Category: Christians Need to Know

 Note: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

The Term: Fractional Reserve Banking

What it Means: Understanding fractional reserve banking is easier if we separate what it is (which is rather simple to explain) and the effects the system produces (which is slightly more complicated).

Let’s start by taking the term fractional reserve banking and working backwards.
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4-stages-of-wealth-building-small1Note: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

What it means: A marginal tax rate is the amount of tax paid on an additional dollar of income.

The Explanation: What is the tax rate you pay on your current income?

For most Americans, the question is surprisingly difficult to answer. The reason we don’t know our tax rate is because we have a progressive system of taxation on income — and most of us don’t fully grasp the concept of marginal tax rates.

Fortunately, the concept is easy to understand once you get past the confusing jargon. So let’s unpack what it means.
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tvmNote: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

The Term: Time Value of Money

What It Means: The time value of money (TVM) is the concept that because of potential earning capacity, money available at the present time is worth more than the same amount at a future time.

Why It Matters: Would you rather receive $100 today or $100 one year in the future? You probably don’t have to consider the question too long before deciding the obvious answer is that you’d prefer the money today. But why is that the case? Because even if you’re unfamiliar with the concept, you likely have an intuitive understanding of the time value of money.

Money is more valuable today than tomorrow for two reasons: inflation and interest.
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joseph-interpreting-dreamsNote: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

The Term: Consumption Smoothing

What It Means: Consumption is the use of goods and services by households. Consumption smoothing is the balancing out of spending and saving over a period of time to maintain the highest possible standard of living (measured in consumption) over the course of one’s life.

Why It Matters: Consumption is one of the first economic concepts mentioned in the Bible. Similarly, consumption smoothing is one of the first economic concepts to play a significant role in redemptive history.

In Genesis 41 we find that the Pharaoh of Egypt has two dreams that he is unable to interpret. Joseph is brought in to explain the meaning:
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Note: Later today at the Faith & Freedom conference I’ll be speaking on a panel titled, “A Cronyism Crisis: How Corporate Welfare Undermines Markets and Human Flourishing.” If you’re at the conference please stop by this session.

crony-capitalismThe Term: Crony capitalism (sometimes referred to as cronyism or corporatism)

What it means: Crony capitalism is a general term for the range of activities in which particular individuals or businesses in a market economy receive government-granted privileges over their customers and/or competitors.

Why it Matters:  For as long as there have been government officials, there have been economic cronies—friends, family, and associates who use their connections for their own financial gain.

In ancient Israel, for example, when the prophet Samuel appointed his own sons as leaders, they began to engage in cronyism: “[Samuel’s] sons did not follow his ways. They turned aside after dishonest gain and accepted bribes and perverted justice.” (1 Samuel 8:3).

Unsatisfied with these corrupt leaders, the elders of Israel asked Samuel to appoint a king over them. God told Samuel to warn the people of the consequences, which included even worse forms of economic cronyism: “[The king] will take the best of your fields and vineyards and olive groves and give them to his attendants. He will take a tenth of your grain and of your vintage and give it to his officials and attendants” (1 Samuel 8:14-15).

We read passages like that and instantly recognize this as unfair and unjust, a corrupting influence on both the people and the government. Yet we tend note to even notice the cronyism that occurs in our own economic system. Because the “dishonest gain” is often more subtle than the examples found in the Bible, we often do not recognize cronyism because we don’t know what to look for.
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crony-capitalismNote: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

The Term: Crony capitalism (sometimes referred to as cronyism or corporatism)

What it means: Crony capitalism is a general term for the range of activities in which particular individuals or businesses in a market economy receive government-granted privileges over their customers and/or competitors.

Why it Matters:  For as long as there have been government officials, there have been economic cronies—friends, family, and associates who use their connections for their own financial gain.

In ancient Israel, for example, when the prophet Samuel appointed his own sons as leaders, they began to engage in cronyism: “[Samuel’s] sons did not follow his ways. They turned aside after dishonest gain and accepted bribes and perverted justice.” (1 Samuel 8:3).

Unsatisfied with these corrupt leaders, the elders of Israel asked Samuel to appoint a king over them. God told Samuel to warn the people of the consequences, which included even worse forms of economic cronyism: “[The king] will take the best of your fields and vineyards and olive groves and give them to his attendants. He will take a tenth of your grain and of your vintage and give it to his officials and attendants” (1 Samuel 8:14-15).

We read passages like that and instantly recognize this as unfair and unjust, a corrupting influence on both the people and the government. Yet we tend note to even notice the cronyism that occurs in our own economic system. Because the “dishonest gain” is often more subtle than the examples found in the Bible, we often do not recognize cronyism because we don’t know what to look for.
(more…)

consumptionNote: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

The Term: Consumption

What it means: Consumption is the use of goods and services by households.

Why it Matters: Consumption is an ugly word for a beautiful concept.

Since the Middle Ages, the word “consumption” has referred to wasting diseases, such as tuberculosis, which “consume” the body. More recently, consumption has often been confused with consumerism, a useful and related term that has regrettably taken on a wholly negative connotation.

But in its most basic economic sense, consumption is a purely neutral term that refers to the use of goods and services by households. If you arrange for a babysitter to watch your toddler so that you can eat a steak dinner with your spouse, you are “consuming” both goods (the steak) and services (the babysitter’s time and attention). While you pay for these goods and services it’s merely their use that marks them as “consumption.” (We’ll come back to that point in a moment.)

Consumption is arguably the first (or maybe second) economic concept mentioned in the Bible. After creating Adam and Eve and giving them the cultural mandate (“Be fruitful and increase in number; fill the earth and subdue it.”), God says to them,
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