Leviticus and the Fed

From the Industrial Revolution to the AI Explosion, intellectual, social, and economic history has been dominated by the struggle between Socialism and Capitalism. Two great challenges confront every economic system: the generation of wealth and the distribution of that wealth. The success of every economic system must be measured according to these two criteria, and Socialism and Capitalism offer dramatically different approaches. 

In the Manifesto of the Communist Party, first published in 1848, Karl Marx famously wrote: “…The theory of the Communists may be summed up in the single sentence: Abolition of private property.” That single sentence became the rallying cry for a movement that, in many respects, dominated a 175-year period of world history.

At the other end of the ideological seesaw, of course, was the 18th-century theory of Capitalism. These two great economic philosophies battled over one issue above all others: Who should own (control) society’s “means of production”?

We have Marx to thank for this concept. He correctly understood that each society, each social epoch, is characterized by its means of production, i.e., by the way, in which it generates wealth. In Marx's 19th century, the means of production consisted of factories and machines, augmented by the labor of “wage slaves”. The bourgeoisie owned these means of production, either de jure as in the case of factories, or de facto, as in the case of labor.

Marx did not decry the Industrial Revolution; he was no Green! He saw factories and machines as the instruments that would generate the wealth that would free the workers of the world from their chains. He decried the fact that ownership of the means of production was centralized in the hands of a few capitalists, who accumulated wealth and power at the expense of the proletariat, merely because they owned society’s productive assets.

Marx’s solution was to abolish the institution of private property (at least as it relates to productive assets), collectivize productive property under the common ownership of the workers, and entrust the management of that property to institutions representing those workers (e.g., the Soviets, the Communist Party, or the State).

Faintly but persistently, that great debate was punctuated with calls for a “Third Way”…a socio-economic alternative that might capture the most attractive features of both systems while discarding the undesirable elements of each.

Proponents of a Third Way are typically looking to combine the egalitarian and communitarian virtues of Socialism with productivity and personal liberty, the strengths of Capitalism.

It turns out that just such a Third Way was proposed…over 2500 years ago in the Old Testament book of Leviticus. The socio-economic blueprint laid out there embodies just those positive elements that we have come to associate with the best aspects of both Capitalism and Socialism.

At first glance, it might appear that a socio-economic program written over two millennia ago for an agrarian economy could not possibly be implemented in a modern industrial society. But that would be incorrect. Upon deeper reflection, it is not only clear that the Levitical program can be implemented; it is clear that it has been implemented, at least in the United States.

Evaluating the generation of wealth is easy; it’s basically a matter of arithmetic. Evaluating the distribution of wealth is much more difficult; values enter the discussion at every turn:

• Should wealth be distributed among members of society in proportion to the contribution of each toward the production of that wealth?

• Should wealth be distributed among members of society in proportion to the needs of each member?

• Should wealth be distributed equally among all members of society, regardless of the contribution or the need of any particular member?

  
  

There are no immediately obvious, universally correct answers to these questions. Plus, there is another question that cuts diagonally across all three: If the production of wealth is in any way a function of the way in which that wealth is distributed, should the value of maximizing wealth influence in any way the decisions we make regarding its distribution?

In his Theory of Justice, John Rawls proposed a solution to this enigma. He suggested that the optimum distribution of wealth was the distribution that would maximize production, consistent with the extension of civil rights and the provision of basic economic security to every member of society. 

His rationale: this is what an objective member of society would choose, provided that that member of society had no advance idea whether she would be at the top or the bottom end of the economic ladder. Rawls’ state of ‘disinformation’ is a modern version of Rousseau’s “State of Nature."

The ideologies of Socialism and Capitalism have both been well tested in the laboratory of real life; how did each fare? Socialism did a reasonably good job of leveling economic (and therefore social) inequality, but it did an absolutely horrible job of maximizing production. Capitalism, on the other hand, did an astoundingly good job of maximizing production but a poor job managing social and economic inequality and providing basic economic security.

After 65 years of real-life experimentation, the “workers of the world” did indeed unite. They voted with their feet: Yes to Capitalism, No to Communism! Apparently applying Rawls’ calculus, they decided it was better to risk being at the bottom of a Capitalist ladder than to languish hopelessly in the middle of a Communist heap.

But this does not solve the dilemma: social justice is not an option; it is an imperative! Just as no one can validly sell themselves into slavery, neither can they bargain away their natural right to a basic share of society’s goods. A person may choose to ‘live poor’ (St. Francis) but they cannot justly be ‘made poor’ as a matter of law.

Capitalism cannot celebrate its triumph until it fulfills Rawls’ condition of providing basic economic security to every member of society.

Of course, folks will disagree, and rightly so, about what constitutes basic economic security, but most will agree that it has not yet been universally achieved. It certainly includes a decent place to live, decent clothing and enough to eat, but it’s more than that. It must include a safe environment, a healthy diet, health care and education. Even more than that; it must include the opportunity for economic, social and intellectual advancement…the right to ‘self-actualize’, to ‘be all that you can be’…and finally, it must include an acceptable level of social status, consistent with a positive self-image.

Implementing an effective security net is useless if we label its beneficiaries ‘welfare cheats’. 

Clearly, the Capitalist world has a ways to go to meet John Rawls’ standards. Most, if not all, Capitalist societies have made some effort to construct a safety net. In some countries, the net is weak and full of holes; in other countries, it is stronger but tends to rob initiative and the sense of self-worth from those who rely on it. We can do better!

“You shall count seven weeks of years – seven times seven years – such that the seven weeks of years amounts to forty-nine years…You shall treat this fiftieth year as sacred. You shall proclaim liberty in the land for all its inhabitants. It shall be a Jubilee for you…In this year of Jubilee, then, each of you shall return to your own property…The land shall not be sold irrevocably; for the land is mine, and you are but resident aliens and under my authority.” Leviticus (25:10)

The social system outlined in Leviticus is based on the theory that every tribe of Israel began its career in Canaan with an equal share of productive property (i.e., land) and that every family within each tribe likewise began with an equal share.

At the time of the Exodus from Egypt, land was the fundamental means of production and the primary source of all wealth, augmented by livestock and labor. In theory, at least, every family in the new society started out with an equal share of the means of production.

But the social code of the Israelites reflected the fact that economic relations are never static. Some families grow wealthier, others poorer. The authors of Leviticus understood that some folks would ultimately be forced to sell their land, and even their labor, in order to survive. Leviticus did not forbid such economic activity…but it did limit its impact via two buffers: (1) a social safety net (Sabbath) and (2) a program to redistribute wealth (Jubilee).

Leviticus calls for the total redistribution (or “restoration”) of productive wealth (i.e., the means of production) every 50 years. “…On the tenth day of the seventh month let the ram’s horn resound; on this, the Day of Atonement…each of you shall return to your own property.”

Every 50 years, there’s a do-over. According to Leviticus, the State of Nature is renewable. Compare this ‘primitive’ social system with the more sophisticated Capitalist and Socialist systems. Under Capitalism, there are generally no do-overs; the sins (or mere mistakes) of the father/mother are most definitely visited on the sons and daughters for generations to come.

Socialist societies, on the other hand, have a different problem. Here, the means of production are owned in common. This at least theoretically solves the problem of inequality, but it does nothing to motivate production. Without a system of economic incentives, labor languishes and there is little in the way of innovation or investment.

Monday morning pep rallies are no substitute for profit sharing!

The economic system offered by Leviticus solves this conundrum. All productive property is private! There is no ‘state’ per se. There are few restrictions on amassing wealth; incentives for labor and commerce abound. Yet, every 50 years, all productive property is redistributed, so every second generation gets a fresh start. It seems like the best of both worlds, a perfect solution.

But you say, “It’s impractical; there’s simply no way that the productive property of the United States could be totally reallocated.” Is that so? Would you be surprised to learn that we have been living according to the Code of Leviticus for more than a decade? In fact, Jubilee has become a bright-letter Fed policy.

Rather than redistributing all productive property every 50 years at the sound of a ram’s horn, the Federal Reserve has made a 2% annual rate of inflation a matter of policy. 2% x 50 years = 100%. The Fed’s 2% inflation policy is a modern version of the Levitical program. It pays for the social safety net, which is our way of redistributing wealth.

How does this work? Consider our response to COVID-19. The US spent about $5 trillion that we didn’t have to mitigate the economic impact of COVID. We used that money to maintain our social safety net. 

They say money doesn’t grow on trees…yes it does! Ok, gold doesn’t grow on trees, but paper does. To pay for COVID, we printed money and effectively devalued our currency. We experienced that devaluation in the form of short-term hyperinflation (>2%). Essentially, we borrowed $5 trillion, and now we’re paying the ‘vig’…every time we purchase a roll of toilet paper.

The wisdom of our response to COVID-19 is not our subject today, but as to the wisdom of the Fed’s 2% inflation target, we have only to look to the Book of Leviticus for confirmation.

David Cowles is the founder and editor-in-chief of Aletheia Today Magazine. He lives with his family in Massachusetts where he studies and writes about philosophy, science, theology, and scripture. He can be reached at david@aletheiatoday.com.

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