Teddy James

AFA Journal staff writer

September 2013 – When polled, the number one issue Americans say they feel most uneducated about is the economy. It is not hard to understand why. The economy is big, complex and minutely detailed. Reading the polling data, I realized that I was among those who knew very little about the economy. My knowledge of the economy was so shallow it could be summarized in one paragraph:

America is a capitalistic country. Capitalism is an economic system that protects private ownership. Within that capitalistic economy, America makes use of a free market system in which supply and demand set prices and provide a natural check and balance. The Founding Fathers adopted a lassiez-faire economic attitude which meant they believed the government should be as “hands-off” as possible. 

In examining the subject, I ask several questions: What is capitalism? What is a free market? and What is laissez-faire? 

The great 19th century British preacher Charles Spurgeon once said, “It is the shallowness of his mind that permits him to see the bottom of his knowledge.” When it came to the economy, I thought I was swimming in the ocean, but I was really in a kiddie pool. The good news is that I’m not alone. The better news is that I am slowly moving into deeper water. This is some of what I have learned so far.

Capitalism
There are several forms of capitalism, but in its simplest form, 101 level, it is defined by private ownership and profit. Individual citizens, in a capitalistic system, can own land and do whatever will provide them with profit. If they want to build a factory, they are free to do so. If they want to farm, they buy the necessary tools and plant what they decide is appropriate.

Wayne Grudem, author of Politics According to the Bible: A Comprehensive Resource for Understanding Modern Political Issues in Light of Scripture, illustrates why private ownership is so important in an economy. He documents an experiment by economist Hernando de Soto who went to Peru and attempted to obtain government permission to build a house. 

De Soto said, “To obtain legal authorization to build a house on state-owned land took six years and eleven months, requiring 207 administrative steps in 52 government offices … . To obtain a legal title for that piece of land took 728 steps.” Grudem went on to explain why the difficulty in obtaining private ownership is so problematic. 

“If people can never own property or own a business,” he said, “they can never build a business and become even moderately well-off…they will find it nearly impossible to obtain anything more than a very tiny amount of credit to invest in building a business (because they have no permanent legal address).” 

The idea of private ownership is important not only because it lends stability to an economy, but also because without it, gaining profit and wealth is nearly impossible. But why is profit such an important motivator in capitalism?

R.C. Sproul Jr. says in Economics for Everybody: Applying Biblical Principles to Work, Wealth, and the World, “Profit is what is left over after an entrepreneur takes into account his costs in creating his product and bringing his product to market to sell it. Profits are a reward to the entrepreneur for the risk he took in creating that new product and bringing it to market.”

Without profit, there is no motivation for innovation, creativity or entrepreneurship. The great desire for profit could easily lead to grossly inflated costs, except that in America, the capitalist system is dependent on the free market system to set those prices and decide the level of profit for each person.

Free market
The free market is primarily defined by freedom. Each person is free to create and sell anything at any price he likes. However, built within this system is the natural check and balance of the market. According to Sproul, a market is “when you have people with a desire and the ability to consume (a demand) meet with those who have a product and the ability to sell (a supply).”

The free market creates an environment that is beneficial to both the producer and the consumer. In a true free market, the producer can set a price, but if his price is too high, consumers will refuse to purchase it. The free market also invites competition, so producers must match or beat competitors’ prices and products, thus creating a constant demand for innovation, new products and low prices. 

An example of a pure free market is a local farmer’s market. Farmers (producers) bring their goods to the market. They are driven by the prospect of profit to have the best looking produce, the most eye-catching presentation and the cheapest prices possible. The vast majority of these markets have no government interference, with many not even charging state or federal taxes on sales. This is an example of another economic truth, that while government plays a crucial role in the economy, the smaller part it plays, the better off consumers and producers are.

Laissez-faire capitalism
Laissez-faire is a French term meaning “let it be,” or “let them be.” It is the idea that the government should stay completely out of the economy and this is what I had believed America wanted at the beginning. When I began studying the nuances of what the Founding Fathers wanted in America’s economy, I learned this wasn’t exactly the truth.

The founders knew a truth that Sproul articulately expressed in his study. Sproul said, “In a free market, the role of the government is simply to protect life and private property.” Sproul further noted that government’s job is not to be involved in producing anything, but providing and protecting freedom. 

Dan Celia, columnist, radio host and economist said, “Government’s primary role is to enforce contracts and protect freedom. That’s it. Any interference in the economy beyond that is only going to do two things: lead to more interference and lead to economic instability.”

The debate over how much government intervention is necessary is hotly debated today, as seen in discussions over the Affordable Care Act (Obamacare).

Sproul offers a direct example and warning about too much governmental interference in the economy. He notes that after World War I, Germany experienced a drastic rise in milk prices. The citizens cried out to government to pass a law capping the price of milk and the government complied. Weeks later there was a milk shortage because farmers were losing money and could no longer afford to sell it. This began a movement that saw the German government controlling more of the economy until it collapsed on itself and was overthrown.

While I know I am still swimming in the shallow end of the pool, I feel I am now knee deep in it and will continue studying and learning. I may not know much, but I know the U. S. economy has problems. I also know U. S. citizens are smart enough to find solutions. 

Let’s take an honest look at our knowledge about the economy and discover how we can work our way into the deep end of the pool.  

Dive into the deep end with these resources
Economics is for Everybody, a 12-part DVD and study guide educating about the economy from a Christian worldview. www.economicsforeverybody.com

Politics According to the Bible: A Comprehensive Resource for Understanding Modern Political Issues in Light of Scripture by Wayne Grudem is available at online retailers.

Milton Friedman’s Free to Choose series is available to view free on www.youtube.com.