God is a Capitalist

by Roger McKinney

  Investors need to follow the business cycle in order to time investments. As with business owners, investors need to do most of their buying in the stock market and real estate market during recessions and the early phases of expansions. As the expansion ages, investors need to quit buying, or buy bonds, and consider selling real estate and stocks in favor of cash, gold/silver, or bonds while they wait for the next crash. Asset markets, especially the stock market, follow the business cycle closely because profits drive the prices of stocks and profits follow the cycle.

  Inequality

  There has never been a period in recorded history in which people did not dream of a past golden age when all people were equal in wealth and there was no crime or war. Mises quoted the ancient poet Ovid in his book Socialism who expressed such a vision:

  The first golden age flourished, which begat truth and justice spontaneously; No laws of formal guarantees were needed. Punishment and fear were unheard of; no savage, restrictive decrees were carved on bronze tablets.

  Plato portrayed such a society in his Republic: all material wealth as well as wives was shared equally. The great goal of socialism has been to reduce inequality, but as shown in chapter 2, inequality has always been highest in socialist countries because the people at the top of the socialist parties live like emperors while the masses wallow in terrible poverty. Socialism is nothing but a return to what Nobel Prize-winning economist Douglass North described as the traditional, closed society in which a political elite enjoys great wealth while keeping the masses poor but equal.

  Equality of wealth might have lasted in the Garden of Eden had Adam and Eve not rebelled and been forced out. But other than that period, mankind has never known a period of equality of wealth because it is impossible as long as people have different abilities. Socialists are loath to admit it, but smarter people will always be richer than average even in a society without crime, fraud or theft. But in a world of fallen people with a tendency toward evil, people who are willing to steal, murder and defraud others will become rich along with the smart ones.

  A Biblical society, such as that established in the Torah, will minimize the wealth that wicked people can gain while giving the smarter people, those gifted in business, and hard workers the opportunity to reap the rewards of their efforts. Then those who achieve wealth will help the less fortunate through voluntary charity. That is not a vision of a utopia, but a realistic one of what mankind can actually achieve. Capitalism and classical liberalism never promised equality of wealth, but only equality before the law. The Bible never insists on equality in wealth, either, but on equality before the law because every human being stands equal before God. As Siedentop wrote in Inventing the Individual, equality before God gave birth to Western individualism without which capitalism would have been impossible.

  Inequality before the advent of capitalism was high because of the nature of traditional societies that allowed an elite political group to extract wealth from the masses. Capitalism reduced extreme inequality for the first time in human history. Chapter 4 quoted Nobel Prize-winning economist Robert Fogel writing that Great Britain cut inequality in half from the beginning of the eighteenth century until the middle of the twentieth century. The United States accomplished similar reductions until roughly 1970.

  Inequality in the West has been rising for the past generation. But we need to distinguish between natural and unnatural inequality in order to be wise and Biblical about it. Natural inequality results from the fact that people have different abilities. Some have a greater ability to serve others and thereby make money through their higher intelligence, education, hard work, business insight or other traits. Older people will have much more wealth than younger ones because of their greater experience and the length of time they have worked and saved. Married couples, if both work, will have greater wealth than single mothers. Citizens will have more than recent poor immigrants. As long as wealthy people accumulate their wealth legally and morally, Christians should encourage them.

  However, some means of achieving wealth are legal though immoral and unnatural. As mentioned in the section above on money, those who receive first the new money minted by the Federal Reserve benefit unfairly since they can purchase assets before prices rise. That inflationary process produces unnatural inequality because a quasi-governmental agency is giving preference to a few banks and failing to treat all citizens equally. The odd thing is that mainstream economists assume that new money reaches all of the people at the same time as if the Fed had literally printed new money and dropped it from helicopters over the entire nation at the same time. Austrian economics teaches the real process in which the Fed makes loans to preferred large banks first who then loan the funds to other banks or large corporations. As a result, the employees, and especially upper management, at those banks earn much higher salaries than their counterparts in other industries. Earning higher salaries and buying assets before prices rise in the expansion phase of the business cycle helps them to accumulate much more wealth than others because of their government connections.

  Another way that unnatural inequality grows is through what economists call rent seeking, an issue addressed above under the subtitle of “Christian government.” Rent seeking happens when businesses use their contacts in government to get regulations passed to favor their business at the expense of others. This happens in many forms, all of which are legal, and include subsidies for exports as happens with the Import-Export Bank; tariffs and quotas on imports; regulations that punish small competitors as occurs through regulatory capture; and campaign contributions that persuade Congressmen to direct government business to companies owned by contributors. One economist has estimated that the return on campaign contributions from corporations is about 2,000 percent.

  Take one example of rent seeking, import quotas on sugar. A generation ago U.S. sugar beet growers suffered from competition from cheaper imports, so they lobbied Congress for protection. Major agricultural business that grew corn joined them in persuading Congress to restrict the importation of sugar through quotas. The resulting shortage of sugar motivated food makers to turn to cheaper corn syrup as a sweetener. Corn and sugar beet growers benefitted at the expense of food makers and consumers who had to pay more for products containing sugar or settle for corn syrup.

  Schoeck emphasized that the obsession with equality of material possessions is one of the hallmarks of envy. Of course, Christians do not want to participate in envy or encourage it, so we should not embrace any policies that merely punish the wealthy and insist on forced income redistribution. At the same time Christians should encourage charity, and we should fight against unnatural inequality that violates the principle of equality before the law.

  Progressive taxation

  Many people had promoted progressive taxation, in which the wealthy pay a higher rate in taxes, from the beginning of the United States, but Congress rejected the idea on the moral grounds that the government must treat all citizens alike, emphasizing the Christian notion of equality before the law. No one succeeded in defeating the moral argument, but after World War I, people simply ignored it and progressive taxation became the law.

  Thomas Piketty, a French socialist economist who wrote the bestselling economics book of 2014, Capital in the Twenty-First Century, provides damning evidence of the envy motive behind the demand for equality of income: “A rate of 80 percent applied to incomes above $500,000 or $1 million a year would not bring the government much in the way of revenue, because it would quickly fulfill its objective: to drastically reduce remuneration at this level,” and, “The primary purpose of the capital tax is not to finance the social state but to regulate capitalism.” Piketty reads no differently than the peasant without a goat in the old Eastern European tale recounted in chapter 2 in which the peasant demands that the angel kill his neighbor’s goat instead of giving the peasant one. But Piketty’s greatest sin, especially since he holds an advanced degree in economics, is his resurrecting and par
ading as new the ancient notion that wealth is limited so the wealthy can have gained their wealth only at the expense of workers.

  The rich should pay more taxes in absolute dollars, than others because one of the primary reasons for the existence of government is the protection of property, and to whom much is given much is required. But the rich will pay more in taxes than the middle class or poor, even with a flat tax. For a crude example, consider two people, one earning $100 million per year and the other earning $10,000. With a 10 percent flat tax, the rich guy will pay $10 million in taxes and the poor guy will pay $1,000.

  The Torah government did not treat rich people differently from the poor. The rich paid the same 10 percent tithe, or a flat tax, just like everyone else. In fact, Moses commanded, “You shall do no injustice in court. You shall not be partial to the poor or defer to the great, but in righteousness shall you judge your neighbor, (Leviticus 19:15), and “nor shall you be partial to a poor man in his lawsuit,” (Exodus 23:3).

  Christians can never embrace an immoral policy such as progressive taxation.

  Libertarianism and conservatism

  If Christians cannot be socialists because the principles of socialism contradict Biblical principles, should they become libertarians or conservatives? My answer is neither, for the following reasons. Friedrich Hayek outlined the differences between conservatives and classical liberals in the chapter “Why I Am Not a Conservative” of his book The Constitution of Liberty published in 1960. Hayek had in mind the conservatism of the U.K., his adopted home, which differs from that found in the U.S. Still, the similarities are worrisome. For example, Hayek complained about the tendency of conservatives to compromise too easily with socialists:

  But, as the socialists have for a long time been able to pull harder, the conservatives have tended to follow the socialist rather than the liberal direction and have adopted at appropriate intervals of time those ideas made respectable by radical propaganda. It has been regularly the conservatives who have compromised with socialism and stolen its thunder.

  We have witnessed conservatives in the U.S. practice something similar. Socialists, under the names of liberals or progressives or others, continually press for small changes toward greater socialism, usually taking advantage of a temporary crisis that the state has caused through its intervention in the economy. Both the socialists and conservatives flee to the state to rescue the nation from the crisis and so promote greater state control of the economy. Conservatives then defend the status quo as if they had arrived at it through a plan of their own. Another point of irritation for Hayek was the conservative love of a powerful state:

  Let me return, however, to the main point, which is the characteristic complacency of the conservative toward the action of established authority and his prime concern that this authority be not weakened rather than that its power be kept within bounds. This is difficult to reconcile with the preservation of liberty. In general, it can probably be said that the conservative does not object to coercion or arbitrary power so long as it is used for what he regards as the right purposes. He believes that if government is in the hands of decent men, it ought not to be too much restricted by rigid rules. Since he is essentially opportunist and lacks principles, his main hope must be that the wise and the good will rule - not merely by example, as we all must wish, but by authority given to them and enforced by them. Like the socialist, he is less concerned with the problem of how the powers of government should be limited than with that of who wields them; and, like the socialist, he regards himself as entitled to force the value he holds on other people.

  For example, conservatives want to maintain a large, powerful military that they can use to intervene in any country in the world and force the will of U.S. politicians on them. They may complain about the costs of welfare programs, but few have ever griped about the costs, human or financial, of invading Korea, Vietnam, Afghanistan or Iraq. Conservatives today want a larger, more powerful state to secure the borders, fight the war on drugs, define marriage, educate young people and reduce crime through more and better armed police forces. Conservatives never talk about limiting the size, scope or power of the state except in the matter of helping the poor. Some of this conservative attitude toward the state issues from insecurity in Hayek’s view:

  The conservative feels safe and content only if he is assured that some higher wisdom watches and supervises change, only if he knows that some authority is charged with keeping the change "orderly."

  This fear of trusting uncontrolled social forces is closely related to two other characteristics of conservatism: its fondness for authority and its lack of understanding of economic forces. Since it distrusts both abstract theories and general principles, it neither understands those spontaneous forces on which a policy of freedom relies nor possesses a basis for formulating principles of policy. Order appears to the conservative as the result of the continuous attention of authority, which, for this purpose, must be allowed to do what is required by the particular circumstances and not be tied to rigid rule.

  Conservatives view themselves as pragmatists. They follow no ideology but judge situations individually according to the specific circumstances, so they claim. Such pragmatism tends to have a short term orientation and what seems best in the short run often results in disaster in the long run. Whether we focus on the long run or not, it always shows up and it is often ugly because of the many expedient decisions made considering the short term consequences only.

  Finally, Hayek criticized the nationalism that conservatism promotes. Nationalism is not patriotism, or love of country, but an outlook that demands politicians formulate policies that benefit only the narrow interests that conservatives can understand.

  Connected with the conservative distrust of the new and the strange is its hostility to internationalism and its proneness to a strident nationalism...it is this nationalistic bias which frequently provides the bridge from conservatism to collectivism: to think in terms of "our" industry or resource is only a short step away from demanding that these national assets be directed in the national interest.

  That bias leads to calls for protection of U.S. businesses from foreign competition, promotion of exports, limits to imports and businesses investing in other countries, often referred to as “outsourcing” U.S. job or “sending” jobs overseas. And it motivates conservatives to demand limits to immigration in order to “protect” jobs for U.S. citizens. Conservatives need to keep history in mind. Immigrants poured into the country at the greatest rate in the late nineteenth and early twentieth centuries at a time when the U.S. economy grew at one of its fastest rates. Unemployment remained low in spite of massive immigration because the economy was freer from state intervention and entrepreneurs could create jobs faster than immigrants could fill them.

  Germans invented modern nationalism in the late 19th century because the country had embraced socialism in the middle of the century and socialist policies destroyed the power of free markets to create jobs. Instead of blaming socialist policies, Germans blamed immigrants for taking jobs from German citizens. Today’s opposition to immigration in the U.S. has the same roots: socialism has destroyed the American businessman’s ability to create new jobs.

  If Christians cannot be consistent conservatives, then surely they can be libertarians. After all, the Torah government would have been a libertarian’s dream. I think libertarianism is the closest to a Biblical philosophy of government in most respects because of its emphasis on limited government. Libertarians sometimes refer to their philosophy as anarcho-capitalism to show that its ideal society has no state, but it is not lawless. It provides government in the form of private judges who decide cases according to natural law, their decisions becoming common law. It has no legislature to create positive law. Private insurance companies protect members through private security agencies that capture criminals and bring them to trial. Rich people provide national security through private armies.

  Murray Rothbar
d, the great Austrian economist, created the libertarian movement in the 1950’s based largely on the political ideas that one can draw from sound economics, and if he had stopped there, he would have carved a place for himself in history and found good company with his teacher, Ludwig von Mises, and another great student of Mises’, Hayek. But Rothbard was an atheist and that emboldened him to join forces for a while with another atheist, Ayn Rand, who promoted a variation on the theme of libertarianism. Rothbard thought it necessary to construct an atheist system of morality and considered himself capable of creating one. Claiming to build on natural law theory, which was a Christian discipline launched by Thomas Aquinas, Rothbard jettisoned most of the political thought of natural law theorists and invented a new morality based on nonaggression that defined the state as inherently evil and, therefore, anything it does is evil. Police and fire work, war, building highways or parks, are all evil because the state takes taxes by force to pay for them.

  Obviously, Christians should never take their morals from atheists. Even the great atheist philosophers of the past, beginning with Nietzsche, understood that true morality can only come from God. The Christian stance on the state and taxes must be more nuanced than that of libertarians and be Biblically based. The next chapter deals with the subject in more detail. It is clear from the Torah that God intended Israel to have a libertarian form of government without a state. However, God did not allow Israel to keep that government when the people rebelled against him, which shows that God intended such a state of freedom only for those who followed him. When Israel committed the ultimate act of treason by demanding a king like those of the surrounding pagan nations, God first warned them of the oppression they would suffer then gave them what they asked for, which is one of God’s most common punishments. Clearly, the state is God’s wrath against a rebellious humanity.