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Wednesday, June 24, 2015

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  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.