Foundations of Economics: A Christian View

Foundations of Economics

A Christian View

Shawn Ritenour

Foundations of Economics

A Christian View

Copyright © 2009 Shawn Ritenour. All rights reserved. Except for brief quotations in critical publications or reviews, no part of this book may be reproduced in any manner without prior written permission from the publisher. Write: Permissions, Wipf and Stock Publishers, 199 W. 8th Ave., Suite 3, Eugene, OR 97401.

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All Scripture quotations are from The Holy Bible, English Standard Version®, copyright © 2001 by Crossway Bibles, a publishing ministry of Good News Publishers. Used by permission. All rights reserved.

This book is dedicated to Michelle,my virtuous wife.

You are my crown and far more precious than jewels.

Acknowledgments

Many people assisted me in the completion of this book. I want to thank David Westrate and the Tithes and Offerings Foundation for providing a significant grant of financial assistance to help cover expenses. Grove City College graciously provided a sabbatical, allowing me to do much concentrated research and writing. Ronda Credille, Jeffrey Herbener, and David Whitlock read every word of earlier drafts, providing me with many helpful comments and suggestions. My student assistants, Jocelyn Bond and Robbie Long, provided invaluable help in research, editing, and graph composition.

It should be clear that my intellectual debts are from the Misesian tradition of Austrian economics and Reformed Protestant theology. My economic pedagogy relies heavily on Murray Rothbard’s Man, Economy, and State and the intellectual foundation laid by Carl Menger and Eugen von Böhm-Bawerk and built into a full edifice by Ludwig von Mises. The Ludwig von Mises Institute has been a great blessing to me by providing material, intellectual, and moral support as I seek to integrate economic theory with a Christian view of man and nature. In lieu of a myriad of footnotes, I list specific sources I rely upon as suggested readings at the end of each chapter. The reader should think of these as a chapter by chapter bibliography. An exhaustive bibliography is also given at the end of the book.

Soli Deo Gloria.

Introduction

When applying to graduate school to study economics, I was required to send letters of recommendation from three former professors. My college was a small, Christian liberal arts college that only had two economists on its faculty. In addition to soliciting letters from them, I asked one of my religion professors to write the third. I had taken two courses from this professor and knew him to appreciate at least my academic potential. When I telephoned him, asking that he write me a letter of recommendation for graduate school, he inquired about my chosen field of study. When I told him economics, he quickly replied, "Oh, studying the things of this world, I see."

While my former professor was only joking, a none-too-small number of Christians believe that economics is about how greedy people satisfy their lust of the eye and pride of life. This view is incorrect for two reasons. In the first place, God is interested in both the spiritual and material aspects of his creation. Additionally, economics is a social science concerned with how people cooperate in the division of labor, not propaganda for squeezing the blood of the exploited working class out of the proletariat turnip.

God is interested in all of his creation, both spiritual and material. We know this because of what God tells us about his own opinion and care for the material world. God did, after all, create a material world. As the Nicene Creed puts it, he made all things visible and invisible, both material and spiritual. God tells us that after he was finished with creation he declared his handiwork very good (Gen. 1:31). Additionally, the apostle John tells us that one of the defining characteristics of a spirit that comes from God is one who acknowledges that Jesus Christ has come in the flesh (1 John 4:2). Jesus had to take on human flesh to become our sacrifice and he ate and drank enough to be wrongly accused of gluttony by the Pharisees. In light of these truths, it is hard to see how we can conclude that God is either dismissive of or actively opposed to the material part of his own creation.

It is easy to understand how people might dismiss economic subjects as too worldly if they read the Bible selectively. There are, after all, a number of passages in God’s Word that warn us against loving the things of this world, loving money, and storing up our treasures here on earth. However, one should not conclude from these caveats and commands that the Bible advocates some sort of anti-material asceticism.

That God is not ascetic is evident throughout Scripture. In Proverbs 6:6­–11, for example, the writer instructs us to learn from the ant. What is the ant doing that we are to use as an example? It is working to make material provision for itself in the winter by working and gathering its food in the summer. In Genesis 2 we find that before the fall God commands Adam to cultivate and keep the garden and gives him the fruit of the trees from which he may freely eat. Later in Proverbs 12:11, God affirms the principle that material sustenance is to be had by work. He who tills his land will be satisfied with bread . . . . In Genesis 24:35 we read that God blessed Abraham with flocks and herds, silver and gold, male and female servants, and camels and donkeys. Needless to say, these are all material blessings.

In the book of Deuteronomy, God explains some principles relevant to tithing. He tells his people that they are to take a tenth of all their increase to the temple where a portion of it was to be joyfully eaten with the Levites and the poor. If people lived a long way from the temple, they could convert their commodities to be tithed into money. Then God commanded his people, Spend the money for whatever you desire—oxen or sheep or wine or strong drink, whatever your appetite craves. And you shall eat there before the Lord your God and rejoice, you and your household. (Deut. 14:26). Clearly God is not Platonically anti-material.

Later in Deuteronomy, God pronounces a series of blessings and curses that will be meted out to his covenant people depending on whether they are obedient or disobedient to his law. In each series, the first blessings and curses are material in nature.

And if you faithfully obey the voice of the Lord your God, being careful to do all his commandments that I command you today, the Lord your God will set you high above all the nations of the earth. And all these blessings shall come upon you and overtake you, if you obey the voice of the Lord your God. Blessed shall you be in the city, and blessed shall you be in the field. Blessed shall be the fruit of your womb and the fruit of your ground and the fruit of your cattle, the increase of your herds and the young of your flock. Blessed shall be your basket and your kneading bowl. Blessed shall you be when you come in, and blessed shall you be when you go out (Deut. 28:1–5).

On a less happy note, God pronounces curses that are the exact opposite of the blessings:

But if you will not obey the voice of the Lord your God or be careful to do all his commandments and his statutes that I command you today, then all these curses shall come upon you and overtake you. Cursed shall you be in the city, and cursed shall you be in the field. Cursed shall be your basket and your kneading bowl. Cursed shall be the fruit of your womb and the fruit of your ground, the increase of your herds and the young of your flock (Deut. 28:15–18).

These verses sufficiently demonstrate that God is concerned with all of our existence, the material as well as the spiritual.

In the middle of his Sermon on the Mount (Matt. 6:19–34), Christ commands us not to be anxious about material considerations. He warns us not to seek security from earthly treasures, but to set our hearts on heavenly treasures. In verse 31, Jesus tells us explicitly not to worry about what we are to eat, drink, or wear. Instead we are to seek first his kingdom; God is to be our first priority. The Westminster Shorter Catechism tells us that the chief end of man is to Glorify God and enjoy him forever. It does not say that our chief end is to glorify the Gap and to enjoy Pizza Hut forever. No, Jesus says to seek his kingdom first and then all these things shall be added. Notice that he does not say that food, drink, and clothing are worthless or something that we ought not own. His teaching is not some sort of Christian asceticism. Instead he is commanding us not to become anxious about these real material needs, because in doing so, we are failing to trust God to provide for us.

Economics is not only about money, stuff, or even resource allocation. Economics is really about helping man solve one of the greatest dilemmas confronting him; it is the dilemma that we discover after reading the first few chapters of Genesis. The first command that God gives man is found in Genesis 1. Here God tells Adam and Eve, Be fruitful and multiply; fill the earth and subdue it; have dominion over the fish of the sea, and over the birds of the air, and over every living thing that moves on the earth (Gen.1:28). The above mandate involves a lot of activity focused on material concerns. It includes reproduction and building things. The Hebrew word translated as dominion implies more than merely to rule. It communicates the idea of dominion for use.¹ Consequently, the cultural mandate includes rearranging what we find in nature to suit our needs and to glorify God. Contrary to contemporary environmentalism, it includes ruling over every living thing and all of nature, not communing with nature as a co-equal. It includes taking God-given property and using it in the production of goods that benefit others and ourselves.

However, this mandate was made much more difficult as a result of what we read about in Genesis 3. In this chapter we have the record of the fall of man. As the result of Adam’s disobedience to God’s command not to eat the fruit of the tree of the knowledge of good and evil, God cursed all parties involved.

For the study of economics, it is important to remember that this curse is not only spiritual in nature. It is true that spiritual separation from God is the most devastating consequence of original sin. However, note that much of the curse was also material in nature. God tells Eve, [I]n pain you shall bring forth children (Gen. 3:16). He tells Adam, [C]ursed is the ground for your sake; in toil you shall eat of it all the days of your life. Both thorns and thistles it shall bring forth for you, and you shall eat the herb of the field. In the sweat of thy face you shall eat bread. . . (Gen. 3:17–19). As the result of the fall, man was banished from the Garden of Eden into a world of greatly magnified scarcity, where it became much more difficult to obtain one’s daily bread. Nothing in Scripture, however, leads us to the conclusion that the fall and subsequent curse voided God’s original command for man to have dominion over all creation. Indeed, God repeats the dominion mandate to Noah and his family (Gen. 9:1–7). What is true is that keeping this command has become much, much more difficult.

This leaves us with one of our greatest dilemmas: How do we have dominion over the creation in this world of scarcity without starving to death, killing one another, or both? It turns out that the discipline of economics provides great assistance as we attempt to answer this question. In the paragraphs that follow a number of propositions will be logically connected in order to reach an answer to the dilemma posited above. Some of these propositions may contain terms that are unfamiliar and some of the propositions themselves may seem debatable. The rest of the text will be spent demonstrating the truth of each of these propositions as well as many others, so be patient.

Readers who diligently read this text will discover that in order to escape starvation and a barbaric struggle for survival, we must take advantage of social cooperation through the division of labor. The only way to be fruitful and multiply our offspring without facing starvation or developing a base survival-of-the-fittest mentality is to reap the benefits of greater productivity resulting from the division of labor. In order for a division of labor to exist, people must be able to exchange. As more and more people have the ability to exchange what they produce for other things that they want, they are increasingly able to concentrate on producing those goods at which they are most efficient. However, there are also obstacles to overcome as the division of labor expands.

An economy based on the division of labor is a very complex economy. There are multitudinous natural resources, capital goods, and labor skills that can be combined in a myriad of ways to produce a vast array of goods. Given this complexity, it is not an easy task to coordinate all of the various production projects or to decide how to use our land, labor, and capital goods in the least wasteful fashion.

Readers later will find that a method of calculating profit and loss is necessary for any complex economy to be fruitful and to prosper. Profit is the positive difference between the benefit of an action and the total cost of that action. There are a number of different uses toward which land, labor, and capital goods can be directed. All of these alternatives must be compared to one another if people are to know how best to fulfill their desire for goods. Such a grand comparison only can be made if alternatives somehow can be compared to a common denominator for assessing how useful each quantity of land, labor, and capital are in the different projects in which they could be used. Such comparisons can be accomplished only through the use of free market prices denominated in terms of money. With the development of money as the medium of exchange, all exchange ratios for all goods are expressed in terms of money.

Consequently, producers have a way to compare the market price of their final product with the sum of the prices of all their inputs for every potential investment project. Market prices provide an objective way to appraise the relative wants of people in society. Diligent readers of this text will find that while all economic goods are valued subjectively by individuals, these subjective values of the buyers and sellers are manifested in the objective exchange ratios for all traded goods. Hence, while value is subjective and cannot be measured, the money prices are the objective manifestations of value that are determined by and based on personal subjective value scales. Entrepreneurs, therefore, are able to make wise decisions by using market prices as the basis for calculating expected profits and losses so that they are able to direct factors of production toward making those products that people want the most.

Note the use of the term market prices in the paragraph above. Readers of this text will discover that in order for entrepreneurial calculation to be appropriate, the prices they use to count potential profits and losses must be prices arrived at in the market. Socialism is doomed to failure because there is no way for a central planner to efficiently allocate factors of production toward making those goods most in demand. In a socialist economy there is no private ownership of the means of production. The state owns it all. There can be, consequently, no real exchange of the means of production. If there is no real exchange, there can be no real market prices that are manifestations of people’s subjective value scales. Not only are there no market prices for consumers’ goods, more importantly, there are no real market prices for producers’ goods.

Without market prices of capital goods, there is no way for the central planner to compare the economic value of different materials and techniques that could be used to produce consumers’ goods. Managers would be without the ability to calculate the expected profit or loss of various production projects. They would be left, as Ludwig von Mises put it, groping about in the dark.² There is no way, then, for a central planner to rationally allocate resources which is the main reason why one sees so much absolute waste and subsequent poverty in a socialist economy.

Careful readers will discover that taking advantage of the division of labor requires the ability to exchange at prices voluntarily agreed upon by suppliers and demanders in a free market. Both of these requirements necessitate the existence of private property. People cannot exchange what they do not own. Additionally, only prices that result from people voluntarily trading their own property truly represent the relative value that they themselves place on different goods. So if we want to be fruitful and multiply and replenish the earth while we subdue it and if we want to be able to do this without killing one another, then we must maintain private property. Note, however, that the institution of private property is not simply a recommendation from economics. Private property is mandated by God as well.

Christians throughout history have recognized that when God commands us not to kill, not to steal, and not to covet, he is demanding that we recognize that there is a difference between what is mine and what is yours. Private property is not a mere human construct, but a divine right. Therefore, prosperity will generally be the result of obeying God on the issue of private property.

These conclusions and their further implications may strike some as rather radical, simplistic, plainly wrong, or even unchristian, but if one carefully reads and processes the following chapters, he should come to the same conclusions. Economic knowledge is gained by understanding that social regularities exist as a result of all people being made in the image of God. If we want to prosper by fulfilling God’s mandate to have dominion in a civilized world of peace, we dare not dismiss what economics has to say.

1. Hay, A Christian Critique of Socialism, 30.

2. Mises, Human Action, 696.

1

The Biblical Foundations of Economics

Perhaps the question adults ask each other more than any other when they first meet is, What do you do? When I respond, I’m an economist, more often than not, I get one of two requests. I either receive a feeble plea to help someone balance their checkbook, or I am asked to supply the inside scoop on what the stock market is going to do in the near future. Both of these requests belie ignorance regarding what is economics.

The term economics is itself derived from the Greek word oikonomikos which originally meant relating to household management. To the ancient Greek, then, economics really did involve balancing the checkbook, or at least keeping track of the family budget, closer to what we used to call home economics.

However, the body of knowledge we today call economics is a social science, not household management theory. It is social in that it focuses on interpersonal action. It concerns itself with people . . . who need people.

Economics is a science. A science is a systematic arrangement of the laws which God has established, so far as they have been discovered, of any department of human knowledge.¹ Economics is not just the regurgitation of singular, unrelated facts about how people behave. It is a body of thought that provides a number of principles that we can apply as we seek to answer important questions like, what will happen if we raise the minimum wage, decrease income taxes, put price controls on prescription drugs, or bail out insolvent mortgage companies.

A science involves the systematic arrangement of facts and truths. Science helps us make sense of the plethora of facts we experience, and by discovering the operation of general laws, science helps us arrive at true solutions to problems we face in the world. Note also that a science is not about arranging a body of opinions or suggestions, but a body of truths so that we show the operation of real laws that are in force in the world in which we live. When I was in college, I many times heard my friends sympathetic to the welfare state bemoan that while communism is great in theory, it is a pity that it does not work in practice. To the contrary, if a certain economic policy is bad in practice, it usually means that it is bad in theory. Not only did communism fail miserably in practice, it did so precisely because it is a failure theoretically. Austrian economists Ludwig von Mises and Frederick Hayek demonstrated the theoretical failure of socialism as far back as the 1920s and 1930s, but few wanted to listen.² Although they had ears to hear, they heard not. It took seventy years of economic stagnation, culminating in the fall of the Soviet Union, for many scholars to take a second look at the arguments of Mises and Hayek. The object of economics is to discover economic principles that are true, so that policies developed in light of those principles will be suitable for achieving our goals.

What Is Truth and How Do We Know It?

Almost two thousand years ago, a certain Roman governor of Judea asked the question, What is truth? An observer standing there could have been excused for replying, Truth is looking you right in the face. However, when most contemporary scientists (social or otherwise) ask the same question, they are usually not inquiring about the nature of Christ, but about the truths of the universe that Christ brought into being—whether scientists acknowledge the source of all truth or not.

So what is truth? The Oxford English Dictionary defines truth as Conformity with fact; agreement with reality. A statement is true then, if it is factually correct and if it agrees with reality. It is possible for a statement to be factually correct and yet be untrue. For example, I can usually illicit a goodly amount of sympathy by telling the story of my brief life in telemarketing. I begin by explaining how at one point in my life, after having resigned from the United States Bureau of Labor Statistics, I moved back to Iowa and found a job working as a telemarketer with a firm in Omaha, Nebraska. They were in desperate need for workers because of an account that was fabulously successful. The firm was taking credit card applications over the telephone for a card issuer in the Midwest. There was a huge response that caught the telemarketing firm off guard. I responded to an advertisement to work telemarketing at a wage that was $2.50 above the norm for that type of work. Well, it did not take long for the popularity of the credit card to run its course and the calls slowed down and the firm was forced to let some people go. Because I was one of the most recent hires, I was one of the earliest to be laid off. I was given the news one week before Christmas. By stopping the story here, I can usually generate sighs of Oh no! as well as a general sympathy with my cause. It also tends to go away as I tell them, as Paul Harvey might say, the rest of the story. It turns out that my getting laid off a week before Christmas was no big deal, because I was living with my parents, so I did not have to worry about paying for housing or food. Suddenly it becomes clear that what some selected facts seemed to indicate regarding my plight, turns out to be not the whole truth. Indeed, people can communicate things that are not true, while only relating facts that are correct. Therefore we must understand truth to be something that is factually correct and that also corresponds to reality. It is rather easy to define what truth is; it is a bit harder to establish how we know truth.

The discipline that seeks to answer the question, how do we know? is a branch of philosophy called epistemology. The word epistemology is derived from Greek and means the study of knowledge. About the time I get to this topic in the course I teach, I usually get at least one student who asks me why we go over this topic. After all, this is a book about economics, not philosophy. True enough. However, as you make your way through this book, you will find that several principles, such as the law of marginal utility, the law of comparative advantage, or the law of demand, are presented as economic truths. It seems to make sense to spend a little time up front examining just how, exactly, we do know anything, so that we can be sure that the law of demand really is a law instead of some opinion of demand dreamt up by another ivory tower sophist. Besides, the word epistemology is good to toss into your vocabulary when your parents ask you what they are teaching you at college. This is especially good if it is their hard-earned money that is paying your tuition.

Throughout the history of philosophy there have been generally four schools of thought regarding how we know. The first theory of epistemology we will examine is skepticism. Actually, skepticism is more like the anti-epistemology. When people think of someone who is a skeptic, they usually think of someone who doubts something, such as someone doubting whether our politicians always tell the truth. A philosophical skeptic is a little different. The fundamental proposition of skepticism is that knowledge is impossible. You may have heard it put this way: there are no absolute truths. It is fairly easy to spot the problem with this theory of knowledge. The claim that knowledge is impossible implies that we at least know that knowledge is impossible. There are no absolute truths, he said absolutely. Consequently, skepticism is internally inconsistent and, therefore, cannot possibly be true. If it is true then it is false.

Another closely related theory of knowledge is relativism. Relativists do not claim that truth does not exist, but that different people, different groups, or different cultures have different truths, all of them equally true. Many advocates of multiculturalism hold this view. Contemporary American philosopher Richard Rorty also argued that truth is relative to its cultural setting. In this sense, truth is what your peers let you get away with saying. Like skepticism, however, relativism falls quickly flat on its own propositions. Notice, for example, that the claim that truth is relative to different people, groups, or cultures, is a universal claim. It is always asserted absolutely, as if it applies to everyone. The relativist asserts the proposition that for all people, groups, and cultures, it is true that all people, groups, and cultures have their different truths that are all equally true. But if this proposition truly applies to everyone, everywhere, in every culture, it contradicts what is being asserted. If this proposition is indeed true for all people, groups, and cultures, then at least one truth is not relative. Again, if relativism is true, then it is false.

A third theory that attempts to explain how we know truth is empiricism. At some point in your education, you may have heard something referred to as empirical. If knowledge is empirical, that means it is based on experience. Empiricism claims that knowledge is only the result of experience. Note that it does not argue that we learn some things by experience, but that all knowledge is the result of experience. British philosophers John Locke and David Hume were in this camp, as well as a lot of modern scientists. Empiricists are rather like intellectual Joe Fridays imploring, Just the facts, ma’am.

Empiricists have argued that at birth our minds are merely blank slates upon which our experience impresses ideas, and these ideas are the source of all of our knowledge. These ideas are the result of sense experience and inner experience. Ideas of sense experience are what one would expect: sensations like red, hot, spicy, and fuzzy. We know the bacon has burned by smelling the odor of rancid charred pork. Physical scientists use their sight to gain knowledge when looking at their various measurement instruments. You can learn whether it is a hot and muggy day by going outside and feeling the moisture and heat in the air. People learn musical technique largely through hearing sounds coming from their voices or instruments.

People can also learn by their sense of taste. The truism that appearances can be deceiving was brought home to me very clear while a student in college. One day while making my way down the cafeteria food line, I spotted a delicious looking bowl of vanilla pudding waiting for me like gold at the end of the rainbow. Filled with gastronomical joy, I placed a bowl on my tray and thought of the culinary delight that awaited me as I consumed my salad, overdone green beans, and patty melt. Imagine my shock, then, as I passed that first dollop of the pale yellow pudding into my mouth, only to be made dreadfully aware that the pudding I had been longing for was not vanilla after all, but lemon! What a sour tang abused my taste buds and proceeded to travel about my mouth. You know, the kind that makes your teeth hurt. It was my sense of taste that brought home the fact that what looks like vanilla can actually be lemon. In other words, appearances can be deceiving.

Ideas of inner experience come as we reflect on our sense experience. We use our mind to undergo mental operations such as thinking, perceiving, and doubting. By using both ideas of sensation and ideas of reflection, it is argued, we derive ideas of relation. We can combine the ideas of spicy, red, and wet to form the idea of Louisiana hot sauce. We can consider Louisiana hot sauce, mustard, ketchup, horseradish, pickle relish, and Tabasco sauce to form the concept of condiment.

Empiricism is an improvement over skepticism and relativism in that it does not assert that there is no truth, or that different cultures have different truths that are all equally true. Empiricism does not immediately descend into self-contradiction. However, it does have its own problems that leave it wanting as a valid epistemology. Remember that empiricism does not argue that some knowledge is the result of experience. Empiricists argue that all knowledge that can be known is the result of experience. Ah, as Hamlet would say, there’s the rub.

When an empiricist makes the claim that we can only know if something is true based on experience, one is tempted to ask him, where is your data? The only way empiricists could make such a universal claim, based on their own epistemology, would be if they had actually experienced all of the facts in the universe. No one has done that, so using their own epistemology, empiricists do not have enough knowledge to know whether their claim is true or not.

In fact, there are several truths that are not based on experience. Our knowledge of time, for example, is not the result of an image of time being impressed upon our minds. The concept of time does not stem from our experiences, but we use this concept to make sense of our experience. We understand experiences as occurring sooner and later because we use the already present concept of time to interpret our experience.

Neither are the truths of geometry and arithmetic based on our experience. Mathematicians do not go about measuring triangles to demonstrate the principles of Euclidean geometry. Even when teachers instruct children in principles of addition by taking two pennies and combining them with two more pennies to make four, such instruction relies on the children already possessing knowledge of numbers. He cannot count pennies from one to four until after he knows how to count numbers.

Additionally, the empiricist cannot logically accept the notion of causality. Causality can never be observed by our senses; only correlation can. For example, economics teaches that if the price of tea in China decreases, people will desire to buy a larger quantity of tea than they were willing to before the price drop. Empiricists cannot explain this cause and effect relationship because at most all they have to go on is data that tell them in the past higher prices for tea in China were correlated with decreases in the quantity bought. The cause and effect relationship known as the law of demand is not something that is known to be true through our sense experience, because causation is not understood through our senses. It is a logical concept that we use to make sense of our experience.

On top of that, there is no way for an empiricist to know whether the observed correlation will continue into the future even one day, let alone for all time. If all knowledge is based on experience, nothing can validly be said about the future, because we have not experienced it yet. Experience is always experience of the past.

While experience, by itself, can never provide us with universal principles—such as that of causation—that are true for all time, entire disciplines require such universal principles. Physics, mathematics, and economics, for example, all require necessary and universal judgments about the world that are always true. If I dropped a ball yesterday and it fell to the ground yesterday yet drop that same ball tomorrow and anything can happen, then the law of gravity is not really a natural law. Rather, it is merely a description of what has happened in history. In order to discover the sort of universal laws of physics and economics, empiricism does not suffice.

None of the above should be taken to mean that we can learn nothing from empirical studies. Indeed, there is much to be learned from empirical analysis in its proper place. This chapter is focused, however, not on usefulness, but on foundations. Although we can learn true knowledge by using the experience of history, we cannot base the truthfulness of truth only on experience.

The theory of epistemology that we have left then is that of some kind of apriorism. The root word prior gives us a hint regarding the meaning of apriorism. Prior means before. Apriorism argues that in order for us to gain knowledge, there is something that is logically prior to empirical facts. Apriorists recognize that our mind imposes unity on experiences by applying innate mental categories in classifying and judging our experience. Our minds are not blank slates scribbled upon by atomistic facts. Our mind makes sense of our experience by organizing and judging the facts we encounter.

The laws of logic by which we think and analyze our experience are not derived from the facts, but are instead used to make sense of the facts. For example, the truth that if A is greater than B and B is greater than C, then A is greater than C is not something derived from experience. This truth—the principle of transitivity—is a logical law with which our minds are equipped that allows us to make sense of the many facts that come our way every day.

The most famous of all apriorists is probably Immanuel Kant (1724–1804), a German philosopher. He believed that we do learn by experience, but only because we can make sense of it. He argued that we can only make sense of our experience because we possess a priori categories of thought, such as logic, unity, space, and causality. Further, he thought that these a priori categories that we use to make sense of our experience are subjective aptitudes. That is, Kant believed that everyone has personal categories of thought that are known by intuition. These subjective categories introduce order into our sensory data by the mind alone. However, Kant could not get past the supposition that these mental categories do not necessarily allow us to perceive truth, but only dictate how we must think about things. For instance, Kant would have to admit that, based on his theory, perhaps there really is no causality in the world, and that it only seems like there is because our minds are programmed to think that way. I cannot say that a drop in the price of tea in China caused an increase in the quantity of tea demanded in China, only that it is impossible for me to think otherwise. An order is impressed upon our experience, but the world as it really is remains unknowable.

A Better Way

You may recognize that Kant’s problem leads us back to relativism and skepticism. Your categories could be true for you and mine could be true for me and never the two necessarily have to meet. So our trek through various epistemologies seemingly has led us nowhere. Take heart. We need not despair. What if we do have mental categories but our categories are implanted in us by a Creator, and what if he has fashioned both our mind and the world so that they harmonize? This is the idea we get from God’s revelation given in the Bible.

This approach is a biblical apriorism. It begins with God’s revelation in both his creation and his written word. Christians believe first and foremost that God is. He exists. Additionally, as Francis Schaeffer aptly titled his important book, He Is There and He Is Not Silent. God has spoken to us by revealing in his word absolute truth. This truth is not necessarily exhaustive, but it is absolute.

What truths has God communicated to us in the Bible? God created and actively sustains the universe. The very first verse of the first book in the Bible teaches, In the beginning, God created the heavens and the earth (Gen. 1:1). God created all there is. This includes time, space, the facts of science, and the human mind.

However, God tells us not only that he created all there is, but that he also actively sustains all there is. In the letter to the Colossians Paul tells us, For by him (Christ) all things were created, in heaven and on earth, visible and invisible, whether thrones or dominions or rulers or authorities—all things were created through him and for him. And he is before all things, and in him all things hold together (Col. 1:16–17). The phrase hold together in the Greek implies that all things continue and cohere. In Hebrews 1:3 we are told that Christ upholds the universe by the word of his power. Not only did Christ create all there is, but he is right now, even as you read this text, holding everything together. The atoms that make up the pages of this book are actually moving and vibrating very fast. It is God’s providence that keeps all of those atoms from exploding. God is personally involved with his creation; he is not some sort of divine watchmaker that spun the universe up and just let it run.

Additionally, we see that God created this universe with order and purpose. In Genesis 1:14–16 we read the account of God making the sun, moon, and stars. God explicitly states that these lights were made to serve specific purposes. In verse 14 God says that they were made to be for signs and seasons, and for days and years. God causes the moon, stars, and planets to move in such a way to produce regular seasons, days, and years. In verse 15 he tells us that their purpose is to be for lights in the expanse of the heavens to give light upon the earth. The things that God has created exist for a purpose and exhibit regularity. In Genesis 1:20–25 God tells us that he made everything to reproduce after its own kind. A horse does not give birth to a pig which gives birth to a monkey which gives birth to a rhinoceros. All living creatures were brought forth according to their kinds and reproduce accordingly.

The regularity with which God providentially upholds nature is so recognizable that God uses the constancy of natural laws as evidence that we can trust his covenantal word. Speaking of God’s eternal covenant with David, this word of the Lord came to the prophet Jeremiah: Thus says the Lord: If you can break my covenant with the day and my covenant with the night, so that day and night will not come at their appointed time, then also my covenant with David my servant may be broken, so that he shall not have a son to reign on his throne, and my covenant with the Levitical priests my ministers (Jer. 33:20–21). Here we see that the regularity of day and night is God’s covenant. It is God who ensures that day will follow night and night follow day. We also find that God treats the recurrence of day and night as part of a natural law that transcends humanity. Finally, God uses the certainty of the pattern of day and night as reason to believe that God will keep a son of David on the throne.

We find similar usage of natural regularities in the Psalms. Truthfulness and faithfulness of God’s word is attested to by the stability and endurance of creation (Psalm 119:89–90). The unfailing process of nature serves as token of the certainty of the enduring rule of Christ in his kingdom (Psalm 72:5–7, 17). God’s covenant is as certain as the regular appearance of the moon (Psalm 89:34–37).

So the Bible affirms there is a purpose and orderliness to creation. Without such orderliness, it would be impossible to have any sort of science. There could be no scientific laws. All would be chaos. Because God created a universe with order and purpose, however, we can undertake science. We can observe natural and social regularities. We can use concepts of cause and effect to derive scientific laws.

Why do we think we have the mental ability to discover scientific laws? The Christian doctrine of man can help us here. The Christian view of man begins with the fact that man is created by God in his image. We understand more about the nature of man, then, as we understand more about the image of God. Christians understand the image of God to mean God’s likeness. In other words, man is God’s replica on earth. God created man as a reasonable and immortal soul endued with knowledge, righteousness, and true holiness, after his own image.³ If man is God’s replica, then we can learn about the nature of man by examining the attributes of God.

For the purposes of the subject of economics, it is sufficient to stress only a few characteristics of God as revealed in the Bible. One is that God thinks. In Isaiah 55:8–10 God tells us that his thoughts are not our thoughts, but are higher than man’s thoughts. Now obviously God’s thoughts could not be higher than our thoughts unless he actually has them. Therefore we know that God thinks. Note that this passage also affirms that both God and man think. In Jeremiah 29:11, God tells us that he has thoughts of peace toward his people.

Additionally God reveals to us that he is a rational being. When calling Judah back to himself, through the preaching of the prophet Isaiah we read , Come now, let us reason together, says the Lord: though your sins are like scarlet, they shall be as white as snow; though they are red like crimson, they shall become like wool (Isaiah 1:18). God wants us to engage in a reasoned discussion with him during which we consider the rational propositions that he makes about himself and us.

Christian doctrine also teaches that God is omniscient. He knows everything. If God knows everything, he must think thoughts and engage in cognition. As a being created in God’s image, man possesses mental faculties he can use to know things. God fit us with minds that exhibit mental categories reflecting his image and with these mental categories, we are able to perceive reality because the same Creator made the world so that it harmonizes with our mental categories.

Obviously, there are important differences between us and God. In the first place, while God is infinite, we are his finite creatures. Therefore, we do not have exhaustive knowledge. We can, however, know some knowledge and the knowledge that we are capable of knowing we can know with certainty. The apostle John, for example, wrote in his first letter, I write these things to you who believe in the name of the Son of God that you may know that you have eternal life (1 John 5:13).

We also suffer from the consequences of the fall. Man’s mind has been corrupted since the fall, but we can still know things. We do not think perfectly, but we still think. Our world still reflects God’s orderly being and is therefore coherent. Consequently, we are able to use our mind to investigate God’s orderly creation to discover certain regularities in what God has made. We are not perfect and we make mistakes, including mental errors. We do not, however, always make mistakes. In his letter to Titus the apostle Paul approvingly quotes a Cretan poet who wrote ‘Cretans are always liars, evil beasts, lazy gluttons.’ This testimony is true (Titus 1:12–13). Here Paul is affirming the general observation of an unregenerate writer.

The Christian View of Man as Rational Actor

In economics, the object of our study is man. Therefore, the Christian view of man not only instructs us regarding the possibility of perceiving truth and pursuing scientific discovery. The Bible also provides information that helps guide us to the foundation of economic science.

The Bible characterizes man as a creature who engages in action, that is, purposeful behavior. We again see this by considering the doctrine of man being created in God’s image. It has been explained above that God thinks and man also thinks.

There are other characteristics of God that, furthermore, indicate that man is a being who undertakes action. God does not only think. He plans. In Ephesians Paul says of believers that even as he [God] chose us in him before the foundation of the world, that we should be holy and blameless before him. In love he predestined us for adoption through Jesus Christ, according to the purpose of his will, to the praise of his glorious grace, with which he has blessed us in the Beloved (Eph. 1:4–6). Among other things, this tells us that God planned for the salvation of lost sinners before the foundation of the world. God plans.

Scripture likewise affirms that, not only does God think, but he acts as well. Within only the first four verses of Genesis, we learn that God created (v. 1), spoke (v. 3), and separated (v. 4). All of these are actions. The Bible also describes the actions of God in the framework of choice. Isaiah 14:1 is only one verse among many that explains that God chose Israel as his people from all possible alternative races. As already noted, Genesis 1:14–17 reveals that God specifically acts with a purpose. God created the sun, moon, and stars with specific ends in mind.

Because God thinks and acts with purpose and because man is made in the image of God, it is reasonable to conclude that man is able to think and act with purpose. It can be inferred, then, that a very important part of the image of God is reason: the ability to think rationally in terms of cause and effect.

Furthermore, the Bible explicitly characterizes man as one who reasons. Throughout the Bible, God deals with man in a rational manner. As we have already mentioned, when calling to man that we should follow him, God implores in Isaiah 1:18, Come now, and let us reason together. God appeals to our reason and expects us to make the reasonable choice based on the facts as God reveals them. In Matthew we find the instance when Jesus was warning against the doctrine of the Pharisees and Sadducees. He couched his warning in figurative language, warning the twelve against the leaven of the religious leaders. When the disciples did not understand and were puzzled over Jesus’ figurative language, Jesus says to them O ye of little faith, why reason ye among yourselves? (Matt. 16:8 KJV). The Greek word translated as reason, dialogizomai, from which we get our English word dialogue, means to reckon thoroughly and is rendered elsewhere in Scripture as consider, muse, and think. Jesus, then, indicates that man is a being who uses his mind to rationally contemplate questions.

From the Biblical doctrine of creation then, we arrive at a number of conclusions relevant for economics. One is that we can discover natural and social regularities. Because God’s creation is orderly and because God created us in his image with the ability to think and know, we have the ability to perceive creation and its regularities. Natural and physical regularities we refer to as natural and physical laws—such as the law of gravity. However, because part of bearing the image of God includes acting with a purpose, we can discover social regularities, some of which are economic laws concerning human action—such as the law of marginal utility and the law of demand.

We do not, therefore, believe the teachings of economics because many people in Western Civilization have believed them, although they have. We do not believe the teachings of economics because experience verifies the truth of economics, although it does. We do not even believe the teachings of economics because all humans have rational minds which allow us to understand that humans act purposefully, although we all do have minds fit for rational thought. We believe the truths of economics because God has created us in his image with the ability to know and perceive truth and one of these truths communicated to us in his creation and his Word is that, like God, we act with a purpose.

As mentioned, economics is a social science and, therefore, studies how humans engage in social (i.e. interpersonal) activity. All of this interpersonal activity is not merely behavior. Being made in God’s image, humans act with purpose. Therefore, all sound economics begins with the axiom that humans act. It is this doorway that opens up into the wonderful world of economics.

Suggestions for Further Reading

Clark, Gordon H. A Christian View of Men and Things, Chapter VII, Epistemology, 285–325. An excellent and thorough survey of the various schools of epistemological thought from a Christian perspective. Clark concludes that a consistent epistemology must begin by presupposing the truth of the Bible as God’s Word. This chapter’s discussion of epistemology draws heavily on Clark.

———. Thales to Dewey. This is Clark’s textbook history of philosophy focusing on questions relating to the issue of knowledge. An excellent place to begin if one is interested in the history of philosophy from a Christian point of view.

Jaki, Stanley L., The Savior of Science. An impressive explanation of the importance of Christian faith and doctrine for the development and progress of science in Western Europe during the High Middle Ages.

North, Gary, The Dominion Covenant, 1–26. Chapters 1 and 2 of this book provide a good explanation of the importance of the doctrine of creation for all science in general and economics in particular.

1. Wayland, The Elements of Political Economy, 15.

2. See the articles collected in Hayek, Collectivist Economic Planning. See also Mises, Ludwig von, Socialism.

3. Westminster Confession of Faith, Chapter IV, Section II.

2

General Principles of Human Action

As stated in the previous chapter, economics is a social science. Economics is not a bunch of unrelated facts mined from years and years of data spewed out by academics and government statisticians alike. A science involves systematically arranging facts and deriving general laws. Isaac Watts, the hymn writer, pastor, and logician, described science as a whole body of regular or methodical observations or propositions . . . concerning any subject of speculation. ¹ In order for any science to yield valid conclusions, it must proceed using a valid method. Our next question to consider is what is the proper method of economics?

There have been three general approaches to economics as a social science throughout history. One approach is to follow the method used in the biological sciences. A number of economists have argued that the economy is like a living organism that is constantly adapting to change over time. Consequently, to discover economic laws, economists should do empirical studies.

Ideally, this would involve performing controlled experiments like those done by biologists and botanists. In the 1990s, for example, NASA was conducting a number of studies designed to find out which plants would grow well in space. NASA is interested in eventually forming space colonies in the future on places like Mars. One of the requirements for journeying to such faraway places is food. It makes no sense to send people to colonize Mars if they die of starvation before they get there. On the other hand, including enough food on board a shuttle to feed all of the passengers for a trip as long as the one to Mars would make the vessel so heavy that the chance of getting it beyond the earth’s atmosphere is rather slim. A suggested solution is taking the seeds of plants that can be used to grow food instead of the food itself. That way food can be grown as needed without requiring so much weight.

A question that presented itself to NASA researchers was which type of food would be the best to grow in space. Which plant could grow relatively quickly and provide the most essential nutrients with the least amount of weight? One of their winners, it turns out, is the sweet potato. NASA set out studying the growth patterns of sweet potatoes, investigating what is the optimal amount of nitrogen to add to the soil to provide the best, most nutrient-packed, fastest growing sweet potato.

How do you think they attempted to discover this? Well, you might think they simply varied different levels of nitrogen added to different sweet potato plant beds and measured their growth rates and nutrient levels, and you’d be right. However, this is not the whole story. Many other factors also play a role in sweet potato development. Soil quality, the amount of water each plant gets, the amount of sunlight exposure, and the type of sweet potato seed that is planted all will affect growth and quality. Consequently, in order to isolate only the effects of different nitrogen levels on sweet potato growth, NASA researchers had to perform controlled experiments. That is, they had had to keep everything besides the nitrogen levels the same. They planted the same seeds in the same soil and gave them the same water and light, and then varied only their nitrogen levels to decide which amount was best for maximum sweet potato production.

Now, that works well for sweet potatoes, because the NASA biologists can control for all of the other variables. Let’s consider economics, however. Remember that economics is a social science. Its object of study is people engaging in interpersonal action. Where do people actually interact with one another? Everywhere there are people, of course. That means that the whole world would have to be our test tube or Petri dish. How easy would it be for an economist to control for every variable in the real world? Not very. In fact, it is impossible.

Human action does not occur in a rarified laboratory in a controlled environment. There is no way for us to observe how people react to a change in one variable, say their income, if all other things were held constant, because those other things are never constant. The only economic data we possess is the result of actions that have already taken place, and every action is always the result of a composite of unique factors. Action is always undertaken by particular people with particular values at particular times in particular circumstances.

For example, you may think that a lot of people go to the movies these days. You would be right. In 2007 there were approximately twenty-seven million movie tickets sold in the United States each week. You might be surprised to know, however, that twenty-seven million per week is not even close to how many tickets were sold in an average week in the 1940s. Motion picture theater attendance in the United States peaked in 1948 when on average 90 million tickets were sold every week for an average price of 36 cents per ticket. Because of inflation (about which you will learn more later) 36 cents could buy a lot more in 1948 than it can now. In 2007 people had to pay about $3.10 to buy what in 1948 cost 36 cents. If we lowered all movie ticket prices today to $3.10 would movie attendance increase to 90 million per week? It is doubtful. There are so many more outlets for video entertainment today compared to 1948. Television is, of course widespread. We have DVD players, pay-per-view satellite networks, and internet sites that provide movies via streaming video. All of these allow us to watch films in the privacy of our own homes. There are a myriad of video games we can play as well. The point is that the people who bought movie tickets in 1948 were people who lived at a particular time, with particular incomes, with particular tastes, and particular alternatives for video entertainment. These particulars can never be exactly duplicated and can never be held constant. One cannot do economics the same way botanists study growth rates of sweet potatoes.

Another problem with the biological approach, which is based on empiricism, is that the data used in the attempt to discover economic laws is always data of past economic activity. You will remember from the last chapter that this exclusive focus on experience is a major deficiency with the empirical approach to epistemology. Such a focus is also very problematic for economics.

Because economics is the study of the actions of living, thinking human beings, we cannot assume that human behavior that was observed under past conditions will be repeated exactly. Conditions are always changing. Even if we are able to reproduce exactly those conditions, however, we still could not assume that people would do exactly the same thing. This is because, unlike sweet potatoes that cannot refuse to grow if placed in the correct environment, humans are not merely biological