Religion & Liberty Online

The Basic Principles of Wealth Creation Have Not Changed

(Image credit: Shutterstock)

No matter how scary the economy may look today, you have more control over your economic future than you think. Get back to basics: both principle and habits.

Read More…

The need for economic education has never been more apparent. In an inflationary economy with housing costs outpacing first-time homebuyer budgets, banking collapses, and a popping tech bubble, the need for sound economics is self-evident. St. Thomas Aquinas defined self-evident as that which the intellect clearly apprehends; today, it is easy to apprehend the need for better economic thinking, and the way such a need becomes a reality is by taking concrete steps to change the status quo.

In the status quo, economics is often treated like a mathematical mystery that only the initiated can understand. Modern economics with its complex formulas has grown far from its origins as the oiko-nomos, or rules for managing one’s home. Instead of the ancient wisdom (spend less than you make), adherents of modern monetary theory contend that value itself, and the money that represents it, are both symbols that the government can play with. Paired with a Keynesian view of government’s role in heating up or cooling down the economy, modern monetary theory contributes to rampant inflation, only then to claim that further manipulation of the monetary supply should be the response. We need to get back to the basics.

To help on that score, Brian Balfour of the John Locke Foundation has published a new edition of his Economics in Action through Thales Press. (In the interest of full disclosure, I am an editor and author for Thales Press.) Balfour approaches economics from an Austrian stance, and his writing makes clear the concepts students need to learn. Following Euclid’s method, Balfour introduces a series of axioms from which he builds an economic system. Balfour presents the Action Axiom as the initial premise for his study: “Human beings utilize means according to an idea to achieve ends.” His focus is on developing what he calls “the economic way of thinking” while also equipping students to better understand human nature. “Using deductive logic to arrive at economic laws empowers the student to know why these laws must be true, instead of simply accepting them as true.” Working through deduction helps students cultivate the habits of economic analysis and to see economic laws at work in the world around them.

Economics in Action is structured as 22 chapters, each beginning with a concept outline and providing key terms defined in a glossary as well as comprehension and application questions for students to consider. By the book’s conclusion, students should have a working knowledge of the following economic concepts: exchange, division of labor, the market, price formation, supply, demand, entrepreneurship, competition, profit and loss, the business cycle, and common economic fallacies. The textbook works for both those with a strong knowledge of Austrian principles and those new to the formal study of economics. Balfour’s examples make this an imminently teachable book. Chapters come with sufficient questions for the dialogical classroom, enabling a classical pedagogical approach to the study of economics.

Balfour uses the building blocks of previous chapters to address economic harms in the closing section. He walks readers through the logical flaws inherent to socialism, for example. If the previously taught principles are true, then “socialism suffers from several shortcomings that condemn it to failure no matter when and where it is tried, and regardless of who is in charge. Perhaps the three most significant shortcomings are the incentive problem, the knowledge problem and the lack of economic calculation.” It’s not that socialism does not appeal, but rather that socialism by its nature violates the laws of economic interaction.

In his final chapter, Balfour applies the same method to address such common economic fallacies as “job creation is wealth creation” and “the rich get richer on the backs of the poor.” Balfour argues that “the goal, instead of focusing exclusively on jobs, is to focus on productivity and the wealth creation it brings” and that “job creation is a by-product of a growing economy and production structure.” When we focus not just on job growth but also wealth creation, economic flourishing results, enabling a rising standard of living.

In short, Balfour demonstrates that economics is not a mysterious exercise in mathematical wizardry but rather the application of sound principles. Adam Smith stands in the tradition of Euclid, Aristotle, and Aquinas; through careful perception and description of natural laws deducible through study, the logical application of those laws results in an increased wisdom for living well.

Economics is not only the macro-level study of value exchanges; it also operates as a means of individual wealth-building. Dave Ramsey has recently republished a classic that addresses just that: George S. Clason’s The Richest Man in Babylon, originally published in 1930. The argument is straightforward: Arkad, the richest man in Babylon, explains his method of building wealth across several short stories: spend less than is earned, make money work for you, only invest in trustworthy opportunities you understand, and prepare for opportunity to come knocking. 

The Richest Man in Babylon opens with Bansir the charioteer, who could be a Millennial stereotype. He sees all the riches around him and bemoans the fact that his work seems to bring him only just enough money to pay his bills.

Bah! Are we more than dumb sheep? We live in the richest city in all the world. The travelers do say none equals it in wealth. About us is much display of wealth, but of it we ourselves have nought. After half a lifetime of hard labor, thou, my best of friends, hast an empty purse and sayest to me, “May I borrow such a trifle as two shekels until after the noblemen’s feast this night?” … No, I admit my purse is as empty as thine. What is the matter? Why cannot we acquire silver and gold—more than enough for food?

How can Bansir get a grasp on the good life? He wishes to be a “man of means. I wish to own lands and cattle, to have fine robes and coins in my purse. I am willing to work for these things with all the strength in my back, with all the skill in my hands, with all the cunning in my mind, but I wish my labors to be rewarded. What is the matter with us? Again, I ask you!” Such a question is both timeless and answerable. Economic analysis explaining why young adults are inheriting a worse economic position than the Baby Boomers abounds, but the desire and opportunity for economic advancement remains. Bansir is presented as an ancient Babylonian, but he could just as easily be an entry-level hire in a bank wondering how he could move up in the world.

Clason establishes a clear framework for acquiring money: “Money is the medium by which earthly success is measured. Money makes possible the enjoyment of the best of life. [And] money is plentiful for those who understand the simple laws which govern its acquisition.” By setting his stories in the Ancient Near East, Clason suggests the timelessness of his principles. His advice does not depend on the stability of cryptocurrency or the chance of an angel investor coming through. Rather than building an incubator program, he argues that people ought to use their income to make money work for them: “A fat purse empties quickly if there be no golden stream to refill it. Arkad has an income that constantly keeps his purse full no matter how liberally he spends.”

The remainder of the book is composed of short stories through which Arkad dispenses wisdom on how to build wealth. The formula is convicting for an era addicted to building wealth through debt: exercise discipline to live on 9/10 of an income; save the tenth as an investment fund; invest wisely; create a “wealth tree” that bears much fruit. Clason’s argument fits much of the advice offered by Ramsey himself and by Robert Kiyosaki—money is a tool to give freedom, and managed wisely it can create a life of leisure. Wealth is a product of discipline over time, not merely a matter of luck or inheritance.

Balfour and Clason illustrate two different pedagogical approaches. Balfour’s writing is didactic: the principles are clear, the examples apply the ideas taught, and the book’s layout makes it impossible for an attentive reader to miss the point. Clason takes a different approach: his narratives draw on the imagination of the reader to build a world and play out the possibilities of economic interactions within that imaginative space. These methods engage different kinds of readers; a bright middle-grade reader could benefit from reading The Richest Man in Babylon. The archaic language and romantic setting draw in the reader who typically gravitates toward fantasy, young adult, or historical fiction novels. Balfour’s textbook is ideal for supporting a high school class or a reading group of adults committed to discussing economic ideas. Both books capture timeless wisdom and help readers develop prudence for their own economic action.

This past June, David Bahnsen of The Bahnsen Group spoke at Acton University. He provided strong negative analysis of the present American and global macroeconomic status. The housing bubble of 2008, the increase in the national debt, and the weakening of the dollar all contribute to a bleak macroeconomic forecast. After his presentation, Bahnsen was asked what the outlook is for the individual. His aspect changed. He believes that this is a great time for individuals acting on a microeconomic level, because the same economic laws that have always governed wealth creation remain true today. Those who work hard, steward their opportunities, and exercise virtue in the market will outperform their counterparts who fail to act virtuously. Bahnsen contends that the future is bright for the wise steward.

That bright economic future depends on individuals knowing and understanding economic ways of thought and the basic principles that allow each person to take dominion of his personal economic world. In that sense, we live in a golden age of economic information. Balfour’s Economics in Action combines contemporary economic research with Austrian economic principles. The Richest Man in Babylon makes for a great gift, reminding readers that the secrets of how to build wealth are readily available to all who seek them. As the 2024 election cycle heats up, economic counternarratives are sure to abound. The best way to prevent bad economic ideas from taking root is to read works of sound economics. Both Balfour and Clason provide the resources for the American public to educate itself about the timeless principles of economic action.

Josh Herring

Josh Herring is professor of classical education at Thales College, working to develop a new model of teacher preparation, specifically with attention to shaping future teachers intending to join the classical renewal movement. He and his wife live in Wendell, NC. Josh is a voracious reader and a regular writer with the Acton Institute, Liberty Fund, and The Federalist. He hosts The Optimistic Curmudgeon podcast and tweets @theoptimisticC3.