Public Square

Applying Economics to Our Call to Help the Poor 2

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A friend-of-a-friend once told me that she didn’t care if the government wasted 90% out of each dollar, that we absolutely needed government to help the poor in both emergency situations and long-term poverty assistance. I was blown away by that statement. She said that to me at least five years ago and I have been mulling it over ever since. I don’t think she would want the government or anyone else to have so much waste, but it was a cost she was willing to bear if it helped people. I am still trying to wrap my head around her point of view… but I do have some thoughts about it.  I think that this type of thinking comes from a complete ignorance of how wealth is created.

To understand wealth creation, one must understand economics. And I think that in today’s world, this ignorance or in some cases, misunderstanding of wealth creation is actually harming the poorest among us. It is why we are allowing ourselves to become more indebted as states and as a nation. This indebtedness, often borne of good intentions to help others, is destroying lives and creating long-term dependencies.

Dr. Sunshine points to the biblical premise of not creating dependencies again and again. This is why work is so importance in assisting the poor. That does not mean we don’t love, serve and give without strings attached. It does mean that for long and medium term assistance we must help cultivate the comparative advantage in others, so that they too can serve others by offering their gifts. It is easy to condemn wealth, especially if you feel like you deserve it and don’t have it. But it seems that we can all agree that what we want for the poor is wealth, at some level, we want the poor to have dignity, to fulfill their God-given purpose.

Rather than me providing a technical explanation for what wealth is and how it’s created, let’s go to Dr. Sunshine’s post which provides a wonderful illustration of wealth creation. Here is describing Cistercian monks and how they lived out their vow of poverty:

The Cistercians made sure that the monks were all engaged in productive labor and at the same time banned conspicuous consumption and luxurious living, insisting instead on a strict understanding of the vow of poverty.

Productive labor resulted in increasing profits. While some of that was given away, given the limitations on transportation and the relatively sparse population, there was still a surplus after giving to the poor. Since it was wrong to let the produce spoil, it was sold and the proceeds were used to purchase more land since the vow of poverty meant that the cash couldn’t be kept. This in turn increased the productive potential of the monastery. The thought was, if production is good, more production is better.

The monks themselves could not work all of the land, so they brought in tenant farmers who grew crops and gave a fixed amount back to the monastery. The monks thus provided employment for the lay people outside of the monastery, giving them meaningful work and a chance to benefit from their own labor.

The net result is that a strict understanding of the monastic vow of poverty led the Cistercians to become very rich, while also benefiting those who lived around the monasteries

Wealth is generated by being productive. Ironically, in pursuing a vow of poverty, these monks created wealth and were able to provide more assistance and even helped create jobs which would not have existed otherwise.

We often hear in today’s rhetoric that profit and its pursuit are wrongheaded and sinful. Additionally, we here that the economic pie is fixed (one man’s gain is another man’s loss) and if that is the case redistribution is the only way out.

We can clearly see that the pursuit of profit when bounded by the appropriate rule of law, actually serves others. Only by engaging in productive activity will anyone ever earn a profit. Who determines whether the activity is productive? The customers do in a market-based society.  So the customers, one by one, make sure that the one serving is doing so appropriately, and only then is profit accumulated. We think of profit only as accrued by companies, but you earn a profit in your profession through your salary. Each of us, as we work productively, are creating wealth even if we aren’t CEO’s or business-owners. If you are out there working as a salesperson you are contributing to the wealth creation of the company and you are sharing in that wealth through your salary, but more importantly from a spiritual perspective, you are contributing to the common good.

When that profit is re-invested in a business, the server can create even more productive output, and can find ways to innovate and serve others at a lower cost. This is how wealth is created.

Understanding this is critical to our thinking about how we can help the poor and how, in the long run, we can ensure that those at the bottom have mobility and a mechanism to make their way out of a destitute situation. The relative flourishing of those at the bottom in the U.S. is markedly different  from those in the bottom in Bangladesh or Haiti. It has everything to do with the ability to work and the ability of each individual to use their gifts to serve others, and create wealth.

Question: How has this series changed the way you think of the problem of poverty and the involvement of the government and the local church? Leave a comment here.

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