Capital Ideas

One of the fundamental rules for using Scripture is to avoid reading our culture into the text. Scripture was written into a particular context. When we read about economic issues, we must read them within context. What has changed about economics since the Bible times? A Lot!

 

Most people have worked in agriculture over most of human history. Trade of produce and livestock was the focus of exchange. Labor and land were the two primary means of production. Wealth was measured by the amount of land and labor one controlled and the harvests and livestock one generated. As a community began to generate a surplus of agricultural goods, some members were free to pursue other activities besides agrarian work. Still, agriculture has been the driving force in most places and times. As late as 1885 in the United States, it is estimated that families produced 80% of what they consumed. That number had flipped to purchasing 80% of their consumption by 1915. 

 

This is not to say there was no “store of value” or “money” in ancient times. There was. Money was usually in the form of precious stones and/or metals. But money was primarily used for paying taxes and other specialized exchanges. Barter and trade predominated.

 

All of these factors together reinforced a “zero-sum-game” view of economics. It was thought that one can gain wealth only at the expense of another’s loss. How could it be otherwise? There was a fixed amount of land, a fixed amount of labor, and a fixed amount of precious stones and metals. It is hard to overestimate the impact of free-market Capitalism and the creation of corporations on how we now see economic life.

 

With the invention of steam power in the 1700s and then the internal combustion engine, it became possible to increase the output of a fixed number of laborers dramatically. However, the machines that made this production possible were expensive. Few individuals had the resources to purchase the equipment on their own. Individual investors pooled their money to create partnerships. Events in the United States, like the construction of the Erie Canal and the development of railroads, exponentially raised the level of amassed resources needed to accomplish the tasks. The government did not have the money, and investors had no practical way to pool the necessary resources. Corporations evolved to address these needs.

 

Corporations are “fictitious persons” under the law. Ownership of the corporation was divided among the owners based on the proportion of the total resources they had invested. If the venture succeeded, the owners profited by dividends paid according to their proportion of ownership and/or appreciation in the value of their shares of stock. If the venture failed, they were only liable for the invested amount. Unlike partnerships, where the venture was dissolved each time a partner died or sold their ownership, corporations seamlessly transferred ownership between investors with no disruption to operations, giving corporations a perpetual existence. The management of corporations was placed under the control of a chief executive officer with oversight by a board of directors elected periodically by the owners.

 

The means of production dyad of land and labor became a triad by adding capital to the mix. Capital consisted of financial resources, buildings, machines, and equipment used in production. The battle of the Twentieth Century was often said to be between Capitalism and Communism. That was a misnomer. Both camps believed in amassing capital, or “Capitalism.” They disagreed over whether the markets for goods and services and the ownership of the means of production should be unrestrained or controlled.

 

Another change that emerged during this time was the use of debt. Lending money became less about assisting someone in need and more about investing. I said earlier that economics had always been seen as a zero-sum game. Free market Capitalism ushered in the idea of an ever-expanding “pie” of wealth. With this mindset, if I can borrow a sum from someone for a fixed period, promising to pay the lender back the amount plus 5%, it may be worth it if I can grow my portion of my pie by more than 5%. The lender wins by getting a 5% increase, while the debtor wins by being able to produce what they otherwise would not have been able to and still expand their wealth. Equity financing (stock ownership) and debt financing became the twin economic “pie” expansion engines.

 

Why this economic history lesson? Think about how this has impacted how we view ownership, employment, debt, production, land use, and exchange in our times. It is impossible to directly transfer the Old or New Testament values into our Twenty-First Century global, capital-driven economy. Caution must be used about reading our present experience into ancient cultures.

 

With this fully in mind, it is time to revisit some Scripture.

 

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Comments

[will spotts]

I'm with you so far.

The changes you mention, for example, combined with an inflationary currency force one to rethink the concept of interest. (For many centuries most people understood the Bible to forbid interest -- but the concept seems to have been more tied to loaning to help, and seems to have assumed a stable medium of exchange -- so that the loan did not lose value on its own.)

Interesting.

[Michael Kruse]

"Interesting."?

Hmmm...Is there a pun here?

[will spotts]

OK. That was bad . . . sorry.

[Michael Kruse]

No need to apologize! I am indebted to your humor. *grin*