An Economic Theory that Leads to Smart Investing

 

The single most asked question I get at investment conferences is, “Do you have a list of money managers who invest guided by the Austrian School of economics?” The question is a good one. After all, the Austrian School stands alone in predicting the fall of the Soviet Union and the housing and financial crash.

Anyone with a retirement account has been whipsawed by the stock market over the past few decades. Fidelity’s Peter Lynch told everyone to buy stocks and hold. Everything would work out great. Diligent savers would even end up millionaires, courtesy of an ever-expanding stock market. The efficient-market hypothesis (EMH) provided intellectual support for the idea. The market reflects all information, so there’s no way to beat it, said the economists.

Now everyone knows better. Or at least they should.

The average person’s 401(k) was turned into a 201(k) in 2000, and was destroyed again in 2008 if they were brave enough to stay or get back in the market. Many people swore off stocks after the last crash only to watch the S&P 500 triple. Now the Fed’s zero interest policy has pulled them back just in time for the next market train wreck.

Those educated in the Austrian School understand how the central bank creates the business cycle’s booms and busts. And they know there is a better way than just buying, holding, and hoping. But how does one apply it using Friedrich Hayek’s and Ludwig von Mises’ theories to make money in the market?

In a very readable 107 pages, Roger McKinney shows you how to turn theory into profit and financial survival in his book Financial Bull Riding.

Now is the perfect time to read McKinney’s book. Stocks are trading at all-time highs. More margin debt is outstanding than ever before. Price/earnings ratios are stretched, with market darlings like Netflix and Amazon trading at P/Es of 196 and 581, respectively.

However expensive it may be, if you’ve missed this market move, every day it goes up, you feel the regret and are tempted to jump in. If already fully invested, you’re rationalizing away any concerns.

Eugene Fama may have shared the Nobel Prize for his EMH work, but McKinney disposes of the idea using a folksy story from a serially successful investor — Warren Buffett — that strict adherents to EMH would deny the existence of.

Buffett finished his story about coin-flipping orangutans with “I think you will find that a disproportionate number of successful coin flippers in the investment world came from a very small intellectual village that could be called Graham-and-Doddsville.”

Common sense still makes sense in the plains.

Buffett has a point. Even in the speculative world of junior resource investing, the legendary Rick Rule is an ardent adherent to the teachings of Ben Graham and David Dodd.

McKinney’s book may be about beating the markets, but the author gains his clear perspective not just through the lens of Austrian economics but from operating as a financial adviser far, far away in the flatland of Oklahoma. His perspective isn’t clouded by the canyons of Wall Street. Common sense still makes sense in the plains.

Bull Riding is Rothbardian in its scope of history used to support the book’s premise. Richard Cantillon is not a household name, but McKinney provides a brief, enlightening history of the man who made a fortune in the crash of John Law’s Mississippi Bubble in 1720 France.

And how many books on investing mention the University of Salamanca as the beginning of the marginal revolution? “Had [Adam] Smith been more familiar with the writings of the Salamanca scholars, he would not have made that mistake.” “That mistake” being the labor theory of value.

Readers shouldn’t worry about the author getting too bogged down in theory or history. He condenses these matters, as well as the Keynesian takeover. He then quickly gets into explaining the Austrian business cycle theory as the bedrock for investment timing.

Hayek’s and Mises’ insight was that monetary intervention by a central bank forces interest rates below their natural rate. This fools entrepreneurs into believing savings have increased and demand has shifted from consumer goods to higher-order (investment) goods. Of course, savings haven’t increased, and this misdirected capital becomes what Austrians call malinvestments, to be liquidated in the downturn.

Selecting good companies to invest in is important, but timing is everything. “If we can predict with some accuracy when profits will change in the business cycle,” McKinney writes, “we should have some idea of when stock prices will change.”

The author follows the money and, in turn, the profits of various business sectors, providing a road map to help investors determine entry and exits points in the market. It’s what he calls avoiding the “business cycle horns.”

Investors have different temperaments and risk tolerances. Very few are all-around cowboys. McKinney lays out three strategies for this investment rodeo depending upon what kind of cowboy you are.

You may be a calf roper, with plenty of skill and, most importantly, plenty of patience. But calf ropers don’t make as much as other cowboys. Steer wrestlers make more, but timing is more critical, while less patience is required.

The big money in any rodeo is made by bull riders, who risk life and limb for an eight-second thrill ride. The investment bull rider will try to ride all market fluctuations using margin, options, and futures. Bumps and bruises should be expected, but the rewards can be enormous for a successful ride. Especially if you use Austrian business cycle as a big-picture guide, with technical analysis to navigate the market’s daily bucking.

The best freedom is financial freedom. Rather than hand your hard-earned savings to a broker or money manager whose primary interest is to generate commissions or increase money under management, take control of your own nest egg.

Sincerely,

Doug French
for The Daily Reckoning

Is God a Capitalist?

 

Popes normally stick to their bailiwick, faith and worship. But Pope Francis’s criticisms of capitalism came early and often, escalating since the beginning of the covid pandemic. The pontiff describes free market thinking as “magic theories.” 

“The fragility of world systems in the face of the pandemic has demonstrated that not everything can be resolved by market freedom,” Francis wrote in his encyclical late last year. “It is imperative to have a proactive economic policy directed at ‘promoting an economy that favours productive diversity and business creativity’ and makes it possible for jobs to be created, and not cut.”

Roger McKinney doesn’t see eye to eye with the pope. In his book God Is a Capitalist: Markets from Moses to Marx, McKinney “shows how Biblical economic principles answer the most vexing problems the world faces today, such as poverty, inequality and pollution.” 

While Pope Francis stumps for socialism, McKinney points out that the system Francis fancies has given us millions of deaths from the likes of Nazi Germany, Stalinist Russia, and Castro’s Cuba. 

McKinney’s intellectual journey started with the so-called father of capitalism, Adam Smith, and Smith’s The Wealth of Nations. However, Smith didn’t address where capitalism came from, and McKinney discovered the work of the theologians at the University of Salamanca, Spain. He learned what Chinese intellectuals knew three centuries before: “God is a capitalist.” 

As he gives away in the subtitle, McKinney couches the book in a good versus evil, capitalism versus Marxism framework. That debate, in McKinney’s view, started with Moses in 1500 BC, writing, “Moses was one of the world’s most vigorous proponents of free markets while pharaoh was an early Marxist.”

The author describes himself as a conservative evangelical when it comes to theology and as a proponent of the Austrian school on economic issues. He leans heavily on Hayek, Mises, and other Austrians to support the capitalist argument. McKinney used the Austrian business cycle theory to great effect in his 2014 book on stock market investing, Financial Bull Riding.

An interesting inclusion is Hemult Schoeck and his book Envy: A Theory of Social Behavior. Mckinney writes, “Schoeck argued that Christianity catalyzed economic development and capitalism by finding a way to suppress envy without eliminating it.”

In McKinney’s meatiest chapter, entitled “Christian Capitalism,” the author returns to the School of Salamanca to remind us that it was theologians who provided the initial insights into economics. The aforementioned Adam Smith taught moral philosophy, not economics. 

McKinney says in the chapter that Murray Rothbard, “Mr. Libertarian,” based his political views on sound economics, and had he stopped there, “he would have carved a place for himself in history and found good company with his teacher, Ludwig von Mises, and another great student of Mises’, Hayek. But Rothbard was an atheist and that emboldened him to join forces for a while with another atheist, Ayn Rand, who promoted a variation on the theme of libertarianism. Rothbard thought it necessary to construct an atheist system of morality and considered himself capable of creating one.” 

A few lines later, McKinney writes, “Obviously, Christians should never take their morals from atheists.” From conversations with Murray, I remember him as more of an agnostic than atheist. My memory is supported by Murray’s friend David Gordon, who told Jeff Deist, “Well, I think he was an atheist, not out of hostility to religion. It was more that he didn’t find the arguments for the existence of God very convincing. Now toward the end of his life, I think he just said something like, ‘If there is a God, it would be a being that we really can’t know anything about or would be completely different to anything we would understand.’”

Gordon continued, “But I don’t think that—say, like the Randians would say, if you’re not an atheist, you’re really irrational. He would not take that view. He was very tolerant, whatever people thought. That was just his understanding. One of his great friends was the Jesuit libertarian Father James Sadowsky and certainly Sadowsky, being a Jesuit, it never affected their friendship and I think that the existence of God or atheism wasn’t really a central issue for Rothbard.”

It’s hard to imagine that McKinney doesn’t believe Murray Rothbard is in the same company as Mises and Hayek. History says otherwise. Besides this misstep, McKinney has written a fascinating book which asks and answers an intriguing question.

Author:

Doug French

Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master's degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe.

What the Bible teaches about national debt and our children

 

President Joe Biden sits in the Oval Office as he signs a series of executive orders at the White House in Washington, D.C., after being sworn in at the U.S. Capitol on January 20, 2021. | JIM WATSON/AFP via Getty Images

Congress passed President Trump’s $900 billion COVID relief package last year and recently added President Biden’s $1.9 trillion bill with the approval of 63% of Americans. Why shouldn’t people be happy about getting money they didn’t have to work for? It’s like winning a small lottery.

Biden has proposed spending more than $2 trillion on improving the country’s infrastructure to boost the economy and improve the competitiveness of the U.S. internationally. Many have argued the U.S. needs such improvements to keep up with China’s growing dominance in international trade. Modern Monetary Theory assures us that nothing can possibly go wrong. If the spending splurge sparks inflation, the government can tax it away, so don’t worry. Only a few cranky politicians, such as Rand Paul, oppose it.

What should be the attitude of Christians toward such massive spending by the federal government? Does the Bible provide any guidance? Does it matter?

The government will finance most of the spending through debt because politicians fear raising taxes. Only a generation ago, all conservatives, not just Christians, considered it immoral to pile up debt to solve current problems and leave it to our grandchildren to pay. We used to take pride in paying our own way. Now we have no problem sponging off anyone, including our grandchildren.

Paying our own way would mean accepting the losses in wealth caused by the pandemic-induced recession today or raising taxes to pay for the spending. But raising taxes is unpopular, would damage the economy, and defeat the purpose of the relief. Instead, we borrow money that future generations will pay back through higher taxes, higher inflation, or default by Washington.

Some will argue that rescuing the economy today will leave future generations wealthier and better able to afford the costs of mountains of debt. That might be a sound argument if bureaucrats spent the money wisely, but every surge in spending by the federal government in the past has been plagued by waste, corruption, and theft. That has been true since the founding of the nation. Read How Capitalism Saved America by Thomas DiLorenzo or his recent article “Central Banking as an Engine of Corruption.” Much of the “infrastructure” spending will go to “bridges to nowhere.”

Only 10% of the COVID bill went to those hurt by the pandemic. Republicans estimate that less than 6% of the bill will improve infrastructure, while other studies show that, at best, half the money might hit the intended target. Biden loves to talk about high-speed trains and super sonic jet travel, but neither are part of the plan. 

According to DiLorenzo, many state constitutions prohibit their state governments from borrowing for similar spending because in the middle of the 19th century many states went bankrupt because of it. So don’t fool yourself into thinking the massive federal spending will be wisely invested and benefit future generations. Most of it will be wasted and become a heavy burden for our grandchildren. We know better. 

Concern for our grandchildren was a driving force in making America great according to economist Joseph Schumpeter in Capitalism, Socialism and Democracy. Capitalism improved our standards of living because businesspeople saved and invested in order to leave a legacy for their children. Concern for their children gave them a long-term perspective. Schumpeter worried that the decline of the family would lead to the demise of capitalism because, without that future orientation, people would let property rights erode and spend their wealth on themselves rather than invest for the future. 

The most influential economist of the 20th century, J. M. Keynes, promoted our present disregard of the future with the philosophy that in the long run, we’re all dead. So why worry about it? But what does the Bible say about the long run? 

“If the dead are not raised, ‘Let us eat and drink, for tomorrow we die.’"

I Corinthians 15:2

“Go to the ant, O sluggard; consider her ways, and be wise. Without having any chief, officer, or ruler, she prepares her bread in summer and gathers her food in harvest.”

Proverbs 6:6-8

“The prudent sees danger and hides himself, but the simple go on and suffer for it."

Proverbs 22:3

“A good man leaves an inheritance to his children’s children.” 

Proverbs 13:22

“But if anyone does not provide for his relatives, and especially for members of his household, he has denied the faith and is worse than an unbeliever.”

1 Timothy 5:8

Of course, we do provide for our children. We abstain from pleasures to provide them with food, clothes, and a good house to live in. We pay for them to join sports clubs, have cell phones, and take music and dance lessons. Some of us pay for them to attend private schools and save for their college education. Then we crush them with government debt. 

Young people have a hard time financially after they leave home because we spend so much on ourselves as old people. The Social Security, Medicare, and Medicaid taxes they pay for us reduce their incomes. Healthcare insurance costs about $15,000 per year for a family, even if young people don’t know it because their employer pays most of it. Premiums are so high largely because the law requires young people to subsidize the premiums of older people who use it the most. 

Now we have added the burden of the national debt. The United States owes $68,400 per citizen or $183,000 per taxpayer. People who know little about economics say the debt is no problem; we owe it to ourselves. But our grandchildren will have to pay for it one way or another. The preferred method since World War II has been to erode the value of the debt through price inflation. Workers demand higher wages, attempting to keep up with rising prices, and the higher income boosts tax revenues. But higher wages push workers into higher tax brackets and rarely keep up with price increases, so people grow poorer. High inflation was the main cause of the erosion of real wages throughout the decade of the 1970s.

Don’t be fooled by socialists or silly monetary theories. Massive federal spending eats our grandchildren’s future.

Biden's tax plan violates several biblical principles

 

President Joe Biden delivers remarks at the 2021 National Prayer Breakfast, Feb. 4, 2021. | YouTube/NewsNation Now

Not all Democrats have guzzled the modern monetary mania that the national debt, currently at $68,400 per citizen or $183,000 per taxpayer, doesn’t matter. To pacify them, President Biden proposes raising taxes to pay for some of his binge spending. 

He wants to raise the top marginal income tax rate to 39.6% from 37% and nearly double taxes on capital gains to 39.6% for people earning more than $1 million. President Trump had reduced corporate tax rate from 35% to 21% and Biden wants to raise it to 28%. Finally, Biden wants to raise gasoline taxes, the most regressive of all taxes. 

Corporations rarely pay for such tax increases because they pass the costs on to consumers as higher prices, but talk of sticking it to large corporations is beautiful music to the ears of socialist Democrats, who avoid learning economics at all costs. In the real world where the rest of us must live, individuals pay most taxes. 

Biden’s tax increases will impoverish average Americans, but Democrats hope the spending binge will compensate. They will hurt the working poor the most because the government has created many tax shelters for the wealthy to hide their riches from Uncle Sam’s grasping claw. And they will hurt small businesses more than the large corporations that Americans love to hate, and thereby boost the power of cartels in every industry. 

President Trump reduced corporate taxes because the U.S. rate was higher than the rates in other industrialized countries, and that made U.S. manufacturers unable to compete in many markets. Biden’s increase will shove more jobs overseas to avoid high tax rates in the U.S. Overall, higher corporate taxes will mean less investment in U.S. businesses, slower job growth, and lower wage increases. That’s introductory economics. 

The economics of binge spending and tax increase is too complex for most Americans to grasp, since most never take an introductory economics class or read an economics book. So let’s look at the moral aspect of taxation as the Godly theologians of the University of Salamanca, Spain, did during the Reformation. Before they examined taxation, they had to determine the purpose of government. Today, people answer that by saying the government is supposed to do whatever is for the common good. But the Salamancan theologians didn’t see it that way. 

Theologians see the beginning of human government in the Bible when God told Noah in Genesis 9:6, “Whoever sheds human blood, by man his blood shall be shed, for in the image of God He made mankind.” The next statement in the Bible on government comes when God created the nation of Israel and gave it no human king or legislature, leaving it only courts for government institutions. God performed the role of king by giving Israel its laws, 613, most of which dealt with temple ceremonies. 

The courts decided only the civil laws, most of which dealt with property, indentured servitude, and violence. Given the absolute monarchies that existed at the time, the government of Israel was radically limited to just punishing evil doers. God was very angry with Israel for demanding a human king and warned them of the tyranny that human kings would inflict upon them. Read I Samuel 8. God allowed a human king as punishment for Israel’s rebellion. 

In the New Testament, the Apostle Paul told Roman Christians in chapter 13 that the role of government authorities is to punish evil doers: “They are God’s servants, agents of wrath to bring punishment on the wrongdoer…This is also why you pay taxes…” The authors of the U.S. Constitution created a federal government that they intended to be limited to punishing evil doers and national defense. 

After discerning that the role of government is to punish evil doers who violate the rights to life, liberty and property of others, the theologians of Salamanca determined that the state has the authority to collect taxes for that purpose and for no other. If the state collected more than it needed for that limited role, it was committing theft and violating the commandment, “Thou shalt not steal.” 

Most of what the federal government does with tax revenue is transfer money from the wealthy to the middle class and working poor, clearly not in the Biblical mandate of punishing evil doers or legal under the Constitution. What does infrastructure spending have to do with punishing evil doers? 

Also, theologians for centuries have insisted that the government must treat all citizens the same since authorities are agents of God who treats all people the same. So, until the 20th century, most Americans considered “progressive” taxation, or taxing the rich more than others, to be immoral. Then socialism became popular and Americans forgot about morality. 

By worshipping their idol social justice, or socialism, Americans have created a very unjust government in the way it taxes people. Biden’s spending binge is not only an economic disaster, it’s immoral as well because it violates the state’s requirement to treat citizens equally and it adds to the theft from citizens that the government has committed for over a century. 

"Conservative" Christian intellectuals blame the market for what the state did

 

Unsplash/Pepi Stojanovski

President Biden’s proposal to raise the nation’s minimum wage to $15 per hour has been upstaged by his stimulus and infrastructure spending proposals, but the administration hasn't given up, and some well-meaning but historically and economically naïve Christians are on board.

All the missiles from economics launched against a minimum wage because it harms poor minorities bounce off the minds of statists (socialists, progressives, fascist, liberals, etc.) like Hamas rockets hitting Israel’s Iron Dome. Facts don’t move them. Consequences don’t faze them. Socialists reject the most developed of the social sciences, economics. Self-righteousness demands a minimum wage because they have declared it to be the moral thing to do regardless of the damage it will inflict.

Honestly, is it as moral as socialists claim? After all, minimum wages became popular in the early 20th century as the less violent way to promote eugenics. American progressives taught eugenics to Germans before Hitler and he merely took the ideology to its logical, violent conclusion. Progressives in the US wanted a non-violent way to suppress undesirable races and a minimum wage offered its services. 

In his review of Illiberal Reformers: Race, Eugenics, and American Economics in the Progressive Era, by Thomas C. Leonard, Art Carden wrote, 

“Leonard recounts the ways in which Progressive Era economists argued that minimum wages were good policy precisely because they reduced employment opportunities for those workers. Social scientists in the thrall of the eugenics movement enthusiastically endorsed policies that excluded ‘unfit workers’ from the labor market lest those workers’ earnings enable them to continue polluting the gene pool.

“Foreigners and other non‐Caucasians could ‘under‐live’ American workers because they were accustomed to lower standards of living. Nonwhite workers would thus win the race to the bottom, ultimately culminating in ‘race suicide.’ In this view, Darwinian and competitive forces were dysgenic, meaning that unchecked reproduction among the fecund and ‘swarthy’ would overwhelm the genetically superior, leading ultimately to the degradation of the human race."

In his review of the standard textbook on economics of the US Progressive Era, Principles of Economics, by Frank W. Taussig (1917), Jeffrey Tucker wrote that the purpose of a minimum wage would be to regulate the labor market to exclude workers whose productivity was too low:

“Some people are simply unemployable, he [Taussig] says, for example ‘those who are helpless from cases irremediable’ due to ‘old age, infirmity, disabling accident’ and also those suffering from ‘congenital feebleness of body and charters, alcoholism, dissolute living […] irretrievable criminals and tramps.’

“This class, he opines, ‘must be stamped out’ and should not ‘be allowed to breed.’ Ideally, he says, we should ‘proceed to chloroform them once for all’ but that might have a bad look. Instead, ‘at least they can be segregated, shut up in refuges and asylums, and prevented from propagating their kind.’"

Tucker added that Princeton University’s Royal Meeker, Woodrow Wilson’s commissioner of labor, held the same ideology. “It is much better to enact a minimum-wage law even if it deprives these unfortunates of work,” Meeker argued in 1910. 

“Better that the state should support the inefficient wholly and prevent the multiplication of the breed than subsidize incompetence and unthrift, enabling them to bring forth more of their kind.”

“If we are to maintain a race that is to be made up of capable, efficient and independent individuals and family groups,’ Seager continued, ‘we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization.’”

One of the most famous socialists of the early 20th century, Sidney Webb, summed up the consensus of the time in his 1912 article The Economic Theory of the Minimum Wage:

“Legal Minimum Wage positively increases the productivity of the nation’s industry, by ensuring that the surplus of unemployed workmen shall be exclusively the least efficient workmen; or, to put it in another way, by ensuring that all the situations shall be filled by the most efficient operatives who are available.”

Who were the unemployable workers that progressives wanted to freeze out of the job market? They targeted blacks, Chinese, Hispanics, Eastern Europeans, and Jews. Progressive/socialist eugenicists were white supremacists who feared that inferior humans would destroy all that whites had built. Eugenicists were also responsible for Jim Crow laws.

What changed? Hitler followed Taussig’s advice but used a deadlier gas than chloroform. When Americans witnessed the concentration camps and gas chambers in Germany, any thought of oppressing minorities became repulsive. So socialists flipped the narrative and insisted that a minimum wage would benefit the same groups they had assaulted with it before the war. And they’re still pedaling that lie. Christians are required to care for the poor, not just to put on a political mask which pretends they do care, but actually advocates policies which were designed to harm them.

What Christians need to know about minimum wage laws and white supremacy

 

Unsplash/Pepi Stojanovski

President Biden’s proposal to raise the nation’s minimum wage to $15 per hour has been upstaged by his stimulus and infrastructure spending proposals, but the administration hasn't given up, and some well-meaning but historically and economically naïve Christians are on board.

All the missiles from economics launched against a minimum wage because it harms poor minorities bounce off the minds of statists (socialists, progressives, fascist, liberals, etc.) like Hamas rockets hitting Israel’s Iron Dome. Facts don’t move them. Consequences don’t faze them. Socialists reject the most developed of the social sciences, economics. Self-righteousness demands a minimum wage because they have declared it to be the moral thing to do regardless of the damage it will inflict.

Honestly, is it as moral as socialists claim? After all, minimum wages became popular in the early 20th century as the less violent way to promote eugenics. American progressives taught eugenics to Germans before Hitler and he merely took the ideology to its logical, violent conclusion. Progressives in the US wanted a non-violent way to suppress undesirable races and a minimum wage offered its services. 

In his review of Illiberal Reformers: Race, Eugenics, and American Economics in the Progressive Era, by Thomas C. Leonard, Art Carden wrote, 

“Leonard recounts the ways in which Progressive Era economists argued that minimum wages were good policy precisely because they reduced employment opportunities for those workers. Social scientists in the thrall of the eugenics movement enthusiastically endorsed policies that excluded ‘unfit workers’ from the labor market lest those workers’ earnings enable them to continue polluting the gene pool.

“Foreigners and other non‐Caucasians could ‘under‐live’ American workers because they were accustomed to lower standards of living. Nonwhite workers would thus win the race to the bottom, ultimately culminating in ‘race suicide.’ In this view, Darwinian and competitive forces were dysgenic, meaning that unchecked reproduction among the fecund and ‘swarthy’ would overwhelm the genetically superior, leading ultimately to the degradation of the human race."

In his review of the standard textbook on economics of the US Progressive Era, Principles of Economics, by Frank W. Taussig (1917), Jeffrey Tucker wrote that the purpose of a minimum wage would be to regulate the labor market to exclude workers whose productivity was too low:

“Some people are simply unemployable, he [Taussig] says, for example ‘those who are helpless from cases irremediable’ due to ‘old age, infirmity, disabling accident’ and also those suffering from ‘congenital feebleness of body and charters, alcoholism, dissolute living […] irretrievable criminals and tramps.’

“This class, he opines, ‘must be stamped out’ and should not ‘be allowed to breed.’ Ideally, he says, we should ‘proceed to chloroform them once for all’ but that might have a bad look. Instead, ‘at least they can be segregated, shut up in refuges and asylums, and prevented from propagating their kind.’"

Tucker added that Princeton University’s Royal Meeker, Woodrow Wilson’s commissioner of labor, held the same ideology. “It is much better to enact a minimum-wage law even if it deprives these unfortunates of work,” Meeker argued in 1910. 

“Better that the state should support the inefficient wholly and prevent the multiplication of the breed than subsidize incompetence and unthrift, enabling them to bring forth more of their kind.”

“If we are to maintain a race that is to be made up of capable, efficient and independent individuals and family groups,’ Seager continued, ‘we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization.’”

One of the most famous socialists of the early 20th century, Sidney Webb, summed up the consensus of the time in his 1912 article The Economic Theory of the Minimum Wage:

“Legal Minimum Wage positively increases the productivity of the nation’s industry, by ensuring that the surplus of unemployed workmen shall be exclusively the least efficient workmen; or, to put it in another way, by ensuring that all the situations shall be filled by the most efficient operatives who are available.”

Who were the unemployable workers that progressives wanted to freeze out of the job market? They targeted blacks, Chinese, Hispanics, Eastern Europeans, and Jews. Progressive/socialist eugenicists were white supremacists who feared that inferior humans would destroy all that whites had built. Eugenicists were also responsible for Jim Crow laws.

What changed? Hitler followed Taussig’s advice but used a deadlier gas than chloroform. When Americans witnessed the concentration camps and gas chambers in Germany, any thought of oppressing minorities became repulsive. So socialists flipped the narrative and insisted that a minimum wage would benefit the same groups they had assaulted with it before the war. And they’re still pedaling that lie. Christians are required to care for the poor, not just to put on a political mask which pretends they do care, but actually advocates policies which were designed to harm them.

Why racists pushed, but theologians rejected, wage controls

 

In this Oct. 7, 2009 photo, a cashier gives change to a customer at Best Buy in Mountain View, Calif. | (Photo: AP Images / Paul Sakuma)

The minimum wage law is more popular today than ever. In my last post, I demonstrated the racist origins of modern minimum wage laws in the progressive eugenics movement of the early 20th century. Today, socialists ignore their earlier arguments that such laws hurt minorities and insist they help the poor. Every intervention into the market by the state benefits some at the expense of others. 

A minimum wage impacts mostly entry level, low skilled jobs, for the most part the jobs that teenagers with no work experience begin their careers in, such as hamburger flippers, ditch diggers, and shelf stockers. According to one of the best economists of the past 50 years, Dr. Thomas Sowell, minimum wage laws benefit whites. Who does it hurt? Minorities.

Dr. Thomas Sowell grew up poor in Harlem, New York but earned a doctorate in economics from the University of Chicago. Since 1980, he has worked at the Hoover Institution at Stanford University, where he serves as the Rose and Milton Friedman Senior Fellow on Public Policy.

Dr. Sowell is black. His race is important for two reasons: 1) Socialists insist that “lived experience” trumps all other knowledge, and 2) socialists insist that whites must remain silent when a black person speaks. In his 2007 book, Basic Economics: A Common Sense Guide to the Economy, Dr. Sowell traced the impact of minimum wage laws:

“Another group disproportionately affected by minimum wage laws are members of unpopular racial or ethnic minority groups. Indeed, minimum wage laws were once advocated explicitly because of the likelihood that such laws would reduce or eliminate the competition of particular minorities, whether they were Japanese in Canada during the 1920s or blacks in the United States and South Africa during the same era. Such expressions of overt racial discrimination were both legal and socially accepted in all three countries at that time.
[...]
“The history of black workers in the United States illustrates the point. From the late nineteenth-century on through the middle of the twentieth century, the labor force participation rate of American blacks was slightly higher than that of American whites. In other words, blacks were just as employable as the wages they received as whites were at their very different wages. The minimum wage law changed that. Before federal minimum wage laws were instituted in the 1930s, the black unemployment rate was slightly lower than the white unemployment rate in 1930. But then followed the Davis-Bacon Act of 1931, the National Industrial Recovery Act (NIRA) of 1933 and the Fair Labor Standards Act (FLSA) of 1938 – all of which imposed government-mandated minimum wages, either on a particular sector or more broadly.

“The National Labor Relations Act of 1935, which promoted unionization, also tended to price black workers out of jobs, in addition to union rules that kept blacks from jobs by barring them from union membership. The NIRA raised wages in the Southern textile industry by 70 percent in just five months and its impact nationwide was estimated to have cost blacks half a million jobs.
[...]
“By 1954, black unemployment rates were double those of whites and have continued to be at that level or higher. Those particularly hard hit by the resulting unemployment have been black teenage males.”

How should Christians respond to low-paying jobs such as those affected by the minimum wage? First, Christians should have an attitude of humility. No one knows what the right wage for entry level jobs should be. Church theologians kicked around Aristotle’s notion of a just price, including wages, for over a thousand years. Then in the Reformation they concluded that only God knows a just wage and he hasn’t revealed it to us. The closest humans can come is the wage arrived at in a free market in which neither party coerces the other.

So, if Walmart doesn’t coerce young job applicants and the applicants don’t pressure Walmart, the wage the two agree on is a just wage. Those Godly theologians rejected minimum wage laws because they knew such laws would cause greater unemployment among the poor and make them worse off than if they had kept the low-paying job. 

Second, responsibility for taking care of the poor falls upon the whole community, not just employers. Placing that burden only on employers advertises laziness and envy on the part of the community. If someone is trying to support a family with a low-wage job and can’t, the whole community must step up and provide the charity to support the family.

Has the medical industry become a "den of thieves"?

 

Medical team helps battle the coronavirus at Samaritan's Purse field hospital in New York City, April 2020. | Samaritan's Purse

Few families in the U.S. can afford healthcare insurance. The average premiums for family coverage is about $15,000 per year, about the same as a mortgage in Oklahoma. Then why do most Americans have healthcare insurance? Because their employers pay up to two thirds of the cost. 

Those without employer subsidized insurance must be content with catastrophic insurance and high deductibles. And by the way, healthcare insurance companies aren’t getting rich. Their average profit is 3%.

One way to reduce insurance premiums would be to cut medical costs because on average 85% of premiums go to pay doctor and hospital bills. A hospital in Oklahoma City has done that for decades and its chief opponents are other hospitals and doctors. 

Dr. Keith Smith created the Surgery Center of Oklahoma with a team of 11 other doctors. In a recent speech, he provided an example of the savings his hospital offers: 

“One that sticks out is the patient from Georgia who required a urologic procedure, and who had received a quote of $40,000, just for the facility charge. A friend had told him about our facility and after he confirmed that our all-inclusive price was $4,000, he informed his urologist he was traveling to Oklahoma City. Having lost another patient to us the previous month, the urologist contacted the hospital and told them something had to be done, as their price quotes were causing him to lose patients. The hospital matched our price and the patient stayed in Georgia.”

According to Smith, the Center began 24 years ago with a simple mission:

“Our mission was the opposite mission of the hospitals where we had previously worked. Then, as now, hospitals are focused almost exclusively on revenue, many times inflicting surprise and bankrupting bills on their victims. As physicians working in these hospital systems, we were unwitting accessories to these crimes. We intended to operate our facility differently, intending to serve as both medical and financial advocates for our patients.”

Canadians were the first patients to take advantage of the Center’s value. 

The most common story then as now for the Canadians was a patient waiting two years to see a gynecologist for a hysterectomy to stop their bleeding, bleeding usually so severe that intermittent transfusions were required. For $8,000, which covers the facility, surgeon, anesthesia, pathology, and an overnight stay at the surgery center, Canadians can end their nightmare. 

The first question a Canadian asks when they call us is how long they’ll have to wait. Our answer that there is no waiting time is met with disbelief. A Canadian friend of mine has told me the old joke that no Canadian is truly content unless standing in line.

In spite of the high quality of care and charges equal to 10% of what other hospitals charged, insurance companies would not contract with the Center. Established hospitals immediately began to attack them through state law makers they owned who created a trauma task force. Of course, the task force of politicians declared that their work benefited the health and welfare of Oklahomans, but its real purpose was to close physician owned hospitals such as the Surgical Center. Sympathetic Democrat politicians shut down the task force while Republican law makers continued to battle for their large campaign contributors in establishment hospitals.

Next, hospitals tried to pass a law requiring all hospitals to receive at least 30% of their revenue from Medicare, Medicaid, or uncompensated care. The Center accepted no money from governmental agencies so the law would close them. Smith said, “Once again, a Democrat, Representative Fred Stanley, used his muscle to ensure that this legislation went nowhere.”

In another attack, the hospitals persuaded the state department of health to demand all the medical records of patients the Center had treated. The Center refused and the department attempted to invalidate its operating license. Smith sued and forced the department to back down. 

Attacks on the Surgical Center will continue as long as established hospitals can buy politicians. For example, the American Hospital Association endorsed the Affordable Care Act only after it banned the construction or expansion of physician-owned hospitals. 

Such behavior by doctors and hospitals wouldn’t surprise readers if they understood the history of the American Medical Association, a union for doctors that Dr. Smith and his colleagues refuse to join. The U.S. enjoyed relatively inexpensive healthcare in the first quarter of the 20th century due to competition within the industry. But the AMA was able to purchase enough Congressmen to give itself a monopoly on the supply of medical care in the country and prices began to soar, as happens with most monopolies.

When Jesus drove the money changers and sellers of livestock from the Temple in Jerusalem, he accused them of turning it into a den of robbers. How did they rob the people? Corrupt high priests had made their shekel the only money that could be given to the Temple, so people with Greek and Roman coins had to exchange their coins for the shekel and having a monopoly, the money changers charged high prices for their service.

Jerry Bowyer wrote in The Makers versus the Takers: What Jesus Really Said About Social Justice and Economics, “This means there was a 100 percent premium on switching from the currency held by the typical Israelite to the required temple currency. As a result, worshippers paid double to participate in the system.” Bowyer documents many other corrupt practices in the Jerusalem Temple by the religious authorities that made them rich. Jesus threatened their wealth.

What the AMA and established hospitals are doing to healthcare in the U.S. is hardly different from the robbery by the Jerusalem Temple money changers and livestock sellers. Those who claim they care about the poor will want to end their monopoly on healthcare and force them to charge a just price in a free market.

Jesus' parable endorses market wage versus wage controls

The Christian Post/Hudson Tsuei

Economists have proven that a minimum wage above the market rate for unskilled entry-level workers will harm the people that socialists intend to help, but socialists don’t believe them or don’t care. Socialists insist that a minimum wage is moral and should become law regardless of the consequences. In this and this article I showed that a minimum wage is immoral from two perspectives. Here is another.

In the parable of the day laborers and the vineyard found in Matthew 20:1-16, the owner goes to the marketplace several times in a day to hire laborers to work. The point of the parable isn’t a minimum wage. Jesus told the parable to illustrate salvation by grace and not works. But to do so, he relied on common law regarding labor. 

According to Alfred Edersheim in his book The Life and Times of Jesus Messiah, the market had established a range of wages and an employer was required to pay the average wage for a day laborer if he had not negotiated one with the workers. Some workers trusted employers to do the right thing. Others would negotiate a wage with prospective employers, and once they agreed, that wage was binding on both the employer and the laborers and was considered a fair rate. Metaphorically, we might view the workers who negotiated a wage as Jews who had a covenant with God, and those who had no agreement as gentile believers.

But a few employers would hire workers and not pay them, or withhold pay for long periods of time while the money that should have gone to the workers was invested and earning a return. When the Bible condemns employers for oppressing workers, it usually refers to that and not to how much employers paid. 

In Jesus’ parable, the vineyard owner negotiated with only the first group he hired early in the morning: “He agreed to pay them a denarius for the day and sent them into his vineyard.” A denarius was the usual wage. The owner didn’t negotiate a wage with the other groups he hired. They trusted him to pay a fair wage. 

When the sun had set, the owner began paying his workers, but he gave them all a denarius regardless of how many hours they had worked. Normally, owners would pay workers by the number of hours they had put in. None of the short-term workers had negotiated a wage and accepted their pay as fair. But the workers whom the owner had hired first complained that they had endured the hottest part of the day and received the same pay as the others. 

To that, the owner responded, “I am not being unfair to you, friend. Didn’t you agree to work for a denarius? Take your pay and go. I want to give the one who was hired last the same as I gave you. Don’t I have the right to do what I want with my own money? Or are you envious because I am generous?”

Of course, the early workers were consumed with envy, but the economic point here is that Jesus relied upon a common law principle to support his illustration of salvation by grace. It’s unlikely that Jesus would have used that principle if he thought it unfair or in any way evil. And that law said that any wage agreed to by the laborers and the employer was a fair wage, regardless of what others thought. 

Theologians at the University of Salamanca, Spain, during the Reformation relied on the same principle when people insisted that Spain institute a minimum wage. Not only would it cause unemployment and make poor workers poorer, they wrote, any wage agreed upon by two parties was a just wage if one didn’t coerce the other. Theologians had spent centuries trying to discover just prices, including wages, and had finally determined that the closest humans can come to knowing a just wage is in a free market. 

Today, socialists argue that labor markets aren’t free. Employers have all the power and laborers must take the crumbs that businesses offer because there are always far more people applying for jobs than jobs available. But notice it was the same in Jesus’ day. The reason day laborers stood around in the marketplace, sometimes all day, was because there wasn’t a lot of work to go around. When large projects ended, such as building the temple, the supply of labor would greatly exceed the demand. Day laborers were among the poorest people in the land not counting beggars. And until recently, working on another man’s property instead of one’s own made the laborer not much better off socially than a slave. At the same time, an owner of even a small vineyard would have been relatively wealthy. 

Socialists insist that they know how much an employer should pay for unskilled labor. But they don’t. They are merely arrogant in claiming to know something they can’t possibly know. The great economist F. A. Hayek wrote that the main purpose of the science of economics is to convince us of how little we know about the things we think we can control. Jesus would agree. 

Socialists don’t know what any job should pay. Those who claim they do merely advertise their ignorance and arrogance. The principle of free market wages that Jesus employed applies to unions as well. Unions coerce employers with explicit threats of strikes and implicit ones of violence and so violate Jesus’ principle of freely negotiating wages. 

According to the principle that Jesus used, every worker has a right to negotiate a wage rate with his employer and the wage they agree on is just and fair. No one has the authority to substitute their opinions in place of a laborer and employer’s right to negotiate wages, least of all arrogant socialists. 

 

Millennials embrace socialism but can't define it

By Roger McKinney, Contributor| Thursday, August 05, 2021

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Sean Gallup/Getty Images

As a Boomer, I thought socialism died in its 1989 collapse in Eastern Europe and the Soviet Union. I was wrong. Based on the popularity of presidential candidate Bernie Sanders, Rep. Alexandria Ocasio-Cortez and other self-proclaimed socialists, the philosophy has climbed out of its grave and stalks the country with the popularity of zombie apocalypse movies.

Or does it? Apparently, the “socialism” that Millennials and Zoomers (Generation Z) crave isn’t the same as that of the old USSR. What is it? Well, Millennials and Zoomers don’t know, according to a survey by the Institute of Economic Affairs. They conducted the survey in the UK, but I would guess the results would translate well to the US as well.

The survey gave people under 40 years of age these definitions: A) “An economic system whereby business, trade and industry is mostly run and owned privately for profit. Prices and wages are determined mainly by competition in a free market,” and, B) “An economic system whereby business, trade and industry is mostly run and owned by the government. Prices and wages are determined mainly by the government.” 

Unfortunately, half of Millennials surveyed could not identify which definition referred to capitalism or socialism or they assigned the socialist definition to capitalism and the capitalist definition to socialism. For Democrats, A is capitalism and B is socialism. 

“When asked the same questions, Zoomers did even worse. On the fundamental divide in political ideology of the last 150 years, the generations that have had the greatest access to higher education did about as well as a dart-throwing chimp.

“The poll revealed further signs of confusion. Most of the respondents agreed with the statement that ‘capitalism heightens racism’ but also agreed that ‘racism is independent of the economic system’. They simultaneously claimed to want to pay ‘more tax to pay for public services’ but also wanted to pay ‘less tax, because the government will not spend it wisely’.”

Institute of Economic Affairs

So, what are they promoting?  According to the poll, “Millennials and Zoomers associated socialism with words like ‘equal’, ‘fair’ and ‘people’ while they associated capitalism with ‘exploitation’, ‘unfair’ and ‘corporations’.” In other words, both groups lump socialism with good feelings and capitalism with bad ones. 

Unfortunately, they get those backwards as well. Godly theologians distilled the principles of capitalism from the Bible during the Reformation. They began with the commandments “Thou shalt not steal” and “Thou shalt not covet” and tried to figure out how those would apply to government because for millennia governments and the nobility had stolen from the common people with impunity. They determined that the Biblical commands require: 1) A government limited to taxing the people only enough to perform its God-given duty of punishing evil doers who violate individual rights to life, liberty and property; and 2) A government that treats all citizens equally so that the nobility must obey the law as well as the common people. 

Also, they had to define property. They decided that the chief characteristic of property is that the owner controls it and can dispose of it as he wishes. So property requires free markets. As a bonus, free markets settled the problem of determining a just price. Theologians had kicked around the Aristotelian concept of a just price for a thousand years. In the Reformation they decided that the closest humans can come to it is that price determined in a free market. 

The Dutch Republic first implemented capitalist principles in the 17th century and became the first capitalist nation. As a result, it launched the Industrial Revolution, or what some economists call the great enrichment, in the West. You can see the results in this graph of the history of per capita GDP, another term for standards of living. Another way of viewing it is that the higher the lines on the graph rise, the lower poverty falls. 

If Zoomers and Millennials really care about ending poverty or promoting equality and fairness, they will promote capitalism. Capitalism has always and everywhere reduced poverty where it has been tried. Socialism has only impoverished every society it afflicted.