How do we use wealth? There are three ways we use our wealth:
- Consume to satisfy personal needs, wants, and desires. Reasonable personal consumption is not limited to basic subsistence living. God did not create us as cattle needing only food, water, and shelter. We are creative image-bearers of God. We were meant for stewardship of resources. As we have discussed already, human flourishing is about more than subsistence.
- Invest in productive enterprises (which might include placing funds on deposit at a lending institution, purchasing debt instruments, purchasing equity shares in businesses, starting your own business, or by owning appreciating assets.) Investment is critical for at least two major reasons. First, at a personal level, it helps to provide for us in our economic downtimes and limits the chances that we will need to draw from other's resources to support us. Second, at a societal level, it builds the amount of societal wealth for investment in business enterprises, fueling the creation of jobs and economic growth.
- Distribute resources to others. We need to distribute a portion of our resources, if for no other reason than to restrain our own covetousness and delusions of self-reliance. I don't think that tithing is taught in the New Testament, but I do think that a tithe (as a minimum) is one contemporary way to live out Sabbath in our lives. It frees us from relying on our toil to trust God. Giving is a way we celebrate and remember God's provision for us.
Our challenge is to find the balance between these three uses of wealth. To think about this, let's imagine a woman named Sally Worker at age 22. We know that Sally can earn $200,000 a year by age 42 if she works to her maximum economic potential. We fast forward twenty years. Here are three possible scenarios (among countless possibilities) of how Sally's life unfolds.
1) Sally lives well beyond her means. She is making $200,000 but her debts are greater than her assets. She has saved nothing and given nothing over her lifetime. She has no wealth.
2) Sally is making $200,000 and living within her means. Through saving 10% of what she earns and investing it, she has amassed a portfolio of $1,500,000. She has given nothing away.
3) Sally opts to live a relatively simple sustainable lifestyle. Because of this, she has made career decisions that have resulted in her making $25,000 a year. She has lived at just above the poverty level, saving 10% and giving all she can afford to help the poor. She has an investment portfolio of $75,000.
Now extrapolate each of these out as the average behavior for society (for ease, I'll ignore the tax implications.)
First scenario – While there would be plenty of consumption going on, production would collapse. With no one saving or investing there would be no capital for businesses to draw on for production. The poor would receive nothing. Actually, the economy would have collapsed long before Sally’s 42nd birthday.
Second scenario – There would be significant consumption stimulating economic demand and substantial capital would be created through saving and investment. But anyone who falls into hard times is out of luck. There would be few, if any, civic and volunteer organizations. It would be a cold heartless “survival of the fittest” world. It would be a dark place in which to live.
Third scenario – There would be much less business demand because of earning only 1/8 of what could have been otherwise earned. Capital to operate businesses would be magnitudes less ($75,000 versus $1.5 million) but, of course, so would demand. The poor would end up with a little more resources to consume but overall consumption (which means revenue for business) would be magnitudes lower. Job creation and earnings would be far less.
How about a fourth scenario?:
4) Sally chooses not to orient her life to get her maximum earning potential. Other values affect her decisions. She is now making $150,000 a year. She is saving 15% and now has a portfolio worth $1,500,000. She has given away 15% of what she makes, helping out others in need and creating opportunities for those who have not yet made it into the abundance she now lives. She is living on $105,000 a year (remember, no taxes) net her savings and distributions. (Imagine if she invested or gave more.)
What is the impact of the fourth scenario relative to the other three?
- Consumption in #4 will create a more robust demand for goods and services than #3 through Sally's consumption, but less so than with #1 or #2.
- Sally's savings in #4 far exceed #3 and #1, and she invests $2,250 more annually than in #2.
- Meanwhile, scenario #4 generates more than any of the other three to be given to the poor, even though possibly a higher percentage of income is distributed in scenario #3.
Choosing to make far less than one's potential earnings (like #3) can come from several valid reasons. Whether someone chooses to make a modest income, or a modest income is the best one can earn, does not make them a lesser contributor to society (there are other contributions to society besides economic ones.) My point is that from a purely economic perspective, it is not true that earning and consuming less necessarily creates greater economic benefit for the poor.
The problem is that we too often look at the problem only through the lens of consumption and distribution. We make up for someone's need over there by doing with less over here. My abundance is reciprocal to someone else's need. Production and capital (our investments) are missing from the equation, yet that is the key ingredient to growing a prosperous economic ecosystem. Destroying capital through massive redistribution schemes and failing to fund recipients' capital formation is a disaster for everyone. We need:
- An appropriate level of consumption that creates human flourishing.
- An appropriate level of investment that creates and preserves capital for economic enterprise.
- An appropriate level of willful distribution that frees from covetousness and brings others into abundance.
The understanding of where wealth comes from (previous post) and how the uses of wealth interrelate (this post) is something that we have learned in just the last few centuries. What does this mean as we look back to the ancient biblical context?
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