In the title of our sermon again this morning, the urgent necessity of a fruitful abiding. We're working our way through John chapter 15 verses one through eight. We're taking our time because this is a packed text. There's so much in this for us to understand and apply. Doctrines that we don't often, as we work verse by verse through scripture, some of these that we don't often come across and we wanna take our time and work through this text and help our understanding so that we can live and think rightly before the Lord. John 15 verses one through eight. As Paul describes in second Timothy chapter four, we live in a time when professing Christians will not endure sound doctrine. Paul says that according to their own desires and because they have itching ears, they will heap up for themselves teachers. Now in other words, these so-called pastors are gonna be a dime a dozen. They heap them up to themselves according to their own desires because they have itching ears. Their message is going to be pleasing to the ears of false Christians. Now in order to please them, these false Christians, in order to draw in the masses, Paul says in second Timothy chapter four, they're going to do away with sound doctrine. The singing of hymns and songs and spiritual songs turns into a rock concert. Nothing more than emotional hype. Designed carefully to entertain itching ears according to their own desires. The preaching of God's word in a vast majority of churches today, so-called churches, is replaced with little more than motivational speaking. There's a reference to the Bible now and then, nothing too serious, nothing that might offend. After reading the verse, they'll put the Bible down and they'll give you pithy statements to have a happy life or to be successful, whatever that might be, but nothing that will actually convict of sin or warn of hell. The gospel of the Lord Jesus Christ is replaced with a damning lie. Come forward at the end of the service, right? Ask Jesus into your heart and you can be saved. There's no regular or fervent command or call to repent, no regular or fervent command or call to turn from your sin and follow Christ. And often, today, it may not be as much what they do say as much as it may be what they refuse to say. Behind it all, behind all the entertainment, right? Behind all the emotional hype, behind the experience of it all, behind the weak preaching and the false teaching, behind the rejection of a clear proclamation from the text of scripture is the itch. It's the itch. I want Christ on my terms. I don't wanna come to grips with my sin. I want to be entertained. I want to be lulled into a false confidence. I know that I don't delight in God's word because I seldom, if ever, delight to study it. I know that I don't delight in Christian fellowship because we don't talk about Christ when we fellowship together. I know that I don't delight in the gospel and actually believe it myself because I never preach it to sinners. Don't bring conviction. Don't bring a sense of guilt or shame over my sin. Just scratch me where I itch. Do you see? Tell me it's okay. Tell me it's all about love, right? That's what it's all about. It's all about love.  Once saved, always saved, right? Do your best, right? Besides, we're all sinners. Just try your best. Once saved, always saved. So the first Baptist church of the far country teaches once saved, always saved. And we could agree that once genuinely saved, then always saved. But remember, it's often not as much as what they do say as it is what they don't say. What they mean by once saved, always saved is this. If little Johnny prays to receive, or big Johnny, it doesn't matter. Little Johnny prays to receive Christ, or little Johnny asks Jesus into his heart when he's eight years old, and then he falls into a pattern of unrepentant sin, never shares the gospel, sleeps around in college, never makes progress in his faith, still doesn't know his Bible. If little Johnny dies at age 30, then little Johnny's in heaven. That's what they teach. That's their understanding of once saved, always saved. What they don't say, what they don't faithfully preach and teach is the biblical doctrine that we understand as the perseverance of the saints. Now let me ask you for a moment.  How many of you in your life going to these churches would raise your hand and say, you have heard, taught once saved, always saved, raise your hand. All right, look around the room, right? Okay, now, not including this church. Not including this church. We teach doctrine here all the time. Not including this church. How many of you growing up going to other churches, heard, taught such a way that you understood and could teach yourself from the Bible the doctrine of the perseverance of the saints? Raise your hand. Now that is biblical doctrine. What is taught is once saved, always saved. What is left out, what is refused, what is rejected is the biblical doctrine of the perseverance of the saints. It's not as much often what they say as it is what they do not say, what they refuse to say, what they will reject out of hand. We need to understand what the Bible teaches. We need to understand the word of God. Jesus teaches that once you are genuinely saved, then you have eternal life and that you will never perish. John chapter 10, verse 27 says this. The Lord says, my sheep hear my voice and I know them and they follow me. And I give them eternal life and they shall never perish. Neither shall anyone snatch them out of my hand. My father who has given them to me is greater than all and no one is able to snatch them out of my father's hand. Amen, right? Praise God, praise God. But Jesus, far unlike these wicked man pleasers and ear scratchers that stand behind most pulpits today, Jesus, not withholding the truth as it is in Christ from us, Jesus comes along in John 15 and he tells us and he tells little Johnny, listen, if you don't abide in me in bear fruit, you're going to go to hell. Verse six, if anyone does not abide in me, he is cast out as a branch and is withered and they gather them and they throw them into the fire and they are burned. You know, the Lord isn't as concerned with what we want to hear as much as he is concerned with what we need to hear. Amen? This is something we need to understand. We need to adhere to. We need to apply. We need to live by. You and I, we don't need a scratch behind the ears. We don't need to be entertained. The Bible says that you and I have a heart in our chest that is deceitful above all things. We don't need a scratch behind the ears. We need the truth from God's word. We need to hear the truth. The truth often comes in the form of a kick in the pants, doesn't it? I'm so grateful to God for the immense and abundant and gracious and merciful encouragement that we get from the word of God. I rejoice in His promises, right? We're comforted by His provision. But what does Paul say that the word of God is profitable for? The word of God is profitable for doctrine, for doctrine, for reproof, for correction and for instruction in righteousness that the man of God may be complete, thoroughly equipped for every good work. And the genuine Christian knows that there's cause for rejoicing in the word of God. There's also cause for a buke, right? The genuine Christian knows there's provision for comfort in the word of God, but there is great need for our constant correction. So in John chapter 15, verses one through eight, from the Lord Jesus Christ we get the truth, the whole truth and nothing but the truth in John chapter 15, verses one through eight. Not just once saved, always saved, the way that most understand it today, but we get the biblical doctrine of the perseverance of the saints. And may that doctrine comfort the afflicted and afflict the comfortable. Look at verse one with me. The Lord says, I am the true vine and my father is the vine dresser. Every branch in me that does not bear fruit, he takes away. And every branch that bears fruit, it prunes that it may bear more fruit. Now remember here, the Lord is teaching us by means of an allegory or an extended metaphor. Point one on your notes in your bulletin there, we see who's involved. The subjects of our allegory are Jesus Christ as the true vine, God the father as the vine dresser and professing Christians are the branches. Now at point two on your notes, we see that what is clearly expected here is fruit. The necessary goal, the object or the aim of all three, God the father, God the son and the branches, if they're in Christ, the necessary goal or object of all three, the aim of all three is fruit from the branches, the fruit of holy character, the fruit of holy conduct and fruit in the pursuit of our great commission. We've gone through these points. If you're not familiar with them, I invite you to go back and listen to those sermons. Fruitless branches, fruitless branches are taken away and fruitless branches are burned. Fruitful branches are lovingly pruned by the father that they may bear more fruit. The last week as we were working our way through the text, we began exploring point three on your notes. How is all this then accomplished? We saw that point one from that, you must be in union with Christ. From verse three, Jesus says, you are clean because of the word which I have spoken to you. You must be clean in Christ, in union with him. Secondly, according to the command that we see in verse four, in order to produce fruit, we must abide in the vine, abide in Christ. To bear fruit to the glory of God, verse four, you must abide in Christ. And that word again, abide means to remain, to persist, to persevere, to endure. As Matthew 10 says, he that endures to the end will be saved. We must persevere in fruitfulness to the end. It brings us to our premise statement. Again, remember our premise statement from this text. It is the urgent necessity of every professing Christian. In fact, our highest priority must be to glorify God by bearing increasing fruit in true union with Christ through a prayerful abiding in him. And we spend our time in the text unpacking that premise statement. This is the Christian life. This is what the Christian life is. It's not optional. It is essential. In fact, fruitful perseverance in Christ is a mark of genuine conversion.  It's a mark that you're saved, right? The genuine Christian will persevere and bear fruit. The last week, we looked at the necessity of abiding in the vine. Why that's so important, right? This week, I want to look at what it means to abide in the vine. What it means to abide in the vine. How is it that we abide in the vine? Look at verse four. The Lord commands, abide in me and I in you. As the branch cannot bear fruit of itself unless it abides in the vine, neither can you unless you abide in me. I am the vine. You are the branches. He who abides in me and I in him bears much fruit. For without me, you can do nothing. It begins verse four with an urgent and sober command. It's urgent and it's sober because there's so much at stake. He says abide in me. The word abide communicates a constant connection to the vine. It communicates a constant reliance upon the Lord Jesus Christ. Now, the point from all this is clear. No branch has life in itself. In the Lord's picture here, the branches derive their life from the vine. That means the branch deriving his life from the vine is utterly and constantly dependent upon the vine for life and fruitfulness. In fact, apart from him, what does the text say? We can do absolutely nothing. This passage, John 15, is often presented in this way. Unless you abide in the vine, you'll never find true joy. Unless you abide in the vine, you'll never have rest. You heard that before? I have many times. If you don't abide in Christ, then you're gonna miss out on the fruitfulness that God intends for you. Now, all that's true, all that's true. But listen, it's not as much often what they do say as it is what they don't say.  That's how urgent and important and solemn and sober this is. It is an urgent necessity that everyone who professes the name of Christ abide in him and bear fruit through your union with him, through faith. We'll talk about that today. If anyone does not abide in me, verse six, he is cast out as a branch and is withered and they gather them and throw them into the fire. And they're burned. Now the command, the command to abide in him in verse four, the command gives you, gives me the responsibility to abide. A lot of times in Christian circles today, people don't like the idea of having a responsibility. It is your responsibility. God commands you. God commands me to abide. Listen, it is required of you that you abide. How many different ways can I say it, right? A lot of times, for those in Christians don't like that, but the Bible gives commands for Christians, gives responsibilities for us, you must abide. And thinking about that, I want to give you seven ways to do that from the text. I want to give you seven ways by which, seven means by which you can abide in Christ. These seven, this is not an exhaustive list, but it comes directly from our text, either explicitly or implicitly from the text. Seven directives from our text for how we are to abide in him. I want you to write these down, meditate on them, think through them. These are important. From our text, how do we abide in Christ? One, number one. Number one, fearfully heed the warnings. Fearfully heed the warnings. The warning comes to us in verse six. If anyone does not abide in me, he is cast out as a branch and is withered.  And we don't fearfully heed the warnings as Christians, right? Putting our faith in Christ, we don't fearfully heed those warnings with a slavish or with a despairing fear, but with a sober fear, right? A sober fear that accounts for the danger and then takes precautions. If you remember our illustration from last week, like the confident climber that approaches the mountain. It's not a presumptuous pride on the part of the climber or a careless pride on the part of the climber. If the climber is careless, he's gonna fall. But it's a climber that takes precautions. His healthy fear of climbing the mountain produces caution by which the wise climber will safely climb. By which the wise climber can confidently climb. Take the precautions, heed the warning. It's like driving along a highway, right? Again, another illustration, driving along a highway where you see warning signs posted. Slippery when wet, dangerous curve ahead, rock slides. You look at those warnings, those warnings, those signs, aren't to scare you out of driving. The warnings point to a real danger, don't they? Points to a real danger, otherwise they wouldn't post the sign. But the effect that the signs have on the rational driver is that the rational driver will take appropriate precautions to drive safely and arrive alive, amen? It's the same kind of thing. Turn with me to Jeremiah chapter 32. Jeremiah chapter 32. There is such a thing as a healthy fear of God in the life of the Christian and many professing Christians have forgotten. Jeremiah chapter 32. I want you to see this from the context of the new covenant. Something that God promises to every believer through faith in Christ, every believer in the new covenant. This is what the Lord says, look down at verse 36. Jeremiah chapter 32, beginning at verse 36. Now therefore, thus says the Lord, the God of Israel, concerning this city of which you say, it shall be delivered into the hand of the king of Babylon by the sword, by the famine, by the pestilence. They're sent off into exile, right, 37. Behold, this is God's promise to them. And through Christ, his promise to believers. Behold, I will gather them out of all the countries where I have driven them in my anger, in my fury and in my great wrath. I will bring them back to this place and I will cause them to dwell safely. They shall be my people and I will be their God. Listen, verse 39. Then, this is the new covenant. Then, I will give them one heart and one way, why, how, that they may fear me forever. I remember witnessing this to a lady one time. She and I were sitting there talking and I mentioned the fear of God. And she's like, whoa, whoa, wait a minute, wait a minute. We're not to fear God. Nobody fears God. God is forgiving, God is loving. Besides, perfect love casts out fear, right? She quotes first, John. There's a healthy fear of God. We are to fear. Matter of fact, what is a common characteristic of unbelievers in scripture? They have no fear of God before their eyes. We're to fear God, not a slavish fear. That's what that's talking about over there. Not a slavish fear, not a fear of condemnation. We don't have condemnation any longer. We're to fear the Lord, fear displeasing him. And it's something that God promises as a part of the new covenant that he's going to put in your heart. He's going to put the fear of himself in you, why? Look at verse 39, for the good of them and their children after them. Verse 40, I will make an everlasting covenant with them that I will not turn away from doing them good. But I will put my fear in their hearts so that they abide, so that they persevere, so that they endure to the end to be saved, so that verse 40, they will not depart from me. Yes, verse 41, I will rejoice over them to do them good. And I will assuredly plant them in this land with all my heart and with all my soul. Fear of God is a blessing, amen? Fear of God, we must fear God, not in a slavish or despairing way, but fear his fatherly displeasure, fear displeasing him. You remember when the Israelites, in Exodus 19, the Israelites come to Mount Sinai, right? They come to the mountain, they're about to receive a law and there's thunder and there's lightning and the mountain is smoking like a furnace, right? They hear the trumpet sound, the trumpet is just impossibly loud. And what happens? They hear the word, the voice of God. They turn to Moses, Moses, you speak to us and we'll live, don't let us hear God's voice lest we die. And they had this fear of God, didn't they? They had a fear of God. It's a different kind of fear, though, wasn't it? And what did they do? After that, having been petrified, trembling at the voice, the thunderous voice of God and the smoking in the mountain, what did they do? They rebelled against him. They rebelled against him, they grumbled in the, it wasn't long and they were making a golden calf. They were in their idolatry, they were disobedient and all of those died in the wilderness. God says in the New Covenant, as a blessing to believers, I will put my fear in their hearts so that they will not depart from me. They will hold on to me through this godly, healthy, biblical fear, fear, heeding the warnings of God. God is not to be trifled with. Our God is a consuming fire, amen? We're to heed those warnings and obey the Lord. I will put my fear in their hearts so they will hold on to me so they will persevere, so that they will not depart from me. It's a blessing, it's a blessing. Paul says, work out your salvation with fear and trembling because why? It's God, it's God who is at work in you, both the will and the do according to his good pleasure.   Now should that fear of God, should that fear of God drive you away from him? No, no. Now think about this. We're talking about abiding in Christ. We're talking about heeding the warnings of scripture. We're talking about fearing God. That fear, a healthy, biblical fear of God, that which God has placed in the heart of every genuine believer, that fear does not drive his people far from him like those Israelites who died in the wilderness. That fear causes us to cling to him, causes us to abide in him, causes us to depend upon him, to latch on to him by faith and live for him. It causes us to endure, do you see? Causes us to abide. Fearfully heed the warnings in scripture. The warnings are a means by which the promises of God are realized for the believer. They help us to abide in him. So let me warn you from the word of God now. There's some here who believe themselves to be forgiven, and yet there is no fear of God before their eyes. You don't know what I'm talking about right now. He's promised to put that fear in your heart, and yet you don't have it. You don't have it. If I asked your wife, if I asked your husband, the friends that you hang out with, would they say about you that the first concern in everything that you do is to please God? Would they say that about you? Would that be their testimony? That you fear God? That your first concern would be to know what God's word says so that you can obey it. Does godly fear govern the company that you keep? Does godly fear govern the movies that you watch? Does it govern your appetites, your desires? Does godly fear govern the way that you spend his day? Does godly fear govern your life? Fearfully heed the warnings. It's a means by which we are to abide in him, fear God. Secondly, secondly, we're to joyfully submit to pruning. Submit to pruning. We're to joyfully submit to pruning. The Lord says, back in John chapter 15, verse two, every branch that bears fruit, he prunes that it may bear more fruit. Now that word prune, we looked at that last time, means to clear, to make clean, he cuts it back. This is the Lord's discipline. It comes in the form of suffering. Lord's pruning comes in the form of adversity, persecution, difficulty. Pruning is Christian suffering, Christian discipline, Christian adversity. Hebrews chapter 12, verse five says that that pruning of the Lord produces fruit. The author of the letter to the Hebrews says, my son, do not despise the chastening of the Lord. Don't be discouraged when you are rebuked by him for whom the Lord loves, he chastens and he scourges every son whom he receives. Now he goes on to say, no chastening seems to be joyful for the present, but it's painful. How many of you would say amen? Amen. Nevertheless, okay, it's not gonna be joyful for the present, it's going to be painful, all right? But nevertheless, afterward, it yields the peaceable fruit of righteousness to those who have been trained by it. James, James also says that God uses the means of trials and sufferings to teach us to abide in him. We're talking about how to abide in the vine. One of the ways that we abide in the vine is by heating, faithfully heating, and fearfully heating the warnings in scripture. Another way that we abide in the vine is by joyfully submitting to his pruning, to his discipline, joyfully submitting to suffering. He, James says that God uses the means of trials, uses the means of suffering to teach us to abide in him, to cause us to persevere to the end to be saved. James says in chapter one, verse two, count it all joy, my brothers, when you meet trials of various kinds, for you know, you know that the testing of your faith produces steadfastness, produces endurance, produces perseverance, it produces abiding. Now this is how this works, think about this. God doesn't bear the fruit of righteousness in us. God doesn't conform us into the image of his son. God doesn't sanctify us, God doesn't cause us to abide or teach us to abide by shielding us from suffering. He doesn't cause us to cling to him, to persevere in the faith, by shielding us from persecution or shielding us from difficulty, but rather he teaches us to abide in him by exposing us to suffering, by exposing us to all those things. Through suffering, through difficulty, God exposes us to an overwhelming sense of our own inadequacy, an overwhelming sense of our own weakness. And he drives us through the suffering, he drives us through the difficulty to cling to Christ. God fills our lives with difficulty. God fills your life with adversity to ensure that you cling to him, to ensure that you hold fast to him. One commentator insightfully said this. So the reason why the Bible spends so much time reiterating that God is a strong rock, a firm defense, and a sure refuge and help for the weak is that God spends so much of his time bringing home to us that we are weak, both mentally and morally, and dare not trust ourselves to find or to follow the right road. And when you walk along, walk along a flat, smooth road, you're likely to ignore the helping hand, right? But when the path is steep, when it's jagged, when it's slippery, when it's dangerously, when it's dangerous, you'll gladly take the help, right? Often we walk along as ignorant babes, often not knowing our right hand from our left with no fear that we're walking along a precipice. But praise God, praise God, that through difficulty, through adversity, through trials, through suffering, praise God that he takes steps with us to drive out self-reliance, right? To drive out presumptuous pride. And he teaches us through difficulty to abide in him. Don't begrudge the pruning of the vinedresser, do you see? We can joyfully submit to the pruning of the vinedresser.  Ultimately, the reason that we can be assured that we will persevere to the end and be saved is not because we're faithful in the trial, in the difficulty, but because he's faithful in the trial, because he's faithful in the difficulty. Paul said, for this reason, I suffer these things. Nevertheless, I am not ashamed for I know whom I have believed and I am persuaded that he is able to keep that, which I have committed to him until that day. Lord is faithful and we can joyfully submit to the pruning. Let me give you a third way. Another way in which we abide in him from our text is to let the word of Christ dwell in you richly. Let the word of Christ dwell in you richly. Look at verse three. The cleaning agent in verse three is the word of God. Verse three, you're already clean because of the word which I have spoken to you. Drop down to verse seven. Verse seven, if you abide in me and my words abide in you, you will ask what you desire and it shall be done for you. Jesus told the Jews in John 8.31, if you abide in my word, you are truly my disciples. So another means by which we abide in Christ is that we abide in his word. Colossians chapter three, verse 16, let the word of Christ dwell in you richly, in all wisdom, teaching and admonishing one another in Psalms and hymns and spiritual songs, singing with grace in your hearts to the Lord. And noi ke'o, and noi ke'o, let the word of Christ dwell to live in or to be at home in, to reside in your heart and in your mind. Paul tells believers in Colossians chapter three, the word of God should take up residence in you, should take up residence in you, that it should be there in residence richly and abundantly, meaning that the word of God should saturate, saturate our heart and our mind. Let the word of Christ dwell in you richly. Fourth, fourth means by which we abide in the vine. Prayerful dependence upon him, prayerful dependence upon him. Verse five, verse five makes it really clear that we can do nothing apart from him. Not one thing, you can't do anything to please God apart from him. Look at verse seven, if you abide in me and my words abide in you, you will ask what you desire and it shall be done for you. You will ask what you desire since we can do absolutely nothing apart from him. Then verse seven comes along and says that we will ask what we desire, it shall be done for him. That prayerful dependence upon God helps us to abide in the vine. We should pray for abiding in him. You think about prayer. How many of you would attest to this fact that when you neglect prayer to the degree that you neglect prayer is to the degree that your heart becomes cold and distant from him? You notice that connection? We are to abide in the vine through a prayerful dependence upon him. If you notice your heart going cold toward God, pray. Verse 16, if you look at chapter 15, verse 16, verse 16 clarifies us that the praying is for fruit. Verse 16, you did not choose me, but I chose you and I appointed you that you should go and bear fruit and that your fruit should remain so that whatever you ask the Father in my name, he may give to you. Now we're chosen. They, these men, John chapter 15, chosen by God for a ministry, chosen by Christ and appointed to a ministry. What was that ministry? It's preaching the gospel, preaching the Lord Jesus Christ. They were appointed to a ministry to preach the gospel and they were to bear fruit, verse 16, in that ministry. You and I were chosen. You and I were appointed to a ministry. It's the same ministry in fact. Second Corinthians chapter five, verse 18, Paul says, now all things are of God who has reconciled us to himself through Jesus Christ and has given us the ministry of reconciliation. We're to pray for these things, to abide in the vine. We're to pray for fruit. We're to pray for fruit of holy character, pray for the fruit of holy conduct, and pray for fruit in our pursuit of our great commission. We're to pray for fruit. We're to depend upon him for fruit. I wanna give you one example of that. Go with me to Jude, little letter, right before Revelation, the epistle of Jude. One of the ways by which we, one of the means by which we abide in the vine is through a prayerful dependence upon him. Now remember again, the command in verse four to abide in me, that tells you, all of this is your responsibility. Your responsibility, these things you must do. They're not optional in the Christian life. They are essential. And we have to remind ourselves, like Paul said the Titus, right? Remind them of these things constantly, constantly. Because how often do we forget? Constantly, constantly. We need reminding all the time. Jude, verse 20. Jude, look at verse 20. But you, beloved, listen, building yourselves up on your most holy faith, what? Praying in the Holy Spirit, keep yourselves in the love of God. Abide in the love of God. Abide in the vine. Persevere to the end. Keep yourselves in the love of God, verse 21. Looking for the mercy of our Lord Jesus Christ unto eternal life. And we've talked about the now and not yet aspects of our salvation. Here it is again, right? Looking for the mercy of our Lord Jesus Christ unto eternal life. And on some, verse 22, have compassion, making a distinction. But others save with fear, pulling them out of the fire, hating even the garment defiled by the flesh. Now, in verse 21, Jude says, keep yourselves in the love of God. That's the command, the imperative in verse 21. That imperative in verse 21, that command is framed by participles that explain how to do that, right? If you know the Greek structure here, the Greek grammar. Keep yourselves in the love of God, how? Building yourselves up on your most holy faith, praying in the Holy Spirit and looking for the mercy of our Lord Jesus Christ unto eternal life. Three ways here in Jude that you can keep yourself in the love of God. You can abide in the vine, building yourselves up on your most holy faith. That's his word. That's through the means of obedience, faithful obedience to him, the means of grace. How do you build yourselves up on your most holy faith? You abide in his word. How do you keep yourselves in the love of God? You pray in the Holy Spirit. Now that does not mean Charismania, tongues stuff there. You cannot justify that from the text. That does not mean gibberish, right? Paul said, right? Just before tongues had ceased. Paul said to himself, I would rather pray five words with my understanding than 10,000 in a tongue, right? This is not praying in some Holy Spirit language, right? This is praying the Holy Spirit in dwelling you. Praying in the Holy Spirit. The Holy Spirit interceding for you with God. Prayers that are in accord with his word. Prayers that are in accord with his will that you want to do that which pleases the Lord. You're gonna keep yourselves in the love of God through a prayerful Holy Spirit empowered, abiding in a prayerful dependence upon him. Keeping yourself in the love of God. Then thirdly, looking for the mercy of our Lord Jesus Christ unto eternal life. It's that hope, right? Like John says, everyone who has this hope in him purifies himself as he is pure, right? We look to the glorious appearing of our Lord and savior Jesus Christ and looking to him, hoping in him, we purify ourselves and we abide in the love of God. Now look down at verse 24. It's interesting here. We've been talking about human responsibility, our responsibility to dwell, to abide, to persevere. Look at verse 24. Now, Jesus says, to him, who's that? It's God, Christ, yeah. To him who is able to keep you from stumbling. We can't do anything apart from him. It's him who is able to keep us from stumbling. To him who is able to present you faultless before the presence of his glory with exceeding joy. To God, our savior who alone is wise, be glory and majesty, dominion and power, both now and forever, amen. That gives you a good indication there, doesn't it? Of how we are responsible to persevere, yet all the while knowing and understanding that it's not our faithfulness that's going to cause us to abide, causes to persevere or endure, it is his faithfulness. We persevere, we abide because he is faithful. He is able to keep us. He's the one who keeps us by his power. That is a prayerful dependence upon him. You think about that, Peter says, first Peter chapter one. We are kept by the power of God. He is the one with the power to keep us. We need to be prayerfully dependent upon him, amen. All right, fifth, fifth. One of the means by which we abide in the vine is through loving obedience to his commands. Back in John chapter 15, drop down to verse nine. We abide in the vine through a loving obedience to his commands, verse nine. As the Father loved me, I also have loved you, abide in my love. Well, how do we do that, Lord? Verse 10, if you keep my commandments, you will abide in my love, just as I have kept my Father's commandments and abide in his love. If you keep my commandments, verse 10, you will abide in my love, just as I have kept my Father's commandments and abide in his love. I've heard it said before, and we'll get this from time to time, that we here at Cornerstone, or me in particular, overemphasize obedience to the Lord's commands in our preaching. What I usually, or where I usually hear that from are those who are under-emphasizing obedience in their life. How do we abide in love of God? If you keep my commandments, the Lord says in verse 10, you will abide in my love. But we don't do that in our own strength. We do that in his strength, in his power, just as I have kept my Father's commandments and abide in his love. And we've spent some time on this in recent sermons, and I don't wanna belabor this point too much, but turn with me to first John chapter three. First John, let's look at an example of this. First John chapter three.  We've got a couple points left. First John chapter three. All right, look at this from John. I just, the context, and again, we're looking at the same author, a letter here from John. Look at verse one. Behold, what manner of love the Father has bestowed on us that we should be called children of God. Therefore, the world does not know us because it did not know him, beloved. Now we are children of God, and it has not yet been revealed what we shall be, but we know that when he is revealed, we shall be like him, for we shall see him as he is. And everyone, that everyone, in other words, no Christian excluded. Everyone who has this hope in him, which is every single Christian, every one of them purifies himself just as he is pure. Verse four. Whoever commits sin also commits lawlessness, and sin is lawlessness. And you know that he was manifested to take away our sins, and in him there is no sin. Whoever abides in him does not, and here it is, it makes a practice of sin. And we know that word is that it's an ongoing, it's a present active indicative in the Greek, but it's an ongoing practice of sin. We know that that applies to verse seven. He who practices righteousness is the same context, okay? Whoever abides in him does not make a practice of sin. Their life is not characterized by sin. Whoever sins or makes a practice of sin has neither seen him nor known him. Verse seven. Little children, let no one deceive you. He who practices righteousness is righteous, just as he is righteous. He who sins is of the devil, for the devil has sinned from the beginning. For this purpose, the Son of God was manifested that he might destroy the works of the devil. Whoever has been born of God does not sin, for his seed remains in him, and he cannot sin, he cannot sin, because he has been born of God. Verse 10. In this, the children of God and the children of the devil are manifest. Whoever does not practice righteousness is not of God, nor is he who does not love his brother. For this is the message that you heard from the beginning, that we should love one another. Not as Cain who is of the wicked one and murdered his brother, and why did he murder him? Because his works were evil and his brother's righteous.  We know that we have passed from death to life because we love the brethren. He who does not love his brother doesn't abide in the vine. He abides in death. Whoever hates his brother is a murderer, and you know that no murderer has eternal life abiding in him. By this we know love, because he laid down his life for us, and we also ought to lay down our lives for the brethren. Whoever has this world's goods and sees his brother in need and shuts up his hearts from him, how does the love of God abide in him? Little children, let us not love in Word or in tongue, but in deed and in truth. And by this we know that we are of the truth and shall assure our hearts before him. For if our heart condemns us, God is greater than our heart and knows all things. Beloved, if our heart does not condemn us, we have confidence toward God, whatever we ask, notice this again from John 15, right? Whatever we ask, we receive from him because we keep his commandments, and we do those things that are pleasing in his sight. And this is his commandment. We should believe in the name of his son, Jesus Christ, and love one another as he has given us commandment. Now, he who keeps his commandments abides in him and he in him. And by this we know that he abides in us by the spirit whom he has given us. We'll talk about that more in a moment. A loving obedience to the commands of God. Sixth, back in John 15. Sixth way, sixth means by which we abide in the vine is a determined pursuit of these means. This is one of those points that is implicit in the text. The stakes involved are immeasurably high. This is heaven and hell, life and death. If you look at John 15, verse eight, the glory of God. And it's in this way, verse eight, that you are going to be my disciples, that you abide in him and produce fruit. Now, scripture refers to the Christian life as a race. A salvation, it refers to as a prize to be won. Christians are commanded to strive. Christians commanded to agonize, to exercise themselves toward godliness. In 2 Timothy chapter two, we are engaged in warfare. Folks like to give me a hard time about my warfare analogies and illustrations, we're embattled folks. We are engaged in warfare. We must, according to Paul in 2 Timothy chapter two, we must be engaged in warfare and must endure hardships like good soldiers of the Lord Jesus Christ. The effort required of the Christian is compared to an athlete competing for a crown. We were watching the Olympics yesterday and watching track and field and some of these runners. It's just absolutely amazing. The effort that is expended in competing for a crown, their crown, a perishable one, our crown, an imperishable one, how much more we, should we be competing for that prize, right? And not in a competition like I'm gonna get it and you're not, or you're gonna get it and I'm not. No, we run to win the race, pleasing the Lord who enlisted us as good soldiers of the Lord Jesus Christ. Christian life described to us as a hardworking farmer living off the crops, right? Paul says, be diligent. Be diligent to present yourself approved to God. A worker does not need to be ashamed of him. Many think of their Christian life as that one moment in time I became approved to God. You know, God forgives.   God became approved. I became approved in God's sight. And what Paul says, be diligent to present yourself approved to God. Be diligent. A worker who does not need to be ashamed. Again, often not as much what they say as it is what they don't say. We're to be diligent. Determined pursuit of these means implied in the text. Seventh. Seventh. Means by which we abide in the vine, explicit in the text is an unwavering, uncompromising faith in Christ. Faith in Christ. Back in John 15, notice verse four. Verse four, he says, abide in church. Abide in your profession. Abide in your works. Abide doggedly with a death grip to your Roman Catholicism, right? Abide in the faith of your fathers. Abide in your hair. No, abide in me. Abide in him. He is the object of our faith. We've been delivered to him. He is our Lord. He is our salvation. We're to abide in him. You know, tying this to fear of God. I think it was Octavius Winslow that said that we should soak the roots of our profession in the blood of Christ. Soak the roots of our profession in the blood of Christ. He is our Passover lamb. He is our salvation, right? He is our inheritance. He is our hope. He is our joy. We're to abide in him. Everything accomplished in the Christian life. Everything accomplished in the Christian life through the means of faith. Through the means of faith in Christ. Look at 1 Peter chapter one. Quickly, 1 Peter chapter one. We've been going through 1 Peter with our small groups. 1 Peter chapter one. And look at verse three. We must abide in him. Faith in Christ. Trust in Christ. And trusting ourselves to him. 1 Peter chapter one, verse three. Blessed be the God and Father of our Lord Jesus Christ. Who according to his abundant mercy has begotten us again to a living hope through the resurrection of Jesus Christ from the dead. To an inheritance incorruptible and undefiled that does not fade away, reserved in heaven for you. Who are kept by the power of God through the means of faith. Kept by the power of God through faith for salvation ready to be revealed in the last time. In this you greatly rejoice though now for a little while if need be. You've been grieved by various trials so that the genuineness of that faith being much more precious than gold it perishes though it is tested by fire. May be found to praise, honor, and glory at the revelation of Jesus Christ. Whom having not seen you love. Though now you do not see him yet believing. Having faith in him you rejoice with joy inexpressible and full of glory receiving the end of that faith which is the salvation of your souls. Notice that future context again. The salvation of our souls. Incidentally again in verse five we are kept by the power of God through faith. Rededicating your life, recommitting your life nowhere in the Bible, nowhere in the Bible. That is a figment of evangelicalism's imagination.  It's a little ritual happens in churches all over the place. It's nowhere in the Bible. Do you know why so-called Christians have to recommit or why so-called Christians have to rededicate? Because they weren't truly committed in the begin with. Weren't truly committed the first time. When you come to Christ you are kept in your own power. No, because you couldn't keep yourself for five seconds. You're kept by the power of God and you're kept by the power of God through the means of your abiding and persevering and enduring faith in him. Does that mean that faith is perfect and powerful all the time? No, sometimes our faith is weak. Sometimes our faith is puny. But he keeps us by his power through our faith and we will be kept if we're in him, right? It's by his power. Seven means, seven means by which we abide in the vine and produce fruit to the glory of God. Now the responsibility, again, because of the command back in John 15, verse four, the responsibility is yours. The responsibility is mine. God commands us to abide and you abide through the means that he has appointed. You do all of it because of verse three. You are clean. You're clean. You're clean, even forgiven. What great motivation bought by the blood of the Lamb. You're clean in verse three.  However, look at chapter 15, verse four with me. Abide in me, what does the Lord say? And I in you. As the branch cannot bear fruit of itself unless it abides in the vine, neither can you unless you abide in me, verse five. I am the vine, you are the branches. He who abides in me, here it is again, and I in him bears much fruit. For without me, you can do nothing. Now the best way to think of this phrase in verse four is what they call a conditional imperative. It's a conditional imperative. In other words, Jesus is saying, listen, you abide in me and I will abide in you. You abide in me and I will abide in you. Ultimately, if you think about it that way, it's Christ who is conquering in us through the means of our abiding faith. Work out your salvation with fear and trembling, why? Because it's God who is at work in you, okay? That's clear from verse five. We can't produce fruit by ourselves. We can't produce fruit by ourselves. We can do nothing apart from him. The branches derive their life from the vine. The vine produces its fruit through the branches so that we don't abandon the Lord Jesus Christ during test or during trial, during difficulty. You see? If you're in Christ through repentant faith, then the one who called you will do that which is necessary to fulfill that calling. He is faithful. Philippians chapter one, verse six, right understanding of it. He who has begun a good work in you will complete it until the day of Jesus Christ. Often what you hear with that verse is that little Johnny says the prayer when he's eight, he departs from the Lord, lives like a devil during high school, during college, leaves the church, becomes all, for all intents and purposes, an unbeliever and yet they will hold to verse six. He who has begun a good work in you will complete it until the day of Jesus Christ. I'm sorry, listen. The good work wasn't begun in little Johnny because little Johnny hasn't persevered. Hasn't been abiding. First Thessalonians chapter five, verse 23, now may the God of peace himself sanctify you completely. Who does it? God does. The God of peace himself sanctify you completely and may your whole spirit, soul and body be preserved blameless at the coming of our Lord Jesus Christ. He who calls you is faithful who also will do it. Lord is going to do it. Lord, praise for that to this end in John chapter 17. John chapter 17, praise for believers to abide. It was like praying for Peter, right? He says to Peter in Luke 22, Peter, Satan has come to ask permission to sift you as wheat. But I've prayed for you, Peter. The Lord Jesus Christ says I've prayed for you that your faith may not fail. The Lord Jesus Christ praying for Peter. The Lord Jesus Christ prayed for you and I. If you're in Christ, if you've turned from your sin to put your faith in him, the Lord Jesus Christ knows you by name. He has called you to himself. He has caused you to be born again and he will preserve you. And he has prayed as much to the Father in John chapter 17 that you would abide in him. He's prayed to that end. Now let's put all this theology together, right? We've covered a lot of ground. Well, a verse. There's a lot of theology in that verse, okay? There's a lot of theology there. Let's put this theology together. I want you to think rightly. This is worthy to be meditated on. Something that you've got to think through in your head to keep straight. I've got to think through it in my head to keep it straight. God's sovereignty. God's sovereignty. God says I will preserve my own. I will preserve my own. I will do it, God says. It's a promise rooted and grounded in the faithfulness of Almighty God. Amen. Man's responsibility. Man's responsibility. I must persevere. I must endeavor to persevere. I must strive to persevere. I must exercise myself to persevere. I must be diligent, right? I must persevere. The promises of God. The promises of God are prostituted. If they are used by presumptuous or prideful so-called Christians, undermining the need for ongoing obedience and ongoing faithfulness in the Christian life. Those that just say, oh, let go of that God, prostituting the promises of God by undermining man's responsibility to persevere in the faith. He's given us that responsibility. Ongoing striving. Obedience is not optional. Faithfulness is not optional. Abiding is not optional. Enduring perseverance is not optional. And those who believe so, either by their words or by their life, strip the grace of God of its power. They strip the grace of God of its life-sustaining power. It's life-keeping, Christian-keeping power. That's the essence of easy-beliefism. That's the essence of easy-beliefism. So if you wanna think through these things one at a time, we must meet the conditions that God has set forth in his word to obtain what God has promised. Think, we must meet the conditions that God has set forth in his word for us to obtain what God has promised. We can't do that in our own strength. We can't do that in our own power. We can't do anything apart from him. We need God's grace. We need God's power. We need God's strength in order to make it.  He's going to supply that power. And he supplies that strength. He supplies that power through the means of our faith. And even that faith is given to us as a gift. Therefore, we can be certain because of God's gracious provision that every single genuine believer will persevere to the end and be saved. All glory, John 15, verse eight, all glory to God. Let's go out and abide in him, amen. Let's pray. Father in heaven, our praise be to you for this glorious salvation that you've provided, these glorious truths. It just, how it motivates us to worship, compels us to adoration. We love you, Lord, and we're grateful to you. We're so thankful for all that you've done for us. We know that we can do nothing apart from you. We can do nothing apart from faith in you. We can't do anything to please you. And yet, even that faith is a gift from you. And we praise you and thank you for us. Help us, Lord, in light of these truths, certainly not to run from you, but to cling closer to you, to abide in you, to use the means that you have given us in this text by which we are to abide fearfully, heeding your warnings, to have a healthy biblical fear of you, abiding in your word, diligent pursuit of all these means, prayerful dependence upon you. There's so many glorious gifts and promises and means, Lord, that you give us by which you cause us to endure to the end. We're grateful, Lord, that it's by your power that we are kept and by your power we are preserved. Help us, Lord, help us. Help us to live a life that is pleasing in your sight. All for your glory. Glory be to God. We love you, Lord, in Jesus' name. Amen.


Good morning and welcome to our first named lecture, the FA Hayek lecture. Our speaker this morning, Nikolai J. Foss, was invited by me to give this lecture. I had been familiar with some of his work and I thought I knew most of his work, but as it turns out I was merely familiar with a fraction of it. Nikolai is one of the most productive Austrian scholars in Europe, if not in the world. He was born in Denmark. He has residences in both Denmark and Norway. He received his PhD degree from the Copenhagen Business School in 1993. Currently he's professor of strategy and organization at the Copenhagen Business School, a part-time professor of knowledge-based value creation at the Norwegian School of Economics and Business Administration, and the head of the Department of Strategic Management and Globalization at the Copenhagen Business School. He also holds part-time and visiting professorships at several other leading universities in Europe. He is the founder of the center, now the Department of Strategic Management and Globalization at the Copenhagen Business School and currently serves as its director. Foss is a panel member of the European Research Council. He was one of the founders of the Danish Research Unit for Industrial Dynamics and a co-founder of the Libertarian-Conservative Center for Policy Studies, the most influential privately-funded think tank in Denmark. Professor Foss's prodigious publications include 136 journal articles, 81 book chapters. In addition, he is authored or edited 22 books and several have been published by very high-profile publishers such as Cambridge University Press and Oxford University Press. His work has been published in the Academy of Management Review, Academy of Management Journal, Organization Science and several other leading journals. And he serves on the boards of 18 journals. Several of his articles and books have been translated into Chinese, Spanish and Russian. So I could go on and on, believe it or not. I had to edit this down. But without further ado, it's my great pleasure to introduce Nikolai Foss. Well, thanks a lot for the very kind introduction and the invitation. I want to say I'm particularly honored and delighted that this lecture is named after Friedrich Hayek. Back in the mid-1980s, when I was still an economics student and discovered Austrian economics, Hayek's works, particularly his knowledge essays, if you like, were really my first discoveries of Austrian economics. Discovery that was prompted by the writings on Keynes of Axel Leyenhoefhut. If you're familiar with Leyenhoefhut, he's a great Swedish now retired economist who tried to make sense of Keynes from or through a Hayekian lens. A project I suppose was pretty much doomed to failure. But that's what he tried to do. And his books from 1968 on Keynes in Economics and the Economics of Keynes is most definitely worth a read for Austrians who are interested in macroeconomics. But back to Hayek, his works have influenced me ever since I discovered them about 30 years ago, or 25. So it's only appropriate to pay homage to Hayek in this lecture, and I should really try to do so. And one way I'll do that is by diverging from my usual business school professor presenting format, which is about, you know, jumping frenetically in front of my PowerPoint slides and strolling the aisles and so on. I'll adopt a relatively civilized posture and stand here and read my talk in an appropriate Germanic perhaps, style, perhaps Hayekian. But I should also pay homage in a more substantive way, namely by talking about a favorite Hayek topic, namely that of capital theory. As we all know much of Hayek's early work of course concerns capital theory either directly or more indirectly as of course in Hayek's elaboration of Austrian business side of theory. But I would go so fast to argue that capital theory may really be in some sense a foundation of all, virtually all Hayek's work in economics. Now this is obviously the case for what was intended to be the first volume of Hayek's projected, but unfinished Magnum Opus, namely the pure theory of capital which as the title indicates is indeed a book about capital theory. Some of you may have tried to read it and some of you may also know it's a true classic. It's cited by very few people. It's not read by even fewer and it is certainly, I think, unreadable. One of the most difficult books I ever tried to read definitely. I've argued myself in an old paper published back in 1996 in the history of political economy that capital theory played a crucial role in prompting Hayek's thinking about the challenge to economic theory represented by disposed knowledge. Roughly the argument in my old paper is that the knowledge-based challenges of inter-temporal coordination of a structure of heterogeneous capital which as Roger Giresen has often told us is the essence of Austrian macroeconomics, led Hayek to think carefully about the role of knowledge in economic affairs. So it's quite crucial, foundational even to significant parts of Hayek's thinking. But there are many other interesting ways in which capital theory makes an essential connection to other parts of the Austrian corpus, as it were. There's, for example, an obvious relation between heterogeneous capital and the Misesian calculation problem. Mises was probably not led to the discovery of the calculation problem merely by noting the presence of heterogeneous capital in economy per se. Because even if capital were homogeneous, there would still be calculation problems. Left, for example, how much capital, homogenous capital in this case, to devote to production now versus later. So calculation problems wouldn't evaporate if capital were homogeneous. But these calculation problems would surely be much more trivial compared to the situation with heterogeneous capital. So to Mises, the entrepreneur and heterogeneous capital goods are really complementary phenomena. To some extent, two sides of the same coin. As Mises says, and I quote, the various complementary factors of production cannot come together spontaneously. They need to be combined by the purpose of efforts of men aiming at certain ends and motivated by the urge to improve their state of satisfaction. Lachman in the book on capital theory that Peter Klein mentioned earlier this morning, echoes Mises stating that, quoting, the entrepreneur's function is to specify and make decisions on the concrete form the capital resources shall have. Specifies, modifies the layout of his plant. As long as we disregard the heterogeneity of capital, the true function of the entrepreneur must also remain hidden. I think these various examples of the role that capital theory play in Austrian economics suffice to indicate that capital theory is really fundamental in a sense of foundational and indispensable as part of Austrian economics, on par with subjectivism, dispersed knowledge and entrepreneurial appraisement. And that it is, in fact, intricately woven together with exactly these things. So the implications of heterogeneity in capital theory go really much beyond the Austrian theory of the business cycle. Of course, my sense is that Australians are perfectly aware that they stand apart on the issue of capital theory and they insisting that there is, meaningfully, such a thing as capital theory which goes beyond corporate finance and the theory of investment behavior is almost a bit of an oddity in contemporary economics as Roger Garrison again has noted. However, seems to me that surprisingly, Austrian capital theory is also a bit of an oddity in contemporary Austrian economics. So to illustrate, just loosely, out of the 197 articles that were published in the review of Austrian economics, from 2002 to 2011, both years included, only 11 dealt directly with capital theory. The quarterly journal of Austrian economics is doing better, but only slightly better. There are 189 articles in the same period and there are 15 of them that deal directly with capital theory. That's somewhat better performance. One could may fear, of course, that this reflects a belief even among Austrians that Austrian capital theory somehow lost the historical debate that the Cambridge capital controversies of the 1960s proved that this is just one big mess, that Schrafer and Knight really proved that Austrian capital theory was full of internal contradictions and so on. Whatever that may be, I want in this talk to argue that Austrian capital theory should make something of a comeback as a really crucial item on the Austrian research agenda. I should say that in arguing this point, I'm also wearing my management scholar's hat, it should make a comeback as essentially a part of the theory of production. That is the theory of the economic process of converting inputs to outputs, perhaps rather than as a part of the theory of distribution or even the theory of interest. But as a part of the theory of production, the Austrian theory of capital stresses the heterogeneous nature of capital assets, the subjective nature of capital as a part of the entrepreneur's plan and of course the time dimension of production. Thus understood, I think this is pretty uncontroversial, but thus understood at least the Austrian theory of capital has opportunities for theoretical developments that are not yet fully explored. And what I shall do today is to examine some of those opportunities in the context of business firms. Drawing on my work with Peter Klein among others, and I should also argue that looking at heterogeneous capital in the context of business firms provide an important underpinning of our understanding of the sources of economic growth. Prenuall issue in economics, since Adam Smith. Here's my title, Austrian ideas on heterogeneity represent an important challenge to homogenizing assumptions in much of mainstream economics and in management theory. These ideas, these Austrian ideas, not only challenge, but they can also constructively further our thinking on firms and the growth process. Potentially establishing Austrian economics as a highly relevant voice in the contemporary discourse on firm organization and economic growth. Now in his treatise on Austrian capital theory, called Capital Theory in Disequilibrium, Peter Lewin notes that Austrian capital theory has become synonymous in the literature with Böhm-Baväckian capital theory. So capital theory is often equated with questions like, is capital a fund? What's the nature of the owning of capital? What determines these earnings and so on? One of the latest restatements and refinements of Austrian capital theory, namely Rothspaths in main economy and state, of course deals with these important questions as well. These are conceptual questions, obviously, they're distributional and they are quite often sort of couched in a macro language. If you look at Böhm-Baväck, I think, and Hayek, at least in prices and production, they're impressions of a leaning to the macro side. Hayek, Böhm's concentric circles, if you remember them in his Capital Interest treatise on Hayek's triangles in prices and production, of course, allow for implied perhaps capital heterogeneity of capital goods, at least between those stages of production. Very little is actually being said about heterogeneity within the stages of production. But there are also notions of the average period of production, the total value of flow capital and so on. They are macro notions. And these macro notions are still pretty much the notions that are associated in the mind of mainstream economists, at least those mainstream economists, those few mainstream economists who have heard about Austrian capital theory with Austrian capital theory. So try reading Mark Blauch's economic theory of retrospect where he deals with and smashes Böhm-Baväckian capital theory and you'll see what I mean. I think there's a danger that these macro concepts may direct attention away from something very basic and very, very important in Austrian capital theory, namely the fundamental heterogeneity of capital. It seems to me that heterogeneity is a theme that becomes increasingly important in Austrian thinking on capital from about the mid 1930s. And my guess by conjecture, if you like, is that the development and the fate of Austrian capital, Austrian business cycle theory in the interwar period played a role here. So in, for example, Böhm-Baväck's basic stationary state, the specificities and the complementarities between all sorts of heterogeneous capital goods are very easily missed because all productive operations proceed smoothly as they must in a stationary state. The downturn of the business cycle, on the other hand, which Hayek had difficulties theorizing, I think, is very much about capital goods that simply cannot be profitably deployed to other uses for which they are not really fit. So as Dennis Robertson said in his variation on Austrian business cycle theory, work on the new cunardus will be suspended. We are left with a big mass of heterogeneous capital goods that just cannot be easily deployed. So heterogeneity in the downturn suddenly becomes of overriding importance. This is the Aquitania, supposedly the most beautiful of them all. It survived both the Böhm-Baväck cycles of meddling politicians and the German torpedoes before it was finally retired from service in 1950. But the point here is that there's a conjecture again, a conjecture in doctrinal history. But I would like to go further into this. And perhaps Roger Gerson or someone else here has thoughts on this. Seems to me that from about the mid-1930s, we see an increasing interest among Austrians in the heterogeneity properties of capital. I think Richard von Striegel in Capitalen Produktion is a really good example. Lachmans 20 or so years later capital and structure is another good example. So is Kirchner's neglected an essay on capital and Peter Lewin's contemporary work pretty much exemplifies this very strong emphasis on heterogeneity as perhaps the important aspects of Austrian capital theory. Now it seems to me that the key notion in all of this is the manjuring one that capital goods are essentially forward-looking components of multi-period plans. And as Mises argued, this conceptualization in itself invalidates the aggregation of capital goods. As Mises says, the totality of the produced factors of production is merely an enumeration of physical quantities of thousands and thousands of various goods. Such an inventory is of no use to acting. So as I indicated already this emphasis on heterogeneity and the subjectivity of capital goods in the entrepreneurial production plan seemed to me to move the theory of capital somewhat away from its traditional concerns with distribution and with interest theory and move it more towards the theory of production. But it's a special kind of theory of production that I'm talking about here. Austrian capital theory has actually often been compared to the economics of the classical economists. Higgs, as you may know, famously made the argument that the Austrians and the classicists shared pretty much the same emphasis on capital as a fund in the process he lumped together Bumbaverk and Hayek with Clark and Knight, rather absurdly. Mr. Rokersna has a great comment on this in the 1976 book, I think it's the, is that the salt of Royals on one or is it the later one? I think there's a spare derail one. But the point here is that the classical theory of capital is a part of the theory of production. The classical theory of distribution, sorry, the classical theory of production on the other hand is a theory of the progressive division of labor. And it seems to me that the Austrian emphasis on heterogeneous capital aligns closely with this aspect of classical economics, the progressive division of labor aspect, as Alan Young argued in a famous paper many years ago. Both involved time and heterogeneity and therefore the need for coordination. Both the classical theory of production and the Austrian theory of capital are sharply opposed to the way production is portrayed in modern economics, what we may call the production function U. As Axel-Lion Hufford, whom I mentioned earlier and here's how he characterizes the U of production in modern mainstream economics, the production function U. He says that the new classical constant returns production function does not describe production as a process, i.e. as an order sequence of operations. It's more like a recipe for bouyabase where all the ingredients are dumped in a pot. Cano, it's heated up, this is a function. And the output X is ready. This abstraction from the sequencing of tasks is largely responsible for the well-known fact that new classical production theory gives us no clue to how production is actually organized. Smith's division of labor, the core of his theory of production slips through modern production theory as a ghostly technological change coefficient or as an equally ill understood economies of scale property of the function. Now, what's the U of capital that is implied in the new classical production function U? I've discussed this at length with my more mainstream colleagues and they argue that as a purely mathematical approach the production function U is capable of handling both heterogeneity and time. In actuality, I think it is not. And this is perhaps best seen in modern mathematical macroeconomics models. Of course, mainstream macro models given their focus on economy-wide phenomena, you know, gross domestic and national products, employment, growth rates and so on, they tend to focus on aggregates, industries, sectors, whole economies, aggregation in turn per definition leads to some kind of homogenization. As a minimum, there must be some shared unit that the relevant items can be measured in terms of. Often, however, the assumption is explicitly made that everything within the aggregate is homogeneous. So mainstream macroeconomic theories, whatever their stripe, all adopt the assumption that production firms, industries and economy are homogeneous and fungible. So labor means homogeneous, labor units, capital has the same interpretation. You know, Paul Samuelsen, later Robert Solo, is Paul Samuelsen to the left in the slide. Adopted the imagery of Schmu from a comic called Lil'Apna that some of you may recall. Schmu's are identical creatures, you can see them in the top of the slide, identical creatures shaped like bowling pens with legs. And they, of course, adopted this imagery to capture exactly this kind of homogeneity. So Samuelsen essentially said, for many purposes, it's perfectly fine to treat capital as if capital was Schmu. I think the plural of this is Schmu, naturally. But that's a whole website dedicated to Lil'Apna and these subtle details of high interest to capital theorists, obviously. This is a kind of reasoning, as Ludwig Lachmann reminded us, that originated pretty much with David Ricciardo. Of course, founded a very useful simplification in theorizing about distributional concerns and other things in the United Kingdom 200 years ago. It can be. But sometimes, and perhaps usually, economists' assumption of Schmu-like capital, in particular, and homogeneity in general, sacrifices explanatory scope on the altar of the tractability that formal mathematical economists so adored. And the underlying, the subtext is, the heterogeneity of capital doesn't really matter that much. Let's proceed as if capital was Schmu. So let me give you a few examples of why capital heterogeneity seriously matters. Examples that go beyond the Austrian business cycle theory. And I'll go as away from macroeconomics down to the level of firms, and then again from firms up to the level of economic growth. Now, so the bottom line here is that the Austrian perspective on heterogeneity as something quite essential has mostly been lost in contemporary macroeconomic discussion. There's a great quotation from Kenneth Bolding, who had certain Austrian leanings. From his review of Samuelson's Foundations of Economic Analysis. The review published in 1948. And Bolding says the following. It's a question of acute importance for economics as to why the macroeconomics predictions of the mathematical economists have been on the whole less successful than the hunches of the mathematically unwashed. This seems very contemporary, doesn't it? The answer seems to be that when we write, for instance, let I, Y, and capital I stand, respectively, for the interest rate, income, and investment, we stand committed to the assumption that the internal structures of these aggregates or averages are not really important for the problem in hand. In fact, of course, they may be very important and no amount of subsequent mathematical analysis of the variables can overcome the fatal defect of the heterogeneity. And I said, this sounds very, very contemporary because so much of the discussion surrounding, for example, the stimulus packages in US and in Europe has occurred at a very high level of aggregation. So despite the highly populous failures of the particular financial institutions like AIG, Lehman Brothers, and so on, government officials spoke in terms of the banking system, the financial system, the economy as a whole. Henry Paulson told Congress, you'll probably remember that in back in September, 2008, that radical steps were needed to avoid a continuing series of financial institution failures and frozen credit markers that threaten American families. And American families, financial well-being, the viability of businesses, both small and large, and the very health of our economy. So for example, the discussion of frozen credit markets focused on high level indicators with a focus on total lending, not the composition of lending across individuals, firms, and industries. The Federal Reserve Systems Actions noted Ben Anke were needed to increase liquidity and stabilize markets and so on and so forth. But it seems clear that a decline in average home prices, reductions in total lending, volatility in asset price indexes and so on, reveals very little about the prices of particular homes, the cost of capital for specific borrowers, and the prices of individual assets. So in analyzing the credit crisis, the critical of Christian really is, which loans are being made to whom and why? It is impossible perhaps to understand the origins of the credit crisis without looking at the lending practices of government-sponsored enterprises like Freddie Mac and Fannie Mae, and I don't really need to tell you this. And the various policies that encourage lenders to lower their underwriting standards on the assumption that in a sense, all borrowers were really equally credit worthy. So there is a sense in which assumptions about homogeneity during, of course, a period of rapid central bank credit expansion is at the root of the current financial crisis. As you all know, the critical issues here are the composition of lending, not really the amount. Total lending, total liquidity, average equity prices, and the like, all obscure the key questions about how resources are being allocated across sectors, firms and individuals, whether bad investments are being liquidated and so on. The aggregate notions homogenize, and in doing so, they suppress critical information about relative prices. The main function of capital markets, after all, is not really to moderate the total amount of financial capital it is to allocate capital across activities, of course. Now, if not all borrowers are the same, it's even more true that not all banks are the same, and that the Treasury's troubled assets relief program was designed explicitly on the premise that the banking system itself, rather than the individual banks, was in trouble. To avoid signaling the financial conditions of specific banks to the market, the Treasury insisted that all large banks take top funds, whether they want it or not, as you recall. Some 250 banks ultimately refused to participate in this. Now, such programs, of course, create strong adverse selection problems. Banks that followed more prudent lending policies did not invest in complex mortgage-based securities, and the like, they have little incentive to take government subsidies accompanied by government control of future lending and investment and even practices such as executive compensation. So by bolstering inefficient banks, creating incentives to keep issuing mortgages that ought not to be issued, in the interest of reviving the macroeconomy policy, such as the top scheme, are repeating the mistakes that caused the problems in the first place. And it all has to do with assumptions about homogeneity. Of course, generally, the U.S. stimulus packets and similar schemes and proposals around the world are characterized by a Kingston-style reliance on macroeconomic aggregates. Now, the common wisdom still really is that the bank crisis led to a collapse of effective aggregate demand and only massive increases in government expenditure, and certainly that can kickstart the economy. But in a world of heterogeneous capital resources, spending on some assets, but not others, alters the pattern of resource allocation in the economy and in a sort of path-dependent process, the overall performance of the economy in the future. In a world of capital heterogeneity, our world, capital assets just cannot be costlessly shifted from one activity to another activity as many of these schemes tacitly presuppose. And this is particularly the case in a modern economy in which so much capital is embodied in industry-specific, firm-specific, and worker-specific capabilities. For example, human capital. So there is a strong potential here for really deploying Austrian ideas on capital heterogeneity effectively in the context of a critique of conventional macroeconomics and crisis management. And I think we can all agree that this is a very worthwhile use indeed. So the function of economics as Mises reminds us as a weapon in the service of exploding fallacies and nonsense is not one of its least important social functions. But there are also sort of little bit more constructive implications in the sense for the building of theory of the Austrian insistence on capital heterogeneity. Specifically, there seem to me to be very strong implications, theory implications of the very point that capital assets just cannot be costlessly shifted from one activity to another activity. I argued earlier that we may think of the Austrian theory of capital as a theory of production which seems to me to imply that the firm level becomes relevant. Indeed, the idea that resources, firms, and industries are very different from each other that capital and labor are specialized to specific activities and projects that people are in terms of human capital are really distinct is key in the theory and practice, of course, of management, notably strategic management. It seems to me that Austrian ideas on capital find therefore a close parallel in management thinking on firms as bundles of heterogeneous resources, assets, and activities. Peter Lewin has recently argued that Austrian capital theory may therefore form the basis for what he calls a capital-based theory of the firm. Of course, as Peter and I told you this morning, Peter Klein and I have developed similar arguments in a string of papers, many of which are essentially summarized in this book, Organizing Entrepreneurial Judgment. To get a basic idea of some of our over-arguments, consider the world of Samuel Sony and Schmu, the world in which capital is indeed homogeneous. This is a world where individuals face very low costs of searching for assets. For example, the capabilities of potential takeover targets or suppliers, assets that may fit existing operations. They don't really have any cost of measuring or ascertaining the inherent characteristics of assets because one asset is just like another capital asset. There are trivial costs of coordinating assets and so on. And most of those very real problems of exchange and organization that economists put under the transaction cost rubric, they simply disappear. They go away in a world of homogeneous capital assets. So per implication, the understanding of the sources of transaction cost in a modern economy involves, it seems to me, the understanding of capital, heterogeneity and its implications. Conversely, it also seems to me that a significant part of the problems of what Joe Salerno calls, and drawing on Ludwig von Mises obviously, called entrepreneurial appraisement and indeed a significant part of the recession calculation problem itself involve transaction costs. This is an argument that Peter Klein made in a great paper in 1996, and I believe the Rio of Austria in economics. So to some, namely those of us who specialize in the economics of the firm, or like me, work in business schools, these ideas are really inherently attractive. They matter a lot to me and to Peter, but many of you may not be interested in firms, management, strategy per se, what you're interested in may be the, say, the economy-wide implications of these ideas, linking together, for example, capital, heterogeneity, and transaction costs. So are there economy-wide implications of these ideas? And so what may they be? It seems to me that there are plenty of absolutely important economy-wide implications of looking carefully at capital, heterogeneity at the firm level. So for example, John Matsusaka has argued that the processes of mergers and divestments, which of course matter to the overall performance of the economy and which anti-trust authorities are very interested in, these processes should be understood as experimental learning processes that must be undertaken precisely because it is not obvious exactly what is the efficient combination of a bundle of highly heterogeneous capital assets. These micro-level processes, they are essentially entrepreneurial ones because an important part of the entrepreneur's role is to arrange and organize heterogeneous resources. Peter quoted Lachman's take on this, this morning I'll do it again because it's a great quotation. So what Lachman says is, we are living in a world of unexpected change, hence capital combinations will be ever-changing, will be dissolved and reformed in this activity. We find the real function of the entrepreneur. On the aggregate level, and I hope you'll excuse me for indulging in a little bit of so mainstream economics terminology now, just a temporary lapse, I hope I'll be excused, but these processes are what make the economy track its moving production possibility frontier as a mainstream economist would say, improving the efficiency with which resources are utilized. So these dynamic firm-level processes have been estimated to account for about half of so-called aggregate productivity growth. It's been found that the automatic restructuring of industries in developed countries really imply a very serious penalty in terms of forgone growth. So the constraints, the incentives, the opportunities faced by appraising entrepreneurs trying to combine heterogeneous capital assets must really ultimately enter as an absolutely crucial element in the understanding of economy-wide phenomena connected, for example, to economic growth. Now, much of the understanding of the growth process in mainstream economics has been based on models of accumulating semisonian smooth along equilibrium growth path. So the accumulation of homogeneous capital, essentially. There are applications of Austrian capital in the context of growth theory that do allow for heterogeneity, but otherwise portray growth as a smooth process of accumulation of physical capital along, again, an equilibrium growth path. Hicks's work, John Hicks's work from the 1970s is a good example of that. Hicks, in fact, interpreted the Austrian cycle theory as fundamentally a theory of how this kind of smooth equilibrium growth can be disturbed by government intervention. And according to Hicks, that's a famous essay from 1967 where Hicks looks back at his career and how he interacted with Hayek and to Hicks the essence of the Hayek story, as he called it, was that no one really understood that Hayek was fundamentally talking about growth, which seems to me to be a really a rather far-fetched interpretation of Hayek. Now, of course, also those who have taken a different approach to the growth process, one that perhaps Austrians would be more sympathetic to. They argue that the growth process driven by improvements in total factor productivity, which is, again, aggregate umbrella term for a host of very diverse, very heterogeneous processes that, to a large extent, takes place on the firm level. That's been long been recognized that this total factor productivity is about much more than technology. Technology in the sense of recipe-like advances in scientific knowledge. There's been a lot of attention, of course, to R&D in the economics of growth since Solow's work in the 1950s, but it's not R&D, of course, that in itself drives growth. Innovations that emerge from R&D, farm from R&D, research and development, drive growth. And in turn, innovations are introduced by enterprising individuals by entrepreneurs. And, of course, innovations at the firm level have many other sources than the R&D function. They include your process innovations, innovations of management practices, innovations of organizational practices. All these processes are entrepreneurial ones. They amount to appraising, combining, recombining heterogeneous assets in the uncertain pursuit of profitable opportunities. The economy-wide level implications of productivity advances and improvements in resource utilization, that is, increases in total factor productivity. Surprisingly, because we know that the entrepreneur is the prime mover of progress, it's only very recently that growth economists have begun to take seriously the entrepreneurial function in the economy, model it, measure it the way they go about things. And the reason lies exactly in something I talked about earlier, namely the dominance of the production function framework in mainstream economics, and therefore also in growth economics. If production factors are assumed to be homogeneous within categories, capital, labor, land, and production is always at its efficient frontier, there's, of course, extremely little entrepreneurs to do. Everything has been taken care of already by assumptions of perfect knowledge and equilibrium and so on. Of course, capital in actuality is heterogeneous and the combination of those heterogeneous capital assets requires technical and commercial processes that, in a very real sense, are experimental. The optimum combination of inputs, capital inputs, for example, just isn't a datum, and what is, at any moment, the optimum combination will change as a result of changes in the underlying schematics, as Lachman reminds us. These processes, again, are driven by the judgment and the appraisement of capitalist entrepreneurs. So the basic message here is entrepreneurship matters to growth, to economic growth, because entrepreneurship influences these processes that we put under the rubric of total factor productivity, at least if we are economic growth theorists. So it seems to me that there really is an opportunity for engaging profitably, even with some of those suspect mainstream types to talk about growth, because they are interested in these ideas about capital heterogeneity. Now, something related has to do with the influence of institutions on growth, which has been a huge theme in recent growth economics. So there are scholars who argue that institutions rule. They specifically rule in the sense that institutions overwhelm all other determinants of growth. It's not always entirely clear why this is so. So there are missing micro foundations for many of these arguments, I think. But a key reason to expect institutional quality to affect growth positively is that it has to do with the transaction cost dimensions of the recession calculation problem. So institutions matter because they influence transaction costs through reduced uncertainty of economic transactions and productivity enhancing incentives. The institutional economist Douglas North tells us that the major role of institutions in a society is to reduce uncertainty by establishing a stable, not necessarily efficient, but stable structure to human interaction. The overall stability of an institutional framework makes complex exchange possible across both time and space. In turn, higher certainty implies lower transaction costs because the cost of entering into embarking, monitoring, protecting, contractual rights, ownership rights, they're reduced. This increases the expected value of projects and makes them more likely to be undertaken. So this in turn establishes a link to total factor productivity, which I talked about earlier. We know that increases in total factor productivity, the efficiency with which factors of production are used, result from new processes, new modes of organization, ways of better allocating resources to their preferred users and so on. Given all this, the flexibility with which appraising entrepreneurs can carry out these processes becomes highly important to the growth performance of the economy. And no classical economists capture this by the notion of the aggregate elasticity of factor substitution. And this is, again, this is a measure of the flexibility of the economy, for example, with respect to reacting to external shocks. The aggregate elasticity of substitution, the flexibility of the economy is endogenous. Austrian capital theory would seem to me to matter here greatly because it suggests that there may be inherent technical constraints that reduce flexibility because what Lachman called multiple specificities may obtain. But the bottom line here is that this endogeneity of the elasticity of substitution, the flexibility with which we can combine and recombine, for example, heterogeneous capital assets, is influenced by institutional determinants. For example, those that we sometimes call freedom variables, such as the quality of the legal framework, sound money, how secure property rights are, and so on. So they influence the flexibility of the economy which in turn leads to high factor productivity because it means that resources can be more easily allocated to highly valued users. Now there are huge litigious and economic history that essentially make a number of these points in a verbal manner that perhaps formal growth economists are not particularly fond of, but they are going in the right direction. They stress the importance of entrepreneurial activity of property rights being well-defined and enforced. I've in mind work by Douglas Northigan, by Joel Makaya, and so on. So well-defined and enforced property rights matter because they reduce the transaction costs of carrying out entrepreneurial activities. So again, with secure property rights, there are low cost of searching for, negotiating with, and concluding bargains with owners of those capital inputs that enter into entrepreneurial ventures. Similar reasoning applies to sound money. Inflation, particularly erratic inflation, jams the signaling effect of relative prices, harms the process of allocating resources to their most highly valued users, and therefore negatively influences total factor productivity, and therefore economic growth. For many reasons, the size of the government, of course, also influences total factor productivity. If, for example, economic activities in certain industries or sectors have been nationalized, the scope for entrepreneurship in those industries or sectors is correspondingly reduced because nationalization so often implies a public monopoly. And most parts of the Western world, this is a case of childcare, health care, care for the elderly, and so on. And as Mises, of course, reminds us, the effective nationalization of all of these industries means that the operation of the price mechanism becomes severely hampered, and eliminating entrepreneurship and reducing therefore their adaptability, the adaptability of these industries to adapt to changing circumstances. Kristian Bjonsko, Danish colleague and myself, have tried to make these ideas empirical and subject him to statistical testing. We argue in these two papers, essentially, that economic freedom, including the rule of law, easy regulations, low taxes, limited government, and interference in the economy, that these things are good, not just for more reasons, but because they allow entrepreneurial experimentation with combining productive factors to take place in a low transaction cost manner. So this micro mechanism that I have sketched from institutions to experimental processes of combining heterogeneous capital assets on the level of firms up to economic growth are things that we try to talk about in an empirically informed manner in these two papers that are shown here. So again, the argument is that institutions of liberty increase the aggregate elasticity of substitution, they increase the overall flexibility of the economy, which translates into increasing total factor productivity and therefore growth. And we assess these ideas empirically again. So we build a panel data set of 25 countries from 1980 to 2005 and we test the influence of entrepreneurship and institutions on total factor productivity. And we find, well, and behold, that entrepreneurship very strongly, significantly influence total factor productivity and that some, not all, of the institutions of liberty sound money, for example, as well as classical liberal economic policies more broadly, liberal economic policy regimes promote growth and productivity across these countries. And I don't summarize these arguments to try to convince you, because I'm not sure I can convince that many of you that this is the way we should dough Austrian economics at all, this is about, you know, pretty conventional positivist hypothesis testing. We draw on a lot of pretty mainstream economics, but the point here is that there are certain key Austrian ideas that you can actually place in more of a mainstream economics argument. And perhaps this is one way to sell some key Austrian ideas to the mainstreamers. At least that's what we try to do in this paper, these two papers. Right, so to sum up here, what I've been doing, I have made a plea, essentially, for the continuing relevance of Austrian capital theory. Historically, Austrian capital theory has, of course, been a central research area in Austrian economics, and substantively, it is an integral part of Austrian economics. It has, however, had a reputation of being, I think, a particularly difficult part of the Austrian corpus. And perhaps for this reason, it could be argued that it is one of the least intensely researched areas in the Austrian revival of the last four decades. I think it's time to change that. The Austrian capital theory has the potential to make interesting advances. I think there is still a lot to do with respect to understanding the role of heterogeneous assets in entrepreneurial appraisement. There are many fertile links to related thinking in management theory and other parts of economics, as I've argued, such as perhaps empirical growth economics. So perhaps Austrian capital theory can serve a strategic purpose for Austrians, namely by extending their theorizing into new areas while sort of keeping intact a central core of Austrianism. There's definitely room in the Austrian tent for applied research on anarchism and pirates. There's room for telling, instructing mainstream economists about how they should do economics. There's room for integrating Austrian economics and complexity theory, we call it BRICE, and other trendy topics. But the core of Austrian economics remains mundane topics such as capital theory. And I'll stop here. Thank you.