Principles and Consequences

In the last lesson, we discussed that one particular aspect of market economies, profit motive, is often a source of controversy. Activists blame greedy companies for a host of societal problems, from pollution to poverty. And these activists aren't necessarily wrong. If left unchecked, greed leads to ethical failures that reap devastating consequences. Does this mean we should abandon market economies and adopt a command economic system instead? Let's take a biblical approach to this question.

Biblical Economic Theory

Because we know that humans are greedy, our economic systems must also take this into account. Until recent years, economics was connected in very clear ways to Christian thought. Thomas Aquinas covered the topic in Summa Theologica, discussing what to do about poverty and how to determine a fair price. Three centuries later, during the Protestant Reformation, John Calvin devoted whole sections of Institutes of the Christian Religion to discussing economics and government.

As the founders of the United States formed the nation's government and economic systems, they applied these principles to the institutions they created. The Bible deals quite a bit with economic concerns—just look at Proverbs and many of Jesus' parables. In those passages, we are taught how Christians should handle their finances, view wealth, and apply a biblical worldview to making economic decisions.

A biblical worldview leads us to understand that humans are created in God's image as rational beings who are able to control their environment, including the economic systems under which they live. We also know that humans are fallen and inherently sinful. Because of that, they will often be greedy and selfish, and they will often try to take advantage of any situation in order to satisfy their own desires. When the world is viewed in this way, it becomes clear that there is a need to protect society from the effects of humanity's sinful nature.

Because those who adhere to a biblical worldview of economics see the problems with Utopian economic theories, they generally reject Marxist systems such as communism and socialism. Systems such as these rely on a flawed view of humanity: that humans are generally good, but they are made evil by society's bad influence. Change society, they say, and humans will become better versions of themselves.

Of course, these Marxist ideas run directly contrary to biblical teaching, which says that humans are sinful and should be changed on the inside. Then, as they bear the fruit of the Spirit, the world will improve as a result. Understanding this difference can help us make more informed economic decisions in both public and private matters. When we begin with the understanding of what God says about human nature, we can build governmental and economic systems that allow humans to reach their full potential, while at the same time limiting the negative effects of their sinful nature.

Because we know that humans are inherently selfish, we know that command economic systems that rely on all citizens working together for the common good are doomed to fail. Only when there is a worthwhile reward (a profit motive) will humans consistently put forth the effort to be as efficient as possible. The market economic system uses humanity's own self-interest to improve efficiency and collectively increase everyone's standard of living. At the same time, society must be protected from those who will inevitably abuse the system. This is where the limited government role as regulator and protector comes into play. This is a delicate balance in market economies—on one hand, using humanity's inherent selfishness to increase society's standard of living, and on the other hand, protecting society when an individual's greed goes too far.

Unintended Consequences

Although greed leads some individuals to intentionally break rules, many negative consequences are completely unintended. People make decisions and governments make policies that may have great intentions, but sometimes those decisions and policies have completely unexpected results. For instance, old tires were used to build reefs that would attract fish off the coast of Florida. However, as the tires began to disintegrate over time, they began to pollute the water and had to be removed.

You might call this the economic law of unintended consequences. We should understand the scientific principle that every action has an equal and opposite reaction, and this can be applied in some way to our economic thinking. The reaction may not always be "equal and opposite," but every action brings a reaction. The direct effects that we seek to produce when making economic decisions are only part of this reaction. These are generally apparent fairly quickly following an action. It is the indirect, unintended effects that materialize over time that can be very different from the direct, intended effects. Choices made by individuals, firms, or government officials often have long-term consequences that can partially or entirely offset the initial effects of their decisions and policies. People make decisions and governments make policies that sometimes have completely unexpected results called unintended consequences. A good economist (or any wise thinker) makes choices that consider both the immediate and the secondary effects of a decision.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

Frédéric Bastiat (1801–1850), French economist¹

Frédéric Bastiat (1801–1850), French economist¹

Just because we live in an economic system that takes into account humanity's inherent selfishness does not give us license to be selfish. An understanding of man's sinful nature doesn't mean we should condone man's sin. In our own individual lives, we should make economic choices not just for the sake of our own benefit, but to benefit those around us and to advance the Kingdom of God.