Biblical Economics & Finance: Theories Driving Economics Today
Jerry Bowyer Chief Economist of Vident Financial, Editor of Townhall Finance, and President of Bowyer Research
- 2019 Jul 15
This article provides a biblically rooted view of wealth creation and investing. It originates from a document written for Ronald Blue & Co. (now Ronald Blue Trust) in helping create their Principles-Based Investing philosophy. The original document’s primary contributors were Ken Boa and Jerry Bowyer. The original text has been edited for general audience readership.
The complexities of a worldwide, digitally connected capital market system obviously did not exist in biblical times.
But we can learn how others have historically incorporated (or not incorporated) certain basic biblical truths into current, widely-held economic theory.
To help you navigate today’s economic waters, in this final part, we offer a basic overview and comparison of the main schools of economic thought, along with an examination of them in relation to the biblical worldview.
Two Main Schools: Keynesian & Classical
The two most prevalent schools of economic thought in a free society are classical economics and Keynesian economics. Fundamental presuppositions about the world and humanity (i.e., a worldview) underlie each of these schools. Before delving deeper, here is a brief overview of the ideas of each, framed by three key questions:
Classical vs. Keynesian Economics
How is wealth created?
- Classical: Production, savings
- Keynesian: Demand, spending
What’s government’s role in how wealth is created?
- Classical: Protect the producer
- Keynesian: Stimulate demand
What’s the view of money as a measure of exchange and wealth?
- Classical: Stable currency is the goal
- Keynesian: Breakdown into randomness; devaluing of currency
Today, Keynesian economics utterly dominates the academic, political, and financial worlds. It’s also the view held by most 21st-century Americans.
Despite its prevalence, Keynesian theory is often invoked with no reference at all to the rather unusual personal views and life choices of its namesake. Yet, the philosophical underpinnings of this theory are important to know, especially given that Keynesian economics has been (and continues to be) used to justify a radical restructuring of the U.S. economy.
British economist John Maynard Keynes (1883–1946) grew up during a time of spiritual and intellectual revolution at the turn of the 20th century. He was educated at Cambridge University, where he was an influential member of the elite club called the Cambridge Apostles. This intellectual society, as the name implies, was initially founded as a Christian organization, but by the time of Keynes, it was intensely hostile to biblical faith. Views of group members were generally atheistic, amoral, antipatriotic, and anti-heterosexual.
Keynes was highly active, even a dominant leader, in this group. That period in the history of the Apostles also included G.E. Moore, who went on to become one of the most influential atheists of the 20th century. Other notable members (who came after Keynes) include Bertrand Russell, whose essay “Why I Am Not a Christian” made him the most influential popularizer of atheism of his time, as well as Ludwig Wittgenstein, who denied the existence not only of God, but of any knowledge beyond the senses.
The views of the Cambridge Apostles went far beyond mere intellectual skepticism about the existence of God, wading into blasphemous statements.
Keynes’s Moral Compass
Keynes’s skepticism about the existence of a supernatural God, did not extend to the realm of ghosts and spirits. He was a regular participant in—and even a promoter of—séances and other occult events. Along with God, the moral law also came under attack. Moore said that there was no God and, as a consequence, that there was no objective, God-given moral law. Keynes, who helped get Moore into the club in the first place saw eye to eye with him on this:
We entirely repudiated a personal liability on us to obey general rules. We claimed the right to judge every individual case on its merits, and the wisdom to do so successfully. This was a very important part of our faith, violently and aggressively held, and for the outer world it was our most obvious and dangerous characteristic. We repudiated entirely customary morals, conventions and traditional wisdom. We were, that is to say, in the strict sense of the term, immoralists. The consequences of being found out had, of course, to be considered for what they were worth. But we recognized no moral obligation on us, no inner sanction, to conform or obey.
—J.M. Keynes (in his Collected Writings)
The view of Keynes and the rest of the group on morality was especially focused on one area: sexual morality. The Apostles were committed to the idea that homosexual relations were highly superior to heterosexual ones, a view which they referred to as “the higher sodomy.” This is distinct from most LGBT activists in modern society, whose views range from a request for toleration to a demand for equality. The Apostles did not want equality; they believed that their way of life was superior. This view was so prevalent among members of this exclusive club that some socially ambitious members feigned homosexuality in order to be accepted.
Keynes was not only a participant in this ethic, but in some sense the chief proponent of it during his time there. To a large degree this aspect of the group was driven by an intense dislike of women. Later in life, when Keynes became a professor at Cambridge, he opposed having women in his classes.
The Keynesian Model
What does any of this have to do with economics? Quite a lot, actually.
In some ways, Keynesianism can be viewed as an economic theory designed to attack and destroy the Victorian ideal of thrift. The time of Keynes’s childhood was a time of global political and economic dominance of the world by the British empire under the watchful eyes of Queen Victoria. That society admired monogamy, hard work, faith, and savings. Debauchery, laziness, and debt were discouraged. A great nation was one that accumulated capital and left it for the use of the next generation.
Keynes turned that on its head, arguing against what he called the “puritan” view, which discouraged debt and encouraged savings. When someone asked Keynes about the long-run effects of his policies, he quipped, “In the long run we are all dead.”
Most people don’t think this way. Most people think of the long run as the time period when their children and grandchildren will live. Unless, of course, they’ve adapted to a way of living that leaves them without children.
Some, like Mark Skousen in his Making of Modern Economics (London and New York: Routledge, 2002, 2008, 2016) have suggested that the anti-woman views of Keynes and his circle had an effect on his economic model. Keynes, Skousen notes, saw thrift as a feminine virtue, a view which may well be a biblical one (e.g., see Proverbs 31); thus, it’s possible his rejection of women influenced his rejection of thrift.
Intellectualism & Breakdown into Randomness
Behind all of this may lie intellectual pride. When the young Keynes was asked how to pronounce his name, he said, “Keynes, as in brains.” He was given to disdain for those he viewed as less intelligent than himself: women, members of the working class, even his examiners at Cambridge. The Apostles was a highly exclusive club, openly based on intellectual merit—although, strangely enough, the group was made up almost exclusively of philosophers and literary men. No economists except Keynes, and no actual physical scientists, were members during his time there.
This intellectual pride made it easy to reject the accumulated wisdom of past generations. Whatever principles had been gleaned from centuries of trial and error were treated as obsolete. In fact, Keynes denied the existence of economic principles altogether, stating at one point, “All the same I am afraid of ‘principle.’ … Nearly all our difficulties have been traceable to an unaltering service to the principles of ‘sound finance’ which all our neighbors have neglected. . . Wasn’t it Lord Melbourne who said that ‘No statesman ever does anything really foolish except on principle?”
With no principles, we’re left with only an elite class of geniuses to solve our economic and social problems. Keynes’s economic theory emphasized the ignorance of business entrepreneurs and investors, toward whom he had an intense disdain. His theory also emphasized the ability of planning elites to manipulate interest rates, credit, and money value to create a world of zero scarcity. He and many of his circle went beyond economic management to endorse management of the human species itself.
Despite his extremely high level of intellectual confidence, throughout his life Keynes expressed doubt about the ability for humans to know anything about economics, finance, probability, or any of the questions that had plagued his life. He and his followers have had a great deal of trouble forecasting economic and market trends, a fact that they blame on the irrationality of market participants, not on the failings of their model. But as the Keynesian model proved more and more unsuccessful at predicting, or even explaining, the world, Keynes’s followers began to move away from the high levels of mathematical confidence of their teacher and more toward models that treat the economy as random, and the world as unknowable. Among the more prominent American followers of Keynesianism have been U.S. presidents Franklin Roosevelt and Lyndon Johnson.
Founded in 1776 with the publication of Adam Smith’s book The Wealth of Nations, classical economics is believed to have influenced the thoughts and practices of the founders of the United States. Among the developers of classical economics were Adam Smith, John Locke, and J.B. Say.
In the 20th century, classical economics was modernized by American economists (most prominently, Milton Friedman). As it has been updated, it may also be referred to as the Chicago School of Economics or monetarism. Terms typically linked with classical economics include free-market economics and supply-side economics.
The primary tenets of classical economics include (but are not limited to) the following:
- Say’s law: It is the productivity of people which is the basis of consumption. When we are productive, we exchange our production with others. We earn first, and that earning is the basis of consumption.
- Individuals, as they are free to pursue their economic interests, will create the most balanced and highly functional society.
- Government should have a limited role in managing a nation’s economy.
- Earning and saving should be encouraged over spending.
Comparing the Two Schools
It’s not hard to see how classical economics incorporates biblical principles in multiple ways, while Keynesian economics strays from it. Let’s take a look at how the two compare.
The Ideal Economy
Classical: Government’s role is important but limited; a self-regulating market is best in the long run, leading to the greatest prosperity for its people.
Explanation: The ideal economy is primarily a self-regulating market system that fulfills the needs of its people. Government has an important role, but is limited to certain sectors (e.g., defense, roads, etc.). Government should emphasize personal responsibility (and reward) as preferable to government responsibility or manipulation. Letting capitalism or the free markets take their course leads to the greatest prosperity for the greatest number over the long term.
Keynesian: Economies are so complex that they require management by a central organization, which is typically a central government.
Explanation: Private sector decisions sometimes result in inefficient economic outcomes (e.g., high unemployment, low capacity utilization, etc.). The required or preferred prevention (or correction) according to Keynesians is government intervention, including central bank monetary policies designed to stimulate the economy and other government actions to stabilize output over the business cycle. The objective is to increase economic activity and aggregate demand while decreasing unemployment, and deflation or lack of inflation. Keynesian economics advocates government intervention in the setting of interest rates and government investment in the general economy (primarily to elevate employment levels).
Human Nature & Work
Classical: Thriftiness is good; planning financially for the future and giving to philanthropic causes are good values and should be encouraged. Demand needs no stimulation; government should reward (rather than deter) hard work, investment, and savings.
Explanation: The worker/saver/investor is a hero: an individual’s thrift is a virtue, and the individual’s capital investment in businesses is socially beneficial. Delay of gratification to provide for future needs (e.g., through family savings and giving to philanthropic causes) is a praiseworthy value. The decision to invest is good for all of society, as jobs are created and profits are reinvested and multiplied. Through work and investment, the individual creates wealth.
Because of human nature (cf. Ecclesiastes 5:10), demand needs no encouragement; people’s desire for more and improved goods and services is infinite. Government efforts to stimulate economic demand should not be encouraged; public policies should promote reward for work, investment, and savings, rather than deterring these virtues. When the rich get richer, all classes of society benefit (the tide raises all boats) as the overall standard of living rises due to a nation’s prosperity.
Keynesian: Public policy should be used to increase demand either via government spending or by encouraging private spending. Thrift comes with a paradox: if everyone saves during times of recession, the economy as a whole suffers.
Explanation: Non-classical economists (Keynesians and other demand-side economists) generally default to blaming economic downturns to individuals’ underspending. These lags in society’s economic growth need to be stimulated by central intervention or stimulus, whether fiscal or monetary. Keynes called this “the paradox of thrift.” The paradox states that if everyone saves more money during times of recession, then aggregate demand will continue to fall and a normal recession’s decrease in consumption and economic growth will further increase savings rates. By government reducing interest rates to very low levels, the theory states that savings will eventually be less attractive, and people will choose to spend more, resulting in a healthier economy. In this case, Keynes says public policy must be used to increase demand either by government spending or by encouraging private spending.
A case in point is the period after 9/11. Following that date as well as the earlier bursting of the tech bubble, the Federal Reserve reduced interest rates to historically low levels and maintained low rates for several years in an effort to stimulate the economy.
The Nature of Money
Classical: Money is a medium of exchange and should not be used as a tool to manipulate an economy.
Explanation: Money is simply the alternative to the awkward and expensive system of barter and exists to promote capital accumulation and trade. To do its job most effectively, money must remain stable in its value. If money falls in value (cheaper dollars), inflation results. Inflation punishes savers because it erodes the value of their holdings. Thus, inflation promotes current spending, decreases long-term investment, and ultimately diminishes productivity. For these reasons, classical economics places great emphasis on the soundness of currency. While there are differences within the classical school about the means of maintaining a stable currency—some favoring a gold or other commodity-based standard, and others targeting the general price level—classical economists agree about the end goal: stable money. They believe that interest rates are best determined by the market supply and demand, rather than being manipulated for a political or social agenda.
Capital flows where it is welcome, and capital stays where it is well-treated. Societies that follow the classical model, such as the United States during most of its history, are magnets for capital, attracting investment by its citizens and from around the world. Societies that follow other, more state-controlled economic theories, generally do not attract capital. The best example is the contrast between the economies of the former Soviet-bloc countries and those of the West. Over the second half of the 20th century, the standard of living rose for individuals living in the West, as capital investment produced wealth and increased standards of living for all workers. In the centrally-controlled economies of communist regimes, citizens had standards of living that were represented by empty store shelves and lack of productivity. Capital is the principal means by which labor is made more productive, earnings are increased, and wealth is created.
Nations primarily determine their economic environment. Classical models place wealth creation at the center of the economy and encourage and reward wise investment. While it is true that many short-term factors such as the political, cultural, and spiritual climate of the age, affect money flows into and out of various investment vehicles, and that many of these factors are emotional, it also true that long-term investment returns in a classical model will revert to a mean and are somewhat predictable. Healthy political, cultural, and spiritual climates all combine to affect the general favorability of wealth creation and resulting investment returns.
Other factors that inhibit the creation of wealth include government policies that impede the free functioning of commerce and that dissipate capital through higher taxes to fund increasing numbers of government-sponsored programs. Unstable and changing tax requirements and business law preclude effective planning, operations, and expansion. Governmental policies that do not offer stability do not enhance the production of wealth.
Keynesian: Money is a means to manipulate demand levels, rather than a fixed medium of exchange. Government stimuli are encouraged and represent one example of a way it can manage demand.
Explanation: Believing that capital accumulation (savings) can have harmful side effects, such as reduced consumer demand, proponents of demand-side economics recommend “expansive: monetary policy (characterized by low short-term interest rates) as a means of economic recovery. Give people cheap money and they are happy to spend it. Keynesians’ objective is to make currency less valuable (e.g., inflated), since an increased money supply causes a scarcity of goods and prices to rise—discouraging savings, because goods will cost more tomorrow than today.
This cheap monetary stimulus is often used with other stimuli such as tax and government policy to manage consumer demand and the general economy. Any stimulus is seen as a tool of demand management. When warned that such policies increase the risk of inflation, demand-side economists typically reply that stimulating demand is the point, and that the long-term consequences can be dealt with later, or not at all.
The Problems in the Foundation
Intellectual Breakdown & Elitism
The financial philosophy of “randomness”—of which Keynesianism is the most prominent example—naturally emerges after intellectualism breaks down. No wonder this theory has become so popular in today’s postmodern, post-reason world.
Think of it this way: Thinkers who reject the existence of any design in the world also reject the existence of any fundamental principles with which to understand the world. Needing, nevertheless, to try to make sense of the current or future economy, they rely on what they believe to be their own superior intellects. But even the greatest of minds cannot make sense of the world, without some set of guiding principles that provide context and conform (in some way) with the world’s design.
Instead of acknowledging the failure of their models, intellectual elites take the random fallback position and blame the world for not making any sense. Breakdown from intellectualism to elitism occurred in America about the time that Keynesian economics was beginning to be applied as a new foundation for financial theory. Various thinkers in academia succeeded in transforming the proven financial principles through academic journals, then business schools, and finally government and Wall Street.
Risk as Volatility
One of the changes that occurred was the redefinition of risk. This term is now equated with variance or volatility, rather than some violation of foundational principles in economic policies. This redefinition has implications for how you invest, and whether, in the process, you ignore risk factors such as current inflation, high debt levels, and lapses in the rule of law. The result?
A sort of “financial engineering” that caused key players in finance and government to grossly underestimate the riskiness of various real estate–backed bond portfolios.
These mistakes are not errors due to the lack of intelligence. Many of the greatest minds in the world enter careers in finance and economics. These mistakes are due to faulty ideas at the foundational worldview level, notably that humans are not designed, but randomly mutated; that our minds are driven by animalistic instincts; and that no objective standards of morality or knowledge are available from which to discern patterns of cause and effect. Once one makes such assumptions, it is natural that one would either look for a brilliant intellect to lead us through the darkness, or give up and believe that the darkness is impenetrable.
But neither is true. We have been given principles from which to reason, and though we may misunderstand them and therefore only “see through a glass darkly,” we still to some degree see dangers and hide ourselves from them.
Randomness may seem like humility, but at heart it is arrogance, because it refuses to acknowledge basic facts of life obvious to genuinely humble people of ordinary intelligence. As the great Christian journalist G.K. Chesterton said:
But what we suffer from today is humility in the wrong place. Modesty has moved from the organ of ambition. Modesty has settled upon the organ of conviction; where it was never meant to be. A man was meant to be doubtful about himself, but undoubting about the truth; this has been exactly reversed. Nowadays the part of a man that a man does assert is exactly the part he ought not to assert—himself. The part he doubts is exactly the part he ought not to doubt—the Divine Reason…
At any street corner we may meet a man who utters the frantic and blasphemous statement that he may be wrong. Every day one comes across somebody who says that of course his view may not be the right one. … We are on the road to producing a race of men too mentally modest to believe in the multiplication table.
God has positioned us as stewards of the resources he has entrusted to us. God provides the root of creation and the starting point for all healthy and sustainable economic models. Humans reflect God’s creative nature, and, as a result, are creative by nature. The creation of wealth is a natural expression of this nature.
We have seen distinct pre- and post-fall economies represented in the Bible, and, as those who live in the post-fall economy, we recognize that our decisions affect our current economic realities. An unhealthy focus on consumption and individual perceived needs tends to lead to the downfall of economic systems, while a focus on investment and the needs of others creates healthier economic and social structures.
Investing with the expectation of a return commensurate with the associated risk is a biblical premise. However, we must carefully assess the potential risk factors involved in a particular investment strategy. The complex, sinful nature of humanity, for example, is a central component of risk in our current fallen world. Furthermore, the value a society and/or individual places on covenant keeping and humility are other factors of risk. Governmental manipulation can be either positive or negative with respect to creating a sense of prosperity during times of scarcity.
As believers, what we do with our money and resources is intricately connected to our beliefs. We’d do well to attune ourselves to God’s Word, His Spirit, and the collective wisdom of His people; from there, our charge is to faithfully steward what God has given us—giving, saving, investing, and spending with the next generations and, ultimately, eternity in mind.
 For more detail on Keynes’s life, see D.E. Moggridge’s Maynard Keynes: An Economist’s Biography (London and New York: Routledge, 1992).
 This quote can be found in Keynes’s Tract on Monetary Reform (p. 80).
 Residential real estate and bonds are historically relatively low in volatility (i.e., low-risk investments) compared to stocks, commodities of currencies.
 Chesterton, Orthodoxy, in Heretics/Orthodoxy (Nashville, TN: Thomas Nelson, 2000), 192–193.
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