I am deeply sorry for the people of Japan, and what they are suffering right now because of the earthquake and tsunami. I am, however, also grateful for the very important truth that is being illustrated very dramatically by that earthquake, and that is the truth that poverty kills, far more than anything else in the world.

Japan’s earthquake was a 9.0 magnitude earthquake centered about 80 miles off the coast of Japan. It triggered a tsunami that was over 30 feet high in places. The earthquake caused huge damage over wide areas of Japan, and the tsunami just compounded it. Dams broke, whole villages were swept away, the death toll is in the thousands and probably ultimately will be in the tens of thousands, and millions of people are presently without food, water and power. It is a disaster of almost unimaginable proportions.

But remember the Haiti quake of last year. That quake was a 7.0 magnitude quake, which because of the logarithmic nature of that scale, means that the Japanese earthquake was a hundred times greater. It was located closer to a population center- only 16 miles from Port-au-Prince. There was a tsunami, but only a very small one that did only minor damage. That earthquake caused somewhere between 100,000 and 200,000 deaths, despite being overall a much smaller event. The two earthquakes are not perfectly comparable due to various differences in geography and the like, but still, the dramatic difference is remarkable. Why does a hundred times bigger earthquake with a massive tsunami cause a tenth of the deaths?

The answer is really rather simple- poverty. All of the people in Haiti died because all of their cheaply built buildings collapsed. The Japanese on the other hand are one of the wealthiest nations on the earth, and had invested extensively in earthquake-resistant construction. Earthquakes are of course quite common in Japan. But they are not unheard of in Haiti either.

Poverty kills, more than anything else in the world. People die all over the world by the millions from this preventable cause. They die of famine, they die of disease because they don’t have good drinking water, they die of diseases that are easily treated with inexpensive medicines, they die of malaria spread by mosquitos because they lack the resources to do anything about it. They die of murder and war because they lack the ability to protect themselves.

A country like Haiti has been the target of massive sustained relief and foreign aid efforts for a long time. Yet they remain poor. The same could be said of many places around the world. A country like Japan, on the other hand, was very poor after World War II only 60 years ago. Yet it is now rich. Why? Japan has few natural resources. It has no oil, little coal, few usable minerals on the island. A similar story is told about Taiwan by the great Milton Friedman, a small rocky island to which hundreds of thousands of refugees fled after the Chinese civil war, which has very little by way of natural resources. Yet it is one of the wealthiest countries in the whole region. Why?

There is a great deal of attention right now paid to the nuclear reactors that were damaged in Japan as a result of the earthquake. But a little perspective is in order. The only realistic energy source outside of nuclear power is coal power, and coal mining is among the most dangerous professions on earth. How many people die each year to produce coal power? I don’t know the number, but I know it is high. And without electricity, we become poor, and poverty kills. So even if these nuclear reactors melt down and hundreds die as a result, it is still just a fraction of the overall deaths caused by the earthquake, still just a fraction of the deaths that would have been caused by using coal power instead, and an even smaller fraction of the deaths that would be caused by having no electricity at all. People say that you shouldn’t build nuclear plants in an earthquake zone. But the total death and destruction of this earthquake would be largely unchanged even if they had all coal power. Yes, nuclear plants might fall over in a 9.0 earthquake. But EVERYTHING falls over in a 9.0 earthquake. If nuclear power plants shouldn’t be built in an earthquake zone, then neither should houses, bridges, hospitals, or dams.

When you are rich, you have the ability to weather disasters and protect yourself from the ravages of nature. When you are truly poor, even small problems are calamities. Remember this the next time someone proposes some change that would make us poorer but possibly save some lives. They say, even if one life is saved, wouldn’t it be worth it? What price do you put on human life? But if the change makes us poorer, it costs lives. Poverty keeps us from buying medicines, keeps us from building better and sturdier homes, keeps us from providing adequate protection from crime (police forces cost money), keeps us from doing a million things that give us safer, longer, better lives. Poverty forces people to dump their garbage in the river or burn it in the streets, rather than having the means to dispose of it in a safer, cleaner way. People joke about how the tornado always seems to head for the trailer park, but the truth is the trailer park just suffers a lot more from the tornado, while people with better houses with basements are safer.

The ant works hard and lays up for the future in the summertime, while the grasshopper just plays around and has a good time. Then when the hard times come, the ant is safe and well-fed, while the grasshopper dies. The ant, through hard work and frugality, has become rich. The poverty of the grasshopper kills him.

The question of what makes nations rich and what makes them poor is therefore of the utmost importance. What has Japan had that Haiti hasn’t had for the last several decades? It’s not natural resources. It’s not intelligence, or else why is the US so much wealthier than India, when all our doctors and engineers come from India these days? It’s not even only hard work. Poor people usually have to work very hard.

It is, I would submit, a commitment on the part of the whole society, to freedom, justice and rule of law. It is an environment where people know they can work hard, take risks and innovate, and not have their wealth simply stolen from them by others. It is a culture where people can trust each other to keep their word and honor their contracts, which is necessary for trade to be possible. It is a society where the poor will be treated with justice, rather than be exploited and oppressed by those more powerful than they; where the poor will have the opportunity to better themselves through their own labor and skills; where people will not be treated as members of a class or caste with only certain economic opportunities open to them, but where the limits on what a man can do are only those limits within himself. In such a society, all individuals have the maximum incentive to use their opportunities and abilities for the good of the whole society.

Very poor societies, such as Haiti, always have a few things in common. They have a very top-heavy authority structure. The economic resources and opportunities are all controlled by just a few people, who dole those benefits out to others in return for political support. There is no commitment to rule of law, so that theft is rarely punished, except when it is done by politically unfavored classes. There is little freedom- permission must be asked of the powerful to do anything. There is no respect for private property; a man’s possessions can be seized at any time if it is seen to serve the “greater good”.

Put these factors in place, and the country will be poor. In fact, a rich country can be made into a poor one rather quickly, as Zimbabwe has demonstrated in the last twenty years, and as many other places can show us as well. But on the other hand, a poor country can become a rich one with these factors in place, as we have seen in South Korea, Taiwan and many other places.

Remember that, as our country appears to be giving up on these very principles, and our government becomes more centralized, more top-heavy, more intrusive into every area of our lives. Remember that as our political elites tell us that our wealth should be concentrated in their hands to then be distributed equitably to the people. In doing so, they will destroy the factors that made us a rich nation in the first place. More and more people will be sunk into poverty. And poverty kills, more than any other factor in the world.

Consider the fact that it took one of the most powerful earthquakes ever recorded to reduce parts of Japan, temporarily, to the condition that large parts of the rest of the world live in all the time. Japan will rebuild and recover, though it won’t be easy. Haiti, a year later, is still in rubble.

Christian Economics, part 3: Trade and Money

Part 1
Part 2

Proverbs 11:26 The people will curse him who withholds grain, But blessing will be on the head of him who sells it.

Trade is a fundamental part of our economic life. Without trade, life would be very difficult. Think for a moment of what things would be like if you were required to produce everything you used for yourself. Even with a great deal of training and effort, any of us would at best be able to manage a very rudimentary survival, and only if we are physically strong and healthy.

Even the simplest, most isolated tribe will trade. The men will hunt while the women stay home and tend the gardens or farms, cook and care for the children. There is trade between the men and the women- the men provide many raw materials such as meat and animal skins while the women trade services such as refining those raw materials into usable goods for the men. The men specialize at what they can do most effectively and the women generalize in several other areas. The result is that both the men and the women, through trade, are wealthier than they would otherwise be.

Soon, one tribe sees that another tribe has very good spears, while they are good at making clothes out of skins. So the spear tribe realizes that they can make extra spears and trade them to the other tribe for skins. Both tribes are better off through the trade. The spear tribe makes more spears than they actually need, and value the extra spears less than they value the high quality clothes from the other tribe, which they would not be able to produce themselves. Before, one tribe would have good spears and bad clothes, and the other tribe would have bad spears and good clothes. Through trade, both tribes have good spears and good clothes. Everyone is better off through trade. Soon, more tribes learn of the good spears, and they too wish to trade for them, trading perhaps their own raw materials, perhaps canoes or bows or pottery. This goes on to the point where the spear tribe realizes that it is now more profitable for them to make spears than it is to do anything else. So they stop hunting, stop farming, spend some time making good tools which they never would have made just to make spears for themselves, and spend most of their effort now cranking out high quality spears for all the rest of the tribes, who trade all the other goods the tribe needs in exchange. The tribe now grows far richer than they ever would have been otherwise, and everyone around has great hunting spears.

Now money comes into the picture. It is very convenient to have some store of wealth. Maybe the spear tribe has enough meat for now, but they’d love to be able to get some meat later after the hunting season is over and few people are buying spears. So they accept payment in rare glass beads instead, intending to use those beads later to trade back for food. The beads act as money, a store of wealth.

For something to be effective as money, it needs to be recognizably valuable and non-perishable. It should be convenient to move around. Its weight and size needs to be much smaller than the goods that it purchases, relative to its value. Things such as glass beads were good money for some people at certain times, but as glass beads became much easier to manufacture, they lost their value. Precious metals were much better. Gold, silver and copper are great stores of value. They are attractive. They are very useful for making jewelry, and in the modern age even have many industrial applications, and therefore have intrinsic value. There is a limited supply of each of them- they cannot be manufactured from other things, but must be mined out of the ground. These metals have very distinctive properties of weight, color and malleability, which makes them very difficult to counterfeit. This is why these metals have so commonly been used for money. Money therefore acts as a store of wealth beyond its own ability to raise one’s standard of living.

So this raises the question of price. What is the right price for something? When we understand what trade is, we can immediately understand the answer to this question. The right price for something is the price that people are willing to pay. The spear tribe doesn’t truly determine the price of its spears. The people who want the spears decide what they are willing to pay. Different people will value them differently. A tribe with no access to metal at all will value those good spears more highly than another tribe that can already make pretty decent spears on their own. Price therefore is determined at its most basic level by the value people place on the goods they are purchasing.

Simply put, this is all trade is. Most of us trade our labor for other goods. We get specialized at particular kinds of labor in order to maximize the worth of that labor. We then trade that labor for money, and use the money to buy the other goods and services that we need. Some people own property, and trade the use of that property for money through rents. Some people purchase labor, and use that labor combined with their own personal skills, abilities and equipment, manufacture the goods or provide the services that other people desire.

Through this system, everyone’s wealth is increased. Each time a transaction in a free economy occurs, both sides of the transaction choose to make the transaction because they believe they will be better off. Just as the trade of spears and clothes increases the wealth of both tribes, so my purchase of aspirin at the store makes both of us wealthier. So when I give away money and get aspirin in return, both of us are better off. The people who sell the aspirin are selling it for more than it is worth to them at the time, and the person who buys the aspirin wants the aspirin more than they value any other purpose for which they could use the money. Therefore both are wealthier for the purchase.

Take a look back at the Bible verse quoted at the beginning of the post. We now see why this is so true. When people freely engage in the marketplace of goods and services, they are better off, and so are the people with which they trade. The more buyers and sellers there are, the better off everyone ultimately becomes. A man might withhold his corn in an attempt to drive the price up, because he is too lazy to produce or harvest, or because of false ideas about what wealth truly is. He might save all of his grain in order to protect himself from some imagined disaster. He would be better off by selling that grain, because doing so increases his wealth and the wealth of everyone around him.

For free trade to occur, there are some important conditions that must exist. There must be rule of law. A man needs to have confidence that contracts will be honored and that goods are what people say they are. This is why false weights and measures are an abomination to God. False weights and measures, along with all other forms of theft, destroy economic relationships which, as we established, lie right at the heart of what it means for us to be in the image of God. This is one of the main roles of government- to prevent theft by enforcing contracts, regulating weights and measures and punishing those that steal from others.

There are of course many complications, caveats and qualifications to the simple model I have outlined above. But much of our wrong thinking about economics comes from failing to understand the basic nature of a thing. We hear that the government should restrict what people can sell or buy, or the price at which they can do so. We see gas prices going up and say, why can’t the government do something about it? If we realize that the gas prices are the result of free economic decisions of value between buyers and sellers, then we would know that there is no “right” price of gas, and if we want to bring the price down, we should look at what factors are preventing trade or limiting supply, all the time realizing that there are free economic actors on both sides of the trade, and it is just as legitimate for the sellers of gas to want to make a profit as it is for the buyers of gas to get cheap gas.

George Orwell once said, “To see what is in front of one’s nose requires a constant struggle.” We have had a great many highly trained academics from Harvard and Yale, men and women who have written long books, held many high academic, commercial and government positions, who made a great deal of money and have many letters after their name, who told us the present economic crisis could never happen. And yet it happened. They based their thinking on the premise that ingenious state and corporate activity could repeal the basic laws of human interaction and create wealth out of nothing. But currency manipulations, bureaucratic regulations, political schemes and laws can never create wealth. They can certainly destroy it. But the best the state can ever do is to create the environment where wealth creation happens. The way wealth creation happens has always been the same. Economic actors produce goods and services, and then freely exchange those goods and services for other goods and services that they desire. We need to continually struggle to remind ourselves and others of this very simple truth.

Never feel guilty about making a fair profit, of growing wealthy by providing valuable services and goods to others. God created you to do that very thing. Blessed is the man who sells, and cursed is the man who holds back his God-given gifts from the marketplace of free exchange.

The main commandment dealing with economics is the eighth commandment, “do not steal”.  It is not the only one; as I said in the previous post the commandment against adultery has important implications for us when we recognize that our bodies are part of the overall economy of the resources which have been placed under our stewardship.  Likewise, respect for parents, respect for life, not bearing false witness and not coveting all have important economic implications.  But the eighth commandment bears directly on our economic life and shapes it.

The eighth commandment establishes the fundamental right of private property.  Man was created to have dominion over creation.  Creation is much too big for just one man, however, even in a state of perfection.  God told Adam to be fruitful and multiply and fill the earth, and his offspring would therefore share in that dominion.  That means that creation belongs to humanity for him to use.  And he was to tend creation, adding his labor to creation in order to maintain and improve it.  The eighth commandment means that a man has a right to the results of his own labor.

Wealth is created by human beings when we apply our labor to the natural world in a way that makes that world more usable.  Wealth and money are not the same things.  We’ll talk more about money in the future, but money is simply a symbol standing for wealth, and often does so in deceptive ways.  But true wealth is a rising living standard; that a person has a better, safer and more enjoyable life as a result of efforts made to improve on nature.

The idea of “improving on nature” may sound odd to the modern ears, because of the nature-worship which is so embedded in our culture.  The fact is, that we have improved on nature in countless ways, and our society and economy have become so complex that this truth is often obscured.  But in raw, unadorned nature, most of us would be dead in very short order.  We have clothes to keep us warm, houses to shelter us, medicines to keep us healthy, abundant food, transportation and many other things.  The quality, availability and affordability of these things increases constantly.  In addition, we have arts, music, entertainment and communication available to us that improves all of our lives in many ways.  The misuse of any of these things is not the point- they are available, and of themselves very good, and all of it is the result of individuals and groups working to improve on nature.  The eighth commandment dictates that these individuals should have the right to their own labor.

Stealing happens in a lot of different forms.  The Heidelberg Catechism talks about the “wicked tricks and devices” by which I seek to take my neighbor’s goods.  Essentially, any way that I seek to enrich myself at the expense of others is theft.  Obviously forcibly taking someone else’s goods is theft.  Theft also often happens by deceit.  The Bible speaks of false weights and measures as an abomination.  A farmer brings his wheat in for sale, and the merchant who buys his wheat measures the bushel as bigger than it really is, making it appear that the farmer is selling fewer bushels than he is.  And the merchant gets him on the other end too, by weighing the silver out in smaller than the real measure so that he’s giving the farmer less silver than he is really owed. In general, this is reflective of all business practices whereby I make the product I am selling to be less valuable than it actually is, or charge more for it than I said I would.  When I contract with a man to give him eight hours a labor at a given rate, then if I give him less than eight hours of labor, I am stealing from him.

Theft often happens in much more subtle ways as well.  If two neighbors have cornfields, and the one neighbor sneaks over in the middle of the night and destroys the crop of the other in order to make his crop more valuable, most would recognize this as theft.  If I take away the productive value of someone else’s property, I am stealing.  Likewise, a man has property in his own skills and time.  He sells this property as his labor.  If I take from a man the value of his skills and labor, I am likewise stealing.

When we understand this concept, we see how very pervasive stealing is.  Our government dictates the price at which people can work, for example, and dictates a large number of burdensome regulations on businesses.  All of these regulations reduce the productive value of people’s labor and property.  At first glance, a minimum wage law would seem to increase the value of labor, but in fact it does the opposite.  A minimum wage law does not make a man more productive than he is otherwise- his labor is worth what it is worth, depending on the skills and experience of the man.  If I as a business owner cannot purchase labor at less than, say, $5 an hour, then I will only purchase labor that is worth more than that to me.  The practical effect of a minimum wage law, then, is to make it illegal for someone whose labor is only worth $4 an hour to sell his labor.  The government has essentially stolen his labor.  High rates of unemployment among the youth demonstrate this well- their labor is not worth the amount that the government says is the minimum, and therefore the value of their labor is stolen from them.

Likewise, if I have a business, and the government dictates regulations to me about how I can and cannot do business, they are reducing the value of my business.  Some of these regulations are necessary, of course.  It is proper for the government to regulate my business in such a way as to prohibit activities which would steal from others.  A factory should not be permitted to dump its waste in the river- this would be stealing from everyone else who uses the river.  But many regulations, disguised as this sort of thing, are actually intended to benefit politically favored groups at the expense of others.  Requiring me to hire certain minorities or disabled people; preventing me from firing people unless I provide very burdensome proof of malfeasance; and many similar regulations are ways of benefiting favored political groups at my expense.  All government regulations should be very strictly examined to determine whether they are truly necessary, and whether the same goals could be accomplished in less burdensome ways.  And much better is to take action in cases of actual harm against people, rather than preemptively trying to eliminate any harm through the use of regulations.

In Deuteronomy 22:8, when a new house was built, they were required to build a railing around the roof.  Roofs in that culture were flat, with access by stair, and people would often dine or socialize on their roofs.  It is therefore very reasonable to dictate that a rail should be built to prevent an accidental fall.  In similar ways, the government is well within its right to dictate obvious safety precautions.  But look at Exodus 21:28-29 for a different kind of example.  There, if an ox killed a man, then the ox was to be put to death, but the owner was not guilty.  Only if the ox was shown to be dangerous in the past could the man be held responsible.  The solution here was not to impose burdensome regulations on all oxen owners.  The solution instead was that in the case of actual provable negligence- the ox was known to be dangerous in the past- the man was guilty for the death of the victim and punished accordingly.

Many products have been restricted or prohibited merely to gain political favor, because some group of people in the country got scared over the dangers of this product.  Incandescent light bulbs were banned in this country because of the perceived threat of global warming.  This of course destroyed that industry in this country; incandescent bulbs will now only be made in other countries.  Man-caused global warming is only a theory, and one which is doubted by many.  But the law was promoted by environmentalist groups as well as by companies that would be manufacturing the more expensive high-efficiency bulbs, and the law was passed.  This was an act of massive theft, and yet is hailed by many as a virtuous deed.  The recent accusations against Toyota regarding their brake failures are probably another example- no problem with their brakes has ever been found and most reports can be attributed to driver error, and yet this did not stop many media outlets and politicians from making outrageous accusations.  Toyota suffered economic harm as a result, to the benefit of those politicians, activists and media outlets.  Now the truth is known, and yet Toyota will likely never be recompensed for their losses.

We should recognize that any restriction on a man’s economic activity takes away economic value.  This can be justified if such restrictions are necessary to prevent theft or real harm to others.  But when we restrict a man’s freedom simply to benefit some other favored group such as “workers”, the “poor” or any other group, we are stealing from him.  If we restrict a man’s freedom to prevent the remote possibility of some harm or because unsubstantiated accusations of harm are made, we are again stealing from him.

Theft is extremely serious.  God speaks of deceptive economic practices, such as unjust weights and measures, as an abomination (Deuteronomy 25:14-15).  When we see that man’s economic activity is an essential part of the image of God within him and his mandate for dominion of the creation, we can see the reason why this attack on God’s image in man should be taken so seriously.

Economics means literally “rule of the house”.  It addresses the distribution of wealth, goods and services.  The name is more appropriate than you might think at first, since the study analyzes the behavior of fundamental economic unit, the household.  Economic choices are typically made at the household level.

Economics is often neglected by Christians because of, I believe, a fundamental misunderstanding of what we as humans are.  We are not spiritual beings who happen to inhabit a physical body for a time.  That is a gnostic error with roots in the ancient church, and led to the frequent abandonment of the economic world in favor of living in caves, hermitages or monasteries by those who desired to be more spiritual.  The truth is that God created us to be both physical and spiritual beings.  He put Adam in the Garden of Eden and gave him fundamentally material tasks.  He was to tend the garden, be fruitful and multiply the earth, and name the animals.

In fact, Adam was said to be “in the image and likeness of God.”  God’s creative acts, beyond the initial ex nihilo creation, involved separating and distinguishing one thing from another- light from dark, sea from dry land- as well as filling these forms with content- stars in the sky, fish in the sea, plants and animals on the land, and so forth.  And then He created man, in the image and likeness of God, as the pinnacle of creation.  He gave man tasks to do that reflected this image and likeness, in that Adam’s acts were small reflections of God’s own creative acts.  He was to bring order out of chaos in the creation by tending the garden, naming the animals and filling creation with human beings.  Man was to be a scientist.  Naming the animals meant understanding them.  Man was to be an industrialist.  Tending the garden meant hard work and industry to take the raw materials of creation and improve on them.  And man was to be a father, a family man.  All of these things defined man’s relationship with creation and with other men, and ultimately with the God that made him.  Of course when Adam fell into sin, all of this was brought into ruin and corruption.  Man’s labor is specifically mentioned in the curse- the creation would rebel against his rule by bringing forth “thorns and thistles”, and man’s work would now be by the “sweat of his brow.”

Salvation involves restoring what was lost.  Man was to be a faithful servant of God, but failed.  Jesus came to be what Adam failed to be.  And He succeeded- He was the faithful servant.  In salvation, we are conformed to His image, which means that in salvation we are being restored to our status as faithful imagebearers of God.  And that means that our relationship with God’s creation will be one of the principal things being restored in us.  The implication of this is that economics is a proper and important study for every Christian.

I believe that if economics were better understood, a great deal of foolishness that passes for policy could be avoided.  But my concerns here are not primarily political.  My concern is that we as Christians understand that being a Christian does not mean retreating from the world.  This world is cursed and fallen and will be destroyed by fire.  But creation itself will be restored.  Eternal life will not be spent sitting on a cloud playing a harp.  A “new heavens and new earth” are coming, and our life will be a physical life spent in a physical place.  Preparing for that eternal life then means that right now, just as we are learning what it means to treat one another with love, so it also means learning to relate properly to God’s creation.  We are to take dominion over the creation we are presently in.  This means being good stewards (caretakers) of our own bodies in sexual purity.  It means being hard at work with what God has given us to do, and doing that work in integrity and thankfulness.  It means helping those who are in need.  It means using all of the things of God’s creation with moderation, joy and thankfulness, and not being drunken or gluttonous.  It means not stealing from others.

Unfortunately, the gnostic error persists.  It is seen in the fact that when we are called to serve God with our lives, to many that means quitting their jobs and engaging in full-time “church” work, or at least giving most of their money to ministry.  It is seen in the fact that it is viewed as somehow inherently immoral to make money, or at least to make very much.  But we see here that when I interact with God’s creation in dominion, improving on that creation and bringing order out of chaos, I reflect God’s own image and begin to fulfill man’s original reason for existence.  I must do so in a way that glorifies God, of course, and is therefore in accordance with His word; meaning that I do not exploit creation for the satisfaction of my selfish lusts; I do not steal or defraud from others in my labor; and that I always remember to be generous to the poor.  But in this way, the Christian sees that so-called “secular” work can be highly glorifying to God.  This is the foundation of Christian economics, the understanding that man was created by God as a physical and spiritual being, and is called upon to reflect God’s own nature in his physical being and in the physical creation which God has made.