You don’t hear many references to the New Testament in financial journalism these days. Maybe that’s part of the problem. Larry Kudlow is a notable exception. Over the past week in the midst of numerous pieces of bad news, Larry has made continual reference to ‘financial mustards seeds of hope’ in our financial markets. What does that mean?
Here’s the story:
"The kingdom of heaven is like a grain of mustard seed, which a man took, and sowed in his field: Which indeed is the least of all seeds: but when it is grown, it is the greatest among herbs, and becomes a tree, so that the birds of the air come and lodge in the branches of it" (Mt. 13:31-32).
According to Saint John Chrystostom, that parable was told because Jesus saw that his disciples were confused and discouraged. As far as his disciples were concerned, Jesus had proven He was the messiah by doing amazing miracles and expressing incredible wisdom. But the world was still a mess. Corrupt manipulators still ran the temple system. Brutal Roman soldiers still occupied the holy land. Extremist zealots still dominated the Palestinian streets. Why? Because the best things start small and grow over time like mustard plants.
Think of this story, as the spiritual equivalent of Schumpeter’s economic theory of creative destruction. Jesus told quite a few parables about that concept: the one about the mustard seed; the one about putting new wine into old wine skins. The old thing becomes corrupt or obsolete. It teeters for a long time. Then the new thing comes along and gives it the final nudge and suddenly the world changes.
Recently my good friend Mark Skousen tried to correct Larry on air, saying “You’ve got the wrong parable. You should be talking about the parable of the wheat and the tares.
Here’s that story:
Another parable put he forth unto them, saying, The kingdom of heaven is likened unto a man which sowed good seed in his field: but while men slept, his enemy came and sowed tares among the wheat, and went his way. But when the blade was sprung up and brought forth fruit, then appeared the tares also. So the servants of the householder came and said unto him, Sir, didst thou not sow good seed in thy field? From whence then has it tares? He said unto them, An enemy hath done this. The servants said unto him, Wilt thou then that we go and gather them up? But he said, Nay: lest while ye gather up the tares ye root up also the wheat with them. Let both grow together until the harvest: and in the time of harvest I will say to the reapers, Gather ye together first the tares and bind them in bundles to burn them: but gather the wheat into my barn. – Matthew 13:24–30, KJV
The parable of the wheat and the tares is really quite a lot like the parable of the mustard seed. It’s a story about a man who plants a field full of wheat, and then goes to bed. While the farmer is sleeping an enemy of his comes and plants weeds among the wheat. The farmhands want to tear up the weeds, but the farmer wisely says to wait until they grow a little so that the weeds start to look like weeds, and they can be pulled out of the ground.
The point is that some seeds are bad, and some are good, but it takes time to see which is which. The same goes for spiritual (or political or business) models. You can’t always tell in the beginning which one is going to work. This, like most of Jesus’ parables, is about the process of creative destruction. He tells a story about an economic (usually agricultural) situation, and then uses the story to illustrate a more profound spiritual point.
The twin top-down, politically corrupt government boondoggle vote-buying Fannie and Freddie mortgage central banking system seemed to many people like the real thing. It seemed invulnerable. It seemed like the best way to hedge against catastrophic risk. The twins grew up and turned out to be weeds, not wheat.
So what’s next? I don’t know. There are mustard seeds being planted right now in financial innovation: maybe covered bonds, or community and regional banking, or credit unions. Maybe the new model will turn out to be big money center banks, but in a transformed and more stable form. I don’t know for sure, and neither do you because as the parable says; only time will tell.
Jerry Bowyer is chief economist at Benchmark Financial Network, is a member of the Kudlow Caucus, and makes regular appearances on CNBC. He also writes extensively on finance and history for the National Review, The Pittsburgh Post Gazette, Crosswalk.com, and The New York Sun. He can be emailed at email@example.com.