The Nature of Economic Growth

Welcome to Episode 7 of Axe to the Root Podcast, part of the War Room Productions, I am Bo Marinov, and for the next 30 minutes we will be talking about basic economics; specifically, how does economic growth happen? What is the nature of economic growth? And then, we will ask, why are some nations economically more developed than other nations? What does modern worldly wisdom say about economic growth? What does the Bible say about it? What is the place of technological progress in economic growth? And how does technological progress come about, anyway?

And of course, the first question we need to answer is this: why are we asking these questions as Christians? Is there a Biblical, covenantal significance to the issue of economic growth? Should Christians care about economic growth, what it is, and how it comes around?

The present state of the American church and of its seminaries is such that most of our thinking as Christians is captured in the quagmire of a modern form of dualism. That modern form of dualism believes that special, salvific grace, can only be applied to the individual’s soul – and may be to his church. The individual is saved by this grace, and perhaps – only perhaps – his ethical conduct is changed and redeemed, to a certain extent. But when we come to the life of his society and institutions, they are only under common grace, and there is no redemption applied to them. We are going to talk about common grace and special grace in another episode in the future, and we are going to cover the nature of common grace and special grace, and we are going to see how the modern Reformed churches, in their limiting special grace to the individual, in reality elevate common grace as the sovereign grace, while special grace is only subservient and secondary. That theological issue needs an episode of its own, for we will have to explain all its practical implications.

For now, though, the important part in our narrative today is this: because of that dualistic theology that limits special grace only to the individual, the world outside the individual heart of man is rather left outside the scope of the theological interest of the church. We don’t have any place for economics in our theology. We don’t have any place for theory of government, social theory, science, history, business, etc. These things are left to the world, and our seminaries never speak of them from a Biblical perspective. Since they are assumed to be “common” to believers and unbelievers, which actually means “morally neutral,” there are no attempts by our theologians, seminary professors, and pastors to push any antithesis between the Christian worldview and the pagan worldviews. Most of our own Christian intellectual elite is not even aware that the Bible has economic theory, or social theory, consistent with its concept of God, man, law, judgment and the future. Most of those who man our pulpits couldn’t tell you what the difference is – ethical or covenantal – between the Biblical view of business and the anti-Biblical view of business. I said “most,” but the correct phrase would be “all of them with a few very precious exceptions.” Our own so-called “Reformed” seminaries crank out multitudes of graduates every year who can’t produce a coherent Biblical thought in any area of life except in speculative theology and academical hermeneutics. It is as if Christ and Satan basically agree on everything, and have the same views and same agendas on everything in respect to man’s society, and their only real conflict is over the eternal state of human souls.

It is for this reason we as Christians never challenge the prevalent economic theories of the day – and in fact, we most often subscribe to them. We are not even aware that they are anti-Biblical, for they make the society follow ethics that is anti-Biblical. We don’t care. The Bible just can’t be used as a book on economics. Not even as a book on the ethics of economic doctrines. There is no economic theory in the Bible, our own churchian celebrities tell us.

It is this silence of the church on the comprehensive application of the Gospel to every area of life – including economics and economic policies – that has led to the rise of economic theories that do nothing else but institutionalize greed and envy. And I mean Keynesianism and Marxism, and all of their modifications in the last 40 years. All these theories have been based on a worldview hostile to the Bible, and therefore a worldview that views man, man’s psychology and ethics, and man’s society and institutions, and specifically economic growth, through lenses hostile to the Bible. But faith has consequences. When man views the world through a worldview hostile to the Bible, this worldview produces practice hostile to the Bible. The church has been silent on what the Bible says about economics and economic growth, and therefore a pagan view of economics and economic growth has prevailed, and therefore we have been led into economic policies and practices that have been eating away the wealth and the development our Christian forefathers have built.

So, the question now is: How do we restore the Biblical worldview in the field of economics? And, specifically for this episode, what is the Biblical view of the nature of economic growth, and how does it compare to the prevalent anti-Biblical views and practices?

Now, to make a disclaimer, what I am going to share here is not something new. I have talked about it before, in sermons and lectures and articles. And people greater than me have written about it: R.J. Rushdoony and especially Gary North. So this is not something new, and you may have heard it or read it before. Don’t expect me to always be original.

My favorite starting point is Robinson Crusoe, the famous fictional character of the English author Daniel Defoe. Robinson Crusoe as a character doesn’t need any introduction to any native English speaker, I hope, nor to any non-English speaker, for that matter; the novel is translated in virtually every language on the planet. May be a short introduction to the author is needed, since most people don’t realize the worldview behind the novel. Daniel Defoe was born in the family of Presbyterian dissenters, and he received his education at a Puritan dissenter school. I use the word “dissenter” because for the first almost 30 years of his life he grew up in England where dissenters were persecuted. He even took part in the unsuccessful Protestant Monmouth Rebellion against the Roman Catholic king James II. The rebellion was defeated, but he was saved from repercussions by the successful Glorious Revolution and the establishment of the Protestant rule of William and Mary. Defoe created his Robinson character to represent the Puritan worldview of a man who, despite his circumstances, is capable of conquering and civilizing the world, and conquering and civilizing the pagan savages. This significance of the novel Robinson Crusoe is often missed even by Christians: it’s popularity shows the power of a truly Biblical worldview in the application of the Dominion Covenant. Given that, it is not difficult to see the reason for the decline of Christianity in the last one century: we have lost – or, rather, rejected – that original idea of God’s Dominion Covenant to man. But we will talk about this in another episode.

So let’s use the concept, and imagine our Robinson who has just been cast on an island, and needs to start creating his own “economy” from scratch in order to survive. And let’s place him in the worst of the circumstances: a situation of bare survival and subsistence where his only option is to to work enough to fill his basic needs of nourishment, and nothing else.

So our Robinson is on that island, there are a few tools he has, but all of these tools are only good in an already developed economy, an economy of division of labor. (After all, you know, if you are stranded on an uninhabited island and you have a Ferrari, it is of no value to you; the same applies to all the other things that may have certain value in our society today but don’t have value outside an economy of division of labor and infrastructure.) Robinson needs to meet his basic need: he needs to eat. And let’s imagine he is lucky to have at least his basic need met: There are fruit trees on the island, very near to the beach where he landed, and these trees grow berries that are edible and meet his basic needs.

There is only one problem: In order to meet his daily ration, Robinson needs to climb these trees 12 to 16 hours a day. After 12-16 hours a day, he is exhausted. He has enough strength to go to the nearest fresh water spring, have a few swallows of water, and go to sleep. Nothing more. Unless he gets rescued from the island, his prospects of the future are bleak: With age, he will grow weaker and weaker, and one day he won’t have the strength to climb those trees to get enough for his survival, and then starvation comes.

The only solution for him, then, if he assumes that the rescue party is not coming soon, is to do something to grow his economy. That is, he needs to find a way to make his economy produce more value – that is, more value than he needs for his survival, so that he can start saving some of it for his advanced age. But what can he do to make his economy grow? What is the nature of economic growth, and therefore, what can he do to produce that economic growth?

If we look to the modern dominant economic theories, the answer of Keynesianism is this: He needs to increase his consumption. Wait, what?, you will say. Yes, you heard well. Keynesianism, the theory behind all modern economic and financial policies of all the governments in the world, says that the way to produce economic growth is by making people consume more. The more people consume, the more activity there is, and therefore the better the economy is. What Keynesian economists never say is this: Increased consumption without previous economic growth will only consume more of what has already been produced, and will decrease the value of the economy. Increased consumption doesn’t produce economic growth, it only redirects resources from economic growth to consumption. And when everything that is accumulated is consumed, the economy will return to Robinson’s condition: nothing to consume, except what we produce. Thus, in the final account, we will be back to a lower level of consumption, except that the accumulated assets will have been destroyed. And how would Keynesianism work in Robinson’s case? The man already consumes everything he produces. How is this going to lead to a better economy?

Marxism and socialism have no answer to this question. They never discuss Robinson as a theoretical case. Why? First, because for Marxism, the definition of economy is exchange; no value is economic value for Marxism unless it is meant for exchange. What a person produces for himself is not economic value. I know you are deeply surprised, but yes, that’s Marx’s definition of economic value. Remember Aristotle who said that main is a social animal, and a man who doesn’t need a society is either a beast or a god? Well, that’s Marx’s view of man too. Marx was such a committed collectivist that not only couldn’t he imagine a man like Robinson Cruso, he refused to apply his economic analysis to a one-man economy. And there’s a second reason, which is better known among many of us: Marxism, and any socialism whatsoever, never assumes a world without already developed economic resources. Socialists, as you all know, never think in terms of where these resources come from. They only assume they exist just like that, out of the blue, and then they just want to re-distribute them. Thus, the example of Robinson is rather troubling for them: Wait, you mean there are no existing economic resources? In their world, economic growth can be produced only after some economic growth has already been produced, and then socialists come to re-distribute it. Yes, that’s how stupid socialism is. But while you are laughing at its stupidity, keep in mind that many of your pastors and churchian celebrities fall for it. No, not just the liberal variety. Those of the supposedly “conservative,” Bible-believing, Reformed persuasion, very popular, also fall for it. And some openly defend it. We will talk about some of them in future episodes.

So, Keynesianism has a ridiculous solution that makes no sense whatsoever; and socialism can’t even analyze the situation because it has no definition for it. What is then the Biblical solution for economic growth?

The Biblical solution is best described in the principle of John 12:24: “unless a grain of wheat falls into the earth and dies, it remains alone; but if it dies, it bears much fruit.” While for most, this verse applies to economics only marginally, a careful reading of the Bible from an economic perspective shows clearly that the Bible expects economic growth to happen only where something is given up, sacrificed, or – in the economic sense of “sacrifice” – invested. Because investment is just that: restraint from current consumption of a certain resource, with the purpose of putting it to work and produce fruit in the future. It’s a sacrifice of sorts, it is dying for your present satisfaction in order to produce future growth. This is the only real solution to the problem of economic growth. Now, as we will see, just restraint from current consumption is certainly not enough; but whatever other steps are needed, this step is unavoidable, if we want to produce growth.

Thus, what Robinson needs to do to break the hopeless grim cycle of foraging for berries is forbear consumption for a certain period of time. That’s not enough, of course, just going hungry for a day doing nothing is not going to change anything. The time he will spare from foraging must be put to some productive use which will help him produce more berries the next day. But whatever he plans to do, there must be some sacrifice. If it’s not a sacrifice of food consumption, it must be sacrifice of sleep. He may decide to do it in one day, or he may decide to spread it over several days, just eating a little less every day. Or sleeping a little less every day. He has four options: not eating one day, not sleeping one night, eating less every day over a period of time, or sleeping less every day over a period of time. All these options have their relative advantages and relative disadvantages. Not eating for a whole day may be more painful than eating less for several days, but then, over several days he risks losing more and more of his strength if he hasn’t calculated his schedule well. Either way, he needs to sacrifice, and he has to take risks.

That, of course, is not enough. He needs to do something with the time taken away from foraging and sleeping. Robinson’s idea is to use his knife and some cords from the ship to produce a 15 ft pole to shake the berries off the trees instead of climbing the trees. It takes him exactly half a day – 12 hours – to find a few good limbs, cut them, prune them, and rope them into a good solid 15ft long pole. Them he goes to sleep. The next day he is hungry and weak, but he has a better technology which requires less strength to operate and produces more output for the same work time.

When he tries his new technology, he discovers that he can shake off the trees the same quantity of berries within half a day. He has an abundance of options before him now. He can choose to work half day, gather what he needs to survive, and then rest the other half of the day. That’s the socialist utopia. He won’t accumulate wealth this way, but he will have fun several hours every day. Another option is to spend the whole day working, and then consume everything he has gathered, twice the ration of what he needs to survive. That’s the Keynesian utopia. He won’t accumulate wealth this way either, but at least, he’ll add weight.

He has another option, then; the Biblical option. That is, consume less than what he produces. He can work the whole day, but only eat what he needs to survive, and save the rest. If he finds a way to dry the saved berries so that their nutritional value is preserved, he may be able to solve the problem with weakness in his old age: he can work 20 years, and accumulate enough food for another 20 years. Of course, all other things being equal, like no spoiled stock of dried berries, no need to build a house, etc. But all other things are never equal.

Our Robinson, being a good and conscientious Puritan, decides to ignore the socialist solution and the Keynesian solution, and goes for the Biblical solution. He works hard for several weeks, gathering more berries than he eats, and saves and dries what he doesn’t eat. Then one day, while working, he notices an animal: too far away for him to be able to chase it, but close enough to see that the animal is a goat. He figures that a lonely goat can’t exist on an isolated island, so there must be a whole colony of wild goats somewhere on the island. And then he realizes there is an opportunity in it. The next day he leaves his little patch close to the beach for the interior of the island, stocked with two weeks worth of dried berries, and armed with a musket from the ship, with some dry powder. His Biblical choice – work more, consume less – has made it possible for him to embark on this journey. Had he chosen a socialist policy (work only as much as needed to survive), he wouldn’t have the resources. Had he chosen a Keynesian policy (work a lot and consume everything he produced), such a trip would be equally impossible. Only because he chose to sacrifice something – work more, consume less – he is able to make that trip.

Two days later, he finds the colony, and shoots two goats. He brings them back home, cuts the meat, dries it, and now he has more than just berries: he has a source of fat and proteins. The game is not survival anymore; it’s prosperity. But it doesn’t stop there. While enjoying his goat steak, he thinks of milk. The next day he embarks on another trip, and this time he returns with two live goats, one male and one female. He now has enough saved resources to build an enclosure for them. Within a couple of months, he has captured more goats, and he now has milk. And he also has a house. And he is also capable of sewing some new clothes from goatskins. Etc., etc., etc. You can project where this is going. The limit of the growth of his economy is his ability to devise better and better technology to produce more and more value (nutrition, clothes, construction) for the same period of time.

Then, one day, Friday comes. The small economy now is faced with a choice: division of labor (everyone works) or administrative control (some work, some oversee, to make sure government policies are implemented).

Taking the first option, Robinson discovers that Friday is a seasoned fisherman. He just needs a small boat and a net. Making the boat and the net is not a problem now that Robinson has his small economy going. The two men have enough to eat for several days until the net and the small boat are ready to use. The next day Friday starts adding more value (protein and oil) to the economy of the small colony. We don’t need to continue. Everything is clear from there.

But what if they choose the course of administrative control, er, social justice and economic rationality? After all, we can’t allow any market chaos there, can we? What if the two men decide to actually exchange their produce, voluntarily. Complete market chaos, right?

So instead of that chaos, Friday decides, being the stronger of the two, to introduce some order. He decides to become a government supervisor (and a legislator, and a judge, and a cop, and a regulator) over Robinson, telling Robinson what to do, and also confiscating some of Robinson’s produce as a fee for Friday’s “services.”

If you thought such “policy” would be met by Robinson with severe resentment, then you have quite a realistic idea of human nature. He knows he can produce economic growth without supervision; and therefore he knows that such supervision is useless and counterproductive – because now Robinson will have to spend some time reporting to Friday about his activities during the day. Given that Friday is not familiar with the details of the workings of Robinson’s different enterprises (government bureaucrats are usually clueless about real work), Robinson will have to spend additional time explaining many of his activities and how much of real increase he has had. The time that could be spent on producing more value is spent now on producing reports which have no value to anyone at all. Not to mention that Friday doesn’t produce value but consumes it. Robinson’s righteous resentment of that will drive Robinson to even more unproductive activities: like concealing data from Friday so that Friday takes less of his produce. At some point the productivity of the only working person is below the total consumption of the two.

You think that can’t happen?

Look at Europe, with its economic growth in the negative for several years in a row. No, it has nothing to do with the price of oil or with the weather. It has to do with the disbalance between productivity of some vs. consumption by many. Economic growth is only produced when someone, out of their free will, decide to sacrifice something – nourishment, sleep, etc. – and then do something with the resources saved. Something that would lead to better productivity, that is, more output for the same input of resources (time, labor, raw materials). But keep in mind, there can be sacrifice which doesn’t lead to economic growth: when the sacrifice is forced, it destroys the spirit and the desire for building new things. And then such forced sacrifice leads to economic stagnation.

There’s one little problem to solve, though. We said that economic growth can only be produced by sacrifice and thrift. That’s the Biblical view. And indeed, there has never been economic growth where there has been no sacrifice and thrift. The rise of capitalism in Europe indeed started with sacrifice and thrift. The rise of the modern developed societies in East Asia – Japan, Taiwan, South Korea, Hong Kong, Singapore – indeed started with sacrifice and thrift. In Europe, the attempts of triggering economic growth with injecting capital – as in Greece – have failed; there is no sacrifice and thrift. Sacrifice and thrift seem to be the necessary prerequisite to economic growth; and economic growth that doesn’t start with Robinson going hungry for a day, and then producing more than he consumes, is fake economic growth. Within a generation such economic growth stalls and disappears.

But while sacrifice and thrift seems to be a necessary prerequisite, it doesn’t seem to be a sufficient prerequisite. Several years ago in the UK, a homeless beggar passed away, and the authorities discovered that the man had a bank account with one million pounds in it? All saved and increased money from his begging. And yet, he never progressed above his homeless existence. There are cultures where sacrifice and thrift are traditional and established values – like China, for example. During the 19th century, as a result of the tea trade, China saw a great influx of Mexican silver pesos in their economy. British merchants were making a killing off the trade triangle Britain-Mexico-China. The main trip in that triangle was the sale of tea from China to Britain. But the Chinese merchants were not interested in anything Britain produced; they only wanted “specie,” that is, precious metals, gold and silver. Mexico, as the largest producer of silver in the world, had what they wanted. So British merchants would take industrial goods to Mexico, sell them for silver pesos, then take the pesos to the Chinese producers of tea, and take tea for them. The Chinese didn’t act as per the established mercantilist economic theory of the day. (We will talk about mercantilism as an economic theory in another episode.) They didn’t use their wealth to buy something they didn’t have. They didn’t crave anything to consume. All they wanted was to hoard their silver. And they did. They hoarded so many of those pesos that the British fought two wars (The Opium Wars, google it) to force them to start spending them on consumption. The Mexican peso of the 19^th century became legal tender in Siam (today Thailand), China and Japan. In fact, the modern name of the Chinese currency – yuan – was in the 19^thcentury the Chinese name for the Mexican silver peso. Billions of silver pesos were saved in personal safes in the Chinese Empire and later in the Chinese Republic. Even today, families in China who have managed to preserve some inheritance from two generation before (despite Communist confiscations of gold and silver), still keep Mexican silver pesos. And yet, China never developed the economic growth Europe and America developed, despite the gigantic amount of savings.

So what else is missing?

What is missing – and what is missed by most economists today – is that non-material, non-political, non-financial element of faith in the future.

You see, savings in themselves can be done for two reasons. One reason can be positive faith in the future. The other reason may be fear of what the future may bring. How do we know the difference?

We know it by what they do with these savings. There’s the man who buried the talent. Why? He was afraid of what the future may bring. And there were the men who put their talents to work. Why? They had certain . . . faith . . . about the future which prompted them to overcome their fear of risk and failure and act. That’s what Jesus told the good servant, that he was faithful – that is, his actions had to do with faith. There has to be a specific faith that would trigger not only the desire to sacrifice and save, but also the confidence that efforts towards the future matter, and that there is a mechanism in our world that reliably and predictably rewards those who take risks and invest in better productivity. It is this faith that is the dividing line between a thrifty society like China and a thrifty society like Scotland or Switzerland. Without such faith, Robinson wouldn’t even take the pain of staying hungry for one day: Why would he, if his expectations of the future deny any return on his sacrifice? Even if he took the pain of staying hungry for several days (like many religious fanatics in India), he wouldn’t make the effort of making the pole. Why would he, if his expectations of the future tell him that nothing he does can change the future? There has to be an underlying faith and underlying presuppositions behind his sacrifice, which will make him use the time and the saved resources to invest in the future. And then the question is: what religion provides such a faith in a predictable world and optimistic future?

We are running out of time here, and therefore we will leave the analysis of this economically beneficient religion, so important for economic growth, to another episode in the future. To get a glimpse at what we will be talking about, y’all can read my article adorned with the long title, “The Rhetoric at the Foundation of Capitalism, and the Ethics at the Foundation of that Rhetoric.” There is a reason for the long title, and it is in the article. The article can be found on my blog, ChristendomRestored.com. Suffice to say here, without the development of that very special religion, and the development of the worldview following from it, the world today would have still been as poor as it was 1,000 years ago. But we will leave this to another episode.

To wrap it up, some time ago a pastor of a small church I used to attend told me that he had no idea how to decide among the multiple economic theories, and which is Biblical and which not. “I am not a trained economist,” he said. I told him, “You don’t have to be one. All you need to remember in order to assess an economic theory is this simple ethical rule: What does it say about economic growth? If it says that economic growth is produced by consumption, or re-distribution – which is theft – or by magical manipulation of reality (inflation), it is an anti-Biblical economic theory. But it says that economic growth is produced by sacrifice, work, and faith which lays the foundation for confidence and optimism of the future, it is close to the Biblical view of economics.” It’s that simple.

The book I will assign today is Gary North’s Inherit the Earth: Biblical Principles for Economics, part of the Biblical Blueprint Series. As all the book in the Biblical Blueprint Series, it is concise, simple, and even has questions for study at the end of each chapter. You can read it yourself, and you can make it part of your children’s homeschool as well.

And I want to turn your attention, again, to my ministry. It is important to me, because my heart is still there. On the mission field. America has become prosperous because she has had that faith that provided the conditions for economic growth. I want to bring that same faith to Eastern Europe, and I need y’all’s help. Please visit BulgarianReformation.com and consider donating. There are books to be translated and published, and especially books on the true nature of economic growth, in obedience to Christ and His Gospel. Just a little help will go a long way where the fields are white for harvest. Gob bless you.