Economics 101

Three Essential Requirements for Flourishing

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In his essay “Fifth Avenue, Uptown,” author James A. Baldwin famously said, “Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor.” The poor person has to rely him- or herself to survive, and survival is often not achieved. The person in the third world hunting for food as their only source of sustenance spends hours doing something that takes minutes in a grocery store of a wealthy country.

In other words, the poor individual pays high opportunity costs to barely meet their most basic needs. Things like floss and toothbrushes seem like inconceivable luxuries. For those living in societies that reward creating value, people have incentives to serve others. We experience greater flourishing only when we can rely on other people to provide us with vaccines, medications, toothbrushes, and many other things that would take us forever to make on our own – if at all. We profit our time and elongate our lives so we can do what God created us to do.

We need to be as free as possible to pursue our gifts if we are to be wholehearted stewards of them. We need high levels of freedom to go where God leads us. This was the tragedy of the central planning of the Soviet Union. In a world where dictators rule, the individual serves only to support the state and there is no freedom. The social result is less flourishing and more tragedy and violence. Every time we limit an individual’s right to choose and trade, we limit their freedom, and some amount of human flourishing is lost as collateral damage.

To be free in a world where we can love and serve strangers by doing our work well, we need certain institutions: property rights, prices, and the rule of law.

Property Rights

We need property rights that are well-defined, well-defended, and transferable. Property rights are a necessary incentive for trade. If I think that after I pay my bill at the grocery store, the owner can take back my cart of food, I won’t buy it.

Property rights also provide the basis for the emergence of prices. As prices fluctuate, they help us evaluate what we want based on our subjective values. Prices change based on changing scarcity levels and when they do, we re-evaluate each choice, all in the pursuit of profit.

Prices

Prices also help us seek profit and avoid losses personally and in our business ventures. When someone brings a product to the market, they seek to make money and have residual resources left over. Profits and losses are levied by consumers. The products and services available to us are only available if they are profitable, and they are only profitable if they serve the needs of consumers in some way. Profitable products and services free consumers from figuring out how to do those things on their own. Where prices exist, we are already better off than we would be without them; we have a benchmark to evaluate tradeoffs and economize our time.

Rule of Law

We need the rule of law. The rule of law means that everyone is treated equally before the law. It means the law is transparent, laid out in advance, and leaders must submit themselves to it. The rule of law prohibits arbitrary behavior on behalf of rulers and allows for predictable behavior on behalf of everyone.

Without the rule of law, we lose predictability of state behavior. I am confident that state agents will not break into my house and steal all my possessions because they are also subject to the rule of law. The rule of law limits the state’s ability to plunder and to infringe on our ability to choose as God directs us.

When we live in a society with the rule of law, we can make plans for the future, for living out God’s desires for our lives. If God is calling you to open a business or a church, property rights and rule of law will make it that much easier. You can raise money for investments in building and businesses. The rule of law is essential for well-protected, well-defined, and transferable property rights.

When we have property rights and the rule of law combined with political, religious, and economic freedom, we can pursue God’s purposes as they pertain to our unique lives. When any of these three freedoms are limited, we are less free to be wholehearted stewards.

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