their exclusive use.
procedural justice, the form of social justice in which a fair social process is employed, irrespective of whether the resulting distribution of benefits and burdens is deemed fair; procedural justice is achieved when appropriate procedures are employed, as for example when universal rules are obeyed.
producer sovereignty; the ability of the management of a company with sufficient monopoly power to impose its product-mix will on consumers by first deciding what they wish to produce, and then through manipulative marketing efforts attempt to convince consumers to want those products.
productivity, the relationship between outputs of production processes and the inputs used to produce the outputs; productivity is increased when the quantity of output that can be produced by given amounts of inputs into the production process increases.
profit, the net difference between revenue and the total of all production costs, including both explicit (monetary) and implicit (psychic) costs; the return (or income) to an entrepreneur for achieving success in innovation and attendant risk assumption of risk; before the fact of innovation the expectation of profit serves as a motivation to assume risk; after the fact of innovation profit is a reward for the assumption of risk if the innovation is successful, but a negative profit (a loss) is a penalty for assumption of risk if the innovation is unsuccessful.
profit maximization, the behavioral premise usually taken by economists to govern the behavior of business decision makers.
program finance, the determination of the government’s budget to achieve program goals rather than manipulating the government’s budget in the interest of macroeconomic stability.
progressive income taxation, the application of a progression of higher income tax rates to successively higher brackets of income; the justification for progressive income taxation is “fairness”, i.e., the presumption that higher income recipients should pay more in taxes than lower income recipients; the marginal tax rate applied to the highest income tax bracket in the US presently (2010) is 36 percent, but if the Bush tax cuts are allowed to expire at the end of 2010, this rate will rise to 39 percent.
proletariat, the working class comprised of people who have lost whatever control they (or their forebears) may once have had as craftsmen over their own resources and ability to produce consumable articles.
property, material goods, land, and structures on land held in ownership; property is “private” if ownership is held by persons or groups of persons; property is “public” if ownership is held collectively or by the state.
protectionism, a political strategy to “level the playing field” by offsetting or neutralizing the cost or performance advantages enjoyed by foreign producers; protectionism is usually implemented by imposing tariffs, quotas, and other so-called non-tariff barriers (NTBs) upon the imports of foreign merchandise; special interest groups (a.k.a. “rent seekers”) typically lobby law-making bodies to impose protectionist trade restraints.
psychic cost or benefit, the non-pecuniary negative or positive feeling, respectively, experienced by a human in regard to some economic activity in which the human is engaged; efforts often are made by economists to estimate monetary equivalents of psychic costs or benefits for inclusion in economic models.
public choice, the analysis of whether any particular decision is most effectively taken in the private sector or in the public sector.
public goods, goods that are “large and lumpy” in the sense that they are of large-enough scale and cost that individual members of society are unlikely to be able to afford to purchase them alone; public goods are an example of a so-called “market failure”; public goods are not subject to the so-called “exclusion” principle, i.e., individuals can not acquire the good and exclude others from its use; public goods are also not subject to the “more for me, less for you” principle, i.e., uses by individuals leave no less of the public good for others to use; the provision of public goods is not in response to market price and profit signals, and thus requires a collective action by the society to finance and produce the public good or to commission its production by private sector producers; examples of public goods include streets and highways, water and sewer systems, ship ports and airports.
quid pro quo transaction, an exchange between two parties in which each party conveys to the other party something of value acceptable to the other party for what he or she gives up; literally, “this for that”; a so-called “bilateral exchange” of things of value; in present-day quid pro quo transactions, the “thing” is an amount of money surrendered in order to acquire a good or service; in distinction from a so-called “unilateral transfer”, i.e., a one-way transfer of value with no corresponding counter transfer of value.
quota, a form of trade restraint that imposes an absolute quantity limitation upon the volume of imports allowed to enter a nation; quotas generate no revenue to the government unless the government auctions licenses to import the allowable quota quantity to the highest bidders.
rational expectations decision maker (REDM), one who possesses high intelligence, a good understanding of "the way the world works," awareness (perceptivity) of what is going on, a long-enough time horizon (i.e., concern for what the future holds), and a drive to use all available information in forecasting future states; REDMs are not always right in their forecasts, but their forecast errors tend to be random rather than systematic; to the extent that their forecasts are accurate, REDMs can make decisions to take advantage of opportunities and avoid (or manage) risks.
real, a descriptive adjective that in economics means that adjustments have been made to nominal income to eliminate the effects of inflation (or deflation) so that the real component of nominal income change can be examined.
real value (wealth, income, money balances), a “deflated” value of a monetary amount after removal of the effects of inflation or deflation; the “true” or opportunity cost of acquiring something by giving up something else.
rent, the return (or income) to land or any resource that is fixed in supply and incapable of being augmented by human effort.
rent-seeking activity, the effort by government functionaries to capture personal or institutional benefits by virtue of monopoly position in the provision of “political goods”.
required reserve ratio, the proportion of outstanding deposit liabilities that a commercial bank is required to maintain in the form of very liquid assets (usually vault cash and government bonds); in the US the require reserve ratio usually ranges between 7 and 12 percent of a bank’s outstanding deposit liabilities, depending upon the size of the bank; the required reserve ratio may be changed by the central bank in implementing monetary policy, but this has become a rare occurrence in the US due to the amplified effects of a reserve ratio change on the volume of bank deposits.
return, the income to a productive resource; nineteenth century economists designated the return to labor as “wage”, the return to capital as “interest”, and the return to land as “rent”; modern economists also designate the return to successful entrepreneurship as “profit”.
risk, the chance that an expected or hoped-for outcome of an event will not occur; risk is usually assessed by estimating the probability of non-occurrence of an event; riskier activities usually require greater expected returns in order to motivate participation in the activities; normal human behavior is risk averse; gamblers by definition prefer risk.
rule by authority, the specification by the political administration of rules that govern social, political, and economic relationships among citizens; such rules are specific to the current political administration and may change at the whim of the administration or when a new administration succeeds the previous administration, e.g., by coup or revolution; to be distinguished from rule of law.
rule of law, the legislation of rules that govern social, political, and economic relationships among citizens, and which stand irrespective of the identity of the current political administration; to be distinguished from rule by authority which is specific to the current political administration and may change at the whim of the administration or when a new administration succeeds the previous administration, e.g., by coup or revolution.
safety net, a government welfare program intended to put a “floor” under the well-being of the lower-income members of its society.
satisficing, term coined by economist/psychologist Herbert Simon to describe the behavior of many real-world business decision makers; an example of satisficing behavior is to pursue a target rate of return on invested capital.
scarcity, the normal economic condition of the material world such that humans need and want more of an item than is available; the opposite of abundance; the evidence of scarcity is a positive market price.
scientific experimental methodology, the process of conducting experiments in isolated environments in order to generate data that may be used to test and verify or reject hypotheses about causation.
self-interest, the orientation of individual humans to protect themselves and enhance their own welfare by acquiring consumable goods and durable assets.
services, activities without tangible characteristics in themselves and with short lives that expire when their benefits are immediately consumed; examples include repair services and personal services such as haircuts and pedicures.
singularity, the instant of creation that has yet to be explained by modern physics theory; the possible role of a creator being is a continuing object of debate among theoretical physicists.
slavery, the property interest of one human in another human that enables control over the other human’s productive capacity and the capturing of the return (income) to that other human’s productive effort; the ultimate basis for exploitation of human labor.
social goods, goods that entail positive externalities not recognized by markets; an example of a so-called “market failure” because markets tend to under-allocate resources to the production of social goods; governments often attempt to correct for the under-allocation of resources to social goods by subsidizing the production or consumption of them.
socialism, a form of economic organization in which the means of production are owned by the state and authority to determine product mix, means of production, allocation of resources, and distribution of product are vested in a state planning authority.
spillovers, a.k.a. “externalities”, a so-called “market failure” consisting of positive and negative side-effects of consumption or production activity that impinge upon innocent by-standers to market transactions and thus are not recognized by markets; negative spillovers resulting from the production or consumption of a good result in the market over-allocating resources to production of the good; positive spillovers resulting from the production or consumption of a good result in the market under-allocating resources to production of the good; examples of positive spillovers include the benefits of public health care and public education; examples of negative spillovers include various kinds of environmental pollution.
state sovereignty, the authority and power of a political entity to do whatever it wills to do with the resources contained within its boundaries, including the human resources of its population; in authoritarian economies, state sovereignty entails the power to determine product mix, methods of production, resource allocation, and output distribution.
state-owned enterprise (SOE), a production unit owned and operated by a government authority, often in competition with private-sector enterprises; SOEs have been more common in mixed socialist economies, but a few exist in mixed market economies, e.g., the Tennessee Valley Authority that generates and sells electricity in the southern region of the United States; governments of some countries have acquired productive enterprises by nationalization; during the 1980s in many European nations and during the 1990s in the former Soviet Union, processes of “privatization” were launched to dispose of state ownership interests in many SOEs.
subsidy, a payment by a government to a private-sector productive unit to offset some portion of the costs of production as an encouragement to increase the volume of production; a subsidy may be paid to consumers to offset some portion of the price of an item the consumption of which the government wishes to encourage; subsidies to domestic producers can be a form of protectionism in the sense that they offset or neutralize the competitive advantages of foreign producers.
sunset provision, a provision included within the legislation of a government program for its termination once the original need for the program has been met.
super-normal profit, an amount of profit in excess of what other firms in the industry with similar resources can earn; super-normal profits are attributable to exceptional entrepreneurial ability or monopoly power; in competitive markets, super-normal profits may fleeting as they are competed away by price and performance competition from other firms.
suppliers, those humans who are “in a market” offering to sell quantities of a good.
sustainability, the characteristic of a social or economic process that it can continue into the indefinite future with minimal or no significant negative effects on the environment.
tariff, a form of tax imposed upon merchandise that moves across national boundaries; tariffs usually are imposed upon imports into a nation, but some nations that export large quantities of raw materials (agricultural, mineral, or petroleum products) also impose tariffs on exports; tariffs may be imposed by a government to raise revenue or to protect its domestic industry from competition by foreign producers; given elasticities of demand for and supply of imports, there is an optimal tariff that maximizes the tariff revenue; a protectionist tariff usually is higher than a revenue tariff, and often high enough to choke off all imports; a protectionist tariff often elicits reciprocal imposition of tariffs by trading partners.
technological advance, discovery or development of new ways of making a material good or improving the function or quality of the good; a debatable question is whether technological advance is purely a human achievement or is a provision of new knowledge by God.
technology, the known ways of making a material good; primitive technology is the most basic method of doing something and using the most rudimentary tools, often of wood, stone, or shell construction and powered by humans, animals, or water; advanced technology is the most recent or most efficient or most productive technology available, employing steel or other metals and alloys as well as complex chemicals, and powered by electricity, combustion of fossil fuels, or nuclear fission.
third-world country, a now archaic term that refers to low-income countries using primitive technologies, and typically relying on one or a few crops or mineral resources for income at or near a subsistence level; the term originally accompanied “first world” which referred to the high-income democratic, industrial, market economies of the “West” that develop and use advanced technologies, and the “second world” which referred to the authoritarian socialist countries of Eastern Europe (the Soviet Union and its satellites); the failure of the Soviet Union in the 1990s has rendered “second world” irrelevant as the Russian Republic and many of the former satellite countries of Eastern Europe are in the process of becoming “first world” countries; contemporary and more politically correct terms are “low-income countries’, “poor countries”, and “developing economies”.
trade creation, trade diversion, the effects of regional economic integration and bilateral and multilateral trade agreements to increase or decrease trade, respectively, among the constituents or participants; trade creation is judged good/bad by economists if regional integration or trade agreements induce regions to increase/decrease specialization in producing goods and services that exploit their true comparative advantages; trade diversion is judged bad/good by economists if regional integration or trade agreements induce regions to decrease/increase specialization in producing goods or services that exploit their true comparative advantages.
trade liberalization, the process by which imports, exports, and foreign investments are freed from governmental restraints.
trade restraint, a form of protectionist government policy intended to limit the importation of foreign merchandise that competes with domestically-produced merchandise; domestic producers typically lobby law-making bodies to impose trade restraints.
trickle-down effect, the reputed benefit to lower-income members of society in the form of provision of employment and income-earning potential provided by investment in capital by higher-income members of society; the fact that critics of capitalism typically disparage the possibility of trickle-down does not render the process impotent; 127.
true gift, a unilateral transfer of value that does not incur any obligation to reciprocate to the giver.
unethical business practices, activities of business decision makers that violate conventional or established business norms, including bribery, embezzlement, breaking contracts, price fixing, collusion, deceptive advertising, falsification of expense accounts, underreporting of income or padding of expenses on tax reports, use of substandard materials, producing and selling products which fail to function as advertised, failing to divulge to consumers possible product dangers, etc.
unilateral transfer, a one-way transfer of value with no corresponding counter transfer of value; in distinction to a quid pro quo two-way exchange of values; examples of unilateral transfers include gifts, charitable contributions, church contribution, foreign aid.
unintended consequences, unpredicted secondary (and subsequent) effects of well-intended political actions taken to address perceived “market failures”; examples include welfare benefits that are rich enough to enable eligible recipients to avoid work and unemployment benefits of long duration or large proportion of last earned income that tend to extend job-search periods and cause unemployment to persist.
utilitarianism, the belief that people ought to act so as to promote the greatest total balance of good over evil, or the greatest good for the greatest number; a rule utilitarian would obey those rules which experience has shown generally promote social welfare, even when doing so does not always lead to good consequences; an act utilitarian may hold that one ought to act so as to maximize total good even if doing so violates rules which usually promote social welfare.
venture capitalist, someone of wealth who has funds to invest but who does not himself undertake the entrepreneurial role; the venture capitalist evaluates would-be entrepreneurs and their proposals, choosing to reject some and entrust funds to others; the venture capitalist shares the profit/loss of the entrepreneur on an agreed formula; most venture capitalists are sufficiently risk averse that they choose investment opportunities with favorable odds of success so that they can continue to "stay in the game."
victimhood mentality, the widespread social view that everyone is a victim, no one is responsible, and society is to blame for anything bad that happens.
wage, the return (or income) to labor, the human factor of production; to be distinguished from rent, interest, and profit income.
wasting assets, resources that are extracted and used but are incapable of being replaced; examples are mined minerals and extracted petroleum.
wealth, material things of value and financial instruments that are accumulated and held in ownership by humans; wealth-holdings are increased when some portion of earned income is diverted from consumption spending to purchase assets such as houses and real estate; “real wealth” is increased by investment in capital that enhances productive capacity; “financial wealth” is said to be “created” by earned interest, asset value appreciation, and market trading that takes advantage of price differentials.
zero-sum game, a term borrowed from the mathematics of probability theory which in economic contexts involves a fixed amount of value such that if one party gains value from a transaction, other parties must have lost an equivalent total amount of value; economists generally deny that market transactions are zero-sum games because in order for a transaction to be completed, both parties to the transaction must perceive themselves to gain even though each party may perceive the other party to lose value in the exchange.
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