Economics and Morals

Economics is defined as “the study of the use of scarce resources which have alternative uses” (Definition by Lionel Robbins quoted by Thomas Sowell, Basic Economics, p. 2). “What does ‘scarce’ mean? It means that what everybody wants adds up to more than there is” (ibid, p.3).

Morals concern “the practice, manners, or conduct of men as social beings in relation to each other” (Webster). Morals should be first and foremost determined by God and not just by earthly constraints and incentives.

In this writing, we’ll consider three observations from economics. These observations relate to the morals of men. Let’s notice …

Moral Hazard

Insurance companies understand the concept of moral hazard. “Those who are in the business of selling insurance try to take into account not only existing risk, but also the increased amount of risky behavior that the policy holder may engage in as a result of becoming insured… This is called ‘moral hazard’” (Thomas Sowell, Applied Economics, pp. 139, 154). “Someone who is insured may take more risks than if he or she were not insured” (Basic Economics, p. 298).

Some examples: (1) The person who isn’t as concerned about lending out his car to a friend, because, after all, he has “full coverage”. (2) The person who builds his house in an area prone to natural disaster, because FEMA and insurance will take care of him if disaster hits. (3) Banks and lending institutions which make sub prime loans upon the understanding that the government will guarantee the loan.

Here is another illustration which was provided by Thomas Sowell, and which I want to ponder. He said, “When families had the burden of taking care of an unwed daughter’s baby, there was more chaperoning, screening of her associates, and moral stigma attached to unwed motherhood. All of theses things declined or disappeared after many of these costs were shifted to government agencies” (Applied Economics, p. 139).

It is sad to think that there are those who are primarily constrained from immoral behavior by financial considerations. However, it seems to be true. Some are like a brute beast holding that “god is their belly” (Philippians 3:19).

What about us? What is in us that guides our morals? What if there was no potential economic penalty for taking illegal drugs? What if they weren’t illegal? What if there were no potential earthly consequences to infidelity in marriage? What if there were no earthly consequences to cheating on Federal Income Tax? Would we still maintain Biblical morals? A Christian should be dedicated enough to follow God with, or without earthly incentives and constraints. Our motive should not be mere earthly considerations (see Matthew 6:1, 5, 16; John 12:42-43; Luke 14:12-14). If we love Him we’ll keep His commandments (John 14:15, 21, 23). This is true with, or without earthly incentives or constraints.

Adverse Selection

This is another concept with which insurance companies are familiar. Thomas Sowell explains, “Those at the greatest risk are more likely to choose to be insured, so that general statistics on the risk to the population at large are misleading as to the risk of those who choose to buy insurance. This is called ‘adverse selection’”; again, “This is known as ‘adverse selection’ because statistics on the incident of disease X in the population at large may seriously under-estimate its incidence among the kinds of people who are likely to buy insurance coverage for the disease” (Applied Economics, pp. 154-155; Basic Economics, p. 299).

Some examples: (1) Those who buy flood insurance are not usually those who live on high, well draining land. (2) Those who buy maternity insurance are not usually those past childbearing years. (3) One with a family history of problems with disease X may be more likely to buy an insurance that covers disease X, than one that does not. The point is people generally only purchase what they think that they need.

Some treat God like this. They have little or no time for Him until something bad happens in their life. National crisis fills churches (remember what happened immediately after 9/11) only to subside when the situation no longer seems so desperate. Illness brings some to their knees, such is good (Psalm 119:67, 71). However, it is sad that for some this only lasts as long as they think they need Him. When things get better, they seem to forget Him. The psalmist addressed this issue in Psalm 107. Read it. Four times, it says, “Oh that man would give thanks to the Lord for His goodness, and for His wonderful works to the children of men!” (Psalms 107:8, 15, 21, 31)

What about us? Do we only draw near to God when we need something? Or when we are afraid?

We should live our lives walking daily with our God.  Enoch walked with God (Genesis 5:24; cf. Hebrews 11:5). Noah also walked with God (Genesis 6:9; cf. Hebrews 11:7). May “we walk in the light as He is in the light” (I John 1:7). May we “walk humbly with … God” (Micah 6:8).

We should do the right thing morally speaking, and we should serve God with, or without, earthly constraints or incentives. It is a sign of spiritual immaturity to do what is right only if there is earthly reward in so doing. Job said, “Though He slay me, yet will I trust Him” (Job 13:15). He told his wife, “Shall we indeed accept good from God, and shall we not accept adversity?” (Job 2:10).

However, let us now consider …

The Bonus

Though, it is true that we should serve God with, or without, earthly benefits for so doing… Though, we should walk with God because we love Him, and not because it strikes us as momentarily advantageous… There are frequently earthly blessings derived from following His teachings. Let us call this “the bonus”.

The economist, Thomas Sowell has observed: “Honesty is more than a moral principle. It is a major economic factor” (Basic Economics, p. 378). (1) This is true in local communities. “Businesses in some American communities must incur the extra expense of heavy grates for protection from theft and vandalism while closed, and security guards for protection while open, businesses in other American communities have no such expenses and are therefore able to operate profitably while charging lower prices. Rental car companies can park their cars in lots without fences or guards in some communities, while in other places it would be financial suicide to do so” (ibid., p. 378). “Today high-crime neighborhoods and neighborhoods subject to higher than normal rates of vandalism or riots similarly suffer economically from a lack of law and order. Some businesses simply will not locate there. Those that do may be less efficient or less pleasant than businesses in other neighborhoods… The cost of additional security devices inside and outside of stores, as well as security guards … all add to the cost of doing business and are reflected in higher prices of goods and services purchased by people in high-crime areas, even though most people in such areas are not criminals and can ill afford the extra costs created by those who are” (ibid., pp. 371-372). Thomas Sowell also writes of the massive movement of businesses out of the inner cities of Chicago and Detroit in the 1960s saying “In Chicago as in other cities, massive movements of businesses out of the inner city followed the urban riots which swept across the country in the 1960s… Detroit did not have a massive riot because it was an economic disaster area. It became an economic disaster area after the riots …” (Economic Facts and Fallacies, pp. 21-22, 167).

(2) This is also true among nations. “The Economist Magazine puts it ‘For sound economic reasons, foreign investors, and international aid agencies are increasingly taking the level of bribery and corruption into account in their investment and lending” (Basic Economics, p. 367 referencing The Economist, p.65,  March 02, 2002). “Countries whose governments are ineffectual, arbitrary, or corrupt can remain poor despite an abundance of natural resources, because neither foreign nor domestic entrepreneurs want to risk the kind of large investments which are required to develop natural resources into finished products …’” (ibid., p. 366). “The biggest deterrent to investing in any country is the danger you will never get your money back. Investors are wary of unstable governments, whose changes of personnel or policies create risk that the conditions under which the investment was made can change—the most drastic change being outright confiscation by the government, or ‘nationalization’ as it is called politically. Widespread corruption is another deterrent to investment, as it is to economic activity in general. Countries high up on the international index of corruption … are unlikely to attract international investments on a scale that their natural resources or other potential might justify. Conversely, the top countries in terms of having low levels of corruption are all prosperous countries … the level of honesty has serious economic implications” (ibid., p. 459).


  1. “Righteousness exalts a nation, but sin is a reproach to any people” (Proverbs 14:34).
  2. “He who would love life and see good days, let him refrain his tongue from evil, and his lips from speaking deceit. Let him turn away from evil and do good; Let him seek peace and pursue it” (1 Peter 3:10-11; cf. Psalm 34:12-14).


About Bryan Hodge

I am a minister and missionary to numerous countries around the world.
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