You are hereToward a Preterist Understanding of Economics—Part 6
Toward a Preterist Understanding of Economics—Part 6
by John Evans
In previous articles in this series I have written mostly about the monetary history of the United States, but I have also questioned certain ideas on economics commonly put forth by liberal clerics and disputed the belief held by many biblical conservatives that modern economies should repudiate some of their basic underpinnings because of their violations of Mosaic Law. In previous articles in this series I have written mostly about the monetary history of the United States, but I have also questioned certain ideas on economics commonly put forth by liberal clerics and disputed the belief held by many biblical conservatives that modern economies should repudiate some of their basic underpinnings because of their violations of Mosaic Law. In part 2 of this series, I offered the guideline that I accept the validity of Old Testament ideas about economics when they carry over into the New Covenant; but in that article and elsewhere, I questioned the relevance of the Law for today’s economy when its inclusion in the New Covenant is dubious. In particular, I questioned the full applicability of the Law to our beliefs about debt, interest, and money.
In this article, I shall elaborate upon my reservations about applying the Law to the modern economy. I am doing this because I believe that some preterists have been unduly influenced by OT passages whose authority was superceded by that of the New Covenant. I recognize that in some cases, such as the rejection of fractional reserve banking, the influence of Mosaic Law is so intermeshed with libertarian thought lacking a biblical foundation that it is easy to overstate the OT’s influence. Nevertheless, I have no doubt that much of the resistance by some preterists to accepting what most members of the economics profession believe stems from a failure to properly draw the line between the Old Covenant and the New. Admittedly, just where to draw this line is not always easy to do.
The combination of shrill criticism of generally accepted economic practices and institutions and predictions of impending economic doom emanating from some religious conservatives helps maintain the formidable intellectual gulf that prevents many liberal academics from even considering that that the religious claims of conservative Christianity should be taken seriously. Perhaps there is nothing that conservative Christians can do that will open the minds of most liberals to the possibility that there are conservative Christians who are not intellectually impaired, but it doesn’t help the cause when conservatives present views on economics that are easily—and plausibly—ridiculed. There are certainly economists who find fault with the Federal Reserve System, who worry about excessive consumer borrowing, and who fear that the combination of rapid growth in current federal spending and the mandated increases in it that will occur before the end of the decade threaten economic ruination. I count myself among them. This does not mean, however, that the solution to our economic ills is to be guided by OT teachings about money, interest, and debt even that conflict with the spirit and content of the New Covenant.
Before becoming aware of the preterist movement, I used to wrestle uncomfortably with the question of the extent to which institutional practices that were standard in the Old Testament, such as capital punishment via stoning to death, had any relevance for our time. Obviously, I had concluded, many of the institutional arrangements described in the OT should not serve as guides today, though there are certain doctrines and principles found in the OT that must prevail if humankind is to have any realistic hope of living in justice and harmony. It was not, however, until a moderately liberal Lutheran pastor called my attention to the possible implications of the new covenant of Jeremiah 31:31-33 and the references to Jeremiah 31 in Hebrews 8 that it finally hit me behind the eyes that the guiding principle for solving my Mosaic Law dilemma was to draw the line between the covenant of Deuteronomy, whose conditional character is made clear in chapter 28, and its replacement promised by Jeremiah. That I had to get well past the age of fifty before I reached this conclusion I attribute to the combination of a poor religious education (my fault) and my long-time immersion in the prevailingly secular universe of modern academia.
High on my list of the features of Mosaic Law that have no place in the modern economy and must, therefore, be excluded from the New Covenant is the Deuteronomic treatment of interest. Consider, for example, Deuteronomy 23:19, which commands that Israelites must “not charge your brother interest.” The next verse offers this clarification: “You may charge a foreigner interest, but not a brother Israelite.” Although I take the content of these two verses somewhat more seriously than I do numerous other Deuteronomic mandates, it is perfectly clear to me that the passages denouncing the payment of interest in Deuteronomy and elsewhere in the OT are concerned with the exploitative use of what economists call “monopsony power,” which in this context refers to the ability of lenders to extract usurious interest rates from people in financial difficulty who lacked access to credit on non-exploitative terms.
The economies of Israel and Judah were based on subsistence agriculture. They lacked anything remotely comparable to the money and capital markets of modern times that mobilize savings and finance the real investment and research that make sustained economic growth possible. Historically, subsistence economies have exhibited a marked tendency toward the concentration of land ownership as a consequence of poor peasants being unable to amass sufficient wealth to be able to ride out the inevitable bad crop years. Mosaic Law, as set forth in detail in Leviticus 25, sought to avoid excessive concentration of ownership through the cycle of Sabbath Years and Jubilees. A Year of Jubilee was the final year in a cycle consisting of seven sabbatical periods of seven years each. In that year, according to Leviticus 25:28, any land that had been sold during the current jubilee cycle was to be returned to the seller. Leviticus 25:25 implies that if the seller had died by the Year of Jubilee, the ownership of the land was to pass to his nearest relative. Clearly, the jubilee cycle was intended to serve as a barrier to the concentration of landownership and wealth.
Reinforcing the impact of the Levitical jubilee cycle was the command in Deuteronomy 15:1-2 requiring the cancellation of all debts between Israelites every seven years; i.e. in Sabbath Years. In recognition of the fact that people would be reluctant to extend credit to their fellow Israelites as the seventh year neared (15:9), verses 15:7-11 of Deuteronomy exhort the people to give generously to their brother Israelites who are in great need. The command regarding debt cancellation is repeated in Nehemiah 10:31, which, of course, is post-exilic. We are entitled to skepticism about the extent to which this command was actually carried out—and the same point can be made about the jubilee cycles and Deuteronomy’s interest payment prohibition—but we must also recognize that these commands served as guideposts for ideal practice and thus exerted some impact upon the Jews of the Old Testament.
In part 2 of this series, I briefly explained the nature of interest from the perspective of professional economists and suggested that efforts to eliminate the payment of it are badly misguided. Historically, I asserted, attempts to eliminate the payment of interest have been economically harmful; and we are witnessing another demonstration of this fact in the pathetic effort to eliminate and redefine interest in countries where Islamic law prevails. I insisted that interest is not the same thing as usury, and I drew on the parable of the talents in Matthew 25 to argue that Christ clearly taught that wealth should be used productively. To my mind, this implies that He necessarily endorsed the validity of lending money at interest for productive purposes. A good argument can sill be made on scriptural grounds for protecting the public from truly usurious interest rates, but when usury laws set interest rate maxima below the levels at which lenders are willing to take a chance with marginal borrowers, these would-be borrowers either go without credit or circumvent the law.
Recall that Deuteronomy 23:20 indicates that while interest should not be collected from fellow Israelites, it permits lending at interest to foreigners. Reinforcing this difference in treatment based on nationality are Deuteronomy 15:3 and 15:6. The former reads: “You may require payment [of a debt] from a foreigner, but you must cancel [in the next Sabbath Year] any debt your brother owes you.” Deuteronomy 15:6 promises the Israelites that if they follow the LORD’s commands: “you will lend to many nations but will borrow from none. You will rule over many nations but none will rule over you.” Deuteronomy 28:43-44 then adds this stern warning should the Israelites fail to be properly obedient: “43The alien who lives among you will rise above you higher and higher, but you will sink lower and lower. 44He will lend to you, but you will not lend to him. He will be the head, but you will be the tail.” Thus, Deuteronomy’s version of the Law indicates that in the financial realm, at least, it is permissible to do unto Gentiles what should not be done unto Israelites, and Deuteronomy unambiguously counsels Israelites to strive to avoid going into debt. To this can be added the force of Proverbs 22:7: “The rich rule over the poor, and the borrower is servant to the lender.”
Some conservative Christians assert that the Deuteronomic treatment of debt and interest carries over into the New Testament. The key verse used to support this claim, I suppose, is Romans 13:8: “Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.” In verses 13:6-7, Paul admonishes believers to pay their taxes and give to everyone what is owing to him, whether it be taxes, revenue, or honor.
Romans 13:8 is a very weak base upon which to erect a claim that the NT adheres to Mosaic Law with respect to debt and interest. For one thing, its use of the concept of debt is obviously a broad one that is not confined to the payment of money. I, for one, have no difficulty remembering “debts” in the form of personal favors I received but never repaid. For another, if not allowing a debt to remain outstanding is to be construed as requiring immediate payment of all financial obligations, does that not imply that those obligations should never have been incurred in the first place? Yet Mosaic Law, as expressed in Deuteronomy and elsewhere, does not prohibit incurring debt. It advises against borrowing money unless it becomes necessary to do so, but it recognizes that it may become necessary. This principle that borrowing should be done prudently is, I believe, entirely consistent with what the NT advocates and is in harmony with taking Romans 13:8 as an admonition to discharge one’s financial obligations honorably and as rapidly as circumstances warrant, not a blanket command to shun borrowing.
While I strongly believe that some Christian conservatives are far too condemnatory about going into debt, I recognize that one of the U.S. economy’s most serious structural weaknesses is its historically low personal saving rate; i.e. the percentage of disposable (after tax) personal income not spent for consumption and other “personal outlays” (mainly consumer interest payments and transfers to foreigners). During the first half of the 1980s, the personal saving rate averaged over 10 percent, but it has declined rather persistently since then and was only 1.1 percent in 2003. From that low level, it fell slightly in 2004 to 1.0 percent. It should be noted, however, that increases in asset values (wealth) are not included in personal saving and that our official estimates arguably are a little too conservative in other respects. There can be no doubt, however, that a very large decline in the personal saving rate has occurred. The ready availability of consumer credit, the relatively low real (inflation adjusted) interest rates on consumer borrowing, rising medical costs (including insurance), easy home equity loans, an increased reluctance to defer the enjoyment of the material aspects of life, and rising educational costs have all contributed, along with other factors, to lower it. Thanks to the ready availability of consumer credit, the consumption and other “personal outlays” of most American households exceed their disposable income. Obviously, I think, we as a nation are violating the prudent behavior guideline to which I referred earlier.
Fortunately for the U.S. economy, the business sector is a net saver in the sense of having corporate profits that exceed dividend payments to stockholders. However, the total reached by adding undistributed corporate profits to personal saving falls far short of providing sufficient saving to finance the level of investment in capital equipment and inventories required to keep the economy humming. Moreover, because the federal government’s budgetary deficits are exceeding its Social Security surpluses, thereby causing the saving of the government sector to become negative, the overall national saving rate, which combines government saving with the saving of the private sector, has been historically anemic since 2002. Therefore, in order to finance the enormous gap between national saving and what is called net domestic investment, the U.S. economy obtains enormous injections of cash from abroad. In the last few years, such “international capital flows” have amounted to around 5 percent of the country’s national income. They take such forms as purchases of U.S. Treasury securities, purchases of corporate securities, bank loans, increased bank deposit liabilities to foreigners, and purchases of real estate. In sum, we are “borrowing” from the rest of the world in order to maintain our desired levels of consumption and government spending without having to curtail business investment.
The flip side of the enormous inflows of “capital” that the United States receives from the rest of the world is the nation’s correspondingly huge current account deficits, which basically measure the excess of imports of goods and services over exports of goods and services. Also included in the current account deficits are our net transfer payments to the rest of the world; i.e. the net flows of money, goods, and services to foreigners for which we receive no payment. Fortunately for us, the dollar is the primary currency in international transactions, which means that we are able to finance our current account deficits, for the most part, with payments of U.S. dollars. The dollars that foreigners receive wind up being used to acquire dollar-denominated assets. The foreign holders of these assets are willing to acquire and hold them as long as the prospects for the dollar and the U.S. economy seem relatively promising compared to the alternatives. The good news is that this process allows us avoid taking unpleasant actions to restrain our consumption and government spending as long as we don’t go too far. The bad news is that we have sacrificed some independence of action, are not properly preparing for households’ future financial needs, can’t expect to keep doing this indefinitely, and are reducing the pool of saving available for financing economic development in the rest of the world.
Clearly, we are not behaving prudently in the handling of our financial affairs either as individual consumers or at the national government level. Nevertheless, I continue to reject the idea that we should even consider adopting as a guiding principle the notion that going into debt must be avoided if at all possible. Our problem is not the borrowing of money per se, but the borrowing of money imprudently. The extension of credit to businesses through financial institutions that acquire funds from savers and allocate them to business firms on the basis of expected return is absolutely essential if our economy is to grow and prosper. Moreover, if borrowing were prohibited or even reduced to a small fraction of its current level, what kind of return could savers expect to receive on their savings? Thanks to the operation of compound interest, a person who consistently saves a few thousand dollars annually throughout his or working career can reasonably expect to retire in comfort. But if you could earn only very low interest rates on your savings because of a low demand for credit, you would have to greatly increase how much you save annually in order to be able to retire comfortably.
Given the problems for the U.S. economy caused by its low level of personal saving and its correspondingly high level of debt-financed consumption, a case can be made for government action to encourage saving and/or reduce consumption. For example, the federal government could restrain borrowing to finance consumption by removing the tax deductibility feature of home equity loans, but I doubt that many members of Congress would care to suggest doing this! It may be possible, however, to alter the tax system in other ways so as to promote saving. For example, a strong case can be made for restructuring the overall tax system of the nation so as to place relatively greater emphasis on the taxation of consumption and less emphasis on the taxation of wealth and income. Inevitably, however, attempts to increase the personal saving rate through changes in the tax structure will encounter the objection that they involve “tax cuts for the rich.” Thus, when the Democrats during the Clinton years succeeded in subjecting 85 percent of Social Security benefits to the federal personal income tax instead of the previous 50 percent for households in my income class, some of them had the gall to claim that this tax increase applied only to the wealthy. If I am wealthy, there must be very few people in this nation who are living in poverty! Maybe the time has come to celebrate my status by retiring my 1996 Camry.
Most personal saving in this country is performed by households with incomes well above the national average, by which I mean households whose annual income exceeds $100,000 per year. Other factors than household income are involved, of course, most notably taxpayers’ ages. At a household income level of, say, $75,000 per year, I venture to guess, those households with children at home or away at college are net borrowers while those consisting of retired persons are probably net savers. Incidentally, debt reduction is counted as saving, so if your net household indebtedness is declining, your household saving is positive even if you own no financial assets other than a modest bank account whose balance nears zero just before payday.
If we are going to substantially raise the personal saving rate in this country, we must focus on getting those with above-average financial ability to opt for more saving and less consumption. This means that we must bite the political bullet and offer “tax cuts for the rich.” Put more properly, it means taxing consumption spending somewhat more heavily and taxing income and the accumulation of wealth somewhat less heavily. For political reasons as well from considerations of social justice, care must be taken in such an approach to prevent the restructuring of the tax system from unduly burdening lower income and middle income households. It would probably make sense to try to structure increases in taxes on consumption in such a way that they would fall relatively heavily on “luxuries” and relatively lightly on “necessities.”
To the extent that such a restructuring of the tax system proves effective, our current account deficits will decline and we shall become less dependent on inflows of funds from abroad to finance investment spending. Against the argument that altering the present balance between consumption and saving might lead to an insufficiency of aggregate demand, my basic response is that the reduction in the current account deficit would be equivalent to an increase in aggregate demand that would largely offset the impact of relatively lower consumption spending. Furthermore, by becoming less dependent on cash injections from abroad to finance investment spending, we would obtain more freedom of action economically and might even achieve a higher level of investment spending and a more rapid rate of economic growth.
Of more fundamental importance than altering the mix between consumption and saving through tax policy, this country needs to undergo an attitudinal shift that deemphasizes conspicuous and frivolous consumption in favor of more socially uses of personal income. As a nation, we have an obsession with material things that is socially harmful. Overcoming this obsession will require spiritual guidance that goes beyond mere technical adjustments in the economic realm. This obsession is promoted and enhanced by the constant barrage of television advertising and the societal emphasis in our society on the lifestyles of the rich and famous. From their youngest years, Americans are bombarded with propaganda designed to inculcate in them an insatiable desire for material objects, and the thought patterns thus acquired are difficult to alter. Reinforcing the impact of the emphasis on the material aspects of life has been the decline in exposure to traditional religion that has accompanied it.
There are many critics of our consumption-oriented society on the left who want to deal with the problem of overemphasis on consumption by ceding more power over the economy to the federal government, which in their view should be controlled by an intellectual elite of which they would be members. The “cure” that they offer is far worse than the disease. Many of these critics are found in the environmental movement, which, in my judgment, has been hijacked by the left and turned into a quasi-religious and basically secular elitist cult. Incidentally, I taught environmental economics for a few years on both sides of 1970 and find little in today’s “green movement” with which I can identify.
Fortunately, most human beings seem to have religious impulses, and I am hopeful that those impulses can be channeled into more promising outlets than the environmental movement. Without delving into the relevant scriptural passages, I shall assert that in both the OT and the NT, while man is understood to have stewardship over the earth, the earth belongs to God, not man. Therefore, while man has the right to use the resources of the earth for his benefit, he is to act as a responsible steward and think in terms of the long-term management and preservation of the earth’s resources. Thus, the parable of the talents (Matt 25:14-18) can be understood to mean not only that interest is a legitimate economic concept, but also that God commands mankind to responsibly exercise his stewardship over the earth. This approach contrasts sharply with the views of those environmentalists who seem to regard mankind as simply being a part of nature whose claims to nature’s bounty are no more valid than those of geese or cockroaches.
Despite the misgivings I have expressed about the excessive emphasis on consumption spending in this country, I continue to insist that it often makes good sense for households to go into debt as long as they can handle their debt burden without sweating out the end of the month. This is particularly the case with regard to buying a home. The United States is a nation with a very high percentage of homeowners. I am glad that this is the case because I am convinced that there are great social benefits from home ownership. Does this statement contradict what I wrote earlier when I expressed approval of the Law to the extent that it is understood to indicate that borrowing should be confined to cases when it is “necessary”? I don’t think so, though I concede that I am equating “necessary” with “prudent.” To me, it is necessary to behave prudently.
I have now reached the page limit that I had in mind when I began this article. There is, however, one more topic that I want to briefly consider. That is borrowing by the federal government, whose total indebtedness is commonly called “the national debt.” There has always been much criticism of federal borrowing in conservative circles, and because we have seen enormous additions to the national debt during the Bush administration, we commonly hear liberals using arguments against federal borrowing these days that were repeated ad nauseum by Republicans before the 1980s. I have grown exceedingly weary of hearing that excessive borrowing by the federal government is endangering the economic wellbeing of future generations, but I have reconciled myself to the fact that this line of thinking will never go away. I do not entirely dismiss the future generations argument, but I maintain that it has been vastly abused.
Our economy is so structured that we obtain the increase in the money supply required to achieve growth in output by increasing debt. As the economy grows, so does the overall volume of debt. There is a threefold structural division of the country’s total indebtedness: business, household, and government. Over time, the total indebtedness of the business and household sectors is certain to increase if the economy is growing. To take the position that the total indebtedness of the government sector should not grow over time is equivalent to saying that spending by government that is financed by borrowing is less desirable than spending by the business and household sectors that is financed by borrowing. I am not prepared to take that position. I do recognize, however, that the growth of government borrowing can become excessive and is very likely to do so in the absence of enormous pressure on our political leaders to restrain their spending proclivities. If the growth of government borrowing can only be checked by limiting the size of the national debt to a certain percentage of gross domestic product, I’m all for doing that.
That concludes article number six on attaining a preterist understanding of economics. If the feedback warrants it, I shall go in with this series. Perhaps in my next piece I should expand on my ideas about the national debt.
1. All biblical quotations in this article are from the New International Version.
2. I am of the opinion that the Year of Jubilee was actually the seventh Sabbath Year in the cycle and that the passage in Leviticus 25:11 stating that “The fiftieth year shall be a jubilee for you” arrives at the number of fifty by counting the last previous jubilee year as the first year in the series. This is consistent with the idea that the seventy “weeks” of Daniel 9:25 refer to a literal period of 490 years; i.e. seven jubilee cycles.
3. Marshall B. Reinsdorf, “Alternative Measures of Personal Saving,” Survey of Current Business (September 2004), 17.