The 13 Principles of Prosperity and a Critique

Principle 1: God is the author of prosperity (i.e. Principles Govern). No argument with this one, although a discussion of “principles” is detailed below.
Principle 2: Faith begins with self-interest. This is a stretch of ideas. This is taking faith, which is a belief or hope that something is true even though you have not directly experienced it, and saying that in order for you to have faith, you must first be interested in yourself. Does someone rush into a burning building with the hope that they can rescue someone because of self-interest? Does someone pray for the recovery of someone else because self-interest? It is true that a person may have concern for the well-being of their soul which starts them to exercise faith in a religious sense, but that’s a application of faith to his own self, not a principle that that is where faith starts.
Principle 3: Agency implies stewardship. I heartily agree. Although I believe you can have agency with no stewardship. For example, a slave still has agency over his own behavior, although he actually owns nothing, is responsible for nothing, except his own behavior. So I agree that agency implies (but does not necessitate) stewardship.
Principle 4: Perspective determines action. Perspective is a factor in one determining his action. Why someone does something has many facets and is the basis for all sorts of schools of thought and explanations. I think it would be more correct to say that perspective affects actions. Otherwise, it must be the case that no one would ever act differently unless their perspective changed, and everyone would always act differently if their perspective changed.
Principle 5: People are assets. This is an economic description, and only makes sense in an economic sense. You wouldn’t say, “my mother is an asset” or “my baby is an asset.” But since these are “principles of prosperity” we’ll consider that this is only in the economic sense, where people are acting in an economic role (as in a business), but it does not go beyond that.
Principle 6: Human life value is the source and creator of all property value. This almost made sense, but got confused along the way. Why does property (things that can be owned) have any value? Why does your house, your patent, or your money have value? Is it because of the value of human life? Does the value of a person create the value of your car? A person created your car that has value, but did the value of that person do it? I think this is trying to say that value comes from people creating it, and the fact that people can create things is one of the things that creates value of human life. But I would still argue, if I find a lump of gold in a creek, who was the source and creator of the value of that gold?
Principle 7: Dollars follow value. I agree in this statement, but I don’t think it is a principle. I agree that in general, things of value have a higher price than things of lesser value. But price and value are not the same thing. How many dollars follow how much you value you cat, or time with your kids? How many dollars (or other currency) followed the Apollo missions to the moon? Does anyone ever create something of value yet not receive any compensation for it? If so, then dollars sometimes follow value.
Principle 8: Exchange creates wealth. This is half correct, especially given principles 6 and 7 above. Here, I think wealth is meant to mean the accumulation of things of value. If people create value, then exchange cannot. What exchange does is facilitate the distribution of wealth. Furthermore, if people can specialize, then they can be more effective in producing one type of a thing of value, which they can exchange with other people doing the same thing, which increases the total amount of things of value that people have. So exchange frees up people to specialize in producing a particular type of value, causing more of that particular thing of value to be produced, and if people produce different things of value to a greater degree than before, and the exchange those items, there is more total wealth. But exchange without specialization and greater production wouldn’t create more wealth. For example, how much wealth is created if my neighbors and I continually trade the same DVD’s and furniture with each other, over and over. Also, specialization doesn’t always mean production of things of value will increase. Exchange + specialization + increased production of things that are valued = greater total wealth.
Principle 9: Profit is the tool of validation. This is another statement, not a principle. If you produce something of value, making a profit on that would indicate that you are producing something that has value for less than the cost of producing that thing (hence the profit).
Principle 10: Productivity is the standard. Another statement. What standard? Whose standard?
Principle 11: Force destroys freedom and prosperity. Agreed, except “force” would need to be defined. Most people would agree that physically taking someone’s car is force, but what about misrepresenting an investment plan? What about using a person’s weakness to get them to do something they wouldn’t otherwise do? Is that force? Also, force is justified in some scenarios, just like protecting yourself from being robbed. Does that destroy freedom and prosperity? So perhaps it’s the unjustified or unethical use of force that destroys freedom and prosperity. This them forces (laugh) us to determine the proper use of force, and what make force proper versus improper.
Principle 12: Collective action has no unique moral authority. I think the idea here is that doing something collectively does not change whether something is right or wrong, just because it is done collectively instead of individually. This idea comes from Bastiat where he says that a group of people does not have the moral authority to do something that an individual does not have the authority to do. This is often used as a rebuttal to socialism as being without moral authority, since an individual can’t take property from another person, neither can a group of people. I don’t think this is quite right, or at least it doesn’t apply in all situations. What right do I have in arresting someone? What right do I have controlling access to protected airspace? What right do I have determining if someone committed a crime? No person has any of these rights, yet I think most people would accept that these are legitimate functions of government. If they are legitimate functions of government that no individual has, where does government get the moral authority for them? (I’ll leave it at that point)
Principle 13: Personal liberty requires private property. This I totally agree with, although few people would disagree. The disagreement seems to revolve around the use of that private property. Owning something without being able to use it would negate owning it. But to what extent can you use your property? Can you do anything you want with your house and yard (no, there is zoning and building codes)? Can you do anything you want to your car (no, there are safety and emission standards)? Can an airline do whatever it wants with the maintenance of its airplanes (no, there are regulations)? This isn’t so much a disagreement with this principle, but rather that the principle is not very meaningful because it doesn’t really get at the nature of the debates that go on today about the use of private property.

Are These All the Principles?
So is that all? Are there only 13 principles for prosperity? If there were other principles, then if someone were to adhere to these 13 principles, they still might not obtain prosperity. That would be a good thing to know. Perhaps these are 13 “of the principles” of prosperity. If that were so, then that means there are other principles yet to be discovered. But if whoever wrote these principles did obtain prosperity, and he listed these 13 principles as how he obtained that prosperity, then that would really mean that these 13 principles are what enabled him to obtain his prosperity, but not necessarily someone else, since someone else may need to engage other unlisted principles to obtain their prosperity. Perhaps a better description would be “13 Ideas that helped lead to my prosperity (may not be complete or apply to you).” If that were the description, how differently would students and followers adopt and enact these principles? Maybe they would be less likely to make certain mistakes (because they wouldn’t fear violating a principle) and they might find other unknown principles.

The Mistake of Taking Experiences and Converting Them to General Rules
It would be a mistake for someone to take the steps that they felt led them to a particular outcome and declare that those steps are universal for everyone or even unbreakable principles. This is taking the specific, and declaring it to be the general. What are the principles of getting into college? I could tell you what worked for me and even what I think other people should do, but I wouldn’t declare them “principles” to get into college. What are the principles of a good marriage? Of winning the 100-meter dash? Of overcoming depression? Lots of things can work, and maybe there are common threads, but it’s quite a claim to declare the “principles” of winning the 100-meter dash, etc.

There is also a danger in declaring something to be a principle when it’s not. I was recently reading about the early Christians and the sects that formed early on. A central belief of one the sects was that physical matter was evil, but spiritual things were good. This doesn’t sound too bad, until you read how they took this principle to them to its logical conclusions. If matter was evil, then God must not have created it. That means someone or something else created it. That means that God did not created the world. And if Jesus was God, then He would not enter a body made of evil matter, therefore he only took on the appearance of a body, but it wasn’t actually physical matter. This might sound silly to us, but it was the doctrine of some major sects 1900 years ago. I am not trying to make a comparison between the 13 Principles of Prosperity and early Christianity as if they were of the same severity, I’m just using another example of when a faulty principle can yield very wrong ideas, even if sound logic is applied.

What the 13 Principles Refer to
What do the “13 Principles of Prosperity” refer to? Do they refer to principles of human behavior, or principles about how the universe just “is?” They are not statements of personal behavior, which I think is the biggest shortcoming. These are not principles about what you should do, but rather the way things are.

What Would You Say the Principles of Prosperity Are?
If you were to come up with “Principles of Prosperity” what would you list? I would have to first define prosperity (I am only considering this in the financial sense here). I would define “prosperity” as being financially able to do the things I want to do. What do I want to do? Well, that changes and means different things at different time, and so what I consider “prosperity” would change also. But some things would probably remain consistent throughout my life. For example, I would rather be a poor freeman instead of a rich slave. Having a $800,000 house with a $4000 a month mortgage making $300,000 year sounds good….in some scenarios. Here’s when it doesn’t sound good: when I need to work 80 hours a week to make that much money, or when I depend on one job from a single employer and the next best job only pays $60,000 a year, or when I just an adjustable rate mortgage whose interest rate and payment are going to double in the next few months, or if my job and my assets values depend on an continual increase in price levels. What this drives at is the element of security as being integral to prosperity.

What is Prosperity?
Under some definitions of prosperity, a person could be prosperous during an economic boom, but be devastated during a downturn. This can especially happen if the value of assets and the flow of income are heavily dependent on there not being a downturn. Anybody can make money when all stocks are going up, but who goes bankrupt, and who doesn’t, when stocks just go flat, let alone decrease? How unwise it would be to lose your assets just because their values didn’t go up enough. For example, if I own my home debt-free, but take out a new mortgage on the total value (say $200,000), and invest it in the stock market because I see it going up and up, what am I going to do if the stock market goes down? What if I am paying my mortgage and living expenses on the gains from the stocks going up and up? When the stocks stop going up and up, I have no gains, I have no funds to pay for my mortgage and living expense. Then my mortgage may get behind or default and I could lose my house. I may also have to borrow money to pay my living expenses. I would have been better off, more prosperous, had I left the house debt-free and gotten some other job. I might have appeared to have been prosperous for a time, but what I was really doing was taking on massive risk that would cause me serious hardship if things didn’t go my way. Maybe things would work out, maybe not. That’s what risk is: uncertainty.

One Lost Principle: Managing Uncertainty to a Level You Can Handle
A principle I would add is: manage uncertainty to a level you can handle. Would you rather have the boat, the big house, the month-long vacations for 2 years, only to lose everything the next year? What about a choice between having the boat for two years, and possibly losing the boat next year, but keep the house. That’s not nearly as bad. The point is that people at different times in their lives can taken on more and different types of risk, and that they should only take on risk that does not jeopardize their financial well-being. Some may argue that you have to take risks to make money and that you may have to sacrifice in order to make it big. Some people have made it big by betting the farm. Some people have made it big at the casino, too. You do not want to bet the retirement savings on a big return right before you retire. You do not want to risk your house when you have 4 kids at home. If you have $100,000 extra that you do not need for your current living expenses and could stand to lose it, then you can take the riskiest investment you can find, because if you lose it, you haven’t put yourself in financial jeopardy. If you had only $5000 in savings but $100,000 in equity, then investing that $100,000 of equity in the same risky investment would be unwise.

Another Lost Principle: Credit Only Facilitates the Creation of Wealth, but It Doesn't Create It
Every economic boom seems to bring out books and seminars and plans for people to “grow their money” or invest it in places that give a high rate of return. When a person takes $1000 and gets $1200 back, this seems like a pretty good thing to keep doing. There’s nothing wrong with getting a positive high rate of return by lending money to someone or some company. But, that person or company must be increasing productivity greater than what they are paying you in order for there to actually be wealth creation. Otherwise, it is just shifting money around.

For example, if I lend Bob $1000 to start a lawn care business with the agreement that he will pay me back $1200 at the end of the year, unless Bob actually provides $1200 of service that didn’t exist before, no wealth was created. In fact, if Bob doesn’t create $1200 of new service, I am actually going to take money from Bob, even if he pays the $1200. Bob would be worse off, although I would be better off.

This is a conundrum with asset bubbles and the boom-bust cycle. If productivity is not increasing, and only asset prices are, then there is no increase in wealth. At best there is a transfer, most likely an unbalanced one so that some gain while others lose. It doesn’t matter how creative or “non-traditional” the financing or how the money gets moved around. If there is no corresponding increase in productivity, there is no increase in wealth. Increasing assets prices are not an increase in wealth. For one person they may get more of the wealth, but the pie has not changed. Otherwise, we could just double the prices of all homes and stocks and we’d all be rich.

So for any use of credit, the lender is lending money to the borrower to facilitate the use of something else (like a house or a business plan), but only if those funds facilitate an increase in productivity will there be an increase in wealth. It is true that you may only be concerned about your own wealth, but not the total pie, which I don’t have much problem with. Just remember that unless productivity increases, your taking wealth from someone else. This is why ponzi schemes are illegal: it is impossible for them to create any wealth. They can only transfer it, from the people at the bottom to the people at the top. And a lot of sub-prime borrowers have discovered that getting a house they couldn’t afford otherwise did not create any wealth anywhere. No one was more productive by them taking out the loan. They just hoped the transfer of wealth would go in their favor, or that they’re future productivity would be able to fulfill the obligation of the mortgage (note that the mortgage did nothing to increase their future productivity). Just remember that financing assets with no increase in productivity does not create any wealth.

Other Lost Principles
I’m sure there are other lost principles. Readers will come up with many I imagine, but this is all I will list now.