Why Economics Should Be Important for Christians

by Shawn Ritenour
by Shawn Ritenour
Previously by Shawn Ritenour: God, Socialism, and the Free Market

It is not uncommon for Christians to treat economic science with suspicion, because, it is often assumed, economics deals with the things of this world. It must therefore be tainted by the assumption that consumers are selfish, entrepreneurs are greedy, and the market is a cold mistress to the poor and needy. What the world needs instead, it is thought, is love sweet love, and besides the Kingdom of God is not of this world, so why should we care about production and consumption? This attitude is unfortunate because good economics is not dependent upon any specific assumption about the morality of human motivation to action and, as I point out in my new book, Foundations of Economics: A Christian View, God also cares about the material aspect of our existence.

An obvious point too often forgotten is that God did, after all, create a material world – "all things visible and invisible," as the Nicene Creed says. God explicitly tells us that his, largely material, creation was very good. In Proverbs we are told to learn from the ant which provides material provision for itself in the winter by working hard in the summer. In Deuteronomy God related blessings and curses that would be visited upon his people depending upon whether they were obedient or disobedient. When obedient, God would bless them with many children, cattle, and much food. When disobedient, God would curse them with barren wombs, small harvests, and shrinking herds. These blessings and curses, therefore, were largely material in nature. Additionally, Jesus himself came in the flesh. Clearly God is not Platonically anti-material.

This point is also explicit in the first mandate given to man after creation. Even before sin and the fall of man, God told our first parents to "Be fruitful and multiply, and replenish the earth, and subdue it; and have dominion over… every living thing that moves upon the earth" (Gen. 1:28). As David Hegeman points out in his primer, Plowing in Hope, this mandate requires filling, working, keeping, and ruling creation.

Hegeman also notes that fulfilling God’s dominion mandate requires wise balance. It is possible that we rashly try to draw too much from creation too quickly, make changes too abruptly, or do so without replenishing the earth. We can, however, err on the other extreme and act as if nature is a museum and we are its curator. We can attempt to keep the earth in its pristine natural state, by prohibiting all development, outlawing all new construction projects, and refusing to allow the erecting of any new factories. Acting in this manner results in our failure to reap the resources necessary for our continued existence and the very cultural development decreed by God

In light of the cultural mandate, therefore, an important question comes to the forefront. How do we wisely develop God’s creation? More specifically, how do we fulfill the cultural mandate to have dominion over creation and fill the earth with people without our starving to death or killing one another in a barbaric struggle for survival? These are not moot questions. Whether they know it or not, these are the questions economists work at answering every day. Different societies choose different paths in answering these questions and reap vastly different results.

Economics is of immense value for properly responding to the cultural mandate. It should be apparent that multiplying the population and subduing and exercising dominion over the earth requires economic progress. It obviously requires survival and each person developing their potential and it requires the development of the potential of the natural order.

Economic theory identifies three sources necessary for economic progress: the division of labor, capital accumulation, and entrepreneurship. The division of labor opens the door to increased productivity by allowing people to specialize at lines of production where they are most efficient. This increased productivity results in higher real incomes and societal wealth. However, people can only benefit from the division of labor if they are free to exchange the goods that they produce.

The use of capital goods contributes to economic progress by increasing the productivity of the user. However, before capital goods can be used, they must be produced. In order to accumulate capital, people must be willing to put off present consumption so that they will have resources available to invest in production of capital goods. The higher people’s time preferences are, the more present-oriented they are. Such people will be less likely to save and invest, so they produce fewer capital goods yielding less productive labor. The lower people’s time preferences are, the more they will save and invest, accumulating more capital goods, resulting in increased productivity, incomes, and wealth. Likewise, with more capital investment comes better technology that will further increase productivity.

In order for economic progress to continue over time, however, it is important not to waste capital that has already been accumulated, which is why entrepreneurship is the third major contributor to economic development. As Mises said, "capital does not beget profit." Waste is possible, because production decisions in the present are based on a forecast of uncertain future market conditions. If the producer forecasts incorrectly, he will use his capital making something people do not want and will not be able to sell his output at the price needed to cover his costs.

Entrepreneurs need to use economic calculation if they are to direct factors of production toward their most valued uses. Market prices allow entrepreneurs to make meaningful comparisons of social value between different consumer and producer goods because monetary prices are all expressed in terms of the same good: money. These same objective prices are determined by the subjective preferences of buyers and sellers. If the expected price of a final product is greater than the sum of the prices of the factors of production, the entrepreneur will produce that good. When entrepreneurs reap a profit, they do it precisely by providing those goods that people value the most in the least costly manner. Economics teaches, therefore, that economic progress is the happy consequence of a highly developed division of labor, taking advantage of an increasing capital stock wisely invested by entrepreneurs.

Consequently, if we want society to benefit from economic expansion, we need social institutions that foster the development of the division of labor, the accumulation of capital, and successful entrepreneurship. Searching for a common condition that is necessary for all of the above to function, one finds that they all require the institution of private property.

Because it is voluntary exchange that makes the development of the division of labor possible, we will benefit from the division of labor only if dwelling in a society with institutions supporting voluntary trade. We can only engage in exchange in an environment of private property. Therefore, in order to take advantage of the division of labor and benefit from the economic development that flows from it, members of society must be secure in their property.

Likewise, for capitalists to have the incentive to accumulate capital, they must be secure in their property. If, for example, the state enforces confiscatory taxation, capital accumulation is hindered because taxes reduce net incomes, so capitalists have a smaller quantity of money available for savings and investment. Additionally, capitalists have less incentive to save and invest, because they a guaranteed a smaller return on their investment.

The entrepreneur’s need for monetary market prices in order to calculate profit and loss also points to the necessity of private property for entrepreneurship. Only free-market prices are the result of purely voluntary exchange and, hence, manifestations of the subjective values of the buyers and sellers in society. Again, voluntary exchange requires private property. Without voluntary exchange there can be neither money nor market prices. Without economic calculation, those directing the allocation of factors of production have no way to know how to allocate them wisely. Capital is consumed and standards of living fall.

A corollary of security of private property is security in general. For the division of labor to develop and extend, society must enjoy peace. As Mises says, "The market economy involves peaceful cooperation. It bursts asunder when the citizens turn into warriors and, instead of exchanging commodities and services, fight one another." The division of labor is able to develop only because its participants expect lasting peace and the ability to exchange that goes along with such peace. Conflict destroys the division of labor, because it forces each group to consume only what it produces.

Peace and private property, however, do not guarantee economic progress. They only make it possible. Because economic progress requires saving and capital accumulation, prosperity requires relatively low social time preferences. Consequently, cultural values formed by philosophic and religious beliefs are also very important. Cultures that are predisposed to highly value present consumption will not progress economically, whereas societies in which thrift is considered a virtue will.

Cultural and moral values also affect the ease with which peace and private property are maintained. As market participants succumb to greed, they will be more likely to lobby for state granted privileges via market regulation, reducing the scope of private property. Increased likelihood of fraud and theft increases uncertainty and results in more resources directed away from producing goods and more toward protecting property.

God told our first parents to be fruitful and multiply, fill the earth, subdue it and have dominion over every living creature. The only way to cultivate and fill the earth without descending into a barbaric struggle for survival is to take advantage of the social division of labor, capital accumulation and wise entrepreneurship. Allowing these sources of economic progress to flourish requires the security provided by peace and private property sustained by and combined with cultural values such as a forsaking of theft and low social time preferences.

As I said earlier, different people may attempt different ways to fulfill the cultural mandate. The Soviets sought to achieve a prosperous, equitable commonwealth by abolishing private property and managed to kill approximately 4 million of their own people in about four years, until Lenin woke up, smelled the Kousmichoff, and allowed for just enough property rights for the Soviet Union to survive. The Soviets got it wrong because they failed to heed economic law – law that God built into the created order.

Mere sloganeering about freedom, however, also is not sufficient. It is easy for politicians and technocrats to champion "markets," all the while finding reasons to curtail private property in their efforts to regulate the economy. Our political leaders praise freedom and then expand the welfare-warfare state. Such empty rhetoric results in little except angry cynicism fostering an anti-capitalistic mentality that believes that the persistence of poverty is indeed the result of a free market, instead of the obstacles that hamper it.

Likewise, the promise of democracy is no panacea. Democracy is merely a political institution, not an economic one. It should be clear from the experience of the United States that democracy is not necessarily a friend of the free society. Our democratically elected politicians regularly aggress against the right of property. The United States’ democratic system presides over the nation’s confiscatory tax system, its manipulation of the money supply, its labor regulations, and all of its other interventions. As democracy has expanded throughout our history, the U. S. regulatory code has done likewise. If democracy has been no guarantor of the free market in the United States, there is no reason to believe that democracy necessarily will usher in freedom and prosperity anywhere else.

If we are to properly fulfill the cultural mandate, we dare not ignore the laws of economics that God has ordained. Only real peace coupled with private property and the cultural values that sustain it will enable people to participate more ably in the fulfillment of the mandate God gave both their and our first parents in the beginning.

April 6, 2010

Dr. Shawn Ritenour [send him mail] is professor of economics at Grove City College, contributor to the Center for Vision & Values, and adjunct professor at the Mises Institute in Auburn, AL. He is the author of Foundations of Economics: A Christian View.

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