The Poverty of Nations: Chapter 4 Economic Systems

I'm currently reading The Poverty of Nations by Wayne Grudem and Barry Asmus that was published about a year ago.  It was on my reading list, and my daughter bought it for me for Christmas.  I've begun to read it and will give a summary as I go.

Introduction was here
Chapter 1 was here
Chapter 2 was here
Chapter 3 was here

Now for chapter 4.

This chapter is a description of the free market and its advantages.

First comes the definition.
Economic production and consumption are determined by the free choices of individuals rather than governments and there is private ownership of the means of production.

This system leaves people free to choose to work, and where to work.  They are free to keep the rewards of their labor and talent.

They quote Adam Smith:

That system of laws, therefore, which is connected with the establishment of the bounty, seems to deserve no part of the praise which has been bestowed upon it. The improvement and prosperity of Great Britain, which has been so often ascribed to those laws, may very easily be accounted for by other causes. That security which the laws in Great Britain give to every man that he shall enjoy the fruits of his own labour is alone sufficient to make any country flourish, notwithstanding these and twenty other absurd regulations of commerce; and this security was perfected by the revolution much about the same time that the bounty was established. The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security is so powerful a principle that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations; though the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security. In Great Britain industry is perfectly secure; and though it is far from being perfectly free, it is as free or freer than in any other part of Europe.   An Inquiry into the Nature and Causes of the Wealth of Nations   IV.5.82 
  http://www.econlib.org/library/Smith/smWN15.html#IV.5.82  accessed on June 24, 2015

 The authors point out that except for oil rich countries all countries with a high per capita income have a free market system.

Grudem and Asmus also discuss biblical support for a free market economy.  These points include the Biblical teaching about private property, but stewardship for what we do possess.  The fact that we are all created in God's image means that we should all have equal rights before the law.

The foundation of a free market is private ownership of property.  Governments should not over regulate property use.  Clear titles to land, property (including intellectual) are important so that people can actually keep and use their own property.  Without titles, there is no guarantee that my property today will be mine next week.  Furthermore, when I have a title to my property I can use it as collateral for loans.

Getting titles for poor people for property they already own would go a long way to helping lift people out of their poverty.

The authors cite a study by Hernando de Soto, The Mystery of Capital.   De Soto concludes that without legal protection for property poverty cannot be eradicated.  There is no third way between capitalism and socialism.

There is a role for government in all this, but it is limited to preventing and punishing fraud and criminal behavior.  The government also must ensure low tax rates and a stable currency.

In this time when capitalism and free markets are under attack this chapter sorely needs to be read by Americans and Europeans or we may lose the wealth that our ancestors have bequeathed us.

Adam and Sin and the Origins of Humanity

Time for another book  review post.  This one is on a topic that interests me deeply because of my background in both science and Bible.  These two areas seem increasingly at odds regarding human origins.

The book I've finished reading recently is The Lost World of Adam and Eve by John H. Walton.  In his work Walton argues that the story of Genesis is not the story of the creation of the world and of humanity, but rather of how God brought order to the world and gave humanity a priestly job to do.  If this is true, then the debate between evolutionary science and the Bible is done and gone.  A helpful analogy that Walton uses is that of building a house (creation) and taking a house and making it a home (ordering).  In our scientific age we focus on the former, but Walton argues that in the light of the ancient world's literature it is more likely that the author of Genesis is actually focusing on the latter.

Whether you agree with Walton, his arguments should be taken seriously and read carefully.  Walton writes well and is very interesting to read.  I look forward to thinking through the implications of Walton's thoughts.

Rather than reviewing Walton's entire book, I want to focus on chapter 19 where Walton has an excursion by NT Wright.  In this chapter Wright argues that Paul is more interested in the effects of sin on the cosmos and humanity than in the origins of humanity.

Wright points out that Adam plays a very small role throughout the Old testament and through Jewish literature.  Wright argues that throughout Romans (6:6, 7:7-12, 1:18-25, 8:17-30) Paul compares the glory and position that Adam had and lost with the glory that humans will have once again.  The point of Romans is not how people get saved, but the renewal of all creation (8:17-26 compared with Psalms 2 and 8) and the role of God's redeemed people in bringing in that renewal through the work of the crucified and resurrected Messiah.  1 Corinthians 15:20-28 also underscores this.  Jesus is the second Adam, doing what the first Adam did not - being an obedient human at the helm of the universe (p. 174).  God has not abandoned his plan for his creation.  Although sin blocked his purposes, through the crucified and resurrected Jesus these purposes will be brought to fruition.  Sin and death will be defeated and humanity will praise and worship and work for the true creator God throughout the entire world for eternity.

Adam and Israel repeat the same story.  Although appointed to be priests representing God to the world, they fell into sin and idolatry and needed rescuing.  Just as Israel was chosen from all the nations of the world to be priests and to bless the world, so too it is possible that God chose Adam and Eve from all the other humans alive at that time (p. 177) to be priests for him and bless the world.

If Walton and Wright are right (pun intended) then science and the Bible are speaking of very different concerns.  The Bible is concerned with describing how God brought order into the world and made it a fit place for his presence with humans as his priests.  Science is concerned with the nitty-gritty of how the cosmos and then life arose.  The Bible is concerned  first with how the earliest humans of importance failed in their task and alienated humanity from God and then with how God moved to bring humanity back into relationship with him so that he could continue with his plan of having an ordered creation on Earth with human beings running things for his honor and glory.  Science describes how the world that God created actually works in its running but has nothing to say about the purpose for its existence or how that purpose was at first thwarted then redeemed.

Chapter 3 Economic Systems that do not lead to prosperity

I'm currently reading The Poverty of Nations by Wayne Grudem and Barry Asmus that was published about a year ago.  It was on my reading list, and my daughter bought it for me for Christmas.  I've begun to read it and will give a summary as I go.

Introduction was here
Chapter 1 was here
Chapter 2 was here

Now for chapter 3.
It's also helpful to look at which systems don't work and why they don't.  Although the right system in and of itself does not bring a nation out of poverty, the wrong system will doom a nation.  A poor system will not lead to lasting solutions to poverty.

The authors describe nine systems and critique each to show how they do or do not lead to the creation of more wealth.

1. Hunting and gathering systems do not leave enough time and energy to devote to economic development and specialization.  Plus, there simply aren't enough of these resources left to support a nation in this fashion.
2. Subsistence farming does not leave enough energy and time to devote to specialization and development.  All one's time and energy are spent on producing enough food to feed one's self and a few others.  Again, there aren't enough resources in the world to support a large population in this fashion.
3. Slavery.  Living off the lives of others is not going to lift a nation out of poverty.  Enslaved people never do their best.  Plus such a system is dehumanizing.
4. Tribal ownership.  If everyone owns it, then no one does.  Commonly owned property is usually treated more poorly than property that individuals own.
5. Feudalism  In this system too much of the return to the labor goes to the land owner and not enough to those at the bottom of society.  
6. Mercantilism  Although it seems that this method would increase a nation's wealth, it would not do so over the long haul.  Large companies and monopolies are favored against consumers.  The producer os favored rather than the consumer.  The government picks the winners and losers.  
7. Socialism and communism misunderstand how goods are valued.  They are valued by how much someone else wants them, not by the resources and the time put into creating them. Communism reduces the incentive to work.  The problems of tribal ownership also haunt communism and socialism to some degree.  The history of communism also indicates that it is an evil system, with close to 100 million human beings killed by their own governments during the twentieth century.
8. Welfare state and equality  This system can't be sustained on a large scale and for very long.  Sooner or later someone has to pay the bills.  The incentive for hard work is also removed.  
9. Free market system  This system is the one that the authors describe as the one that is most likely to lead to the reduction of poverty.  It is important to understand what they mean by a free market system.  It is where the individuals can freely choose what to buy and not buy, what to purchase and not purchase, where to invest and not to invest.

The next chapter describes the free market system

Curing Poverty - chapter 2

I'm currently reading The Poverty of Nations by Wayne Grudem and Barry Asmus that was published about a year ago.  It was on my reading list, and my daughter bought it for me for Christmas.  I've begun to read it and will give a summary as I go.

Introduction was here
Chapter 1 was here

Now for chapter 2
In this chapter the authors discuss approaches that will not lead to prosperity.
They list the following:

1. Foreign Aid
1. Foreign aid does not work because it does not build the structures that bring and keep people out of poverty.  Instead this aid tends to become a good that those in power use to enrich themselves or to stay in power.  It encourages corruption.  It eliminates the incentives for hard work, education, and working for one's own success.  Furthermore, the history of foreign aid is that it does not work.  Why does it continue?  Because bureaucracies are more interested in perpetuating themselves than in finding solutions that work.  The authors also point to many of the civil wars in Africa that came about because of conflicts over the control of foreign aid money. 
2. Emergency aid given to non-government agencies is often useful, but must be done with care.
3. The Bible teaches help for the poor, but not handouts.  In the Old Testament the poor were given opportunities to glean for themselves, but not to simply receive handouts.
2. Wealth redistribution
1. Some countries have large differences between the wealth of a few and the wealth of the vast majority of citizens.  Latin America in places, North Korea, parts of Africa and Russia are cited as examples.  In these cases, simply redistributing the wealth will not raise people out of poverty in the long term because there are problems in society that need to be addressed.
2. Some countries have wealthy people because those people have worked hard or created services and goods that others will pay money for.  To redistribute these people's wealth is stealing.
3. Depletion/over use of natural resources
1. Depending on a few natural resources for a nation's wealth is a mistake.  The authors point to Spain in its dependence on the gold of the New World and OPEC nations today.  It is too easy to depend on the wealth that the resource brings and not use the resources to continue to build wealth.  Norway is a positive example of using oil, but many other nations have not been so successful.
4. Blaming poverty on external factors
1. The authors discuss colonialism and contend that although both harmful and beneficial, colonialism is only partially responsible for the poverty of most of today's poor nations. Colonialism has created the conditions that have lead to poverty in some nations, and has led to creating structures in other countries that have led to wealth.
2. Blaming the past does not create solutions for the further.  While it may be wise to look at the mistakes of the past, staying mired in the past will not lead to solutions in the future.
3. World Bank and similar agencies.  Should these loans be forgiven?  If so, then we are back to simply giving foreign aid - see above.  How will the conditions that gave rise to the lack of ability to repay be changed?  If they are not, then forgiving debt will not actually change the situation in any country.
4. The section on commodities in the world market was very interesting.  I would suggest that you read it for yourself  (pages 92-99).  The authors do not favor the "fair-trade" movement.  Nor are they in favor of market manipulation through subsidies and tariffs by large companies or more powerful nations.
5. Multinational corporations: Again, this is a more complicated section and needs to be read in its entirety.  The authors speak out against monopolies of labor because that artificially lowers or raises the cost of labor.  When companies compete with each other for the cost of labor, then everyone benefits.  Employees should be treated fairly and honestly.
5. What does cause poverty?  This is complicated and people on both sides of this issue are often too superficial in their understandings.
1. War, crime, disease, accidents, disasters can all cause or contribute to poverty.  This is often beyond the victim's control.  
2. Laziness by the poor person
3. Other factors?

The next chapter deals with systems that do NOT lead to wealth.