David Bahnsen is one of America’s top financial advisors and one of our most prominent economic thought leaders. Recently he joined me on my Meeting of Minds podcast to discuss the origins of modern economic theory, the genesis response to Marx, and his latest book There’s No Free Lunch: 250 Economic Truths. To listen to the full podcast, click below.
Here are some highlights from that discussion, slightly edited for clarity and length:
Jarry: Last time we spoke, you spoke about what Genesis 1 has to say about the old controversies of the theory of labor value and subjective utility, which is the foundation of Austrian economic theory.
David: I think we’ll go back to Genesis 1 but by historical precedent. In classical economics, Adam Smith has loosely written. It wasn’t exhaustive, it wasn’t systematic, but it loosely wrote in a way that even Marx credited Smith with some of this concept of value coming from the labor that is invested in it. And David Ricardo, a classic 19th century economist, also heavily influenced by 18th century Adam Smith, developed this theory of labor value and believed that there was a product or good and then labor was there. added, and the end result was the value of the product. The cost of the raw materials plus the imputed labor equaled the value of the product. It’s very hard for me, Jerry, to believe that these men believed that, because they were so smart, had so much value, did so much to enlighten my understanding of economics and philosophy. And yet, you and I know intuitively that if someone comes to your house with a table they’ve worked on for 1,000 hours and we just think the tables are ugly, we probably won’t give them $20 for it. The idea that they have imputed significant amounts of labor does nothing to our appetite to assign a value to it.
Why is it dangerous? Because Marx took the classic concept of the theory of work from Smith, Ricardo (and by the way, there was precedent for that even in Thomas Aquinas) and Marx said, well, it’s dehumanizing for the worker to have the value he ascribes that the product is taken away from the worker and given to the capitalist, who then essentially strips the worker of his dignity because he takes value away from what was his. Why is this an economic problem? Because it has never been true, this value is tied to the work that is added to it. And now it’s full circle back to Genesis 1. To which Carl Menger, much of the Austrian school, and really most economists today outside of Marxland agree – that value is subjective, that producers and consumers come together and through a process of price discovery we find value and it reflects the tastes, appetites and needs of the time and market conditions.
Where does this idea come from that a person might not like a table and another person really believes that this table is beautiful? I think it comes from our nature. And what is our nature? It is the one given to us by our Creator. He created us in his image. And how did God himself declare value? Has he quantified it? Did he mark his work that he put into the creation? Did he create a spreadsheet? Or rather, did he say? “Its good.” It is well, on the Sun, the moon, the stars, each day of creation. He subjectively projected value. And now, as His creation and His image, we do the same.
Jarry: Wow, theory matters. You may think it’s something obscure, but if you’re wrong, you’ll come to the absurd conclusion that all profit is theft. And since much of private property comes from profit, then private property is theft. You just make these few intellectual mistakes and 100 million people die.
David: It’s exactly that. And then conversely, to bring it back to the positive side, theory matters and ideas have consequences. Carl Menger in Von Mises and in Friedrich Hayek, he became a 20th century counterweight to both the hard-line central planning we call Marxism and the soft central planning we would call Keynesianism. Keynes became academically respectable. There was no bloodshed, but he was committed to the notion of the central planner and that needed a philosophical refutation: Hayek came with the discovery of prices, with the problem of knowledge, with fatal vanity, and you had this intellectual battle playing out.
Yet one thing was missing for people like you and me, the main truth tellers were not Christians. The Christian church was absent from the great economic debate of the 20th century, so I won’t take anything away from what Milton Friedman, Friedrich Hayek or Ludwig von Mises contributed to the 20th century dialogue. Thank goodness they were there to participate in the great intellectual journey of countering what I think was the very ill-conceived economic theory of Keynes.
Jerry Bowyer is a financial economist, president of Bowyer Research, and author of “The Maker Versus the Takers: What Jesus Really Said About Social Justice and Economics.”