Quaker Values and Economic Evaluations
by William Rhoads
Recently, The Quaker Economist has focused on major issues facing the world — the peak of oil production, and global warming with perhaps catastrophic climate change — without relating them to any unique or specific Quaker religious values. I would like to tarry for a while and ask what our Quaker values are on some of these subjects, and what, if anything, our Quaker values have to offer to today’s world. As every issue says, "The purpose of the Quaker Economist is to combine Quaker values and concern for the poor and oppressed with the best of hardheaded economics and social science." Here are some of my views on these Quaker values.
What are our Quaker values about the natural world? Aside from those who expect The Millennium any day now, the large majority of Christians until very recently have had the motto "be fruitful and multiply," and have accepted the common Christian view that the world was made for us by God for our use. This made sense when the human population was too small to threaten the environment, but it became Christian dogma and has continued to the present day. While William Penn certainly held this view in populating and developing Pennsylvania, Quaker theology emphasized the Light within and that of God in every man, and rejected or ignored Christian dogmas about Christ's birth and death, to concentrate on his teachings and putting them into practice in daily life. The lack of Quaker dogma makes it easier to update beliefs as the world changes.
Quaker concerns about slavery and other issues that endure to this day come, I believe, from this theology and have made it easy for Friends to accept the third Christian belief, that Quakers have a responsibility of stewardship for the natural world, and must work to preserve the natural world and leave the world a better place than before. This view of stewardship is shared by many mainstream Christians, and has allowed Quakers to promote many reforms and to be modern environmentalists. But of course, economic analysis will help to determine our stewardship program.
Quaker and other stewardship values about the natural world do not allow for any discounting of the worth of the future. If we value the future as much as we value today, we cannot give any less importance to a future year than we do for the current year. To carry out our stewardship, we must limit our current consumption (a traditional Quaker value) and save and invest enough for the future so that those who come after us will be able to live as well as we do, and have a healthy natural environment. Economic discounting of the future has an important role in selecting effective investment projects, and can be used to determine the amount of investment that must be made in the future as part of an overall program to preserve the world, but it is not a part of basic Quaker stewardship values.
The Quaker Role in Economic History
As residents of the two most economically advanced countries of their times, Quakers played a major role in creating both the system of competitive free enterprise and modern large scale capitalism, although they had little to do with creating economics as a discipline. We may apply our values differently today than we did in the eighteenth and nineteenth centuries, but I believe we are still applying the same values, and should not repudiate how they were applied in the past.
William Penn established Pennsylvania with the greatest freedom and the most laissez-faire form of government of any colony or self-governing political regime of the time, and worked hard to populate it with settlers from anywhere who would buy his land, excluding nobody. Under Quaker leadership until 1755, the Pennsylvania Assembly met seldom and passed few laws. One of the fundamental laws of Pennsylvania stated that all tax laws must expire automatically after twelve months. The result was that within a hundred years Pennsylvania was the richest American colony, and Philadelphia was the second largest English speaking city if the world, after London. After suffering so much for so long under the English government, the Quakers wanted as little government as possible in Pennsylvania.
Though few in number, Quakers in eighteenth- and nineteenth-century England were among the leaders in establishing large modern firms and the banking network to finance them. Quaker values of trust, honesty, and modesty in living helped to establish the modern business world. We have seen a cessation of Quaker leadership in leading the modern economy in the twentieth century, but we continue to apply our Quaker values to the problems of the twenty-first century.
Loren Cobb called our attention to two major problems in TQE 145, and presented technical tools to use in attacking them, but I think we need to go further in our economic explorations to see how to apply Quaker values.
The problem of "peak" petroleum production is only the latest in a long series of warnings that we are running out of exhaustible resources. The English worried about running out of coal in the nineteenth century, and the Americans worried about running out of whale oil for lighting before petroleum was developed. Over fifty years ago Resources for the Future was established to determine if the U.S. was running out of any exhaustible resources at reasonable prices. Until now, the answer has always been "No." Technical progress in using lower-quality natural resources and discovery of new substitutes (often petroleum based!) has always offset the consumption of higher quality exhaustible resources. The current problem of peak petroleum is just the latest and largest of these problems.
The response of those with stewardship values is that research and investment to supply more of the exhaustible resource or its substitutes must be sufficient to maintain an adequate supply at a reasonable price, or if that cannot be done, then other consumption must increase to offset the lack of the exhaustible resource or its substitutes, to maintain the welfare of future generations. The central question is whether the private economy will do this on its own, or whether government intervention is needed. While the private sector can lower costs and develop substitutes for exhaustible resources, I believe that government must act to assure sufficient savings and investment for the future.
Two Forms of Government Intervention
Government intervention can take two forms. The first is to lower the cost of capital by cutting current consumption and increasing the supply of savings available for investment. As Loren has shown, the lower the cost of capital, the greater will be the amount of investment, and the greater the weight given to events in the longer-term future.
Currently, the cost of capital is at a historically low level in the USA, but savings are also at historically low levels. Added to the federal deficit of 2.5% of GDP is the import consumption surge, so that imports of investment funds from the rest of the world are now about 4.8% of GDP. Much of this is coming from foreign central banks and not being lent on a commercial basis. Much investment has gone into the housing boom, and is not immediately productive. I believe that U.S. investment today is woefully inadequate to meet our stewardship responsibilities for the future, and of course, total savings are much less than investment.
The national savings situation will only get much worse without drastic changes in government policy. With the coming increase in Medicare and social security payments, the federal government deficit will increase in the future, and if the tax cuts now scheduled to end at the end of 2010 are continued, the deficit will be much larger, as no feasible expenditure cuts can offset the increase in social payments. This increase in the deficit will cut domestic savings and make U.S. investment even more dependent on foreign borrowing. Whatever cut in the cost of capital that may come from lower taxes on profits, dividends, capital gains, etc., will be more than offset by the increase in the government deficit.
The Tax Policy Center has published a series of reports by William Gale and Peter Orzag that make the adjustments necessary to understand the true U.S. fiscal and tax situation. Neither party in Congress is currently willing to be realistic about the future fiscal situation.*
All economists agree that the present situation of savings and investment cannot be maintained indefinitely, and if the cost of capital is not to rise greatly in the future, the U.S. must cut its import surplus and reduce the current account deficit in the balance of payments. So Quaker values tell us that government intervention is needed to cut the budget deficit, increase domestic savings, and reduce the dependence on foreign sources of capital.
The second form of government intervention is to tinker with prices both to reflect the "externalities," many of which are environmental, that are not normally included in commercial prices, and to remove subsidies from the government that are not justified. As research gives us a better assessment of the causes and costs of global warming, the use of a tax on activities that create carbon dioxide in the atmosphere, including liquid vehicle fuels, and the payment of subsidies to activities that remove carbon dioxide from the atmosphere becomes more and more feasible. (This will have to be done independently from the "Kyoto goals," which are political in nature and have no economic justification.) As Loren has pointed out, the situation on subsidies to production of petroleum is extraordinarily complicated, but as they are identified, they should be removed. Other government interventions to offset environmental externalities are also needed.
The second problem that Loren has called to our attention is the possibility that global warming in addition to its slow and long-term effects, may trigger rapid and irreversible changes in the world we live in. This is an entirely different problem from peak petroleum production. In my opinion the probability of rapid and irreversible change is currently so speculative that assigning costs to various outcomes and subjective probabilities to their occurring is of limited value and importance. Since we cannot expect the private sector to carry out the needed research, our Quaker values of stewardship and conservation must lead us to advocate that adequate public finds are made available for this research.
The Dangers of Government Intervention
There is a tendency among many Quakers now to see government intervention as the answer to almost all social questions. This is a very dangerous attitude when Congress pays little or no attention to the physical and social sciences in its deliberations. In England, Quaker industrialists first experimented with social programs in their own firms, and then published surveys on the social situation in English cities that later influenced Parliament to enact reforms.
The Quaker Economist seeks to serve by spreading accurate information and analysis, and shows a healthy skepticism of government action. This is in line with historic Quaker values, but we must advocate effective governmental action when there are no substitutes.
As we face the tremendous impact of pubic opinion and commercial publicity on the future of our country, it might seem that there is little that we as Quakers can do. But we have a political class today that has abandoned economic analysis for slogans and ideology, and this opens up opportunities. I think we can be very effective and influential, if first we agree on the specific Quaker values that set us apart from others, seeking a continuity in our values from the start of Friends over three hundred years ago until today.
Sincerely your Friend,
* For example, when Congress voted to end the estate tax in 2001, William Gale and his colleagues had just published a fat, highly technical book, Rethinking Estate and Gift Taxation, opposing the abolishment of the estate tax. According to two Yale professors, "No member of Congress claims to have read it." (Death by a Thousand Cuts, p.226).
Please send comments on this or any TQE, at any time. Selected comments will be appended to the appropriate letter as they are received. Please indicate in the subject line the number of the Letter to which you refer!
Thank you for publishing the letter of William Rhoads. It is good to have something by a solid economist, as he demonstrates himself to be in most of the letter.
He does make one error, however, in failing to evaluate the alternative. He believes "government must act to assure sufficient savings and investment in the future." He is assuming that government is the best alternative if the private sector fails: the government should regulate. But even when the private sector fails, the government alternative may be worse. While the individual may make bad choices, the government may make worse.
I believe that more often, the choice of the individual is likely to be better. Suppose, for example, there were "private money," for which borrowers had to pay a competitive interest rate. Consumers would favor the money that maintained inflation at the lowest level possible: a competitive battle among issuers of the currency, to achieve the lowest rate and still make profit. Borrowers would always seek the lowest rate. When a central bank decides on a monopoly interest rate, we often have inflation.
For more on private money, see my book, The Moral Economy (Michigan, 1998).
— Jack Powelson, Boulder (CO) Friends Meeting.
Clearly Quakers have testimonies, which presumably reflect "Quaker values." However, I am doubtful that we can infer "values" that have not yet been expressed in testimonies. It is useful to look at past Quaker behavior and Minutes for guidance, but to seek current "values" from past behavior strikes me as fraught.
I am struck by the statement, "Quaker and other stewardship values about the natural world do not allow for any discounting of the worth of the future." Do Quaker values not accept the idea of present value? Is this the same as saying that the Quaker discount rate is zero? How are technological progress, exhaustible resources and uncertainty factored in?
I think Quakers have been well served by achieving significant unity on the behavioral issues covered by our testimonies; and wise not to define too clearly the disparate individual values that lead us to endorse the testimonies.
We know that atmospheric carbon dioxide is increasing. No more research needed on that! Does not good stewardship demand that we know that this will have no long-term ill effects before increasing carbon dioxide further? I think it is not good policy to go on using fossil fuels while actively finding out how much damage we are doing, because this may take us past a tipping point where all our fossil energy dependent technology becomes unusable. Perhaps we need a testimony on fossil fuels?
Wilfred Candler, Annapolis (MD) Friends Meeting.
Thanks, William, for this valuable addition to the conversation. Though I would agree with almost all of your conclusions, I would come at the question of applying Quaker values a little differently. The 1987 report of the World Commission on Environment and Development, sponsored by the United Nations and published under the title "Our Common Future" defined "sustainable development:"
"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains within it two key concepts:
Most of Quaker practice can be derived from our initial insight that there is that of God in every person, and as a result, each person is to be cherished. To really cherish persons is to care that their needs be met. There are several reasons to care about future persons persons who will be alive after we die. First, some of them are alive now, but will live longer than me. This will always be true for any of us. So to care about the living is to care about folks who will live past us. Second, we can hope for our children and grandchildren that they should have our experience of caring about their children and grandchildren that we find so enriching, and if we think about it even a little, this leads to an infinite regress in which he have to hope that there keep being future generations. Thus without getting into abstract notions of caring for future generations directly, just by caring for those here and now, Quaker values quickly lead us to care about future needs.
Caring about the environment also follows quickly from caring about future needs precisely because there are limitations as outlined above. The notion of stewardship — derived as I understand it from other Christian traditions — has never felt very powerful to me. While Quakers have always practiced good management of assets, and as a result early friends played a major role in the development of banking, business and technology as we know it, so far as I understand it this was more in the nature of their efforts to perfect their lifestyle in God's pattern than for a concern for natural resources themselves. I certainly have felt a sense of wonder and awe at the natural world, but as an amateur evolutionary psychologist, I suspect that has more to do with my natural response to an environment I am adapted to than anything else. As a result, I have a certain empathy with many other species (not limited to animals) that is a greater connection than simple curiosity or an instrumental interest in their value as food. However, I wouldn't have any scruples about extinction of certain parts of the environment (for instance small pox) that are largely inimical to humans. In the end, I think it is human connection and dependence that leads us to care about the environment.
This leads me, in any event, to view all human activities on the planet through the lens of sustainability. Indeed, a review of any aspect of our current civilization leads one quickly to the conclusion that very little about our our current practice is sustainable. Not only are we exhausting fossil fuel but also "fossil" water (aquifers that will not replenish in the time scale in which they are being drawn down) and soil (topsoil that has taken hundreds of thousands of years to create). We are precipitating a vast wave of extinctions (some 95 percent of the animal biomass on the planet consists of people and their domesticated animals) and wanton destruction of habitat that sustains biodiversity.
The challenge before us as I see it is for a new generation of Quaker business practices to once again reinvent the economy — renewable energy, sustainable farming, renewable and recycled materials. Along with this we need a new idea of simplicity — one that is not simpleminded or style-bound, but one that puts a true environmental value on resources (and I suspect that reestablishes a more direct connection with many of those resources).
Of course others will come to this work from other perspectives and values, and that is to be welcomed. Thanks again to Friend William.
— C. Baird Brown.
Why should the government have a role to play in the cost of capital? If the cost of capital is low, will not savings also be low because of a low return? Why can't free market forces determine the cost of capital through supply and demand?
Capital and labor are the factors of production, and artificially distoring the cost of any one factor distorts the other. Are wages unduly low now because we have artificailly kept the cost of capital low for the past few years? Food for thought.
Joseph Mills, Kalamazoo Friends Meeting.
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Williams Rhoads. All rights reserved. Permission is hereby granted for non-commercial reproduction.