Gary North's REALITY CHECK
Issue 379 September 17, 2004
THE SOURCE OF ALL BLESSINGS (AND CURSES)
I made a big mistake in my report, "Count Your Blessings."
I forgot about members of one of the largest religious
organizations in America, Slogans for God. The SFG crowd let me
have it, good and hard. One reader complained:
HELLO, WHAT WORLD ARE YOU TALKING ABOUT FOR THESE
BLESSING. SEEM LIKE YOU LEFT OUT SOMETHING. THESE SEEM
LIKE MAN'S BLESSING AND NOT GOD'S BLESSING.
When you belong to SFG, grammar is not a top priority.
Self-confidence is. Maggie was among the more self-confident.
You left out the First Commandment: "Thou shalt have no
other gods before me" - neither capitalists and
capitalism - or any other "... ism." You also left out
the part about the natural resources of the world so
generously provided by our Maker. These fueled the
industrial revolution, which could not have taken place
without them. You and I take not one breath nor enjoy
any other gift in this life if God does not will it.
The very thought of thanking capitalists and capitalism
for my blessings instead of God makes me shudder. It
obvious that the modern West has completely lost its
spiritual bearings and are once again worshipping
golden calves. However, I did not expect you to lead
the degenerate parade to this altar. If capitalism is
your god, please quit masquerading as a Christian.
I sometimes wonder if these people send outraged letters to
physicians who praise modern medicine's role in increased life
expectancy, telling their targets that it is God who keeps people
alive, and that "medicinism" is a false God. The critics
probably believe this, but I suspect that they have restrained
themselves.
The libertarian publicist Leonard E. Read used to say that
the average person has no strong opinions about chemistry, but he
has lots of opinions about economics, which are usually wrong.
Read never had to deal with SFG. I do.
WHAT CHANGED IN 1750?
History has meaning, contrary to Eastern mysticism. The
world is not maya: illusion. Reality is not an illusion. There
is cause and effect in history. There are also non-causes and
effects.
For SFG, the cause is God. The effect is everything else.
This doesn't get us too deeply into the issues of economic cause
and effect, does it?
Prior to the advent of capitalism, poverty was nearly
universal. The rich were a tiny fraction of the total
population. There were famines, plagues, and widespread
ignorance. There was little literacy prior to 1450. The
printing press had not lowered the cost of books and pamphlets to
such levels that it paid the average person to learn how to read.
Economist Julian Simon and author Stephen Moore made this
point in a 1999 article:
The roughly fourfold rise in the living standards
of Americans in this century is particularly impressive
when we consider that for thousands of years human
progress occurred at a glacial pace. For the thousand
years before the Industrial Revolution, incomes were
virtually flat, growing by about 0.5 percent per year.
Life expectancy was not much greater in 1700 than it
was at the time of the Greek and Roman Empires.
http://snipurl.com/93xs
Was God in control in 1400? Yes, say SFG. Problem: Was the
world that God governed prior to 1500 a world in which anyone
reading this report would like to live? Would the skills of any
reader have found a ready market in, say, 750 A.D. in what is now
central Germany? No? Why not? What was missing?
I'll tell you what was missing: capitalism.
History has meaning. Today is better than 1700, as I argued
in "Count Your Blessings." How should Christians explain today's
wealth and still uphold God's providence? What is different
today?
I have been trying to answer this question since 1960. I
have written approximately 12,000 pages on the topic. It may be
more. I lost track years ago. I have written 8,500 pages of
Bible commentaries that are exclusively devoted to economics. I
have posted them for free on-line. You can get a list by sending
an email to:
[EMAIL PROTECTED]
But for the Maggies of this world, all of this is
irrelevant. To understand this requires thought, historical
knowledge, and the ability to deal cause and effect -- what used
to be called natural law. SFG members dislike such complexity.
Economics is much too complicated for them. It's so much easier
to say, "God gave us health and wealth." He did, indeed. But
what about the bad stuff? How about sickness and poverty? How
about sickness and poverty for all of man's history until 1750?
NATURAL RESOURCES
Maggie pointed out the following:
You also left out the part about the natural resources
of the world so generously provided by our Maker. These
fueled the industrial revolution, which could not have
taken place without them.
Apparently, in Maggie's mental universe, these natural
resources came out of heaven, like the manna (Exodus 16). They
were not there in (say) 1400. Then, wonder of wonders, they
appeared in England around 1750.
Maggie is not alone in her explanation. I grew up on an
public school ideological diet of "resources made the West rich."
Socialists refused to explain the Industrial Revolution in terms
of capital markets, freedom of contract, the defense of private
property, and free trade. Natural resources: that's what made
the difference. That was why Russia back in 1965 was going to
overtake the West, one of these days, Real Soon Now. Or South
Africa would, if a man like Nelson Mandela could ever gain
political power. Or Rhodesia would, if a man like Robert Mugabe
could ever displace Ian Smith.
But there was this nagging problem: Hong Kong, which has no
natural resources. Its people got very wealthy after 1945. Hong
Kong was a bothersome factor for the socialists of the world.
Its success had to be explained in terms of something other than
natural resources, which it did not possess. It also had to be
explained in terms of something other than socialism, of which
there were few traces.
So, the socialists solved this problem by not discussing
Hong Kong. "Hong Kong? Never heard of it."
Neither has Maggie.
It is the creativity of man that turns natural resources
into factors of production. This includes the creativity of men
who bid for the output of such resources. In capitalism, the
high bid usually wins. This puts pressure on people to become
productive, in order to make high bids.
Don't tell me about God's gift of natural resources. Tell
me about how black goo becomes gasoline, and why. Tell me about
God's gift of technical knowledge and capital markets.
FIGHTING POVERTY
Which would be the better policy to fight poverty:
1. Invest 10% of all profits?
2. Give 10% of all profits to the poor?
We know the answer: #1. Capital formation is the most
powerful force in man's history for the elimination of poverty.
The Bible, like all other religious books, does not command
the reinvestment of profits. It commands charity.
Is there a cognitive disconnect here?
I regard John Wesley as the person who did more to relieve
poverty than anyone in history. He showed the way to wealth to
millions of poor people who had not read Adam Smith. He preached
this of money: Earn all you can. Give all you can. Save all you
can. (Sermon #50, "The Use of Money" [1744], Part 6.)
http://snipurl.com/92b7
Wesley preached to the poorest people in the British Isles.
He spent most of his adult life on horseback. He preached
sobriety, hard work, and thrift to those poverty-stricken people
who came to be called Methodists. He changed the face of
England. Within a century of his death, Methodists had become
middle class. Then the denomination went theologically liberal.
This would not have surprised Wesley. He had warned against the
effects of riches in Sermon 126 (1790).
http://snipurl.com/92bf
His followers experienced what religious orders and monks
did throughout the Middle Ages: they got rich by practicing
systematic frugality. That was why, every few centuries, there
was a wave of religious reform among the mendicant orders that
had sworn vows of poverty. Too much money was rolling in. The
monks were enjoying the life style of the rich and famous.
Thrift is the key element in the reduction of poverty.
Thrift capitalizes the entrepreneurs and inventors whose ideas
overcome poverty for the masses.
The fact that wealth corrupts some of those who create it
and makes their children feel guilty after four years at an Ivy
League school is a valid theological and moral issue. But as to
how poverty is overcome, capitalism has proven more effective
than any other system of ownership and production.
I argue in many of my books that the worldview of the Bible
presents the case for private ownership, which in turn produces
the capitalist order. Socialists may disagree. So may Randians.
But the fact remains that the capitalist order is what has made
the difference historically in the conquest of poverty. Before
capitalism, there were many varieties of Christianity, but none
of them produced the society-wide cornucopia of wealth that has
given us all of those blessings to count.
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-----------------------
THINKING STRAIGHT
The ability to think straight is not widely dispersed. The
ability to think straight economically is even less widely
dispersed.
It was not Adam Smith who convinced the poor Methodist in
his hovel to decrease his expenditures and start saving. It was
a highly educated man on horseback, who rose at 4 A.M., preached
a sermon at 5 A.M., and rode off to the next town, year after
year, decade after decade. It was not the case for capitalism in
the books of political economy that changed the minds of the
poor, but the simple words of a complex man who said to earn all
you can, save all you can, and give all you can. He called
dissolute people on the fringes of society to straighten up and
fly right. Millions of them did.
It never ceases to amaze me that those people who say they
follow the same God that Wesley followed don't understand the
message of Wesley and his original followers, just as they don't
understand the logic of Adam Smith, which reinforced Wesley's
words. "Thou shalt not steal" is a good place to begin economics
in one lesson. So are the words of the land owner in Jesus'
parable of the complaining laborers, who groused that they had
been paid exactly what they had been promised. "Is it not lawful
for me to do what I will with mine own? Is thine eye evil,
because I am good?" (Matthew 20:15).
We should do our best to think straight. When we do, we
will be better able to count the costs, another message of Jesus
(Luke 14:28-30).
In my original essay, I spoke of capitalism's blessings.
The loudest of the SFG crowd do not understand history, theology,
or economics. Yet they are the heirs of these blessings. We all
are. And for maintaining and extending this inheritance, we are
responsible.
There are no free lunches, capitalism teaches. If you do
one thing with your wealth, you cannot do another. There is a
social function of ownership. The owner decides whose demand to
fill: the highest-bidding consumer, the poverty-stricken child,
or his own desire to consume.
There is a price to be paid, in history and eternity. The
free market imposes historical prices most clearly, for it allows
consumers and beggars to make their bids and pleas for ownership.
No system has empowered consumers and beggars more effectively
than capitalism has. Beggars these days would have been rich
people in Wesley's day: used stereos, used color televisions, and
warm clothing. There is more wealth in a Salvation Army thrift
store than in most shops in London in 1700.
This is not random. It is also not the result of natural
resources, all by their lonesome.
CONCLUSION
To be grateful for what we have, we had better understand
how we got it. We got it through free market capitalism. God
was in charge in 1700, but He has provided greater benefits to
more people since 1750 than ever before in history. If those who
claim to be Christians cannot understand the difference between
medieval guild socialism, free market capitalism, Keynesianism,
and communism as ways of allocating resources and responsibility,
then they are likely to fall into error: the error of slogans at
the expense of thought.
I recommend that people say a prayer of thanks for capital
markets. In the providence of God, they keep us alive.
*************
APPENDIX 101
Abraham Case Study #433 comes from a software writer. These
people rarely are infused with the spirit of marketing.
In 1998 and 1999 my son and I wrote a very niche-specific
software program for our own use as well as for resale.
We are healthcare reimbursement consultants serving
various types of Medicare certified providers of
service, including home health agencies. Our software
program was a simple and easy to use tool to calculate
the Medicare reimbursement rates for a home health
agency.
Anything that simplifies paperwork for a company that deals
with the government ought to have a large market.
We used it ourselves in our consulting practice and
decided to package it and sell it to others for
$159.95. We actually sold about 75 copies with very
little marketing effort.
They priced it way too low. It should have sold for three
or four times this price. That would have provided some
marketing capital.
There were no returns at all. The product is now
obsolete since the entire reimbursement methodology has
changed. While this amount of income can certainly not
be considered any great financial success, we were very
pleased for the following reasons:
1. The project proved the concept of being
able to develop a product from scratch and
sell it multiple times.
2. By applying this concept to a broader
market with a longer shelf-life product,
serious money could result.
If they use this experience to create and market more
products, this assessment is accurate. There is a steep learning
curve in business development.
They used a series of techniques to sell this product.
These are all useful.
RISK REVERSAL - We sold the product with a full
money-back guarantee. We even offered to ship the
product based ONLY on the customer's request with no up
front payment with an invoice enclosed.
JOINT VENTURE - We agreed to give a 50% commission to a
large well-established company already marketing a line
of non-competing products to the target market. This
company simply included a "Flyer" about our product in
each order they shipped out of their own products. The
beauty of this was that we got orders for virtually
free advertising and promotion.
A bounce-back card is a nice way to generate extra business
at low cost. But this strategy is suitable only for peripheral
products. It's good for the third party, but it will not produce
profits sufficient to warrant the attention required. They sold
75 copies. On a 50-50 basis, that's under $6,000. A
businessman's time is worth more than $6,000.
With a marginal cost to produce one more product copy
of less than $5.00, there is still substantial profit
in each sale obtained in this manner.
The cost-price spread was high. For a direct-mail product,
this might have worked, depending on how many potential buyers
there were. The narrower the market, the higher the price. With
only 75 sales, this was a narrow market.
NEW CUSTOMER VALUE - We recognized the potential long
term value of each new sale. We now have a database of
satisfied customers from all over the US.
This is good, but how many sales will come from an installed
base of 75 now-obsolete products?
This list will hopefully be very receptive to any new
products we have to offer in the future and our
credibility for quality products is already
established.
My guess is that the list will not generate much income as a
result of a $159 product.
AUTOMATED FOR CUSTOMER CONVENIENCE - We set up a
special web page to demo the product. It contained
several ways for the customer to order the product.
They could order on our toll free 800 phone line, they
could place the order online, or they could print out
an online order form and snail-mail it. We accepted
major credit cards or checks.
Most orders never required direct human contact. All
orders shipped within 24 hours.
This is good. They automated sales. This experience should
help future sales.
The greatest single benefit to us is that it proved the
systems and marketing methods actually work. This gives
us the confidence to go on to bigger and better
projects.
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