It's our last one on theories. So the first session was Econ 101, the basics. Second session was the first of theory, taking you through the history of theory. And now I'm just going to I'm calling this human action and political economy. Human action being the main thing that capitalists, in the truest sense, tend to start with in their assumption. In fact, it's the title to Ludwig von Mises' classic on economic theory. It's bigger than a phone book. So yeah, if you want a book that's bigger than a phone book to read, I give you that. But on the other side, political economy, though Jean-Baptiste Say used that in his title and he's in the classical mode, again, there's nothing wrong with a frontier between the state and the sphere of labor. In one of our early sessions, we talked about the unity of the civil spheres. We're not denying that at all. But political economy, that term, began to take on a life, particularly with Marx, where the frontier actually became not a frontier at all, but rather the state began to subsume the field of labor within its jurisdiction in every way, the management of it. Keynes, though he rejected Marxism, Keynes couldn't help but support that idea because of what the government must do to the demand side. And so you still don't have a frontier so much as you have labor existing within statism. Okay, so here you're going to see a conflict of visions. And so I have three things on the board, three different conflicts about number one, what to invest in as a society, Secondly, what do we mean by to plan? This is not a battle between planners versus non-planners, rational agents versus organization versus disorganization. That's what Gorbachev thought when he was talking to Thatcher. He didn't have a category for it. Both believe in rational planning, but what do we mean by that? And then thirdly, a conflict of moral judgments. Capitalism is not an amoral system, the best we can do against the faulty moral assumption of altruism that just doesn't so happen to work out or have anything to do with the scientific thing of economics. No, as Christians, we can even do better than the Austrian economic school. We can do, as George Gilder does, we can give a theological formulation and unify our moral judgments to economic activity. We do not agree that only the Marxist or only the person that ignores the scientific objective component of economic activity can make moral judgments, and we disassociate the two. Capitalists have made that mistake ever since after Smith. Smith, I don't believe, made that mistake. Ayn Rand tried to unify them by elevating what she called the virtue of selfishness. I think we can do better than that. I think we can unify the whole thing. And I think Gilder does in his books. Anyway, these are the three conflicts, to invest, to plan, and of moral judgment. Those are the three things we're going to talk about in this deeper look at theory. In a sense, we're going to move from economic theory about economic activity, as you would see on a graph, all the way back, moving from the trees back to the forest, to a philosophy of economics. Maybe that's a good way to say it. We're going to say a theology of economics. So, a theological scientific link between anthropology, our doctrine of man, and economics. Between man as man and man as mover of stuff. And the more we reflect upon this connection, the more folly we're going to come to see in the material reduction that has happened with the social sciences in general and the Keynesian theory of economics in particular. Please understand, Keynes did not move so far beyond Marx, though he disagreed with him on his economics. He did not move so far beyond him that what we have in Keynesianism is a radically different thing than what happens in all modern social sciences. In all modern social sciences, and therefore the plans that come from them, there's a reduction of man to mere matter. If you embrace Keynesian economics, whether you know it or not, you are rooting your activity and your observation of that activity in assumptions about man that are fundamentally materialistic. So, let's begin to look at this, and here's the big idea. The big idea is that human action as a rational stewardship, the human actor is a rational steward, human action as a rational stewardship is on a collision course with the whole modern idea of political economy and vice versa. They're on a total worldview, and therefore world battle, collision course with each other. Human action in the biblical worldview is on an absolute, total, 24-7, all your life, you can't run away from it if you try, collision course with the whole modern idea of political economy and vice versa. So first of all, a conflict of investment. Motion versus stagnation. Scarcity is real. We started with that. The supply-sider is not denying that. Sometimes he acts as though he says so, but the Bible is very clear in Genesis 3, 17-19, that there's a curse on the ground, and that as man digs into it, it's going to bear for him thorns and thistles. That doesn't mean that God's taking back that working and keeping the ground is bad. It just means there's a curse, there's scarcity. We're still called to operate within that, and there's still a good in operating within that. By cursing the ground, God is not saying that what you do with the ground, therefore, is fundamentally bad. Those are two different things. You know, sometimes even like evangelical economists, there's a guy named Paul Zane Pilzer, and I think his books are interesting, but sometimes he speaks as if scarcity is increasingly illusory. as a technological gap is overcome. And there's something in it that's true, because it's a truth. Here's the ground, the whole economy. I've already shown you how capital formation, but when I say that, yeah, you see the imagination thing, that's fundamentally invisible, but here's the ground, it's basically a material phenomenon. What Pilzer is saying is that as technology advances, because the very nature of technology is application of reason to the ground, and the more you do it well, the more the nature of that thing is fundamentally invisible, i.e. information. And in that information sharing, storing, collecting and transmitting, you have something that is faster and faster moving, a kind of exponential effect, and that's what he means by that gap. As that exponential effect happens, as knowledge increases, How does he say it? The gap between what is scarce materially and what can be grown... I don't remember the exact formula he uses, but here's the essence of it. Our inability to make things better than scarce, or in other words, our inability to expand at an exponential rate decreases. as our knowledge increases. Is that technically true as a snapshot? Yes. The more we know and store information, it's one of the reasons why people think they're smarter today, it's an illusion. They're not smarter today in terms of the actual working through the intellect. You've collected more stuff. And certain people have specialized, there's a division of labor in knowledge as well. And therefore, as a collective, there's more knowledge correction, and it's shooting in faster rates, and particularly information superhighway. In that information age, growth rates can technically be higher. They're not. And so statism is on a collision course with the information age, by the way. And Gilder writes another book called Telecosm, which I haven't read yet, but I'm just going to go out on a limb here, and I think he's thinking in that same way, that scarcity is relative to that technology gap. Scarcity is relative to how fast and free and expansive the information moves from heaven to earth, from eternity to time, from the unchanging verities applied to passive material ground. That's what God had Adam doing. As we get better at that, scarcity becomes less a static factor. Maybe that's a charitable way to say it. Now, if you don't say it like that, you can kind of seem A, heartless, and B, like you're smoking something. You can make it sound like scarcity is an illusion, which obviously isn't true. There is going to eventually be something like a population problem, if they don't kill us all off, I suppose. But things like that, the profusion of physical property, state-owned property, that's a problem, it's not going to solve anything. population growth, etc., etc. Now, that invisible storehouse that's not finite—by the way, here's the key—the invisible thing, the imagination that turns the gears, is precisely what's infinite. See, the statist is a pessimist without reason, actually. The thing that turns this, the artist, is more like an infinite thing than the canvas is. The canvas is not only passive, The canvas is only about two by two. The artist's mind is, by comparison, infinite. So it's closer to infinity, and it has access to the infinite that the finite material ground does not. Now that's what Jack Kemp meant, and I think he was tracking with Gilder on this, by metaphysical capital. It's the most important form of capital that an economy has, and actually the material stuff of an economy doesn't have it at all. It's the human mind, the mover, that has that. What is metaphysical capital? Well, it's the intellectual potential productivity which creates a new supply, which in turn creates its own demand. The bridging of the gap between the new creation and present scarcity is not necessarily an attempt to reverse the effects of the fall. You can talk about it like that if you get carried away. But here's the thing, God never said to Adam, by the sweat of your face you shall eat bread, therefore, don't even bother. He just said, this is going to be the reality now. That's a consequence of sin and that's bad. It's your fault. But He never said, therefore, work is not good. Therefore, imagination and ingenuity is not good. Therefore, the prophet's motive is not good. He never said that. So, God tells, in the history of Israel, about the economy, He tells His people two important truths. In Deuteronomy 6, 10-12, we basically see that God is the efficient cause and the end cause. He tells them, when you go into this land, you're going to see a bunch of stuff. And in one sense, for me, that's free, and I've given you lots of it. And you're going to do it for my glory, and you're not going to forget me. God is the efficient cause and the end cause of the stuff. But secondly, the stuff of the economy and its excellent maintenance are God-glorifying things. And so in Deuteronomy 8, 7-10, chapter 11, 10-17, chapter 28, 1-14, they're told to work it and keep it just like Adam was. And they're told a lot of good things they can do with it if they do that. Notice then that according to God, charity, materially, is always a function of ingenuity. that doesn't forget God. I have to have stuff, and I have to say to myself, you're going to love this stuff if I'm going to take care of you with it. Capitalism, as Gilder seems to understand like nobody else, is supernatural-based economics, whereas socialism is naturalistic. In other words, capitalism, properly defined, properly operated, operates on the premise that supply creates demand and all of its equivalents. Seek and you shall find. Give and it will be given to you. It's a sequential logic that moves from the invisible to the visible, from the infinite possibility to the finite resource to be formed and reformed. So Gilder says, quote, the socialist economy, by contrast, the socialist economy proceeds from a rational definition of needs or demands to a prescription of planned supplies. By the way, when you open up an economics textbook and it says on page one, economics is the study of how we allocate resources to stop. Say that again? Economics is the study of how we stop. We? Allocate as a verb, not the allocation as a noun. You know what's being loaded into that? Economics is the pragmatic study of how to administer socialism. You started with the assumption that socialism is economics, the stuff of the economy, that man as a material mass and his highest good is to have that material good distributed to him. You're defining it from the ground up, from the visible to the invisible. Sure, the Socialist believes in rational organization, but he's a very pessimistic person about the nature of reality. And he believes that the rational innovator is only brought in as a reaction to the badness of work, to the badness of ingenuity, to the evil. The Socialist is agnostic. And he only believes in rational planning once God failed. Oh, he doesn't say all that. This is page one, Matt. I understand that. But that's what he means. The socialist economy proceeds from a rational definition of needs or demands to a prescription of planned supplies. But this is to put the creative cart before the creative horse, proverbially speaking here. It's to put the failure of the stuff, and define intelligence as the handful of people that can see that, before the actual stuff of man the mover moving things. Now with the advance of political economy comes the decrease in genuinely human action. The clearest case of this within economics is the relationship between the levels of taxation and the corresponding incentive and disincentive to produce that next unit of wealth, employing that next class of suppliers of labor. This is expressed in what we've already called the Law of Diminishing Returns. Notice how the Law of Diminishing Returns is the law about what happens when you start to think like a socialist, when you start to think non-supernatural about the stuff. And we can view it on the micro or the macro levels. I'll give you an example of both. I already gave you the micro level. Micro-level example, we can imagine a fast food restaurant employing one cook to flip burgers in bulk on a large stove, place a second worker there, twice the number of burgers, right? Place a third one, and we won't see the same increase. Place a fourth one, and we'll see a decrease. What happens? Elbows get tight, the stoves are right next to each other, productivity is coming to be less and less and less than it was at first, and this at a much bigger cost of labor. What has happened is a crowding out effect. Let's apply this to the macro level and you'll see the failure of this thinking. On the surface, it looks as if I have a body of money, because that's what I'm equating wealth to, say one trillion dollars as an entire economy. And I think to myself, okay, time to plan the budget for the next year. And as time goes on, I'm going to set the tax rate, and here's the productivity in years. So let's just do receipts. So the fruit of the produce, namely tax receipts into the treasury. And I'm going to increase the tax rate. I'm going to go from 20% to 40%. And so if I'm working with $1 trillion, well, 20% of that will get you $200 million. 200 billion, sorry, I'm still waking up. So therefore, 30% of that will give you, well, 300 billion. And 40% of that will get you 400 billion, right? Wrong. Why? 40% of 1 trillion is 400 billion. What's going on here? What's going on here is we're not understanding a critical crowding out effect. It doesn't matter where we put it, I'm just going to graphically demonstrate how this works. The same thing happening in the burger joint. On the macro level, we can see a crowding out effect with respect to incentive. At first glance, it may look like an increase in the tax rate automatically leads to an increase in the tax revenue, or the receipts collected by the government treasury. Not so. And the reason is that there is this crowding-out effect, this time with the sufficient motive to shift resources to productivity at marginal rates. With the increased penalty and risk for investing, the same resource will shift to passbook saving or else consumption. And this has been graphically demonstrated by an economist named Arthur Laffer in the 1970s. It was called the Laffer Curve. Right about there is a maximization point of your revenue. The Laffer curve is not about predicting, much less is it about guaranteeing that every tax cut will raise or lower revenues by X amount. What it does say is that tax rate reductions will always result in a smaller loss in revenues than one would have expected when relying only on the static calculations of the previous tax base. But, as we're going to see about the 1980s, the implication is that the higher the starting tax rate, the more dramatic the productivity will be from cutting that rate. So, in the real world, people don't take that $1 trillion and hide it, or any portion of it, under their bed. They do things with it. Unless there's a panic and you've told them to do that, and there's a run on the banks or something like that, and what does that do? Well, it immediately decreases the value. But people don't do that in the real world. And so in the real world, it's not a snapshot. 30% versus 40% of $1 trillion is going to make or break whether or not that $1 trillion stays $1 trillion in the next fiscal year, because they're not hiding the $1 trillion under their mattress. It's not even sitting in banks. It's in banks, and people are always moving. These are people we're talking about, rational, motivated, volitional beings. So, consequently, the Laffer Curve does not say that all tax cuts pay for themselves, as critics of supply-side economics mistakenly think. However, tax rate reductions will always lead to more growth, more employment, and income for citizens, which will then lead directly to greater prosperity. Naturally, corresponding reductions in spending need to occur as well, and that didn't happen in the 1980s. But as a general principle, the lower that rate, once you get to that maximum level that it starts to crowd out... In fact, even if I don't know I'm being bumped into a marginal bracket, if there's inflation, we've talked about that, but if... How was I going to say? Well, it doesn't matter how it happens. When I get to 30 to 40% of my income, And at exactly that point, I'm going to be told, you can't have this money, we're going to tax that, or we'll tax it if you use it in this way. What am I going to do? Well, I'm not going to use it in that way. I'm going to use it in a different way. And because the more I have, the more I'm going to invest and produce instead of just survive, how am I going to shift that money? I'm going to shift it from investment and production to mere consumption and survival. Naturally, the higher the tax rate at those marginal rates, the more the nature of the economy in question changes from growing to merely surviving and shrinking. So because of this, public ownership and public obtaining of resources cultivates stagnation in the individual and in the economy as a whole. Public ownership, public obtaining of resources, redistribution, cultivates stagnation, actually shrinks the economy. creates poverty. Experience tells us that we treat things differently when we own something personally and if we put our own effort into it. This is why the welfare program dehumanizes its recipients and this is why pollution and working conditions are always far worse in nations operating by command economy. Have you ever driven by public housing projects and compared them to the privately owned? Did you know that the per capita expenditure in our nation's inner city schools exceed those in the suburbs and countrysides by two to one and sometimes more than that? Why can't they limo ride those kids to school? The per capita expenditures in the schools in Washington, D.C. and elsewhere are much higher than they are in the suburbs. Where's the money going? Uh-huh. We treat things differently when we own them personally. than if we all own them. Because if all of us own something, nobody really owns that. What is crime like in an inner city area with the strictest gun laws as opposed to an area with nothing but private property and armed citizens? There's an economic principle at work there. We can see an inverse relationship everywhere between what and how much government spends on the one hand and the exacerbation of the problem it's supposed to fix on the other. Here's the principle. in economic terms. The principles for the business cycle will show us how one-sided this question. This is why the numbers are as decisive and one-sided and clear and crushing to the other view, as I will show tomorrow night, as they are. Here's the principle. Two sides to it, two principles. Principle of supply-side growth. I'm not going to be able to write the whole principle, so I'll say it a couple of times. I'll put principles of, number one, supply-side growth. Secondly, principle of demand-side contraction. Oh, that's convenient. You're defining it up front as... No, I'm not saying up front. I just spent the last two sessions proving to you that the demand-side focus has a contracting tendency, and the supply-side focus and approach, by definition, is what growth means. It's not a theory. Supply-side economics is not a theory. It's the way the world is. The stuff is the wealth. We have nothing to say to anybody that doesn't understand that. You've got to understand that first or you're not going to understand anything about much of anything, even human psychology. Here's the principle. The principle of supply-side growth is that to invest in exponential production is to grow an economy. To invest in exponential production is to grow an economy. Conversely, here's the principle of demand-side contraction. To redistribute is to stunt and shrink an economy, and I would add parentheses, and to create poverty. And I mean that create underhandedly in the sense of to put out a light as to, you know, who turned off the light. Sometimes, you know, we wouldn't say who created this darkness, but that's what I mean, creation of poverty. So, to invest in exponential production is to grow an economy, To redistribute is to stunt and shrink an economy. So you see why I call this a battle of what to invest in. You may not want to think about it, but to take one approach is to invest in motion and life, and to invest in the other is to invest in death and failure and shrinking. What did Ronald Reagan say about the philosophy of these Keynesians and socialists and big government people? is that their law is basically this. If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it. Is that unfair? Well, good intentions aside, that's what you're doing. That's what you're investing in. That's what you're propping up. That's what you're producing. You're producing failure. You're producing death. You have produced poverty. Well, redistribution of wealth via taxation not only transfers potential capital to less productive sectors, but also reduces and often squelches altogether the incentive to produce for individuals and businesses seeking to invest at marginal rates of income. It's a bit like the giveaway-takeaway ratio in football. Every dollar transferred from private sector industry to public sector subsistence is both given and taken away. It is not only not constructive anymore, it is now destructive of that same body. It's not just one or the other, it's both. There's a doubly negative trend toward contraction, therefore, whenever we redistribute through the public sector. Now, should somebody reply, but wait a minute, wait a minute. The individual on government subsistence is still going to spend or invest it every bit as much as the person who exchanged labor for it. It goes back into the economy either way. And we would reply to that, yes and no. It is true that it is re-filtered into that same circular flow of the economy. But whether one's income is distributed in productive exchange or redistributed by government will have massive impact on whether its receipts tend to flow more to the supply side or to the demand side. It is a fact that we treat things differently when they're taken for granted, when they are not earned. But beyond that, As a law of economics, as the concentration of income in an economy is distributed to those for whom there would be a greater penalty to work, their own spending percentages shift, inevitably, toward consumption spending and away from saving and certainly away from investing. Even the middle class gets a lesson in this every time there's another targeted tax cut or refund, which is nothing, as I said, but a welfare check to those who are working. How do we typically spend it? Exactly. We tend to spend it, not save it and certainly not invest it. Now, there's exceptions to this, but the rule is that income not derived from immediate, individually planned voluntary exchange will typically flow to the demand side of the economy and therefore contract the economy or leave it at a standstill. In fact, it will create poverty. Again, it's intentional. Secondly, there's a conflict of planning. The conflict is not plan or not plan, reason or not reason, care or not care. The conflict of planning is whether you will plan for oneself, according to that rational stewardship that God set us up with, or whether someone will plan for everyone. That's the conflict. Those who focus on the demand side as the key to economic health do so for many reasons. One reason, we've already covered it from Keynes, is that economists fear overproduction. In other words, that supply will often not create its own demand, and that ensuing deflation will force massive market corrections. Yet in a genuinely free market, such is not even possible in the long run. Yes, there are shocks to the economy. And again, now the question then shifts to the moral judgment of whether or not economics is meant to be a panacea or not. The question is, once you settle that, Is a permanent shock and erosion of that wealth even possible? Well, think about this for a second. The moment that a good is devalued, its producer will shift either means or material in order to continue to make as much money as possible. In the immediate, he will simply reduce prices until inventories are gone. and he will learn from the experience. Even if that lesson means going out of business, still, in general, he'll learn from the experience. The same is true with new innovations. They are expensive until they are so necessary for business to compete that this flood of demand will drive down the prices. I mentioned fax machines and IBM computers in the early 80s. When they became necessities, they flooded the market and the price was driven down, not up. Thus, yesterday's luxury items are today's necessities. Nor is increasing societal complexity an irritant to this process. Somebody will say, okay, I'll buy that as a general rule, but society is so complex now that we're just victims to this. So much stuff we don't know about. Think of the pink stuff in the meat. I mean, my goodness. Well, and this is what Thomas Sowell called the complex complex. It's so complex. for everybody to manage so many things that a handful of you can do that for everyone over the same complexity? What? Reagan said that in his 1981 inaugural address. If no one among us is capable of governing ourselves, how is it that a handful of those among us is capable of governing the whole lives of everyone? I mean, doesn't that argument argue against itself? the better information will be shared and thus the more efficiently the market will signal to producers to shift gears. At the end of the day, any suspicion that the logger or the steel mill or the silicon plant will make massive miscalculations only to be stuck with warehouses of unused goods assumes that the social planner, not the industry, the social planner not in that industry, can do it better. In other words, that a centrally located group of elites can coordinate an economy very much like a chessboard. The fact of the matter is that whenever there's a natural disaster, a war, or an instance of corporate fraud, either the market or the price system will have to directly correct it, that's the free market, or that same price system will have to indirectly correct it through central planning. But even if you do a command economy, you're going to have to work with price signals. The question is, can a handful of elites coordinate for the signal shooting off of 300 million people better than the people that know those goods and services and are motivated by those goods and services proximate to them? Can they really do that better than those? See, the only difference will be whether countless experts making the most careful decisions about what immediately affects their bottom line. See, I think that the guy who runs Walmart here in Boise and Meridian is a kind of expert at Wal-Mart-ing. And the moment you laugh at that, you should laugh a million times harder that, what's his name in Washington, the guy, the G guy named Geithner, Guttner, whoever, it doesn't matter, whoever Obama's economic guys are, that he can do that better than the guy at Wal-Mart can for that particular Wal-Mart. the decisions about what immediately affects their bottom line and what that will mean in their decision, in units, or whether a handful of intellectuals will have to pull together the totality of millions and billions and billions of those very same units to decide on things over which, two things, over which they bear no direct cost and over which they have no immediate expertise. That's two strikes. Two critical factors, two critical factors to this battle. Who has the know-how and who bears the responsibility? We might call both of these together the proximity factor. In other words, the planner. assumes that everyone on the supply side, from producers of raw materials, to wholesalers, to shop owners, will fail to adjust once the market signals come to them, in other words, to stop producing, or shipping, or investing, or stocking good X, since the demand has gone down. But what makes the planner think he will have a greater incentive to adjust, much less receive the signal faster? than the one most immediately involved. It is an idea as arrogant as it is absurd. It violates common sense on a level so common that only an elitist could become intoxicated by it. The shoe is exactly on the other foot here. The larger the society, the more complex technology, the more difficult it is to plan from a central location. Not because the individual rational calculator is a panacea. You've assumed that into the capitalist. You've assumed that because you're such an idolater, and you need to fly and put a band-aid over every ruptured part of God's creation, that that's what we're saying. That's not what we're saying. We're not saying that the individual rational calculator will solve all the world's problems. We never said that. What we did say is that he has two things the planner doesn't. Central planner. He's the planner over things that he knows what he's talking about, and he's motivated to make the correction. You're not either of those two things if you're a social planner. Now, why is this happening? Well, it's happening because redistribution is seizure by increment. So they're capitalists here. They're just collectivist capitalists. They like means of production. They just want it for themselves. And see, redistribution does what the communists did by seizing the collective farms in one swoop. It's just slower. It's just more insidious. You don't know what's happening until the blue helmets are at your door. Regulation is seizure by exhaustion. Redistribution is seizure by increment. Take a little bit here, a little bit here, a little bit here, until they have the whole thing. Regulation is seizure by exhaustion. Oh, OSHA's here again and again, and I've got to fill this out? And who could even know the tax code? And before you know it, you're not doing any work. And they can look at you and say, hey, you're not doing any work. The private sector has failed. Self-fulfilling prophecy. The simple fact of the matter is that government cannot control an economy without controlling its members. And so for the government to set out to invade this sphere is not the sort of thing that can be corrected easily once you figure it out. The principle of separation, as Milton Friedman says, is that, quote, competitive capitalism promotes political freedom because it separates economic power from political power. And in this way enables the one to offset the other. Capitalism is necessary for freedom. And since what we talked about last week, that liberty, the will, has to do with what you do with your decisions and stuff in direction to God or in direction to your fellow man or to somebody who forces you to do it, worship's at stake. You need a free market if you're going to be religiously free. It separates, it provides a buffer zone between the individual who is made for God and the state which was made for God for some other reasons. Thirdly and finally, there's a conflict of moral judgments here, and I'm going to call it realism versus altruism, not objectivism versus altruism, although interestingly, objectivism used by Rand in an unhelpful way to attack something that should be attacked, and she calls it altruism. Well, Kildare uses the word altruism, unfortunately. Now, if he wants to correct her, that's fine. But he should know that a whole generation is getting their understanding of the free market from people like Ayn Rand. He shouldn't have used that word, he should have used a different one. But anyway, I'll go with it. I'll use altruism the way that Ayn Rand is, and I'm going to attack that. I'm going to call it mindless altruism. So if it helps, let's put mindless altruism versus objective realism. I agree with Rand that that is the conflict. I'm going to disagree with her about the stuff behind it, metaphysically. The system of free enterprise is often defended as if it were nothing more than the most necessary of all necessary evils. But really that shows how little even many of its defenders understand what they are defending. What after all is meant by the system of free enterprise? Can we not draw the same distinction here that we've already drawn between the design and the distortion when it came to the civil sphere? or even the very rudimentary elements of the field of labor, that there's a design and a distortion. The design's still good, the distortion can only be called that if the design gets through epistemologically. Is voluntary exchange inherently evil? If not, then why do you concede that? Is the price system inherently evil? Most people would say no. Well then look what we've already admitted about the system of capitalism. Now when it comes to competition and the profit motive and inequalities and the inevitability of materialistic consumerism, perhaps the numbers of yes answers will tend to increase dramatically. But notice that we've already admitted that there's some things, the most important things, about the free market system that actually are inherently good. So rather than defend all of these things per se, Perhaps we should notice what granting this point has acknowledged. The individual who defends the free market as of limited yet real value, and the individual who attacks it on the ground that it fails to be of unlimited value, have actually confessed opposing views on whether or not the economy is meant to be of an ultimate value at all. We defend the free market against the backdrop of an infinitely valuable reality. We do not reduce infinite value to economics. Only the capitalists can make that statement, as I've proven in these three things. That's my problem with evangelicals speaking on this issue. They don't know what they're talking about. They don't know what they're talking about, and they're liable to slip right back into the Catholic agreement. Can I find some Christians that understand this? Can we find some Christians on the planet that understand what the market system is, and what human psychology is, and how it says something about God either accurately or inaccurately. In other words, the very debate reveals that it is the critic of the free market, and perhaps the defender who lives up to the caricature, who have an economic idol. The whole debate assumes that economics was meant to be a panacea to begin with. We deny that. Gilder suggests that even the best defenders of classical economics, going back to Adam Smith, or at least after Smith, expressed doubts that it could sustain itself once the heights of affluence had glutted the market. And this, according to Gilder, tells us not so much about economics, it tells us a lot more about, quote, the incapacity of great thinkers to believe that their own epic is not the climax of the human story. In other words, when you see somebody overly concerned that it's all going to hit the fan right about now, it tells us a lot about the lack of imagination in that thinker, sometimes brilliant thinkers, whether it's Adam Smith or John Maynard Keynes, to believe that it's going to come to a point when this thing stops working. Question, what do you mean by this thing? Do you mean human beings' capacity to manage resources? Capacity, notice I said. I agree, finite. If you mean the design at some point will be revealed to be a bad design, aha, now you're making a massive theological claim and you don't even realize it. An atheistic claim. Well, what is needed Perhaps the biggest weakness in the Austrian school, according to Gilder, what's needed is a theology of economics or an ultimate moral justification for the free market system. Consider these three propositions and tell me if you agree or disagree. Number one, capitalism begins in an act of sharing an improved resource for use. At this point, Ayn Rand's followers leap up, their clothes fall off, they're foaming from the mouth. Aha! Yeah, I knew it, I knew it, I knew it, I knew it was coming, I knew it was coming. You'll only allow free enterprise if we share. Okay, where do I start? First of all, wipe the foam from your mouth. Capitalism begins in an act of sharing. If you're not going to offer it to somebody, and if you don't believe it's good, how exactly are you going to get money for it? Yeah, you haven't thought through that one. In other words, in order to have a profit motive, you have to share and make people's lives better. Well, it's just a by-product. No. No, it's a necessary by-product, if you want to call it a by-product. And so Gilder takes you through this history of, or even just primitive societies that are still around today, that the whole economy starts by a tribal chieftain having these giving feasts. and it sort of starts to get disseminated. And at first you might think, well, that's a bit like feudalism, except the tribal warlord in this case didn't so much kill somebody, they just showed up on some island, blah, blah, blah. And that's not really Gilder's point, is to go through a history of it, but just to show that the dissemination of goods for the profit motive begins in a positive giving. I mean, come on, just like the thing before that I was challenging the Socialists on. If I could show you that in order to say, this is a good product, What you actually mean is that anyone who has their head screwed on straight is going to think this is a good product and it's going to help them. No, I can trick them. Well, is that what you think of yourself? Now look what's happened to the Randian self-esteem, which I thought was their principal virtue. Is that what you think of your product? Is that, well, it could trick them and it could, and it could, I'm just concerned about the profit motive. Well, then you have low self-esteem. Because for us, our profit motive is infinite. We think so valuable about every product we're making, or it's not good enough for me. You have to believe in this very particular kind of God in order to really believe in the profit motive. Secondly, someone else's justly receiving blessing from that interaction, from that improved resource, is an objective good to all. Let me say that one again. Someone else who has done that, who then justly receives blessing from that exchange, that is an objective good to everyone in the exchange. Now on that point, Milton Friedman makes much of, and I think that's a good thing, and I think the Austrian people do too, but they're not rooting it in the first principle. They have a fundamentally Gnostic pessimistic view of the world, ultimately, and they're trying to save their optimism and their selfishness, as Rand does, in economics. They're starting with economics in the name of not making value judgments outside of that for individuals, but in doing so, they have to cut the head of the chicken off. And they don't have an ultimate way of saying, no, this is good in any possible world. Thirdly, third principle of moral judgment, two people exchanging their resources voluntarily is better than to be forced to do so involuntarily. And that's really just the flip side of what Milton Friedman said about the good of voluntary exchange. The fundamental difference, then, is not principles two and three, per se. You know, the Austrian Economic School said that. They can't justify, ultimately, as a Christian can, if we're interested. Apparently we're not interested. That's unfortunate. So not only are collectivists forced to be capitalist with respect to their inherent laws of the material world, but even those who defend capitalism, without respect to love of neighbor, ignore the objective reality that the self-directed profit motive is also irreducibly others-directed. If you get Christian hedonism, you should have no problem with the love inherent to supply-side economics. I'm not the only person saying this. I know Gilder is, I get it, but you are ignoring the most commonsensical parts of acts of exchange, and motive, and motion, and doing stuff. Those who defend capitalism, without respect to love of neighbor, hopefully that works out and we want it to, see in our universe, which is really God's universe, Just like the greatest commandment actually is showing forth in the two. The second is like it. Love your neighbor as yourself. What do you mean like it? How can love of neighbor be like loving the Lord your God with all your heart, soul, and mind strength without respect to love of one's neighbor? How can that be like that? Read your Christian hedonism. Read any of Piper's books. If you understand what Piper's saying, you should understand what Gilder's saying. Because they're the same thing. One's just directed toward material resources. One particular chapter of God's reality. So think about that. The self-directed profit motive is also irreducibly others-directed. No, it isn't. Hustler Magazine. Okay, you're talking about the distortion. I'm talking about the very act and form itself. My point is not that humans won't be right about their judgments about that. The profit expected in the act of supply is unintelligible unless the pleasure is reciprocated in the form of demand. It is the pleasure one gets in a well-cooked meal, as if the cook knows, even if he never says it, I know you're going to love this. The next question of what's it worth it to you is a matter of details. for both will be in on that discussion if it's truly voluntary exchange. The moment you say, no, this slave was this, I know that's not voluntary, dude. The very nature of your criticism is assuming the good of voluntary exchange. The Austrian school and Ayn Rand often spoke as if the truth of Proposition 2 in our, you know, someone else has just received blessing from that improved resources and objective good, they often spoke as if that truth didn't matter in the least to the love part. But what if the golden rule is only opposed to fallen nature? Yet scientifically, the golden rule is the very essence of the ultimate nature of things. What if doing to others as you would have them do unto you is done best by each person doing voluntarily what they do best? There's a specified self-interest in altruism. Now, Gilder's going to use altruism differently than Rand. Not mindless planning for Mr. Humanity that doesn't really exist, but actual people. So, there's a specified kind of self-interested altruism, Gilder's arguing. There's a community of contest, he says. where each gift will only elicit a greater response if it is based on an understanding of the needs of others. Isn't that what marketing does at some level? No, it has a system. I understand that's what marketing descends to, but the very act of producing a thing for real persons is taking into account what real persons need. You may be wrong about what they need, But you wouldn't do it unless it was other-centered. In other words, unless self-interest wasn't, in economics, the same thing as others' interest. It's a necessary condition. So, Gilder's saying, in this community of contest, where, quote, each gift will only elicit a greater response if it is based on an understanding of the needs of others. Notice the objectivity of that. if it is based on a true understanding of what other people really need and desire. He says the circle of giving, in other words the profits of an economy, will grow as long as the gifts are consistently valued more by the receivers than by the givers, hence the voluntary exchange. And hence, anything good in altruism is really a parasite on the real thing. Rand actually was so dead set on squashing the parasite of altruism that she forgot that a parasite is only as good as its host. Her argument's really better than that, if she would have only saw it. If I provide in order to gain, then doesn't that, by resistless logic, admit that I've also provided? If I provide in order to gain, then haven't I also provided? And if I've done so rationally, intentionally, haven't I intended to rationally consider what you really need? If I'm no good at it, well, then the market's going to tell me so, and the market will be a kind thing also. Now, Hayek agreed with Rand in saying that, quote, general altruism, however, is a meaningless conception. He says this in the Constitution of Liberty. It's a meaningless conception. Nobody can effectively care for other people as such. The responsibilities we can assume must always be particular, can concern only those about whom we know concrete facts, and to whom either choice or special conditions have attached us. You notice what Hayek's saying, and I agree with him. The problem, the same problem they had with planning, they're going to have with charity. For the same reason that only the real expert, namely the individual actor at Walmart, reading that thingy that tells you what the prices are compared to Winco's prices and so on, the same reason that guy's the expert in efficiency, he's also the expert in charity. I can't take care of, quote, my fellow man. Never met him. There's no such guy. I can only take care of the real individual over whom I have direct knowledge and therefore direct motive for it not working out. And if I don't do that, if I'm selfish, well, that'll be a selfishness with respect to the real stewardship God has placed in front of me, not the guy called fellow man who's not a real guy. It's a pretext for socialism. The argument for redistribution pretends, or at least insists, that the greater good than economic growth is various forms of help for the poor. This help naturally requires a very particular amount of money to transfer to those poor in the form of services. But the evidence, we'll see tomorrow night, the evidence bears out what economic theory already knew, that government redistribution does not in fact take from the rich and give to the poor so much as it redistributes power from the individual to the state and keeps the poor in their servile conditions of poverty and the poverty pimps in their positions of power. At the very least, one must plead for the liberal to take the very challenge of sincerity that is their hallmark. Is more money in the hands of government for these services your goal or isn't it? If it is, and we can show you how to lower tax rates and how that yields increased revenue, why would you not jump at that opportunity if your goal is to give the poor more money? Something more is going on here, I think. Wayne Grudem, in his chapter, puts our choice in stark and true contrast. He says, quote, therefore, when Christians are thinking whether they should favor higher or lower taxes in a state or nation, the question is whether, on the one hand, they want to increase human freedom, and also raise more money for government needs, and also help the economy. See those three things? See, if we've already proven that lower taxes do all three of those, increase human freedom, raise more money into the treasury that liberals say they want to help people, and also to promote growth. Or, Crudom says, on the other hand, they think that taking more money from the wealthy is more important than these other three goals. That's your choice. If it's true that lower taxes for marginal rates of income produce more human freedom, more productivity, and, oh by the way, actually raise more revenue into the treasury for these programs that you think will help the poor, then why in the heck is sticking it to the rich more important to you than helping the poor? You, sir, are a murderous hypocrite. And that is exactly what we've shown and what we'll show with numbers tomorrow night, that lower taxes translates into freedom of the individual, increased revenues into the treasury, increased incentive toward productivity on marginal rates of income. This choice reveals true motives. The moral sentiments about punishing the rich, or at least ensuring that there are no rich, is apparently more important than the original goal I thought you had of replacing real people's poverty with a situation of wealth.