No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter One: Introduction to Economics 16 IMPLICATIONS OF A BIBLICAL ANTHROPOLOGY There are several ways to organize an economy. In our text, we will be concerned primarily with free markets , which the Communist Karl Marx derisively called “capitalism.” The central feature of a free market economy is the “free” part, which leads to “markets.” In a free market, we are free to voluntarily exchange anything that we own for things that others own. We might exchange our labor for a salary or exchange something we produce for money, or simply trade something we no longer need to a friend for something they have that we want. When individuals have the freedom to exchange, we find markets quickly emerge to expand the number of exchanges possible. For instance, eBay took advantage of the Internet to bring together more buyers/sellers and has significantly increased the number of trades. Facebook Marketplace is currently expanding local trade for similar items. We will see in the next chapter how increased trade leads to higher societal well-being, but suffice it to say for now that voluntary exchange only takes place when both parties in an exchange believe it is in their individual interest to trade. To get an appreciation of the promise of free markets, watch this video: The Promise of Free Enterprise A polar opposite of a free market economic system is Communism . A free market system assumes private property rights, beginning with the idea that man owns him- self—no one else does. So anything he creates by the sweat of his brow is his. (This needs to be amended once we consider a Christian worldview. Man has been assigned stewardship responsi-bilities for assets under his control, beginning with his time and talents. Once he produces some-thing, his treasures are also assets to steward.) Communism, however, assumes that whatever ex-ists is social (or communal) property. Production is guided by what the communist party considers the highest value to produce using the common resources of the state. Communism suffers from a well-known incentive problem: how do you get people to work hard when the fruit of their labor doesn’t go to them? A common saying of comrades in the former U.S.S.R. (while under a communist system) was “we pretend to work, and they pretend to Communism suffers from a well-known incentive problem: how do you get people to work hard when the fruit of their labor doesn’t go to them? Communism: an economic system where decisions on resource allocation are made collectively by the communist party and are characterized by complete social ownership of all property, both consumer and captial goods free markets: an economic system where decisions on resource allocation are made by individuals (as contrasted with government collective planning) and characterized by private property rights (in both consumer as well as capital goods) and the freedom to exchange