Dr. Jay Richards: Myths Christians Believe About Wealth and Poverty

the discipline of economics is sort of an odd thing because it's highly mathematical many people you might think well I'm gonna study economics I'm gonna learn about how people buy and sell an exchange and create value and buy and sell exchange goods and services and information all these kinds of things about people creating and selling and working together and then you drop into a macroeconomics course and you get some graphs and some letters that stand for things and you basically get entirely turned off to the discipline I'm convinced that macroeconomics in many schools is designed to alienate people from the discipline of economics that's sort of what it did for me it was the first course I had I didn't learn about basic economic reasoning I was just sort of introduced to these mathematical formalisms that I was supposed to manipulate they didn't teach me what I thought actually economics primarily should be teaching people and so I struggled as a college student probably like many of you as a freshman in college I was in college in the 1980s so my college experience preceded the collapse of the Soviet Union I entered college as a freshman completely clueless I was Protestant evangelical at the time had a introductory political science course and one of the required readings one of the textbooks in fact was the communist manifesto by Karl Marx and Friedrich Engels written in 1848 how many of you read the communist manifesto I mean if you've done poli-sci it's I mean it's a quick read you can read it in an hour it's a pamphlet essentially that was designed really to kind of you know fire up the peasants with pitchforks essentially that's I mean is what it was designed to do it so it's a pamphlet rather than academic treatise but my professor who is a low talker and I had a hard time hearing in the whole semester but I was sure at the beginning of class remember I'm a freshman had said if you read the textbooks five times you will get an A in the class well that's simple and the book is short how hard can this be so I had the Communist Manifesto in a book called democracy for the few by an American socialist named Michael Parente but I didn't that at the time and so imagine a college freshman just to kind of mushy brain mostly blank slate on economic issues reading marks and reading an American socialist five times my first semester of my freshman year so I went back at Christmas arguing that Christians ought to be socialists and it all sort of made sense later I studied analytic philosophy and realized my reasoning wasn't super tight but it was basically this God talks a lot about poor people Jesus tells us they're supposed to be concerned about the poor the Bible talks a lot about the poor premise one premise to the Socialists talked a lot about the poor conclusion Christians should be socialists that's the argument unfortunately right not very impressive when it sir laid out formally but that was the impression I had my head and so I spent several years actually trying to work Christian theology and socialism in together nevertheless I continued to study the discipline of economics I had a couple of courses but rather than doing that I started reading people like Thomas Sol who was an American still live at a prominent American economist and reading different magazines so that by the time I was a senior in college I had entirely changed my mind on economics I was convinced this was 1989 that of the live alternatives that are actually available to us this side of the kingdom of God an economic system that's described by private property rights and limited government and economic freedom that's just the best thing going it's not utopia it's not the kingdom of God on earth but if you want to do the things that an economy can do lift people out of poverty lift entire populations out of absolute poverty allow people to channel their their gifts and even sometimes their vices into outcomes that are mutually beneficial to others that's the best system but I had one other problem and my senior year I had a class and won't give you the details of it but the students got to vote is a great capstone course we started with Aristotle and Plato and then for one week the students got to pick the book that we were going to read and so it turns out of many of my political science majors liked ein Rand I had never read and so we voted and ended up with a little book by Rand called for the new intellectual it's a little collection of essays now talk about Rand more in a minute but this was key because I read this and at the time I thought well I cannot believe that what she's saying is this legal I mean I was in a very sort of formerly Christian very liberal college and it was transfixing the stuff she was arguing and so I had a friend that lived across the hall and he had a copy of a book called Atlas Shrugged which is a very thick book by Rand written in 1957 made into a very bad trilogy recently that I would not would not recommend and so I end up reading Atlas Shrugged when I was supposed to be studying for my German final my senior year I don't recommend this is actually a very bad idea but it was so different from everything I had read that I couldn't put it down it's not great literature it's essentially I mean there's a section called this is John Galt speaking that it's a basically a 40 page speech by by one of the characters but ran to set up a kind of a moral dilemma for me and it was essentially this is that I thought on empirical grounds economic freedom what free markets whatever you want to call it seemed to make the most sense of the things human beings have tried this just simply works better certainly than the main alternative but rands take on it was morally unsavory in fact she's a hardcore atheist she was a anti-christian that was a critic of altruism and a defender of selfishness and greed and so hell this is bad this I mean if this is she's right about this then I've got some problem here in my understanding of the world nevertheless I graduated from college we're off to the theological seminary the Berlin wall collapsed the Soviet Union ceased to exist without a shot fired and this grand experiment of the 20th century between two fundamentally different ways of ordering society it's for broadly free economies and broadly command economies in which the state more or less dictates the terms that experiment was exercised over a large section of the human race half the human race under command economies what we've now called communism though that's that's not quite right and insofar as it was a test and insofar as history could test ideas it seemed to me that someone won and someone lost one set of ideas won one set of ideas lost and that was the consensus in the early 1990s and so though I was intellectually interested in these questions about economics I actually thought the debate had been settled that's not interesting I'm gonna do something that's actually still in dispute and so I focused on the intersection of theology and science for many years it put me back on college campuses in late 1990s and what I discovered is a lot of the bad economic ideas that I had my mind in the 1980s were alive and well in the minds of college students in 1990s it's as if history hadn't happened did not make sense to me and so I honestly got into this out of frustration more than anything else because I thought their basic lessons that we need to learn about history and about economics that everyone that's informed needs to understand and if we're gonna avoid supporting policies that actually kill people or harm people we all need to know something about economics but apparently often what happens in economic courses doesn't take or it doesn't quite penetrate people's intuitions and so that's what I sort of set out to do and eventually wrote this book money greed and God and now I find myself actually at a School of Business and Economics talking about these things so that's what I want to talk to you about here this afternoon for a little bit so that's I'm gonna talk about is based on a book called money greed in God which is the result of my frustration from dozens of interactions with college students in which I was taking notes of the objections that kids had - whatever you want to call it capitalism free enterprise free markets whatever part of the problem is actually words the word capitalism I'm convinced now is probably it's it's an impediment even if you get to stipulate a definition it's more of an impediment than anything and it's because I mean there's close your eye is here for a second okay and try to this is doing a little phenomenological analysis here all right okay and so when you hear the word capitalism if there's what is the image that comes to mind you hear that I'll tell you what comes to mind when I when I hear it it's uncle Pennybags it's the character from Monopoly that you know he's a tuxedo clad guy with the monocle it's actually a caricature of JP Morgan by the way and his name is uncle Pennybags I looked it up that's what it says on Wikipedia that's his name that's the picture people have and the reason is because the word capitalism was actually coined by socialists if you read Adam Smith and his Wealth of Nations in 1776 he knew nothing of this word nothing of this word Karl Marx is the one that popularized it to describe the system as he understood it in the late 19th century in the middle of the 19th century in Europe and so in many ways it's an impediment it's like the word Christian initially it was coined by people who were critics the word bigbang is the same thing it was BIGBANG actually was coined by Fred Hoyle a critic of Big Bang cosmology that's how capitalism is and so we attached negative connotations to it it makes it very hard for us to think clearly about these things so what I really want to do more than anything else in fact no the only thing I want to do this afternoon is to if I can hope you at least think clearly about the sort of boundary conditions and what's going on when we think about economics and help you recognize a few of the myths or intellectual speedbumps roadblocks that prevent us from thinking clearly about economics about markets about wealth the poverty so I talked to the fall a philosophy group today which was terrific a philosophy club in fact I highly recommended it was a really a great conversation and asked students our question why is it that on certain academic subjects people know they need to know something in order to have a strong opinion so you don't seem bumper sticker Wars when it comes to chemistry I don't remember ever seeing a debate about the periodic table on a bumper sticker their bumper stickers about Darwin right that sort of science but it's because people there's a kind of worldview issue there there are political disputes that find their way onto bumper stickers and their economic disputes that find their way onto bumper stickers but there's no dispute about chemistry there's no heated culture war argument about the order of the elements on the periodic table and in fact there's these two disciplines that I can think of that are disciplines in academic institutions theology and economics in which most of us feel perfectly entitled to have very strong opinions even if we know absolutely nothing about the subject now why is that why do you think that is I mean no one thinks well I don't really know anything about chemistry but I feel really strongly about the way in which chromium and sodium interact or something this makes no sense you know tacitly there's something I would need to learn before I really gonna have a responsible opinion on this subject and I think what it is is it I'm talking about just culture in general is that we treat these subjects is that there's no knowledge to be had theology it's about sort of our feelings essentially it's a kind of an emotive thing and I feel like the kind of God that I could believe in is you know whatever it's the thing that you construct and economics - not exactly the same way but we tend to treat economics as if it's just about our moral intuitions and so we assume that we can answer the question of whether say raising the minimum wage will help people not based on looking at the data or understanding anything about prices but based on how that makes us feel about ourselves and so we treat these things not as subjects of knowledge not as bodies of knowledge as parts of reality that can be studied and understood but simply as things that are just kind of reflections of are a kind of moral emotional makeup right and we treat morality this way and me many cases - it's just it's it's sort of a glandular thing it's not doesn't have anything to do with knowledge if you can get over that basic idea you more or less I think solve most of the problems on this so this is what I want to convince you of I want to convince you that just as there's a realm of God's created reality that you could call the chemical realm it's part of the physical reality it's connected to physics it's connected to biology it's connected to psychology nevertheless it has its own internal rules and structure that can be understood that can be figured out can be formalized can be used to make predictions in to understand and a little slice of God's created order God is rational and creates a world in which through these sort of overlapping and concentric spheres of logic and intelligibility that we can discover and in the same way there is an economic realm or a domain it's not chemistry we're not studying molecules it's not physics what is it well what is this it's centrally a social reality that supervenes on particular activities of human beings in particular kinds of communities and by studying this domain that's a top human activity we can discern certain rules and principles it's a reality outside us that we can understand something about it's not physics it's not exactly like that but it there are truths that can be known and then exist outside our preferences if you get that if you get that economics is it's just not an academic discipline it's just not studying calculus for the social sciences and learning about supply and demand but it is a domain of reality that's intelligible then all of a sudden you realize you know what there's probably something I need to know before I can decide what economic policy I actually support now this seems to me the simplest distinction but I never cease to be amazed at how often disputes about economics come down to this they come down to simply not believing that you know there's actually something well understood here that a commons to understand I debated a man and I'm not gonna give his name he's a really good guy he's a fellow Catholic a few years ago and it's a private event and I wanted to make essentially this point that there's just things economists know that we really should take account of in our thinking and I thought the implications of his argument were that there actually were no economic truths but I didn't expect him to say that so I was trying to do this or philosophers trick of the reduction to the absurd and hoped the audience would catch it well the guy was the the the friend I was debating it had too much to drink that night this is why I never drink more than one beer before I speak well you too much to drink it so I was trying to do the reductio and he inter in general I would want to say there are no economic truths just said it unfortunately there were some Dominicans in the audience and so they took care of it from there I mean they really got upset about this but this is basically what it's about if you realize this oh there's something I should know about how prices function in a context of scarcity there's something I should know about how supply and demand relate and interact out there in the world then you're actually almost all the way there we're still stuff you need to know but you know that you need to know it you know that you can't just depend upon your sort of direct moral intuitions by themselves to guide you to decide say should should Laura to have price gouging laws or not right that it seems like okay viscerally everybody has the same response to it but actually working out the details is a little harder so really this is all I want to say and I'm just going to give you some examples of four myths and it's this so the reason economics is hard is because it's a human science it's not physics it's not chemistry almost always when we talk about economic questions we are mixing the empirical the theoretical and the moral in our minds and those questions are always there usually when we're trying to test the particular interaction say of two elements in the periodic table the the moral question isn't primary but the reason those of you are here tonight or this afternoon they didn't have to be here those 10 or 15 of you that didn't just came actually voluntarily is because you're actually interested in the human question things like what makes societies wealthy how do some societies manage to alleviate absolute poverty and other ones just stay mired in poverty forever there's your moral questions and you know they have something to do with economics that's why we come to it but to answer those questions we have to make three fundamental distinctions it's really three questions we have to distinguish it's the white question the why question and the what odd question so what question is the empirical question so I'll just give you an example let's take rent control so rent control is a policy that was widely used in the 1960s and 1970s in large cities and some countries still have vestigial elements of this policy the idea is that you have a large city with a large population a lot of demand limited supply of housing and so the prices go up there's a one thing everybody remembers from economics the prices can go up on rental housing city councils around the world thought well we'll fix that we'll make it illegal for landlords to charge above a certain amount that's price control so now so why would they do that they do it right presumably to keep housing affordable for lower-income people so what question is simply what would happen if a city did that what happens if say that Manhattan the borough in New York stipulates that it's illegal for a landlord to charge above $400 a month in rent for one-bedroom Apartments what happens that's an empirical question no answering it I'm gonna get to that besides somebody's wanting that right so you get this so what would happen in Seattle if we raise the minimum wage to $15 an hour the Seattle's credit by the way they're doing a study and have a website which they're tracking that experiment which they're doing what would happen it's an empirical question now ideally you try this a bunch of times in different places and get the data but I want you to see that's not the moral question it's what happens let's go look at actually what happens to unemployment pupils job patterns that the black market in the gray market and all these kinds of things what's the why question why question is the theoretical question so you can have lots of data about rent control what happens afterwards and have no idea why this happened it would just be a mere correlation we do this thing these particular things happen we don't know why happens to really understand it to have knowledge about that you'd need a theory about why that's going on right they would explain those things and then maybe not only take that native but be able to predict based on that so this is almost always when we're doing a science knowledge has had between or it's in the interaction of what we're observing and the theory that we developed to explain it and it's the kind of creative interaction of observations in a theory that gives us knowledge same thing in economics those then are the empirical and the theoretical questions the third question is the watt hot quest that is what ought we to do what is the right thing to do and normally the relevant moral consideration here is not well what are we to do to torture people or to punish people that we don't like right it's what ought we to do to help people generally in this situation especially the people that are the most vulnerable that's the moral question and notice that you don't know there's no way to know the answer to that question for almost any economic policy unless you already know the answer to the what and the why question but what we do is we import our assumptions about the wat and the why and then get to the law ahead of time we make a decision based upon our gut moral intuitions rather than our knowledge of the reality you can learn to distinguish those things you'll solve the problem all right now here's how what I would argue is just purely my take on this how I think we should as our goal intellectually is inform Christians in his Catholics what should we be after here what we should not be after is integrating some particular economic thinker with Catholic social teaching I really for instance I've got a friend who's an evangelical and his life goal is to synthesize Christian theology and Iran's economic theory okay this is go ahead and try that doesn't sound like it's gonna work very well if something's gonna have to give because you these kind of incompatible views of the world and there are a lot of economic theorists that might be utilitarians or materialist or just simply don't have a really clear anthropology and so you actually don't want to import an entire theorists ideas what you want to import is actually the empirical results the things that economists have actually learned and the best theoretical insights that they've developed over the years you want to import to those right and then you want to embed those in a broader understanding of reality a proper anthropology the perennial moral principles of Catholic social teaching metaphysical truths about the human person and so forth that makes sense so our job is not I want to integrate high x economic philosophy with John Paul to's theology of the body that's you could try that but I think more fruitful is just say let's find out what they economists know and we don't actually really need their anthropological assumptions all right if we do that then I would say we end up with a synthesis that's actually much more satisfying an explanatory that than anything else we had before this is hard but a few people that have tried this the late Michael Novak who died this just last February spent decades doing this and working on this I highly recommend I'm sure he spoke at Franciscan many times but very few people have actually done this very few theologians have taken enough of an interest in economics to actually try to develop a synthesis and so I actually think this is still a work in progress it's something for the future if you're trying to decide what to do you might consider this so let's talk about these four myths and this I hope will give you a sense of how we need to distinguish and relate the what the why in the water all right the piety myth is the mother of all the economic myths and I call this the piety myth because it took the piety is about the state of our hearts the piety myth is focusing on our intentions on what we mean to do rather than focusing on the effects of our actions this is so so central that a guy named Henry Hazlitt in the 1950s wrote a great little book called economics in one lesson and if you open up the book right at the beginning he's not interested in what we call the science of economics he talks about the art of economics an artist sort of a skill that you get down in your bones so that it becomes an automatic part of who you are intellectually here's what Haslett said he said the art of economics consists in looking not merely at the immediate but at the longer affects of any actor policy it consists in tracing the consequences of that policy not merely for one group but for all groups in other words the art of economics consists in asking this question and then what will happen so somebody says let's raise the minimum wage in the federal level to $100 an hour and then we'll all be rich and I'll be able to make up my student loans if you've got the art of economics what are you gonna say you just think that's a great idea it sounds really nice oh you're so sweet now gonna say oh that's interesting and then what will happen and then you trace the consequences not merely for yourself who you assume your labor is worth $100 an hour but for everyone else and if you learn to do that you will have mastered the art of economics and you will avoid you the piety myth because you'll be focused on what actually happens to people rather than simply what you meant to do now why is this hard to get this is not complicated learning to ask about the consequences of actions this is not hard stuff why is this so difficult I think it's difficult because of the nature of the moral act you all know the story and several the Gospels in the Widow's mite Jesus and the Apostles are in Jerusalem and they're watching people giving their gifts to the temple Treasury and of course rich people are ostentatiously giving of their wealth visibly so that people could see how much they're giving and then Jesus notices and calls out a humble Widow impoverished widow who gives two mites two copper pennies and he calls her out and says that she's done the greater of the acts the greater of the giving now is his point economic here was Jesus saying turns out there was just two cents left on the capital campaign for the temple and then we've just completed it so she wasn't apprised ringing the bell no you know that's not what's happening and that's not his point his point is that everyone else gave out of their wealth it didn't really cost him much they got the reward being seen doing it she gave out of her poverty and had to act in a humiliating way to do it and so it morally her act was more significant because God cares both why we do something in what we do both what's inside and what's outside matter and the moral act imagine that you know me fairly well alright and you know that I tend not to do random sweet things to people but you hear that I've given my wife three dozen roses on a random day that's no one's but not a birthday and it's not it's not our anniversary nothing I'm just giving her three dozen roses all right now by itself that sounds like a random act of kindness that I've just just it's a gratuitous act there's another guy that knows me a little better and he knows I have a penchant an addiction to golf and I like three-day golf outings and I've already gone on three this year already and my wife hates it and I've got another possibility to go on a three-day outing to Pebble Beach and I need to bring it up and a few hours before I need to bring it up she gets three dozen roses all right now are you gonna view it differently than my friend who doesn't know about this of course you are a sane act did the same thing in one case it's just a nice thing to do for my wife in other case it's an act of manipulation that's the moral life why we do it and what we do the economic realm doesn't care why you do stuff the economic realm doesn't care why members of Congress vote on particular bills and for different particular policies members of Congress could have 535 different reasons for a bill president could sign it that bill in the policies can have the same effect regardless of what they meant to do in fact I would argue when you're dealing with the economic policy be hard-nosed about focusing on what's actually gonna happen in real people don't be morally self-indulgent by saying well at least I meant well if you learn to do that you'll solve and get over the piety net so let me give you that example we've already talked about of rent control rights a simple one cuz this is well known to economists so rent control I think okay let's let's implement rent control and let's say a city says we're gonna make it illegal for landowners or landlords to charge more than $400 a month for rent for one-bedroom Apartments that'll keep the prices down lower poor people can afford it right that that might make sense now why would you do that to help the poor in the area right now you can figure out what's actually gonna happen here if you just think about it for a minute from the perspective of the landlord let's assume you own an apartment complex with nothing but one-bedroom apartments and it cost you $800 a month just to maintain every unit it's now illegal for you to rent it out for more than $400 so you're going to rent out that unit every month you're going to lose $400 doesn't make any sense unless you're just trying to find a way to go broke right so what are you gonna do you're gonna do one of three or four things you're gonna convert the rental property to commercial property so you'll sell it so that it becomes a condominium it's no longer rental property it's happen to my wife and me in Seattle and the great apartment that we could never afford it to buy and it turned into condos that have had to move to the suburbs all right so that's one thing second things you'll make it commercial property so that it stores or maybe a parking garage or storage facilities or grocery stores so it's not no longer residential property or you will figure out how to cut costs so that those the housing does it cost you much to maintain and then it eventually degrades right and it becomes a slum and it's condemned ten 15 20 years and then there's a fourth thing that will happen is that any developers that might have thought about building new apartment complexes will not do that because it makes no economic sense so point is the desire in that case was to keep affordable housing for lower-income people the effect shortage in just the housing that was targeted for the law does exactly the opposite now why we know that happens wherever it's try why does it happen the first lesson you ever learn in microeconomics and it's about supply and demand so what prices do in a context of scarcity and competition is give you information about the underlying supply and demand of the thing so probably one person that's trying to sell something might just arbitrarily come up with a number but he has competitors that are going to be competing with him right and so what's gonna happen is if the prices are gonna more or less approximate this underlying economic reality and a city council can't determine what that reality is by simply specifying a price this is the most basic lesson of economics it's as if the first thing you learned is that hydrogen is lighter than helium and then almost everything you have to think about relied on that and you still managed to forget it that's what we do in economics we forget the first lesson so we know why and we know what if you know that then whatever you do you're not gonna try that unless you're actually wanting to create a shortage for housing right so that's why you want to learn something about these things and if you do at notice you will have avoided the piety math you will have learned to think through the consequences of policies for every group but not just one group second myth is what I call the greed myth the greed myth is not the idea that people are greedy that's not a myth right we're a fallen race get two or three gathered together anywhere and greed will be in the midst of them and it's just kind of how things go that's not enough the greed myth is the idea that the essence of the market economy is greed that it needs greed to work that it feeds greed and that it's sort of essence is greed why do I call that a myth well I think it fundamentally misunderstands the nature of the market economy but first remember I'm not saying the myth is that people are greedy let's just let's grant that the problem with this myth and the reason I think it's so insidious is that many of the champions of capitalism actually Abdullah soom this in fact I was at a conference some years ago Christian college professors and think-tank libertarian types and all the college professors were very skeptical of free markets in the opening talk was by a prominent economist and the title of the lecture was greed is good and all of these Christian college professors were like turtles are turning to their shells right now we know this is what we were gonna get argued with the guy during the question-and-answer I never got invited at conference again this is a disaster but he was essentially articulating what I and Rand had argued Rand actually wrote a book called the virtue of selfishness it's an edited collection this is what she actually said in the book she said capitalism and altruism are incompatible they are philosophical opposites they cannot coexist in the same man or in the same Society now Rand it turns out had weird definitions of words still this idea that capitalism and altruism are incompatible that's a problem for Christians if that were true first of all greed and selfishness or one of the seven deadly sins there but that's a vice and altruism is a good thing acting for the benefit of other people so if Rand is right that's a really serious problem she's one of the most widely read defenders of capitalism in 20th century was in Hong Kong a few years ago walked by a bookstore and what people read in Hong Kong so I went in went right up to that the table next to the checkout stand right there newest book by Richard Dawkins of course and next to her was Alice Shrugged by Ayn Rand in Hong Kong so that's how widely read she is nevertheless I think she fundamentally misunderstood the market system it's a friend and colleague named George Gilder who actually argued about 1980 that in fact if you look at what the entrepreneur actually does he or she is altruistic not in the sense that he's thinking sweet nothings and visualizing world peace but what does an entrepreneur do and entrepreneur is a person that takes risk with his or her own money maybe gets extra capital in pursuit of a vision that may or not pay off the vision always has something to do with meeting a desire in need of people maybe even before they realize they need it that's entirely different than the miser that hoards wealth now one of the ends of the entrepreneur might be to make more money but this is not the kind of selfish money-grubbing miser that you might be led to expect from Rand but a lot of people think actually rands argument isn't she just kind of updating what the founder of modern economics argued was Adam Smith people often read Smith now and they don't actually read Smith if you read his Wealth of Nations which very few people actually read there are lots of pages about pin factories and the British tariffs and actually a lot of super boring stuff and so nobody actually reads it what they do is they've heard a couple of quotes from Smith and then they assume that Smith was arguing more or less what I and Rand argued and in Smith for those of you don't know he's a Scottish moral philosopher part of the Scottish enlightenment probably a deist first book was called the Theory of Moral Sentiments and then in 1776 he wrote a book called The Wealth of Nations so this is the only slightly complicated part of my talk so if you make it for the next five minutes it's super easy downhill stuff all right so I just I'm what we need to slice the Bologna a little thinner than we're normally used to is what I want you to see is it actually Adam Smith had a very interesting and sophisticated argument that is not an rands read as good gag it's something else so what I'm going to do is I want to just give you the two quotes you've all heard in some version now I want you to analyze them carefully so here's the first one and Smith says these kinds of things throughout the wealth of nations says it's not from the benevolence of the butcher the brewer or the Baker that we expect our dinner but from their regard to their own interest ok so just let that hang there the Smith saying greed is good the butcher ought to be greedy or is he saying something else I just hold it there now there's one other idea that comes from Smith and everyone associates this one idea with Smith it's his description of the market as a anybody know it's an invisible hand right people assume this is a perennial theme he said it so far as I can tell two places ever so I give you one example of that all right so I'm expecting you to kind of hold these two quotes in your head for a second all right so here's one of the quotes he's talking about what he calls men of Commerce is what he says says in spite of their natural selfishness and rapacity business people are led by an invisible hand and thus without intending it without knowing it advance the interest of the society now what is Smith saying it's actually saying several things and if you study him carefully you realize there's a heck of a lot going on here it's a couple of things you need to understand about Smith he was a moral traditionalist he was influenced by the Stoics he's widely considered a neo stoic he treated vices the same way Christian theology and the perennial tradition and always treated vices so the seven deadly sins or sins they were bad vice was not a virtue selfishness was an honor virtue is a bad thing so he can't possibly be saying what Rand was saying they could spend a lot of time on that but I'll just ask you to trust me on that particular point the other crucial point is that there's a distinction between mere self-interest and selfishness distinction between selfishness and mere self-interest every time you take a breath every time you look both ways before you cross the street beat three square meals a day brush your teeth take your vitamins study before an exam you're acting in your self-interest is that bad we said well it's a necessary evil I have to breathe I'm sorry you know no that makes no sense if you have children you realize you actually spend a bunch of years just teaching your children want their self-interest is that you really should brush your teeth this is this will help you just learn to do this we are bodily creatures we need to eat we need to breathe we take up space we need shelter it's how God made us those are not those aren't necessary evils they're part of what it means to be embodied creatures there's nothing wrong with the fact that you need to breathe and you need to eat and you need to drink it's how God made us that by itself is not part of the fall so self-interest what is that exactly well if you read Smith carefully self-interest is essentially this domain of your existence over which you have some control and knowledge and some direct interest so in other words the butcher his self-interest includes the fact that his daughter needs braces and he doesn't have the money yet and so Smith's point is that the butcher doesn't have to be thinking how much he loves his customers he can just be thinking about the fact that his daughter needs braces which is actually much more interesting to him and much more important but in a market system with the rule of law he's not gonna steal from you you can't do that he might try to sell you rotten meat but he'll go broke so what's he gonna do he's gonna try to provide meat at a quality that you like and at a price you can afford and to do it better than his competitors in other words simply by focusing on those things that he's most interested in the market process with a rule of law will channel his activities toward things that benefit others whatever you think of that that's a totally different and much subtler argument than anything I ran made I did a market not not Anarchy this is not the Lord of the Flies all right this is a system rule of law and Smith called the natural system of Liberty that you'd get this that's the first point and then the final point is the difference between I told you selfishness and self-interest this is his second point notice in the second quote he doesn't say business people ought to be selfish and rapacious he says in spite of their natural selfish and rapaciousness in other words if you have a system of laws set up right even a vicious Baker even a greedy Baker or a greedy butcher the best way for him to fulfill his greed and to make money and to get money is what is to make bread or to make meat and to sell it at a price people are willing to pain to do it better than its competitors so this point is that a market system with the rule of law has the capacity to channel not only our ingenuity and our legitimate self-interest but even our vices so that more often than not they lead to socially beneficial outcomes or at least more beneficial outcomes than any other system take the socialist system for instance in the socialist system you have no incentive to serve a customer your incentive is entirely to curry favor with the regulator's and the government Rech apparatus that's your incentive that's miss point now once you see that that is an argument as an argument as a thing of beauty and is something much more subtle than anything I and Rand said there's arguments against it not saying that I want you to see that that's important because what kind of economic system do we want to have this side of glory we want an economic system that is fit for fallen human beings now markets need a minimal level of virtue to work if most almost everyone is stealing from everybody else no one respects the rights of others you can't get a market so you need a certain minimal level of virtue but beyond that you want a system that will channel and incentivize people to do things that benefit others even if maybe in some cases you're doing it for greedy reasons makes sense that's as complicated as it gets I promise all right so just hold that in your mind if you forget everything else that does distinctions third myth is called the zero sum game myth and this myth is about the nature of trade and I spent a lot of time on this and this is actually a really popular myth right now in fact it's popular by both major political parties in the United States which is an exciting time because I'm not partisan now I'm actually arguing against leaders in both political parties what's the zero-sum game myth well this is the idea that in trade there is always a winner in a loser now what is a zero-sum game as your sum game is a win-lose game it's called zero-sum because it's like adding 1 and minus 1 1 plus minus 1 equals 0 so it sums to 0 these are the kinds of competitive games that we normally play chess checkers soccer hockey football things like that you can tie in some of those games that notice if there's a tie nobody wins but the logic of the rules is such is that if there's a winner there has to be a loser that's a zero-sum or win lose game all right hold that in your mind so you can already probably guess there going to be two other logically possible games ii wouldn't be a lose-lose game that is a game in which everyone that plays ends up worse off than they were at the beginning so these aren't games we normally play more in spots it's actually hard to come up with examples I never do nuclear war in a confined space is the best one I've been able to come up with nobody gets off better so that just everybody ends up worse off right so there's win lose or zero-sum games there's lose-lose third one is a win-win game now what's a win-win game a win-win game is a game in which everyone plays over long run ends up better off than they would have been if they had not played the game so that's a question you asked to determine if you're in a win win game is not am I better off than that other guy that's not the question the question is am I better off for having played the game than I would have been if I had not played it so you're comparing yourself in the game with your counterfactual self and the game is win-win if people end up better off as a result of it even if some people end up way better off than others make sense ok so at this point we're just just kind of basic logic alright so the question is is the nature of trade always zero-sum is there always if something somebody benefits from a trade in one country or one area somebody else had to sort of lose proportionally in order for that to work what's weird is I knew the answer in this question in the sixth grade I grew up in a town in Texas that was mostly hot but had the occasional ice storm so we didn't have snow days but you knew the ice storm was coming and so teachers would prepare to keep you inside all day not go out to recess and so in this particular case I'm in the sixth grade my teacher had heard about the snow and the ice she'd gone to the dollar store and bought a bunch of toys that she passed out during recess and so there's a silly putty egg and a paddle ball and pack of Barbie trading card wants that right I mean just this kind of stuff passed out to all the kids different toys so okay now look around look at the tool you have and look at the toys of the other kids in the room and rank between one and ten how much you like your toy one if you don't like it at all it's a ten if you really like it it's totally up to you so it all did this now assume there are five rows of five kids I don't remember exactly but that simplifies this so we all had different toys we're sort of ranking compared to what other people have when we do this and then she has okay tell me what your score is and she had us call out the number that we gave our toy she added up the total and she wrote it on the board so because it's the sum total of our subjective evaluation of our toys situation that's what it is all right said okay on the first round of the game you can freely trade with anyone else in your row so that meant we could trade initial trades with four other people so there were some activities some toys changed hands but there wasn't a whole lot but people sort of changed for a couple of minutes settled down and said okay now write down how much you like the toy that you have in your hand so again we did it shed us add up the total she called we called it out she added up she wrote the total on the board and you know what happened right the number went up now what's happening here this weird same toys number goes up said okay now in the second round of the game you can freely trade with anyone else in the classroom this is why I remember this game these years later mass pandemonium everybody has 24 potential trading partners on the first trade so the chances that kind of permutations here are very large so lots of chaos kids they never said anything suddenly snap two and ran the calculations lots of stuff changing hands it eventually settled down and said okay now no longer no trades happening right down she liked the tool you have in your hand we all did it again called out the number she added up the total and she wrote it on the board what happened the number way up what's happening here what's happening here is a game with pre-specified rules she said you can freely trade with anyone else in the classroom that did not mean I could threaten a little girl behind me right with harm and the next time we went outside if she didn't give me the paddle ball and take the Barbie trading cards that's not a free trade a trade only happened if both sides do it that's the rule so there's certain things set up things you can't do and then it channels your activity toward certain kinds of exchanges and in the exchange it takes place is only gonna take place unless both people perceive themselves as better off as a result of having done it now this is the stuff of everyday life we do this all the time I have never walked into a grocery store where the grocer was standing there okay let's play rock-paper-scissors and if you lose you give me all your money it's not how it works you go in you buy groceries if you did that suggest you preferred the groceries to the money and if you took the money that suggests you prefer the money to the groceries that's mutually beneficial exchange not that complicated actually hard to get going though you need a very precise system of laws and customs or an act and put it this way you said Liberty is the delicate fruit of a mature civilization not Anarchy rule of law free exchange win-win and the more opportunities for these exchanges the greater the value now here's where I think a lot of us as Catholics get sort of confused and this why don't use the word capitalism because I've heard many many people in fact about a dollar for every time someone's told me this I would be a rich man they say what we want is some Third Way between capitalism and socialism and nobody ever quite knows what they mean by that but they picture a danish village with a ball bow in the garage so far as I can tell and dried salmon and everybody's living happily it's just kind of the picture but it really that's not the relevant spectrum if you wanted to talk about the relevant social spectrum let's talk about it just with respect to the state the coercive power of the state here's the spectrum Anarchy where there's no functioning rule of law at all in that case that doesn't last long and what it ends up with is the powerful enslaving and lording it over the weak that's one extreme the other extreme is statism in which the coercive power of the state is in your business it is in your family it is in your mind it is in your job it is in everything you do that's the spectrum the sweet spot is a rule of law with a limited government that enforces the rule of law and that is itself subject to the rule of law and it sets up the conditions for beneficial interactions in the economic sphere that's the sweet spot we should look for and it's the one in which people overwhelmingly flourish if we actually look at the evidence of the twenty and early 21st century final related myth so I lied a little bit about no more kind of nuanced points this is a little bit of a nuanced point so the zero-sum game if is about is a myth about the nature of trade the materialist myth is a myth about the nature of wealth so the materialist myth is essentially the idea that wealth is a physical thing it's just it's a finite amount of stuff that's out there and so if somebody has a lot of it that means somebody wants to have less of it it's a popular metaphor for this would be the pie when you hear this when you talk about so-and-so got more than his fair share the idea is that it's like a pie imagine an economy like this and with a pie it's a physical manifestation of a zero-sum game if you eat a quarter of the pie before your friends come over you're gonna have they're gonna whole get smaller slices that's why you do it right if you want a quarter of the pie you do it before they get there and you cut up the pie and you hope they don't notice right but if they all show up before you slice it you're gonna slice 8 equal slices right because that's the only way to do it equitably now we know that economies are not like this if you just look at any relevant information we know that even sub-saharan Africa which has done the least well in the 20th century nevertheless and almost every economic indication has done better so something about this myth must be wrong but nevertheless it sticks to our intuitions so significant if you think it's so silly in such a myth that no one would believe it read the Communist Manifesto it's exactly the vision of the economy that Marx and Engels present here's their basic argument they are you in the Communist Manifesto that what they call capitalism will sow the seeds of its own destruction capitalism is a system in which there's a group of people called the capitalists or the bourgeoisie they're the guys that owned the factories in the farms and the tools and all that stuff and then their wage workers they get paid wages maybe hourly to work in the factories those are the workers the laborers the proletariat and what Kaplan is what Marx and Engels say is that this is what actually happens in this capitalist economy so this is a visual representation of Marx's description all right I don't know what the color looks like but this is not a representation of the numbers that people think of this is the amount of wealth in the hands of these different groups of people at particular times alright so think of the proletariat is 99 percent of the population and imagine that England in 1750 let's say they have 70% of the total wealth at the beginning that's the red and the capitalists or the lavender color let's say they start out with 20% and it's a small group of people so that small group of capitalist owns factories they pay workers as little as they possibly can and then let's say you've owned a textile mill and your workers make shirts you take the shirts out to the market and you try to sell them for more than they cost to produce and if you do that you will make a profit which Marx called the surplus value the reasons because Marx said things are worth only as much as they cost to produce and so if you charge someone more you're exploiting both the customer and the worker so we called it a surplus value nevertheless you know this is based on Marx's labor theory of value I won't go into all right but this is the bosom behind this but the capitalist doesn't squander this at achensee note these profits he takes it back and he reinvest it his capital in his equipment so that the workers are more productive they're more efficient then they will produce more with less you can fire some of them doesn't need those pay the rest a bit less because they're now more productive and then he will set take those shirts and sell them and make even more money and more profit and he keeps reinvesting it they see see how this goes and some work said as a result of this capitalist process people the individuals with jobs will be paid less and less but they will be more and more productive and all the wealth will go to a smaller and smaller number of semi monopolists and they will eventually get to this point in which all the wealth the the 1% is there in the lavender and 99% are there in the red and what happens revolution right and which the workers rise up confiscate the means of production liquidate the capitalists and then there will be a temporary stage called socialism socialism was never the goal for Marx and for communists it was a temporary stage in which the state owns everything on behalf of the public no private property estate owns everything for everyone and then once people quit being attached to spouses and children and property and land and stuff like that religion then a new socialist man will emerge and the state will wither away in a communist utopia that's the theory this is where every one got stuck right here now why is that Marxist theory was based on absolutely no poppy Racal information at all in fact he lived in an apartment a few miles away from factories at the time in which the wages of workers were going up rather than down so the evidence at the time perfectly available contradicted his theory how's that possible what's possible cuz it just was wrong about pretty much everything you would need to be wrong about in an economy what's the market reality now market realities not utopia and there are recessions and depressions and all sorts of depravity but the market reality is that over time if you want to think of a market or an economy in any way think of it as a pie that grows not like any pie we've ever known I admit this is not the best animation in the world it's the best I can do right but here's the reality we bombed Japan brutally we destroyed its Navy we destroyed its major cities and within 30 years through trade and rule of law it became a prosperous country South Korea was pure peasantry and a military dictatorship and now look at it this is the market reality the late Steve Jobs did not get wealthy stealing iPods from homeless people it's just not how it worked what did he do he participated in a process of wealth creation for himself and others wealth that wasn't there before you get that you're going to get the essence of economic reality how's that possible how is it possible that can be wealth that exists that didn't exist before all economists know this is true we know that economies that trade with each other and focus on their comparative advantage both get better off the countries that we trade with benefit from it and so do we how's this possible well in the Economist kuala khanna mmus I think has a hard time answering this question the Christians should not if you read the first chapter the first page of the Bible what does it say the scribes of God creates the world is this mysterious workweek he creates light separates the light from the darkness and then that sets up his own day right the acts during the day and then what happens evening and morning first day second day and the acts during the daytime rests in the evening and he does several several different things and then in the sixth day there's an encore after he says let there be he stops and speaks to himself for the first time and he says let us make man in our image after our likeness male and female he created them and what does he do he creates them and then he commands them be fruitful and multiply and fill the earth now what if you knew nothing about the biblical narrative but that one text what would you think it meant to be made in the image of God it would stand to reason that at least part of that must have something to do with what this God is doing what is this God doing this God is exercising sovereignty and freedom and creativity in a preeminent way he calls everything including matter into existence without impediment and if he leaves it to us those made in his image to take the material world that he has created in to transfer meant so God made thus and he left it to us to make fiber optic cables and computer chips Pascal Blaise Pascal said God grants even two creatures the dignity of causality other words God doesn't hoard all of the causality and all the creativity it to himself he gives us powers of creativity and lets us do some things on our own that if that is true explains precisely why we should want an economic system that is best at channeling people's ingenuity at their creativity channeling their legitimate self-interest and even their fallenness into beneficial outcomes thank you very much [Music] [Applause] [Music]

Channel: Franciscan University of Steubenville

Views: 3,379

Keywords: Franciscan University, Steubenville, Ohio, Catholic, college, Franciscan University of Steubenville, Franciscan University of Steubenville (College / University), FaithAndReason, Faith And Reason, FaithAndReason.com, Dr. Jay Richards, business, economics, Catholic University of America, capitalism

Id: YGDbYQMztVo

Length: 58min 56sec (3536 seconds)

Published: Tue Apr 24 2018