Blowing Bubbles
Mainstream economists either deny that financial bubbles can occur or that the "animal spirits" of market participants are to blame. Economists running central banks even claim that it is impossible to identify asset bubbles. Meanwhile, the Austrian school stands alone in pointing the finger at government intervention in monetary affairs as the culprit. FULL ARTICLE
Comments (40)
jo
Very interesting article , but
"low interest rates, easy credit terms, widespread public participation, bankrupt governments, price inflation, frantic attempts by government to keep the booms going, and government bailouts of companies after the crash."
Ok government intervention creats booms and busts . But what about the tulip bubble ? No fractional banking , 100% backed currency , free coinage . So where 's the state's fault ? What am i missing here ?Is it fair to say that big bubbles may occur even without government intervention ?
Published: April 6, 2009 10:16 AM
The Natural Lawyer
From this article, the sound conclusion appears to be that bubbles are monetary phenomena, which can occur in both the absence (e.g., tulip mania) and presence (e.g., Mississippi and South Sea Companies) of state intervention. Perhaps we can distill the principle that state intervention is a sufficient condition for the formation of asset price bubbles, but is by no means necessary.
The monetary cause, of which an asset price bubble is merely the effect, seems to be an acute inflation of the money supply not corresponding to a good or service of equivalent value presently in the process of creation.
That a bubble can form in the absence of state intervention does not undermine the Austrian thesis that bubbles are inevitable under centrally planned monetary policy. Many more factors not controlled by any one individual must conspire and align to create an asset bubble under a relatively free-market monetary framework; therefore, examples such as tulipmania are few and far between. By contrast, it is in the very nature of centrally-planned institutions that these factors be coordinated along some "rational" plan. Hence the greater likelihood, nay, inevitability, that the factors both necessary and sufficient to generate an asset price bubble will align.
Published: April 6, 2009 10:56 AM
The Natural Lawyer
From this article, the sound conclusion appears to be that bubbles are monetary phenomena, which can occur in both the absence (e.g., tulip mania) and presence (e.g., Mississippi and South Sea Companies) of state intervention. Perhaps we can distill the principle that state intervention is a sufficient condition for the formation of asset price bubbles, but is by no means necessary.
The monetary cause, of which an asset price bubble is merely the effect, seems to be an acute inflation of the money supply not corresponding to a good or service of equivalent value presently in the process of creation.
That a bubble can form in the absence of state intervention does not undermine the Austrian thesis that bubbles are inevitable under centrally planned monetary policy. Many more factors not controlled by any one individual must conspire and align to create an asset bubble under a relatively free-market monetary framework; therefore, examples such as tulipmania are few and far between. By contrast, it is in the very nature of centrally-planned institutions that these factors be coordinated along some "rational" plan. Hence the greater likelihood, nay, inevitability, that the factors both necessary and sufficient to generate an asset price bubble will align.
Published: April 6, 2009 10:57 AM
fundamentalist
Natural Lawyer: "From this article, the sound conclusion appears to be that bubbles are monetary phenomena, which can occur in both the absence (e.g., tulip mania) and presence (e.g., Mississippi and South Sea Companies) of state intervention."
I think it is hard for some goldbugs to accept that a suddenly inflow of gold can cause a business cycle. But the Austrian theory predicts just such an event and this is one historical example. However, the example is unique, because the Dutch created a bank and economic system that was unique for its time. Because of its uniqueness, gold flooded the Dutch Republic. It's very much like the fact today that poverty stricken Africa sends $90 billion annually to the US and Europe for safe keeping. In the early days of the Dutch Republic, it was the safest place in the world for storing gold. Naturally a lot of it would end up there.
I would like to ask the author if he investigated the effects of bills of exchange, because the Republic had a quasi-paper money in the form of bills of exchange. The great French communist and historian Braudel records a similar business cycle in the Dutch Republic in the 18th century to which he attributes the cause in an explosion of bills of exchange. He wrote that at one point the value of bills of exchange amounted to 30 times the value of gold in the Republic.
Published: April 6, 2009 11:07 AM
fundamentalist
PS, keep in mind that the world supply of gold did not increase during the Tulip bubble, for the total world supply of gold will increase at a slow rate. But the stock of gold can slosh around and pile up in certain places where property is most protectd. That's what happened in the Dutch Republic. The total supply of world gold did not increase, it just became concentrated in one place. While tulip prices increased in the Republic, prices elsewhere had to fall as the gold left Spain, France, Germany and England for the Dutch Republic.
Similar events happened in California and Alaska in the 19th century when major gold strikes happened. Prices in those state skyrocketed with the "supply shock" of new gold. The the effect was local because even those amazing discoveries didn't add a great deal to the world stock of gold.
In contrast, thanks to fiat money, the power of states to expand credit has created a truly world-wide expansion of fiat money and a world-wide bubble. Actually, the same thing happend in the 1920's with the gold-exchange standard.
Published: April 6, 2009 11:18 AM
RichardJ
"I think it is hard for some goldbugs to accept that a suddenly inflow of gold can cause a business cycle."
Doesn't it depend whether it hits the loan market first?
Published: April 6, 2009 11:36 AM
fundamentalist
Richard J: "Doesn't it depend whether it hits the loan market first?"
Do you mean that the inflow of gold could go into rising prices or into speculative bubbles? I think that is probably the case. As Austrians always have pointed out, the effect of an increase in money depends on where the new money enters the market. If it enters through the loan market, it will spur investment which will eventually lead to higher prices. But if through state spending, then prices will rise without new investment. Spain experienced the latter when it stole gold from the Americas and the gold went into the state treasury first to finance increased state spending. All Spain got out of it was an increae in prices.
Published: April 6, 2009 11:44 AM
greg
Let us fast forward to the present. While money supply could be part of the problem for the current boom bust cycle, it is not primary cause.
I am going to give you one of the many events that had a greater influence on our current problem. That was the conversion of the not for profit exchanges to publicly traded for profit operations. When this happen, the world saw an explosion of ETFs and other option markets. The big money that was made on Wall Street was not the traders, but those that dreamed up another trading fund.
Soon everybody could partcipate in commodity and option trading by investing through regular exchanges. As the money poured in, prices for these funds shot up taking the underlying assets with them. Everything from oil to real estate shot up as the underlying commodity must be purchased to meet the ETF's requirements.
As these markets started to turn down, the smart money moved out. The dumb money tried to cost average their losses which put a temporary floor in the price. And more dumb money came in thinking it was a bottom and that bottom fell out again. Then it was the margin calls and forced liquidation that took us down for two more bottoms.
There are many more causes of our current problems, and the low Fed Funds rate of the past is not the primary cause. Our economy is much more complex than 18th century France.
Published: April 6, 2009 11:51 AM
Dennis
I believe differentiation should be made between a speculative bubble and the business cycle, the more or less economy-wide cycle of boom and bust. An increase in the money supply (or for that matter a decrease in the demand for money) will cause prices to increase and can cause a price "bubble" in a specific market or a group of markets. However, an increase in the supply of money is not a sufficient condition to cause the business cycle.
According to Austrian business cycle theory, the business cycle results when the newly created money is injected into the economy via the banking system and loanable funds market so as to depress the market rate of interest below the level that would otherwise occur without this injection. It is this lowering of the rate of interest below the market rate which gives rise to the malinvestment that characterizes the boom phase of the business cycle. In short, according to ABCT, an increase in the money supply will cause the boom phase of the business cycle if the new money serves to lower the rate of interest below the level justified by previous real savings.
Published: April 6, 2009 12:08 PM
RichardJ
"Do you mean that the inflow of gold could go into rising prices or into speculative bubbles?"
Yes. In HA Mises distinguishes between money that enters the economy via the loan market and via government spending:
"The additional fiduciary media enter the market by way of the treasury as payment for various items of government expenditure. It is this additional government demand that incites business to expand its activities. The issuance of these newly created fiat money sums does not directly interfere with the gross market rate of interest, whatever the rate of interest may be which the government pays to the bank. They affect the loan market and the gross market rate of interest, apart from the emergence of a positive price premium, only if a part of them reaches the loan market at a time at which their effects upon commodity prices and wage rates have not yet been consummated."
He later goes on to say that an influx in gold could set off the business cycle if it hits the loan market first.
In America's Great Depression Rothbard denied that an influx of gold could set off the business cycle because the results of such an influx could be predicted by entrepreneurs but not the results of credit expansion - it's a pity he didn't elaborate more because I can't see why this would be the case.
Published: April 6, 2009 12:30 PM
Inquisitor
Why is this "Tulipmania" brought up so often? There is an article on it (several) on this site. Read them and then ask questions perhaps?
As for a mere influx of money, how would it have the same distortive effects as messing up a price such as the interest rate?
Published: April 6, 2009 12:55 PM
Stephen Grossman
The Political Economy of Monarchy and Democracy
Hans-Hermann Hoppe
http://blog.mises.org/archives/009025.asp
"There had been attempts to introduce an irredeemable fiat currency. But these fiat money experiments, associated in particular with the Bank of Amsterdam, the Bank of England, and John Law and the Banque Royale of France, had been regional curiosities which ended quickly in financial disasters, such as the collapse of the Dutch "Tulip Mania" in 1637 and the "Mississippi Bubble" and the "South Sea Bubble" in 1720."
Hoppe and French need to debate this issue here.
Published: April 6, 2009 5:23 PM
scott t
"...an increase in the money supply will cause the boom phase of the business cycle if the new money serves to lower the rate of interest below the level justified by previous real savings. "
"As for a mere influx of money, how would it have the same distortive effects as messing up a price such as the interest rate?"
this link http://mises.org/daily/2347 says
"Five years later, in December 1923, the Reichsbank had issued 496.5 quintillion marks, each of which had fallen to one-trillionth of its 1914 gold value.[1]
How stupendous! Practically every economic good and service was costing trillions of marks. The American dollar was quoted at 4.2 trillion marks, the American penny at 42 billion marks......Every mark was printed...."
i wasnt in germany in the 1920's so i dont know if the article is telling the truth or not.
but if the hyperinflantion (mere money influx?) really occurred it would seem to me to be rather distorting?
additionally...."In 1923 Germany, prices rose on an hourly basis. Wage earners were losing purchasing power because the prices of goods were rising faster than their incomes could be adjusted."
https://mises.org/daily/1611
"They printed money until they couldn’t afford more paper. And surprise, surprise… it didn’t work! Inflation ran amuck and the prices of basic necessities skyrocketed. Hence, the need for wheelbarrows to lug all their funny money to the market so they could buy a loaf of bread..."
http://www.lewrockwell.com/chartier/chartier117.html
"During the hyperinflation in post WWI Germany, what used to be a comfortable nest egg was "suddenly" the value of a postage stamp...."
http://www.lewrockwell.com/paul/paul476.html
would trillons of new marks find there way across an economy evenly? probobly not.
are these distortions would one could experience with a non-market participant (central bank) manipulating interest rates?
is this what you meant?
Published: April 6, 2009 9:08 PM
Mark Knutson
Bubbles are caused by a shared belief among a group of people that a given asset will continue to increase in value. This expectation need have no rational basis for the bubble to work, though some sort of excuse usually speeds things along.
Inflation is a growth of money supply causing currency devaluation. Certainly an excess of money will make bubbles grow bigger or faster, but any bubble presupposes people investing in the bubble asset class rather than an asset class that will have a sustainable, though seemingly less attractive, increase in value.
Inflation is not a bubble per-se, it is simply a devaluation of currency. When the currency is debased, it is not a bubble that can be popped leaving fiat currency suddenly worth more than it was. Only reducing money supply cures debasement.
Our recent deflation has been due to banks reducing the money supply in response to insolvency. A bubble and its popping reducing their assets to insolvency lead them to increase reserves with a 10x money supply contraction.
I note a recent interview with soros where he forecasts an economic future much as an austrian economist would. I guess the reason he is a billionaire is that he views markets accurately, despite his leftist views for how our society should be managed.
Published: April 6, 2009 10:41 PM
fil
@ Greg
"Our economy is much more complex than 18th century France."
A very pretentious statement. The kind of mentality which put us in the state we are in today. Besides, if we assume that today's economy is any more complex then previous economies then we should be more concerned with variations of a monetary base, not less concerned. We shouldn't discard the possible problems so lightly.
Published: April 6, 2009 11:47 PM
David Ch
There seems to be a mistake in the article's layout: I had not seen 'The folly of tulip Mania' before, and I know little of the Breughels. It is however unlikely that the artist lived from 1525 - 1569. Unless he was clairvoyant. I think it was Jan Breughel ( the younger) who did this one.
Very wry painting nonetheless - puts many editorial cartoons of our time to shame, frankly.
I hasten to add that this takes nothing away from the content of Mr French's article.
Published: April 7, 2009 2:02 AM
David ch
Apologies - network timeout/browser malfunction generated multiple posts. Any chance of a moderator deleting redundant copies?
Published: April 7, 2009 2:07 AM
David Ch
Richard said:
"I think it is hard for some goldbugs to accept that a suddenly inflow of gold can cause a business cycle."
Doesn't it depend whether it hits the loan market first? '
Response: I dont think it matters where it hits first. Sure, a sudden inflow of gold would decrease the value of (gold) money relative to other goods and services ( as it did in Spain after the Conquistadores brought back boatloads of the stuff from SOuth America). But so what? different things change in value relative to one another all the time as marginal surplusses and scarcities manifest themselves. A generation ago, a small motorcycle would have cost my father about 3 months salary, today you can get one for the price of dinner for 4 at an upmarket restaurant. Money is no exception to this flexibility, or rather, shouldn't be
the point is that the supply of gold from its miners is not (in a free market at any rate) something that can be turned on and off at will by policymakers. the miners still incur costs in getting it out of the ground and refining it. The consequences of the influx of gold will themselves mitigate the effect of the influx: ONce the 'new' inflow of gold has entered the market and decreased the purchasing power of all of the existing gold in circulation, those marginal mines that hitherto were producing gold at the old value levels will no longer be viable as costs exceed the value of output, and will cease production. Its no different from any other good. This sort of once-off shift in value is not a CYCLICAL one, unlike the boom/bust driven by ( monetrary) policy intervention.
Published: April 7, 2009 8:58 AM
fundamentalist
Greg: “Soon everybody could partcipate in commodity and option trading by investing through regular exchanges. As the money poured in, prices for these funds shot up taking the underlying assets with them…There are many more causes of our current problems, and the low Fed Funds rate of the past is not the primary cause. Our economy is much more complex than 18th century France.”
This is why learning economics with a fixed money supply is so important. If the stock of money is fixed, and all other things equal, then it would be impossible for money to pour into futures and options without it leaving some other sector of the economy. So a boom in one sector, such as housing, would have to be accompanied by an equal bust in other sectors of the economy. Any attempt at expanding investment/spending in all sectors at the same time would be thwarted by much higher interest rates to motivate higher savings. Instead, what we experienced in the past decade was a general boom in everything, commodities, food, real estate, stocks, oil, etc. That cannot happen without a corresponding increase in the money stock.
Some economists say that the fed did not cause the bubbles, but accomodated them and allowed them to happen. To me that’s counting angels on pinheads but for some reason it makes people feel better. For me it doesn’t matter whether the feds caused the bubbles or merely allowed them to happen. Either way, the fed failed to do its job. But as a simple matter of fact, credit expansion always and everywhere which precedes bubbles. That’s historical fact. The credit expansion can be fueled by an inflow of money, such as gold, but since the 18th century, credit expansion created the new money.
Logically, causes precede effects in time. Monetary theories of business cycles blaim increases in the money supply and the historical evidence exists to support the theory. Non-monetary theories exclude money as an explanatory variable, not because of any historical evidence, but because economists in the 1930’s decided that money was an exogenous factor and insisted that the only viable theories must not include money. Why they decided that money is not a part of the market economy I’ll never understand, but I tend to agree with Mises that non-monetary theories of cycles were Marxist inspired. Marx insisted that business cycles were an integral part of capitalism and monetary theories prove him wrong.
Published: April 7, 2009 11:08 AM
fundamentalist
David Ch: "The consequences of the influx of gold will themselves mitigate the effect of the influx..."
You're right on a global level. But the influx of gold into the Dutch Republic was not newly mined gold. It came from other parts of Europe. So while the Republic had a bubble caused by the massive influx of gold, the rest of Europe had to have experienced an equal decline in the money stock and falling prices. On the level of the entire European economy, the average value of gold did not change.
Published: April 7, 2009 11:13 AM
flix
"So while the Republic had a bubble caused by the massive influx of gold, the rest of Europe had to have experienced an equal decline in the money stock and falling prices. On the level of the entire European economy, the average value of gold did not change."
..so you can get regional bubbles or sector bubbles, but not global bubbles without fiat, fractional reserve and central banks.... sounds like a pretty good improvement over the current system....
Published: April 9, 2009 5:21 AM
newson
to fundamentalist:
i don't agree that an influx of bullion causes the austrian trade cycle, i think you'd have to see money supply increasing via the banking sector to witness the abc. i'm with david ch on this one.
a bit like a poor country striking oil, a great national bonanza (ie gold influx from the new world) is going to shape the economy, but not necessarily in an unsustainable way. (think of how long rolls royce dealerships have lasted in saudi arabia). bill barnett dealt with this in a recent podcast (http://mises.org/multimedia/mp3/ASC2009/ASC09_Block_Barnett.mp3)
i don't think that french really covered all bases in his interesting analysis. there's a counterargument from erasmus university here -
http://people.few.eur.nl/smant/m-economics/tulipmania.htm
the plague would reduce my time horizons considerably, too!
note also the paucity of data from the episode, which invites caution. mr grossman raises another issue that warrants further study; the extent to which the bank of amsterdam was a fully reserved bank. my understanding is that the charter was broken in short order, though it did take a while for the pubic to realize this.
Published: April 9, 2009 11:31 AM
fundamentalist
Newson: “i don't agree that an influx of bullion causes the austrian trade cycle”
That’s an interesting article on tulipmania. I don’t know enough about the history to argue whether or not it was a bubble. I have seen other good arguments that say it wasn’t. But lest’s assume it was a real bubble and let’s assume that prices for other goods and assets did not decline as the price of tulips rose. For the prices of tulips to rise to high levels, and the prices of other goods and assets to retain their value, the money supply had to grow. Otherwise, the rise of tulips violates the law of cause and effect: you can’t get something from nothing. The money supply might have increased by gold flowing into the Republic from the rest of Europe, or it could be that the Bank of Holland was cheating and not keeping 100% reserves. I wonder if bills of exchange played a role, too.
As for the ABCT, Hayek makes it clear in “Prices and Production” that an artificial stimulation of consumption will produce the business cycle:
(8) Speaking generally, it might be -said that the
effects of a relative increase in the demand for consumers' goods are the reverse of the effects of an increase in the relative demand for producers' goods.
There are, however, two important differences which
make a detailed account necessary.
The first effect of the rise of the prices of consumers'
goods is that the spread between them and the prices of
the goods of the preceding stage becomes greater than
the price margins in the higher stages of production.
The greater profits to be obtained in this stage will cause
producers' goods in use elsewhere which may be used
in this stage to be transferred to it, and the all round
increase of price margins between the stages of production
which will follow will cause a widespread transfer
of non-specific producers' goods to lower stages. The
new demand for these goods will cause a relative rise
of their prices, and this rise will tend to be considerable
because, as we have seen, there will be a temporary
rise in the price of consumers' goods, due to the transient
discrepancy between demand and supply, greater than
will be the case after the supply of consumers' goods
has caught up with demand. These temporary
scarcity prices of consumers' goods will, furthermore,
have the effect that at first production will tend to
shrink to fewer stages than will be necessary after
equilibrium prices of consumers' goods have established
themselves.
“Very soon the relative rise of the prices of the
original factors and the more mobile intermediate
products will make the longer processes unprofitable.
The first effect on these processes will be that the
producers' goods of a more specific character, which
have become relatively abundant by reason of the
withdrawal of the complementary non-specific goods,
will fall in price. The fall of the prices of these goods
will make their production unprofitable; it will in
consequence be discontinued. Although goods in later
stages of production will generally be of a highly specific
character, it may still pay to employ original factors to
complete those that are nearly finished. But the fall in
the price of intermediate products will be cumulative;
and this will mean a fairly sudden stoppage of
work in at least all the earlier stages of the longer
processes.” (Page 92)
So if new gold entered the Dutch Republic and it drove up demand for consumer goods or assets such as tulips, profits in the consumer goods industries would rise relative to producer goods and investment would shift to consumer goods. Investment and production in producer goods would fall and employment would fall.
The ABCT comes about because a sudden inflow of money changes the prices of consumer goods relative to producer goods. If new money hits the loan market first, then the structure of production expands (a boom appears) before collapsing. If it hits consumer goods first, the structure collapses without an preceding boom.
Published: April 9, 2009 2:21 PM
fundamentalist
PS, That's why state stimuli have the opposite effect of what politicians intend.
Published: April 9, 2009 2:23 PM
newson
to fundamentalist:
i'm familiar with hayek's version of the business cycle. however, there's not absolute unanimity amongst austrians on this point, and that's why i refered to the podcast by bill barnett.
i think you're right about employment moving from the productive to the consumptive parts of the economy (a bit like saudi's who gave up camel breeding after oil's discovery). i think that's exactly what happened to imperial spain - not a business cycle, but a transformation of the economy that lasted centuries until the gold flow from the americas dwindled with respect to outgoings (war, notably).
the difference is like me improving my present lifestyle with my mastercard (unsustainable), and me improving my lot marrying the heiress (sustainable, with patience). both may involve me giving up work and spending more time on the deckchair, but only one scenario is destined to have a cyclical character, ending in certain failure, of uncertain timing. there are plenty of "kept" men who die of old age under the finest belgian linen sheets.
by the way, hulsmann also makes some important corrections to the traditional definition of the abct in this article:
http://mises.org/journals/qjae/pdf/qjae1_4_1.pdf
btw, did you ever read ned netterville's jesus-illegal-tax-protester? anyway, happy easter to you.
Published: April 9, 2009 9:21 PM
anon
So Frank Shostak's argument here (
http://mises.org/daily/3197 ) that a pure gold standard would not cause the business cycle is wrong, then?
Published: April 10, 2009 5:44 AM
fundamentalist
Newson, I couldn't get the previous link to Netterville's site to work. Could you post it again, or send it to rdmckinney@cox.net? Thanks!
Anon, A pure gold standard would not cause business cycles, but sudden movements in gold from one place to another could cause cycles as it moved in and out. But those movements are extremely rare under a pure gold standard. The Dutch experience was unique and due to the fact that it was so much more advanced in finance and economics than any other European country. And a cycle caused by the movement of gold will not be anywhere near as volatile as those caused by credit expansion.
Gold moved quickly between countries during the 19th and early 20th centuries, but only in response to credit expansion and inflation of paper dollars. Credit expansion and paper money inflation have caused all business cycles that we know about in the modern era. Out of hundreds of business cycles, the Dutch tulipmania may be the only one caused by a sudden inflow of gold not caused by credit expansion or paper money inflation. Cycles caused by sudden movements of gold are more an intellectual curiosity than a reality. But it is a fact that a pure gold standard could not cause business cycles on a world-wide scale, as were several cycles of the past.
Published: April 10, 2009 10:14 AM
Stephen Grossman
Gold isn't perfectly stable, but much more than anything else. And that's why many different economies converged on its use. And it was an important cause of 19th century prosperity.
Published: April 12, 2009 4:40 PM
fundamentalist
newson: "did you ever read ned netterville's jesus-illegal-tax-protester?"
I finally read the first chapter. Netterville is seriously confused. Essentially he argues that the only passage that matters is the one that includes the charge of preaching tax evasion that surfaced at Jesus' trial. He is convinced of the validity of that passage while denying the validity of almost all of the rest of the gospels.
The debate over the historical accuracy of the Bible, especially the gospels, began in the late 19th century Germany. German "scholars" claimed they could separate the accurate from the inaccurate passages in the gospels, even to the point that they could tell individual words that were accurate or not. The search for the "historical" Jesus, as opposed to the Jesus of the gospels, has been a recurring fad since, waxing and waning like business cycles. Each boom in the cycle starts with people like Netterville claiming the ability to surgically remove the false and leave the accurate. Each has ended with the denial that anything about Jesus can be known except that a man named Jesus lived in Israel around 2000 years ago.
The best book ever written on the question of the historical accuracy of the gospels is Alfred Edersheim's "Life and Times of Jesus Messiah", written in the late 19th century. Edersheim took on all of the fashionable arguments against the historical accurcy of the documents and demolished them. Since Edersheim, hundreds of books have been written on the subject, but few improve on Edersheim. Netterville conveniently ignores all of them.
As for the alleged contradictions in the narrative, Netterville simply doesn't understand the principles of hermeneutics. Interpreted with sound hermeneutics, there are no contradictions in the gospel accounts.
Jesus was not a social teacher or a philosopher of government. He had a very specific purpose and he ignored people who tried to side track him. Jesus' teachings, especially the Sermon on the Mount, apply to personal behavior, not state policy or social engineering. His statement to "render unto Caesar what is Caesar's" has no political implications whatsoever. He neither endorsed nor opposed taxation. He did want to prevent his disciples from getting embroiled in social engineering or political issues and thereby getting sidetracked from their purpose of spreading the gospel. He also wanted them to avoid unnecessary persecution, which opposing taxation and Roman rule would invite.
However, if you believe that Jesus is God and that the entire Bible reflects God's will, then you could argue that other passages in the Bible accurately describe Jesus' attitude toward taxation.
The only government that God created was the original nation of Israel, the laws of which are described in the Torah (first five books). That state was very limited, almost anarchic. The state has one job--promote justice, nothing more. It does so through a police and court system, and through a system of national defense, which was voluntary. Taxes for the purpose of carrying out those duties were required, but nothing more.
God warned the Israelites about the dangers of a more powerful central government in a king, but they wouldn't listen. The historical books and the prophets document the evils of the state, including the oppression of the poor, excessive taxation and constant warfare.
My general conclusion on the issue of taxation in the Bible is that God considers taxation for the purpose of funding legitimate state activities to be legitimate. Taxation for state activites outside of promoting justice (in the Biblical definition of punishing evil) and national defense is as illegit as the activity.
Published: April 14, 2009 2:24 PM
newson
to fundamentalist:
biblical study is not my forté, but i found netterville's interpretation made sense of episodes that i'd previously found illogical. of course, no eyewitness accounts of the trial are available, so what actually transpired is always to remain conjecture.
i agree that jesus made no sweeping generalizations on taxation, but then ned is only concentrating on jesus' attitude to imperial roman tributes, and i guess you've have to agree that the romans were doing no favours to the israelites, a subjugated people. an enslaved people could hardly be legitimately expected to pay for the justice and defense of their enslavers. this is the empire that gladly funded christians-to-the-lions events, when the crowds needed amusement.
Published: April 14, 2009 11:27 PM
fundamentalist
Newson, The main problem with Netterville's argument is that he takes the accusation against Jesus at the trial that he encouraged tax evasion as historically accurate, while denying the historically accuracy of other passages. And his methods of determining which passages are accurate and which are inaccurate are just plain silly. How does Netterville know that there even was a trial?
There are rules for interpreting literature. Hermeneutics is logic applied to interpretation. Netterville acknowledges the principles, then proceeds to break them all.
The general conclusions reached by scholars after a century of the search for the historical Jesus is that you can take the gospels as historically accurate or deny the accuracy of them all, but it's impossible to pick and choose passages. And there is considerable evidence for the historical accuracy of the gospels. Netterville would know that if he had truely studied the subject. Instead, he acts like someone who decided to study economics, read a couple of books by socialists and decided that all the capitalists are wrong.
Published: April 15, 2009 8:23 AM
fundamentalist
PS, I don't know what Jesus' attitude towards the Rome was because he simply doesn't reveal it. Some might assume that he opposed Rome because Rome oppressed the Jews, but I think that would be wrong. The rest of the Bible makes it clear that Roman rule over Israel was God's punishment of Israel's rebellion against God. Had Israel repented and followed God, the Bible claims that God would have removed the Roman "yoke" from Israel's neck. But Israel refused, and refused to follow Jesus as the Messiah and in response God had Rome destroy Jerusalem in 70 AD and the entrie nation in 120 AD.
Published: April 15, 2009 8:30 AM
newson
fundamentalist:
well, here i have to disagree with you. netterville takes issue with the interpretations of "render unto caesar..." made by differing biblical scholars, not the actual scriptures themselves.
jesus' elliptical answer to the question has always confused me - why wouldn't a straight answer have sufficed, if he were all for it? i can't imagine jesus as one to hide behind ambiguous language for no good reason. and as ned points out, the idea put forward by the scholars that jesus would be averse to disappointing the home crowd is risible.
i also thought ned's supposition about the reasons for crucifixion more believable than the traditional ones (a claim to be the messiah). i cannot believe this would have been seen a threat to pilate, nor can i believe he was swayed by the jewish crowd baying for blood.
Published: April 15, 2009 8:24 PM
newson
fundamentalist:
what about gary north's explanation? did you find that more satisfactory? (i find it less so, but still more enlightening than the ones i used to hear as a younger person).
Published: April 15, 2009 8:29 PM
fundamentalist
Newson, I honestly don’t know why Jesus responded the way he did to the question about taxes, but my guess is that he didn’t want to get sidetracked. He had a very clear purpose for his life and was very focused. The Pharisees and rabbis were constantly trying to drag him into debates over issues he didn’t care about. Had he cared about taxes, he would have answered them directly. Throughout the gospels, the opposition will ask him a direct question and he will give them a non-answer, indicating he thought the question was not worth his time. But any time someone asks a question related to his mission, he spends a great deal of time on it. Some Jewish sects were all about politics and nothing else. Others were about debating the minutiae of the law. Jesus wasn’t interested in either.
As for the reasons for the crucifixion, you have to understand the culture, politics and history of the region and the people involved. Edersheim delves deeply into all of it. Netterville’s mistake is to believe that people in first century Israel thought like we do today. But no one in the world today thinks like Americans. Most other cultures think Americans are crazy people. So to assume that people 2,000 years ago thought as we do is silly. To understand the gospels, we have to learn to think like people back then thought. Pilate claimed that he could find no fault with Jesus after questioning him. That alone would rule out the tax protestor charge. Netterville may exclude that passage, too, but then he has no reason to accept the charge against Jesus at his trial.
Pilate wasn’t on good terms with either Rome or Jerusalem and he knew the leadership in Jerusalem had a lot of influence with the king who had influence with Caesar. He couldn’t afford to displease the leadership of Jerusalem, and since Jesus wasn’t a Roman citizen, Pilate had no legal obligations to seek justice for him. I think Jesus was a minor irritation to Pilate, but he was intrigued that the Jewish leadership would bring him a Jew to execute when before they had done all they could to keep Jews from him. The main point of the day of Jesus’ execution was that Pilate would appease the Jews by releasing someone scheduled to be executed. Pilate expected that to be Barabas. He knew how the Jewish leadership hated him and Rome, so the fact that they brought him a Jew, wanted a fellow countryman executed by a Roman, and claimed that it was because of their devotion to Rome, all together caused Pilate to be suspicious of the Jewish leadership.
Then Pilate made a special effort to let the people know he had no part in condemning Jesus. That indicates that Pilate may have thought that the Jewish leadership was setting him up and would use Jesus’ execution as an excuse to stir up rebellion.
I’m not familiar with North’s explanation. Do you have a link?
Published: April 16, 2009 8:28 AM
newson
to fundamentalist:
thanks for the answer, food for thought. i've already sent you the north file via your email. enjoy.
Published: April 16, 2009 9:22 PM
sheridan
Fundamentalist,
Thought you might be interested in the writings of Wilhelm Ropke - especially his "Humane Economy: The Social Framework of the Free Market". Ropke has a wide-ranging vision of economics, shaped to a large degree by his Protestant beliefs. Very deep and insightful. It's a pity that this particular book hasn't been made available on Mises.org.
Published: April 20, 2009 3:55 AM
sheridan
I quote from an article from the Acton Institute:
"When Röpke used the expression, “third way,” he was emphasizing the need for a free society to complement the market economy and a limited state with both a flourishing range of intermediate associations as well as a moral culture that recognized what Christians understand as the objective hierarchy of values. Concerning intermediate associations, Röpke was clearly influenced by his observation of how such organizations prevented freedom from degenerating into anarchy in politically and economically decentralized Switzerland. Regarding issues of moral culture, Röpke was deeply disturbed by what he described as Western society's “proletarianization”—that is, a growing sameness and monotony of social and cultural conditions. Interestingly, Röpke insisted that this creeping proletarianization would result in greater cravings on the part of the population to receive social services and economic security from the state. From the standpoint of the history of ideas, Röpke's “third way” reflects two distinctly Tocquevillian themes underlined in the second volume of Democracy in America: first, the importance of intermediate associations for a healthy, non-atomistic democracy; and, second, democracy's potential to degenerate into “soft despotism.”
These and other themes found throughout Röpke's work remind us of another reason that contemporary Christians who believe in authentic freedom have sound reasons for revisiting Röpke's ideas. Careful reading of Zmirak's biography illustrates that Röpke provides us with a model of how an orthodox Christian can engage with the modern world without simply aping transitory secular intellectual fashions.
There was much about modernity that Röpke celebrated. He did not, for example, maintain any romantic illusions about the conditions of material well-being that prevailed in the pre-modern world until free trade and the spread of economic freedom began to liberate man from the indignity of poverty.
At the same time, Röpke did not hesitate to underline the equally romantic delusions of Enlightenment rationalists and their modern heirs who thought that building a heaven on earth was possible. As a Christian humanist, Röpke accepted the insight of revelation, which is confirmed by right reason, that man—that is, real, existing man—is much more than homo economicus. “Above all,” Röpke wrote, “man is Homo religiosus.” From this standpoint, Röpke stressed the futility of modern man's attempt to get along without God, and maintained that atheistic and agnostic anthropologies of man were inadequate foundations for a truly free society. At the core of man's identity, Röpke stressed, is a spiritual and moral essence. This, by definition, means that man is destined for greater things than being a mere pleasure machine. In Röpke's view, this is the deeper meaning and purpose of freedom, a truth that unfortunately escapes some contemporary believers in the importance of human liberty."
http://www.acton.org/publications/randl/rl_review_417.php
Published: April 20, 2009 4:01 AM
fundamentalist
Thanks newson and sheridan. I'll read both North's and Ropke's works. That reminds me of what Hayek said in the interview posted recently about how that religion is necessary to prevent extreme individualism in capitalism. I really don't think that is a danger, but it's interesting that he saw it that way, him being an agnostic. Nevertheless, as I have written before, I don't think capitalism can survive without traditional Protestant Christianity. Capitalism was a child of Protestantism and I don't think it can survive without the parent, mainly because the driving force of socialism is envy and covetousness and it takes a very powerful force to overcome those natural human tendencies.
Believe me, no one would like more than me to find clear statements in the NT opposing taxation and government overreach, but I have to be honest and follow the principles of hermeneutics. Sometimes they can be very a very irritating straightjacket, but so can the truth.
My reading of the attitude of God toward government in the Bible is that government is part of his judgment against mankind. God's attitude seems to be that if mankind would submit to him, no government would be necessary at all. But since mankind refuses, then God uses government as an aspect of his judgment on a rebellious creation. That attitude isn't too far from what I heard an old MIT prof say: people get the government they deserve. The more self-disciplined a people are, the the less government they tend to have.
Published: April 20, 2009 8:43 AM
sheridan
I remember reading in Hayek's autobiography that he was sympathetic towards Protestant ideals, but he considered the Roman Catholic church to be the "original" religion - if he had to choose between the two, he would paradoxically choose the latter. He also viewed the logical step after Protestantism was to shake off the Christian religion altogether.
On this Ropke has to say:
"The Christian element, however, which predominated in this heritage has, since the beginning of modern times, been subjected to a continuous process of secularization until finally the power of faith, which had at first consciously and then unconsciously nourished the secularized concept of progress, rationalism, liberty and humanity, began to flag, thus becoming responsible for the withering of those very concepts, since no alternative sources of faith and certainty had been provided."
Though I should point out that some of these (old Victorian) values are not exclusive to the West - e.g. what passes off as "Asian values" today bear a strong resemblance (hard work, thrift, industry etc), and these were cultivated through centuries of turmoil and experience, thus quite independently of the Western tradition.
I've read bits and pieces of Gary North's writings - he sometimes offers good insight, but not always satisfactory.
Well, the Israelites clamoured for a king after all - this is democracy voting for its own oppression (and in spite God warning them about the dangers of such designs).
I once asked a pastor (whom I respect) what if we were in a Zimbabwe-like situation with crazy taxation, you have 99% of your produce taken away by state coercion - how does this fit in with Paul's "obeying the laws of the land" (Romans 13)? He said he would still pay them, but trust in God's provision.
So a Christian perspective is necessarily radical - because it is rooted in the omnipotence, omniscience, and goodness of God, together with an understanding of His holy purposes ("His ways are higher than ours"). I wouldn't expect non-Christians to agree to any aspect of it. For the Christian however, "(our) Kingdom is not of this world".
Published: April 20, 2009 9:32 AM